Layne Christensen Company v Stanley - [2005] WASC 169

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: LAYNE CHRISTENSEN COMPANY & ORS -v- STANLEY & ORS [2005] WASC 169

CORAM: MASTER SANDERSON

HEARD: 31 MARCH 2005

DELIVERED : 3 AUGUST 2005

FILE NO/S: CIV 2465 of 1999

BETWEEN: LAYNE CHRISTENSEN COMPANY
First Plaintiff
STANLEY MINING SERVICES PTY LTD (ACN 009 117 533)
Second Plaintiff
WEST AFRICAN DRILLING SERVICES PTY LTD (ACN 084 615 396)
Third Plaintiff
WEST AFRICAN DRILLING SERVICES (NO 2) PTY LTD (ACN 085 066 655)
Fourth Plaintiff
AND
ROSS FRANCIS STANLEY
First Defendant
AZILIAN PTY LTD (ACN 008 952 681)
Second Defendant
DAVID HARPER
Third Defendant
GEODRILL LTD
Fourth Defendant
SIERRA BAY PTY LTD (ACN 009 420 455)
Fifth Defendant

Catchwords:

Practice and procedure - Application to strike out statement of claim - Turns on own facts

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

First Plaintiff                :     Mr M J McCusker QC & Mr J A Thomson
Second Plaintiff            :     Mr M J McCusker QC & Mr J A Thomson
Third Plaintiff               :     Mr M J McCusker QC & Mr J A Thomson
Fourth Plaintiff             :     Mr M J McCusker QC & Mr J A Thomson
First Defendant             :     Mr W S Martin QC & Ms P M Tantiprasut
Second Defendant         :     Mr W S Martin QC & Ms P M Tantiprasut
Third Defendant           :     Mr D M Stone
Fourth Defendant          :     Mr D M Stone
Fifth Defendant            :     Mr W S Martin QC & Ms P M Tantiprasut

Solicitors:

First Plaintiff                :     Baker & McKenzie
Second Plaintiff            :     Baker & McKenzie
Third Plaintiff               :     Barker & McKenzie
Fourth Plaintiff             :     Barker & McKenzie
First Defendant             :     Fairweather & Lemonis
Second Defendant         :     Fairweather & Lemonis
Third Defendant           :     Williams & Hughes
Fourth Defendant          :     Williams & Hughes
Fifth Defendant            :     Fairweather & Lemonis

Case(s) referred to in judgment(s):

Alfred MacAlpine Construction Ltd v Panatown Ltd (2001) 1 AC 518
Andar Transport Pty Ltd v Brambles Ltd (2004) 206 ALR 387
Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1991) 1 VR 637
Council for the city of the Gold Coast v Pioneer Concrete (Qld) Pty Ltd (1998) 157 ALR 135
Dawnay, Day & Co Ltd v D'Alphen (1997) IRLR 442
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473
Hamilton v Whitehead (1988) 166 CLR 121
Idoport Pty Ltd v National Australia Bank [2001] NSWSC 328
Layne Christensen Company v Stanley [2002] WASC 249
Linden Gardens Trust Ltd v Lenesta Sludge Disposals (1994) 1 AC 85
Little v Law Institute of Victoria (1990) VR 257
Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105
O'Brien v Dawson (1941) 41 SR(NSW) 295; (1942) 66 CLR 18
Rutherford v Poole (1953) VLR 130
Said v Butt (1920) 3 KB 497
Stenhouse v Phillips (1974) AC 391
Winterton Constructions Pty Ltd v Hambros Australia Ltd & Anor (1991) 101 ALR 363

Case(s) also cited:

