Mio Art Pty Ltd v Macequest Pty Ltd - [2013] QSC 211

SUPREME COURT OF QUEENSLAND

CITATION: Mio Art Pty Ltd v Macequest Pty Ltd & Ors [2013] QSC 211
PARTIES: MIO ART PTY LTD
ACN 101 121 875
(plaintiff)
v
MACEQUEST PTY LTD
CAN 101 563 649
(first defendant)
BMD HOLDINGS PTY LTD

ACN 010 093 348 (second defendant)
MANGO BOULEVARD PTY LTD
ACN 101 544 601
(third defendant)
URBEX PTY LTD

ACN 102 865 823 (fourth defendant)
BMD PROPERTIES PTY LTD
ACN 091 902 475
(fifth defendant)
MANGO HILL (PRIME) PTY LTD
ACN 110 696 565
(sixth defendant)
MANGO HILL (MEZZANINE) PTY LTD
ACN110697 400
(seventh defendant)
TASOVAC PTY LTD as Trustee of the Security Trust
ACN 108 013 467
(ninth defendant)
KENNETH ROWLAND BIRD
(tenth defendant)
GARY WILLIAM INGRAM
(eleventh defendant)
JAMES VARITIMOS
(twelfth defendant)
WAYNE ROBERT REX
(thirteenth defendant)
RUSSELL JOHN THOMSON
(fourteenth defendant)
DAVID JOHN DUNCAN
(fifteenth defendant)
ANDREW MARCOS
(sixteenth defendant)
SCOTT WILLIAM POWER
(seventeenth defendant)
MICHAEL CHRISTOPHER POWER
(eighteenth defendant)
KINSELLA HEIGHTS DEVELOPMENTS PTY LTD
ACN 100 484 299
(twentieth defendant)
FILE NO/S: BS 4352 of 2012
DIVISION: Trial
PROCEEDING: Application
DELIVERED ON: 19 August 2013
DELIVERED AT: Brisbane
HEARING DATE: 30, 31 January, and 16 & 17 April 2013
JUDGE: Jackson J
ORDER: The order of the court is that:
On the plaintiff‟s application to amend the claim in
4352 of 2012:
1. the application is dismissed.
2. the applicant pay the respondents‟ costs of the
application.

On the plaintiff‟s application for leave to bring the
proceeding on behalf of KHD under s 237 of the Corporations Act 2001 (Cth) in 11109 of 2012 and 4352 of 2012:
3.          the application is dismissed in both 11109 of 2012 and 4352 of 2012.
4.          the applicant pay the respondents‟ costs of the
application.
5.          proceeding 11109 of 2012 is stayed.

On the first to seventh, tenth, eleventh and fourteenth
to eighteenth defendants‟ application to strike out the
statement of claim and to dismiss the proceeding in
4352 of 2012:
6. the statement of claim is struck out.
7. the respondent pay the applicants‟ costs of the
application on the indemnity basis.

On the ninth defendant‟s application to strike out the
statement of claim and to dismiss the proceeding in
4352 of 2012:
8. the statement of claim is struck out.
9. the respondent pay the applicant‟s costs of the
application on the indemnity basis.

On the twelfth defendant‟s application to strike out the
statement of claim and to dismiss the proceeding in
4352 of 2012:
10. the statement of claim is struck out.
11. the respondent pay the applicant‟s costs of the
application on the indemnity basis.

On the thirteenth defendant‟s application to strike out
the statement of claim and to dismiss the proceeding in
4352 of 2012:
12. the statement of claim is struck out.
13. the respondent pay the applicant‟s costs of the
application on the indemnity basis.

In 4352 of 2012:
14. the plaintiff file and serve a further statement of claim on or before 30 September 2013.
And the court direct that:
15. Parties provide submissions as to cost by 4pm, 21 August 2013.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER THE UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – PLEADING – STATEMENT OF CLAIM – AMENDMENT – where the plaintiff joins claims for relief under
Corporations Act 2001 (Cth), s 233 and other claims – where

the plaintiff applies for leave to bring the proceeding on behalf of a company under Corporations Act 2001 (Cth),

s 236 – where the plaintiff applies to amend the claim and statement of claim – where the defendants cross-apply to strike out the statement of claim and dismiss the proceeding – where statement of claim adopts narrative style – whether
statement of claim sufficiently pleads material facts for
separate causes of action – whether the statement of claim
sufficiently alleges fraudulent scheme

CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS' REMEDIES AND INTERNAL DISPUTES – PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER – STATUTORY DERIVATIVE ACTION – where the plaintiff seeks leave under
Corporations Act 2001 (Cth), s 237 to bring a cause of action
on behalf of the twentieth defendant against the other
defendants – whether leave should be granted

Corporations Act 2001 (Cth), s 53, s 79, s 150, s 157, s 168, s 169, s 180, s 181, s 182, s 231, s 232, s 233, s 234, s 236, s 237, s 1071B, s 1317E, s 1071F, s 1317H, s1317J, s 1322

Trusts Act 1973 (Qld), s 15, s 82 (1) r 149, r 171, r 292, r 293
Gummow, Knowing Assistance, (2013) 87 ALJ 311
Jacob & Goldrein, Pleadings Principles and Practice, Sweet
& Maxwell, London,
th

