McIntyre v Hipkin
[2020] VSC 30
•10 February 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2018 00448
IN THE MATTER of sections 28 and 34 of the Administration and Probate Act 1958 (Vic)
- and -
IN THE MATTER of Rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015
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IN THE MATTER of section 41 of the Trustee Act 1958 (Vic)
- and -
IN THE MATTER of Will and Estate of SHIRLEY JOAN LEGGE, deceased
BETWEEN
| JANET MARY MCINTYRE (and others according to the attached schedule) | Plaintiff |
| v | |
| MARGARET ANNE HIPKIN (and others according to the attached schedule) | Defendant |
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JUDGE: | Lansdowne AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 May 2019; further submissions to 17 May 2019 |
DATE OF JUDGMENT: | 10 February 2020 |
CASE MAY BE CITED AS: | McIntyre & ors v Hipkin & ors |
MEDIUM NEUTRAL CITATION: | [2020] VSC 30 |
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PRACTICE AND PROCEDURE – Application for stay of the proceeding as abuse of process - Plaintiffs as residuary beneficiaries of an estate seek to remove first and second defendants as trustees of that estate, equitable damages for breach of fiduciary duty and related relief – Plaintiffs and defendants compromised an earlier proceeding seeking substantially the same relief – Whether proceeding should be stayed for abuse of process - Held: no - Plaintiffs also seek to plead causes of action by which they should be relieved from the earlier terms.
PRACTICE AND PROCEDURE – Application to strike out the statement of claim in whole or part – Statement of claim struck out in whole – Whether leave should be given to file a proposed amended statement of claim – Held: no - Whether the plaintiffs should be required to show a proper basis before leave to re-plead is given – Held: no – Environinvest Limited v Pescott and ors [2011] VSC 325 considered but not applied.
CORPORATIONS –Where plaintiffs and first defendant are residuary beneficiaries in respect of shares in a company in which the first and second defendants hold the majority shareholding and of which they are directors - Whether the plaintiffs may bring an oppression proceeding against the first and second defendants – Held: no - the plaintiffs are not members of the company as the shares were not devolved in specie and it is not alleged that the plaintiffs fall within s 234(e) – Corporations Act 2001 (Cth) s 234
CORPORATIONS – Whether plaintiffs holding a residuary share in an estate including shares in a company may seek leave to bring a derivative proceeding against the directors of the company for breach of directors duties – Held: no as the shares were not devolved to the plaintiffs in specie they are not members of the company or entitled to be registered as members– Corporations Act 2001 (Cth) s 236
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms C H Sparke QC | MW Law |
| For the Defendants | Mr S T Pitt | Arnold Bloch Leibler |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 2
Matters preceding the Settlement Terms................................................................................... 3
Settlement Terms........................................................................................................................... 5
Parties.................................................................................................................................... 5
Acknowledgements............................................................................................................. 5
Realisation of Kintek’s assets and ongoing administration of the Estate and Kintek 6
Releases................................................................................................................................. 6
Allegations relating to the Settlement Terms............................................................................ 8
Issues.................................................................................................................................................... 9
Consideration...................................................................................................................................... 9
Abuse of process........................................................................................................................... 9
Strike out...................................................................................................................................... 10
Pleas that the plaintiffs are no longer bound by the Settlement Terms..................... 11
Inadequate pleading of capacity in which first and second defendants are sued... 14
Lack of standing to sue for breach of directors’ duties................................................ 15
Relief sought....................................................................................................................... 16
Formatting and formal errors.......................................................................................... 17
Whole or partial strike out?.............................................................................................. 18
Leave to amend........................................................................................................................... 18
PASOC................................................................................................................................. 18
Should the plaintiffs be required to demonstrate a proper basis to re-plead........... 22
Conclusions and orders.................................................................................................................. 25
HER HONOUR:
Introduction
This proceeding relates to the administration by the first and second defendants (also referred to respectively as ‘Margaret’ and ‘Timothy’) as executors and trustees of the estate (‘Estate’) of the late Shirley Joan Legge (‘Shirley’). Shirley died on 9 November 2006 leaving the residue of her Estate to her five children, of whom four are the plaintiffs, and the fifth is Margaret. Timothy is Margaret’s husband. The Estate holds shares in the third defendant, Kintek Properties Pty Ltd (‘Kintek’), which is controlled by Margaret and Timothy and in which they hold the majority shareholding. Margaret and Timothy are also the owners and controllers of the fourth defendant, Wine Valley Investments Pty Ltd (‘WVI’), to which the third defendant has lent a large sum of money interest free.
The plaintiffs brought an earlier proceeding against the first and second defendants in 2012 (‘Prior Proceeding’) also in respect of the first and second defendants’ administration of the Estate. The Prior Proceeding was settled without determination on the merits pursuant to a deed dated 14 August 2014 (‘Settlement Terms’). The third and fourth defendants, together with two other entities related to Timothy and Margaret, were also parties to the Settlement Terms.
By their statement of claim dated 4 April 2018 (‘SOC’), the plaintiffs allege that Margaret and Timothy have misused their powers as trustees for their own personal advantage, and seek their removal as trustees, and if necessary as executors; damages or equitable compensation; and ancillary relief by way of enquiries and accounts. Critically, the plaintiffs also seek orders relieving them of the effect of the Settlement Terms. In their defence and counterclaim dated 10 May 2018 (‘Defence and Counterclaim’) the defendants deny the allegations and seek declarations that, by reason of the Settlement Terms, the plaintiffs are estopped from bringing the proceeding, and are required to indemnify the defendants for their loss consequent on the proceeding.
These reasons relate to competing summonses. By amended summons filed 15 March 2019 the defendants seeks a stay of the proceeding as an abuse of process; alternatively strike out of the SOC and a requirement that the plaintiffs demonstrate on affidavit a proper basis to re-plead; or in the further alternative strike out of parts of the SOC. By summons filed 29 April 2019 the plaintiffs seek two forms of relief. First, they seek leave to file and serve an amended statement of claim in the form exhibited to an affidavit sworn 19 February 2019 (‘PASOC’). By paragraph 2 of that summons, the plaintiffs also sought leave to bring the oppression proceeding sought to be pleaded in the PASOC, dispensing with certain rules and the practice note that would otherwise apply. The plaintiffs withdrew that application and the corresponding portion of the PASOC in the course of the hearing.