Allen v Flood [1898] AC 1
Alliance Paper Group plc v Prestwich [1996] IRLR 25
Allied Dunbar (Frank Weisinger) v Weisinger [1988] IRLR 60
Allstate Life Insurance Company v Australia & New Zealand Banking Group Limited (1995) 58 FCR 26
Amco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288
Associated British Ports v TGWU [1989] 3 All ER 822
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Butt v Long (1953) 88 CLR 476
Cream v Bushcolt Pty Ltd [2004] WASCA 82
Dunlop v Lambert (1839) 2 C1 & F 626
Elliott v Seymour [1999] FCA 976
Geraghty v Minter (1979) 142 CLR 177
Gurtner v Circuit [1968] 2 QB 599
Herdegen v Federal Commissioner of Taxation (1998) 84 ALR 271
Jackson McDonald Services Pty Ltd v Woh Hup (Australia) Pty Ltd [2002] WASC 77
Jacoby v Whitmore (1883) 49 LT 335
Kimberley Downs Pty Ltd v State of Western Australia, unreported; SCt of WA; Library No 6414; 24 August 1986
Kores Manufacturing Co Ltd v Kolok Manufacturing Ltd [1959] Ch 109
Lonhro Plc v Fayed [1992] 1 AC 448
Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) 70 FLR 135
Maritime Union of Australia v Geraldton Port Authority [1999] FCA 899; (1999) 165 ALR 67
McKellar v Container Terminal Management Services Limited (1999) 165 ALR 409
Office Angels Ltd v Rainier-Thomas [1991] IRLR 214
Rookes v Barnard [ 1964] AC 1129
Short v City Bank of Sydney (1912) 15 CLR 148
Smith v Littlemore (1996) 15 WAR 289
Systems Reliability Holdings plc v Smith [1990] IRLR 377
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Tsaprazis v Goldcrest Properties Pty Ltd (2000) 18 ACLC 285
West v Houghton (1879) 4 CPD 197
Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43

