McClymont v Strata Partners Pty Limited

[2010] NSWSC 1077

CITATION:	McClymont v Strata Partners Pty Limited [2010] NSWSC 1077
HEARING DATE(S):	13 September 2010
JUDGMENT DATE :	20 September 2010
JUDGMENT OF:	Garling J
DECISION:	Amended statement of claim is struck-out. Leave for the plaintiffs to file and serve a further amended statement of claim.
CATCHWORDS:	PRACTICE AND PROCEDURE – Application to strike out pleadings – Many paragraphs of pleadings are of questionable relevance – Underlying facts not clearly pleaded or particularised – Causes of action and basis of relief unclear – Orderly process of litigation demands that the fundamental principles of pleading be adhered to – Requirement to particularise any pleading of a dishonest and fraudulent design.
LEGISLATION CITED:	Strata Schemes Management Act 1996 Uniform Civil Procedure Rules 2005
CATEGORY:	Procedural and other rulings
CASES CITED:	Consul Development Pty Limited v D.P.C. Estates Pty Limited (1975) 132 CLR 373 Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89
PARTIES:	(P1) GrahamJames McClymont (P2) Selma Maria McClymont (D) Strata Partners Pty Limited
FILE NUMBER(S):	SC 2010/113318
COUNSEL:	(P1)Self-represented (P2)Self-represented (D) A. Horvath
SOLICITORS:	(P1) Self-represented (P2)Self-represented (D) DLA Phillips Fox

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

GARLING J

MONDAY, 20 SEPTEMBER 2010

2010/113318 McCLYMONT v STRATA PARTNERS PTY LIMITED

JUDGMENT

1 HIS HONOUR: Strata Partners Pty Limited have brought a notice of motion seeking orders pursuant to r 14.28 of the Uniform Civil Procedure Rules 2005 that the further amended statement of claim filed by the plaintiffs on 20 July 2010 be struck out in whole or in part.

2 Strata Partners made it clear in submissions to the Court that it was not seeking summary disposal of the proceedings.

Procedural background

3 On 8 July 2010, Studdert AJ gave a judgment in which he ordered that an amended of statement of claim filed on 4 June 2010 be struck out and that the plaintiffs, Graham James McClymont and Selma Maria McClymont have liberty to file a further amended statement of claim within 28 days of that date.

4 In accordance with the orders of Studdert AJ, on 20 July 2010 a further amended statement of claim was filed by the McClymonts.

5 On 1 September 2010, the defendant, Strata Partners Pty Limited, again filed a notice of motion seeking to strike out the further amended statement of claim.

6 That notice of motion came on for hearing in the course of the Duty List on Monday, 13 September 2010. At the hearing, Ms Horvath of counsel appeared for Strata Partners, and Mr Graham McClymont appeared in person for himself and his wife.

The relevant background

7 The McClymonts were the owners of an apartment in a strata title building situated at 567-569 Pacific Highway, Killara. Their lot, lot 5, was one of 12 lots in the strata scheme.

8 The Owners Corporation referable to the strata scheme was called “The Owners – Strata Plan No. 12139”.

9 Strata Partners acted as the strata managing agent for the Owners Corporation. Strata Partners was expert in undertaking strata management and was apparently licensed under the relevant statutory provisions. It held itself out as having a combined skill base in law, accounting, property management and customer service. It asserted that its experience was such that at the relevant time it represented over 610 strata and community title schemes, comprising a total of about 11,000 lots or units.

10 On or about 31 October 2009, the mortgagees of the apartment owned by the McClymonts entered into possession. The apartment was ultimately sold at public auction on 5 December 2009. Settlement of the contract for sale took place on 13 January 2010.

11 On 22 December 2009, Strata Partners prepared a certificate pursuant to s 109 of the Strata Schemes Management Act 1996, on behalf of the Owners Corporation, which claimed a total of $92,520.37 as being owed by the McClymonts to the Owners Corporation.

