Mineral Resources Ltd v Kiernan - [2010] WASC 400

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION: MINERAL RESOURCES LTD -v- KIERNAN [2010] WASC 400

CORAM: KENNETH MARTIN J

HEARD: 12 NOVEMBER 2010

DELIVERED : 12 NOVEMBER 2010

PUBLISHED : 21 DECEMBER 2010

FILE NO/S: CIV 2494 of 2008

BETWEEN: MINERAL RESOURCES LTD
First Plaintiff
CRUSHING SERVICES INTERNATIONAL PTY LTD
Second Plaintiff
AND
LAWRENCE JAMES KIERNAN
Defendant

Catchwords:

Pleadings - Strikeout application by defendant - Pilmer v Duke Group principle invoked - Particulars clarify - Claim for restitution on total failure of consideration - Not unarguable - Application to dismiss refused

Legislation:

Trade Practices Act 1974 (Cth), s 82

Result:

Application refused

Category: B

Representation:

Counsel:

First Plaintiff                :     Mr M L Bennett
Second Plaintiff            :     Mr M L Bennett
Defendant:     Mr S Penglis

Solicitors:

First Plaintiff                :     Lavan Legal
Second Plaintiff            :     Lavan Legal
Defendant:     Freehills

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

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
Pilmer v Duke Group Limited (in liq) [2001] HCA 31; (2001) 207 CLR 165

KENNETH MARTIN J:
(This judgment was delivered extemporaneously on 12 November 2010 and has been edited from the transcript.)