Treitel, The Law Of Contract, 7 ed, Sweet & Maxwell,
London
Andco Nominees Pty Ltd v Lestato Pty Ltd (1995) 126 FLR
404; (1995) 17 ACSR 239, cited
Banque Commerciale SA (en liq) v Akhil Holdings Ltd (1990)
169 CLR 271; [1990] HCA 11, cited
Barnes v Addy (1874) 9 LR Ch App 244, cited
Beck v Tuckey (2007) 213 FLR 152; [2007] NSWSC 1065,
cited
Breskvar v Wall (1971) 126 CLR 376, cited
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA
34, cited
Bruce v Odhams Press Pty Ltd [1936] 1 KB 697, cited
Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR
185 at 191; [1966] HCA 38, cited
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR
304 at [174]; [2009] HCA 25, cited
Farah Constructions Pty Ltd v Say-Dee Pty Ltd, (2007) 230
CLR 89 at [161]; [2007] HCA 22, cited
Fiduciary Ltd v Morning Star Research Pty Ltd [2005]
NSWSC 442, cited
Frigger v Lean [2012] WASCA 66, cited
Gould v Vaggelas, (1985) 157 CLR 215; [1984] HCA 68,
cited
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR
296; [2012] FCAFC 6, cited
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Lumley v Gye (1853) 118 ER 749; [1853] EngR 15, cited
Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104;
[1982] HCA 17, cited
Matyear v Prismex Technologies Pty ltd [2008] NSWSC 677.
Metyor Inc v Queensland Electronic Switching Pty Ltd,
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Mylward v Weldon (1596) 21 ER 136; [1595] EWCH Ch 1,
cited
Power v Ekstein [2009] NSWSC 130, cited
Power v Ekstein (2010) 77 ACSR 302, [2010] NSWSC 137,
cited
Re Independent Quarries Pty Ltd (1993) 12 ACSR 188, cited
Re Pembury Pty Ltd [1993] 1 Qd R 125, cited
Shelton v NRMA Ltd (2004) 51 ACSR 278; [2004] FCA
1393, cited
Short v Crawley No 30 [2007] NSWSC 1322, cited
Standard Bank PLC v Via Mat International Ltd [2013]
EWCA Civ 490, cited
Sugarloaf Hill Nominees Pty Ltd v Rewards Project Limited
[2011] WASC 19, cited
Trafalgar West Investments Pty Ltd v Superior Lawns
Australia Pty Ltd [2012] WASC 460, cited
Venture Platinum Pty Ltd & Anor v Rogue Constructions Pty
Ltd (2006) 56 ACSR 802, cited
Whitehouse v Capital Radio Network Pty Ltd (2004) 13 Tas R
27; [2004] TASSC 12, cited
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd
(2006) 33 WAR 1; [2006] WASC 161, cited
Zhu v Treasurer of State of New South Wales (2004) 218
CLR 530; [2004] HCA 56, cited

COUNSEL: F M Douglas QC and D Keane for the plaintiff (“Mio”)
D Kelly SC, M Hodge and D Butler for the first to seventh, tenth, eleventh and fourteenth to eighteenth defendants
(“BMD defendants”)
C M Muir for the ninth defendant (“Tasovac”)
B Cohen (solicitor) for the twelfth defendant (“Varitimos”)
D Savage SC and P Corkery for the thirteenth defendant
(“Rex”)
SOLICITORS: Delta Law for the plaintiff
Carter Newell for the first to seventh, tenth, eleventh and
fourteenth to eighteenth defendants
King & Wood Mallesons for the ninth defendant
Bartley Cohen for the twelfth defendant
HWL Ebsworth for the thirteenth defendant

JACKSON J: There are six cross applications presently requiring resolution. They fall into two groups. First, the plaintiff in proceeding 4352 of 2012, Mio Art Pty Ltd
(“Mio”), seeks leave to amend the claim. As well, it seeks leave to bring a
proceeding on behalf of the twentieth defendant, Kinsella Heights Development Pty
Ltd (“KHD”).
Secondly, the defendants cross apply in 4352 of 2012 to strike out either the whole or parts of the statement of claim and to terminate that proceeding.
Mio responds to the cross applications by a combination of submissions in opposition and by proposing some amendments to the statement of claim. The
protagonists‟ contentions upon the applications to strike out have thus proceeded by reference to the proposed third further amended statement of claim (“3FASOC”),
although the application to amend the claim and the applications to strike out as originally filed related to the filed second further amended statement of claim. Accordingly, the applications proceeded as an application for leave to file the 3FASOC and cross-applications to strike it out, although it has not yet been filed.
Both the personal claim by Mio and the proposed claim on behalf of KHD are complex. The 3FASOC is over 290 paragraphs long. The defendants claim, with some justification, that parts of it are nonetheless deficient.
There is added complexity in the way Mio has sought leave to bring KHD‟s claim
against the defendants. Such leave is ordinarily sought under s 237 of the Corporations Act 2001 (Cth), as the exclusive basis of power to do so. Prior to the present applications, no leave has been sought or granted. Yet, the 3FASOC and
earlier versions of that pleading in 4352 of 2012 allege KHD‟s claims against the
defendants. Relief is claimed to which only KHD could be entitled. Unhappily, the 3FASOC does not clearly distinguish between which claims are personal claims of
Mio and which are KHD‟s claims.
Before the hearing of these applications, Mio had not applied for leave under s 237 in 4352 of 2012. Instead, in that proceeding, Mio claimed orders under s 233 of the
Corporations Act that it submits would vindicate KHD‟s claims against the other defendants. There is room for confusion or argument about which of KHD‟s claims come within the scope of Mio‟s claim for relief under s 233.
Mio started a second proceeding, 11109 of 2012, over some of the same subject
matter against some of the same defendants. The claim in that proceeding is KHD‟s claim. Mio is not entitled to bring that proceeding on KHD‟s behalf without leave

granted under s 237. Mio did not first obtain leave. It now applies for leave after
the event but as if it had done so beforehand.

