Litigation Capital Partners LLP PTE Ltd (Registration No 200922518M) v ACN 117 641 004 Pty Ltd (in liquidation) (formerly known as Vale Cash Management Fund Pty Ltd)

[2021] WASC 161

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

CITATION:   LITIGATION CAPITAL PARTNERS LLP PTE LTD (REGISTRATION NO 200922518M) -v- ACN 117 641 004 PTY LTD (IN LIQUIDATION) (formerly known as VALE CASH MANAGEMENT FUND PTY LTD) [2021] WASC 161

CORAM:   HILL J

HEARD:   29 JUNE & 3 JULY 2020 (FINAL SUBMISSIONS RECEIVED 14 JULY 2020)

DELIVERED          :   26 MAY 2021

FILE NO/S:   CIV 1528 of 2020

BETWEEN:   LITIGATION CAPITAL PARTNERS LLP PTE LTD (REGISTRATION NO 200922518M)

Plaintiff

AND

ACN 117 641 004 PTY LTD (IN LIQUIDATION) (formerly known as VALE CASH MANAGEMENT FUND PTY LTD)

First Defendant

MARTIN BRUCE JONES as liquidator of ACN 117 641 004 PTY LTD (IN LIQUIDATION) (formerly known as VALE CASH MANAGEMENT FUND PTY LTD)

Second Defendant

ANDREW SMITH as liquidator of ACN 117 641 004 PTY LTD (IN LIQUIDATION) (formerly known as VALE CASH MANAGEMENT FUND PTY LTD)

Third Defendant

HBF HEALTH LIMITED (ACN 126 884 786)

Fourth Defendant

Catchwords:

Practice and procedure - Application for leave to bring strike out application - Application brought 7 days out of time - Whether extension ought be granted

Practice and procedure - Pleadings - Application to strike out defence and counterclaim - Whether matters disclose reasonable cause of action - Whether matters pleaded may prejudice, embarrass or delay fair trial of action - Whether matters pleaded are scandalous, frivolous or vexatious - Whether counterclaim is an abuse of process - Turns on own facts

Evidence - Evidence admissible in strike out application under Rules of the Supreme Court 1971 (WA), O 20 r 19(1)

Legislation:

Corporations Act 2001 (Cth), s 545, s 1322, s 1324
Rules of the Supreme Court 1971 (WA), O 20 r 19
Supreme Court Act 1935 (WA), s 25(6)
Trustees Act 1962 (WA), s 92

Result:

Extension of time granted
Application allowed in part

Category:    B

Representation:

Counsel:

Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	P Cahill SC & P R Edgar
Third Defendant	:	P Cahill SC & P R Edgar
Fourth Defendant	:	A D'Arcy

Solicitors:

Plaintiff	:	CornwallsNSW
First Defendant	:	HWL Ebsworth Lawyers
Second Defendant	:	Norton Rose Fulbright Australia
Third Defendant	:	Norton Rose Fulbright Australia
Fourth Defendant	:	Lipman Karas

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

Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102 (S)

Australian Securities and Investments Commission v Wily & Hurst [2019] NSWSC 521

Baden v Societe Generale pour Favoriser le Developpement du Commerce et de L'Industrie en France S.A. [1993] 1 WLR 509

Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 33

Brightwater Care Group Inc v Rossiter [2009] WASC 229; (2009) 40 WAR 84

CGU Insurance v Blakeley [2016] HCA 2; (2016) 259 CLR 339

Chahwan v Euphoric Pty Ltd (trading as Clay & Michel) [2009] NSWSC 805; (2009) 73 ACSR 252

Christie v Christie (1873) LR 8 Ch App 499

Clasquin SA v AAR International Pty Ltd (1989) 15 ACLR 9

Crane v Gething [2000] FCA 45; (2000) 97 FCR 9

Dalgety Australia Ltd v Rubin (Unreported, WASCFC, Library No 5485, 24 August 1984)

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640

English v Vantage Holdings Group Pty Ltd [2021] WASCA 47

Fletcher, in the matter of McLaughlins Financial Services Limited (in Liquidation) (ACN 088 647 796) [2010] FCA 606

Fried v National Australia Bank Ltd [2001] FCA 907; (2001) 111 FCR 322

Frigger v Trenfield (No 5) [2020] FCA 827

Hearne v Street [2008] HCA 36; (2008) 235 CLR 125

Herbert (as trustee for the Blenkinsop Family Trust as trustee for the Blenkinsop Family Trust No 2) v Blenkinsop (No 2) [2019] WASC 389

Hill v Hicom International Pty Ltd (in Liquidation) ACN 070 061 344 [2007] FCA 1014

Hui v Champion [2019] FCA 1111

In re Judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257

Insurance Commission of Western Australia v Woodings (as liquidator of Bell Group Ltd (in liq)) (No 2) [2017] WASC 372; (2017) 124 ACSR 45

Legal Practice Board v Said (Unreported, WASC, Library No 940003, 12 January 1994)

Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66

Macks v Viscariello [2017] SASCFC 172; (2017) 130 SASR 1

Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141

Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425

Niven v Grant (1903) 29 VLR 102, 106; (1903) 9 ALR 122

Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255

Palmer v Ayres [2017] HCA 5; (2017) 259 CLR 478

Re Bell Group Ltd (In Liq); Ex Parte Antony Leslie John Woodings as Liquidator of The Bell Group Ltd (In Liq) [2013] WASC 409; (2013) 97 ACSR 117

Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones, Weaver and Stewart (in their capacity as liquidators of Great Southern Managers Australia Ltd (in liq)) [2014] WASC 312

Ron Hodgson (Trading) Pty Ltd v Belvedere Motors (Hurstville) Pty Ltd [1971] 1 NSWLR 472

Smolarek v Liwszyc [2006] WASCA 50; (2006) 32 WAR 101

Snelgrove v Great Southern Managers Australia Ltd (in liq) (rec and mgr apptd) [2011] WASC 103

Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236

Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; (2016) 316 FLR 318

Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2000] HCA

Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398

Wood (as Co-Executor and trustee of the will of the deceased) v Wood (No 4) [2014] WASC 393

HILL J:

1. The second and third defendants (Mr Jones and Mr Smith) applied by chamber summons dated 5 June 2020 to strike out the fourth defendant's amended defence and counterclaim dated 4 June 2020 (amended defence and counterclaim) pursuant to O 20 r 19 of the Rules of the Supreme Court 1971 (WA) (Rules).

2. Mr Jones and Mr Smith seek orders for the entirety of the amended counterclaim, alternatively certain paragraphs of the amended defence and counterclaim as against the second and third defendants to be struck out on the grounds that it:

   (a)discloses no reasonable cause of action or defence (O 20 r 19(1)(a) of the Rules);

   (b)is scandalous, frivolous and vexatious (O 20 r 19(1)(b) of the Rules);

   (c)may prejudice, embarrass or delay the fair trial of the action (O 20 r 19(1)(c) of the Rules);

   (d)is an abuse of process (O 20 r 19(1)(d) of the Rules).

3. In its present form, the amended defence and counterclaim is prolix, complex and lacks clarity and appropriate particularisation.  Both immediately prior to the hearing and during the hearing, the fourth defendant (HBF) proposed further amendments to the defence and counterclaim.  It is important that HBF's claim against Mr Jones and Mr Smith, which raises serious allegations against them, is clearly expressed so that the issues between the parties can be clearly identified and Mr Jones and Mr Smith know the claim they have to meet.

4. For the reasons that follow, it is my view the second and third defendants should have an extension of time to bring the strike out application, and that the following should be struck out: [21.5.1] ‑ [21.5.3], part of [22.2.4], and [34.2.1] of the defence and [27.2.4], [28.1], [29], [30] - [32], [35], [40.2] particular (f), [41], [78], [79.1], [79.2], and [83] - [86A] of the counterclaim together with [4b], [5], [8a], and [13] of the prayer for relief. 

Extension of time to bring application

1. The second and third defendants require an extension of time to bring the application because the majority of the paragraphs the subject of the strikeout application were included in an earlier version of the defence and counterclaim filed on 7 May 2020. Under O 20 r 19(3)(a) of the Rules, any application to strike out the defence and counterclaim was required to have been filed by 28 May 2020. The application was filed seven days out of time.

2. On 29 June 2020, an affidavit of Mr McLeod, a partner at Norton Rose Fulbright Australia, the solicitors for Mr Jones and Mr Smith, was filed in support of the application for an extension of time.  Mr McLeod's evidence is that the reasons for the short delay in filing the application were the commitments of counsel and the solicitors for Mr Jones and Mr Smith in attending to various matters in respect of these proceedings and the other related proceedings, the time required to formulate the grounds of objection to the amended defence and counterclaim, and to enable conferral with the fourth defendant’s solicitors to occur.

3. Counsel for HBF submitted that in determining whether an extension of time should be granted, the court should consider the merits of the application.  This was of particular relevance in this case, as no proper explanation had been provided as to why the application was not filed within time.  Counsel submitted that if the court considered there was merit in the application, the court may be minded to grant the short extension of time required.  However if, as HBF contended, the application was unmeritorious, the extension of time should be refused.

4. In my view, the application raised matters of substance in respect of the amended defence and counterclaim which, at a minimum, were arguable.  For this reason, I consider that the short extension of time should be granted. This is particularly the case where the extension of time caused no prejudice to HBF and the matters raised in the counterclaim have implications on the future case management of the matter, including the scope of discovery and likely length of trial.

Procedural background to application

1. The plaintiff (LCP) commenced these proceedings in the Supreme Court of New South Wales on 18 March 2020.  Initially, the proceedings were set down for final hearing on 8 May 2020 before Black J.  When the matter came before his Honour for directions, programming orders were made for the filing of the statement of claim and defences, evidence and submissions.[1]  

   [1] Orders of Black J dated 23 March 2020.

2. Following the commencement of separate proceedings by Mr Jones and Mr Smith in this court (CIV 1484 of 2020), on 9 April 2020, Black J made orders by consent on 15 April 2020 transferring these proceedings to the Supreme Court of Western Australia. 

3. On 7 May 2020, HBF filed its defence and counterclaim.

4. On 21 May 2020, orders were made requiring Mr Jones and Mr Smith to file any application to strike out the defence and counterclaim by 4 June 2020, alternatively to file their defence to the counterclaim.

5. Following conferral between the parties, on 4 June 2020, an amended defence and counterclaim was filed.  Shortly after 4.00 pm on 4 June 2020, Mr Jones and Mr Smith sought an extension of time until 4.00 pm on 5 June 2020 to file the foreshadowed application.  This application was opposed by HBF.  On 5 June 2020, I granted the extension sought.

6. On 5 June 2020, Mr Jones and Mr Smith filed the chamber summons the subject of this application.  Prior to the hearing, on 17 June 2020, Mr Jones and Mr Smith filed an amended application.  At the commencement of the hearing, I granted leave to Mr Jones and Mr Smith to amend their application and the hearing proceeded on the basis of the amended application.[2]

   [2] ts (29 June 2020) 6.

7. During the hearing, counsel for HBF sought to further amend its amended defence and counterclaim on two occasions:  first by a minute of proposed amendments dated 26 June 2020, provided to the court prior to the commencement of the hearing, and then again by a minute of proposed additional amendments emailed to the court on 2 July 2020. 

8. Senior counsel for Mr Jones and Mr Smith did not object to the application proceeding on the basis of the amended defence and counterclaim as further amended by the minutes of proposed amendments.[3]

   [3] ts (29 June 2020) 6 - 7; Second and third defendants' additional submissions [14].

9. These proposed amendments to the defence and counterclaim removed some of the areas of disputation between the parties.  Specifically, HBF agreed to delete [73] - [75] and [93] - [98] of the counterclaim and [16] of the prayer for relief.  For that reason, it is not necessary for me to address these matters in these reasons.