Over the initial objection of the defendants, later withdrawn, I heard both summonses together on the basis that the defendants could file further submissions in response to the plaintiffs’ summons, to which the plaintiffs could reply. Both parties took up that opportunity. I apologise for the subsequent delay in delivery of these reasons.
For the reasons I now give, I decline to stay the proceeding but will strike out the whole of the SOC and refuse leave to file and serve the PASOC. I will require the plaintiffs to serve a proposed amended statement of claim for consideration by the defendants, and seek leave to file it if the defendants do not agree. I will not, however, require the plaintiffs to show a proper basis on affidavit for the redrawn statement of claim.
Background
This outline of the facts and allegations is drawn from the pleadings, the affidavits in support of the parties’ respective summons and the matters set out in the portion entitled ‘Background’ in the Settlement Terms, and its operative provisions. Affidavit evidence is admissible in respect of the defendants’ application for stay for abuse of process, which is made pursuant to r 23.01 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’), although not in respect of the strike out aspect of their summons.[1] The submissions for the defendants seek to take me to earlier evidence filed, but matters deposed to in those affidavits may be contested, and in any event it is not necessary to consider them for the determination of the summonses. Accordingly, I have not taken the parties’ earlier affidavits into account, with the exception of the Settlement Terms, which are exhibited to the affidavit of the first plaintiff sworn 27 December 2017.
[1]See r 23.04 of the Rules.
In relation to the Settlement Terms, clause 1.2(g) states that ‘the Background paragraphs of this deed do not constitute admissions’ and provides that the Background paragraphs may not be relied upon, and must be redacted, if the Prior Proceeding is recommenced. Neither the plaintiffs nor the defendants made any reference to this provision in their submissions, and indeed counsel for the defendants at least appeared to treat the matters set out in the Background as recitals in the usual way.[2] Nevertheless, out of an abundance of caution, I do not treat matters that are stated in the Background portion of the Settlement Terms to be agreed, unless that is otherwise apparent from the pleadings, affidavits or submissions.
[2]Transcript of Proceedings, Janet Mary McIntyre & ors v Margaret Anne Hipkins & ors (Supreme Court of Victoria, S CI 2018 00448, Lansdowne AsJ, 2 May 2019) 17-25, 29 (‘Transcript’).
Matters preceding the Settlement Terms
Shirley’s Will made provision for a life interest to be held by her husband, Jack Legge, in certain assets, and provided that the residue of the Estate be divided equally between her five children. At the time of her death, she held shares in the third defendant, Kintek, at that time known as Jack Legge Pty Ltd, and her Estate included a loan owed to her by Kintek which was in the sum of $464,687.20 at her death. Shortly after Shirley’s death, Jack Legge was paid out his entitlements by Jack Legge Pty Ltd, which was renamed Kintek and authorised a reduction in capital such that the Estate’s interest became 49.22% (held by the first and second defendants as executors), with the balance of the shares being held personally by the first and second defendants as to 50.78%. As at the date of the Settlement Terms, the Background states that the only outstanding asset of the Estate yet to be distributed was the Estate’s share of Kintek.
The first and second defendants have at all material times been the directors of Kintek. They are also the directors and owners of all the share capital of the fourth defendant, WVI. The plaintiffs allege in the particulars to paragraph 15 of the SOC that in the period before settlement of the Prior Proceeding the first and second defendants as directors of Kintek sold income earning commercial real estate of Kintek and utilised part of the proceeds to make non-interest bearing loans to WVI, including an unsecured loan for the purpose of enabling WVI to buy rural property, which does not generate income, at Main Ridge. They also allege that Kintek borrowed funds from the ANZ bank at the time of making the loan to WVI and met the interest payment on that loan without calling on WVI to pay interest. As a result of these actions, the plaintiffs allege that the Estate’s interest in Kintek reduced in value, from $1.523 million as at 30 June 2007 to $1.124 million as at 30 June 2013.
In relation to the period following the Settlement Terms, the plaintiffs allege in the particulars to paragraph 15 of the SOC, amongst other matters, that the first and second defendants have not realised all of the assets of Kintek and are not actively pursuing sale of those assets so as to realise the interest of the Estate in Kintek; that they have not taken steps to require repayment to Kintek of its loan to WVI or the payment of interest on that loan; that they have procured Kintek to pay them personally an estate management fee for which they do not carry out any work; and that while Kintek has repaid the loan made by Shirley, it did not pay ‘a proper rate of interest’ on that loan.
The defendants assert that the allegations are embarrassing in form, that there are issues in relation to the standing of the plaintiffs and the capacity in which the first and second defendants are sued, and otherwise deny the allegations. With one significant difference, however, certain of the matters pleaded by the plaintiffs relating to the period prior to the Settlement Terms are as stated in the paragraphs in the Background portion of the Settlement Terms. The significant difference is that Background paragraphs RR and SS respectively state that $1.523 million was the total of Kintek’s net assets (not the Estate’s interest in Kintek as the plaintiffs plead) as at 30 June 2007 (after reconstruction following the retirement of Jack Legge) and $1.124 million as at 30 June 2013.
The making of unsecured interest free loans by Kintek to WVI is stated in the Background. Paragraph TT notes that Kintek made ‘substantial, unsecured, and undocumented loans’ to WVI, which is described as ‘a private company’ of the first and second defendants. Paragraph UU states that as at 30 June 2013 WVI was indebted to Kintek ‘on a wholly unsecured basis’ in an amount ‘exceeding $1.883 million which amount had been outstanding since or about early 2008’. Paragraph VV states that ‘[n]o interest has ever been paid by WVI on the WVI loan balance notwithstanding that Kintek has itself paid interest on that and other amounts owing to the ANZ Bank’. As noted above, the parties agreed that the matters stated in the Background to the Settlement Terms were not admissions. Some factual matters are, however, expressly acknowledged and agreed in the operative portions of the Settlement Terms. In addition to objection on pleading grounds and denial of the allegations, the defendants expressly rely on the compromise of the Prior Proceeding effected by the Settlement Terms.
