Mary v Schon [No 2] - [2015] WADC 146

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: MARY -v- SCHON [No 2] [2015] WADC 146

CORAM: DERRICK DCJ

HEARD: 6 NOVEMBER 2015

DELIVERED : 11 DECEMBER 2015

FILE NO/S: CIV 3629 of 2014

BETWEEN: BRANDON EDWARD MARY
Plaintiff
AND
IVAN THOMAS SCHON
Defendant

Catchwords:

Practice and procedure - Appeal against decision of registrar granting summary judgment to defendant - Alleged intentional interference by director of company in contractual relations between company and third party - Alleged misleading or deceptive conduct engaged in by director of company towards third party contracting with company - Alleged negligent misstatements made by director of company to third party contracting with company - Alleged misleading or deceptive conduct engaged in by director of company to the company

Legislation:

Australian Consumer Law
Corporations Act 2001 (Cth)
District Court Rules 2005 (WA)
Fair Trading Act 1987 (WA)
Rules of the Supreme Court 1971 (WA)
Trade Practices Act 1974 (Cth)

Result:

Appeal allowed in part

Representation:

Counsel:

Plaintiff: Mr C E Chenu
Defendant: Mr J P Cook

Solicitors:

Plaintiff: Bennett & Co
Defendant: Mendelawitz Morton

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

Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Apache Energy Ltd v Alcoa of Australia Ltd (No 2) [2013] WASCA 213; (2013) 45 WAR 379
Bell v Cribb [2013] WASC 32
Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874
C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317
Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194
Elovalis v Elovalis [2008] WASCA 141
Forsayth NL v Northern Gold NL (Unreported, WASCA, Library No 940012, 20 January 1994)
Gallop Investments Pty Ltd v Jones [2002] WASC 66
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328
King v Milpurrurru (1996) 136 ALR 327
Marsh v Baxter [2015] WASCA 169; (2015) 49 WAR 1
Mary v Schon [2015] WADC 92
Melville v Gibbs [2012] WASCA 207
Mentmore Manufacturing Co Ltd v National Merchandising Co Inc (1978) 89 DLR (3d) 195
O'Brien v Dawson (1941) 41 SR (NSW) 295
O'Brien v Dawson [1942] HCA 8; (1942) 66 CLR 18
Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980; (2000) 177 ALR 231
Rutherford v Poole [1953] VLR 130
Said v Butt [1920] 3 KB 497
Smec Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138
Smith v McCusker QC [2005] WASCA 226
Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507
Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517
Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285
Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598
Wright v Wright [2002] WASC 30

DERRICK DCJ:

Introduction

By chamber summons filed on 12 February 2015 the defendant made an application under O 16 r 1 of the Rules of the Supreme Court 1971 (WA) (RSC) for summary judgment. The application was supported by an affidavit sworn by Mr Jonathon Cook on 12 February 2015. Mr Cook is the solicitor employed by the defendant's solicitors who has the daily conduct of the matter.
The application was heard on 6 May 2015 by a registrar of this court. The registrar reserved his decision.
On 6 August 2015 the registrar delivered his decision. The registrar allowed the defendant's application. He did so on the ground that the defendant had a good defence on the merits: Mary v Schon [2015] WADC 92. The registrar made orders that judgment be entered for the defendant and that the plaintiff pay the defendant's costs of the application including reserved costs.
By notice of appeal filed on 17 August 2015 the plaintiff appeals against the registrar's decision. In support of the appeal the plaintiff has filed an affidavit sworn by him on 1 October 2015.

Nature of the appeal

The appeal is brought under r 15(1) of the District Court Rules 2005 (WA) (DCR).
An appeal from the decision of a registrar to a judge under r 15(1) of the DCR is a hearing de novo: DCR, r 15(6); Hazart Pty Ltd v Rademaker (1993) 11 WAR 26, 28. I am therefore to treat the application which led to the making of the orders the subject of the appeal as though it had not been previously determined. It is not necessary for the plaintiff to establish appealable error on the part of the registrar (although in this case the plaintiff does assert appealable error): Hazart v Rademarker (28); Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194 [13], [14].

Applicable legal principles

It is convenient at the outset to state the principles applicable to the determination of a summary judgment application made under O 16. The principles are not in dispute.
On an application by a defendant for summary judgment of the plaintiff's claim, the defendant bears the burden of demonstrating that on the material before the court the action should not be permitted to go to trial in the ordinary way because it is apparent that the action must fail; the defendant must show that there is no serious question to be tried on any cause of action raised by the plaintiff: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Melville v Gibbs [2012] WASCA 207; Bell v Cribb [2013] WASC 32 [49]; Apache Energy Ltd v Alcoa of Australia Ltd (No 2) [2013] WASCA 213; (2013) 45 WAR 379 [86]. The power to order summary judgment must be exercised with 'exceptional caution': Apache Energy v Alcoa [86]. The power should not be exercised unless it is clear that there is no real question to be tried: Smec Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138 [20]; Bell v Cribb [49]; Apache Energy v Alcoa [86].
Although the court may determine any difficult question of law on an application for summary judgment, it will usually be appropriate to leave the determination of such questions for trial: Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514 – 515; Smec Australia v Valentine Falls Estate [20].
In dealing with a defendant's summary judgment application it must be accepted that the plaintiff will be able to establish the material facts pleaded in the statement of claim: Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598, 608; Wright v Wright [2002] WASC 30 [13]; Gallop Investments Pty Ltd v Jones [2002] WASC 66 [4].
In Forsayth NL v Northern Gold NL (Unreported, WASCA, Library No 940012, 20 January 1994) Franklyn J said:
It is not for the Court, on an O 16 application, to identify or accept some other cause of action, not pleaded, which the evidence before it might arguably support and which, possibly for good reason, was not relied on by the plaintiff in his statement of claim and then allow the statement of claim to remain on foot in reliance on a possible subsequent amendment.
However, as Martin CJ observed in Elovalis v Elovalis [2008] WASCA 141 [46] when the context of Franklyn J's observations are taken into account it is clear that his Honour was referring to an 'entirely separate and discrete and unpleaded cause of action, and not to a nuance or variant of the basic cause of action pleaded'. To put it another way, the statement of claim should be construed broadly and generously, with any ambiguities either clarified or assumed in favour of the plaintiff: Smith v McCusker QC [2005] WASCA 226 [37].

The status of the pleadings

On 7 November 2014 the plaintiff filed his writ of summons with an indorsement of claim.
On 27 January 2015 the plaintiff filed his statement of claim.
On 24 March 2015, that is, after the defendant had filed his application for summary judgment but before the application was heard, the plaintiff filed, pursuant to O 21 r 3(1) of the RSC as amended by r 48A of the DCR, an amended statement of claim. It was by reference to the amended statement of claim that the parties dealt with, and the registrar determined, the summary judgment application. I will from this point on refer to the amended statement of claim as the statement of claim.