MASTER SANDERSON: Conspiracy claims are notoriously difficult to plead. Such claims allege as an essential element steps taken by the conspirators to disguise or conceal actions taken which adversely affect the interests of the party against whom the conspiracy is hatched. In such circumstances it is highly unlikely that the party alleging the conspiracy will be in possession of all the facts giving rise to the alleged conspiracy. That of course does not mean that when such a claim is made it does not have to be pleaded in accordance with the general rules of pleading. But the limitations under which the plaintiff is operating must be acknowledged and some allowance must be made to reflect the realities of the plaintiff's position. Moreover it is the parties who are alleged to be part of the conspiracy who are in the best position to know what events transpired and why. If there is a perfectly innocent explanation for events which are said to amount to a conspiracy it can be provided; an air of injured innocence infused with moral indignation is a poor substitute for a detailed explanation of what happened and why.
This is effectively an application by the plaintiffs for leave to amend their statement of claim in terms of a minute of proposed further reamended statement of claim ("the minute") dated 28 April 2004. The matter has taken a slightly unusual course. By order made 29 April 2004, the first and second plaintiffs were given leave to join the third and fourth plaintiffs and the fifth defendant as parties to the action. The first and second plaintiffs were also given leave to amend the writ of summons and re‑amend the statement of claim in terms of the minute. Both of these orders were made subject to the defendants having the right to object to any joinder and to any part of the statement of claim. All of the defendants now submit that the joinder of the fifth defendant should be disallowed because it discloses no cause of action by the plaintiffs against the fifth defendant. All defendants also say that certain of the amendments found in the minute ought to be disallowed. Objection is taken to numerous paragraphs which fortunately can be broken down into a number of separate categories.
The first thing that can be said about the minute is that it pleads the plaintiffs' case in a coherent and logical way. That is to say, reading through the minute it is clear what is being put against each of the defendants by each of the plaintiffs. That is a fact worth bearing in mind. To be fair to the defendants it was not alleged that the pleading was illogical and inconsistent to the point of being incomprehensible. Rather it was said that there were a number of claims pleaded which were simply not open or the pleading failed for various other reasons. As I understand the defendants' position it was conceded that if the parts of the minute complained of were struck out leave to replead ought to be granted. The exception related to the claim against the fifth defendant. With respect to the fifth defendant it was said that no cause of action was shown and that the fifth defendant ought not be a party to the proceedings.
This action has been the subject of a number of interlocutory decisions and at least one interlocutory appeal. The matters at issue prior to the amendments found in the minute are summarised in Layne Christensen Company v Stanley [2002] WASC 249 at 4. However, to make sense of this decision it is appropriate to briefly summarise the issues prior to the amendments and to outline the new amendments.
Prior to 1997, the second plaintiff ("SMS") carried on business providing drilling and associated services to mining companies in West and East Africa and in Australia. The first plaintiff ("Layne") made a successful takeover bid for SMS in 1997. Prior to the takeover, the first defendant ("Stanley") was an executive director, employee and shareholder of SMS. Stanley sold, and caused companies which he controlled to sell, shares in SMS to Layne for just over $17.5 million. As part of this transaction, Layne agreed to procure employment for Stanley with SMS. As a result, SMS entered into a Consulting Agreement with Stanley, which contained various covenants, including non‑competition and non‑solicitation covenants by him. It is alleged by the plaintiffs that in 1998 Stanley, through a chain of companies, provided funds to enable the third defendant ("Harper") and the fourth defendant ("Geodrill") to set up a business competing with SMS.
It is alleged that Stanley breached the Consulting Agreement and particularly the non‑competition clauses, by his conduct in promoting Harper and Geodrill, and by acting through the agency of the second defendant ("Azilian"), Harper and Geodrill. It is alleged that Azilian, which made the initial advance leading to funds being provided to Harper and Geodrill, committed the tort of inducing Stanley to breach the Consulting Agreement. It is alleged that Harper and Geodrill committed the tort of inducing Stanley to breach the Consulting Agreement by acting in concert with Stanley in promoting Geodrill's competing business. Further, it is said that Stanley, Azilian, Harper and Geodrill unlawfully conspired to injure SMS.
