Malone v Van Leeuwen & Anor No. Scgrg-99-499 Judgment No. S296
[1999] SASC 296
•3 August 1999
MALONE v VAN LEEUWEN & ANOR
[1999] SASC 296
Magistrates Appeal: Civil
1 WILLIAMS J. This is an appeal by the defendant against an interlocutory decision by a Magistrate in civil proceedings. Leave to appeal was granted by a judge of this Court on 21 May 1999.
2 On 4 December 1998 the plaintiffs instituted this action in the Magistrates Court seeking damages. The plaintiffs complain about the value of an investment which they made in ostriches. They assert that the defendant, as director of the company with whom the plaintiffs contracted, was "involved" in a contravention of the Corporations Law so as to render him civilly liable. They further assert that the defendant, as director, breached a duty of care to the plaintiffs so as to render him liable in negligence at common law.
3 Upon an application made on 9 March 1999 the defendant sought that the particulars of claim be struck out on the ground that they disclose no reasonable course of action.
4 On 20 April 1999, after hearing argument, a Magistrate sitting at Adelaide dismissed the defendant’s application and delivered written reasons for his decision. The Magistrate recognised that there were some deficiencies in the particulars of claim but did not consider that they should be struck out. It is against this decision that the defendant now appeals.
5 The action concerns a transaction between the plaintiffs and Adelaide Ostrich International Pty Ltd. It is alleged that on 18 September 1997 the company executed an investment contract with the plaintiff. It is claimed that the contract was a prescribed interest within the Corporations Law and also a "security" within the legislation. The plaintiffs assert that the company was in breach of s1065 and s1018 of the legislation in that the transaction proceeded without an approved deed or a relevant prospectus.
6 In terms of the particulars, the plaintiffs have put forward their claim upon three separate bases, namely:
A claim made pursuant to s1005 of the Corporations Law alleging that the defendant, as director of Adelaide Ostrich, was "involved" in the company’s contravention of the Corporations Law. Therefore he was civilly liable in accordance with the section for the loss flowing from the contravention.
A claim made pursuant to s232(4) of the legislation that the defendant was in breach of his statutory duty of care.
A claim made at common law that the defendant breached a duty of care to the plaintiffs to ensure that the company complied with the legislation.
7 Upon the hearing of the appeal the plaintiffs abandoned the claim based on s232(4).
8 As regards the claim made under s1005, it was the plaintiff’s submission that by virtue only of the fact that the defendant was director of Adelaide Ostrich he was thereby civilly responsible for the consequences of the company’s contravention of the Corporations Law.
9 In my opinion s1005 does not have the wide operation for which the plaintiffs contend. Section 1005 enables recovery of loss or damage by action "against any person involved in the contravention" (emphasis added). Section 9 says that "involved" in relation to a contravention has the meaning given by s79.
10 Section 79 provides that:
"Subject to section 1006, a person is involved in a contravention if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention;
(b) has induced, whether by threats or promises or otherwise, the contravention;
(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention."
(emphasis added).
11 For present purposes I have concentrated my attention upon s79(c) - "knowingly concerned" (compare the approach of the High Court of Australia in the Court’s treatment of s75B of the Trade Practices Act (1974) (Cth) in Yorke & Anor v Lucas (1984) 158 CLR 661 at 670). No argument was addressed to me upon the effect of s1006 and I have not considered how that section may extend liability.
12 It seems to me that upon the facts as pleaded, the plaintiffs must establish something more than the bare assertion in par13 of the particulars of claim that:
"The Defendant was involved in the contravention of Section 1018 and section 1065 of the legislation by virtue of him being a director of the company."
13 I inspected the contract which is pleaded and thereby incorporated into the particulars. It is apparent that something more than the bare assertion to which I have just referred appears upon the face of the contract. The company Adelaide Ostrich has executed the document under its common seal which, according to the document, has been "hereunto affixed in the presence of Vin Malone Director". Counsel for the defendant, Mr Wilkinson, acknowledges that the handwritten words "Vin Malone" on the document constitute the defendant’s signature. I note that the company secretary P Malone also appears to have attested the affixing of the seal. According to the papers referred to in the pleadings Phillipa Malone is described in one place as the Administration Manager and in another as a director of Adelaide Ostrich. The defendant is also relevantly described as "Managing Director".
14 As such, there appears to be material available to the plaintiffs’ solicitors from which it might be inferred that the defendant had knowledge of a kind which, by virtue of his degree of participation in the transaction, would, at least arguably, bring him within s79(c). Although these facts can be found within the material referred to in the pleading, the relevant assertions ought to be pleaded as allegations.
15 The defendant, upon this present appeal, makes the further complaint that the particulars do not allege material facts sufficient to support a claim based upon economic loss arising from common law negligence.
16 Mr Wilkinson argues, inter alia, that the plaintiffs must plead the relevant facts relating to "proximity" between the parties (see for example Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) (1997) 23 ACSR 71). It is submitted that by merely pleading that the defendant is the company director does not allege material facts as to proximity which gives rise to a duty of care.
17 Mr Anderson, of counsel for the plaintiff, told me that he relies upon the actions of the defendant in "the circumstances". However, the particulars do not make such an allegation of the relevant circumstances. The plaintiffs’ particulars of claim allege that:
In addition to the foregoing or in the alternative, the Defendant owed a duty of care to the Plaintiffs to ensure that the company complied with Section 1018, and section 1065 of the legislation.
The Defendant breached his duty of care to the Plaintiffs."
18 The defendant’s written submissions included the following:
Malone submitted before the Learned Special Magistrate that as the claim is for breach of a common law negligence duty of care involving pure economic loss only Van Leeuwen must plead:
22.1 material facts giving rise to the duty of care;
22.2 what is the duty of care;
22.3 material facts as to proximity;
22.4 material facts as to reliance;
22.5 material facts as to breach;
22.6 material facts as to loss;
22.7 material facts as to causation;
22.8 material facts as to remoteness
The Learned Special Magistrate did not deal with this submission.
The only material fact relied on by Van Leeuwen in relation to the circumstances giving rise to the conclusion of the existence of a duty of care is that in(sic) Malone is a director of the company. That is not sufficient.
Malone does not have any duty to Van Leeuwen of the nature pleaded either at common law nor in equity.
Van Leeuwen does not have a cause of action."
19 The Magistrate has not dealt with this argument. However, in my opinion, the pleading is insufficient. In the common law claim, as in the claim under the Corporations Law, the plaintiffs have apparently sought to rely upon the fact of the defendant’s directorship as being sufficient to establish his liability for the actions of the company. Clearly that proposition standing alone is too broad.
20 The defendant drew my attention to a discussion as to the circumstances in which a duty to a company includes an obligation to take account of the interests of third parties (see Sycotex Pty Ltd v Baseler & Ors (1994) 13 ACSR 766 at 785). It is unnecessary to pursue that argument in order to dispose of this appeal.
21 The plaintiffs argue that the existing particulars could be amended. In my view the convenient course is now to strike out the filed particulars and give leave to bring in new particulars of claim in substitution thereof.
22 Mr Wilkinson has foreshadowed an argument that the relevant contract did not give rise to a "prescribed interest". No argument has been advanced thereon and that point will remain to be pursued as appropriate.
23 The formal order will be:
Appeal allowed and order of Magistrate set aside;
order that the filed particulars of the plaintiffs’ claim be struck out;
order that plaintiffs have leave to re-plead their claim by filing in the Magistrates Court amended particulars of claim within 28 days from the date hereof;
order that the defendant be entitled to costs of the appeal but that otherwise the costs of the application be costs in the cause.
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