Leaney v Olmstead Pty Ltd

[1994] FCA 415

41s 94

JUDGMENT No. ........ ........ . J ,.., ......

IN THE FEDERAL COURT OF AUSTRALIA	)
SOUTH AUSTRALIAN DISTRICT REGISTRY )	)
1
GENERAL DIVISION	) No. SG117 of 1993
B E T W E E N : GEOFFREY JOHN LEANEY

Applicant

- and -

OLMSTEAD PTY LTD (ACN 008 276 131) and DONZELLA PTY LTD (ACN 050 021 273) in its own capacity and in its capacity as trustee for The Bellis Unit Trust

Respondents

REASONS FOR DECISION

Coram: Branson J.
20 June 1994

The respondents in this matter have applied by notice of motion dated 15 June 1994 for an order that the consolidated statement of claim hearin be struck out on the ground that it discloses no reasonable cause or causes of action against the respondents or either of them and has a tendency to cause prejudice, embarrassment or delay in the proceedings. In the alternative the respondents seek an order that paragraphs 13, 14, 15, 19, 20(b), 21(c) and (d), 27.2(2), (3), (4), (5) and

or either of them. The application is brought pursuant to 011

( 6 ) , 28, 32.2 and 33 be struck out on the ground that they

disclose no reasonable cause of action against the respondents

Order 11 r16 gives the court a discretionary power. The power is to be exercised sparingly and only where there is a plainly

untenable case (Hunt Con t rac t ing CO P t y L td v Roebuck

Resources NL and Others (1992) 110 ALR 183 at p187). An application to strike out a statement of claim on the ground that it does not disclose a reasonable cause of action involves establishing that the case of the applicant is so

untenable that it cannot possibly succeed (General S t e e l

I n d u s t r i e s Inc v Commissioner f o r Railways (NSW) (1964) 112

CLR 125 at p130). It is to be assumed that the allegations of fact made in the statement of claim could be made out at trial

(Empire Shipping CO Inc v Owners o f t h e Ship "Shin Kove Maru"

(1991) 104 ALR 489 at p490).

Section 160 of the Cor~oration Law

The applicant has by his application and statement of claim sought to invoke s260(1)(a) of the Corporat ions Law. The tens of s260 make it plain, as is conceded by M r Lunn on the	applicant's behalf, that he may only do so if he is a member	of the company in respect of which he seeks the order.
Section 184 of the Corpora t ions Law is in the following
tens : -

"A person who agree s t o become a member o f a company

and whose name i s e n t e r e d on t h e company's r e g i s t e r

of members. "

Nowhere in the statement of claim in this matter is it pleaded that. the applicant is a person who has agreed to become a member of one or other of the respondents or whose name is

entered on either or both register or registers of members.

In Niord Pty Ltd v Adelaide Petroleum NL and Ors (1990) 8 ACLC 684 White J, with whom Mohr and Millhouse JJ agreed, held that only a person whose name was entered in a company's register of members was capable of being a member of that company within the meaning of s320 of the Companies (SA) Code. A person who enjoyed no more than an equitable interest as a transferee under an unregistered transfer, his Honour held not to be a member within the meaning of s320. I am not able to distinguish s260 of the Corporations Law from s320 of the Companies (SA) Code in this regard - nor was I invited by counsel to do so.

Mr Lunn for the applicant, however, did invite me to

distinguish or decline to follow the Niord decision, and so far as it may be necessary, the decision of Jacobs J in

Panfida Ltd v Hartogen Energy Ltd and Ors (1988) 14 ACLR 601.

He suggested that the modern approach was to remove procedural	bars to the invoking of s260 and that I should conclude that
it was reasonably arguable that a person who had a beneficial interest only in shares was a member of the company in which such shares had been issued within the meaning of s260 of the
Corporations Law. Although s260 is in broader terms than its
predecessor I am not able to discern any Parliamentary .
intention to relax the requirements as to standing to seek relief. I am unable to distinguish in any relevant respect

the Niord decision. I regard it as rightly decided. In my view if M r Lunn's contention were correct, subs260(5)(a) would be otiose. M r Lunn did not contend that his client could invoke subs260(5)(a). I do not see this as an area in which there is room for development of the law which it would be wrong to stifle in a summary way by disposing of the pleading (see Hunt v Roebuck (supra) at p189). I conclude that the applicant is not entitled to apply to the court for relief pursuant to s260 of the Corporations Law.

