McDonald Florides & Co Pty Ltd v James - [2006] WASC 196

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: McDONALD FLORIDES & CO PTY LTD -v- JAMES & ORS [2006] WASC 196

CORAM: MASTER SANDERSON

HEARD: 1 JUNE 2006

DELIVERED : 6 SEPTEMBER 2006

FILE NO/S: CIV 2357 of 2005

BETWEEN: McDONALD FLORIDES & CO PTY LTD (003 630 135)
Plaintiff
AND
KENNETH JAMES
First Defendant
KENNETH JAMES AS TRUSTEE FOR THE JAMES FAMILY TRUST
Second Defendant
STEVEN HARRIS
Third Defendant
STEVEN HARRIS AS TRUSTEE FOR THE STEVE HARRIS TRUST
Fourth Defendant

Catchwords:

Practice and procedure Application to strike out statement of claim Turns on own facts

Legislation:

Nil

Result:

Statement of claim struck out
Leave to replead granted

Category: B

Representation:

Counsel:

Plaintiff:     Mr M L Bennett
First Defendant             :     Mr G R Donaldson SC
Second Defendant         :     Mr G R Donaldson SC
Third Defendant           :     Mr G R Donaldson SC
Fourth Defendant          :     Mr G R Donaldson SC

Solicitors:

Plaintiff:     Lavan Legal
First Defendant             :     Jackson McDonald
Second Defendant         :     Jackson McDonald
Third Defendant           :     Jackson McDonald
Fourth Defendant          :     Jackson McDonald

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

Boase v Seven Network (Operations) Ltd & Anor [2005] WASC 269

Case(s) also cited:

Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529
Castro v Murray (1875) LR 10 Exch 213
Davies v Nyland (1975) 10 SASR 76
Dimbleby & Sons Ltd v National Union of Journalists [1984] 1 WLR 427
Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157
Howden v Truth and Sportsman Ltd (1937) 58 CLR 416
Hunter v Chief Constable of the West Midlands Police [1982] AC 529
Labrador Park Shopping Centre Pty Ltd v Esbas Pty Ltd (1984) Aust Torts Reports 80694
Lawrance v Lord Norreys (1890) 15 App Cas 210
MacKenzie v MacLachlan [1979] 1 NZLR 670
Metropolitan Bank Ltd v Pooley (1885) 10 App Cas 210
Nash v Copeland (1887) 4 WN (NSW) 41
Quinn v Leathem [1901] AC 495
Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275
Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106
Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71
Woolley v Dunford (1972) 3 SASR 243