By amendments made 29 April 2004 the third and fourth plaintiffs were added as parties to the proceeding. They are referred to by all parties throughout the submissions as WADS 1 (the third plaintiff) and WADS 2 (the fourth plaintiff). I will adopt that nomenclature. In October of 1998 Layne, SMS, Ausdrill Ltd and Ausdrill International Pty Ltd entered into a joint venture in Africa. In November 1998, SMS assigned its assets to WADS 1 and WADS 2 which were the two companies carrying on the business of the joint venture and entered into various covenants to refer work to and not to compete with the joint venture companies. Initially, Layne and SMS held a 50 per cent share in WADS 1 and WADS 2 but these companies became wholly owned subsidiaries in 2001. (It would seem that the distinction between WADS 1 and WADS 2 is that one operated in Ghana (WADS 1) whereas the other (WADS 2) operated in countries in West Africa other than Ghana.) It is pleaded that WADS 1 and WADS 2 were thereby assignees of SMS's goodwill in its exploration business in West Africa, and that the benefit of the non‑competition and non‑solicitation covenants in cl 10 of the Consulting Agreement form part of, or run with, the goodwill and are enforceable by WADS 1 and WADS 2. These matters are pleaded in pars 34A to 34I of the minute.
It is alleged that a breach by Stanley of the non‑competition and non‑solicitation covenants in the Consulting Agreement is notwithstanding the assignments to WADS 1 and WADS 2 actionable by SMS in its own right (par 53(i)(ii)(B)); by SMS as trustee on behalf of WADS 1 and WADS 2 (pars 33A, 53(ii)(A)); by WADS 1 and WADS 2 as assignees of the goodwill of SMS (pars 34I, 53A); by WADS 1 and WADS 2 as third parties named in the non‑competition and non‑solicitation covenants (par 53A) and by WADS 1 and WADS 2 as beneficiaries of a trust of the covenants (pars 33A, 53A). It is likewise alleged that damages for any commission of the tort of interference with contractual relations by Azilian, Harper, Geodrill or the new fifth defendant ("Sierra Bay") may be claimed by SMS, WADS 1 or WADS 2 depending upon which of these is primarily entitled to enforce the covenant. This claim is reflected in amendments to pars 56, 60, 63 and 63D. For the same reason there are corresponding amendments to the allegations of loss and damage for the conspiracy and agency claims: pars 66, 66C and 69.
So far as Sierra Bay is concerned it is alleged that this company was the first intermediary company in the chain through which Azilian advanced funds to Harper and Geodrill and that Sierra Bay has received repayment of principal and interest for the funds advanced. It is also alleged that Stanley was a director of Sierra Bay and caused or procured Sierra Bay to so act: pars 39, 39A and 44A. The amendments now allege that Stanley breached the Consulting Agreement by causing or procuring Sierra Bay to advance funds to Harper and Geodrill: pars 46, 52. It is also alleged that Sierra Bay committed the tort of inducing Stanley to breach the Consulting Agreement: pars 63A – 63D. It is further alleged that there was a new conspiracy when Sierra Bay joined in agreements with Stanley, Azilian, Harper and Geodrill although this new conspiracy is alleged on materially the same terms as the existing allegation of conspiracy: see pars 66A and 66B.
There are also amendments concerning the non‑solicitation covenants. It is alleged that Stanley caused or procured Harper and Geodrill, as his agents, to solicit customers of SMS. It is consequentially alleged that the actions of Harper and Geodrill as Stanley's agents placed Stanley himself in breach of the non‑solicitation covenants in the Consulting Agreement: see pars 42A, 48A and 48B. The allegations concerning the tort of interference with contractual relations and conspiracy have been consequentially amended to allege that breaches of the non‑solicitation covenants were induced by Azilian, Harper, Geodrill and Sierra Bay: see pars 54, 58, 59, 61, 62 (particulars) and 65.
It is further alleged Stanley breached various provisions in the Consulting Agreement (including the non‑competition and non‑solicitation covenants) by reason that Azilian, Harper, Geodrill and Sierra Bay acted as his agent or alter ego. There has also been a consequential amendment as to who has suffered the loss alleged due to the WADS 1 and WADS 2 amendments: pars 67 – 69.
In considering the defendants' objections to the minute, it is convenient to deal first with the objections of the Stanley, Azilian and Sierra Bay who were represented by the same counsel and then the objections of Harper and Geodrill. The starting‑point is par 33A. This was not a paragraph to which objection was taken in the written submissions but that appears to have been an oversight. Counsel did object to the paragraph in his oral submissions. That paragraph pleads that in entering into the Consulting Agreement, Layne and SMS had an intention that SMS's related and affiliated corporations should be entitled to insist on performance of Stanley's covenants under the Consulting Agreement. That paragraph is setting up what both parties referred to as the trust argument. It was counsel's submission that the paragraph was defective because it does not plead that all the parties to the Consulting Agreement - that is Layne, SMS and Stanley had in contemplation the benefit of the agreement passing to corporations or entities which might be established in the future. The second and subsidiary argument is that, to be a proper plea, there would have to be a credible plea to the effect that it was at least within the contemplation of Layne and SMS that there would be an assignment of the business to a corporation or corporations yet to be created. It was submitted there was no such plea.
