Mantel v Waterproofing WA Pty Ltd

[2011] WASC 77

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   MANTEL -v- WATERPROOFING WA PTY LTD [2011] WASC 77

CORAM:   ALLANSON J

HEARD:   ON THE PAPERS

DELIVERED          :   25 MARCH 2011

FILE NO/S:   CIV 1815 of 2008

BETWEEN:   BARRY JAMES MANTEL

MICHELLE LEANNE MANTEL
Plaintiffs

AND

WATERPROOFING WA PTY LTD
First Defendant

DOMINIC WILLIAM WHALEN
Second Defendant

LERIC PTY LTD
Third Defendant

MICHAEL RICHARD GOSS
MARY-LENA GOSS
Fourth Defendants

Catchwords:

Practice and procedure - Pleadings - Application to strike out part of statement of claim - Pleading complicity in breach of trust - Pleading of dishonesty - Turns on own facts

Legislation:

Nil

Result:

Statement of claim struck out in part

Category:    B

Representation:

Counsel:

Plaintiffs:     No appearance

First Defendant            :     No appearance

Second Defendant        :     No appearance

Third Defendant           :     No appearance

Fourth Defendants       :     No appearance

Solicitors:

Plaintiffs:     Metaxas & Hager

First Defendant            :     Earnshaw & Associates

Second Defendant        :     Earnshaw & Associates

Third Defendant           :     D'Angelo Legal

Fourth Defendants       :     D'Angelo Legal

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

Arthur Young v Tieco International (1995) 182 LSJS 367

Banque Commerciale SA, en liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82

Barnes v Addy (1874) LR 9 Ch App 244

Boase v Axis International Management Pty Ltd [2009] WASC 331

Erlistoun Gold Pty Ltd (Formerly Erlistoun Gold NL) v Worth Investments Pty Ltd [1999] WASCA 3

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89

Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336

H 1976 Nominees Pty Ltd v Galli [1979] FCA 74; (1979) 30 ALR 181

MacMahon Contractors Pty Ltd v Woodside Energy Ltd [2008] WASC 271

Murchison Zinc Co Pty Ltd v Thiess Contractors Pty Ltd [2000] WASCA 167

Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905

Wainter Pty Ltd v Freehills (a firm) [2008] FCA 562

1. ALLANSON J:  In 2008, Barry James Mantel and Michelle Leanne Mantel commenced proceedings against Waterproofing WA Pty Ltd (first defendant), Dominic William Whalen (second defendant), Leric Pty Ltd (third defendant), and Michael Richard Goss and Mary‑Lena Goss (fourth defendants).  The plaintiffs claim relief for breach of trust by the first defendant, and plead that each of the other defendants was in some way liable as an accessory to that breach. 

2. On 18 October 2010, on an application by the third and fourth defendants, I struck out pars 13, 14 and 15 of the amended statement of claim.  On 26 November 2010, the plaintiffs filed a re‑amended statement of claim.  The second defendant has applied for orders that pars 13, 14, 15, 22, 23 and 24 of the re‑amended statement of claim be struck out.  The third and fourth defendants also seek orders that pars 13, 14, 15 and 16 ‑ 24 should be struck out.

3. It is convenient to first outline the case pleaded against each of the defendants. 

First defendant

1. The first defendant (Waterproofing WA) is trustee of the Waterproofing Trust and, at material times, carried on business in the supply of goods and services for building developments (par 9).  The trust was constituted by deed as a unit trust. The plaintiffs, the second defendant, and Ms Kelly Louise Tivey hold all of the units in the trust (par 10). 

2. The first named plaintiff (Mr Mantel) and the second defendant were directors of Waterproofing WA.  The first named plaintiff, the second defendant and Ms Tivey owned the four issued shares in Waterproofing WA.  

3. The plaintiffs allege against Waterproofing WA:

   1.It was engaged by various builders of building developments (the Projects) to provide waterproofing services for reward (par 13). 

   2.In breach of the trust deed it authorised or permitted the income that should have been paid to it in respect of the Projects to be paid to other persons or entities (par 14).

   Three instances are specified:

   1.Waterproofing WA completed the provision of waterproofing services for a project at Burswood Towers 1 and 2 by October 2007 (par 16).  From about June 2007, the developer, Mirvac, paid the third defendant for waterproofing services in respect of Burswood Towers 1, 2, 3 and 4 'which services the first defendant had been engaged to provide' (par 23).

   2.Mirvac also paid the third defendant for services at a building at Point Mandurah that Waterproofing WA had been engaged to provide (par 23).