Adding to the procedural complexity by which Mio applied for leave to bring proceedings on behalf of KHD, the claim in 11109 of 2012 duplicates some, but not
all, of KHD‟s causes of action and claims already made in 4352 of 2012. Mio‟s
explanation was that the claim in 11109 of 2012 was intended to pick out particular claims that could proceed more expeditiously than the balance of the claims in 4352 of 2012. However, during the hearing of these applications, Mio abandoned that proposed method of proceeding.
Instead, Mio now proposes to amend the claim in 4352 of 2012 to incorporate its final proposal to bring all relevant claims on behalf of KHD. At least that is my understanding. Thus, in effect, Mio seeks that its application for leave to bring a
proceeding on KHD‟s behalf under s 237 be treated as one made in 4352 of 2012,
notwithstanding that the formal application under s 237 was filed in 11109 of 2012.
The untidiness of this process is illustrated by the requirement under s 236(2) of the
Corporations Act that a proceeding brought on behalf of a company “must be brought in the company‟s name”. The title in 4352 of 2102 does not comply with
that requirement. Nevertheless, the result is that it is now unnecessary to consider the application in 11109 of 2012 by reference to the statement of claim filed in that proceeding. Attention is to be confined to the 3FASOC.
What I have already said is enough to introduce the procedural context of the battle royal in which the parties engaged over four days of argument in the hearing of these applications. The exhibits to the affidavit evidence relied upon ran to many thousands of pages. As well, there were many written submissions.
Before diving into the substance, it will help if some background is set out.
Background
The subject matter of the main proceeding is a land development project at Mango
Hill, north of Brisbane on land owned by KHD. There are two shareholding
factions in KHD. Mio is in one camp and claims to be entitled to be registered as a

1

member of KHD as a trustee of 25% of the issued shares. The BMD defendants
include the third defendant, Mango Boulevard Pty Ltd (“Mango”). Mango is the
holder of 50% of the issued shares in KHD and constitutes the second of the
shareholding factions.

At the highest level, the project was for the development of the land by subdivision and sale. The original shareholders of KHD were two individuals, Richard Spencer and Silvana Perovich. Mango became a shareholder as part of a complex corporate joint venture restructuring involving companies associated with Michael Power,
Scott Power and Denise Power (“the Powers”). KHD and Mango became joint
venturers to carry out the project. The corporate BMD defendants are companies
2

associated with the Powers. At the outset of the project arrangements, the relevant
companies, apart from KHD, were:

(a) Mango, which became manager of the project;
(b) the second defendant, BMD Holdings Pty Ltd, which guaranteed
Mango‟s obligations to the original shareholders and KHD; and

(c) the fourth defendant, Urbex Pty Ltd, which was also appointed as a project manager and development manager with relevant responsibilities.

There are other companies associated with the Powers among the BMD defendants which were not referred to in the original suite of project documents. Their involvement in 4352 of 2012 stems from the financing facilities that were subsequently entered into by KHD and Mango, ostensibly to further the project.
Using loose language for brevity, the Powers may be seen to be the principals of the corporate BMD defendants. The other individual defendants were at different times officers of the relevant corporate identities, appointed by or representing the BMD
interests. They include two current directors of KHD, the twelfth defendant (“Mr Varitimos”) and the thirteenth defendant (“Mr Rex”), who are separately represented

in 4352 of 2012 and who are applicants to strike out the 3FASOC as against each of
them.

It is convenient to extract a more detailed description of the initial project arrangements from the 3FASOC in paragraphs [17] to [49]:
“Share Sale Agreement (“SSA”)
17. As at 4 July 2003 the Former Trustee (Spencer) was the registered owner of 50 ordinary shares in KHD.
18. As at 4 July 2003 Perovich was the registered owner of 50 ordinary shares in KHD.
19. On or about 4 July 2003, the Former Trustee (Spencer), Perovich, and Mango and KHD entered into an agreement known as the
“Share Sale Agreement” (“SSA”) pursuant to which:

(a) the Former Trustee (Spencer) agreed to sell and Mango
agreed to purchase 25 ordinary shares in KHD (the “Spencer
Trust Sale Shares”); and

(b) Perovich agreed to sell and Mango agreed to purchase 25
ordinary shares in KHD (the “Perovich Sale Shares”).

The plaintiff will refer to the other terms and conditions of the SSA at the hearing of this matter as if the same had been fully set out herein.
20. On or about 7 July 2003 the Former Trustee (Spencer) transferred the Spencer Trust Sale Shares to Mango.
21.  On or about 7 July 2003 Perovich transferred the Perovich Sale Shares to Mango.
Shareholders Deed (“SHD”)
22.  On about 4 July 2003, the Former Trustee (Spencer), Perovich, Mango and KHD executed a deed known as the Shareholders
Deed (“SHD”). The Plaintiff will refer to the terms of the SHD at

the hearing of this matter as if the same had been fully set out
herein.
Project Management Agreement (“PMA”)
23.  On about 24 June 2003 KHD and Mango also entered into an agreement known as the Project Management Agreement
(“PMA”). The Plaintiff will refer to the terms of the PMA at the
hearing of this matter as if the same had been fully set out herein.
24.  On about 24 June 2003 KHD executed a mortgage over the Property in favour of Mango to secure the performance by KHD of its obligations under the PMA or the mortgage, or arising by operation of law, equity or otherwise out of the relationship established by the PMA, or any actual or alleged breach of the PMA. And on 15 October 2004 the mortgage was registered as
Mortgage No.708139356 (“Mortgage-to-Mango re PMA”).
Consultancy Services Agreement (“CSA”)
25. On about 24 June 2003 KHD, Mango and Neolido Holdings Pty
Ltd (“Neolido”) entered into an agreement known as the
Consultancy Services Agreement (“CSA”). The Plaintiff will

refer to the terms of the CSA at the hearing of this matter as if the
same had been fully set out herein.
Deed of Guarantee & Indemnity (“DGI”)
26.  On or about 24 June 2003 BMD Holdings, Spencer, Perovich and Neolido entered into a Deed of Guarantee and Indemnity as
defined (“DGI”) whereby BMD Holdings unconditionally
guaranteed and indemnified the other parties in respect of KHD‟s
obligations and Mango‟s obligations.