The second line of argument can be disposed of quite simply. In my view the plea in its present form is sufficient to establish what the plaintiffs are saying is that at all material times prior to and at the time of entering into the Consulting Agreement it was contemplated by the plaintiffs that the benefit of the covenants in the Consulting Agreement might be assigned to other parties. In my view that clearly emerges from the pleading and it is no way defective.
In support of his first argument, counsel for Stanley, Azilian and Sierra Bay relies upon the decision of Gummow J in the Federal Court in Winterton Constructions Pty Ltd v Hambros Australia Ltd & Anor (1991) 101 ALR 363. This was a strike out application. It concerned a building constructed in Sydney. The owner of the building was Pan (the second respondent), the building company was Winterton and the building was financed by Hambros. The claim was brought by the builder Winterton directly against the financier and the question was whether that claim could be sustained. His Honour said (at 367 ‑ 368):
"The financial agreement ante-dated the building contract and did not specify any particular builder for construction of the office block, beyond stating that the builder was to be nominated by Pan and approved by Hambros. Clause 2 of the financial agreement provided for Pan to utilise the facility extended thereunder by Hambros, by giving draw-down notices specifying, inter alia, 'payment instructions': cl 3.2. For draw-downs after the initial draw-down, Pan was obliged (cl 4.2) to furnish with each draw-down notice a certificate from an architect nominated by Pan and approved by Hambros, which stated, inter alia, the amount of money required at the date of the certificate; the proceeds of the draw‑down were to be paid in payment of completed works as so certified: cl 4.2(d)(e). Counsel for Hambros gave various practical examples of payment instructions which might properly stipulate payment by Hambros to third parties other than the builder."
His Honour dealt with a pleaded cause of action to the effect that relying upon a trust binding Pan and entitling Winterton to compel Pan to have certain obligations of Hambros under the financial agreement carried into effect for the direct benefit of Winterton, Winterton had a right to sue Pan direct. His Honour said (at 370):
"It also is essential for Winterton to establish the existence of the necessary intention to create an express trust containing those terms. The trust alleged is not apparent on the face of the financial agreement. It is not the result of private family dealings where some imprecision of thought and expression might be expected. Nor is the alleged trust part of a pattern of business dealings each in a legal form intended to follow those before it, with a resulting abbreviation in detail."
His Honour went on to conclude that on the facts of the case as pleaded there was no arguable cause of action available to the plaintiff. In short, there was no basis upon which the plaintiff could establish that there was the necessary trust.
In my view, that is not the case here. The premise underlying the objections of Stanley, Azilian and Sierra Bay is that none of SMS, WADS 1 or WADS 2 may enforce a breach of non‑competition and non‑solicitation covenants in cl 10 of the Consulting Agreement after the assignment of SMS's business to WADS 1 and WADS 2 notwithstanding that these clauses expressly provide that Stanley will not solicit business in competition with SMS or "any related or affiliated corporation". They also prohibit Stanley from competing with SMS or "any related or affiliated corporation". In my view it is arguable that the wording of the Consulting Agreement itself is such as to establish the necessary trust to give a right of action to WADS 1 and WADS 2.
The counter argument put by Stanley, Azilian and Sierra Bay was that the Consulting Agreement was properly characterised as a contract for the provision of services. It is not a carriage of goods contract or an insurance contract or a building contract. These it was argued are the main types of contracts where courts have, in one way or another, expanded the "exceptions" to the privity of contract doctrine to allow third parties to benefit from certain contracts. In these cases, it is clear that when the contracting parties entered into these contracts, it was contemplated or foreseeable that persons who were not parties to the contract would benefit from such contracts: see Linden Gardens Trust Ltd v Lenesta Sludge Disposals (1994) 1 AC 85; Alfred MacAlpine Construction Ltd v Panatown Ltd (2001) 1 AC 518. It was submitted that, in this case, it was not arguable that when entering into a consulting agreement it was within the contemplation of both parties that third parties, who did not exist at the time the agreement was made, would take the benefit of the restraint of trade covenant.