   3.On or about 12 March 2007 Mirvac paid $54,182.20 for waterproofing services at Burswood Tower 3 to another entity, 'Silicon Aqua' (par 18).  Those waterproofing services were provided by Waterproofing WA (par 19).

4. The plaintiffs generally claim that Waterproofing WA engaged in a dishonest or fraudulent design, namely to permit the third defendant to assume the engagements of Waterproofing WA for the Projects, thereby depriving Waterproofing WA of income and profits that it would have earned (par 24.2).  

Second defendant

1. The second defendant, Mr Dominic Whalen, is a director and a shareholder of Waterproofing WA.   With Ms Tivey, he owns half of the units in the trust (par 11.2).  One of the third defendants, Mary-Lena Goss, is his mother (par 8). 

2. The plaintiffs allege that Mr Whalen 'aided and abetted, counselled or procured' Waterproofing WA in its breach of trust 'by causing the income to be paid to persons or entities related to the second defendant' (par 15).   Presumably those 'related' persons are the third and fourth defendants, based on the plea that Ms Goss is the second defendant's mother.

3. There is no specific plea that the second defendant breached statutory or other duties of his office as a director of Waterproofing WA.

The third and fourth defendants

1. Mr and Mrs Goss are alleged to be the directors and shareholders of the third defendant (par 4) and registered the business name under which the third defendant carried on business until 14 November 2005 (pars 5 and 6). 

2. The plaintiffs allege against the third defendant that:

   1.the payment by Mirvac to 'Silicone Aqua' on 12 March 2007 was a payment to either the third defendant or the fourth defendants (par 22.1);

   2.on 20 June 2007, it rendered an invoice to Mirvac for the provision of waterproofing services for Burswood Tower 3 (par 21);

   3.from June 2007 onwards, it rendered invoices to Mirvac for waterproofing in respect of Towers 1, 2, 3 and 4 at Burswood and for Point Mandurah, 'which services the first defendant had been engaged to provide' (par 23).

3. By reason of those matters, the third or fourth defendants:

   1.received the property of the trust, being the payment by Mirvac to 'Silicon Aqua' on 12 March 2007 (par 24.1); and

   2.assisted Waterproofing WA in its dishonest or fraudulent design to permit the third defendant to assume its engagements and thereby deprive it of the income and profits it would have earned (par 24.2).

Relief

1. The plaintiffs seek orders including orders that:

   1.Waterproofing WA (as trustee) account for the income and expenditure of the trust fund for the period from 10 June 2004 to the date of judgment, and pay to the trust fund such amount as shall be found due to the fund upon the taking of account.

   2.the second, third and fourth defendants pay equitable compensation to the trust fund. 

   3.the trust vest.

The principles to be applied

1. Pleadings ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her:  Banque Commerciale SA, en liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279, 286 ‑ 287 [18]. A case may proceed without pleadings, and Supreme Court Rules 1971 (WA) O 4A r 2 authorises the court to make directions that dispense with all or any pleadings. But whether there are pleadings or some other way of stating the matters in issue, there are some requirements that must be met. In particular, there must be some statement of the case that is sufficiently clear to allow the other party a fair opportunity to meet it.

2. On an application to strike out, it is now necessary to consider the role of pleadings in the context of case management techniques, including the pre-trial exchange of witness statements:  although see Wainter Pty Ltd v Freehills (a firm) [2008] FCA 562 [4] (French J). The court will seriously entertain criticisms of a pleading only where the defects complained of may significantly affect the proper preparation of the case and its presentation at trial: Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [8]. Providing a pleading fulfils its basic function by identifying the issues, disclosing an arguable cause of action, apprising the other party of the case it has to meet at trial, then the action should proceed: Murchison Zinc Co Pty Ltd v Thiess Contractors Pty Ltd [2000] WASCA 167 [38]; Barclay Mowlem Construction Ltd [5] ‑ [9]. But it remains an essential requirement that a pleading fulfil this basic function: Boase v Axis International Management Pty Ltd [2009] WASC 331 [5]; MacMahon Contractors Pty Ltd v Woodside Energy Ltd [2008] WASC 271 [11] ‑ [26].

3. In order to meet the essential requirements, a statement of claim must plead a cause of action with a sufficient level of detail to define the issues and give fair notice of the case to be made against the other party at trial.  I respectfully adopt what Lander J said in Arthur Young v Tieco International (1995) 182 LSJS 367, 370:

   Whether the material facts and whether sufficient particulars have been pleaded must depend upon the cause of action, the complexities of the case and the whole of the circumstances of the case. None of those matters can be considered in isolation any more than each of the paragraphs of the pleading can be considered in isolation.