Covenants in the Shareholders Deed and terms of the agreements

27. Mango covenanted with KHD and the Original Shareholders (cl.
3.1 SHD) that Mango would “use its best endeavours to ensure that KHD successfully conducts the Business”; wherein the SHD,
except to the extent that the context otherwise required:

(a) “Business means the management of the Project” (cl. 1.1);
and

(b) “Project means the acquisition and development of the
Property, including but not limited to the lodgment and management of the Development Application and such further applications as may be required to obtain the
necessary Development Permits to develop the Property” (cl.
1.1).

28. Mango, KHD and the Original Shareholders each covenanted with each other in the SHD that each Party would:

(a) be just and faithful in the party‟s activities and dealings with
the other parties in all transactions concerning the Business
and KHD (cl. 3.2(d));

(b)

make approvals or decisions that are required of the party in good faith and in the best interests of KHD and the conduct of the Business as a commercial venture (cl. 3.2(c));

(c)

not unreasonably delay any action, approval, direction, determination or decision which is required of the party (cl. 3.2(b)); and

(d)

give, without concealment or suppression, a true account of all transactions concerning the Business and KHD when and so often as an account is reasonably required (cl. 3.2(d)).
Joint venture between KHD and Mango
29. KHD and Mango wished to record their agreement in relation to the management of the Development Application and the Project (Recital D of PMA), and this became the PMA in which they
agreed “to associate in a joint venture on the terms set out in the
PMA for the purpose of executing the Project” (cl. 3.1) where:

(a) “Project means the acquisition and development of the
Property in accordance with the Development Application”
(cl. 1.1) (“Joint Venture between KHD and Mango”).

30.  For the purpose of the Joint Venture between them, KHD and
Mango agreed in the PMA that “the due performance and
fulfilment of the Parties of their respective obligations under the PMA and the Project generally shall be done by each respective
party in good faith towards the other” (cl. 15.1).
31.  For the purpose of the Joint Venture between them, KHD and Mango agreed in the PMA that each would indemnify the other from and against any and all costs, losses, claims, damages and liabilities arising out of any negligent act or omission of the indemnifying party or that party's servants which is done or omitted or undertaken on behalf of the others or arising out of any assumption of any obligations or responsibility by the indemnifying party or by that party's servants or arising out of any wrongful act or omission or any act or omission contrary to the obligations of the indemnifying party under the PMA (cl. 4.2).
32.  Neolido, KHD and Mango wished to record their agreement in relation to the management of the Development Application and the Project (Recital E of CSA), and this became the CSA.
Project funding and payment of costs
33.  By the SHD, Mango, KHD and the Original Shareholders covenanted with each other that:

(a) KHD would not encumber its assets other than as provided in the SHD, the CSA, the PMA and as might be required by Mango to secure a loan or loans for the development of the Property (cl. 4.7);
(b) KHD would not enter into any commitment or liability other than in the ordinary course of ordinary business, unless otherwise agreed by all the Shareholders (cl. 4.4(f)); and
(c) KHD would not acquire or dispose of any assets or business other than in the ordinary course of ordinary business, unless otherwise agreed by all the Shareholders (cl. 4.4(e)).
34.  For the purpose of the Joint Venture between them, KHD and Mango agreed in the PMA that:

(a)

Mango would bear wholly the commercial risk of the execution of the Joint Venture (cl. 6.1);

(b)

Mango would be liable for all costs of and incidental to the Project (cl. 7.3);
(c) Mango would be responsible for raising all finance required to
fund the Project (“Loan”) (cl. 9.1);

(d) Mango would bear all costs of arranging such Loan (cl. 9.1); and
(e) Mango would pay any interest which may be payable in respect of the Loan (cl. 9.3); and
(f) Mango would pay all costs in relation to the Project as and when they fell due (cl. 7.3).
35. Neolido, KHD and Mango agreed under the CSA that from the Effective Date Mango would be liable to pay all costs in relation to the Project (cl. 3.4), where the Effective Date was the date of the CSA.
36. For the purpose of the Joint Venture between them, KHD and Mango agreed in the PMA that:

(a) If necessary, the Loan could be secured over the Property (cl. 9.2); and
(b) KHD would execute all such documents as may be required by Mango to secure the Loan over the Property, on such terms and conditions as are required by the Financer (cl. 9.2).
37. By the SHD:

(a)

Mango covenanted with KHD and the Original Shareholders that it would lend or procure a loan or loans in an amount sufficient to enable KHD to settle the Contract at any time prior to the Contract Settlement Date, but in any event no later than 90 days prior to the Contract Settlement Date, which was 30 August 2004 (cl. 5.2);

(b)

Mango and KHD covenanted with the Original Shareholders that Mango would not to lend money to or at the direction of KHD without the prior written consent of all other Shareholders and except on the terms approved of by the other Shareholders in KHD (cl. 8.1); and

(c)

Mango and KHD covenanted with the Original Shareholders that KHD would not lend money nor give financial assistance to or at the direction of Mango or BMD or any Related Person of Mango or BMD without the prior written consent of all other Shareholders and except on terms approved of by the other Shareholders (cl. 8.2), and for the purposes of this
term „financial assistance‟ includes the giving of a guarantee,
the granting of an Encumbrance, the assumption or release of
an obligation or the incurring or forgiving of a debt (cl. 8.3).