While I appreciate the strength of those arguments, it seems to me that it is not proper in a strike out application to refuse the plaintiffs the chance to argue their claim. True it is that the plaintiffs' case rests on the wording of the Consulting Agreement and it may well be the case that no extrinsic evidence will be permissible to explain the terms of that agreement. But a pleading summons is not the occasion on which to make that determination. It may be that evidence will be led of the surrounding circumstances which explains the wording of the contract was intended to benefit future assignees. All these arguments are matters for trial and do not warrant the paragraphs complained of being struck out.
The further complaints made by Stanley, Azilian and Sierra Bay really relate to who can actually sue on the covenants in the Consulting Agreement. Essentially what is said by Stanley, Azilian and Sierra Bay is that the plaintiffs have pleaded enforceable rights by each of them when that clearly cannot be correct. It is not a matter of pleas in the alternative. Counsel rightly conceded that such a device is available and is proper pleading practice. But it was said here that the mischief was more fundamental. It was submitted by counsel that the plaintiffs have to settle upon who actually has the right to enforce the covenants.
The complaint can be illustrated by reference to the claim by SMS. It is said that Layne and SMS continue to claim they are entitled to seek relief in respect of the Stanley's alleged breach of the restraint of trade covenant in their own right notwithstanding it is alleged that as at October 1998, SMS assigned the benefit of the restraint of trade covenant to WADS 1 and WADS 2 and that SMS entered into the Consulting Agreement with the requisite intention to create a trust for the benefit of WADS 1 and WADS 2 of the restraint of trade covenant. This it is said results in an inconsistency. Layne and SMS seek to take the benefit of the restraint of trade covenant for themselves and then allege that they hold the same benefit on trust for third parties being WADS 1 and WADS 2. So far as WADS 1 and WADS 2 are concerned, it is said that if a trust was created for the benefit of WADS 1 and WADS 2, WADS 1 and WADS 2 cannot in their own right enforce a claim as beneficiaries of the trust. That can only be done by the trustee. Each of these complaints deserves careful attention.
The plaintiffs resist the defendants' argument on two grounds. First they say a non‑competition or non‑solicitation covenant which protects the purchaser of the goodwill of the business may be enforced by covenantee when the covenantee has a legitimate interest, of whatever kind, to protect, and when the covenant is no wider than is necessary to protect that interest. It is submitted that courts have consistently moved to expand the circumstances in which covenants in restraint of trade may be enforced from certain specified categories strictly defined to a more broad approach: see Dawnay, Day & Co Ltd v D'Alphen (1997) IRLR 442 per Evans LJ at 446. It was submitted that a purchaser of the goodwill of a business has a legitimate interest in protecting the goodwill of the purchased business even though the business is carried on through the purchaser's subsidiaries rather than the purchaser itself: see Stenhouse v Phillips (1974) AC 391 at 404. It was submitted that this proposition was so wide as to allow an investor in a joint venture to enforce a covenant against solicitation or competition with a joint venture company: see Dawnay, Day & Co Ltd (supra) at 446 – 447. On that basis it was said SMS is entitled in its own right to enforce the non‑competition and non‑solicitation clauses against Stanley for breaches he committed by competing with or soliciting in competition with WADS 1 and WADS 2.
The alternate argument put was that SMS is entitled to enforce the non‑competition and non‑solicitation covenants on the basis that it suffers loss itself when the Consulting Agreement is not performed by Stanley in accordance with its terms thereby causing damage to WADS 1 and WADS 2. In such circumstances SMS has not received the benefit of its bargain, and that is a compensable loss. This argument reflects what counsel referred to as the "broad ground proposition" of Lord Griffiths in Linden Gardens Trust Ltd (supra) at 96 – 98. It was said that this principle was accepted by three members of the House of Lords in Alfred MacAlpine Constructions Ltd (supra). It was said that these contractual principles have nothing to do with privity; the contracting party recovers for its own loss not the loss of the third party.
I am satisfied that the plaintiffs' position on this point is arguable. I would accept that the position is far from clear and at trial there will no doubt be detailed arguments as to whether or not SMS is entitled to recover. But that is a matter for trial and it is not a matter which would lead to my striking out the paragraphs of the minute complained of.
It is appropriate at this point to say something generally as to the complaints of Stanley, Azilian and Sierra Bay about who is the proper plaintiff. I have already pointed out that this is a case which broadly speaking alleges a conspiracy on the part of the defendants. It will no doubt require the plaintiffs and the defendants to lead a considerable amount of evidence about their activities in Africa and in Australia over a fair period of time. Doubtless the evidence will be lengthy and complex. Once the evidence emerges it will become clear who, if anyone, has suffered loss as a consequence of the action of the defendants. The fact that loss is claimed by SMS, WADS 1, WADS 2 and other parties will make no difference at all to the way the evidence is led and how the parties approach the trial. Thus the plea by SMS, WADS 1 and WADS 2 that all are entitled to loss when quite possibly only one of the parties is so entitled will not delay the fair trial of the action. It does not mean that the defendants do not know the case that they have to meet and it will embarrass no one. In reality all that can possibly happen is that if I am persuaded one or other of the plaintiffs cannot succeed in its action and they should either be removed or their claim struck out, then when all the evidence is in, the party so excluded may be denied relief. With that in mind it is appropriate that I should err on the side of caution in this strike out application.
