Meridian Oil NL v Smyth - [2000] WASC 156

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: MERIDIAN OIL NL -v- SMYTH & ORS [2000] WASC 156

CORAM: MASTER SANDERSON

HEARD: 15 MARCH 2000

DELIVERED : 16 JUNE 2000

FILE NO/S: CIV 1208 of 1995

BETWEEN: MERIDIAN OIL NL
Plaintiff
AND
PETER MARK SMYTH
First Defendant
DAVID ALEC ANDREW FLEMING
Second Defendant
CHRISTOPHER PAUL McDONALD MAIN
Third Defendant
MICHAEL JOHN FULLER
Fourth Defendant
CECIL DENNISTON BURNEY
Fifth Defendant
LINDSAY GERALD DAVEY CAMERON
Sixth Defendant
ROSS PHILIP GLOSSOP
Seventh Defendant
RICHARD WEBB
Eighth Defendant

Catchwords:

Practice and procedure - Pleading summons - Turns on its own facts

Legislation:

Companies Code, s 229(1), s 229(4)

Rules of the Supreme Court, O 20 r 19, O 21 r 3(1), r 4(1)

Result:

Pleading struck out

Representation:

Counsel:

Plaintiff:     Mr M C Hotchkin
First Defendant             :     Mr J C Vaughan
Second Defendant         :     No appearance
Third Defendant           :     No appearance
Fourth Defendant          :     No appearance
Fifth Defendant            :     Mr M L Barke QC
Sixth Defendant            :     No appearance
Seventh Defendant        :     No appearance
Eighth Defendant          :     No appearance

Solicitors:

Plaintiff:     Hotchkin Hanly
First Defendant             :     Freehill Hollingdale & Page
Second Defendant         :     No appearance
Third Defendant           :     No appearance
Fourth Defendant          :     No appearance
Fifth Defendant            :     Corsers
Sixth Defendant            :     No appearance
Seventh Defendant        :     No appearance
Eighth Defendant          :     No appearance

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

Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250
Meridian Oil NL v Smyth [1999] WASC 173
Pascoe Ltd (in liq) v Lucas (1998) 16 ACLC 1247
Re Associated Tool Industries Ltd (1963) 5 FLR 55

Case(s) also cited:

Androvin v Figliomeni (1996) 17 WAR 177
Commonwealth v Verwayen (1990) 170 CLR 394
General Steel Industries Inc v Commissioner for Railways NSW (1964) 112 CLR 125
Grundt v The Great Boulder Pty Ltd Gold Mines Ltd (1937) 59 CLR 641
Hospitals Contribution Fund of Australia v Hunt (1983) 44 ALR 365
King & Rylands v Milpurruru (1996) 66 FCR 474
Kooraootang Nominees Pty Ltd v ANZ Banking Group [1997] 3 VR 16
Lee v Clarkson (1915) 17 WALR 191
Permanent Building Society v Wheeler (1993) 11 WAR 187
Thompson v Palmer (1933) 49 CLR 507
Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387