Settlement Terms
Parties
All of the parties to this proceeding are parties to the deed comprising the Settlement Terms, together with two other entities, T & M Hipkin Pty Ltd and T & M Superannuation Fund (collectively, the ‘Parties’). The current plaintiffs, who were the plaintiffs in the Prior Proceeding, and the first and second defendants, the only defendants to the Prior Proceeding, are defined in the Settlement Terms as respectively the ‘Plaintiffs’ and ‘Defendants’.
Acknowledgements
The Parties agree in clause 2.1 of the Settlement Terms on a list of Kintek’s assets, stated to be the ‘Kintek Properties’, the ‘WVI Loan’, interest on the WVI Loan (all of which are further defined in clause 1), and equipment, stock and cattle situated on the Kintek Properties. The ‘Kintek Properties’ are defined in clause 1 to mean certain named properties in Port Douglas, Mackay, Maroochydore and Woodleigh. The ‘WVI Loan’ is defined in clause 1 to mean ‘the loan made by Kintek to WVI in the amount of $1,886,002.26’. By clause 2.7, the Parties agree that $800,000 interest is owing by WVI to Kintek in respect of the WVI Loan and that no further interest will accrue on that loan. By clauses 2.2-2.5, and 2.9 the Parties agree the quantum of amounts owed by Kintek to the ANZ, to Timothy and Margaret (in their capacities as shareholders, and separately as directors), and to T & M Hipkin Pty Ltd. By clause 2.8 Kintek agrees to pay the Estate an agreed amount of interest on Shirley’s Loan for the period 23 October 2012 to 10 April 2013.
Realisation of Kintek’s assets and ongoing administration of the Estate and Kintek
Clause 3 of the Settlement Terms sets out a staged process by which the Parties agree that Kintek will use ‘all reasonable endeavours to expeditiously sell the Kintek Properties on the best terms available’ (clause 3.1). Clause 4 makes provision for the application of the sale proceeds. Clause 5 makes provision for the ongoing administration of the Estate and Kintek, including provisions for the disclosure of information by the Defendants and Kintek, preventing Kintek from purchasing further property or further encumbering the Kintek Properties, and for the lodgement of caveats by the Plaintiffs over any property owned by Kintek or WVI. Clause 8 makes provision for a progress meeting and potential cancellation of the Estate’s shares in Kintek on agreed terms.
Releases
Clauses 9 and 13.11 of the Settlement Terms provide as follows:
9 The Plaintiffs’ releases, indemnities and covenants not to sue
9.1 Releases
The Plaintiffs irrevocably and unconditionally release and forever discharge the Defendants and its Released Persons from all or any Claims which the Plaintiffs have or but for the execution of these deed may have had against the Defendants and its Released Persons in relation to the matters the subject of the Proceeding.
9.2 Indemnities
Each of the Plaintiffs jointly and severally, irrevocably and unconditionally, indemnifies each of the Defendants from all and any Claims and liabilities incurred as a result of or in relation to any breach of the terms of this deed by any of the Plaintiffs.
9.3 Covenants not to sue
The Plaintiffs jointly and severally covenant not to sue any of the Defendants in relation to any Claim or liability which is released under clause 9.1, excluding any Claim or liability.
...
13.11 Bar to proceedings
Each Party may plead this deed in bar to any action or proceeding in respect of any matter the subject of the release given by this deed.
The release in clause 9.1 (‘Release’) binds the ‘Plaintiffs’ in respect of the ‘Defendants’ and ‘its Released Persons’. As noted earlier, the ‘Plaintiffs’ in the Settlement Terms are the same as the plaintiffs in this proceeding, and the ‘Defendants’ in the Settlement Terms are the first and second defendants in this proceeding. The question then arises: who are the ‘Released Persons’? By clause 1.2 of the Settlement Terms, the singular includes the plural, unless the context requires otherwise, and as a consequence the Release would seem to bind the plaintiffs in respect of any ‘Released Person’ of either Timothy or Margaret. A ‘Released Person’ in relation to a Party is defined in clause 1.1 to mean:
(a) any Related Body Corporate;
(b) any Related Entity;
(c) in relation to the Defendants, the T & M Hipkin Superannuation Fund;
(d) any present or (sic) director, officer, employee, servant or agent of the Party.
No definition is given in the Settlement Terms of ‘Related Body Corporate’. ‘Related Entity’ is defined to have the meaning given to it by s 9 of the Corporations Act 2001 (‘Corporations Act’). It is not stated whether or not ‘Related Body Corporate’ is intended to have the meaning given to it by that Act, or some other meaning.
Section 9 of the Corporations Act in fact defines both terms, but only in relation to a body corporate. A ‘related body corporate’ in the Corporations Act is a body corporate that is related to a body corporate in ways set out in s 50 of that Act. A ‘related entity’ in the Corporations Act can be either a natural person or a body corporate, that is related in defined ways to a body corporate. Neither definition expressly applies in the reverse i.e. in respect of an individual, to a body corporate.
Further, the definition of ‘Released Person’ in the Settlement Terms expressly extends, in respect of the Defendants, to only one named corporate entity, the T & M Hipkin Superannuation Fund, which was a party to the Settlement Terms. It is not expressed to apply to Kintek, or to WVI, who were both also parties to the Settlement Terms.
In other words, there may be an issue as to whether the third and fourth defendants, to which the first and second defendants are ‘related’ in the non-technical sense that they are shareholders and directors of those companies, are Released Persons and so have the benefit of the Release. I raise this for the consideration of the parties, but as I did not hear any argument on this issue, I do not purport to make any determination of it.