The plaintiff's action – summary

The defendant was the managing director of a company called SAS Telecom Pty Ltd (SAS). The other director of SAS was the defendant's wife.
The sole shareholders in SAS were the defendant and his wife. They were each the beneficial owner of one ordinary share in the company.
SAS provided satellite communication and equipment, and infrastructure services to new and existing mining camps throughout Western Australia.
The plaintiff was (but no longer is) the defendant's son‑in‑law.
During the period March 2007 to 31 October 2008 the plaintiff was employed by SAS as its general manager.
On 31 October 2008 the plaintiff and SAS entered into a Separation Agreement by which the plaintiff's employment with SAS was terminated (the Separation Agreement). The Separation Agreement was, on the plaintiff's case, partly oral and partly in writing. The Separation Agreement, to the extent that it was in writing, was, so far as is presently relevant, in the following terms:
Key Terms for Mutual Separation Agreement
between BRANDON MARY (BM) & SAS
Without prejudice until this agreement is signed by both parties, BM to resign position as General Manager, effective October 31, 2008, under the following terms and conditions:
1.Commencing November 1, 2008 through March 31, 2009, BM's nominated company to be paid consultancy fee of $20,833.33 + GST per month, on the first day of each month in advance, beginning 1st November, 2008. BM will be entitled to up to three (3) days off during any month, yet unpaid.
2.SAS will payout to BM 10% of SAS net profit from July 1, 2008 through October 31, 2008. This sum will be determined and fully funded by 10 November, 2008. Also paid on 31 October 2008 will be all accrued leave, with leave loading, as of close of business October 31, 2008.
3.50% of Brandon Mary's 'loan' account will be deducted from the above amount. That sum to be deducted is $33,992.40. SAS relinquishes all rights to collect any further sums from that balance. Also, to be deducted is the airfare of BM to Satellite 2009, the cost of which will be taken form [sic] the AMEX bill of BEM.
4.BM will be allowed to take leave between the afternoon of November 3, 2008, and through November 6, 2008, without prejudice to the remaining terms herein.
5.During this 5 month period, BM will assist in an orderly transition of SAS management to a newly hired GM, MD or CEO. In addition BM will be available to consult to SAS on any matters required by SAS.
…
7.The consultancy agreement will be reviewed as of March 31, 2009, and SAS will then decide, if not before, at that time to cease or continue the consultancy for a stated period on the same financial terms as above or other as mutually agreed.
8.No holiday or sick leave will accrue during this consultancy period. It is agreed that BM will have off three (3) weeks between December 24, 2008 and January 13, 2009. This will not be paid as accrued leave has already been paid as above.
…
12.BM will return all Laptops, Blackberrys, mobile phones etc that are the property of SAS by COB, November 3, 2008.
13.Any interpretation of any terms of the above will be by mutually agreeable counsel. Each party acknowledges that this agreement was drafted jointly and accordingly the laws of interpretation against the drafter will not apply.
The Separation Agreement was signed by the plaintiff as an 'Individual' and by the defendant as the managing director of SAS.
During the period 1 November 2008 to about 11 February 2009 the plaintiff, through a company called EEZ Dot Me Pty Ltd (EEZ), provided SAS with consultancy services pursuant to the terms of the Separation Agreement.
In August 2014 an administrator was appointed to SAS.
It is against the above brief factual background that the plaintiff commenced his action against the defendant. The causes of action pleaded by the plaintiff against the defendant in the statement of claim are as follows:
1.Intentionally interfering with the plaintiff's contractual relations with SAS by intentionally causing or inducing SAS to breach the Separation Agreement as a result of which the plaintiff has suffered loss and damage: statement of claim, pars 52 and 56;
2.Misleading or deceptive conduct contrary to s 10 of the Fair Trading Act 1987 (WA) (the FTA) resulting in the plaintiff suffering loss and damage: statement of claim, pars 65 and 66;
3.Breach of duty of care owed to the plaintiff to take reasonable care not to give misleading information to the plaintiff about the intention of SAS to perform the Separation Agreement as a result of which the plaintiff has suffered loss and damage: statement of claim, pars 73, 75 and 76; and
4.Misleading or deceptive conduct engaged in towards SAS contrary to s 52 of the Trade Practices Act 1974(Cth) (the TPA), s 10 of the FTA and s 18 of the Australian Consumer Law (the ACL).
I turn to deal with the issues raised by the appeal by reference to each of the pleaded causes of action.

Intentional interference with contractual relations

The pleaded case

In pars 20 ‑ 23 of the statement of claim, the plaintiff pleads the following:
20.In or about November 2008, and after the Payment Date, the Defendant instructed SAS that the Separation Payment was to be calculated and paid by SAS to the Plaintiff after an amount calculated at the Defendant's individual marginal tax rate of 48% (Tax Reduction) was deducted by SAS from the Net Profit.
PARTICULARS
By email dated 27 November 2008, the Defendant stated to the Plaintiff that:
(a)the Net Profit was $858,385.32;
(b)taking into account the Defendant's marginal tax rate of 48%, the amount of the Net Profit would be reduced to $446,360.36; and
(c)the 10% 'bonus' would be $44,636.03.
21.In or about November 2008, and after the Payment Date, SAS applied the Tax Reduction and thereby caused the amount of the Net Profit recorded in its records to be reduced by the amount of the Tax Reduction, and consequently caused a corresponding reduction to the Separation Payment owed by SAS to the Plaintiff in SAS's accounts.
22.The Tax Reduction was made by SAS improperly and in breach of the Separation Agreement.
23.The Defendant caused or induced SAS to make the Tax Reduction in breach of the Separation Agreement.
Earlier in the statement of claim the 'Payment Date' is specified to be 10 November 2008 (see cl 2 of the Separation Agreement) and the 'Separation Payment' is specified to be the amount payable to the plaintiff under cl 2 of the Separation Agreement less the amounts to be deducted from that sum under cl 3 of the Separation Agreement.
In pars 26 ‑ 32 of the statement of claim, the plaintiff pleads the following:
26.On or about 1 December 2008 the Defendant provided the Plaintiff with a profit and loss statement for the period 1 July 2008 to 31 October 2008, stating the Net Profit to be $877,701.91 (the December P & L Statement).
27.The December P & L Statement included the following expenses to be deducted from SAS's profits for the month of October 2008:

Item	Amount
1.	Suppliers Equipment	$293,146.99
2.	Pivotel Telephones	$99,084.63
3.	Thuraya Telephones	$24,420.00
4.	Superannuation Contribution to Ivan Schon (Superannuation Contribution)	$70,000.00
TOTAL		$486,651.62

28.The deductions detailed at paragraph 27 (Improper Deductions) are expenses that were not incurred by SAS during the period 1 July 2008 to 31 October 2008, and were incurred after that period.
29.The Improper Deductions were not accounted for by SAS in accordance with:
(a)the ordinary and generally accepted principles of accounting practice; or
(b)SAS's usual accounting practices.
PARTICULARS
The Improper Deductions ought to have been accounted for as expenses for the months of November 2008 and/or December 2008.

30.The Superannuation Contribution was not made by SAS in accordance with any obligation or requirement for SAS to pay superannuation to the Defendant pursuant to any written law or agreement.
31.The Improper Deductions were made by SAS in breach of the Separation Agreement.
32.By reason of the matters pleaded in paragraphs 27 to 31 above, the Defendant caused or induced SAS to account for the Improper Deductions in the manner pleaded in paragraphs 27 to 31 above.