Mango’s and KHD’s rights to participate in the Profit of the
Project
38.  For the purpose of the Joint Venture between them, KHD and
Mango agreed in the PMA that Mango‟s rights were limited to its

rights under the Joint Venture to participate in the Profit of the
Project (cl. 7.1), and in that respect:

(a) Mango was entitled to all Profit of the Project up to a Profit on Cost Percentage of 25%, and 60% of any Profit in excess of that Profit (cl. 5.1); and
(b) KHD was entitled to 40% of Profit in excess of a Profit on Cost Percentage of 25% (cl. 5.2).
39.  For the purpose of the Joint Venture between them, KHD and Mango agreed in the PMA (cl. 5.3) if at any Balance Date the accounts of the Joint Venture disclosed that the Profit in relation to the Joint Venture had not been distributed in accordance with cl. 5, then KHD and Mango agreed to make such adjustments between them (including cash payments if necessary) so as to ensure that each party received its correct entitlement, where,
“Balance Date” means, except to the extent that the context
otherwise requires, the date upon which the accounts of the Joint Venture were balanced, being the end of each Financial Year, or the date of completion of the Term (cl. 1.1).
40.  For the purpose of the Joint Venture between them, KHD and Mango agreed in the PMA (cl. 6.2) if at any Balance Date it appeared that any losses incurred by the Joint Venture had not been shared in accordance with cl. 6.1, then KHD and Mango would make such adjustments between them (including any cash payment as required) as was necessary in order to ensure that the risk of any loss has been shared in the correct proportions.
41.  By the SHD, Mango, KHD and the Original Shareholders covenanted with each other that they would procure that the Directors of KHD adopt a dividend policy in terms of which:

(a)

dividends were declared in accordance with cl. 6.1(b) annually in arrears, at least 45 days after the end of each Financial Year;

(b)

dividends were declared so as to distribute 40% of all Profit (as defined) in relation to the Project above a profit on Cost Percentage of 25% in the following proportions: ¼ Perovich, ¼ Spencer and ½ Mango; and

(c)

Perovich and Spencer could, subject to the ability of KHD to pay franked dividends, elect whether the dividends were to be franked or unfranked (cl. 6.1).
42.  For the purpose of the Joint Venture between them, KHD and Mango agreed in the PMA (cl. 11.1) that upon the sale of the Property or any of the Lots:
(a) the proceeds of sale would be applied:
(i)   firstly, in payment of all Costs relating to the Project,
where the expression “Costs” has the meaning in cl 1.1
of the PMA; and
(ii)  secondly, in distribution of the Profit pursuant to cl. 5; and

(b)

Mango would pay any shortfall in the proceeds required to pay any costs outstanding at that time (if any).
KHD’s Board and management of its activities
43. By the SHD, Mango, KHD and the Original Shareholders covenanted with each other that Mango would be responsible for (i) management of all activities of KHD in the conduct of the Business; (ii) the day to day management of the financial affairs of KHD; and (iii) the general administration of KHD, subject to directions from the Board of KHD from time to time (cl 5.1).
44. In relation to the Board of KHD, Mango, KHD and the Original Shareholders covenanted with each other in the SHD that:

(a) Mango and the Original Shareholders would unanimously agree on the number of Directors on the Board of KHD (cl. 4.2(b));
(b) the Original Shareholders would be entitled to appoint an
equal number of directors to the Board of KHD (“OSHs‟ Directors”) as Mango appointed (“Mango‟s Directors”)
(cl. 4.1(b));

(c) initially there would be four Directors, Hailey and Ingram, as the Mango Directors, and Perovich and Spencer, as the
OSHs‟ Directors (cll. 4.1(c) and (d));

(d) a Mango Director would be the Chairman of the Board of KHD (cl. 4.1(e));
(e) a quorum for a meeting of the Board of KHD would be a Mango Director and an OSH Director (cl. 4.2(h));
(f) meetings of the Board would be held once in every month (cl. 4.1(f));
(g) the Chairman would have a casting vote at any meeting of the Board or of Shareholders at which there was an equality of votes (cl. 4.1(e)); and
(h) a director could appoint an Alternate Director who was resident in Queensland if the director was not resident in Queensland or was temporarily absent from Queensland (cl. 4.2).
45. Under the Joint Venture between KHD and Mango and in relation to management of the Project, KHD and Mango agreed in their PMA that:

(a)

KHD and Mango would appoint a Management Committee to administer and co-ordinate the Project (cl. 10.1);

(b)

Mango would nominate two and KHD would nominate one Management Committee member (cl. 10.2);

(c)

the Management Committee would appoint one of its members as Chairman, who would be entitled to vote and would have a casting vote in the event of an equality of votes (cl. 10.3);

(d)

Mango would appoint Urbex as the Project Manager without tender (cl. 10.4);

(e)

Urbex would undertake the Project under the direction and control of KHD and Mango in a good, commercially prudent and reasonable manner and in accordance with the provisions of the PMA (cl. 10.4);

(f)

the Management Committee would appoint Urbex as the Development Manager without tender to lodge the Development Application in respect of the whole property and use its best endeavours to obtain Development Permits within 12 months from the date of the PMA in respect of the whole of the Property so as to maximise the potential yield and profit in relation to the Project (cl. 10.5);

(g)

the Management Committee would appoint BMD Consulting to carry out all civil design work for the Project without tender (cl. 10.6);

(h)

the Management Committee would appoint BMD Constructions to carry out all civil design work for the Project without tender (cl. 10.7);

(i)

all appointments by the Management Committee would on reasonable arms-length commercial terms and conditions (cl. 10.7); and