Allegations relating to the Settlement Terms
The plaintiffs admit in paragraph 6 of their reply and defence to counterclaim dated 20 June 2018 (‘Reply’) that in the Prior Proceeding they sought substantially similar relief as in the present proceeding against the first and second defendants. They contend, however, that the Settlement Terms ‘no longer have effect’ for the reasons set out in paragraphs 28-36 of the SOC. In those paragraphs, the plaintiffs plead that they are not bound by the Settlement Terms for a number of reasons, expressed to be additional or in the alternative.
First, the plaintiffs allege that the first to third defendants made misrepresentations of material facts entitling them to rescind the Settlement Terms. They next allege that the defendants have failed to carry out the Settlement Terms, thereby evincing an intention not to be bound by the Settlement Terms. The plaintiffs allege that they accept this repudiation. The plaintiffs further allege that the Release does not extend to continuing breaches of duty after the date of the Settlement Terms. Finally, the plaintiffs allege that the performance of the Settlement Terms has been frustrated.
The defendants deny all of the pleaded bases by which the plaintiffs seek not to be bound by the Settlement Terms. In particular, the first and second defendants allege that they have substantially complied with their obligations as executors and trustees of the Estate and their obligations under the Settlement Terms.
Issues
The issues that arise from the parties’ respective summonses are these:
1. Should the proceeding be stayed as an abuse of process?
2. If not, should the SOC be struck out in its entirety on pleading grounds?
3. If not, should certain portions of it be struck out?
4. If the answer to either 2 or 3 is yes, should the plaintiffs be required to demonstrate on affidavit a proper basis for re-pleading before leave to re-plead is given?
5. Should leave to amend be granted in respect of the PASOC?
As noted earlier, counsel for the plaintiffs withdrew at the hearing the amendments to the PASOC that would have added an oppression proceeding, conceding that the plaintiffs are not within the class of persons who may bring such a proceeding.[3]
[3]Transcript 76, lines 9-10.
Consideration
Abuse of process
The defendants submit that the proceeding should be stayed as it is essentially an attempt to re-litigate the same concerns that were the subject of the Prior Proceeding, which was compromised in the Settlement Terms. As noted earlier, the plaintiffs in their Reply concede that the relief sought is essentially the same as they sought in the Prior Proceeding. The plaintiffs do not, in the Reply, concede the facts relied upon by the defendants to assert that that they have, in any event, substantially complied with their obligations pursuant to the Settlement Terms and that accordingly their removal as trustees would be unwarranted. But nor do the plaintiffs deny those facts and assertions - they merely put the defendants to proof of them. The defendants do not currently seek summary judgment, and so affidavits setting out the facts pertaining to estoppel by reason of the Settlement Terms have not been required.
The defendants’ current application is for stay of the proceeding. The difficulty with that application as it applies to the whole of the proceeding is that in addition to seeking to re-litigate the matters the subject of the Settlement Terms, the SOC pleads that the plaintiffs are not bound by the Settlement Terms by reason of various matters and seeks declarations to that effect. The abuse of process argument cannot apply to this aspect of the SOC, as was essentially conceded by counsel for the defendants in oral argument.[4]
[4]Transcript 30, lines 14, 28- 31; 34, lines 11-20; 40, lines 16-26.
The defendants have not taken issue with the pleading, if properly done, of facts relieving the plaintiffs of the Settlement Terms in the same proceeding that seeks relief in respect of matters otherwise compromised in those Terms. Accordingly, I do not express a view as to the appropriateness of that course. As discussed at the hearing, the issue may later arise whether the application to set aside the Settlement Terms should be heard first, as a preliminary question. That is not, however, a matter arising pursuant to these summonses. As the stay application applies to the whole proceeding, and it cannot conceptually apply to that part of the proceeding that seeks relief from compliance with the Settlement Terms, it must fail.
Strike out
I turn now to the alternative aspect of the defendants’ summons, being strike out of the SOC for pleading reasons. I begin with the pleading of the various causes of action said by the plaintiffs to relieve them of the obligation to comply with the Settlement Terms.
Pleas that the plaintiffs are no longer bound by the Settlement Terms
As an initial matter, as discussed in oral argument and adopted by the defendants in their Further Submissions, the allegations that for different reasons the plaintiffs are not bound by the releases they gave in the Settlement Terms are pleaded last in the SOC, and so appear almost as an afterthought, when in fact they are essential to the substantive relief sought. Unless the plaintiffs succeed on that aspect, they are bound by the Settlement Terms. They can only seek to enforce those Terms, and possibly seek the removal of the first and second defendants as trustees by reason of failure to comply with the Settlement Terms, and this is not the way they currently cast their claim. This limitation on their rights was conceded by counsel for the plaintiffs.[5] I accept the submission in reply by the plaintiffs that these allegations do not necessarily have to appear at the beginning of the pleading, but the pleading would benefit from greater acknowledgement of their primacy.
[5]Transcript 71, lines 2-20.
Substantively, I agree with the defendants that there are serious deficiencies in the pleading of the causes of action by which the plaintiffs say they are not bound by the Settlement Terms. These deficiencies are not, in the main, deficiencies of particulars only. I do not accept that submission by the plaintiffs. I set out some deficiencies below, but do not intend to be exhaustive. It is a matter for the plaintiffs to ensure that their pleading pleads material facts in respect of every element of a cause of action on which they rely – not for the defendants or the Court to plead for them.
The plaintiffs first seek to assert, in paragraphs 28-30 of the SOC, that they are not bound by the Settlement Terms by reason of misrepresentation, entitling them to rescission. As the defendants correctly identify, the plaintiffs do not plead any facts to show reliance. In fact, the plaintiffs do not even plead the content of the alleged misrepresentations. The particulars to paragraph 29 identify, at least to some extent, when the alleged misrepresentations were made (in accounts provided ‘prior to the Settlement terms’) but not their content, other than in the most general terms (allegedly incorrect value of Kintek’s assets, and that part of what was said to be borrowing by Kintek was in fact borrowing by the first and second defendants). I do not accept the submission by the plaintiffs that these are matters for particulars only. For the defendants and the Court to know what is alleged, material facts should be pleaded as to what was represented and in what precise respect it was incorrect. Only then can the defendants properly plead in answer, and raise any appropriate defences or barriers to rescission ab initio, including the possible impact on third parties arising from performance to date of the Settlement Terms.