Section 31 of the statement of claim should be struck out as should so much of the claims for relief as seek to invoke s260.

For completeness I note that Mr Lunn drew attention to the fact that by his application herein the applicant claims:-

"Compensation and damages (including appropriate orders regarding transfer of shares in the respondents and for transfer of units in the Bellis	Unit Trust for which the second respondent is the	trustee) from the respondents pursuant to Ss52, 82
and 87 Trade Practices Act, ss56, 84 and 85 Fair Trading Act (South Australia), s260 Corporations Law, for breaches of fiduciary duty and for
exemplary damages for breach of fiduciary duty ..."

and that the statement of claim concludes in the following

terms :	-
"AND Geoffrey John Leaney claims the relief set
forth in the accompanying application. "

Mr Lunn submitted that if the applicant were not a person

entitled to invoke s260, it would be open to the court to make

appropriate orders (I interpolate - presumably pursuant to s212 of the Corporations Law) to rectify the relevant register or registers by requiring the name of the applicant to be entered thereon. I am unable to interpret the application herein as an application to the court pursuant to s212 of the

Corporations Law, or otherwise as an application to achieve

rectification of any register or registers. Moreover it seems to me that any such application would need to be supported by pleadings as to the relevant provisions of the constitution of each relevant company (see s116 of the Corporations Law) and as to the appropriate date at which any register should be rectified. The statement of claim herein includes no such pleadings.

Trade Practices Act 1974 - Olmstead Ptv Ltd invoke ss52, 82 and 87 of the Trade Practices Act 1974 and ss56, 84 and 85 of the Fair Trading Act 1987 (SA). It was

this application it was sufficient to consider the pleadings	accepted by counsel for both parties that for the purposes of
pursuant to the Trade Practices Act. I shall consider first the pleadings against the first respondent Olmstead Pty Ltd
("Olmstead"). In doing so I shall treat such pleadings as
though they included certain amendments foreshadowed by Mr Lunn in argument.
Sub-paragraph 27.1, incorporating foreshadowed amendments,
reads :	-

"The refusal and the return of the transfer referred to in paragraph 24 in the circumstances set out in paragraphs 12-25 amounted to a representation that the applicant was not entitled to transfer the shares in Olmstead in which he had a beneficial interest without the approval of Tucker, Jones and Begakis and/or the majority shareholders."

Paragraph 30 reads:-

"The representations referred to in paragraph 27 constitute misleading and deceptive conduct in trade and commerce contrary to section 52 Trade Practices Act and section 56 Fair Trading Act (South Australia). To the extend necessary the applicant relies upon s51A Trade Practices Act and s54 Fair Trading Act and says that insofar as any of the representations referred to was a representation as to any future matter the said representation is deemed to be misleading unless the respondent adduces evidence to show that it had reasonable

grounds for making the representation. "

There is no other explicit reference to the Trade Practices Act other than via the claim for relief set forth in the application. The relevant paragraph of the application is set out above.

pleading of a party shall contain a statement in summary form	Order 11 r2 of the Federal Court Rules requires that a
of the material facts on which the party relies. All facts on which the cause of action depends are material. A conclusion of law that conduct is misleading or deceptive or likely to mislead or deceive must be based upon relevant facts which so characterise the conduct.
Sub-paragraph 27.1 of the statement of claim (set out above)

asserts that certain conduct amounted in the circumstances to a representation. Mr Sulan QC for the respondents argued that such conduct was incapable of amounting to a representation. I would not be prepared to so hold on an application to strike out pleadings as disclosing no reasonable cause of action. However, nowhere is it pleaded that such representation was inaccurate, or that it led the applicant into error. Indeed, as mentioned above, the statement of claim does not plead the basis of the applicant's entitlement to have the transfer of his shares registered. I conclude that sub-paragraph 27.1 and paragraph 30 of his statement of claim, so far as it relates to Olmstead, should be struck out, as should so much of the claims for relief as seek to invoke Trade P r a c t i c e s Ac t remedies against Olmstead.