Further, in pars 35 ‑ 42 of the statement of claim, the plaintiff pleads the following:
35.On or about 9 February 2009, the Defendant stated to the Plaintiff by email that:
(a)the Plaintiff's loan account was the sum of $57,944.28;
(b)the Plaintiff's 'bonus' was $44,636.03;
(c)the balance of the sum owing by the Plaintiff to SAS (taking into account the Plaintiff's loan account) was $13,308.25; and
(d)the Plaintiff was to submit an invoice to SAS in the sum of $57,944, to be 'written off' against the Plaintiff's loan account.
PARTICULARS
Email from Defendant to Plaintiff dated 9 February 2009.
36.Neither the Plaintiff nor EEZ submitted an invoice to SAS in the sum of $57,944.
37.On or around 23 March 2009, the Defendant caused to be produced a document, purportedly an invoice from EEZ to SAS, in the sum of $58,000 plus GST (Fake Invoice).
PARTICULARS OF THE FAKE INVOICE
Document titled 'Tax Invoice' dated 2 March 2008 [sic] from EEZ Dot Me Pty Ltd ABN 71 133 538 26 to SAS bearing stamps and annotations stating 'PAID Date: 27/3/09 CHQ.No.Contra Clearing' and 'Processed'.
38.In or about March 2009, the Defendant caused SAS's accounting records to be altered as follows:
(a)the sum of $57,944.28 was deducted from the Plaintiff's personal loan account and the balance of the Plaintiff's personal loan account balance was reduced from $57,944.28 to $0; and
(b)the sum of $55.72 (being the balance of the Fake Invoice after deducting the balance of the Plaintiff's loan account in the sum of $57,944.28) was deducted from the personal loan account of the Plaintiff's then wife, Melissa Mary.
39.Further and in the alternative, in or about March 2009, the Defendant falsely represented to SAS that:
(a)the Fake Invoice was a genuine invoice; and
(b)the value of the Fake Invoice had been paid to EEZ, or alternatively, to the Plaintiff and Melissa Mary.
40Neither EEZ nor the Plaintiff has received payment pursuant to the Fake Invoice.
…
42.The reduction of the amount of the Separation Payment to take into account more than $33,992.40 of the Plaintiff's loan account (Loan Reduction) was made by SAS improperly and in breach of clause 3 of the Separation Agreement.
At pars 48 ‑ 56 of the statement of claim the plaintiff, under the heading 'Interference with contractual relations', pleads his cause of action in the following terms:
48.By virtue of the matters pleaded in paragraphs 12 to 16, there was a contract between the Plaintiff and SAS, being the Separation Agreement.
49.The Defendant was aware of the Separation Agreement.
50.The Defendant was aware that, if the Defendant:
(a)altered, or caused SAS to alter, SAS's accounting records by making the Improper Deductions; and/or
(b)caused SAS to make the Tax Reduction; and/or
(c)caused SAS to make the Loan Reduction,
this would:
(d)reduce in SAS's accounting records the amount due and payable to the Plaintiff pursuant to the Separation Agreement;
(e)thereby cause SAS to breach the Separation Agreement by failing to pay all or part of the Separation Payment; and
(f)thereby cause loss or damage to the Plaintiff.
51.The Defendant was aware that, if the Defendant caused SAS to refuse to pay the Separation Payment or any part of it, this would cause SAS to breach the Separation Agreement.
52.By virtue of the conduct pleaded at paragraphs 50 and 51, the Defendant intentionally caused or induced SAS to breach the Separation Agreement.
53.The conduct of the Defendant that is pleaded in paragraphs 20 to 23 (inclusive), 27 to 32 (inclusive) and 35 to 39 (inclusive) was unlawful.
PARTICULARS
The conduct of the Defendant:
(i)contravenes s 1307 of the Corporations Act, in that the Defendant falsified books relating to the affairs of SAS; and/or
(ii)contravenes s 184 of the Corporations Act, in that the Defendant, by engaging in the conduct, was reckless or intentionally dishonest and failed to exercise his powers in good faith in the best interest of the company or for a proper purpose.
54.The conduct of the Defendant that is pleaded in paragraphs 20 – 23, 28 – 32 and 35 – 38 was not a bona fide exercise of the Defendant's authority as a director or officer of SAS.
55.By virtue of SAS's breaches of the Separation Agreement, the Plaintiff has suffered loss and damage.
PARTICULARS
Full particulars of loss and damage will be provided after discovery and before trial.
56.By virtue of the matters pleaded in paragraphs 48 to 55 the Defendant:
(a)has interfered with the Plaintiff's contractual relations with SAS;
(b)has caused SAS to breach the Separation Agreement; and
(c)has caused the Plaintiff to suffer loss and damage.
PARTICULARS OF LOSS AND DAMAGE
Full particulars of loss and damage will be provided after discovery and before trial.

As is readily apparent from my above citation of the relevant paragraphs of the statement of claim, the plaintiff's pleading of his intentional interference with contractual relations claim (and for that matter his pleading of his other claims also) is complex and not altogether easy to follow. As the plaintiff's counsel frankly conceded at the hearing of the appeal the statement of claim is not 'a masterpiece of drafting and … will be amended' if the appeal is successful.
Nonetheless, what is disclosed by the statement of claim is that there are three main aspects of the defendant's conduct which are alleged by the plaintiff to have constituted the defendant's interference with the plaintiff's contractual relations with SAS. First, causing SAS to make the Tax Reduction. Second, causing SAS to make the Improper Deductions. Third, causing SAS to make the Loan Reduction. I note in this context that at the hearing of the appeal it was the first and third of these aspects of the alleged conduct of the defendant that were the focus of the plaintiff's counsel's attention.

The registrar's reasons

The registrar dealt with the defendant's application for summary judgment on the plaintiff's intentional interference with contractual relations cause of action in pars [8] to [36] of his judgment. In dealing with this aspect of the plaintiff's case the registrar embarked upon a relatively detailed analysis of the case as pleaded. In undertaking this analysis the registrar concluded that the only conduct of the defendant for which there was a pleaded causal link to any breach by SAS of the Separation Agreement was the conduct of the defendant in causing SAS to make the Tax Reduction and the conduct of the defendant in causing SAS to make the Loan Reduction [27]. The registrar further concluded that these aspects of the defendant's conduct as pleaded did not provide a basis upon which it could be established that the defendant was 'sufficiently independent of SAS to cast him in the role of a tortfeasor' [35]. On the basis of these conclusions the registrar arrived at his ultimate conclusion which he expressed in the following terms [36]:
In relation to each case that conceivably is within the scope of the pleading in pars 48 ‑ 56, I have no difficulty with the proposition that there is a good defence on the merits. The defendant has established a clear case for judgment.
Although not a great deal turns on the point in the context of the present appeal, I respectfully disagree with the registrar's apparently held view that the statement of claim does not disclose a causal link between the defendant's alleged conduct in causing SAS to make the Improper Deductions and the alleged breach of the Separation Agreement. Accepting that the plaintiff's case may not be pleaded as clearly or as precisely as it could be, it does seem to me that at least pars 27 ‑ 31 and pars 50 ‑ 51 of the statement of claim do disclose a causal link between the defendant's alleged conduct in causing SAS to make the Improper Deductions and the alleged breach by SAS of the Separation Agreement constituted by SAS's failure to pay to the plaintiff the Separation Payment.