The pleadings

Statement of claim

1. The claim in these proceedings concerns the validity of two litigation funding agreements entered into between LCP and the first defendant (Vale) in December 2016 and December 2017.  

2. Vale was trustee of a trust known as the 'Vale Cash Management Fund' (Fund).  In 2007 and 2008, Vale in its capacity as trustee of the Fund acquired interests in certain synthetic collateralised debt products (CDOs).  In about 2014, a class action was commenced in relation to the CDOs (Proceedings).  While Vale qualified to be a group member of this class action, almost all of the unitholders of the Fund did not want to be involved in the class action. 

3. On 27 March 2014, Vale resolved to terminate the Fund and in June 2014, Vale was deregistered.  From the date of termination of the Fund, Vale held the assets of the Fund on bare trust for the unitholders subject to the terms of the Trust Deed.

4. In about December 2016, Oakvale Pty Ltd, who had been the sole shareholder of Vale, determined that Vale should be reinstated and that Vale, as trustee of the Fund, should:

   (a)become a group member in the class action proceedings; and

   (b)sign a litigation funding agreement with LCP. 

5. Vale was reinstated and a director of Vale on behalf of Vale executed a litigation funding agreement with LCP (2016 agreement). 

6. In December 2016, Oakvale resolved that Vale should be wound up voluntarily and that Mr Jones and Mr Smith be appointed as liquidators.

7. In February 2017, in CIV 1181 of 2017, Mr Jones and Mr Smith sought and obtained judicial advice from this court, pursuant to s 92 of the Trustees Act 1962 (WA), that, inter alia, they would be justified and acting properly and reasonably in entering into the 2016 agreement.

8. In about October 2017, further claims were being investigated in relation to CDOs that were not the subject of the existing class action proceedings.  In December 2017, the second defendant on behalf of Vale executed a further litigation funding agreement with LCP in relation to these claims (2017 agreement).

9. The existing class action proceedings were settled.  In July 2019, Vale received more than $14.5 million from the settlement of those proceedings.

10. In November 2019, in CIV 2903 of 2019, Mr Jones and Mr Smith sought and obtained judicial advice from this court pursuant to s 92 of the Trustees Act, that, inter alia, they would be justified and acting properly and reasonably in entering into the 2017 agreement.[4] 

    [4] Statement of claim [36].

11. LCP pleads that HBF claims in other proceedings (CIV 1181 of 2017 and CIV 2903 of 2019) that the execution of the 2016 agreement was invalid and the declaration of solvency (which was a requirement of the voluntary winding up) was not executed properly as each was signed by only one director of Vale. LCP contends that any irregularity in the execution of the 2016 agreement and 2017 agreement is a procedural irregularity under s 1322(1)(b)(i) of the Corporations Act 2001 (Cth) (Act).[5] LCP seeks declarations that the 2016 and 2017 agreements are not invalidated because of the procedural irregularity, alternatively that declarations should be made under s 1322(4)(a) of the Act that these agreements are not invalid.[6] 

Defence of Mr Jones and Mr Smith

[5] Statement of claim [38].

[6] Statement of claim [39].

1. The defence of Mr Jones and Mr Smith primarily consists of admissions and non-admissions.  Many of the factual matters pleaded by LCP are admitted by them, although the relief that flows from these facts is not admitted. 

HBF's amended defence and counterclaim

1. In its defence, HBF admits much of the factual background to the dispute save that it says that the Fund was terminated on 31 March 2014 (not 21 March 2021 as contended in the statement of claim at [9])[7] and that from this time, Vale held the assets of the Fund on bare trust for the unitholders. 

   [7] Amended defence and counterclaim filed 4 June 2020 (Amended defence and counterclaim) [4].

2. In relation to the 2016 agreement, HBF says that Vale did not need to enter into this agreement in order to be a group member of the class action proceedings and that if Mr Jones and Mr Smith held this view, it was not genuinely held, alternatively there was no reasonable basis for it.  In addition, HBF contends the 2016 agreement did not bind Vale as it was not signed by two directors of Vale.  HBF says that entry into the 2016 agreement was not in the best interests of Vale including because of the commission and the litigation management fee payable to LCP under the terms of the 2016 agreement.

3. HBF challenges the voluntary winding up of Vale on a number of grounds, including that it was not done for a proper purpose, the declaration of solvency (which was a pre-condition of a members' voluntary winding up) was not executed properly and the declarations lodged with the Australian Securities and Investments Commission (ASIC) in January and February 2017 were 'materially false or misleading'.  As a consequence, HBF contends the declaration of solvency had no effect, a voluntary winding up of Vale was not effected and Mr Jones and Mr Smith were not appointed as liquidators of Vale. 

4. In relation to the 2017 agreement, HBF contends this is not binding on Vale because Mr Jones was not validly appointed as liquidator and, as such, had no authority to enter into the agreement on behalf of Vale. HBF also says that entry into the 2017 agreement was not in the best interests of Vale including because of the commission and the litigation management fee payable to LCP under its terms. HBF denies that declarations can be made under s 1322(2) of the Act, as the irregularities are not procedural irregularities, and says that orders under s 1322(4) should not be made.

5. HBF has filed a lengthy counterclaim against LCP, Vale and Mr Jones and Mr Smith.  By its counterclaim, HBF challenges the validity of each of the 2016 and 2017 agreements and raises a number of additional claims in respect of each agreement.  Before summarising the additional claims raised in the counterclaim, it is convenient to refer to the relief sought by HBF. 

6. First, HBF seeks declarations that neither of the 2016 agreement nor 2017 agreement are binding on Vale and seeks orders for an account of the differences between the amount paid by Vale to LCP under the agreements and the amount that would have been payable by Vale if the agreements had not been entered into.[8]  In the alternative, HBF seeks declarations that Vale acted in breach of trust in entering into or ratifying these agreements and that the second defendant knowingly induced or procured these breaches of trust.[9]

   [8] Amended defence and counterclaim, Prayer for relief [1] - [3], [6], [7].

   [9] Amended defence and counterclaim, Prayer for relief [4], [5], [8], [9].

7. Second, HBF seeks declarations that the solvency declarations are of no effect and that Mr Jones and Mr Smith have not been appointed as joint and several liquidators of Vale.[10]

   [10] Amended defence and counterclaim, Prayer for relief [10] - [15].

8. Third, HBF seeks orders vesting in HBF Vale's cause of action against the 'S & P parties' and any money paid by LCP to Vale.[11] 

   [11] Amended defence and counterclaim, Prayer for relief [17].

9. Finally, HBF seeks damages or equitable compensation, interest and costs.[12]

   [12] Amended defence and counterclaim, Prayer for relief [18] - [20].

10. In respect of the 2016 agreement, HBF asserts Mr Jones entered into the 2016 agreement to gain an advantage for Oakvale, the sole shareholder of Vale.  HBF contends this advantage was payment of some or all of the share Vale would receive from any settlement of the class action, after LCP received its commission and litigation management fee.  HBF also pleads it was a breach of trust for Vale to enter into the 2016 agreement, as it was not in the best interests of the beneficiaries of the trust and a trustee acting with due care, skill and diligence would not have entered into the agreement.  HBF says Mr Jones and LCP knowingly induced or procured this breach of trust.  If the 2016 agreement is not binding on Vale, HBF pleads that any monies paid to LCP ought be repaid to Vale.

1. HBF repeats the contentions in its defence in relation to the declarations of solvency and pleads that, as a result, Mr Jones and Mr Smith were not appointed as liquidators of Vale.  As a consequence, HBF contends the 2017 agreement is not binding on Vale.  In addition, HBF pleads that if Mr Jones was appointed as liquidator of Vale, Mr Jones breached his duties to Vale in causing it to enter into the 2017 agreement as it was not in the best interests of the beneficiaries of the trust and a trustee acting with due care, skill and diligence would not have entered into the agreement. 

2. In respect of the allegation that the 2016 agreement and 2017 agreement have been ratified, HBF pleads that any acts of ratification are also a breach of the duties owed to the beneficiaries.

3. Finally, HBF says orders under s 1322 of the Act should not be made as any irregularity has caused or may cause HBF substantial injustice.

Principles governing strikeout application

1. The principles which govern this application were not in dispute between the parties.  The principles were summarised by Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4] in the following terms:[13]

   [13] Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [60].

   (a)the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;

   (b)a statement of claim must not plead allegations at too high a level of generality.  A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;

   (c)a statement of claim must state specifically the relief or remedy claimed;

   (d)the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action.  While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;

   (e)in alleging no reasonable cause of action:

   (i)the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action.  Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action; and

   (ii)'reasonable' means reasonable according to law.  If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;

   (f)the mere fact that a case appears weak is not of itself sufficient to strike out the action;

   (g)in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;

   (h)provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment;

   (i)pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general; and

   (j)irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues.  (citations omitted)

2. As was acknowledged by Murphy and Vaughan JJA on the appeal from her Honour's decision:[14]

   The primary judge collected numerous authorities in support of these propositions.  Her Honour's synthesis of the principles is a valuable guide for the determination of any strike-out application.  It would serve no useful purpose, on appeal, to repeat the exercise carried out by the primary judge.  The relevant principles have been set out comprehensively and correctly by the primary judge.

   [14] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [56].

3. In relation to ground (b) of the application, a pleading will be struck out as scandalous if the matter alleges:[15]

   anything which is unbecoming to the dignity of the Court to hear or is contrary to good manners or which charges some person with a crime not necessary to be shown in the cause, to which may be added that any unnecessary (not relevant to the subject) allegation bearing cruelly upon the moral character of an individual is also scandalous.

   [15] Legal Practice Board v Said (Unreported, WASC, Library No 940003, 12 January 1994) (Seaman J) 3.

4. However, for a matter which is scandalous to be struck out, it must also be irrelevant.[16]

   [16] Christie v Christie (1873) LR 8 Ch App 499, 503.

5. A pleading will not be struck out merely because it is unnecessary.  However, if the unnecessary material will or is likely to cause delay or embarrassment, it may be struck out.[17]

   [17] Ron Hodgson (Trading) Pty Ltd v Belvedere Motors (Hurstville) Pty Ltd [1971] 1 NSWLR 472, 477.

6. As a general rule, a party is entitled to have its case heard, the facts found and to have the opportunity to make submissions in relation to the issues of law that arise.  It is only where, even if the facts are found as pleaded by a party, there is no basis for the legal conclusion contended for that a pleading should be struck out.[18]  In this regard, in considering the application to strike out a pleading, all of the facts that are alleged in the pleading must be accepted as true.[19]

   [18] Dalgety Australia Ltd v Rubin (Unreported, WASCFC, Library No 5485, 24 August 1984) 3.

   [19] Niven v Grant (1903) 29 VLR 102, 106; (1903) 9 ALR 122, 106.

Standing to strike out defence

1. HBF objected to the application by Mr Jones and Mr Smith to strike out certain paragraphs of its defence against LCPs claim.  HBF contended that they did not have standing to seek these orders; the defence that was filed was against LCP and not against Mr Jones and Mr Smith.[20] 

   [20] HBF's submissions [4].

2. I do not accept this submission. The power in O 20 r 19 of the Rules does not limit the bringing of an application to strike out a pleading to a particular party; it is expressed in broad terms. In my view, there is no reason to read into the rule the limitation contended for by HBF.

3. For this reason, I consider that Mr Jones and Mr Smith are entitled to challenge the defence on any of the grounds set out in O 20 r 19(1) of the Rules to ensure that the function of pleadings, as summarised above at [43], is met.

Admissibility of evidence on a strikeout application

1. HBF sought to adduce evidence in opposition to the application by Mr Jones and Mr Smith.

2. On an application to strike out a pleading for failure to disclose a reasonable cause of action, save for documents which are specifically pleaded, evidence is not admissible on the application.[21]  However in respect of the remaining grounds for the application, evidence is admissible.[22]

   [21] Rules of the Supreme Court, O 20 r 19(2).

   [22] Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236 [3] (McLure JA).