Trade Practices Act 1974 - Donzella Ptv Ltd

In sub-paragraph 27.2 of the statement of claim the applicant

pleads :  -

"The m a t t e r s r e f e r r e d t o i n a paragraph 13 amounted

t o r e p r e s e n t a t i o n by Donze l la and by the d i r e c t o r s

o f Donzel la t h a t :

( 1 ) the a p p l i c a n t was n o t to receive a n y p r e f e r e n c e

u n i t e n t i t l e m e n t f o r h i s c o n t r i b u t i o n through

his	company Leaney B a i l e y P t y Ltd	f o r	a n y work
done by it i n the	f i n a n c i a l	y e a r end ing 30	June
1992.

(2) Donzel la a s T r u s t e e had under taken appropr ia t e

i n v e s t i g a t i o n s a s a t r u s t e e t o enab l e i t t o

e x p r e s s an o p i n i o n on the s u i t a b i l i t y o f the

a c q u i s i t i o n	o f	an	interest	i n	o r	share s	o f
Brileen.

(3) it would be i n the best i n t e r e s t o f each o f the u n i t h o l d e r s f o r Donze l la a s T r u s t e e of the

B e l l i s	U n i t	T r u s t	t o	purchase	either	the
b u s i n e s s	o r s h a r e s	o f B r i l e e n	f o r	an	amount	o f

the o r d e r o f $500,000,

( 4 ) Donzel la had n o d u t y t o o b t a i n f o r o r d i s c l o s e

t o the a p p l i c a n t a n y i n f o r m a t i o n r egard ing the

e x i s t i n g interests o f Tucker , Jones o r Begakis

i n B r i l e e n , and

( 6 ) the a c q u i s i t i o n by Donzel la a s t r u s t e e o f the

B e l l i s U n i t T r u s t o f share s i n o r o f some o f

the	b u s i n e s s	o f B r i l e e n	was	n o t	de t r imen ta l	t o
o r n o t	i n c o n f l i c t	w i t h	the	i n t e r e s t s	o f	the

a p p l i c a n t . "

Paragraph 13 of the statement of claim merely pleads that:-

" B y N o t i c e o f Meet ing da t ed 6 September 1991 from

Messrs Thomson Simmons, S o l i c i t o r s f o r Donzel la a s

T r u s t e e o f the B e l l i s U n i t T r u s t , the a p p l i c a n t was

in formed o f a proposed m e e t i n g o f u n i t h o l d e r s o f

the B e l l i s U n i t T r u s t t o be h e l d on 30 September

1991 f o r the purpose o f v a r y i n g the Inden ture . "

If consideration is given to the additional facts contained under the heading " P a r t i c u l a r s " (see Beach Petroleum NL v

Johnson & O r s (1991) 105 ALR 456 at p466) one finds it

asserted that an explanatory memorandum was enclosed with the notice of meeting in which Donzel la stated the purpose of four

meeting, but not the terms of such resolutions. resolutions apparently proposed to be placed before the It is pleaded by s30 of the statement of claim that the representations referred to in sub-paragraph 27.2 constitute misleading and deceptive conduct in trade and commerce contrary to s52 of the Trade P r a c t i c e s A c t . However, again there is no plea of material facts upon which this conclusion is based.

It is pleaded in paragraph 28 that the business of Brileen was not profitable, had no potential to be profitable and was not worth the sum of $500,000. However, sub-paragraph 27.2(3) speaks of "either the business or shares of Brileen" and nothing is pleaded as to the value of the shares. It is not logically necessary that the value of the shares and that of the business should be the same. It may also be noted that there is an apparent conflict between the representations alleged in sub-paragraph 27.2 (3) and (6) : the latter of these speaks of the acquisition by Donzella of "shares in or in some

of the business of Brileen" whereas the former speaks of "the

business or shares of Brileen".

In addition no material fact is pleaded to demonstrate:-

(a)	that the applicant had an entitlement to receive preference unit entitlements for his contribution through his company Leaney Bailey Pty Ltd (sub-para. 27.2(1));
(b)	that Donzella as Trustee had not undertaken appropriate investigations as a trustee to enable it to express an opinion on the suitability of the acquisition of an
interest in or shares of Brileen (sub-para. 27.2(2)); or
(c)	that Donzella had in the circumstances a duty to obtain for a disclosure to the applicant information regarding the existing interests of Tucker, Jones or Begakis in Brileen (sub-para. 27.2(4)).