The parties' submissions

The plaintiff submits that in light of the first instance decisions in Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980; (2000) 177 ALR 231; Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328 and Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874 it is at least an arguable proposition of law that where a plaintiff contracts with a company, and the director of that company deliberately procures the commission of an act by the company which he knows is unlawful (or is recklessly indifferent to whether it is unlawful) or acts outside his powers as a director, for the purpose of causing harm to the plaintiff in his rights under the contract, the director commits the actionable tort of intentional interference with contractual relations: plaintiff's outline of submissions dated 2 October 2015, par 20. The plaintiff submits that there is at least a triable issue that the defendant, by causing SAS to make the Tax Reduction, the Improper Deductions and the Loan Reduction acted unlawfully or outside his powers as the managing director of SAS and in his own self‑interest. The plaintiff submits that the defendant, in causing SAS to make the Tax Reduction, the Improper Deductions and the Loan Reduction, was not acting as a director of SAS in the best interests of SAS but rather as a stranger endeavouring to secure for himself and his wife, as the owners of SAS, the financial benefit that would flow from the reduction in the amount of the Separation Payment.
The defendant submits that the law is that a director of a company cannot be liable for procuring that company to breach a contract to which it is a party. The defendant submits that this principle of law was established in O'Brien v Dawson [1942] HCA 8; (1942) 66 CLR 18 and has not been departed from in the later first instance decisions referred to and relied upon by the plaintiff. The defendant submits that there is no exception to the principle laid down in O'Brien v Dawson, as contended for by the plaintiff, to the effect that a director who acts unlawfully or outside the scope of his authority as a director of a company may be held liable for interference with the contractual relations of that company. The defendant submits that even if there is such an exception, it cannot apply in the present case because all of the acts of the defendant which the plaintiff alleges constituted interference with SAS's contractual relations with the plaintiff were acts done by the defendant in the course of him acting in his capacity as the managing director of SAS. The defendant submits that no director has ever been held liable for tortious interference with the contractual relations of a company of which he is a director. The defendant submits that the application of the O'Brien v Dawson principle to the present case necessitates the dismissal of the plaintiff's claim.
As is clear from my above summary of the parties' submissions, the essential question in determining if the defendant has a good defence on the merits to this aspect of the plaintiff's claim, is whether it is arguable that the defendant, being the managing director of SAS at the relevant time, can be held liable to the plaintiff for intentionally interfering with the contractual relations between SAS and the plaintiff by engaging in the relevant alleged conduct. It was to this question which the registrar was referring when he concluded that the statement of claim did not provide a basis capable of permitting a finding that the defendant was sufficiently independent of SAS to cast him in the role of a tortfeasor.

Analysis and decision

In order to deal with the competing arguments of the parties it is necessary to make some detailed reference to the decisions in O'Brien v Dawson, Root Quality v Root Control, Idoport v National Australia Bank and Biscayne v Valance.