3. In support of the application, senior counsel for Mr Jones and Mr Smith referred to the 2016 agreement and 2017 agreement which are annexed to an affidavit of Mr Jones filed in CIV 1484 of 2020 on 9 April 2021 (Mr Jones' Affidavit).[23]  These documents are referred to in the pleadings and are admissible on the entirety of the application.  The affidavit on which senior counsel relied was filed voluntarily by Mr Jones in support of the originating process in those proceedings.  It is, accordingly, not subject to the substantive obligation that documents compulsorily filed in proceedings can only be used for the purpose of those proceedings.[24]  No objection was taken by either party to the court having regard to these documents in considering this application.

   [23] Affidavit of Martin Bruce Jones filed 9 April 2021, 'MBJ-9', 'MBJ-17'.

   [24] Hearne v Street [2008] HCA 36; (2008) 235 CLR 125; see discussion of application of this principle in Frigger v Trenfield (No 5) [2020] FCA 827 [19] – [58].

4. Mr Jones and Mr Smith also sought to rely on four paragraphs of Mr Jones' Affidavit: [39], [54], [68] and [90].[25] [39] of the affidavit is referred to in HBF's defence and counterclaim[26] and, accordingly, is admissible on the application.  HBF disputes the matters set out in [54], [68] and [90].[27]  This dispute cannot be resolved on an interlocutory application.   Ultimately, for the reasons set out below, in determining the application I have not had regard to these paragraphs of Mr Jones' Affidavit.  For that reason, I do not admit these paragraphs into evidence on the application.  

   [25] Second and Third defendants' submissions [70].

   [26] Amended defence and counterclaim [22.2.4]; ts (3 July 2020) 67 - 68.

   [27] HBF's submissions [50].

5. In opposing the application, HBF sought to read into evidence the affidavits of Andrew Paul Tennent Sutherland filed 17 March 2020 and 30 March 2020 in these proceedings, as well as parts of the affidavits of Mr Jones filed 9 April 2020 in CIV 1484 of 2020, 2 February 2017 in CIV 1181 of 2017, and 1 November 2019 in CIV 2903 of 2019. 

6. Paragraphs [34] - [42] and [50] of Mr Jones' 9 April 2020 Affidavit and [30] - [32] of the affidavit of Mr Jones filed 2 February 2017 are referred to in the amended defence and counterclaim and are admissible on the entirety of the application.

7. As set out in more detail below, I have determined that paragraphs of the defence and counterclaim be struck out pursuant to O 20 r 19(1)(a) and O 20 r 19(1)(b) of the Rules. For this reason, where relevant to the application under O 20 r 19(1)(b), I have accepted the evidence sought to be adduced by HBF.

Approach to application

1. Senior counsel for Mr Jones and Mr Smith contended that the entirety of the amended defence and counterclaim should be struck out as 'the allegations … lack meaningful content'.[28]  In the alternative, it was submitted that the paragraphs identified in the schedule to the amended chamber summons should be struck out.[29]

   [28] Second and Third defendants' amended submissions [3].

   [29] Second and Third defendants' amended submissions [4].

2. In order to determine whether the entirety of the amended defence and counterclaim should be struck out, I have considered the matters pleaded against the second and third defendants to determine whether the allegations 'lack meaningful content'.[30]  I have first addressed the five primary bases identified by the second and third defendants in their application,[31] then considered the miscellaneous issues raised by them, before returning to consider the impact of these findings on the pleading in its entirety.

   [30] Second and Third defendants' amended submissions [3].

   [31] Second and Third defendants' amended submissions [2]. Grounds (a) and (c) raise the same issue albeit in relation to each of the 2016 agreement and the 2017 agreement.

Knowing inducement or procurement of a breach of trust in relation to 2016 agreement

1. The second and third defendants seek to strike out the paragraphs of the amended defence and counterclaim which allege that Mr Jones and Mr Smith, by entering into the 2016 agreement, knowingly induced or procured a breach of trust. Mr Jones and Mr Smith's written submissions contend that these paragraphs are [10A] - [15], [27.2.4], [29] - [32], [35], particular (f) of [40.2], [41], [97] and [98] of the counterclaim and [4b], [5] and [18] of the prayers for relief.

2. I do not accept that the matters pleaded in many of these paragraphs concern this allegation.  For that reason, in considering this part of the application by the second and third defendants, I have considered only the matters pleaded in [40] and [41] of the counterclaim and [4b] and [5] of the prayers for relief.

3. HBF pleads that it was a breach of trust for Vale to enter into the 2016 agreement.[32]  Lengthy particulars are provided which contend that Vale did not need to enter into the agreement to be a group member of the class action and that, due to the amounts payable to LCP under terms of the agreement, it was in Vale's best interests to be an unfunded group member and that it was substantially worse off by entering into the 2016 agreement.

   [32] Amended defence and counterclaim [40].

4. It is this breach of trust that Mr Jones is said to have knowingly induced or procured.[33]  Particulars of knowledge are pleaded in [41(a)] of the amended defence and counterclaim.  These particulars address Mr Jones' knowledge of the 2016 agreement.

Submissions of the parties

[33] Amended defence and counterclaim [41].

1. Senior counsel for Mr Jones' primary submission was that Vale's execution of the 2016 agreement could not constitute a breach of trust.  This was on the basis that:

   (a)under cl 7.4 of the 2016 agreement, Vale has no obligation to pay any money to LCP unless and until the court approves entry into the 2016 agreement;

   (b)in determining whether to give approval to enter into the 2016 agreement, the court must consider whether entry into the 2016 agreement would involve a breach of trust;

   (c)if the court considers entry into the agreement would constitute a breach of trust, the court will not give its approval and LCP will not be entitled to payment.

2. Counsel for HBF submitted that cl 7.4(b) of the 2016 agreement was not a complete answer to HBF's pleading.  Counsel for HBF submitted that this argument relied on the proposition that Vale required cl 7.4(b) to be inserted into the 2016 agreement.  HBF disputes this was the case and says that it was Oakvale who proposed the inclusion of this clause.  HBF contended that this factual dispute, by itself, was a sufficient reason not to strike out these paragraphs.

3. In addition, counsel for HBF submitted that the argument advanced by Mr Jones and Mr Smith was flawed for three reasons.  First, cl 7.4(b) of the 2016 agreement required the approval of the Federal Court, which has not occurred.  Second, Vale has not obtained approval to enter into the 2016 agreement; the application was made by Mr Jones and Mr Smith as liquidators of Vale.  Third, the direction obtained by Mr Jones and Mr Smith did not constitute court 'approval' of the agreement. 

4. Counsel for HBF contended the appropriate course was for Mr Jones and Mr Smith to plead the matters raised by them on this application by way of defence to the counterclaim. 

5. In support of its submissions, counsel for HBF referred me to the email correspondence that had passed between the parties in negotiating the 2016 agreement.[34]

Disposition

[34] Affidavit of Andrew Paul Tennent Sutherland sworn 30 March 2020 'APTS-3', pages 150 - 174; ts (29 June 2020) 88 - 94.

1. At law, a third party can be liable for any breach of trust (including an innocent breach of trust) if it is established that the third party 'knowingly induced or immediately procured the breach'.[35]  The knowledge requirement can be satisfied by any one of the following four categories:[36]

   (a)actual knowledge of the breach of trust;

   (b)the third party wilfully shutting their eyes to the obvious;

   (c)wilful or reckless failure to make inquiries that an honest and reasonable person would make; and

   (d)knowledge of circumstances that would have indicated the facts to an honest and reasonable person even if the third party does not recognise the breach of trust.

   [35] Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 [69].

   [36] Baden v Societe Generale pour Favoriser le Developpement du Commerce et de L'Industrie en France S.A. [1993] 1 WLR 509, [250], [274]; see also Marriner v Australian Super Developments Pty Ltd [70].

2. In this case, HBF relies on category 1 (actual knowledge) and category 4 (knowledge of circumstances that would indicate the facts to an honest and reasonable person) in its claim against Mr Jones and Mr Smith.[37] 

   [37] HBF's submissions [31].

3. Before considering the pleading as to knowledge, it is useful to first consider HBF's pleading as to the alleged breach of trust.  This, in turn, requires consideration of the terms of the 2016 agreement and the effect of any approval given by the court to entry into the 2016 agreement.

4. In this regard, the question as to who proposed the inclusion of cl 7.4(b) in the 2016 agreement is not relevant to the proper construction of the agreement.  For this reason, on this aspect of the application, I do not accept into evidence the email correspondence between the parties.  The proper construction of the agreement, which is a commercial contract, is to be determined objectively having regard to its text, context and purpose.  In considering what a reasonable businessperson would have understood the provisions to mean, the court will consider the circumstances surrounding the contract and the commercial purpose or objects which it seeks to achieve.[38]

   [38] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35].

5. It is not in dispute that at the time of entry into 2016 agreement, Vale had been de-registered.  Under cl 1.2 of the 2016 agreement, a director of Vale (Terry Strapp) and LCP agreed that LCP would fund the re‑registration costs of Vale and that on re-registration, Mr Strapp would cause Vale to enter into the 2016 agreement.  Under cl 5 of the agreement, LCP agreed to pay all legal costs and disbursements associated with the re-registration of Vale as well as the class action proceedings. 

6. Clause 7 of the 2016 agreement governs LCP's entitlement to remuneration.  Clause 7.1 sets out the costs that are payable by Vale which include the re-registration costs, the pro-rata share of the legal costs of the class action proceedings (and any appeal) and the 'Funder's Commission'.  Clause 7.3 provides that no amount is payable by Vale until 'Resolution' of the class action proceedings.  'Resolution' is defined in sch 1 of the 2016 agreement as meaning 'when all or any part of the Resolution Sum is received, or where the Resolution Sum is received in parts, a 'Resolution' occurs each time a part is received'.

7. Clause 7.4 is in the following terms:

   Payments to [LCP] pursuant to clause 7 are not payable to [LCP] unless and until:

   (a)the Court has approved any settlement of the Proceedings resulting in the Resolution Sum; and

   (b)the Court has confirmed or approved [Vale] entering into this Funding Agreement as referred to in clause 1.4.

8. 'Court' is defined in the agreement as meaning 'any court, tribunal or arbitral forum seized with the Proceedings'.  It was not in dispute that the Proceedings were commenced in the Federal Court of Australia.

9. An application for directions by a trustee is made under s 92(1) of the Trustees Act.  This section relevantly provides that:

   Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee.

1. The effect of a trustee obtaining directions from the court is set out in s 95 of the Trustees Act.  Specifically:

   (1)Any trustee acting under any direction of the Court shall be deemed, so far as regards his own responsibility, to have discharged his duty as trustee in the subject‑matter of the direction, notwithstanding that the order giving the direction is subsequently invalidated, overruled, set aside or otherwise rendered of no effect, or varied.

   (2)This section does not indemnify any trustee in respect of any act done in accordance with any direction of the Court if he has been guilty of any fraud or wilful concealment or misrepresentation in obtaining the direction or in acquiescing in the Court making the order giving the direction.

2. That is, provided the trustee acts in accordance with the directions given by the court and is not guilty of fraud, wilful concealment or misrepresentation, the trustee will be protected against any future claim asserting that the trustee has failed to discharge their duties as trustee.[39] 

   [39] Herbert (as trustee for the Blenkinsop Family Trust as trustee for the Blenkinsop Family Trust No 2) v Blenkinsop (No 2) [2019] WASC 389[50].

3. An application by a trustee for directions is summary in character and does not resolve factual disputes.[40]  As was noted by Edelman J in Plan B Trustees Ltd v Parker:[41]

   It is common in an application for directions for the facts to be uncontested. But if the direction is founded upon a false factual premise, or relies upon false facts, then the trustee may lose the benefit of the protection afforded by the Court's direction. Further, if the material put before the Court is insufficient for the Court to make a confident answer to the relevant issues then discretion will generally be exercised to refuse to make any directions.