That is, in my view, the applicant has failed to plead that the alleged representations set out in sub-paragraph 27.2 are inaccurate or that they led the applicant into error.

It is submitted by M r Sulan that the mere giving of a notice

of meeting accompanied by an explanatory memorandum as pleaded in paragraph 13 of the statement of claim could not amount to the representations alleged. In the context of the pleading as a whole I uphold this submission with respect to the alleged representations set out in sub-paragraph 27.2(1), (4) and (6). It should be noted that there is no alleged representation (5). However, in my view it would not be appropriate on a strike out application to strike out sub- paragraph 27.2(2) and (3) on this basis alone.

It may be noted that it is not pleaded that either the business or the shares of Brileen were purchased by any party for $500,000 or any sum. It is therefore not clear, and more importantly the statement of claim does not plead, how the applicant suffered any loss or damage as a consequence of the asserted misleading and deceptive conduct. (See Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 71 ALR 615).	I conclude that sub-paragraph 27.2 and paragraph 30 of the	statement of claim so far as it relates to Donzella Pty Ltd
should be struck out.
Breach of Fiduciarv Duty Paragraph 8 of the statement of claim pleads as follows:-

"By written Deed of Indenture dated 31 December 1990 ('the Indenture') between Tucker as Founder and Donzella Pty Ltd as Trustee, the Bellis Unit Trust was established and the applicant and others became

the holders of units in the Bellis Unit Trust as

particularised below. . . "

Paragraph 32 is in the following terms:

"32.1	Donzella as Trustee of the Bellis Unit Trust had a fiduciary duty to the applicant as a beneficiary of that Trust.
32.2	As at September 1991 Tucker and Jones had:
(1) beneficial interests as vendors of the shares in or of the business of Brileen;
(2) beneficial interests directly or indirectly as unit holders in the Bellis Unit Trust in relation to the proposed purchase of shares in or of part of the business of Brileen;
(3) fiduciary duties as directors of Donzella as trustee of the Bellis Unit Trust to the applicant as a beneficiary of that trust, and
(4) conflicts of interest in giving an opinion and in voting in relation to the purchase by Donzella as trustee of the Bellis Unit Trust of shares in or the business of Brileen as at September 1991

PARTICULARS

not to act so as to derive any direct or	The fiduciary duties owed included a duty
indirect benefit for themselves or others whose interest that they represented to the detriment of the interest of the applicant.

32.3	In the circumstances referred to in 32.1 and 32.2 hereof the actions of Donzella referred to in paragraph 13 and 21 were in breach of its fiduciary duty to the
applicant .

PARTICULARS

The applicant has been unable to pursue his remedies as an oppressed minority shareholder in the first respondent and as an uninformed beneficiary of the Bellis

U n i t T r u s t w i t hou t the i n f o r m a t i o n sought

and w i t h o u t an o p p o r t u n i t y t o v o t e

unimpeded by the exercise o f v o t e s by

persons owing him a f i d u c i a r y d u t y and who

had a c o n f l i c t o f interest and who r e f u s e d

to renounce their se l f i n t e r e s t . "

I do not find the above pleading easy to follow. Paragraph 13

(although not the particulars thereunder) is set out above. It pleads a notice of meeting and an explanatory memorandum in relation thereto. It is not easy to see how the giving of a notice of meeting accompanied by an explanatory memorandum could alone amount to a breach of fiduciary duty. I note that nothing is pleaded with respect to the content of the Indenture establishing the Bellis Unit Trust with Donzella Pty Ltd ( " D o n z e l l a " ) as its trustee. Such Indenture might be thought likely to contain provisions with respect to the giving of notices of meetings of unit holders. However, for present purposes it is sufficient to say that the matters pleaded in sub-paragraphs 32.1 and 32.2 of the statement of

claim are insufficient to provide a basis for the plea that

the actions of Donzel la referred to in paragraph 13 were in

breach of its duty to the applicant. The particulars provided in sub-paragraph 32.3 do not, in my view, provide any assistance to the applicant in this regard.