MASTER SANDERSON: This is the return of two chamber summonses brought by the first and fifth defendants to strike out the plaintiff's statement of claim. The matter presently comes before the court in slightly unusual circumstances. The plaintiff filed an amended statement of claim on 14 April 1999. This amended pleading was filed pursuant to O 21 r 3(1) and was, properly, filed without leave. The first defendant's application to strike out the amendment was said to be brought under O 21 r 4(1). In fact, the application to strike out went beyond the amendments made pursuant to r 3(1) and was brought under O 20 r 19. The fifth defendant was not affected by the amendments and he made his application under O 20 r 19. The matter came on for hearing on 23 August 1999 and on 20 September 1999 I struck out the plaintiff's statement of claim and gave leave to bring in a minute of proposed amended statement of claim. A minute of proposed amended statement of claim was filed on 25 November 1999. That minute was supplemented by a document entitled "Minute of Proposed Paragraph 71A and 89" filed on 9 March 2000. Both the first and fifth defendant objected to the new pleading and this hearing dealt with those objections.
The facts of this case are complex and I do not propose to deal with them in detail. An outline of the relevant facts is contained in my decision on the earlier strike out application: see Meridian Oil NL v Smyth [1999] WASC 173 at [5] to [8]. The difficulty with the earlier pleading related largely to the pleading of fraud against both the first and the fifth defendants. In my earlier decision I dealt with the requirements of a proper pleading when fraud is alleged. It will be sufficient for the purposes of this application if I draw attention to my comments in the earlier decision and, in particular, the decision in Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250.
The allegations of fraud against the first plaintiff are pleaded in par 63(a) and (b), par 66(a) and (b), par 71(a) and (b). These paragraphs all plead conclusions. The material facts to support these conclusions are pleaded in par 36 through to par 63. Many, if not all, of the facts to be found in these paragraphs were not found in the earlier version of the pleading. It is said by the first defendant that none of the material facts pleaded in par 36 through to par 63 unequivocally demonstrate dishonesty on the part of the first defendant. However, what the plaintiff says is that, taken together, these paragraphs demonstrate a dishonest intent on the part of the first defendant from which fraud can be inferred. Put another way, the plaintiff says that the irresistible inference from the events pleaded is that the first defendant had a dishonest intent.
To examine the respective positions of the parties it is necessary to look at the allegations of fraud made by the plaintiff and the facts pleaded to support that allegation. By par 63(a) the plaintiff alleges that by causing, permitting, ratifying or authorising the plaintiff to pay the Sum, the first defendant was fraudulent by:
(1)failing to obtain security from Shirerise;
(2)making no enquiries as to the bona fides of Shirerise;
(3)failing to ensure an agreement protecting the plaintiff was executed before payment of the Sum; and
(4)causing or permitting the payment of the Sum.
The material facts relevant to the first defendant that this allegation relies upon are pleaded in par 35, par 45, par 46, par 47, par 52, par 53(a) and par 57. It is alleged that the first defendant was a director of the plaintiff at the time of the Shirerise Agreement (par 35). It is further alleged that the first defendant wrote a memorandum in which it was said that if a proposed rights issue was to be "scaled down" then projects such as Shirerise and another had to be "eliminated" from the plaintiff (par 45). This reference to Shirerise is somewhat confusing. Shirerise is defined in par 3 of the minute to be Shirerise Petroleum. In par 23 there appears a definition of the Shirerise Agreement and the Shirerise Property. Independent of any other objections to the statement of claim, this confusion in par 45 must be rectified.
It is further alleged (in par 47) that the first defendant, on behalf of the plaintiff, gave certain undertakings as to payment of an amount pursuant to a charge over the Shirerise Property. On 17 January 1989 it is said that the first defendant did not refer to the Shirerise Agreement at a meeting of directors (par 53). It is then said that, by his conduct, the first defendant knew of and approved the Shirerise Agreement and the payment of the Sum (par 57). As I have said, these operative paragraphs then lead through to the allegation of fraud to be found in par 63(a). In referring to these individual paragraphs I have attempted to tease out what appear to be the statements of material fact which lead, on the plaintiff's argument, to a conclusion that the first defendant acted dishonestly. Counsel for the plaintiff submitted that to put what is a complex claim in perspective, it is necessary to refer to all paragraphs of the statement of claim between par 23 and par 63(a). Counsel submitted that what was being alleged was a course of conduct which, when looked at in totality and given the knowledge of the first defendant in relation to each particular aspect of that conduct, led to the conclusion that the first defendant acted fraudulently.