   [40] Wood (as Co-Executor and trustee of the will of the deceased) v Wood (No 4) [2014] WASC 393 [103].

   [41] Plan B Trustees Ltd v Parker [2013] WASC 216 [38].

4. Approval should normally be obtained in advance, although the court has the power to give approval that operates from an earlier time.[42]

   [42] Re Bell Group Ltd (In Liq); Ex Parte Antony Leslie John Woodings as Liquidator of The Bell Group Ltd (In Liq) [2013] WASC 409; (2013) 97 ACSR 117 [34].

5. In my view, for the following reasons, entry into the 2016 agreement in and of itself could not constitute a breach of trust and, as a result, Mr Jones could not have knowingly induced or procured the pleaded breach of trust.

6. First, the payment obligations under the 2016 agreement only arise after Vale has obtained court approval for entry into the 2016 agreement.  Unless and until court approval is obtained, no payment obligation arises under the 2016 agreement.  For that reason, it cannot be said that Vale was substantially worse off by entering into the 2016 agreement as compared with the position if it did not enter into the 2016 agreement.

7. Second, the effect of the directions or approval given by the court is that the trustee is deemed to have discharged its duty as trustee in the  subject-matter of the direction.  This is the case even if the order is subsequently set aside.  As a consequence, unless the trustee has been guilty of fraud, wilful concealment or misrepresentation in obtaining the direction, the trustee is deemed not to have acted in breach of its duty as trustee.  For that reason, if approval has been given to entry into the 2016 agreement, no party, including Mr Jones, can be said to have knowingly induced or procured a breach of trust. 

8. Third, in its current form, the amended defence and counterclaim does not allege that approval has not been sought or obtained by the trustee in the form required by the 2016 agreement or that the trustee is not entitled to be indemnified for any of the reasons specified in s 95(2) of the Trustees Act.  The matters raised in HBF's submissions as to whether court approval has been obtained in accordance with the terms of the 2016 agreement and, if so, the effect of any court approval, are not currently pleaded.  For this reason, I have not addressed these detailed submissions in my reasons for decision but have only addressed the pleading as it currently stands, including the proposed amendments on 26 June 2020 and 2 July 2020.  If HBF pleads these matters in any subsequent pleading, these matters can be considered at that stage.

9. For these reasons, I consider that paragraphs [40] and [41] of the amended defence and counterclaim in their current form do not disclose a reasonable cause of action and, as such, may prejudice, embarrass or delay the fair trial of the action. 

10. The application by the second and third defendant did not seek to strike out [40] of the amended defence and counterclaim. I will hear from the parties as to whether, in light of these reasons, this paragraph should remain in the current pleading. Otherwise, it is my view that [41] of the counterclaim and [4b] of the prayer for relief should be struck out under O 20 r 19(1)(c) of the Rules.

Financial benefit to Oakvale by entry into 2016 agreement

1. Mr Jones and Mr Smith object to the paragraphs of the amended defence and counterclaim which plead that by entry into the 2016 agreement, Oakvale sought to derive substantial financial benefit in priority to Vale or the Fund without approval.[43]

   [43] Amended defence and counterclaim [27.2.4], [28.1], [29], [40.2] particular (f), and [41].

2. Specifically, the amended defence and counterclaim pleads that Oakvale was the sole shareholder of Vale[44] and that on 23 July 2013, Mr Jones was appointed administrator of Oakvale.[45]  Paragraph [27.2] pleads that Mr Jones, as deed administrator of Oakvale, 'understood or expected' that, if Vale was reinstated, entered into the 2016 funding agreement and the class action proceedings were resolved, 'Oakvale would … receive a substantial benefit … being payment to it of all or some of the residual remaining' after payment of the amounts due to LCP.  No particulars are provided as to the basis on which it is contended that Mr Jones 'understood' or 'expected' this.

   [44] Amended defence and counterclaim [10A].

   [45] Amended defence and counterclaim [11].

3. HBF pleads at [28] that, as a result of these matters, Mr Jones negotiated and entered into the 2016 agreement, told Mr Strapp that he would indemnify Vale for any costs and expenses incurred, and agreed to and took steps to reinstate Vale.  No particulars are provided of any of these matters.

4. HBF then pleads (at [29]) that Mr Jones' purpose in negotiating the 2016 agreement and agreeing that Vale should be reinstated was to gain financial advantage for Oakvale. This purpose is said to be inferred from the matters pleaded in [28].

Submissions

1. Senior counsel for Mr Jones submitted there was no factual basis for these allegations and that these allegations were serious allegations which were 'pregnant with an implication of dishonesty'.[46]  For this reason, without proper particulars having been provided, it was said that these allegations should be struck out.

   [46] Second and third defendants' amended submissions [8(h)].

2. Counsel for HBF disputed the contention that Mr Jones did not know the case that he had to meet.  HBF submitted that the dealings were within Mr Jones' own knowledge and are a matter for evidence.  In oral argument before me, counsel for HBF referred me to the correspondence that had passed between the parties in relation to the negotiation of the 2016 agreement which, he contended, supported the matters pleaded.[47] 

   [47] Affidavit of Andrew Paul Tennent Sutherland sworn 30 March 2020, 'APTS-3', p 150 - 174; ts (29 June 2020) 77.

3. I accept this evidence is admissible on this part of the application which relies on O 20 r 19(b) and (c) of the Rules. I note, however, that at present none of this correspondence is referred to or particularised in the pleading.

Disposition

1. Clause 1.3 of the 2016 agreement provides that on signing the 2016 agreement, Vale:

   (b)confirms and declares, subject to clause 1.3(c) that it considers: (i) it executes and enters into this Agreement as bare trustee for the beneficiaries of the former Vale Cash Management Trust; and (ii) that this Agreement is being executed and entered into as part of the due and proper administration of such bare trust and for the benefit of those beneficiaries; and

   (c)acknowledges that the position in 1.3(b) above may be subject to a determination of the Court, pursuant to the confirmation of the Court to be sought by the Claimant under clause 1.4.

2. On the face of the 2016 agreement, no benefit could be conferred on Oakvale or any other party unless an application was made to the court and the court approved the benefit.  It is not clear from the pleading as to the basis upon which HBF advances its claim against Mr  Jones or why these allegations are relevant.  It is not pleaded that Oakvale has sought or received any financial benefit from the 2016 agreement.

3. Where serious allegations are made against a party, a party is entitled to sufficient information about the case against them.[48]  The principles which apply to pleadings of allegations of fraud, apply equally to allegations of professional impropriety or misconduct.[49]

   [48] Snelgrove v Great Southern Managers Australia Ltd (in liq) (rec and mgr apptd) [2011] WASC 103 [50].

   [49] Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 [38] (Ipp J).

4. I accept that the allegations raised by HBF in its pleading in respect of the conduct of Mr Jones are serious and raise allegations of professional impropriety.  In these circumstances, it is necessary for HBF to properly particularise its claim. 

5. At present, these allegations are not properly particularised.  By way of example, [26] of the counterclaim refers to correspondence between Ms Banton and the solicitors for Mr Jones regarding Vale and 'a number of dealings' between Mr Jones and his staff with various people.  While, at the hearing before me, counsel for HBF referred me to the correspondence on which HBF relies,[50] none of this correspondence is pleaded and must be if the allegations are to be maintained. 

   [50] ts (29 June 2020) 88 - 94.

6. As presently pleaded, it is my view that [27.2.4], [28.1], [29] and [40.2] particular (f) of the counterclaim are not properly particularised and may prejudice, embarrass or delay the trial of this action. For these reasons, these paragraphs should be struck out pursuant to O 20 r 19(1)(c) of the Rules.

Resolution to wind-up first defendant

1. Prior to 22 December 2016, Mr Strapp convened a meeting of directors of Vale, purportedly as the sole director of Vale, and resolved to sign a declaration of solvency.  On 23 December 2020, at a general meeting of Vale, Oakvale, as the sole shareholder of Vale, resolved to wind up Vale as a members’ voluntary winding up and appoint Mr Jones and Mr Smith as liquidators. 

2. In its amended defence and counterclaim, HBF pleads that the meeting of members of Vale was not validly convened because notice of the general meeting was not given to the directors of Vale.[51] 

Submissions

[51] Amended defence [28.3].

1. Mr Jones and Mr Smith submitted that the failure to provide notice of the general meeting to the directors of Vale was 'manifestly a procedural irregularity within the scope of s 1322(1)(b)' of the Act.[52]  They contended that the irregularity did not cause any substantial injustice and, as a consequence, the allegations should be struck out as not disclosing a reasonable cause of action.[53]

   [52] Second and Third defendants' submissions [18].

   [53] Second and Third defendants' submissions [20].

2. HBF submitted that on an application to strike out a pleading, it was necessary for the court to proceed on the basis that the factual allegations raised in the pleading were true.  HBF contended that, as a result, the court had to proceed on the basis that the factual allegation that the irregularity had caused or may cause substantial injustice was  true.  On that basis, HBF said that the amended defence and counterclaim disclosed a reasonable cause of action and should not be struck out.

Disposition

1. While I accept HBF's submission that the court must proceed on an application to strike out on the basis that the factual allegations are true, this does not require the court to accept the truth of each paragraph in the amended defence and counterclaim.  This principle only applies where a paragraph pleads an allegation of fact.

2. Applying this principle, in considering this application, I proceed on the basis that the factual allegation in [64A] of the amended defence and counterclaim is correct.  This pleads that:

   The purported meeting of Oakvale at which the resolutions referred to in paragraph 64 was made was not validly convened because notice of  the meeting was not given to the directors of Vale as required by clause 54 of Vale’s constitution.

3. However, in my view, this principle does not apply to the allegation in [92A].  This paragraph does not plead an allegation of fact but pleads a conclusion, namely that the irregularity in convening the meeting of Oakvale caused or may cause substantial injustice that cannot be remedied by any order of the court.  Specifically, the particulars of [92A] of the counterclaim plead that the substantial injustice 'resulted in Vale being bound to a contract … that is not in its interests'.

4. In Smolarek v Liwszyc, the Court of Appeal considered what must be shown by a party alleging substantial injustice under s 1322 of the Act. The Court of Appeal stated that:[54]

   It has been held that, if invalidation is sought upon the ground that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court, the party seeking a declaration of that kind must show that the irregularity occasioned the substantial injustice and not that the proceeding caused or may cause substantial injustice: Re Pembury Pty Ltd at 127 per Byrne J (where the proceeding was said to be a meeting and its resolutions).  In Re Broadway Motors Holdings Pty Ltd (in liq) (1986) 6 NSWLR 45 at 58 Powell J said that it must be shown that there is a 'nexus' between the procedural irregularity which has occurred and the matters of prejudice relied upon as constituting injustice. In Mamouney v Soliman (1992) 9 ACSR 63 at 71 Hodgson J said that the possible injustice must be 'linked' to the procedural irregularities, that it is insufficient for a plaintiff to say that resolutions had been irregularly passed and that they had caused injustice and that, in the case before him, the plaintiff had been obliged to show that there may have been a different result if proper notice of proposed resolutions had been given. However, he also said (at 72), that he accepted that the more significant the resolutions passed at the meeting, and the greater the procedural defects, the more ready the Court will be to say that they have caused or may cause substantial injustice.

   [54] Smolarek v Liwszyc [2006] WASCA 50; (2006) 32 WAR 101 [76].

5. In that case, the Court of Appeal observed that had the meeting been adjourned until such time as there was a quorum, the directors could have put their position to the other director and sought to influence how that director voted.  The Court of Appeal considered that:[55]

   While that prospect might not have been likely in all of the circumstances, a denial of the opportunity, given the significance of the resolutions passed, seems to us to have been such as arguably to give rise to a substantial injustice.

   [55] Smolarek v Liwszyc [78].