The case law

In O'Brien v Dawson the plaintiff alleged that he was entitled to a lease of two picture theatres and to possession and control of them. He alleged that the defendant company wrongly took possession of the two theatres and he sued the company for trespass and for breach of the two lease contracts. He also sued the company's director for conspiracy and for knowingly procuring the breach of the contracts. At trial the jury entered a verdict for the plaintiff. On appeal the verdict was set aside. In the Full Court (O'Brien v Dawson (1941) 41 SR (NSW) 295, 307) Jordan CJ (with whom the other members of the court agreed) put the matter as follows:
The next question is whether if an ordinary limited liability company is a party to a contract, and its directors acting as such, and in the course of conducting the company's business at a Board meeting, resolve that the company shall refuse to perform a contract to which it is a party, the directors knowing that the refusal cannot be legally justified, and effect is given to this resolution, the directors concerned are guilty of the tort - and presumably also of the crime - of conspiracy. I am of the opinion that in such a case it is entirely artificial to speak of the directors as 'procuring' the company to break its contract in the sense in which this word is used in the Lumley v Gye [(1853) 2 El and Bl 216; 118 ER 749] type of case. An incorporated company is a figment of the law. It is incapable of acting except through agents. Its directors are persons who have been authorised by the constituent members of the corporation to cause acts to be done on its behalf. They are its agents who have power to control its acts. It cannot act at all except through them or through some other authorised agents. They are not in the position of outsiders who are influencing the independent volition of a contracting party who is capable of exercising volition for himself. It is their volition and theirs only which determines the making, the performance, or the breach of the company's contracts … This is not to say that every board room constitutes an Alsatia in which persons may conspire to their heart's content and with complete impunity so long as they do so in the character of directors of a company and employ the machinery of their company for carrying their conspiracy into effect. It means only that the mere fact that the directors who determine whether or not a company shall perform the obligations of a contract are several in number makes them no more subject to the law of conspiracy than would be a single managing director if it were he who determined it … Directors of a company are, however, personally responsible for any torts committed by their company in the procuring of which they are personally implicated … But there is authority for the proposition that the fact that one or more directors of a company, acting as such, are the instruments by which the company, without just cause, refuses to perform a contract does not confer on the other party to the contract a right to sue the directors in tort on the footing that they have procured a breach of contractual rights …
A further appeal was taken to the High Court. The High Court dismissed the appeal. In the course of his judgment Starke J said (32):
A company 'cannot act in its own person for it has no person' … so it must of necessity act by directors, managers or other agents. The company, if it were guilty of a breach of its contracts in this case, acted through its director the respondent Doyle, but it is neither 'law nor sense' … to say that Doyle in the exercise of his functions as a director of the company combined with it to do any unlawful act or become a joint tortfeasor. Again, it is equally fallacious to assert that Doyle knowingly procured the company to break its contract. The acts of Doyle were the acts of the company and not his personal acts which involved him in any liability to the plaintiff. But I would add that it does not follow that a director of a company would escape personal liability under cover of the company's responsibility if he himself became an actor and invaded the plaintiff's rights, as by trespassing on his land, or seizing his goods and so forth.
In a similar vein McTiernan J said (34):
A commits an actionable wrong against B if he procures C to break his contract with B … But an action by the plaintiff would not lie against the company for procuring breach of its own contract with him nor against the individual defendants on that cause of action if in terminating the agreement they were acting in pursuance of their authority as directors. There is no evidence that they were not acting in pursuance of that authority.
In his judgment Williams J (with whom Rich J agreed) did not deal directly with the question whether a director could be liable for intentionally interfering with the contractual relations of the company of which he was a director.
In Root Quality v Root Control, Root Control was the proprietor of a patent for an invention. Root Control sued Root Quality for infringement of the patent. Root Control also sued the director of Root Quality, the major shareholder of Root Quality and the actual inventor of the invention for authorising or inducing Root Quality's alleged infringement of the patent.
Finkelstein J held that Root Quality had infringed the patent. Having done so his Honour turned to the issue of whether Root Control had made out its claim that the director of Root Quality had authorised or induced Root Quality's infringement of the patent. His Honour commenced his consideration of this aspect of Root Control's claim by saying the following:
[113]Having disposed of the claim for invalidity, I can now turn to the next question on this aspect of the case which is whether Mr Rivett can be made personally liable for the infringement of the patent by Root Quality. The case pleaded against Mr Rivett, a director of Root Quality, is that he infringed the patent by wrongfully supplying and selling [the invention]. In the alternative it is alleged that he 'with knowledge of the [patent in suit] caused, alternatively, authorised or alternatively induced' Root Quality to infringe the patent. Although the alternative claim lacks precision, I understand it to be a claim in tort for procuring an interference with the exclusive rights conferred by the patent in suit.
…
[115]Much has been written about the liability of directors and other officers for corporate wrongdoing. The cases present a confusing picture on an issue that has persistently vexed the common law. In recent years the uncertainty has increased partly by reason of divergent decisions and partly for other reasons.
[116]I can begin by stating some basic principles which, I trust, will not be regarded as controversial. A corporation is a legal entity separate and distinct from its officers, directors and shareholders. This separate status has produced the general rule that officers, directors and shareholders are not liable for the obligations of the corporation. On the other hand, if in the course of carrying out his duties an officer or a director of a corporation commits a tortious act, such as negligence or trespass, he will be personally liable for the wrongdoing. The corporation may also be vicariously liable for the act of its officer or director.
[117]What is the case where the officer or director is in some way personally involved in the wrongdoing of the corporation? Can the officer or director be made personally liable alongside the corporation? If so, what is the personal involvement by the officer or director that must be shown?
[118]As a general rule, it is an actionable wrong to procure the violation of the legal rights of another … The modern formulation of the tort is based upon the leading case of Lumley v Gye (1853) 2 El and Bl 216; 118 ER 749 … The tort is almost universally referred to as 'interference with contractual relations'. But the tort is not confined to interference with contracts …
[119]The cases recognise that unlawful interference may arise directly or indirectly. There will be direct interference where a person persuades another to commit the act that constitutes the interference. Indirect interference will occur when there has been no direct persuasion but where other steps have been taken to bring about the unlawful interference … But in a case of indirect interference, no action will lie unless the means taken are independently unlawful …
[120]How are these principles to be applied to a director or officer of a corporation who 'procures' his company to unlawfully interfere with the rights of a third party?
[121]On one view there should be no objection to the maintenance of a cause of action for the tort of procuring infringement of legal rights against a director or officer who intentionally procures his corporation to commit an unlawful act that causes a third party to suffer loss or damage. The unlawful act could include any civil wrong such as breach of contract, tort, breach of statute or breach of trust …
[122]It is not surprising then to find, both in England and Australia, cases that have held that a director or officer renders himself personally liable if, having control of a corporation, he directs the corporation to commit an unlawful act. Here I refer to authorities which appear to be based upon the principles established by Lumley v Gye. I leave out of account those cases where the director or officer has so conducted himself that it may be fairly said that he is the actual perpetrator of the wrong. As I will show, however, the application of Lumley v Gye to the case of directors and officers faces great difficulty. But more of this later. First, I should mention some of the cases which accept that liability can be imposed upon a director or officer.
Finkelstein J then proceeded to discuss a number of cases in which it had been accepted that a director of a company rendered himself personally liable if, having control of the corporation, he directed the corporation to commit an unlawful act. Having made reference to these cases his Honour said the following:
[125]There are, however, a number of difficulties that those cases do not confront. The first arises from the nature of corporate personality and the liability of a corporation for the acts of its agents. A corporation is an abstraction; a creature of statute. It can carry out acts only because the law attributes to the corporation certain actions of its directors and officers. Thus a corporation can interfere with the rights of a third party only when the acts constituting the unlawful interference are attributed to the corporation. There is a reason why, in that circumstance, the law should not impose liability both on the corporation for unlawful interference and separate liability on the director or officer for procuring that interference.
[126]The reason is to be found in Said v Butt [1920] 3 KB 497. The plaintiff, 'a Russian gentleman of independent means', went to the Palace Theatre to see a new play. The defendant, the managing director of the theatre company, gave orders to the attendants that the plaintiff was not to occupy his seat and his money was to be returned to him. In the result the plaintiff was refused admission to the performance. He sued the defendant on the ground that he had wrongfully and maliciously procured the company to breach the contract made when the plaintiff had purchased a ticket for a seat entitling him to view the performance.
[127]McCardie J found against the plaintiff because he could not establish the existence of a contract and accordingly could not prove that the defendant had caused any breach of a contract. However, his Lordship went on to consider what would have been the position had there been a contract. His Lordship observed that strange results would flow from treating servants acting within the scope of their authority as being liable in an action for interference with their employer's contract with another person. His Lordship said (504 - 5):
'If the plaintiff is right in his contention, it seems to follow that whenever either a managing director or a board of directors, or a manager or other official of a company, causes or procures a breach by that company of its contract with a third person, each director or official will be liable to an action for damages, upon the principle of Lumley v Gye, as for a tortious act. So, too, with the manager or other agent of a private firm, who does the like thing. This far‑reaching result of the principle here suggested by the plaintiff is emphasised, when it is remembered that in an ordinary action for breach of contract the plaintiff recovers his pecuniary loss only; whereas in an action for wrongfully procuring a breach of contract the damages against the wrongdoer are at large, and may vastly exceed the sum recoverable in a mere claim for breach of contract against the contractor … [citations omitted].'
After referring to a vain search for any decision which supports the view that a servant could be liable in tort for procuring a breach of his master's contract with another his Lordship continued (at 505 ‑ 6):
'But the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v Gye principle must therefore fail, just as it would fail if brought against the master himself for wrongfully procuring a breach of his own contract. This, I think, is the true answer to the ingenious arguments of Mr Disturnal on behalf of the plaintiff upon this point. To hold otherwise might create at least three actions whenever a managing director or other authorised agent knowingly procured a breach of the employer's contract. First, an action based on contract against the employer for the pecuniary loss caused by the breach of contract; secondly an action for tort against the agent who had procured the breach of contract, wherein the damages would be at large and might include every element of annoyance, inconvenience, or indignity; and thirdly, an action against the employer himself for the tortious wrong committed by his authorised agent in procuring the employer to break his contract with the plaintiff. This extraordinary result shows, I think, that the contention of the plaintiff in this case cannot be sound. If the plaintiff here be right in his submission, then the flood‑gates of litigation would indeed be widely opened'.