In relation to repudiation, the defendants submit that the plea in paragraph 32 does not give any particulars as to how the defendants have ‘evinced an intention to be no longer bound by the (Settlement) terms’. I consider this partly correct, but not the real defect with the plea. The paragraph begins ‘[i]n the premises’ and so may purport to rely on the particulars given in the preceding paragraph, paragraph 31, as to the defendants having failed to carry out the Settlement Terms. The implication is that it is by these actions and omissions that the defendants have evinced an intention to repudiate the Terms. If the asserted actions or omissions had been properly pleaded, then adopting them in the subsequent paragraph may have been sufficient. In my view, however, they are not properly pleaded.
The body of paragraph 31 pleads only a compendious allegation of breach, and the reader is only informed of the individual breaches said to comprise this compendium by the Particulars. These Particulars do not identify the clauses of the Settlement Terms said to have been breached. It is true that the defendants have pleaded to paragraph 31, by a denial and assertions as to what they have done. This form of pleading does not, however, identify for the benefit of the Court the specific actions or omissions said to have been in breach, and the responses thereto. In my view, the actions or omissions relied upon to support the allegation of repudiation are material facts, not just particulars, and should have been pleaded as such, to properly expose the parties’ competing cases. For example, the allegation in Particular a. that the first to third defendants have ‘applied funds received from asset sales to discharge borrowings beyond that agreed to in the terms’ should be pleaded as a material fact, or facts if the plaintiffs assert that there was more than one such occurrence. For completeness and precision, the pleading should identify the specific clause of the Settlement Terms said to have been breached. The same applies in the case of what is currently pleaded as Particulars b., c., d., and e.
The next allegation, in paragraphs 33 and 34 of the SOC, that the Release does not apply to breaches of duty after the date of the Settlement Terms is entirely without pleaded foundation, as no material facts are given. On the bare face of the SOC the pleading is without any foundation, because it refers to particulars said to have been subjoined to paragraph 32, when there are none.
The pleading of the final cause of action as to why the plaintiffs should not be bound by the Settlement Terms, that of frustration, at least seeks to plead events that are alleged to have frustrated the performance of the Settlement Terms in the body of the paragraph, rather than merely in particulars. However, I agree with the defendants that those alleged facts lack relevant particulars. For example, in relation to the alleged delay in the sale of Kintek properties – which properties? by what date should they have been, but have not been, sold? Indeed, the preferable course would have been, in my view, for the particular properties the subject of the allegations in sub-paragraphs a) to d) to be distinctly pleaded, not just as a part of a compendious fact. Necessary particulars such as when they respectively should have been sold, cannot be sold, or were sold and the funds allocated to bank borrowings, as the case may be; and change in value, should then have been given.
As with the allegation of repudiation, the particular clauses in the Settlement Terms to which the alleged frustrating events relate are not identified.
I acknowledge that the defendants have pleaded to paragraphs 28-36, and only take pleading issue in their Defence to one paragraph, being paragraph 34. Further, it appears that they may understand what is alleged against them, at least to the extent that the Defence identifies which properties have not been sold and what actions they have taken in performance of the Settlement Terms. This does not, however, excuse the very poor pleading of the SOC. A pleading must stand on its own and be comprehensible to the Court as well as to the opposing party.[6]
[6]Downer Connect Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2008] VSC 77, [1]-[4] (Harper J, as he then was).
I accept the submission by the defendants that the SOC is defective because in respect of these causes of action it pleads conclusions from unstated facts. Further, the SOC does not identify the plaintiffs’ allegations in plain form, or logical sequence, which can be responded to substantively, also in logical sequence, without extensive cross referencing. The result is that the issues between the parties do not readily emerge from the pleadings, which is likely to cause delay and confusion at trial.
The deficiencies identified above are barely addressed in the PASOC. The PASOC makes no changes to the pleading of rescission; merely seeks to add more particulars to the plea of repudiation, without addressing the underlying absence of material facts; and adds a further allegation in relation to frustration, but without necessary particulars. What is the bargain that the plaintiffs entered into in respect of the debt of Kintek and how does it differ from what has eventuated? The only deficiency in relation to the allegation of continuing breach that is sought to be addressed is the absence of particulars, by inserting internal reference to the particulars to other paragraphs. As I consider that the particulars thus sought to be adopted should themselves be pleaded as material facts, this is no answer.
Inadequate pleading of capacity in which first and second defendants are sued
The defendants submit that the SOC is flawed by the failure to clearly identify the capacity in which the first and second defendants are sued in respect of various allegations, and in some instances by conflating proposed causes of action against them as directors and causes of action against them as trustees of the Estate. I agree.
This deficiency is evident in the title to the SOC, and in a number of paragraphs in the body of the SOC. Without intending to be exhaustive, these paragraphs include paragraphs 12 and 13; the second numbered paragraphs 18, 19 and 20; and paragraphs 21 and 22. Paragraph 12 pleads that the first and second defendants are sued as trustees and personally. Yet the immediately following paragraph, paragraph 13, begins ‘[i]n so far as the plaintiffs seek orders against the first and second defendants as directors of Kintek’ i.e. it states that they are sought to be sued in that capacity as well, despite the otherwise apparently exhaustive statement of paragraph 12. Still more confusingly, the substance of paragraph 13 appears to plead a breach of duty as trustees, yet the PASOC seeks to amend to state that they are sued in their personal capacity.
The intention of second numbered paragraph 18 appears to be to sue the first and second defendants in their capacity as directors of Kintek, which is the express capacity in which they are sought to be sued in the immediately preceding paragraph, first-numbered paragraph 20. The intention of second-numbered paragraph 20 appears to be to sue them in their capacity as trustees of the Estate. These allegations of breach arising from discrete duties, in different capacities, are conflated, however, by appearing under the one heading ‘The first and second defendants’ actions in administering Kintek’, immediately before first-numbered paragraph 20, and by relying on both capacities in the second-numbered paragraph 19.