6. In my view, the matters set out in [92A] of the counterclaim cannot, as a matter of law, constitute substantial injustice as required by s 1322(2) of the Act. The matters pleaded by HBF in [92A] are the alleged outcome of Mr Jones having been appointed as liquidator and signing the 2017 agreement rather than the substantial injustice occasioned by the failure to provide notice of the annual general meeting to the other directors. For these reasons, it is my view that [64A] and [92A] of the counterclaim would be liable to be struck out under O 20 r 19(1)(a) of the Rules as not disclosing a reasonable cause of action.

Amended pleading

1. HBF sought to address these issues, which were raised during the hearing on 29 June 2020, by providing proposed amendments to [64A] and [92A] on 2 July 2020, shortly prior to the recommencement of the hearing on 3 July 2020. 

2. The proposed amendments to [64A] change the focus of HBF's complaint from the general meeting of the company (at which the resolution was passed to wind up Vale) to the directors’ meeting (at which it was resolved to convene the general meeting).  By its minute of amended pleading dated 2 July 2020, HBF now pleads that:

   (a)the directors' meeting was not valid because notice of the directors' meeting was not given to Mr Moulton as required under the Constitution and the meeting was inquorate;[56]

   (b)the substantial injustice is the failure to give Mr Moulton notice of the meeting which deprived him of the opportunity to oppose the convening of the general meeting at which the resolution to wind up Vale was passed.[57]

   [56] HBF's minute of additional amendments dated 2 July 2020 [64A].

   [57] HBF's minute of additional amendments dated 2 July 2020 [92A].

3. Senior counsel for Mr Jones and Mr Smith submitted that the proposed amendment did not address their complaint as no substantial injustice flowed from the failure to give Mr Moulton notice of the directors' meeting.  This was because, under cl 49 of the constitution of Vale, any director of Vale had the power to convene a general meeting of shareholders.[58]  If this had occurred, at a general meeting of shareholders convened by Mr Strapp, Mr Moulton could not vote on any resolution to appoint a liquidator as he was not a shareholder.  Accordingly, even if this process had been adopted, the same result would have been achieved.[59]

   [58] Affidavit of Andrew Paul Tennant Sutherland filed 30 March 2020, 'APTS-3', page 42.

   [59] ts (3 July 2020) 76 -77.

4. While I accept that, under the terms of Vale's constitution, Mr Strapp could have called a general meeting of his own volition, this is not what occurred.  He convened a directors' meeting and the directors' meeting resolved to convene the general meeting.  While the prospect that Mr Moulton would have changed Mr Strapp's mind if he had been given notice of and attended the directors' meeting might not be likely, I do not consider it is unarguable or that the amended pleading is scandalous, frivolous or vexatious or will prejudice, embarrass or delay the fair trial of the action.

5. In my view, the matters that were raised by senior counsel for Mr Jones and Mr Smith, in answer to the proposed amendments, can be raised by way of defence to the amended counterclaim.  For these reasons, I refuse the application to strike out paragraphs [64A] and [92A] of the defence and counterclaim in terms of the minute dated 2 July 2020.

Breach of duty in causing entry into the 2017 agreement

1. Mr Jones and Mr Smith seek to strike out the paragraphs of the amended defence and counterclaim which plead that entry into the 2017 agreement was a breach of the duty Mr Jones owed to Vale.[60] 

   [60] Amended defence [34.2.1]; Amended counterclaim [79.1], [79.2]; Prayer for relief [8a], [18].

2. These paragraphs plead that Mr Jones breached the duties he owed to Vale as liquidator in causing Vale to enter into the 2017 agreement because the agreement was not in the best interests of Vale and a reasonable person in the position of Mr Jones would not have entered into the 2017 agreement.  The particulars of the breach repeat the earlier particulars in relation to the 2016 agreement, namely that Vale did not need to enter into the agreement to be a group member of the class action and that, due to the amounts payable to LCP under terms of the agreement, it was in Vale' best interests to be an unfunded group member.

Submissions

1. Senior counsel for Mr Jones submitted that the allegations in relation to the 2017 agreement had the same issues as those that applied to the 2016 agreement.  That is, under the express terms of the 2017 agreement, no amount was payable to LCP unless and until court approval had been obtained for entry into the 2017 agreement.  In addition to the matters raised in respect of the 2016 agreement, senior counsel for Mr Jones and Mr Smith also contended that HBF, as a beneficiary of the trust, did not have standing to bring the claim for breach of duties.[61]  Any duty was owed by Mr Jones to Vale and Vale was the only party who could bring such a claim.

   [61] Second and Third defendants' submissions [44].

2. In their written submissions, Mr Jones and Mr Smith also referred to s 45 of the Act which provides that a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property to meet the expenses.[62]  Mr Jones and Mr Smith submitted that, as at the date of the 2017 agreement, Vale did not have assets which could be sold to remunerate the liquidators for any obligations in relation to the proceedings that were proposed.  They contended that as there were insufficient assets available to meet their expenses, they were not required to incur expenses.[63]

   [62] Second and Third defendants' submissions [24] - [29]. 

   [63] Clasquin SA v AAR International Pty Ltd (1989) 15 ACLR 9, 11 - 15; see also Australian Securities and Investments Commission v Wily & Hurst [2019] NSWSC 521 [83].

3. Counsel for HBF disputed that cl 7.4 of the 2017 agreement had the effect contended by the second and third defendants and repeated their submissions in relation to the 2016 agreement.[64] In relation to the objection to [34.2.1] of the defence, which pleads the breach of duty, counsel contended that this paragraph was relevant to the exercise of the court’s discretion whether to make an order under s 1322(4)(a) of the Act and that it was not open to Mr Jones to prevent HBF from advancing this defence.[65] Finally, in relation to the written submissions concerning s 545 of the Act, counsel for HBF submitted that this was not relevant to the issues pleaded by HBF.[66]  In any event, HBF contended that this did not reflect what had occurred.[67] 

Disposition

[64] HBF's submissions [34].

[65] HBF's submissions [35].

[66] HBF's submissions [33].

[67] ts (3 July 2020) 11 - 15.

1. The 2017 agreement is in similar terms to the 2016 agreement.  Under cl 1.3 of the 2017 agreement, Vale was obliged to apply to the court 'by no later than 31 January 2018' to seek the confirmation of the court to enter into the 2017 agreement.

2. Clause 7 sets out LCP's entitlement to remuneration.  Clause 7.1 sets out the costs that were payable by Vale which included the re‑registration costs, the pro-rata share of the legal costs of the class action proceedings (and any appeal) and the 'Funder's Commission'.  Under cl 7.3, no amount is payable by Vale until 'Resolution' of the class action proceedings, which is defined as meaning ‘when all or any part of the Resolution Sum is received, or where the Resolution Sum is received in parts, a 'Resolution' occurs each time a part is received’.

3. Clause 7.4 is in the following terms:

   Payments to [LCP] pursuant to clause 7 are not payable to [LCP] unless and until:

   (a)the Court has approved any settlement of the Proceedings resulting in the Resolution Sum; and

   (b)the Court has confirmed or approved [Vale] entering into this Funding Agreement as referred to in clause 1.4.

4. 'Court' is defined in sch 1 of the 2017 agreement as meaning 'any court, tribunal or arbitral forum seized with the Proceedings'.  It was not in dispute that at that time of entry into the 2017 agreement, no proceedings had been commenced in respect of the CDOs identified in sch 2 of the 2017 agreement.

5. Court approval was obtained for entry into the 2017 agreement from this court in November 2019.[68]

   [68] Statement of claim [36].

6. Turning first to [34.2.1] of the amended defence, this paragraph is pleaded in answer to the pleading in the statement of claim that on 12 December 2017, Mr Jones executed the 2017 agreement.[69] In [52] of the defence, HBF pleads that in considering whether to exercise its discretion under s 1322(4) of the, Act, the court should have regard to the 'matters pleaded in paragraphs 32 to 34'.

   [69] Statement of claim [34].

7. In Hui v Champion, Jagot J expressed the view that in considering whether an order should be made under s 1322(4) of the Act, it is relevant for the court to consider whether the directors have breached their duties to the company.[70]  Specifically, her Honour considered that this is a matter which is relevant to the consideration as to whether the parties concerned in the contravention or parties to the contravention acted honestly and whether it is just and equitable for the order to be made and that no substantial injustice has been or is likely to be caused to any person.  Her Honour's reasoning applies equally to a liquidator of a company who, as a matter of law, is an officer of the company. 

   [70] Hui v Champion [2019] FCA 1111 [82] - [83].

8. While I accept that the question as to whether Mr Jones has breached his duties as an officer of Vale may be relevant to the exercise of the court's discretion to make an order under s 1322(4) of the Act, for the reasons set out at [83] - [86], I do not consider that entry into the 2017 agreement can constitute a breach of the duties that Mr Jones owed to Vale or that, on this basis, it is relevant to the court's discretion.  For these reasons, I consider that [34.2.1] of the defence should be struck out. 

9. Turning then to the counterclaim, for the same reasons (as set out at [83] - [86]), I do not consider that entry into the 2017 agreement can constitute a breach of the duties that Mr Jones owed to Vale. Accordingly, I consider that [79.1] and [79.2] of the counterclaim and [8a] of the prayer for relief should also be struck out under O 20 r 19(1)(a) of the Rules as not disclosing a reasonable cause of action.

10. Given this conclusion, while it is unnecessary for me to consider whether this is a cause of action that can be brought by HBF or whether it is a cause of action that, prima facie, should be brought by Vale, I turn briefly to consider this matter. 

11. In Fried v National Australia Bank Ltd,[71] Gray J considered the authorities governing the right of a beneficiary to sue in their own right.  His Honour noted that the rationale for this rule was to prevent a multiplicity of proceedings which could be addressed by ensuring that all beneficiaries as well as the 'unwilling trustee' were joined as parties to the proceeding.[72]  His Honour concluded that:[73]

    My survey of the authorities leads me to the view that, at least where the obligation owed to the trustee is a debt, an obligation under a contract, or a covenant in a deed, it is unnecessary for exceptional or special circumstances to exist before a beneficiary of the trust has the right to sue to enforce the obligation. It is sufficient that the trustee be unwilling to bring the proceeding. How the fact of unwillingness is to be established will depend upon the circumstances of the case, but there are cases in which unwillingness on the part of the trustee may be inferred from the fact that a sufficient period has elapsed since the obligation arose and the trustee has not yet sued.  There is no requirement that the trustee be proved to be unable to sue.

    [71] Fried v National Australia Bank Ltd [2001] FCA 907; (2001) 111 FCR 322.

    [72] Fried v National Australia Bank Ltd [185].

    [73] Fried v National Australia Bank Ltd [189].

12. At this stage, the other beneficiaries of the Fund are not parties to the proceeding nor does the amended defence and counterclaim plead the basis upon which HBF says that Vale is unwilling to bring any action against Mr Jones. I address this in further detail at [265] - [270] below. For these reasons, I do not consider that HBF has standing to bring these claims as presently pleaded. Accordingly, I would strike out [79.1] and [79.2] of the counterclaim under O 20 r 19(1)(a) of the Rules.

13. Given these findings, it is unnecessary for me to consider the parties' submissions on s 545 of the Act.

Declaration of Solvency

1. The second and third defendants seek to strike out [22.2.4], [22.3], [22.4], [23.13], [23.14]. [23.19] - [23.21], [28.2] and [28.4.3] of the amended defence and [50] - [75] of the counterclaim, together with [13], [14A] and [15] of the prayer for relief.

2. Many of these paragraphs do not concern the declaration of solvency but plead material facts as to the passage of the resolution to wind up Vale, the signing of the declaration of solvency and what is pleaded to be the 'improper purpose' of Mr Jones in proposing the resolution to wind up Vale.  The substantive relief sought by HBF in relation to these paragraphs are a series of declarations.