In my view, it is open to SMS to make a claim that as trustee of a covenant which is made for the benefit of WADS 1 and WADS 2, it can take action to enforce that covenant. Of course, such an outcome depends on whether or not there is a finding that a trust was created. I have already dealt with that issue. Furthermore, it would seem that if SMS cannot enforce the non‑competition and non‑solicitation covenants in its own right the only other inference to be drawn from the express reference to "any related or affiliated corporation" is that the parties intended to create or protect the interests of such corporations. In other words, it is arguable that SMS can seek to enforce the trust. I am also satisfied that if it is found that SMS is the trustee of the non‑competition and non‑solicitation covenants, then it is proper that WADS 1 and WADS 2 should be joined as parties to the proceeding. Their loss forms the relevant basis for the claim. In my view it is no more or less than WADS 1 and WADS 2 being joined as necessary parties to the proceedings.
The claim is also pleaded on the basis that WADS 1 and WADS 2 are third parties named in the covenants. In Alfred MacAlapine Constructions Ltd (supra) Lord Clyde said that he would "permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss": see page 535. The loss which is compensated is that of the third party but the contracting party recovers the loss and is accountable for the recovered amount to the third party. It is therefore appropriate that the third party should be a party to the proceedings against the person in breach of contract. Orders may be made in favour of the third party so that the third party may prove its own loss which is the subject of the claim by the contracting party.
In summary, then, I am not prepared to strike out these parts of the minute complained of by the defendants.
Objection is taken to par 54 of the minute. That paragraph pleads that Azilian knew that Stanley had contractual obligations to Layne and SMS "in similar terms" to the non‑competition and non‑solicitation covenants pleaded in pars 33 and 34 of the minute. Amendment has now been made to plead that Azilian had knowledge of the obligations to WADS 1 and WADS 2. The complaint is that there are no material facts pleaded to support this further allegation.
Counsel for the plaintiffs pointed out that, in Stanley's and Azilian's amended defence filed 27 March 2002, Stanley and Azilian admitted that Azilian knew Stanley had contractual obligations to WADS 1 and WADS 2: see par 23. In the light of that admission and given the close connection between WADS 1 and WADS 2 and Layne and SMS, it seems to me that the complaints of Stanley, Azilian and Sierra Bay on this clause, are without foundation.
Stanley and Azilian object to par 63A – 63D on the ground that Sierra Bay cannot commit the tort of intentionally interfering with, or inducing its director (Stanley) to breach, the Consulting Agreement. In support of this proposition reference is made to the judgment of Einstein J in Idoport Pty Ltd v National Australia Bank [2001] NSWSC 328. His Honour said (at par 17):
"It is quite plain that the person who commits the tort must be a third party, someone who stands outside the contractual relationship being interfered with. The third party cannot be the alter ego of one of the parties to the contract … "
In support of that proposition, his Honour referred to a number of authorities including Said v Butt (1920) 3 KB 497; O'Brien v Dawson (1941) 41 SR(NSW) 295; (1942) 66 CLR 18, Rutherford v Poole (1953) VLR 130. Given the way the plaintiffs have pleaded their case they would seem to be precluded on the basis of what his Honour had to say from alleging the tort of interference with contractual relations.
Counsel for the plaintiffs pointed out that his Honour's observation was based on authority for a narrower proposition. That is to say, that directors are not liable for the tort of inducing a breach of contract where in exercising their functions as directors and in acting within their authority they have caused the company to breach its contract. The grounds for this proposition are first that directors are agents of the company and the only means by which the company can act is through its agents. Thus, the authorised acts of the directors are treated only as acts of the company itself. Second, as a matter of policy, only a company and not its directors, is liable for the company's contract unless it is guaranteed by the directors. The first of these reasons is no longer valid. The acts of a director may be regarded concurrently as his own acts as well as those of the company: see Andar Transport Pty Ltd v Brambles Ltd (2004) 206 ALR 387 at 45 – 46; Hamilton v Whitehead (1988) 166 CLR 121 at 128. In this pleading it is not alleged that Stanley was liable in his capacity as a director in procuring Sierra Bay to act. It is alleged that Stanley is liable as a primary contracting party.
Furthermore, the facts of this case are entirely different from those in Idoport. Here, what is alleged is that Stanley and not the company (Sierra Bay) was the contracting party. A company can commit the tort of interfering with, or inducing a breach of, another person's contract: see Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105 at 120 – 130. It is of no consequence that the contracting party here is also a director of the company. In my view no objection can be taken to pars 63A – 63D. These paragraphs can stand.
Stanley and Azilian object to the allegation of a new conspiracy in which Sierra Bay participated as pleaded in pars 63A – 63C and par 71(c)(a). It is said that the elements of the claim for conspiracy are not pleaded with sufficient particularity.
Counsel for the plaintiffs pointed out that the allegations pleaded in pars 66A – 66C incorporate the matters pleaded in par 65. These matters have been particularised: see Harper and Geodrill's first and second answers to requests 12 and 13 for further and better particulars of amended statement of claim dated 12 December 2001. Even leaving that aside, it seems to me that the conspiracy has been adequately pleaded. The natural individuals said to be participants in the conspiracy are Stanley and Harper. The alleged agreement has Harper having resigned from SMS and serving as a director and employee of Geodrill. This allegation is pleaded in par 65(a) and (b). It is further particularised as an oral agreement made in face‑to‑face conversations and telephone conversations in or about late 1997: answer to request 13 of the particulars referred to above. The agreement of the corporate participants in the alleged conspiracy is to be inferred as having commenced from the time when they were requested by their directors (Stanley and Harper) to participate in the agreements reached by those directors in their personal capacities. These matters are pleaded in par 65(d), (da), (ga). The unlawful acts are pleaded in pars 66A and 66B. It is said that each of the acts is unlawful as either a breach of the Consulting Agreement by Stanley or as an interference with his contractual relations by the other conspirators. Such a plea of unlawfulness is sufficient: see Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1991) 1 VR 637 at 687.