A little later in his judgment Finkelstein J stated that if Said v Butt [1920] 3 KB 497 is applied, a director or officer acting in that capacity could not be found liable for procuring his corporation to infringe the rights of another [130]. His Honour then posed for himself the question, 'should the case be applied?' His Honour noted that on this question there were a number of cases to which reference should be made. His Honour then made reference to O'Brien v Dawson, Rutherford v Poole [1953] VLR 130 and Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285. His Honour then, importantly in the present context, said the following (emphasis added):
[134]In the face of these authorities it would be quite wrong for me not to apply Said v Butt. Presently, that case represents the law in this country and I will follow it. I should say that even if Said v Butt were not the authority in Australia I would still be inclined to apply this case because it appears to me to be good law …
I pause here to note that it would appear that Finkelstein J did not see the decision in Said v Butt as giving rise to the possibility that a director of a company could be held liable for inducing the company to breach its contract with a third party if the relevant conduct of the director, although within his authority as a director, was not engaged in bona fide in the interests of the company. The significance of this fact will become apparent when I turn to discuss the decision in Idoport v National Australia Bank.
Having said that Said v Butt represented the law in this country Finkelstein J continued as follows (emphasis added):
[135]If Said v Butt were not to be followed there are two aspects of the tort that would need to be addressed. The first is the need to distinguish between direct and indirect interference. To induce a corporation to commit an unlawful act, the persuasion could be directed to the managing director or some other person having authority to commit the corporation to the intended course of action. That would be regarded as a direct inducement. But if the approach is made to an employee to have him perform some act that will bring about the interference by the corporation, the inducement is indirect …
[136]The second issue is whether the director or officer must know that the act that he procured is unlawful …
[137]Staying with the assumption that directors and officers may be liable in tort for procuring an interference with legal rights, there is yet another problem that has emerged in recent times. It is a problem of principle. Is it right, as a matter of policy, that a director or officer should be held liable together with the corporation for wrongs committed by the corporation or does this undermine the principles of limited liability and separate corporate personality?
His Honour then proceeded to consider some cases which bore upon the policy question that he had posed for himself. One of those cases was Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517. Having referred to this case his Honour said the following (emphasis added):
[140]Trevor Ivory concerned a claim in negligence against the director of a one‑man company. The general rule is that a director who actually participates in a tort, such as assault, trespass to property, nuisance, negligence and the like, will be liable in damages. The point which troubled the court in Trevor Ivory may be confined to the case of a one‑man company, that is to say a case where, unless some limitation were placed on the liability of a director, there would almost always be concurrent liability in both the corporation and the director. Such a situation may be undesirable. Whether this is so, however, is a very difficult question. Be that as it may, Trevor Ivory should not be regarded as authority for the proposition that it will only be in the case of 'an assumption of liability' that a director or officer will be found liable for a personal tort …
His Honour then proceeded to consider the Canadian decision in Mentmore Manufacturing Co Ltd v National Merchandising Co Inc (1978) 89 DLR (3d) 195, a case in which an action was brought against the shareholders and controllers (president and director) of a corporation for having directed the corporation to infringe the plaintiff's patent. His Honour also proceeded to discuss two other cases which bore upon the question of policy that his Honour had posed for consideration, namely King v Milpurrurru (1996) 136 ALR 327 and C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317. Having referred to these authorities his Honour made the following statements upon which the plaintiff places considerable reliance:
[146]If the Mentmore line of cases were adopted it would not always be easy to identify the circumstances under which a director could 'make the tort his own'. All that can be said confidently is that if a director decides that his company should carry out an act that results in an infringement of the rights of a third party, the director does not, without more, render himself personally liable at the suit of the third party … The director's conduct must be such that it can be said of him that he was so personally involved in the commission of the unlawful act that it is just that he should be rendered liable. If a director deliberately takes steps to procure the commission of an act which the director knows is unlawful and procures that act for the purpose of causing injury to a third party, then plainly it is just that liability should be imposed upon him. Lesser conduct may suffice. For example, if the director is recklessly indifferent as regards whether his company's act was unlawful and would cause harm, that may also suffice. In the end it will depend upon the facts of each particular case. Where the boundary lies, between the non‑tortious conduct of a director who acts bona fide within the course of his authority and the tortious conduct of a director who acts deliberately and maliciously to cause harm, cannot be stated with any precision.
His Honour went on to conclude that on the evidence before him there was no basis for finding that Mr Rivett could be found liable for direct infringement of the patent or for inducing or procuring an infringement 'if such an action is maintainable' [148].
In my opinion the plaintiff's reliance on the above cited [146] of Finkelstein's judgment is to some extent misplaced. When his Honour's statements in [146] are read in the context of the previous paragraphs of his judgment to which I have referred, it is clear, in my view, that his Honour is dealing in [146] with the situation where the claim is that the director of the company should, as a result of the company's infringement of the rights of the third party, be found liable for a 'personal tort' such as assault, trespass to property, nuisance or negligence on the basis that he was 'so personally involved' in the conduct constituting the infringement that it is just that he be rendered personally liable. His Honour is not, in my view, in making the statements in [146], dealing with the situation where the allegation is that the director of the company has procured the company to infringe the contractual rights of a third party under a contract which the third party has entered into with the company. My view in this regard is supported by his Honour's statement in [146] that if the Mentmore line of cases were adopted it would not always be easy to identify the circumstances under which a director could 'make the tort his own'. His Honour's reference to 'the tort' in this context, when read in light of his discussion of the decision in Mentmore and the other cases to which he referred, is clearly a reference to one of the above identified personal torts said to have been committed by the director in breach of the third party's rights and as such excludes the infringement by a director of a third party's legal rights by way of inducing a breach of contract.
It follows from my above expressed views that I do not consider that the decision in Root Quality v Root Control is positive authority for the proposition contended for by the plaintiff, namely that where a plaintiff contracts with a company, and the director of that company deliberately procures the commission of an act by the company which he knows is unlawful (or is recklessly indifferent to whether it is unlawful) or acts outside his powers as a director, for the purpose of causing harm to the plaintiff in his rights under the contract, the director commits the actionable tort of intentional interference with contractual relations. Rather, in my view the case is clear authority only for the proposition that a director or officer acting in that capacity or in other words, within the scope of his authority, cannot be found liable for procuring his corporation to infringe the rights of another [130], [134].
I turn to the decision in Idoport v National Australia Bank.
In Idoport v National Australia Bank the plaintiffs sought to allege, among other things, that individual directors of the corporate defendants procured the corporate defendants to commit a breach of a contract the subject of the litigation. The allegations that the plaintiffs sought to make were, in essence, that the conduct of the individual directors by which they procured the corporate defendants to breach the contract consisted of breaches by them of their duties at common law and under statute to act honestly and in the best interests of the corporate defendant, to exercise the necessary degree of care and diligence and to not make improper use of their position [31]. The defendants contended that they could not be made liable for the tort of inducing breach of contract where, in exercising their functions as directors, they caused the company to breach the contract.