3. These paragraphs raise three separate issues:

   (a)whether, prior to his appointment, Mr Jones knew that the insolvency could not proceed as a voluntary winding up but only by way of an insolvent winding up and what was the purpose of Oakvale or Mr Jones in resolving to wind up Vale;

   (b)the validity of the declaration of solvency; and

   (c)whether Mr Jones breached s 1308 of the Act in lodging declarations of solvency with ASIC in December 2016 and February 2017.

Resolution to wind up Vale

1. These matters are pleaded in [22] of the Defence in response to [22] of the statement of claim.  The statement of claim pleads that in or around December 2016, it was the intention of Oakvale that Vale be wound up.  The particulars of Oakvale's intention plead that it was that intention of Mr Jones as deed administrator of Oakvale.

2. In response, HBF says that at the time, Mr Jones expected Vale would be reinstated on the application of Oakvale and that after its reinstatement, Mr Jones would be appointed as a director and would sign the funding agreement with LCP.[74]  No particulars are provided of this allegation.  HBF pleads that at this time, Oakvale decided to wind up Vale under a members' voluntary winding up.[75]  HBF then pleads various matters which are said to be the purpose of Mr Jones, alternatively Oakvale, in seeking to wind up Vale[76] and pleads that these matters were not for a proper purpose.[77]  As a consequence, HBF pleads that the resolutions to wind up Vale and appoint Mr Jones and Mr Smith as liquidators were invalid.[78]  HBF also pleads that Mr Jones knew or ought to have known that a winding up of Vale could not be implemented by way of a members’ voluntary winding up and could only be done by way of an insolvent winding up.[79]

Defence [22.2.4]

[74] Amended defence [22.1A].

[75] Amended defence [22.1].

[76] Amended defence [22.4].

[77] Amended defence [22.3].

[78] Amended defence [22.4].

[79] Amended defence [22.5].

1. Specifically, in [22.2.4], HBF pleads that the purpose of winding up Vale was to enable the liquidators to deal with any issues arising in the class action proceedings and to 'seek court orders not available to directors that would bind dissentient beneficiaries to a code of conduct'.  The particulars refer to particular paragraphs of two affidavits sworn by Mr Jones: one in CIV 1484 of 2020[80] and the other in CIV 1181 of 2017.[81]  This evidence is admissible on the application as these matters are specifically referred to in the pleadings.

   [80] Affidavit of Martin Bruce Jones filed 9 April 2020.

   [81] Affidavit of Martin Bruce Jones filed 2 February 2017.

2. In Mr Jones' Affidavit in CIV 1484 of 2020 at [34] - [42], Mr Jones deposes to a conversation he had with Mr Strapp prior to the reinstatement of Vale or entry into the 2016 agreement.  At [38] - [40], Mr Jones deposes that Mr Strapp expressed concern in acting against the previously expressed wishes of the unitholders.  In response to that concern, Mr Jones expressed the view that this could be addressed by appointing a liquidator who could then seek court approval as and when required.  Mr Jones' evidence at [40] is that:

   Based on my experience, it was common for a liquidator to seek orders from the Court for approval of a course of conduct when faced with a decision which may subsequently be challenged or said to be contrary to the interests of stakeholders. At the time, I did not consider exactly what form of Court approval might be sought or whether approval should be sought prior to entry into the funding agreement.

3. Mr Jones deposes that Mr Strapp did not want to be recorded as a director of an insolvent entity where there was no benefit to him in doing so and that he advised Mr Strapp this could be addressed by way of a members' voluntary winding up.

4. The relevant paragraphs in Mr Jones' Affidavit in CIV 1181 of 2017 ([30] - [31]) also refer to discussions between Mr Strapp and Mr Jones prior to the resolution to wind up Vale.  Mr Jones' evidence at [31] is that:

   Although Mr Strapp and I discussed my appointment to the Company as a director, following its reinstatement, we agreed that it would be preferable if liquidators were appointed so as to more properly reflect my role and to enable me to make any applications to court under the Corporations Act 2001 (Cth) that may be necessary in respect of the action.

Submissions

1. Senior counsel for Mr Jones and Mr Smith submitted that [22.2.4] should be struck out as the particulars do not disclose the purpose that is pleaded and is vexatious and scandalous.[82]  In particular, they emphasised that directions from the court under the Trustees Act provide certain protections to the trustee but do not determine substantive rights between the parties or bind the beneficiaries or other parties.[83]

   [82] Second and Third defendants' submissions [52].

   [83] Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 [64].

2. Counsel for HBF submitted that it was possible that the court could infer from these paragraphs that the purpose for winding up Vale was to deal with any issues, including seeking orders to bind the beneficiaries of the trust.  In any event, counsel contended that this was a factual dispute which could only be assessed at trial, after a defence had been filed, discovery had occurred and evidence led.[84]

Disposition

[84] ts (29 June 2020) 67 - 68.

1. Paragraph [22] of the amended defence asserts that Mr Jones' purpose in winding up Vale was for an improper purpose.  I accept the submission of Mr Jones and Mr Smith that this is a serious allegation which must be properly particularised. 

2. Three separate matters are pleaded in [22.2.4]: first, the appointment of liquidators would enable liquidators, rather than the directors of Vale, to deal with any issues in the class action proceedings; second, the liquidators could seek court orders which were not available to directors; and third, any such court orders would bind dissentient beneficiaries to a course of conduct.

3. I accept that it is possible the first two of these matters could be inferred from the paragraphs of Mr Jones' affidavits particularised by HBF. 

4. However, for the following reasons, I do not accept that the third matter can be inferred from these affidavits.  First, the evidence of Mr Jones relied upon by HBF does not refer to orders being sought to bind the beneficiaries; it refers to applications that might be brought by a liquidator under the Act.  Second, HBF does not particularise nor did counsel for HBF suggest what application could be made by a liquidator which would bind 'dissentient shareholders'.  In my view, given the seriousness of this allegation, it is necessary for this to be particularised.  Third, subject to the trustee or the liquidator making full and fair disclosure of the material facts, any application under the Trustees Act or the Act, protects the trustee or liquidator from claims that they have acted unreasonably, inappropriately, or in breach of their duties; it does not determine rights and liabilities that arise out of the proposed transaction.[85]  That is, any application would not be binding on the beneficiaries or bind them to a course of conduct.

   [85] Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [64]; Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones, Weaver and Stewart (in their capacity as liquidators of Great Southern Managers Australia Ltd (in liq)) [2014] WASC 312 [57] - [58].

5. For these reasons, I do not consider the words 'that would bind dissentient beneficiaries to a course of conduct' in [22.2.4] arise from the particulars pleaded. Those words should be struck out under O 20 r 19(1)(c) of the Rules.

Defence [22.3] - [22.4]

1. These paragraphs plead that the purposes set out in [22.2] were not a proper purpose for winding up Vale under a members' voluntary winding up and that, as a consequence, the 'resolutions referred to in paragraph 22.3 were invalid and of no effect'.  I note from the outset that [22.3] does not refer to or plead any resolution or resolutions. 

Submissions

1. Senior counsel for Mr Jones and Mr Smith submitted that these paragraphs should be struck out as irrelevant, scandalous and likely to prejudice and delay the trial of the action.[86]  This was on the basis of the matters raised in respect of the declaration of solvency which I address below.

   [86] Second and Third defendants' submissions [53].

2. Counsel for HBF contended that these paragraphs were relevant to its contention that there was no legitimate reason to wind up Vale and that the resolution was passed for the purpose of conferring a financial benefit on Oakvale.[87] 

Disposition

[87] HBF's submissions [38].

1. At present, these paragraphs contend that:

   (a)the purpose of the resolution to wind up Vale was to give effect to:

   (i)Mr Strapp's view that he did not want to be associated with an insolvent winding up ([22.2.3]) and his decision that the management of the class action proceedings and how any proceeds should be distributed would be best managed by insolvency practitioners ([22.2.1]);

   (ii)alternatively, a proper reflection of Mr Jones' role and enable him to make any application under the Act ([22.2.2]) or to enable liquidators to deal with issues that arose in the class action proceedings ([22.2.4]); and

   (b)that purpose was not a proper purpose ([22.3]);

   (c)Vale had no property and there was, therefore, no proper purpose to wind up Vale.

2. These allegations are repeated in [28.2] of the defence.

3. The power which is conferred on shareholders in a general meeting must not be used for an ulterior purpose; it must be 'used bona fide for the purpose for which it was conferred'.[88]  If a resolution, passed at a general meeting, is held to have been passed for an improper purpose, it is open to the court to declare that the resolution be set aside. 

   [88] Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425, 439-440 (Williams ACJ, Fullagar, Kitto JJ).

4. In order for a company to be voluntarily wound up, it is necessary for a special resolution to be passed by the company in general meeting.[89]   If the special resolution was passed for an improper purpose, it is possible the court, on the application of a party with standing to object to the passage of the resolution, could set aside the resolution and declare that Mr Jones and Mr Smith were not validly appointed as liquidators of Vale.

   [89] Corporations Act 2001(Cth), s 491.

5. The question as to whether the resolution to wind up Vale was passed for an improper purpose is a factual matter to be determined at trial.  Accordingly, I do not consider the pleading is unarguable or that it is vexatious or scandalous. 

6. Turning then to the question of whether HBF has standing to raise this claim. It is not in dispute that HBF is not and was not a shareholder of Vale.[90]  At its highest, HBF is a prospective creditor of Vale. 

   [90] ts (3 July 2020) 9.

(c)the document is materially false or misleading because of the statement or omission; and

(d)the person did not take all reasonable steps to ensure that the document was not materially false or misleading because of the statement or omission.

1. This section is in div 1 of pt 9.4 of the Act.  Part 9.4 of the Act is entitled 'Offences' and div 1 is entitled 'Specific offences'.  Proceedings for an offence under the Act can only be commenced by ASIC, a Commission delegate or a person authorised in writing by the Minister to institute proceedings.[122] 

   [122] Corporations Act, s 1315(1).

2. Part 9.5 of the Act defines the powers of this court under the Act. Section 1322 of the Act confers wide powers on the court to make orders in respect of irregularities. Under s 1324 of the Act, the court can grant an injunction to restrain a person from engaging in conduct which contravenes or may contravene the Act.

3. As stated above at [128], in considering whether an order should be made under s 1322(4) of the Act, it is relevant for the court to consider whether Mr Jones and Mr Smith have breached their duties to the company.[123]  Whether there has been a breach of duty is relevant to the consideration of whether they have acted honestly, whether it is just and equitable for the order to be made and whether no substantial injustice has been or is likely to be caused to any person.   

   [123] Hui v Champion [82] - [83].

4. On this basis, I accept that the question as to whether Mr Jones has breached s 1308 of the Act may be relevant to the exercise of the court’s discretion whether to make an order under s 1322(4) of the Act.

5. I turn then to whether the court can grant the relief sought by HBF, namely a declaration that Mr Jones has breached s 1308 of the Act.

6. It was not in dispute at the hearing before me that the court has the power to grant declaratory relief.  In Macks v Viscariello,[124] the Full Court of the South Australian Supreme Court discussed in detail the power of a state Supreme Court to grant declaratory relief when exercising federal jurisdiction under the Act. I respectfully adopt these reasons and agree that, as a general proposition, this court has power to grant declaratory relief pursuant to s 25(6) of the Supreme Court Act 1935 (WA) (which is in materially identical terms to the South Australian provision) in relation to matters arising under the Act.

   [124] Macks v Viscariello.

7. HBF in its submissions placed significant reliance on this decision.[125]  At the outset, it is important to note that in that case, the court was considering the power of the court to make a declaration in relation to s 180 to s 182 of the Act.  These are civil penalty provisions and not offence provisions.  For the reasons which follow, this is a critical distinction. 

   [125] HBF's submissions [41] - [42]; ts (3 July 2020) 8 - 10.