Paragraph 21 of the statement of claim is in the following

terms :	-
"Donzel la and Olmstead by let ter dated 24 September
1991  from Thomson Simmons, S o l i c i t o r s f o r the
persons  and companies a s r e f e r r e d t o i n paragraph 15

t o Xnox & Hargrave, S o l i c i t o r s f o r the a p p l i c a n t ,

inter a l i a :

( a ) f a i l e d t o g i v e a n y e x p l a n a t i o n o r i n f o r m a t i o n

r e g a r d i n g the a l l e g e d t r a n s a c t i o n o f 31

December	1990 r e f e r r e d t o i n paragraphs	9 and
11,

(b) s t a t e d t h a t they were n o t a c t i n g i n breach o f

a n y f i d u c i a r y	d u t y and	had	no	d u t y t o account
a s c la imed;

( c ) f a i l e d t o g i v e a n y i n f o r m a t i o n r e g a r d i n g

B r i l e e n o r the e x t e n t of a n y i n t e r e s t t h e r e i n

o f them o r their d i r e c t o r s o r shareho lde r s o r

u n i t h o l d e r s , and

( d ) s t a t e d t h a t i t seemed t h a t there may be l i t t l e

p o i n t i n c o n t i n u i n g w i t h the m e e t i n g o f u n i t

h o l d e r s r e f e r r e d t o i n paragraph 14 and

schedu led for 30 September 1991 a s the o t h e r

e x i s t i n g	u n i t	h o l d e r s	b e l i e v e d	t h a t	they	cou ld
i n f o r m a l l y	r e s o l v e	a l l	m a t t e r s	t o	have	been
covered	a t	t h a t	m e e t i n g ,	apar t	from	the

a p p l i c a n t . "

So far as the plea of breach of fiduciary duty by Donzel la is concerned any conduct by Olmstead is irrelevant: Donzel la is not pleaded to have controlled Olmstead.

and (d) cannot sustain an allegation of breach of fiduciary

I accept the submission of Mr Sulan that sub-paragraphs 21(b)

duty by Donze l la . Sub-paragraph (c) must be read against the terms of paragraph 20 of the statement of claim which pleads the request to which the letter dated 24 September 1991 referred to in paragraph 21 was a response. No request for information of the kind referred to in sub-paragraph 21(c) is pleaded by paragraph 20 to have been made. I do not understand it to be alleged by the pleadings that there was an

obligation on the trustee to provide unsolicited information of the kind referred to in sub-paragraph 21(c). In the circumstances I consider that material facts have not been pleaded which support the allegation that the failure to provide that information amounted to a breach of fiduciary duty by Donzella. I am not, however, persuaded that it would be appropriate on a strike out application to hold that sub- paragraph 21(a), when read in conjunction with paragraph 20, is incapable of supporting a plea of breach of fiduciary duty.

Tendencv to cause Preiudice Embarrassment and Delay of paragraphs of the consolidated statement of claim in this matter on the ground that they disclose no reasonable cause of action. In Commonwealth Industrial Gases Pty Ltd v Top

Australia Ltd (unreported decision of OfLoughlin J dated 16

April (1993)) his Honour said:

"This is not a case where a series of discrete

amendments would solve the problem. There are too

many occasions where there has been a failure to plead material facts and I have, additionally, pointed to examples of confusion in the drafting. I am satisfied that the statement of claim has a tendency to cause prejudice, embarrassment and delay in the proceedings. I think that the task for all will be the easier if an order is made striking out the statement of claim and granting the applicant leave to file and serve a fresh statement of claim

within one calendar month of this date. "

I take the same view of the consolidated statement of claim in

this matter. Although this application is brought late (i.e. in the week immediately preceding the listed hearing date) I

do not consider that any parties interest would be advanced by a hearing on the present pleadings or any part of them. I propose to order that the consolidated statement of claim be struck out and that the applicant be granted leave to file and serve a fresh statement of claim. I will hear counsel as to the precise terms of the orders that I should make.

I certify that this and the

true copy of the Reasons I+ preceding pages are a

for Decision of Justice

Branson.

Associate

Counsel for the Applicant	Mr. J Lunn
Solicitors for the Applicant :	Connolly & CO
Counsel for the Respondents :	Mr J Sulan QC
Solicitors for the Respondents:	Thomsons

Hearing Date 17 June 1994