Lack of standing to sue for breach of directors’ duties
The defendants take substantive objection to the SOC in so far as it seeks to plead a cause of action for breach of director’s duty against the first and second defendants in their capacity as directors of Kintek. The objection is a sound one. Directors’ duties are owed to the company, not to individual shareholders, let alone to persons whose interest is indirect by reason of being entitled to the benefit of shares, but not the shares themselves. An action for breach of directors’ duties must be brought by Kintek, or by derivative action pursuant to ss 236 and 237 of the Corporations Act. Section 237 enables certain persons to seek leave to bring an action for the company. Those persons are, pursuant to s 236(1)(a), members, former members, or persons entitled to be registered as members of the company or a related body corporate, or officers or former officers of the company. The plaintiffs do not fall into any of those categories, as they are not officers or former officers of the company, and the shares were not left to them in specie.
For these reasons, I accept the defendants’ submissions that the claims sought to be made against the first and second defendants as directors of Kintek by paragraphs 13, the second numbered paragraphs 18-20, 20-24, and the second numbered paragraph 25 should be struck out.
It is for similar reasons that the plaintiffs are unable to bring an oppression proceeding, as is now conceded by counsel for the plaintiffs. Section 234 of the Corporations Act provides who may bring such a proceeding. The plaintiffs do not fall within categories (a)-(d) of s 234 because Shirley’s shares in Kintek were not transmitted to them in specie. They are not members, or former members, of Kintek. Nothing is pleaded to show that they fall within category (e), which consists of a person or persons whom ASIC thinks appropriate, having regard to its investigations into Kintek’s affairs, or matters connected with them.
The claim sought to be brought by the plaintiffs against WVI by paragraphs 26 and 27 of the SOC suffers at a minimum from the same defect of lack of standing. The claim that it pay damages to Kintek implies that it is, at least in part, a claim for knowing assistance to the directors’ breach of duty to Kintek. Leaving aside for the moment whether it is sufficiently pleaded in any event, it is a claim that Kintek must bring, unless leave is sought and obtained to bring a derivative proceeding. The plaintiffs are not within the categories of persons who may seek such leave.
Relief sought
The defendants contend that the relief sought will cause the trial to become unnecessarily long, complex, costly and disproportionate to the dispute. At a bare minimum, I agree that a scattergun, as opposed to targeted, approach seems to have been taken to the relief sought. Relief sought in the alternative is, of course, permissible and common, but here some of the relief sought may be internally inconsistent or inappropriate. For example, if the first and second defendants are to be replaced as trustees (as sought in paragraphs A, B and C of the prayer for relief) then it would seem premature for the Court to make the sort of specific directions to the new trustees sought by paragraphs D and I, without those new trustees first having the opportunity to reach their own conclusions as to what their duties require. Similarly, if the plaintiffs’ concerns can be adequately addressed by directions in those terms to the existing trustees, it would be unnecessarily costly and cause unnecessary delay to replace them.
Formatting and formal errors
There are a number of formatting and stylistic errors in the SOC. If these were the only deficiencies in the pleading they would show lack of care, but could be readily corrected. In combination with the other more significant formal and substantive problems, however, they compound the poor performance of the plaintiffs’ legal representatives in the filing of this SOC.
These errors include the numbering starting again at second numbered paragraph 18, after first numbered-paragraph 20, referred to earlier. There are also two paragraphs numbered 25, making distinct allegations. Paragraph 37 appears to be a prayer for relief, rather than containing the pleading of material facts.
Further, the phrase ‘in the premises’ is used repeatedly and often unhelpfully as it is not necessarily clear to what earlier paragraphs it relates.
In multiple instances the SOC fails to identify the particular section of an Act or particular rule relied upon. The reference in the title to the proceeding to s 41 of the Trustee Act 1958 is conceded to be incorrect. Finally, the pleading is not signed by counsel, although counsel for the plaintiffs concedes in oral argument that she substantially drafted it.[7] I accept the defendants’ submissions that these matters all constitute breaches of the Rules.
[7]Transcript 109, lines 7-31.
Whole or partial strike out?
I accept the defendants’ submission that partial strike out and partial re-pleading to correct identified errors is not the appropriate response to the poor pleading in the SOC. The objectionable portions are so numerous, and the drafting of the whole so poor, that amendment of discrete portions only would be inadequate. Indeed, as I discuss below this is shown by the unsuccessful attempt to remedy only identified errors in the PASOC. I agree that the plaintiffs need to start again, after proper consideration of the causes of action and relief that may be available to them, and properly and in logical sequence plead all the material facts on which they rely to support that relief. I will strike out the whole of the SOC.
Leave to amend
PASOC
I do not consider that the PASOC sufficiently addresses the deficiencies identified above, and so will refuse leave to file it. My reasons are as follows.
First, as already noted, the PASOC does not address the current deficiencies in the pleading of the causes of action on which the plaintiffs rely to contend that they are not bound by the Settlement Terms.
Next, the PASOC endeavours by proposed amendment of paragraphs 12 and 13 of the SOC and of the content of the formerly numbered paragraphs 18, 19 and 20 to clarify the capacity in which the plaintiffs seek to sue the first and second defendants. The proposed amendment to paragraph 12 adds that the first and second defendants are sued as directors of Kintek, in addition to being sued personally and as trustees of the Estate. The proposed amendments to paragraph 13 state that the first and second defendants are sued personally, as well as in their capacity as directors of Kintek, for their failure to sue themselves or Kintek. The paragraph does not identify what such suit should have been, but it may be alleged that at least Kintek should have sued WVI for repayment of the loan made to it. In oral argument, counsel for the plaintiffs initially withdrew the statement in proposed paragraph 13 that the first and second defendants are sued ‘as directors of Kintek’[8], having regard to her withdrawal of the proposed oppression proceeding. She later retracted that withdrawal, however, on the basis that the plaintiffs seek access to documents held by the first and second defendants as directors.[9]
[8]Transcript 87, lines 7-20.