8. In this case, the primary relief sought by HBF in relation to the declarations of solvency are declarations that the declarations of solvency are of no effect and that a members' voluntary winding up has not been effected. No injunctive or other relief is sought. In my view, in order to determine whether these declarations (or any of them) should be made, it is not necessary that I determine whether Mr Jones has committed an offence under s 1308 of the Act. The primary basis upon which this relief is sought is that the declarations of solvency were signed by only one director and not a majority of directors as required by s 494(1) of the Act. This relief is not impacted by whether or not the contents of the declaration of solvency were correct or not.

9. Unlike the civil penalty provisions that were considered by the Full Court of the South Australian Supreme Court, the only action that can be taken for a breach of s 1308 of the Act is a prosecution by ASIC, as the regulator. The Act does not provide that any other party (including the corporation itself) can seek relief for a breach of s 1308 of the Act. If the declaration sought by HBF were made, it would be a judicial determination that Mr Jones had committed an offence against s 1308(1) or s 1308(3) of the Act exposing Mr Jones to a penalty of imprisonment for 5 years or 20 penalty units (respectively).

10. Traditionally, courts have refused to grant declaratory relief in relation to a matter involving past conduct which could be subject of criminal proceedings.  As was noted by French J (as he then was) in Crane v Gething:[126]

    [126] Crane v Gething [2000] FCA 45; (2000) 97 FCR 9 [23].

    Courts from time to time grant declaratory relief and other remedies by way of judicial review in relation to matters which are or could be the subject of criminal proceedings. Applications for such relief usually face a substantial threshold the extent of which depends upon whether they concern matters involving past or future conduct and according to whether there are proceedings arising out of the conduct in question, pending in a criminal court:

    '... the civil courts are reluctant to grant declaratory relief when this involves determining whether particular conduct amounts to a crime because the grant of a declaration could result in conflict between the civil and criminal courts, with the civil courts usurping the proper role of the criminal courts.' - De Smith Woolf and Jowell - Judicial Review of Administrative Action (5th Edition, Sweet & Maxwell, 1995).

    Nevertheless, as Aronson and Dyer say in Judicial Review of Administrative Action (LBC 1996) at 886:

    However, the generalised judicial expressions of reluctance to use the declaration in the area of criminal law ought to be read and applied in context.  One should always ask questions such as:  Who is bringing these proceedings; the accuser, the accused or a stranger? Are the criminal courts presently seized of the matter? Are they better equipped to deal with it?  Would it be efficient to hear this case?

    See also Young, Declaratory Orders (2nd Edition, Butterworths (1984) para 1701- para 1709 et ff) and Zamir & Woolf, The Declaratory Judgment (Sweet & Maxwell, 1993) para 4162-para 4181.

11. His Honour went on to state: [127]

    Attempts to establish by declaration, other than upon the application of the Attorney General or statutory regulators, that past conduct amounts to a criminal offence have been given short shrift - Inglis v Moore (1979) 24 ALR 411 at 414 (St John J) and 421 (Brennan and Davies JJ). See also Gouriet v Union of Post Office Workers [1978] AC 435; Attorney-General v Able [1984] QB 795.

    [127] Crane v Gething [28].

12. In Brightwater Care Group Inc v Rossiter,[128] Martin CJ discussed the circumstances in which the court will grant declaratory relief in respect of conduct which constitutes or may constitute an offence.  His Honour held:[129]

    The court will only grant declaratory relief in respect of the criminality of a proposed course of conduct in exceptional circumstances: Imperial Tobacco v Attorney-General[1981] AC 718 at 742. That approach is taken for a number of sound reasons, including the fact that whether or not conduct is criminal may depend critically upon a range of precise facts and circumstances which cannot always be accurately estimated in advance. Another reason for this approach is that in our system, the determination of whether particular conduct is criminal or not is, in serious cases, generally left to a jury, not a Judge.

    But the cases recognise that in exceptional circumstances, declarations may be made in respect of conduct that could be the subject of criminal charges: Commissioner for Corporate Affairs v Sansom [1981] WAR 32 at 36. Those cases also establish that in this respect there is a vital distinction between making a declaration with respect to the lawfulness of conduct which is proposed but has not occurred, and making a declaration as to whether or not conduct which has occurred constitutes a criminal offence. Declarations in respect of proposed future conduct add to the practical utility of this jurisdiction, but a declaration in respect of conduct which has occurred has little practical utility and would usurp the jurisdiction and role of the criminal courts, and for those reasons, will not be made: Commonwealth v Sterling Nicholas Duty Free Pty Ltd [1972] HCA 19; (1972) 126 CLR 297, 305.

    [128] Brightwater Care Group Inc v Rossiter [2009] WASC 229; (2009) 40 WAR 84.

    [129] Brightwater Care Group Inc v Rossiter [18] - [19].

13. In this case, the declaration sought by HBF does not concern proposed future conduct but concerns conduct of Mr Jones which has already occurred. In my view, HBF does not have standing to seek a declaration whether the conduct of Mr Jones that has occurred constitutes an offence under s 1308 of the Act.

14. For these reasons, I consider that [13] of the prayer for relief should be struck out. 

Ratification of 2016 and 2017 agreements

1. The second and third defendants seek to strike out [82.1] and [82.2] of the counterclaim and [9b] and [18] of the prayer for relief.

2. LCP, in its statement of claim, pleads that Vale, Mr Jones and Mr Smith ratified and confirmed each of the 2016 and 2017 agreements by applying for judicial advice, retaining and giving instructions to solicitors in connection with the class action proceedings, accepting part of the settlement sum (in respect of the 2016 agreement), and executing a letter dated 23 September 2019 (in relation to the 2017 agreement), alternatively their silence, acquiescence or inactivity.[130]

   [130] Statement of claim, [55] - [56].

3. HBF denies these allegations.[131]  In its counterclaim, HBF contends that if the 2016 agreement and 2017 agreement were ratified and confirmed, any such actions were a breach of Mr Jones' and Mr Smith's duties and a breach of trust by Vale.

Submissions

[131] Amended defence [55] - [56].

1. Mr Jones and Mr Smith submit that if their arguments are accepted in relation to their other claims on the strike out application, there is no utility in the matters raised by HBF and these paragraphs ought be struck out.[132]  In addition, they contend HBF does not have standing to raise these allegations.[133]

   [132] Second and Third defendants' submissions [48].

   [133] Second and Third defendants' submissions [47].

2. HBF relies on its submissions on the issues of the breach of trust and breach of duties.  On the question of standing, HBF says that as a prospective creditor of the Fund, it has an interest in the determination of whether Vale has ratified the 2016 and 2017 agreement.  On this basis, counsel for HBF says it has standing to seek declarations that the 2016 agreement and 2017 agreement do not bind Vale.

Disposition

1. Dealing first with the question of standing. A declaration is a formal statement by the court which pronounces on a legal state of affairs; it is not an order which is capable of enforcement.[134]  However, as was noted by the Full Court of the South Australian Supreme Court in Macks v Viscariello:[135]

   [D]eclarations have legal consequences.  They operate in law either as a res judicata or an issue estoppel.  Further, declarations may take effect as a proprietary remedy - for example, a declaration that a party holds a property on a constructive trust.  However, the effect of a declaration is not to create rights but to merely indicate what they have always been.

   [134] Macks v Viscariello [659].

   [135] Macks v Viscariello [660].

2. As Gaudron J observed in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd:[136]

   There may be cases where a bare declaration that some legal requirement has been contravened will serve to redress some or all of the harm brought about by that contravention. Ainsworth v Criminal Justice Commission was such a case. But a declaration cannot be made if it 'will produce no foreseeable consequences for the parties'. That is not simply a matter of discretion. Rather, a declaration that produces no foreseeable consequences is so divorced from the administration of the law as to not involve a matter for the purposes of Ch III of the Constitution. And as it is not a matter for those purposes, it cannot engage the judicial power of the Commonwealth.

   [136] Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2000] HCA

3. In Agricultural Land Management Ltd v Jackson, Edelman J stated that:[137]

   [C]ourts only make declarations concerning the rights of parties.  Legal rights include claimed rights, powers, privileges and immunities.  They do not include observations about breaches of duty that have no legal consequence.  Declarations are not granted where they will produce no foreseeable consequences for the parties.

   [137] Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102 (S) [8].

4. In determining whether HBF has standing to seek declaratory relief in relation to the ratification of the 2016 agreement and 2017 agreement, it is necessary that there be 'a real and present dispute between the parties as to the existence or extent of a legal right or obligation'.[138]  In Macks v Viscariello, the Full Court of the South Australian Supreme Court held that:[139]

   [A]n applicant for declaratory relief will have standing if it can demonstrate that the determination of a matter that is justiciable or arises under Commonwealth law will affect or concern its commercial interests (subject to any statutory limitations on standing that may apply).

   [138] Macks v Viscariello [689].

   [139] Macks v Viscariello [689].

5. HBF does not need to have a separate cause of action if it can establish a sufficient interest that is 'separate to, and independent of' the interests of Vale. 

6. In my view, the question as to whether the 2016 agreement and 2017 agreement were ratified by Vale impacts whether any fees are payable to LCP under these agreements.  As a beneficiary of the fund, HBF's commercial interests are directly impacted by this issue.  This is an interest that is separate to the interests of Vale.

7. For this reason, I consider that HBF has standing to raise these matters in answer to the claim by LCP.

8. Turning then to the specific matters which are raised on the pleadings. In my view, the question as to whether the 2016 agreement and the 2017 agreement have been ratified by Vale, Mr Jones and Mr Smith is a matter that will need to be determined at trial.  At this stage, I consider that it is not unarguable that the court could find, after hearing all of the evidence, that:

   (a)the 2016 agreement was not validly entered into, as it was executed by only one director of Vale;

   (b)the resolution to appoint Mr Jones and Mr Smith as liquidators of Vale should be set aside as it was passed for an improper purpose.

9. If these findings were made, it would then be necessary for the court to consider the alternate case raised by LCP, namely that Vale, Mr Jones and Mr Smith have ratified these agreements. 

10. While I accept that HBF is entitled to raise matters in response to this claim, the particulars of the breaches of duty and breach of trust in  its current pleading repeat and rely on a number of paragraphs of its  defence and counterclaim that I have struck out.  I accept that the allegation that Mr Jones and Mr Smith have breached their duties are serious allegations which must be properly particularised.  On this basis, paragraph [82] of the counterclaim and [9] of the prayer for relief should also be struck out. 

Other matters

1. In addition to the five primary objections to the amended defence and counterclaim, Mr Jones and Mr Smith contend that a number of other paragraphs of the amended defence and counterclaim should be struck out.

2. Neither the written submissions nor the oral submissions of senior counsel for Mr Jones and Mr Smith addressed these matters in any detail.  The written submissions simply set out the specific basis for the application to strike out these paragraphs. 

Defence [21.5.1] to [25.5.3]

1. These paragraphs plead the position that HBF says would have occurred had Mr Jones been appointed a director or governing director of Vale.  They are pleaded in response to [21] of the statement of claim which pleads that as at December 2016, it was within the power of Oakvale to appoint Mr Jones as governing director or director of Vale and to remove Mr Moulton as a director.

Submissions

1. Senior counsel for Mr Jones submitted that these paragraphs should be struck out as these paragraphs do not plead material facts but plead a hypothetical position.[140] 

   [140] ts (29 June 2020) 55.

2. Counsel for HBF submitted that these paragraphs should not be struck out as they are directly responsive to the statement of claim.[141] In the statement of claim, LCP pleads that even if Mr Moulton refused to sign the 2016 agreement, Mr Strapp could have caused him to be removed and Mr Jones appointed. If this occurred, Mr Strapp and Mr Jones could have entered into the 2016 agreement. On this basis, it is pleaded that orders should be made under s 1322(4) of the Act to validate entry into the 2016 agreement. Counsel for HBF contended that these paragraphs of the statement of claim are pleaded to support the assertion that relief should be granted under s 1322(4) of the Act in relation to the entry into the 2016 agreement.