It is not easy to see from the pleading as a whole just how all of the transactions referred to intermesh and lead to the conclusion that the first defendant was fraudulent. Paragraph 57 is clearly crucial. I am not satisfied that the pleading as a whole, as it is drawn together in par 57, sufficiently pleads a case of fraud against the first defendant. The plaintiff has not pleaded actual knowledge of the payment of the Sum or actual knowledge of the Shirerise Agreement. Paragraph 23, and in particular par 23(c) plead that the Shirerise Agreement was entered into by Greenham on behalf of the plaintiff. Nowhere is it pleaded that the first defendant had knowledge of the Shirerise Agreement. Absent such a plea, it does not seem to me that the requisite knowledge is established to properly ground a plea in fraud.
The first defendant also criticises a failure to particularise par 47 and par 53(a) of the minute. In neither case do I see the absence of particulars as fatal to the pleading. Paragraph 47 sets out the date of the agreement, the parties who entered into the agreement and, presumably, its essential terms. I do not see that anything more is required. In relation to par 53(a), it is said that there is a failure to particularise the fact that no mention was made of the Shirerise Agreement or the Shirerise Property at a meeting of directors. If no mention was made of either of these two matters, then so be it. The plaintiff can hardly particularise the negative.
By par 63(b) it is alleged that the first defendant acted fraudulently by improperly using his position as a director to gain directly or indirectly an advantage for the SKA Trust and one Johnson. It is nowhere pleaded that the first defendant had any knowledge of the SKA Trust and Johnson. By par 11 of the minute, Johnson and the SKA Trust are identified. Both are then mentioned again in par 17(b) and par 18(b) and the SKA Trust is mentioned in par 28. But none of these paragraphs connect the first defendant with either Johnson or the SKA Trust. I appreciate that Johnson, through the SKA Trust, is said to control IRL (see par 17(a)). But that does not solve the difficulty. In my view, the first defendant's point is well made.
Paragraph 66(a) alleges that the first defendant acted fraudulently in taking no steps to recover the Sum from Shirerise or the SKA Trust or to make enquiries. This claim presupposes that the first defendant had some knowledge which would have caused him to take steps to recover the Sum. Such knowledge is not pleaded. Equally, the claim that the first defendant was reckless in not taking any steps is not supported by any plea of material fact. In my view, this allegation cannot stand.
By par 71(a) it is alleged that the first defendant, in resolving that the plaintiff would enter into the Firstway/Burbank Agreement and thereafter causing the plaintiff to enter into that agreement, the first defendant was fraudulent. The material facts said to give rise to the fraudulent intent are to be found in par 71(a)(i) through to (ix). These paragraphs can be summarised in the following way. It is said that the first defendant did not undertake enquiries to determine whether Firstway had title to 19.6 per cent of Mazeley or to value that holding. It is said that the Firstway/Burbank Agreement contained false statements. It is said that there was no valuation report to support the resolution. It is said that Mazeley was not incorporated until September 1988. Finally, it is said that no steps were taken to recover the Sum or to inquire as to the possibility of recovering the Sum.
The material facts to support these allegations of fraud are to be found in par 67 through to par 70 of the minute. In summary, it is pleaded the plaintiff's board of directors resolved to enter into the Firstway/Burbank Agreement at a meeting on 17 January 1989. It is pleaded the board of the plaintiff agreed that the agreement would be of great benefit to the plaintiff and that the plaintiff entered into the agreement which provided as set out in par 70.
It is said by the first defendant that the facts upon which the fraud is alleged do not demonstrate dishonesty. It is not demonstrated, so it is alleged that the first defendant had knowledge that the agreement contained the allegedly false statements, nor is it pleaded that the first defendant had any knowledge of any reason to cause him concern and to justify his taking steps to recover the sum. In my view, the objection is well made. There are simply not material facts pleaded which could give rise to a claim of dishonest intent.