12 It was necessary in order for a settlement to take place that those monies be paid to the Owners Corporation, so that the new owner would not be responsible for that debt.

13 A component part of that figure, namely $71,819.78, was referrable to “amounts recoverable in relation to legal proceedings”. This sum was asserted to be recoverable pursuant to s 80 of the Act.

14 The McClymonts dispute the entitlement of the Owners Corporation to that amount of money.

15 It is necessary for me to sketch some additional factual background. But since many of these facts are disputed, it is not appropriate for me to make any findings about those facts. They are recorded only for the purpose of determining this notice of motion.

16 The McClymonts’ complaint against Strata Partners appears to arise from a series of what could be described as underlying allegations:

(a) There was litigation between Mr McClymont and the Owners Corporation.

(b) In the course of this litigation, the Owners Corporation incurred some legal costs.

(c) There was a court order for Mr McClymont to pay the Owners Corporation’s legal costs.

(d) These costs have never been assessed. Mr McClymont says that he tried to arrange with Strata Partners, who were the Owners Corporation’s managers, for an assessment. For various reasons that are not entirely clear, this did not happen.

(e) Mr McClymont argues that until these costs are assessed in accordance with all applicable rules, he is under no obligation to pay.

(f) Strata Partners charged these legal costs to the McClymonts by including them in several strata levy notices.

(g) The McClymonts refused to pay. Mr McClymont told Strata Partners and the Owners Corporation that they had no right to charge these costs to him through his strata levies. He was about to sell his property so he also warned them not to include those costs in any calculation of settlement amounts made through a certificate under s 109 of the Act.

(h) The property was sold. Despite Mr McClymont’s warnings, at settlement in February 2010 Strata Partners issued a s 109 certificate that had the effect of debiting the disputed $71,819.78 from the McClymonts and crediting that amount to the Owners Corporation.

(i) Mr McClymont says that the Owners Corporation has been insolvent since before February 2010. He also says that because Strata Partners are experienced strata managers, they must have known that his position was correct all along. By acting against his warnings to credit an already insolvent Owners Corporation with the $71,819, he says Strata Partners acted with knowledge in a dishonest and fraudulent design.

(j) The McClymonts want their money back with interest. They have chosen to claim this amount from Strata Partners rather than from the Owners Corporation.

17 These are what I understand to be the underlying allegations. There may be more.

Further amended statement of claim

18 The pleading which is the subject of this motion claims the following orders:

“(1) A declaration that the plaintiffs’ monies of $71,819.78 paid to a third party be impressed as being on constructive trust by the defendant with the plaintiffs as beneficial owners.
2. Compensatory payment for wrong doing of liquidated claim of $71,819.78.
3. Interest to date of judgment pursuant to section 100 of the Civil Procedure Act 2005 calculated at the rate prescribed under Schedule 5 of the Uniform Civil Procedure Rules 2005.
4. Payment of costs.”

19 The pleading consists of 45 paragraphs. Many of the paragraphs are entirely irrelevant, some prolix, and others lack clarity. But in order to decide this motion, it is necessary to attempt to understand the causes of action which are at the core of the McClymonts’ allegations.

20 The problem at present is that these underlying allegations are not clearly articulated or particularised as facts in the amended statement of claim. Nor are the causes of action that the McClymonts say arise from these allegations made clear. As a result the paragraphs that contain these allegations are, as presently pleaded, of questionable relevance.

21 Had the McClymonts chosen to plead an action against Strata Partners for breach of a common law duty of care, they would need to plead as facts only a selection of these underlying allegations. The McClymonts would have to set out in their pleadings the facts that give rise to a duty of care owed by the managers to them. They would have to set out the content of this duty, precisely which aspect or aspects of the duty the managers breached, and how this breach caused the loss of the monies.

22 Had the McClymonts chosen to plead some form of equitable relief against Strata Partners, for instance on the basis that they participated wrongfully in a breach of fiduciary duty by the Owners Corporation, a different selection of those underlying facts would be relevant and necessary.