The unlawful means pleaded is that the conspirators conspired with intent to injure as alleged in par 66A. The intention so it is said may be inferred from the nature of the averred acts in par 65. The loss and damage arises as a consequence of the nature of the conspiracy alleged - that is a conspiracy to operate a business which competes with or solicits the customers of SMS, WADS 1 and WADS 2. That it is said is a breach of the non‑competition and non‑solicitation covenants.
Overall, I am satisfied this plea is proper and that it should stand. In their written submissions (par 60) the plaintiffs concede that there may be grounds for ordering further particulars. At present, I would not order that further particulars be provided. However, it may be that a request would be appropriate to allow Stanley, Azilian and Sierra Bay to clarify the position.
Complaint is made by Stanley and Azilian as to par 42A of the minute. It is said that there are no material facts pleaded to justify a conclusion (as the paragraph is alleged to be) that Stanley "caused or procured" Harper and Geodrill to solicit orders for drilling services in West Africa from customers of the plaintiffs. In my view, any complaint Stanley, Azilian and Sierra Bay have about this plea can be cured by a request for particulars. I would not be prepared to strike it out.
Finally, there are complaints made about pars 67 - 69. These paragraphs allege that Sierra Bay has since May 1998 acted as agent for and on behalf of Stanley or in the alternative as the alter ego for Stanley. The plaintiffs say that the question of the agency of Harper or Geodrill is a matter of evidence. They further say that agency may be inferred from the conduct referred to in pars 67 and 68 and the conduct pleaded in pars 55, 59 and 62. I am satisfied there is sufficient pleaded to allow Stanley, Azilian and Sierra Bay to know the case they have to meet. I would not strike out these paragraphs.
Turning then to Harper and Geodrill. They adopted the submissions of Stanley, Azilian and Sierra Bay so far as the objections touched and concerned allegations made against them. I need say nothing further about these matters. One additional complaint is raised. It relates to the allegation that Harper and Geodrill induced a breach of the Consulting Agreement by Stanley or participated in the conspiracy to injure. It is said that the plaintiffs have not adequately pleaded sufficient basis to establish that either Harper or Geodrill knew of Stanley's obligations to WADS 1 and WADS 2 or that they intended to cause Stanley to breach these obligations. It is said that what must be established is that Harper knew of the obligations owed by Stanley to WADS 1 and WADS 2 and also knew that his conduct would involve Stanley in a breach of that contract.
On behalf of the plaintiffs it was submitted that in relation to the tort of procuring a breach of contract the necessary intention to injure may be inferred from behaviour which is recklessly indifferent or from wilful blindness to the truth: see Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 512. The plaintiffs acknowledge that in pleading tortious conspiracy they "must allege an agreement or combination between defendants to injure or harm the plaintiff, overt acts of the defendants in furtherance of the agreement or combination, and consequential injury or damage suffered by the plaintiff": see Little v Law Institute of Victoria (1990) VR 257 at 271. The "overt acts" must evidence and form the basis for inferences that, there existed a conspiracy and the defendants intended to injure the plaintiff: see Council for the city of the Gold Coast v Pioneer Concrete (Qld) Pty Ltd (1998) 157 ALR 135 at 150. The plaintiffs submit that in this case the significance of the overt acts pleaded by the plaintiffs must be assessed in a context where:
(a)Harper and Geodrill admit that $1.25 million was advanced to Geodrill through a chain of companies (Cartwheel Advance Ltd and Transtraders Ltd): see par 41 amended defence Harper and Geodrill filed 29 August 2001 ("the amended defence");
(b)Geodrill admits that it knew that Stanley organised the loans and that he would be paid interest on the loans and says also that it believed that an entity connected to Stanley was the source of the funds: see par 61 of the amended defence of Harper and Geodrill;
(c)Harper admits that he informed Stanley of the progress of Geodrill's business: see par 58.5 of the amended defence of Harper and Geodrill;
(d)Harper and Geodrill admit that they believe that the Consulting Agreement prevented Stanley from advancing moneys to them: see par 57.3 amended defence of Harper and Geodrill.
It is said that against these background facts the following inferences can be drawn:
(a)Harper and Geodrill knew that Stanley would breach the Consulting Agreement by advancing moneys to them, as they were in competition with SMS;
(b)they were aware that Stanley took steps to conceal this breach by advancing funds to them through a chain of companies;
(c)Harper kept Stanley informed of Geodrill's business, because Stanley was its financial backer;
(d)consequently, Harper and Geodrill intended to cause or assist Stanley to breach his obligations under the Consulting Agreement and to injure SMS and the SMS subsidiaries.
I am satisfied that the case is properly pleaded. When the admissions made in the defence are combined with the overt acts alleged by the plaintiffs to the effect that Harper and Geodrill were in contact with Stanley and assisted in a scheme he devised then the necessary inferences of intention are available.
In my view, the case pleaded against Harper and Geodrill is in all respects proper. I would allow the pleading to stand.
I will hear the parties as to the precise form of orders and as to costs.