[9]Transcript 88, lines 12-29.
In other words, despite the plaintiffs’ late concession that they are unable to bring an oppression proceeding, which would also mean that they have no standing to seek leave for a derivative proceeding for breach of director’s duty, the proposed amendments still on their face state that the plaintiffs sue the first and second defendants in their capacity as directors of Kintek. As set out earlier, directors’ duties are owed to the company, and while leave can be sought to bring such an action by way of derivative action, the plaintiffs are not within the category of persons within s 236 of the Corporations Act who may do so.
Counsel for the plaintiffs seek to answer this difficulty by submitting that what is proposed is not a derivative action - the plaintiffs seek to rely on alleged breach of directors’ duties to establish a basis for removal of the first and second defendants as trustees.[10] It seems that the proposed amendment to what was second numbered paragraph 19, and is now proposed paragraph 22 in the PASOC, is directed to this end. I agree with the defendants that this approach appears unnecessarily circuitous, and is bound to introduce confusion and unnecessary complexity and cost to the trial. The duties of a trustee and the duties of a company director have different sources, different content, and are owed to different persons. Breach of one may constitute breach of the other, but it should be possible to establish breach of duty as a trustee without engaging in the collateral exercise of establishing breach of duty as a director, particularly when the plaintiffs have no standing to sue for such a breach.
[10]Transcript 85, line 10- 87, line 6; 96 line 20- 97 line 18; 106, lines 7-8.
If the assertion of breach of director’s duty is nevertheless an evidentiary approach that the plaintiffs seek to take, as opposed to a distinct cause of action, then it may not need to be pleaded at all. At an appropriate time it would be helpful to expose that approach, but facts are pleaded, not the evidence to establish them. Alternatively, if what the plaintiffs seek to do is forestall a possible response to the breach of duty as a trustee claim on the basis that the first and second defendants acted conformably with their duties as directors,[11] then raising it in a statement of claim is premature. If raised in defence, it could be a matter for reply.
[11]Portions of the oral submissions of counsel for the plaintiffs suggest this - see for example Transcript 85-86.
The plaintiffs also rely on Deutsch v Deutsch[12]. That case stands for the proposition that in exceptional circumstances, beneficiaries of a trust, being here the plaintiffs, may bring a claim in their own right to protect the property of the trust, here the shares in Kintek, where the trustees, here the first and second defendants, have failed to do so. The defendants do not in their Further Submissions cavil with that proposition. Accordingly, I accept for current purposes that such a claim could be properly pleaded. I am not, however, persuaded that it is sufficiently pleaded in the PASOC.
[12][2012] VSC 227, [40] (Hargrave J).
By way of background I note that there is no direct analogy with the facts of Deutsch v Deutsch. In that case, one director of a corporate trustee sought to sue the other director, his brother, for breach of director’s duty, in circumstances where the corporate trustee was effectively deadlocked by reason of their dispute and so would not bring such a proceeding. In that case, the substance of the suit was breach of director’s duty owed to the corporate trustee. It may have been possible for the plaintiff in that case to seek leave to bring such a suit as a derivative action in any event, as he was also an officer of the corporate trustee.
Here the PASOC refers to breach of director’s duty, but it is not Kintek that is the trustee, but the first and second defendants. It is not the case that the trustee should bring an action against its directors, the first and second defendants, but in the circumstances will not do so. The allegation seems to be that the trustees are not bringing proceedings or taking action that they should, against Kintek or WVI, so the beneficiaries seek to do so. This would seem to be an action against the first and second defendants personally, or in their capacity as trustees, not an action for breach of duty as a director. I do not exclude the possibility that the underlying rationale of Deutsch v Deutsch may apply, but facts showing the exact way in which it applies, and the capacity in which the first and second defendants are sought to be sued, should be clearly pleaded.
The PASOC seeks to amend some aspects of the proposed claim against WVI by proposed paragraphs 30 and 31. The intent of proposed paragraph 31 seems to be to bring a knowing assistance claim in respect of breach of the first and second defendants’ duties as trustees, as opposed to breach of director’s duty. Such an amendment would cure the defect of seeking to bring a derivative action for breach of duty to Kintek with no standing to do so, but for the reasons discussed earlier it would be preferable for the retained reference to breach of director’s duty in proposed paragraph 30(b) to be removed.
Moreover, I accept the submission by the defendants that the fundamental problem with proposed paragraphs 30 and 31 is that an allegation of knowing assistance to breach of fiduciary duty is a serious allegation with its roots in dishonesty, and so must be pleaded fully and precisely.[13] The proposed pleading currently makes only global assertions of the duties said to have been breached by the first and second plaintiffs (to properly administer the Estate and not to place their own interests in conflict); that WVI participated in and assisted these breaches; and that this was part of an intentional plan to reduce the value of Kintek for their own interests. Some of these matters are asserted only in the Particulars and so cannot be properly pleaded to, and all lack the material facts and particulars in support. For example, when was the alleged plan formed? When did WVI acquire the land? What facts show that the loan was in breach of the duties of the first and second defendants?
[13]Defendants’ Further Submissions dated 9 May 2019, [12].
Finally, while the PASOC seeks to cure some of the formatting errors of the SOC, it introduces others, in particular the curious inclusion of a triangle, if that is intended to show a proposed removal of an allegation, instead of the conventional striking through of the existing text.
In summary, notwithstanding some amendments and even with the concessions made in argument, the PASOC would remain a confusing and prolix document. It adopts the existing structure of the SOC and makes some changes, rather than addressing the fundamental problems. I agree with the defendants that the plaintiffs should go back to the drawing board and start afresh. I do not expressly address the proposed amendments to the relief sought because I consider that is better done after a redraw of the pleading as a whole.
Should the plaintiffs be required to demonstrate a proper basis to re-plead
The defendants contend that the plaintiffs should not be permitted to re-plead unless they can demonstrate on evidence, or by reference to existing affidavits, a proper basis for the re-pleaded allegations. They rely on the decision of Judd J in Environinvest Limited v Pescott and ors (‘Environinvest’)[14] as an example of such an approach being taken. The plaintiffs oppose that application.