(j)

all appointments made by the Management Committee to administer and co-ordinate the Project would be made on reasonable arms-length terms and conditions (cl. 10.8).
46. The Management Committee was formed on 20 October 2003 and
Mango‟s nominees were Bird and Thomson, with Mr Greg Long
(“Long”) as an alternate, and KHD‟s nominee was Perovich, with
Spencer as an alternate; and the Management Committee appointed Thomson as its Chairman.
47. Under the CSA Neolido, KHD and Mango agreed that:

(a) Mango would appoint a director to be responsible for the day to day management of all the statutory approvals and consents that may be required for the Project (cl. 3.1);
(b) Mango would review and finalise the Development Application and ensure that one Development Application was lodged in respect of the whole Property (cl. 3.2); and
(c) Mango would use its best endeavours to obtain the Preliminary Approval and such other Development Permits in respect of the whole of the Property which are appropriate so as to maximize the potential yield and profit in relation to the Project, as expeditiously as possible (cl. 3.2).
48. Mango, KHD and the Original Shareholders covenanted with each other in the SHD that:

(a)

subject to the contrary direction of the Board of KHD, Mango would use its best endeavours to ensure that KHD kept true records and books of account in which full, true and correct entries were made of all dealings or transactions concerning the Business and its affairs using generally accepted accounting principles consistently applied (cl. 7.3(d)); and

(b)

Mango would ensure that KHD prepared management and financial information and reports, including but not limited to the reports referred to in cll. 7.1(a) to (e).
49. The DGI unconditionally guaranteed and indemnified KHD‟s and
Mango‟s Obligations the subject of these proceedings (cll. 3 and
4).”

From these allegations, the 3FASOC proceeds to the detail of the acquisition of the land by KHD and arrangements made for financing in August and September 2004.
It is convenient to leave off the detail at this point. Various details will be raised later. These reasons will be lengthy. To limit the excess, in some places I have used abbreviations from the 3FASOC without full explanation. Hopefully, that will not
detract too much from the reader‟s comprehension. Up to this point in the narrative,
it is not alleged that any of the defendants has breached a legal obligation owed to the original shareholders or KHD. Yet, already the paragraphs extracted above show enough to identify one of the principal difficulties confronting the parties in the hearing of the applications.
A narrative pleading
The style of the 3FASOC is described by Mio as “narrative” and “wholly conventional”. Thus (with a few exceptions, including paragraph [254]) paragraphs
[1] to [260] allege factual matters, mostly in a chronological order, beginning with the constitution of relevant parties and ending with an allegation of a notice given by Mango to the directors of KHD on 4 February 2013.
Paragraphs [261] and [262] are important. They contain the allegations of loss or damage.
Paragraph [261] alleges that “by reason of the matters pleaded in paragraphs [1] to
[260] KHD has suffered loss and damage.” This is an unusual plea of loss or
damage. The relevant loss or damage is that caused by a wrong. It is thus a material fact that the wrong caused loss or damage. For example, where a plaintiff has
suffered loss by a defendant‟s breach of contract or negligence or fraud it is
necessary to allege that the breach, negligence or fraud caused the loss. It is necessary to plead the connecting step which constitutes the material fact of causation.
The loss or damage alleged in paragraph [261] is as follows:
“By reason of the matters pleaded in paragraphs [1] to [260] KHD has
suffered loss and damage.

Particulars

(a) KHD has suffered damages for delay of $44,131,027 as assessed in the expert report of K Conrad of 4 June 2012. That loss is ongoing and will be re-quantified in expert reports to be filed on any hearing of this matter;
(b) KHD has suffered loss and damage in that, on the assumption that interest is capable of being accumulated on the Prime-to-Mango FA notwithstanding the provisions of cll. 7.2 and 9.2 of the PMA, and repayable under cl. 11.1 of the PMA, it has been exposed to interest charges of over $67 million because of the delays that have taken place in the development of the Project, which interest charges are not taken into consideration in the expert reports of K. Conrad;
(c) KHD has suffered loss by reason of the underdevelopment of the Property as alleged in paragraph [213 (viii)] hereof which underdevelopment has and will cause a loss of profitability in the Project of $79,201,553
(d) KHD has suffered loss of $14,505,000 up to 16 October 2012 being the sum of the amounts repaid to Mango from the sale of parts of the Property without taking into account any rights of set off or indemnity available to 67 KHD arising from the delays and under development of the Project which have taken place;
(e) KHD is exposed to further losses arising from the possibility that the BMD Group and Mango could fail, and the securities, the subject of these proceedings,
are called upon.”

Paragraph [262] alleges that Mio has suffered loss and damage “further or in the
alternative” to paragraph [261]. The loss particularised under paragraph [262] is that Mio has lost the “ability to earn dividends [as a member of KHD and]
calculated in accordance with paragraphs [38] to [42] hereof on profits that would
otherwise have been earned.”
Thus, if Mio has a loss separate from KHD it is a loss of dividends. Any such loss
must be calculated by reference to Mio‟s prospects of receiving 25% of the
dividends which would or might have been payable by KHD to members. As against Mango, under the joint venture between them, KHD was entitled to a deferred profit share of 40% of 75% of the profits of the project. The first 25% of the profits on the project was to go to Mango. The other original shareholder and
Mio‟s commercial and legal interests are (indirectly) to 7.5% of any project profits
which are available for distribution by KHD as dividends from KHD‟s deferred entitlement to 30% of the profits on the project. Overall, Mango‟s commercial and
legal interests are to 85% of profits on the project, through a priority joint venture profit share of 25%, a deferred profit share of 60% of the remaining 75% and a half share of any project profits that are available for distribution of dividends in KHD.
Mio will have suffered no loss if KHD is entitled to recover and recovers its deferred entitlement to 30% of the profits on the project. Otherwise, there would be
double recovery on Mio‟s part and double liability on Mango‟s part if KHD‟s claims
succeed and are recoverable.
From paragraph [263] to paragraph [291] of the 3FASOC, Mio alleges that the facts previously pleaded constitute a variety of causes of actions against each of the defendants. They may be summarised for present purposes, distinguishing between
Mio‟s claims and KHD‟s claims. This will also serve to identify what Mio contends
it is entitled to plead as a matter of right as opposed to claims which it may only
bring on KHD‟s behalf with leave under s 237 of the Corporations Act or by means
of its claims for relief on behalf of KHD under s 233 of that Act.
Oppression
Mio‟s claims include a number of claims for relief against oppression made under