Einstein J refused the application for leave to plead the cause of action. In doing so his honour discussed in considerable detail the issue of whether or not a director of a company could be held liable for the tort of intentionally interfering with the rights of a third party under a contract with a company of which he is a director.
In arriving at his decision Einstein J first stated that there are two aspects to the tort of intentional interference with contractual relations namely the state of mind of the defendant and the requirement that the defendant be in the position of an outsider influencing the independent volition of a contracting party [13]. In relation to the first of these aspects of the tort his Honour, by reference to relevant authorities, made the point that the plaintiff needed to prove that the defendant intentionally procured the breach of contract [14] ‑ [16]. In relation to the second aspect of the tort his Honour commenced by stating that it was 'quite plain that the person who commits the tort must be a third party, someone who stands outside the contractual relation being interfered with' [17]. His Honour said that the third party cannot be the alter ego of one of the parties to the contract [17]. His Honour referred to the above cited statements of Jordon CJ in the Full Court decision in O'Brien v Dawson and the above cited statements of McTiernan and Starke JJ in the High Court decision in that case as authority for this proposition. His Honour then said the following:
[22]I take it as clear law that so long as a director is acting within the scope of his authority, the company is responsible for the acts of the director. In other words, the director's acts are the acts of the company. If the director could by acts within the scope of his authority, induce the company to breach a contract, then the invidious situation which would result would be that the company would be inducing a breach of its own contract.
[23]This reasoning appears clear from Said v Butt …
Einstein J then proceeded to refer to and discuss the decision in Said v Butt. Having done so his Honour continued as follows:
[27]The essential proposition ['the O'Brien v Dawson principle'] is then that directors are not liable for the tort of inducing breach of contract where, in exercising their functions as directors and in acting within authority, they have caused the company to breach its contract. Hodgson CJ in Eq. As his Honour then was, had occasion in the recent decision Tsaprazis v Goldcrest Properties [2000] NSWSC 206; (2000) 18 ACLC 285 at 288 to accept and apply this basal proposition.
[28]Although as the defendants point out, it is correct that O'Brien v Dawson did not concern procurement of breach of contract but rather conspiracy, courts in Australia since that time have clearly correctly treated what was said in O'Brien on the subject of procurement of breach of contract as binding in terms of principle. The significance of the claim being one for conspiracy demonstrates that the doctrine extends to acts of the officer which caused his or her company to commit a tort.
[29]Although the plaintiffs cited a number of authorities said to support their submissions as to the appropriate principles, in my view the O'Brien v Dawson principle is binding upon a court of first instance in this country.
[30]There is no issue but that the individual defendants were from time to time directors or officers of either NAB or NMG or both. Indeed the essential gravamen of the cases pleaded and pursued relies upon the individual defendants having been directors or officers of the relevant companies at particular points in time in order to sheet home liability to NAB and NMG by the claim that it was through and by reason of the acts of the individual defendants that the companies themselves breached their contracts. Such a pleading is indeed far removed from any case that any director either acted as an entire stranger or acted wholly outside of his powers. [cf the words used by McCardie J in Said v Butt].
Later in his judgment his Honour said the following:
[34]In the circumstances and notwithstanding the extent and detail of the alleged actions of the individual defendants to be found in the proposed amended pleading and in the particulars, subject only to the acting bona fide within scope issue, the substantial question as it seems to me, which is raised by the defendants, is whether the O'Brien v Dawson principle puts the plaintiffs out of court in terms of a misconceived endeavour to ground a cause of action upon the proposition that a director acting within authority is capable of being said to have procured the company of which he is a director to break its contract.
Einstein J next turned to deal with a specific argument advanced by the plaintiffs which is of no particular relevance in the present context. Having dealt with the argument his Honour said the following:
[40]On principle and by definition, as long as the acts of such a director were acts within authority, the director cannot be said to have acted otherwise than as the alter ego of the company on who's board he sat at the time when the material decisions were made. On principle and by definition it is that company which must be said to have stood outside the contractual relation and to have interfered with it. On principle and by definition, the director in those posited situations is simply not acting in a personal capacity or otherwise than as the alter ego of the company which is said to have engaged in the subject conduct said to constitute the tort.
[41]Ultimately but again subject to the acting bona fide within scope issue, the question becomes whether or not the plaintiffs have pleaded and particularised a case to the effect that the individual personal defendants personally became actors and invaded the plaintiffs rights, as would for example be possible if a company director personally seized a plaintiff's property or personally trespassed upon a plaintiff's land. Absent the element of becoming a personal actor in that sense, the director is simply not acting in his own person, his acts being in law no more than the acts of the corporate defendant.
[42]Leaving to the side for the moment the position of Messrs Courtney and McKimm [which is dealt with below], notwithstanding the plaintiffs' submissions to the contrary I am unable to discern in the pleading or the particulars any case capable of amounting to the other individual defendant directors [including Mr Argus] being said to have so conducted themselves in any aspect of the subject litigation as to be capable of a resultant holding that they personally became actors thereby moving outside of their capacity as having acted as the instruments of the corporate defendants. In particular I am not persuaded that any of the submissions of the plaintiffs (which seek to assert that the plaintiffs have pleaded or furnished particulars of conduct which, depending upon the facts, might establish personal involvement and liability on the part of these individual defendants for procuring breaches of contract) are of substance.
[43]At no stage during the plaintiffs' opening address was I able to discern even a hint of a suggestion that the plaintiffs had pleaded or furnished particulars of conduct of these individual defendants which could be described as moving those defendants into the very different environment of having become personal actors rather than instruments of the corporate defendants. Nor am I able to discern any such hint from the latest version of the proposed pleading or particulars. No section of the pleadings or particulars alleges any form of personal interest of any of these individual defendants. To the contrary the pleadings expressly assert that these defendants acted in the interests of NAB …
[50]In the result, subject only to the acting bona fide within scope issue, the plaintiffs, construct is fatally flawed. One is not dealing with questions of matters of fact which required to be litigated. One is dealing with the pleading and the particulars to the pleading. Outside of possible questions as to the position of Messrs Courtney and McKimm, the plaintiffs have pleaded and particularised a case of the other individual defendants [including Mr Argus] acting within authority as officers or instruments of relevant corporate defendants for the purpose of sheeting home liability for breaches of contract to those corporate defendants. At no stage through their submissions on this application have they submitted that their cases against these individual defendants are put on the basis that these defendants conduct described under the 11 particular subject heads [pleading paragraphs 54G.1 - 54DC], was conduct carried on outside of some form of authority conferred by relevant corporate defendants upon those personal defendants.
Einstein J then turned to what he referred to as the 'acting bona fide within scope issue'. In this regard his Honour said the following:
[51]It is convenient to return to examine this issue which has its apparent source in the following passage from McCardie J in Said v Butt at 506:
I hold that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken. I abstain from expressing an opinion as to the law which may apply if a servant, acting as an entire stranger, or wholly outside the range of his powers, procures his master to wrongfully break a contract with a third person. (emphasis added)
I note that the above passage quoted from Said v Butt by Einstein J, which was not referred to by Finkelstein J in Root Quality v Root Control, follows immediately the passages from Said v Butt that were quoted by Finkelstein J in [126] – [127] of Root Quality v Root Control (which have been set out above).