The first defendant also challenges the pleading with respect to breaches of the Companies Code s 229(1) and s 229(4). Essentially, the arguments directed at the pleading of fraud are applicable to alleged breaches of both of these sections. I think the complaints are well made. I touched upon this aspect of the plaintiff's claim in my earlier decision (see [12]) and I need not repeat what I said therein. To my mind, the present pleading is inadequate.
The first defendant also complains about the pleading of the alleged breach of equitable duty of care. This plea is to be found in par 63(c), par 66(c) and par 71(c). The allegations rely on particulars set out in par 63(a), par 66(a) and par 71(a). In my earlier reasons I touched upon the need for the plaintiff to plead some nexus between the breach of duty and the loss sustained (see [14]). In my view the present pleading is still inadequate and should not be allowed to stand.
The first defendant contends that leave to produce a further amended pleading should not be granted. The matter was commenced in 1995 and relates to events which occurred in 1988 and 1989. It is said that so much time has passed now that the matter ought be put to rest. It is true that a long period of time has passed and it is somewhat difficult to see how the complicated matters, the subject of the action, can now be properly tried. But the allegations made by the plaintiff against the first defendant are serious indeed. Although the pleading of fraud may not be in a proper form, it seems apparent that there are events which require investigation and in such circumstances the plaintiff should not lightly be shut out, particularly on the basis of a pleading defect. I would be prepared to allow the plaintiff one further opportunity to amend its claim against the first defendant.
The position of the fifth defendant is somewhat different. By par 2 of the minute the plaintiff pleads that the fifth defendant was a director of the plaintiff between 5 January 1988 and 28 March 1989. In the same paragraph it is pleaded that Ian Maxwell Greenham ("Greenham") was an alternative director to the fifth defendant between 5 January 1988 and 10 August 1988. There is a dispute between the parties as to whether or not the fifth defendant did appoint Greenham as his alternate. The fifth defendant says that the plaintiff's own evidence is that Greenham was appointed by the plaintiff: see affidavit of Ian Leslie Veale, sworn 17 June 1999 (Exhibit "ILV4(a)"). There does appear to be some substance in this objection, although this being a pleading summons it is not a matter which I can finally resolve. Perhaps what can be said is that the plaintiff needs to think carefully before maintaining its present plea in this respect.
Leaving to one side the question of Greenham's appointment, the allegation in par 61(a) is that the fifth defendant caused or permitted Greenham to enter into the Shirerise Agreement and to pay the sum. It would appear, although it is not made clear from the pleading, that when all of the matters referred to in par 42, par 53 and par 56 took place Greenham was acting as the fifth defendant's alternate. It is said, in effect, that the fifth defendant is responsible for the actions of Greenham. In my view, such a plea cannot stand. It is well settled that knowledge of an alternate director will not be imputed to an appointor, nor is an appointor liable for the acts of his alternate: see Re Associated Tool Industries Ltd (1963) 5 FLR 55 per Joske J at 68; Pascoe Ltd (in liq) v Lucas (1998) 16 ACLC 1247 per Debelle J at 1247. Nor can any estoppel arise, as is alleged in par 61(c). There are simply not the facts to give rise to an estoppel in any form.
In answer to the complaints made by the fifth defendant, the plaintiff says that the fifth defendant demonstrated reckless indifference in the appointment of Greenham as his alternate director. It is further said that the appointment of an alternative does not avoid a director's obligations. That is as may be, but it does not answer the complaint with respect to par 61. It may be possible to allege a breach of duty of care by the fifth defendant in his appointment of Greenham as an alternative director. That seems to be hinted at in par 59 and par 60. But as the minute is pleaded, liability is sheeted home to the fifth defendant on the basis of what amounts to a vicarious liability for the acts of Greenham. In my view, such a pleading cannot stand.
I also accept that the pleading in par 63 is defective. Once again, it seems that the liability of the fifth defendant is derived from the actions of Greenham. If the fifth defendant is to be liable, as alleged, there must be something more and in relation to the plea of fraud it must be knowledge on the fifth defendant's part of the dishonest conduct.
I also agree that par 66(c) is defective, as no causation is pleaded.
As with the pleading against the first defendant, I am prepared to allow the plaintiff one further opportunity to put the statement of claim in proper order. I will hear the parties as to the precise form of the orders.