s 233 of the Corporations Act. Mio alleges oppression in paragraph [291] of the
3FASOC.

Relief against oppression in the conduct of a corporation‟s affairs is a statutory
remedy under s 233.
Section 234 of the Corporations Act provides that a “member of the company” or a “person to whom a share in the company has been transmitted… by operation of
law” is permitted to make an application for an order under s 233.
Mio alleges in paragraph [1(b)] of the 3FASOC that it “is a shareholder in KHD”
and in paragraph [289] that it “being a member, or alternatively a person to whom a
share in KHD has been transmitted by operation of law has standing to apply for an
order.”
Mio submits that because it has been acknowledged that Mio was appointed as the new trustee of the Spencer Family Trust in other proceedings, the BMD defendants are unable to dispute that Mio is a member or a person to whom the Spencer Family Trust shares have been transmitted by operation of law. I do not agree. Appointment as the trustee may confer rights on Mio, but it does not foreclose argument about whether Mio qualifies under s 234.
Mio submits that it is a member because it is shown as such in ASIC‟s register,
which is prima facie evidence of membership. However, for most purposes, in law,
a person is a “member of a company if they… agree to become a member… and
their name is entered on the register of members”.[3] The “register of members” is the
[3]
one to be kept by the company under ss 168 and 169 of the Corporations Act. The BMD defendants have tendered evidence that Mio is not shown as a member in the register of members. At that point, the prima facie evidence that Mio is a member
because it is shown as a member in ASIC‟s records is rebutted.
The allegations in paragraph [289] and [290] that Mio is a person “to whom a share has been transmitted by law” are intended to pick up that expression in s 234 of the
Corporations Act.

Paragraph [1(c)] of the 3FASOC alleges that Mio assumed office as trustee of the Spencer Family Trust on or about 24 August 2007. The appointment was by instrument.
Where a new trustee‟s appointment is made out of court, by instrument, s 15(1) of
the Trusts Act 1973 (Qld) vests the trust property in the new trustee. However, where the consent of any person is requisite, vesting is subject to that consent: s 15(5) of the Trusts Act.
The BMD defendants do not specifically submit in 4352 of 2012 that Mio is not qualified as a person to whom a share has been transmitted by law under s 234. Their submissions on standing are made in 11109 of 2012, in opposition to leave being granted under s 237 of the Corporations Act. Yet, in paragraph [24] of the
BMD defendants‟ submissions, dated 15 January 2013 in 11109 of 2012, the BMD
defendants partially responded to Mio‟s submissions in 4352 of 2012 about s 234.
In those circumstances, and because the parties did not make submissions about the
meaning of “a person to whom a share has been transmitted by operation of law”

4

within s 234, it is inappropriate to consider that question further at this stage.

The cause of action under s 233 is made out if the statutory conditions and one of
5
the grounds prescribed under s 232 exist. The presently relevant conditions and grounds are alleged in paragraph [291] of the 3FASOC. The oppression is alleged to have occurred in “the conduct of KHD‟s affairs.”[6] The alleged oppression is that
[6]
the conduct “is contrary to the interests of the members as a whole”, or under
s 232(e) that the conduct is “oppressive to, unfairly prejudicial to, or unfairly
discriminatory against Mio.”
Accepting those elements, it may also be observed that the material facts for a cause of action of oppression are not easily identified. The line between what is necessary and what is superfluous additional narrative is not a bright line here. The types of conduct that can cause oppression are not otherwise limited. There is no particular time limit over which the conduct must occur. Otherwise disparate acts or omissions may be linked as a course of conduct that oppresses a plaintiff.
7
In Shelton v NRMA Ltd, Tamberlin J said that the pleading should spell out the
respects in which the conduct is contrary to the interests of the members as a whole
and the basis on which s 232(e) is relied on. But see also Youlden Enterprises Pty

8

Ltd v Health Solutions (WA) Pty Ltd.