4. In this case, the plaintiffs allege a breach of trust by a company of which one of them is a director.  They allege the third and fourth defendants participated in a dishonest and fraudulent design by the trustee.  Such an allegation should be clearly pleaded and particularised:  Farah Constructions Pty Ltd v Say‑Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 162 [70]. It is not sufficient to simply plead serious allegations of that nature as conclusions. The statement of claim must contain the relevant facts to support the conclusions that it alleges arise from those facts: H 1976 Nominees Pty Ltd v Galli [1979] FCA 74; (1979) 30 ALR 181, 186 ‑ 187; Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905 [22] ‑ [24].

The paragraphs objected to

Paragraph 13

1. The defendants raise several objections, including that the paragraph refers to the 'Projects', which are several contracts with unidentified principals, and there are no particulars of the 'engagements' which Waterproofing WA entered.  The complaints do not in my opinion warrant striking out the paragraph.  The defendant's concerns could be met by a request for particulars.

Paragraphs 14 and 15

1. The paragraphs state:

   14.In breach of the terms of the Trust Deed the first defendant:

   14.1  authorised, or

   14.2  permitted

   the income that should have been paid to the first defendant in respect of the Projects to be paid to persons or entities other than the first defendant.

   15.The second defendant aided and abetted, counselled or procured the first defendant to commit the breaches of trust as pleaded above by causing the income to be paid to persons or entities related to the second defendant.

2. The problems in par 14 are more significant.  The first‑named plaintiff and the second defendant are both directors of Waterproofing WA.  The plea that Waterproofing WA authorised or permitted the income that should have been paid to it in respect of the projects to be paid to other persons or entities is central to the plaintiffs' case.  But reading the pleading as a whole, it is not apparent:

   1.how the plaintiffs say Waterproofing WA authorised or permitted the diversion of income; and

   2.who is alleged to have carried out relevant acts by, or made relevant decisions on behalf of, Waterproofing WA.

3. Other complaints are made regarding par 14, but the crucial problem is that (together with the remainder of the statement of claim) it does not state what the first defendant did.

4. This is particularly significant to the second defendant, as the plaintiffs allege in par 15 that he 'aided and abetted, counselled or procured' the breach of trust.  It is not clear whether the allegation is that he 'aided and abetted' using his office as director of Waterproofing WA (the trustee), or did so in some other way. 

5. The defendants complain that the allegation that the second defendant 'aided, abetted, counselled or procured' the breach of trust pleads a form of accessorial liability under the Trade Practices Act 1974 (WA), but not applicable to a claim of liability for a breach of trust.  The problem, in my opinion, is that the plaintiffs have used that formula as a substitute for pleading the facts which may establish his liability for a breach of trust by Waterproofing WA.

6. On the current statement of claim, the second defendant has no notice of the case he must meet.  This affects the third and fourth defendants who are alleged to have participated in the breach of trust.  I do not accept the plaintiffs' submission that par 15 has no relevance to them and they cannot complain about it.

Paragraphs 16 to 21

1. These paragraphs contain some narrative of what the plaintiffs say occurred.  In particular, they plead that on 12 March 2007 Mirvac paid $54,182.20 to Silicone Aqua for services provided by the first defendant (pars 18 and 19); and that in June 2007 the third defendant rendered an invoice to Mirvac for the provision of waterproofing services at Burswood Tower 3 (par 21).  Paragraphs 16 to 21 are not themselves objectionable. 

Paragraph 22

1. Paragraph 22 is in these terms:

   In the premises pleaded in paragraphs 16, 17, 18, 19, 20 and 21 above [in effect the rendering of invoices by Silicon Aqua and the payment by Mirvac to Silicon Aqua for waterproofing services which the plaintiffs say were carried out by Waterproofing WA] it is to be inferred that:

   22.1the payment to Silicon Aqua in paragraph 18 above was a payment to the third defendant or to the fourth defendants; and

   22.2the payment was made to an unregistered business name to conceal the identity of the payee.

2. In pleading that 'it is to be inferred' that the payment to Silicon Aqua was a payment to the third or fourth defendants, par 22 does not plead a material fact.  More importantly, the allegation in par 22.2 is objectionable.  The allegation that the payment was made 'to conceal the identity of the payee' pleads an apparently dishonest purpose.  Such an allegation should be clearly made.  But par 22 does not identify whose purpose it was, or what any of the defendants are alleged to have done.