[14][2011] VSC 325.
In my view, it is not appropriate to order that the plaintiffs demonstrate a proper basis on affidavit in order to re-plead. It is not the usual approach in relation to pleading problems, and I do not think it here warranted, at least at this stage. It would not address the core of the problems with the current articulations of the plaintiffs’ case; could indeed exacerbate them; and there are other avenues before trial better suited for appraisal of the merits of the plaintiffs’ case. In short, requiring affidavits at this stage would substantially increase costs without tangible benefit.
The starting point is that parties and their solicitors are already bound by s 18 of the Civil Procedure Act 2010 (Vic) not to commence or prosecute a proceeding without a proper basis. This means that a party who contends that, in effect, that obligation has not, or may not have been, complied with should establish that to be the case. In Environinvest the defendant directors who were being sued by the liquidator for breach of directors’ duties were able to do that.[15] In this case, by contrast, I was not directed to any specific evidence or absence of evidence to cast doubt on the existence of a proper basis for the plaintiffs’ allegations, or at least some of them.
[15]Ibid [5], [13], [19] and [36].
Environinvest is also distinguishable because in that case the absence of a proper basis was said to relate to key elements of the cause of action, and the liquidator essentially conceded that he did not, at least at that stage, have evidence to show one of those elements.[16] That key element was the true value of the trees and other assets purchased by the companies, which it was alleged the directors knew was less than the price paid. The liquidator sought to be excused from pleading the value of the trees at the time of purchase until he had obtained expert evidence. As the Court noted, this was not a matter going merely to the quantum of loss, but directly to whether there was any case at all.
[16]Ibid [17].
Here, by contrast, the defendants concede that at least conceptually the plaintiffs may be able to plead and prove a cause of action by which they are not bound by the Settlement Terms, and the SOC and PASOC do seek to plead some facts in support of those potential causes of action. The defendants make the general submission that the plaintiffs are apparently unable to ‘properly articulate a coherent case against the defendants’[17], but have not shown a lack of evidence to support any necessary element of the causes of action relating to setting aside the Settlement Terms. In short, the difficulty which the defendants have established with those causes of action relates to their pleading, not, at least at this stage, with the absence of evidence to support them. Even in those instances where the defendants have shown that a proposed cause of action is not available to the plaintiffs, being a claim for breach of directors’ duties and the proposed oppression claim, that is for legal, as opposed to evidentiary, reasons. I am not satisfied that the difficulty with the plaintiffs’ case is the absence of facts to support it, as opposed to the current attempts to formulate it.
[17]Transcript 63, lines 7-9.
The appropriate way to deal with a problem of this kind is not to require evidence, but to require better exposure of the necessary and relevant facts and tighter articulation of the case by proper pleading. Affidavits can encourage undifferentiated and unhelpful statements of grievances without the careful thought as to what must be proved, and whether there is evidence to prove it, that is required by proper pleading. It appears from the transcript of the directions hearing before her Honour Justice McMillan that she ordered pleadings for the very reason that she was unable to understand the plaintiffs’ case from the originating motion,[18] which was of course supported by an affidavit, and was answered on affidavit. Her Honour allowed the parties to file further affidavits, but both parties supported that course at that time, and it was said by the defendants to be helpful for mediation. Mediation has now taken place, and so that purpose no longer applies.
[18]Transcript of Proceedings, Janet Mary McIntyre & ors v Margaret Anne Hipkins & ors (Supreme Court of Victoria, S CI 2018 00448, McMillan J, 16 March 2018) 1, lines 19-25; 2, lines 6-16, and 5-6.
The strongest factor in favour of taking a more stringent approach to re-pleading than usual in this case is that the PASOC is effectively the third attempt by the plaintiffs to plead their case. This is because large parts of the originating motion are replicated in the SOC. There are better ways to control multiple ineffective attempts at articulation of a case, however, than a resort to evidence. In this instance, I consider an appropriate response is to require the plaintiff to serve a draft amended statement of claim, and then seek leave to file it or a further iteration if the defendants do not consent to it being filed, rather than granting leave outright to file and serve an amended claim.
Finally, there are more appropriate avenues available to the defendants if they contend that the plaintiffs do not have the evidence to establish their case. For example, if after re-pleading the defendants consider that on the merits the plaintiffs have no real prospect of success, they can seek summary judgment, which would elicit in response some or all of the evidence on which the plaintiffs will rely.
Conclusions and orders
For these reasons, I would answer the issues as summarised earlier in this judgment in these terms:
1. No, the proceeding should not be stayed for abuse of process.
2. Yes, the SOC should be struck out in its entirety.
3. Not applicable.
4. No, the plaintiffs should not be required to demonstrate a proper basis before re-pleading is allowed.
5. No, leave to amend should not be granted in respect of the PASOC.
I will strike out the SOC and refuse leave to file and serve the PASOC. I will require the plaintiffs to serve any proposed amended statement of claim and allow it to be filed only if endorsed with the consent of the defendants. Otherwise, leave must be sought.
I ask the parties’ legal representatives to draw proposed orders that reflect these reasons and deal with costs. The orders should correct those matters in the title to the proceeding that can be corrected without re-pleading, and provide for a timetable in relation to re-pleading. In the event that the parties are unable to agree, I will hear them further.
SCHEDULE OF PARTIES
S CI 2018 448
| JANET MARY MCINTYRE | First plaintiff |
| MALCOLM HALKET | Second plaintiff |
| CHRISTINE HALKET | Third plaintiff |
| BRUCE HALKET | Fourth plaintiff |
| - and - | |
| MARGARET ANNE HIPKIN | First defendant |
| TIMOTHY WORRIL HIPKIN | Second defendant |
| KINTEK PROPERTIES PTY LTD (ACN 004 322 392) | Third defendant |
| WINE VALLEY INVESTMENTS PTY LTD (ACN 005 042 311) | Fourth defendant |
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