In the present case the plaintiff does allege that the defendant took some positive action knowing that it would bring about a situation where the plaintiff would suffer greater loss if SAS breached the Separation Agreement. The alleged positive action consists of the making by the defendant of the Representations. The alleged knowledge of the defendant that the making of the Representations could bring about a situation where the plaintiff would suffer greater loss if SAS breached the Separation Agreement than he would already suffer by reason of entering into and receiving performance of the Separation Agreement is in substance pleaded in pars 70 and 71 of the statement of claim.
For the reasons I have stated I would allow the appeal against the registrar's decision dismissing the plaintiff's common law negligent misstatement claim.

Misleading or deceptive conduct to SAS

The pleaded case

In pars 24, 33, 39, 44 and 45 of the statement of claim the plaintiff pleads the following:
24.Further and in the alternative, in or about November 2008, and after the Payment Date:
(a)the Defendant represented to SAS that the Tax Reduction should be made and the net profit reduced accordingly;
(b)the representation was false; and
(c)in reliance on the Defendant's representation, SAS made the Tax Reduction and reduced the Net Profit.
33.Further and in the alternative:
(a)the Defendant represented to SAS that the Improper Deduction should be made in the manner pleaded in paragraphs 27 to 31 above;
(b)that representation was false; and
(c)in reliance on the Defendant's representation, SAS made Improper Deductions.
39.Further and in the alternative, in or about March 2009, the Defendant Falsely represented to SAS that:
(a)the Fake Invoice was a genuine invoice; and
(b)the value of the Fake Invoice had been paid to EEZ, or alternatively, to the Plaintiff and Melissa Mary.
44.Further and in the alternative:
(a)the Defendant represented to SAS that the Loan Reduction should be made:
(b)that representation was false; and
(c)in reliance on the Defendant's representation, SAS made the Loan Reduction.
45.During the period from about 9 February 2009 to about August 2014, when SAS was placed under external administration, the Defendant failed to:
(a)inform SAS that the representation that the Loan Reduction should be made was false;
(b)direct SAS to reverse the Loan Reduction in SAS's records.
In pars 77 – 82, under the heading 'Misleading and deceptive conduct to SAS', the plaintiff pleads its cause of action as follows:
77.Further and in the alternative, the Defendant knowingly and intentionally made the representations pleaded at paragraphs 24, 33, 39 and 44 (the SAS Representations) to SAS.
78.Induced by and in reliance upon and in consideration of the SAS Representations, SAS:
(a)applied the Tax Reduction;
(b)accounted for the Improper Deductions in the manner pleaded in paragraphs 27 to 31 above;
(c)made the Loan Reduction;
(d)recorded and reported the Fake Invoice as having been paid to EEZ, or alternatively to the Plaintiff and Melissa Mary.
79.But for the SAS Representations, SAS would not have:
(a)made the Tax Reduction;
(b)made the Improper Deductions;
(c)made the Loan Reduction;
(d)recorded and reported the Fake Invoice as having been paid to EEZ.
80.By virtue of the matters pleaded in paragraph 22, 24, 31 to 33 inclusive, 38, 39, 42 inclusive, 78 and 79, in making the SAS Representations, the Defendant has engaged in conduct that is misleading and deceptive, or likely to mislead or deceive in breach of:
(a)section 52 of the TPA;
(b)section 10 of the FTA 1987; and/or
(c)section 18 of the Australian Consumer Law.
81.Further and in the alternative, by virtue of the matters pleaded in paragraphs 24, 34, 41 and 44 – 45, the Defendant has continued during the periods referred to in paragraphs 24, 34, 41 and 45 to engage in conduct that is misleading and deceptive, or likely to mislead or deceive in breach of:
(d)section 52 of the TPA;
(e)section 10 of the FTA 1987; and/or
(f)section 18 of the Australian Consumer Law.
82.The Plaintiff has suffered loss and damage by reason of the said conduct within the meaning of:
(a)section 79 of the FTA 1987;
(b)section 82 of the TPA; and/or
(c)section 236, 237 or 238 of the Australian Consumer Law;
in that SAS would have paid the full amount of the Separation Payment to the Plaintiff but for SAS's reliance on the SAS Representations.

The registrar's decision

The registrar dealt with the defendant's application for summary judgment on the plaintiff's claim that the defendant had engaged in misleading or deceptive conduct towards SAS in [51] – [61] of his judgment. From reading these paragraphs of the registrar's judgment it would appear that the registrar found that the defendant had a good defence on the merits to this aspect of the plaintiff's claim because in the circumstances of the present case it could not possibly be established that the defendant, as the managing director of SAS, could make representations to SAS in the course of governing SAS which were capable of misleading or deceiving SAS [57], [58], [60]. To put it another way, the registrar found that the pleaded case was, in essence, unsustainable in that it was an allegation that the corporation was misled or deceived by representations which it made to itself.

The parties' submissions

The plaintiff, in his written submissions filed in support of the appeal, contends that the registrar did not cite any authority for the proposition that 'a cause of action for damages for misleading or deceptive representations could not lie at the suit of a third party where the representations were made to a company by its director' [38]. The plaintiff further asserts in its written submissions that the registrar 'merely dismissed the plaintiff's claim on an unsupported proposition of law that any false or misleading representation made in the 'context of governance' of a corporation was not actionable' [39]. The plaintiff also asserts in his written submissions that neither:
Section 52 TPA, nor its various counterparts, contain any express exclusion or exception to liability for engaging to [sic] misleading or deceptive conduct, because it is engaged in within 'the realm of governance' [40].
The plaintiff's written submissions therefore appear to focus on the registrar's reference to the impossibility of the managing director of SAS making representations to SAS in the course of governing SAS which were capable of misleading or deceiving SAS. However, in my view this focus tends to overlook the real thrust of the registrar's decision which was that it is simply not possible for a company to be misled or deceived by representations made to it by the controlling mind of the company.
During his oral submissions counsel for the plaintiff paid very little attention to this aspect of the plaintiff's claim. He did, however, state that although he was not saying that this aspect of the claim will be abandoned, he did 'intend to deal principally with the [pre-contractual representations made by the defendant to the plaintiff] because I think that that is the way that this matter will proceed at trial, with the most compelling of the causes of action' (ts 71).
Although counsel for the plaintiff paid very little attention to this aspect of the plaintiff's claim in his oral submissions he did, in the context of dealing with the plaintiff's intentional interference with contractual relations claim, point out that the evidence before the court was that the defendant was neither the sole director nor sole shareholder of SAS and that his co‑director and co‑shareholder was his wife of many years. Counsel made the point that the defendant had not yet provided any evidence on oath as to the role, if any, which his wife played in the operation and management of SAS. The implication in these statements was that I could not on the present state of the evidence be satisfied that the defendant was the controlling mind of SAS.
The defendant, consistently with the decision of the registrar, submits that it is logically impossible for him to have misled or deceived the company of which he was the controlling mind.

Analysis and decision

With respect to the plaintiff's counsel's comments regarding the possible role of the defendant's wife in the management of SAS, I am satisfied that the defendant was the controlling mind of SAS. The defendant was the 'managing director' of SAS. Further, in my view it is patently clear from not only the plaintiff's pleaded case but also the contents of the affidavit filed by the plaintiff in support of his appeal that the defendant was the controlling mind of SAS.
In my opinion the registrar was correct to summarily dismiss this aspect of the plaintiff's claim. In my view it is illogical to assert that the defendant, who was the controlling mind of SAS, misled or deceived SAS, the company of which he was the controlling mind. I do not consider that the registrar needed to cite any authority for the proposition that a director who is the controlling mind of a company cannot mislead or deceive that company. It is simply a matter of common sense.
I would therefore dismiss the appeal against the registrar's decision granting summary judgment to the defendant in respect of the plaintiff's claim that the defendant engaged in misleading or deceptive conduct towards SAS.

Conclusion

I allow the plaintiff's appeal to the extent indicated in these reasons. I will hear the parties as to the precise terms of the orders that I should make to give effect to my decision.