Paragraph 23

1. Paragraph 23 alleges:

   From about June of 2007 onwards the third defendant trading as 'WA Commercial Waterproofing' rendered invoices to Mirvac for waterproofing services in respect of Towers 1, 2, 3 and 4 at Burswood and the Point Mandurah which services the first defendant had been engaged to provide.

2. The plaintiffs submit that this is the principal claim in the statement of claim. But this paragraph is indicative of the general problem in the plaintiffs' pleaded case.  The defendants cannot, on the present pleading, ascertain what the plaintiffs say each of them did, other than that the third defendant rendered invoices to Mirvac for waterproofing services in respect of Towers 1, 2, 3 and 4 at Burswood and Point Mandurah.  The allegation that the third defendant rendered invoices to Mirvac, even if the first defendant had been engaged, does not support a claim of breach of trust by the first or second defendants, or complicity in such breach by the third defendant. 

3. Paragraph 23 may stand, but the facts alleged in it are not sufficient to make the plaintiffs' claim, and the plaintiffs have not pleaded the other facts required.

Paragraph 24

1. Paragraph 24 has two limbs:

   By reason of the matters pleaded above the third defendant or the fourth defendants:

   24.1 received property of the Trust as pleaded in paragraphs 18 and 19 above; or

   24.2assisted the first defendant in a dishonest and fraudulent design, namely, to permit the third defendant to assume the engagements of the first defendant for the projects and thereby deprive the first defendant of the income and profits that the first defendant would have earned had it completed waterproofing services for the Projects.

2. In a general sense, the two limbs of par 24 correspond with the two limbs of the test in Barnes v Addy (1874) LR 9 Ch App 244. The correspondence is only very general. There is no allegation in either limb that the third and fourth defendants had the notice or knowledge that is an element of the liability in each case: see Farah Constructions Pty Ltd v Say‑Dee Pty Ltd [112], [123] ‑ [129], [171] ‑ [177].

3. The defendants also complain that no material facts are pleaded upon which to base the allegation of a 'dishonest and fraudulent design'.  The seriousness of the allegation in par 24.2 requires that it be pleaded and particularised:  Farah Constructions Pty Ltd v Say-Dee Pty Ltd [70]. The statement of claim, in par 24 or otherwise, does not state the facts on which the conclusion of participation by either the third or fourth defendants in a dishonest and fraudulent design by the first defendant could be found.

4. Accordingly, in my opinion, the statement of claim fails to meet the essential requirements of a pleading.

The submissions of the plaintiffs

1. The plaintiffs' submissions in support of the statement of claim are brief.  They submit that the principal allegation is in par 23:  that from about June 2007, the third defendant rendered invoices to Mirvac for waterproofing services that the first defendant had been engaged to provide.  Otherwise the plaintiffs do not engage with the complaints made by the defendants, simply submitting that those complaints 'are an attempt to ensure the action is never tried by denying the plaintiffs the opportunity to get discovery and progress the action'; and that  the pleading challenges are because the defendants do not want to deal with the merits.  Those submissions are no answer to the faults in the pleading.  

2. If the plaintiffs require some discovery in order to restate their case, they have the option of seeking some specific discovery before pleading.  The general rule that discovery will not be ordered prior to the close of pleadings may yield if they can establish a proper case for earlier discovery in the particular circumstances of this case:  see, for example, Erlistoun Gold Pty Ltd (Formerly Erlistoun Gold NL) v Worth Investments Pty Ltd [1999] WASCA 3. But the pleading cannot stand simply to allow the action to progress to the stage of discovery.

3. Finally, I wish to comment briefly on the nature of some of the allegations made.  The plaintiffs do not simply allege breaches of trust by the first defendant, for which the other defendants are liable as accessories.  They allege dishonest and fraudulent design, including deliberate concealment of the identity of the recipient of a payment by the use of an unregistered business name.  If such allegations are to be made, they should be made clearly.  Further, if the pleadings are to allege serious misconduct, there are obligations placed upon those who make those allegations:  see, for example, Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336, 347 ‑ 348; and see Legal Profession Conduct Rules 2010 (WA) reg 36 (3).

Conclusion

1. For the reasons set out above I would strike out paragraphs 14, 15, 22, and 24.  In my opinion, the plaintiffs need to re‑plead their case in total, although they may wish to retain some of the existing plea.

2. I will hear the parties as to any further orders, including costs of the application.