23 The McClymonts would have to set out in their pleadings the facts that give rise to a fiduciary duty between the Owners Corporation and themselves. They would have to set out what the Owners Corporation did to breach this fiduciary duty. They would also have to set out how Strata Partners assisted in that breach of fiduciary duty, how they did so with knowledge in a dishonest and fraudulent design, what gain Strata Partners made as a result of this assistance, and what equitable remedy McClymonts are entitled to in respect of that gain.

24 Ms Horvath, counsel for Strata Partners, submits among other things that the amended statement of claim discloses insufficient particulars of any knowledge in a dishonest and fraudulent design on the part of Strata Partners.

25 It would be up to the McClymonts to particularise precisely what they say are the facts that establish these elements of “knowledge” and “dishonest and fraudulent design”. As to the element of “knowledge”, the amended statement of claim seems to refer to the High Court of Australia’s decision in Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89, in which the Court said at [174]:

“…it has been customary to analyse the requirement of knowledge…by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et du l’Industrie en France SA [1993] 1 WLR 509 at 575-576, 582:

‘(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.’

…

These conclusions…as to what is involved in ‘knowledge’…represent the law in Australia.”

26 The amended statement of claim (at para 44) merely repeats the first four of these five categories of knowledge. It does not plead any facts that would establish that Strata Partners had any of those four categories of knowledge. At best these facts need to be inferred from particulars 44.1 and 44.2. But they are, upon examination, quite inadequate for that purpose.

27 As to the element of “dishonest and fraudulent design”, the High Court of Australia in Farah (at [179]) noted, by reference to Consul Development Pty Limited v D.P.C. Estates Pty Limited (1975) 132 CLR 373:

“The relevant passages in Consul establish for Australia that ‘dishonest and fraudulent designs’ can include not only breaches of trust but also breaches of fiduciary duty; but any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent.”

28 The UCPR have further requirements for a plaintiff to particularise any such pleading of “dishonest and fraudulent design”. Rule 15.3 provides that “A pleading must give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence on which the party relies.”

29 The amended statement of claim does not plead any facts that would establish a “dishonest and fraudulent design” on the part of Strata Partners and the Owners Corporation. Nor does it provide any particulars at all as to the mindset or intentions of those acting for Strata Partners and the Owners Corporation in their dealings with the McClymonts.

30 For these reasons, if the McClymonts are in fact intending to plead this form of equitable relief, then their amended statement of claim falls short of a proper pleading. It does not set out the facts that are necessary to establish each element of the cause of action, and it does not particularise sufficiently the facts that are pleaded.

Discernment

31 The purpose of a statement of claim is to clearly and conveniently set out the material facts which support the claim being advanced. As well, it is necessary for the relevant cause or causes of action to be articulated. The defendant must be able to plead in response to the statement of claim, and ensure the real issues are identified.

32 I agree with Studdert AJ in his judgment of 8 July 2010, in this matter, when he said at [8], that the orderly process of litigation demands that the fundamental principles of pleading be adhered to.

33 The McClymonts need to make clear whether they are seeking damages for a common law cause of action, such as the breach of a duty of care to avoid causing economic loss, or whether they are seeking to plead a claim for equitable relief dependent upon findings of dishonesty and fraud.

34 Whether one or more than one cause of action is to be relied upon is a matter for the McClymonts. But what is clear is that the current pleading is not adequate.

Result

35 The whole of the further amended statement of claim should be struck out.

36 Having regard to the complexity of the matters to which I have referred, I would encourage the McClymonts to seek legal assistance in the further prosecution of this claim.

Orders

(1) The further amended statement of claim filed on 20 July 2010 is struck-out.

(2) The plaintiffs have leave to file and serve a further amended statement of claim on or before 18 October 2010.

(3) The plaintiffs pay the defendant’s costs of the notice of motion.

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