Disposition

[141] HBF's submissions [8].

1. Ultimately, the question raised by Mr Jones and Mr Smith is whether the issues raised by these paragraphs constitute a 'matter' within the meaning of Ch III of the Commonwealth Constitution. This requires there to be an 'immediate right, duty or liability to be established by the Court'.[142]  

   [142] Palmer v Ayres [2017] HCA 5; (2017) 259 CLR 478 [27] (Kiefel, Keane, Nettle & Gordon JJ); In re Judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257, 265; CGU Insurance v Blakeley [2016] HCA 2; (2016) 259 CLR 339 [26] (French CJ, Kiefel, Bell & Keane JJ).

2. It has been acknowledged that difficult questions arise in determining whether a question is 'purely hypothetical' or whether it constitutes a proper exercise of judicial power.[143]  One characteristic of a purely hypothetical case is that it does not arise from an actual or genuine controversy or constitute a binding decision capable of founding a res judicata between the parties.[144]  The court does not lack jurisdiction to make a declaration on a theoretical issue where 'the issue is productive of a real and pressing dispute, is of real practical importance or is one in which the claimant has a real commercial interest.'[145] 

   [143] Insurance Commission of Western Australia v Woodings (as liquidator of Bell Group Ltd (in liq)) (No 2) [2017] WASC 372; (2017) 124 ACSR 45 [101].

   [144] Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 [48] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne & Callinan JJ).

   [145] CGU Insurance v Blakeley [102] (Nettle J).

3. It is not in dispute that Mr Jones was never appointed a director or governing director of Vale.  While I accept that [21.5.1] to [21.5.3] plead matters which have not occurred, I accept the submission of counsel for HBF that these paragraphs are pleaded in direct response to the matters raised in [21] of the statement of claim.  No objection has been taken by the second and third defendants to these paragraphs of the statement of claim.  For that reason, I accept that HBF is entitled to plead a response to the matters raised by the plaintiff.

4. However, these paragraphs suffer from the same defects as those concerning the knowing inducement or procurement of the breach of trust in relation to the 2016 agreement and the breach of duty in relation to the 2017 agreement.  The specific matters pleaded by HBF assert that it is entry into these agreements that would have constituted the breach of director's duties which gave rise to the liability to pay the fees under the agreement. 

5. For the reasons set out above, it is not the entry into either the 2016 agreement or the 2017 agreement that gave rise to the payment obligations but the approval by the court of entry into the agreement.  Consistent with the reasons I have given in relation to these matters, these paragraphs should also be struck out.

1. The application by the second and third defendants did not seek to strike out [21.5.4] of the defence.  I will hear from the parties whether, in light of these reasons, this paragraph should remain in the current pleading.

Counterclaim [10A] - [15]

1. The second and third defendants seek to strike out these paragraphs on the basis that they do not disclose a reasonable cause of action, alternatively are irrelevant.[146]

   [146] Second and Third defendants' submissions [56].

2. These paragraphs plead material facts about Oakvale, who relevantly is and was the sole shareholder of Vale.

3. In my view, these paragraphs should not be struck out.  These matters are relevant to the issues concerning the resolution of shareholders to appoint Mr Jones and Mr Smith as liquidators at a general meeting of Vale. 

Counterclaim [30] - [32]

1. The second and third defendants seek to strike out these paragraphs on the basis that they are unsupported by any factual basis, do not disclose a cause of action and are irrelevant.[147]

   [147] Second and Third defendants' submissions [58].

2. The primary complaint of Mr Jones and Mr Smith concerns the allegation in these paragraphs that the solicitors for Mr Jones and Mr  Smith, Norton Rose Fulbright, were willing to provide advice to Mr  Jones even though Vale did not have funds to pay for the advice.  This allegation is specifically pleaded in [32] and is pleaded in the alternative to [31].

3. In these paragraphs, HBF alleges that:

   (a)Norton Rose Fulbright was aware of Mr Jones' negotiations with LCP concerning the funding agreement ([30]).  No particulars are provided as to the basis for this allegation;

   (b)Mr Jones was able to take his own independent legal advice from Norton Rose Fulbright in relation to a series of matters including on the basis that funding was available from Oakvale to pay for this advice [31]; and

   (c)alternatively, Norton Rose Fulbright was willing to provide legal services to Mr Jones without payment [32].

Submissions

1. Counsel for HBF submitted that these paragraphs are relevant to HBF's allegations that Mr Jones breached his duty in causing entry into the 2017 agreement and knowingly induced or procured the breach of trust in entering into the 2016 agreement.[148]  HBF contended that these paragraphs needed to be read with:

   (a)particular (g) to [40.2] which pleads that a reasonable trustee would have sought legal advice from Norton Rose Fulbright prior to entry into the 2016 agreement; and

   (b)[82.2.2] (which incorporates the particulars to [40]) which pleads that a trustee acting with due care, skill and diligence would not have ratified the 2016 agreement or 2017 agreement. 

   [148] ts (29 June 2020) 95.

2. At the hearing, counsel for HBF referred me to the affidavit of Mr Jones filed on 1 November 2019 in CIV 2903 of 2019. This affidavit is admissible on this part of the application which is brought under O 20 r 19(1)(b) of the Rules. This affidavit discloses the amount of the work in progress of the liquidators and the legal expenses that were incurred from the date of their appointment to 30 September 2019.[149]

Disposition

[149] Affidavit of Martin Bruce Jones filed 1 November 2019 in CIV 2903 of 2019 [63]; ts (3 July 2020) 13 ‑ 14.

1. In my view, the questions as to whether Norton Rose Fulbright was aware of the negotiations, whether Mr Jones was able to take advice and whether Norton Rose Fulbright was willing to provide that advice without payment are not relevant to the issues raised in paragraphs [40.2] and [82.2.2].

2. These matters are raised, it appears, in anticipation of a possible defence that may be pleaded by Mr Jones and Mr Smith - namely that by reason of s 545 of the Act, they were not required to incur costs that they could not pay for. If that defence is pleaded, these allegations may become relevant. However, at present, in my view, these paragraphs raise a false issue.

3. For these reasons I consider that [30] - [32] should be struck out under O 20 r 19(1)(b) of the Rules.

Counterclaim [35]

1. The second and third defendants seek to strike out this paragraph on the basis that it is irrelevant.[150]

   [150] Second and Third defendants' submissions [59].

2. This paragraph pleads a series of events that are said to have occurred on 7 December 2016 prior to execution of the 2016 agreement.

3. HBF says that these matters are relevant because they plead conduct relied upon to satisfy the conduct element of the knowing inducement cause of action.[151]

   [151] HBF's submissions [30].

4. In circumstances where the paragraphs in the counterclaim which plead knowing inducement have been struck out, I consider that this paragraph should also be struck out.

Counterclaim [83] - [86A]

1. The second and third defendants seek to strike out these paragraphs on the basis that they do not disclose a reasonable cause of action, alternatively that they may prejudice, embarrass or delay the fair trial of the action.[152]

   [152] Second and Third defendants' submissions [66].

2. These paragraphs fall under the heading 'Derivative Action'.  In these paragraphs, HBF pleads that Vale was under a duty to recover property belonging to the trust, including any causes of action against Mr Jones and LCP. 

3. These paragraphs were amended by the minute of proposed amendments filed 26 June 2020 which deleted the pleading that Vale was unable or unwilling to bring these actions.[153]  The only additional matter that is now pleaded is that Vale has not pursued the causes of action against Mr Jones or LCP.[154]  In the prayer for relief, HBF seeks an order for an account and repayment of any monies owing after the account is taken.[155] 

Submissions

[153] Amended counterclaim [85] - [86].

[154] Amended defence and counterclaim [86A]. 

[155] Prayer for relief [2] - [3].

1. Counsel for HBF submitted that it was not necessary for HBF to obtain a prior grant of leave to bring this claim as this is a matter that can be determined on a final basis at trial.[156]  HBF contends that it has pleaded the matters which, in its submission, constitute the exceptional circumstances which entitle it to sue on the trustee’s cause of action.

Disposition

[156] ts (3 July 2020) 16 - 17.

1. In Treadtel International Pty Ltd v Cocco,[157] the NSW Court of Appeal considered whether a prior grant of leave to bring derivative proceedings was required.  After noting there were conflicting authorities on the issue, Barrett AJA (Gleeson and Leeming JJA agreeing) stated that:[158]

   I suspect that there is no hard and fast rule and that much depends on context.  The need for a safeguard by way of screening by the court as a prelude to a derivative suit by a beneficiary upon a cause of action maintainable by the trustee is understandable where certain conditions prevail - for example, where there are several beneficiaries one of whom purports to act for the estate as a whole; where there is a question about the benefit that the estate will derive from pursuit of the proceedings; or where it is necessary to discover whether the trustee's decision not to proceed has some sound basis.  In straightforward cases, there will be no need for such a safeguard.

   [157] Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; (2016) 316 FLR 318.

   [158] Treadtel International Pty Ltd v Cocco [75].

2. As was noted by Brereton J in Chahwan v Euphoric Pty Ltd, although the authorities refer to 'exceptional circumstances', these generally are no more than the failure by the trustee to sue a third party on a cause of action.[159]  His Honour considered that it was necessary that any pleading relying on this exceptional circumstance explicitly allege that the trustee will not bring the proceedings.[160]

   [159] Chahwan v Euphoric Pty Ltd (trading as Clay & Michel) [2009] NSWSC 805; (2009) 73 ACSR 252 [17].

   [160] Chahwan v Euphoric Pty Ltd [39].

3. In this case, I accept that one of the 'preludes' referred by his Honour exists - namely, HBF is one of the beneficiaries who is seeking orders in relation to the entirety of trust.  I also accept that the liquidation of a trustee company is a category of exceptional circumstances.

4. However, as set out above at [132], a beneficiary who can establish exceptional circumstances can sue a third party on a cause of action which belongs to the trustee, if the trustee fails to sue to protect the trust property.  However, where this occurs, it is necessary for the beneficiaries to be joined to the proceedings, which has not occurred. 

5. In circumstances where the beneficiaries of the trust are not parties to these proceedings, these paragraphs should be struck out pursuant to O 20 r 19(1)(a) of the Rules as they do not disclose a reasonable cause of action.

6. In addition, [86A] of the counterclaim pleads that Vale has not pursued the causes of action against Mr Jones or LCP.  There is a significant difference between this assertion, which pleads a statement of fact, and pleading the exceptional circumstance that the trustee will not pursue these causes of action, which is a statement of the trustee's intention.  If this case is to be pursued in any amended pleading, this matter will need to be properly addressed.

Impact on entirety of defence and counterclaim

1. In my view, while there are a number of issues with HBF's defence and counterclaim in its present form, it cannot properly be said that the defence and counterclaim 'lacks meaningful content'.  For this reason, I decline to strike out the entirety of the amended defence and counterclaim.

Conclusion

1. The matters raised on this application were wide-ranging and complex.  This is evident from the length of the hearing, the amendments to the application prior to the hearing, the amendments to the defence and counterclaim both immediately prior to the hearing and during the hearing, the time it has taken to deliver these reasons and the length of these reasons.

2. Many of the matters that were raised by both parties during submissions are not reflected in the current pleadings.  If these matters are to be pursued at the final trial, these must be the subject of the parties' pleaded cases.

3. The application by Mr Jones and Mr Smith was primarily targeted as those portions of the defence and counterclaim which makes specific allegations against them.  Given the views I have expressed in relation to the knowing inducement or procurement of a breach of trust in relation to the 2016 agreement and the breach of duty in respect of the 2017 agreement, I will hear from the parties as to the orders that should be made, including whether the claims made by HBF against LCP in relation to the entry into the 2016 agreement and 2017 agreement should also be struck out.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

ME

Associate to the Honourable Justice Hill

26 MAY 2021

11; (2000) 200 CLR 591 [52].