A very much amended statement of claim of 22 September 2010 is the subject of the defendant's strike‑out application in respect of pars 119 ‑ 121.
Correspondence between the parties has given rise to an attack upon the pleading in respect of an issue which needs to be assessed by reference to Request and Answer 14, provided under the plaintiffs' answer to the defendant's request for further and better particulars of further amended statement of claim (of 8 September 2010). Controversy from that document arises out of the answer to Request 14 (answer 6), which reads:
The first plaintiff has suffered loss in the amount of $6,093,000, due to the total failure of consideration caused by the defendant's fundamental breach of the Accord and Satisfaction Agreement, calculated as follows:
∙$3,585,000 (being the value of the issue of 500,000 shares in the first plaintiff to the defendant's nominee, Crawley, on 9 September 2008 (calculated at a closing price of the first plaintiff's shares of $7.17 that day));
∙$2,868,000 being the value of 400,000 options in the first plaintiff issued to the defendant's nominees Crawley on 9 September 2008;
LESS
∙$360,000 (being the funds received from the defendant's nominee, Crawley, in exercising the 400,000 share options in the first plaintiff on 10 September 2008 at an exercise price of $0.90 per share).
Essentially, the plaintiffs' claim is for the value of half a million shares in the first plaintiff. There follows a claim for a further 400,000 options in the first plaintiff.
As seen in the answer, the first plaintiff asserts a 'total failure of consideration' as to both tranches of its claim by its answer to Request 14. There is a credit allowed by the plaintiffs for an amount received from the defendant's (Mr Kiernan's) nominee, a Mr Crawley, in the amount of $360,000.
The defendant's pleading attack (against a claim for damages) is predicated on observations of the High Court in Pilmer v Duke Group Limited (in liq) [2001] HCA 31; (2001) 207 CLR 165.
In Pilmer four justices of the Court sought to answer a question posed at [43], in terms of the nature of the loss (if any) sustained by a company in a situation where it had issued as part of a 'deal' (using that expression in loose terms), some shares in itself. The plurality, in the context of the facts of that case, at [64] ‑ [65] observed:
The answer to that inquiry must be that Kia Ora outlaid cash and whatever may have been the administrative costs of issuing the shares. If a claim had been made, it may well be that some allowance would be made for the consequential effect on its capacity to raise other equity or debt finance. Otherwise, however, it gave up, or lost nothing by the issue of its shares.
It follows that in our opinion the Full Court was wrong to allow the sum which it did for the issue and allotment of Kia Ora shares in assessing the damages to be allowed for breach of contract or negligence [64] ‑ [65].
The very short point of legal principle now raised by the defendant on its strike‑out application is against pars 119 ‑ 121 of the plaintiffs' pleading, which at first blush, appears to seek damages. But pars 119 ‑ 121 are now read by reference to the answer to Request 14, which as Mr Bennett confirmed in argument, seeks to invoke restitutionary relief, on the basis of a total failure of consideration. The defendant still contends that there is no arguable cause of action, or alternatively that what is pleaded is embarrassing. The defendant's argument is that the Pilmer point as to a corporation losing nothing by issuing its own shares applies here, in circumstances where the first plaintiff still looks to claim damages, especially by reference to what is seen in the prayer for relief. Applying Pilmer, the defendant argues that there cannot be any prospect of damages of the first plaintiff suffering a loss of its own shares.
The broader context of this litigation is that the plaintiffs sue upon claims which were the subject of an accord and satisfaction agreement, which was attempted to be implemented in stages, but which was breached and so, never fully completed. The plaintiffs (on the basis of the alleged breach of the defendant) terminated the performance of the accord and satisfaction agreement. They sue then on the original causes of action, as they say they are entitled, by reason of the accord and satisfaction (in loose terms), 'falling over'.
However, a 'falling over' of the accord and satisfaction agreement, then only partly performed, left shares and options of the first plaintiff, lying in the hands of Mr Kiernan's nominee, Mr Crawley.
The strike‑out point then is whether that situation is sufficiently on all fours with the Pilmer scenario, so as to sustain a strike‑out application, on the basis that the first plaintiff's claim is assessed as wholly unarguable?
In my view, characterisation of the pleaded claim in respect of the shares and options (more particularly by the first plaintiff), must now to be read in light of the answer to Request 14. This is inappropriately characterised in the pleading (read alone) as a damages claim. There is of course a very significant conceptual distinction as between a claim for what would be loss of bargain damages for breach of the accord and satisfaction agreement, as against a restitutionary claim ‑ based on an asserted total failure of consideration. A restitutionary claim will be available, conceptually, in circumstances where something has been outlaid under a scenario of mutual contemplation of expected reciprocal benefit ‑ in return for what has been outlaid, but which, for various reasons, is an expectation not realised.
In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, the plurality explain total failure of consideration at (382 ‑ 383). The principle was earlier explained in observations by the House of Lords in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, during World War II, see Lord Wright at (72).
The position in terms of a strike‑out application of course is that any pleading deficiency needs to be shown to plain beyond reasonable argument.
Here I find, on my overall assessment, that the restitutionary context in which the first plaintiff's claim is made (as particularised), is somewhat unique. It is not precisely, by reason of the total failure of consideration asserted, exactly the fact situation under consideration in Pilmer. This relief, as sought, will be in the restitutionary context.
It may be that a restitutionary claim could be answered by the defendant simply returning parcels of shares and options in the first plaintiff, or by substantively doing so. The defendant may have the shares or it may need to acquire them at whatever the cost proves to be (assuming the plaintiffs' case is established at trial). To the extent of a partial or substantial return, questions of degree may arise as to the basis by which restitution is implemented.
How restitution of shares or options in the first plaintiff might be made, would I think, need to be assessed in the overall context of a trial. The shares and options (or shares only, if the options have now been converted into shares), might now cost considerably more to acquire. Or they might be held already, or be worth, considerably less. The defendant (or the defendant's nominee) may be able to acquire shares and options in the first plaintiff (or their equivalent) for a significant outlay of money, or for an insignificant amount of money. That all remains to be seen. But that is not about damages.
The question now is whether, in all these circumstances, the answer to particulars that formulates relief by reference to a computation of the value of the shares and options on the basis of a market valuation as at 9 September 2008 (generating a claim for $6 million, less a credit for funds received from Mr Crawley), raises an arguable claim requiring determination in the context of a trial. I think it does. It may be that such amounts at trial prove inaccurate as the price of acquiring a parcel of shares and options in the first plaintiff. But the relief being pursued is clear enough now in overall context.
It may be that success at trial, by reason of the Pilmer point, cannot even sustain a restitutionary remedy on the basis of a total failure of consideration. But that looks to me to be a point beyond what Pilmer decided.
Overall now, the situation is arguably different from the fact situation pertaining in Pilmer - where the claim for relief was for damages or statutory compensation under s 82 of the Trade Practices Act 1974 (Cth). It seems to be premature here, perhaps even dangerous, for the Court to pre‑emptively dismiss the present claim as unarguable before a trial. The full ramifications of the Pilmer principle need to develop and be assessed on a case by case basis, in the particular context of trial facts.
Although the pleadings at pars 119 ‑ 121 read alone, may appear to present a conceptual wrinkle, if the characterisation of what is sought as relief is viewed exclusively as a loss of bargain damages claim, the following particulars clear up that concern. It is now clear that there is a restitutionary claim, based on a total failure of consideration seeking the substantive return of shares and options in the first plaintiff, outlaid upon a failed transaction. It seems to me then overall, that the pleading (now assessed with its particulars) is not so unarguably misconceived or unclear, assessed at this interlocutory stage, to warrant dismissal at this time.
I detect no real substantive forensic embarrassment to the defendant, arising from the claim formulated in its present state, bearing in mind what has been clarified by the particulars.
On that basis, it is premature and unjust to strike‑out the as particularised claim. A restitutionary claim, which by the answer to Request 14 looks to be unique, was not considered in Pilmer. This is a claim necessary to be determined in the overall context of a trial, as a claim for restitutionary relief based on an asserted total failure of consideration.
On that basis, I must dismiss the defendant's strike‑out application.