MASTER SANDERSON: This is a pleading summons. The defendants apply to strike out in its entirety the plaintiff's statement of claim dated 27 February 2006. It is convenient to begin by summarising the statement of claim.
Paragraph 1 pleads the incorporation of the plaintiff. Paragraph 2 pleads a unit trust created by deed on 27 June 1991. The trust is styled The Brand Agency Unit Trust. Paragraph 3 pleads that the plaintiff, the second defendant and the fourth defendant were all holders of units in The Brand Agency Unit Trust. Each of those parties are also said to be shareholders in The Brand Agency Pty Ltd which is the trustee of the trust. By par 4 it is pleaded that, by a unit holders deed dated 17 June 1998 between the unit holders (that is to say the three unit holders referred to in par 3 of the statement of claim), it was expressly agreed if a specified related person (referred to as a "Key Person") for any unit holder ceased to be an employee or director of The Brand Agency Pty Ltd, the unit holder irrevocably requested The Brand Agency Pty Ltd as trustee to repurchase all of its units in The Brand Agency Unit Trust at a value determined by the unit holders deed. None of these four paragraphs is controversial.
By par 5 it is pleaded that at all material times the natural person specified as the Key Person of the plaintiff in its capacity as a unit holder in The Brand Agency Unit Trust was Maria Florides ("Ms Florides"). It is further pleaded that pursuant to an executive service agreement dated in or about August 2003, Ms Florides was employed by The Brand Agency Pty Ltd in a capacity as Director of Finance and Information Technology. Paragraph 6 pleads that in or about May 2004 the unit holders agreed to sell 49 per cent of the units in The Brand Agency Unit Trust to a third party. The actual purchase price involved a rather complex calculation. Without going into detail it was dependant in part on the net profit before tax for the financial years June 2004, June 2005 and June 2006. By par 7 it is pleaded that pursuant to the sale agreement the plaintiff as vendor of the units was entitled to receive by way of final payment in or about August of 2006 an amount just under $3 million. By par 8 it is pleaded that by combination of the sale contract and unit holders agreement if prior to August 2006 the plaintiff disposed of its units in The Brand Agency Unit Trust, the plaintiff ceased to be entitled to the final payment. By par 9 it is pleaded, effectively, that each of the defendants knew of the various agreements and knew that if Ms Florides ceased to be an employee of The Brand Agency Pty Ltd then the plaintiff would have to dispose of its units in the unit trust and that it would miss out on the final payment. It is also pleaded that each of the defendants knew that the consequences of the sale by the plaintiff of its units would be that the second and fourth defendants would benefit significantly.
By par 10 it is pleaded that at all material times the first defendant was Chairman of the Board of Directors of The Brand Agency Pty Ltd and the third defendant was the Managing Director of the Perth office of The Brand Agency Unit Trust.
By par 11 it is alleged that between July 2004 and July 2005 the first and third defendants engaged in a concerted course of conduct with the dominant intention of procuring Ms Florides' resignation from The Brand Agency Pty Ltd. Comprehensive particulars of this alleged course of conduct are provided but for present purposes these particulars need not be considered.
By par 12 it is pleaded that on 25 July 2005 Ms Florides resigned her employment as an employee of The Brand Agency Pty Ltd. There is clearly an omission in par 12. For the pleading to make any sense it needs to refer back to par 11 and allege that Ms Florides' resignation was a result of what is pleaded in par 11. No doubt that omission will be corrected in due course and for the purposes of these reasons it can be assumed that the plea in par 12 logically follows on from the plea in par 11.
Paragraph 13 pleads evidence and although it is in the context of this pleading not offensive, it is a paragraph that should be struck out.
Paragraph 14 pleads that as a consequence of the resignation of Ms Florides the plaintiff was obliged to and did in fact sell the units it held in The Brand Agency Unit Trust for considerably less than it would have received had Ms Florides continued on in her employment.
Paragraph 15 pleads that as a consequence of the conduct of the first and third defendants pleaded in par 11 the plaintiff suffered loss and damage. Paragraph 16 pleads that the first and third defendants' conduct was "high handed and offensive" and amounted to "contumelious disregard of the Plaintiff's rights and (was) a calculated attempt to profit the Second and Fourth Defendants".
As may be seen from the summary of the pleading this is a somewhat unusual claim. The facts pleaded, according to the plaintiff, set up a claim based on the tort of interference with contractual relations. Before examining the elements of that cause of action it is worth looking again at the contractual position between the various parties. Ms Florides was at all material times an employee of The Brand Agency Pty Ltd. So there was a contractual arrangement between Ms Florides on the one hand and The Brand Agency Pty Ltd on the other. The allegation in par 11 and par 12 of the statement of claim is that the first and third defendants interfered with the contractual relationship between Ms Florides and The Brand Agency Pty Ltd. It is not difficult to see how in those circumstances Ms Florides and/or The Brand Agency Pty Ltd might have a claim based on interference with contractual relations. But so far as damages are concerned it is not that contract which is of concern in these proceedings. It is the contract between the plaintiff and the second and fourth defendants as embodied in the unit holders deed which is of importance. It is from the operation of that contract that damages are said to arise.
The principles applicable to the tort of interference with contractual relations are well understood. They were recently succinctly stated by Master Newnes in Boase v Seven Network (Operations) Ltd & Anor [2005] WASC 269. The learned Master said (at [32], [33]):
"The general principle is that in order to establish a cause of action of unlawful interference with contract the plaintiff must show that the defendant, with knowledge of the contract and intent to prevent or hinder its performance, persuades, induces or procures one of the parties not to perform their obligations: Short v City Bank of Sydney (1912) 15 CLR 148.
The fact that the breach was a natural consequence of the defendant's conduct is not sufficient; the defendant must have intended the breach. It is not necessary that the defendant knows the precise terms of the contract: Woolley v Dunford (1972) 3 SASR 243 at 266 ‑ 268. But the defendant must know of the contract and sufficient of its terms to know that what the defendant induced or procured the party to the contract to do would be in breach of the contract. If the defendant knew of the existence of the contract but believed reasonably that what the defendant induced or procured the party to do was not a breach, the defendant has not knowingly induced or procured the breach: Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at [160]."
The confusion in this case has arisen I think from the way in which damages are claimed. Counsel for the defendants approached the matter on the basis that the damages claimed resulted from the activation of the pre‑emptive rights under the unit holders agreement. However, as there had been no interference with the contractual rights created under that unit holders agreement no damage could flow. In other words the plaintiff's claim must fail. The only claim available for interference with contractual rights was a personal entitlement of Ms Florides relating to her contract of employment with The Brand Agency Pty Ltd.
As with any other tort an action for unlawful interference with a contract is not actionable without proof of damage. However, damages are "at large" and recovery is not limited to specific or special damage: see Fleming, "The Law of Torts" (9th ed) page 765. It is not difficult to imagine a situation where a plaintiff might claim damages which did not arise directly from interference with a particular contract.
This proposition can be illustrated in this way. As I have mentioned above it is pleaded in the statement of claim (par 3.1) that the plaintiff was a unit holder in The Brand Agency Unit Trust. What would be the position if Ms Florides had been the unit holder in The Brand Agency Unit Trust? As a consequence of the defendants' alleged interference with her contract with The Brand Agency Pty Ltd, she would have been forced, by the terms of the unit holders agreement, to sell her units in the unit trust. It would then have been arguable Ms Florides could claim as damages the difference between what she received for her units on sale forced by the exercise of the pre‑emptive rights and what she would have received had she not resigned her position. Such a claim might be met with an argument on remoteness, but on a pleading summons there would be no question of the claim being struck out.
The difficulty for the plaintiff in this case is that the plaintiff is at least one stage further removed from the whole relationship. Nowhere is it pleaded what interest Ms Florides has in the plaintiff. If it were pleaded that she was a shareholder in the plaintiff and would necessarily have benefited directly if she had remained an employee of The Brand Agency Pty Ltd then the case would in my view be arguable. That is not to say that the claim was not without its difficulties and would succeed. But at an interlocutory stage care must be taken not to stifle the development of the law. Given the nature of damages that are awarded in this area of tort law, it would seem to me that it would be inappropriate to strike out such a claim. The present difficulty of course is that such a claim is not pleaded.
In my view, put at its very best, the wrong party has been named as the plaintiff in this action. There has been no interference with any contract between the present plaintiff and any other party. The claim as presently pleaded does not disclose a cause of action. It should therefore be struck out. However, this is not a case where judgment should be entered for the defendants. The plaintiff should be given the opportunity to consider these reasons and look again at how a claim might be framed.
I will hear the parties as to the precise form of orders and as to costs.