However, none of the defendants contends that the 3FASOC does not disclose a reasonable cause of action for relief against oppression.
That point aside, the BMD defendants‟ complaint about the cause of action for oppression is that the BMD defendants “should not be asked to decipher over 200
paragraphs of a complex pleading to try and ascertain the possible basis on which
this claim is advanced.”
That complaint could be met by requiring Mio to identify any paragraph of the 3FASOC not relied upon for the relief sought under s 233. Given, however, that Mio seeks an order under s 233 authorising it to bring claims on behalf of KHD, the clarity of the pleading would also be enhanced by requiring Mio to specifically identify which paragraphs of the pleading are relied upon to support each of the particular orders of that kind which are claimed under s 233.
Breaches of covenant by Mango to both KHD and the Original Shareholders
Mio‟s claims include a group of causes of action for breach of covenant by Mango.
The covenants were given by Mango to each of KHD and the original shareholders.
The starting point is that a covenant given to more than one person in a deed is
construed as a several obligation if the interests of the obliges are not joint and a
9
breach of covenant is, therefore, several liability. Thus, upon a covenant made by Mango to KHD and the original shareholders, each of KHD and Mio is entitled to claim damages for breach of contract on the basis of several liability.
It is necessary to keep in mind that Mio and KHD have separate causes of action for damages for breach of contract, for any such breach of covenant. While a breach of covenant might be established at the suit of either one, the damages of each are not
the same. A judgment on KHD‟s claim for its loss and damage must be a judgment
that Mango pay a sum of money to KHD, not to Mio.
Mio‟s submissions at times failed to grasp this distinction. Mio submitted that
“[t]here can be no question as to the standing of Mio Art to bring an action for
breach of these covenants, in that it is privy to them having been appointed the
trustee of the Spencer Family Trust.”
Mio‟s appointment as trustee of the Spencer Family Trust vested Richard Spencer‟s
chose in action in Mio, as trustee, for damages for breaches of covenant or contract
10
against Mango, as trustee. That would entitle Mio to claim any damages for loss or damage suffered by Richard Spencer, as the trustee, or by Mio, as the trustee. That is the loss alleged in paragraph [262]. But Mio has no right to recover damages for the loss or damage suffered by KHD alleged in paragraph [261]. The only way Mio can do that is under s 233 or s 237 of the Corporations Act, resulting in a judgment in favour of KHD.
Breaches of contract by Mango of promises to KHD
The same point applies to Mio‟s contention that it is entitled to bring a claim for
Mango‟s breaches of contractual obligations owed to KHD or should be given leave
to do so.
Breaches of covenant by KHD to Mio
Mio also makes a claim for damages for breaches of covenant and contract against
KHD in paragraphs [264] and [266] of the 3FASOC. It could be embarrassing for
Mio to claim that the same acts or omissions were a breach of covenant by Mango to
Mio (as successor to the claim of the original shareholder or in its own right as
trustee) causing the loss alleged in paragraph [262] and at the same time to bring a
proceeding on behalf of KHD against Mango for breach of the same covenants for
the loss alleged in paragraph [261]. Mango cannot be liable to pay a judgment for
both the Mio loss under paragraph [262] and the KHD loss under paragraph [261].

11

This is the sort of problem which was dealt with in Gould v Vaggelas in relation to
overlapping claims for damages for the tort of deceit.

As well, I note that Mio is both claiming against KHD and purporting to make a claim on behalf of KHD, relying on s 233 of the Corporations Act, in the one proceeding.
Breaches of covenant or contract affected by the narrative pleading style
Paragraph [263] of the 3FASOC alleges breaches of covenant made by Mango to KHD and the original shareholders, by identifying other paragraphs that allege particular covenants and the facts constituting the breach or breaches. Breaches of covenants given to KHD are claims of KHD. The other breaches are claims of Mio, personally. Notably, for the allegation of breaches of covenant, by failure to give a true account of all relevant transactions, reliance is placed on the whole of paragraphs [1] to [241].
Such reliance on the whole of paragraphs [1] to [241] is the first occurrence of a problem which affects many of the alleged causes of action. What are the material facts for each alleged breach of covenant?
Secondly, paragraph [264] alleges breaches of covenant and contract by KHD relying on the same facts as for the breaches alleged in paragraph [263]. Thus, it picks up the reliance on the whole of paragraphs [1] to [241].
Thirdly, paragraph [265(b)] alleges further breaches of covenant or contractual obligations owed to Mio by Mango, in that Mango entered into commitments and liabilities other than in ordinary course of business. Paragraphs [1] to [241] are relied upon as the particulars.
Lastly, paragraph [267] sets up paragraphs [1] to [241] as breaches of other
contractual obligations of Mango to KHD. These are KHD‟s claims. But one
illustration will suffice for present purposes. Particular (i) alleges that Mango breached its contractual promise of good faith to KHD for the purposes of the joint
venture of the project “in that by [its] conduct as pleaded in paragraphs [1] to [241]
it failed to act honestly with fidelity to the bargain, sought to undermine the bargain entered into, or the substance of the contractual benefit bargained for, and failed to act reasonably and with fair dealing, having regard to the interests of the Parties and
to the provisions, aims and purposes of the SHD, the PMA and the CSA.”
When a “narrative” style of pleading is adopted, and there are numerous causes of
action raised by the pleading, there can be real difficulty in ascertaining the material facts constituting a particular cause of action. The difficulty is increased where the narrative is longer, the number of causes of action is greater (particularly where there are alternative inconsistent allegations) and the causes of action are legally more complex. This case represents a paradigm of the problems that may occur.
The starting point is that (subject to any direction to the contrary) a plaintiff is
12 13
entitled to join parties and causes of action in the one proceeding, where there is
a common question of law or fact, but is required to plead only the material facts
14
constituting each cause of action. Nonetheless, a plaintiff is not usually obliged to
specifically identify in the pleading which material facts go to which cause of action
against each defendant. The old practice of common law pleading where the
declaration alleged each count separately, which still obtains in criminal pleading,

15

no longer obtains on the civil side and was never the method of pleading in equity.

This illustrates why and emphasises that, in a case of complexity, it is critical that
the pleading allege “all the material facts… but not the evidence by which the facts
are to be proved.”[16] Otherwise, the would-be analyst of the pleading is left
swimming in a sea of evidentiary facts while trying to identify the material facts for each cause of action. Drowning often follows, at the expense of the intent under
UCPR 5 that the proceeding be conducted to “facilitate the just and expeditious
resolution of the real issues… at a minimum of expense” and the requirement that “each pleading must… be as brief as the nature of the case permits” under UCPR
149(1)(a).
[16]
The “material fact” model of pleading was a reform of the rules of court brought
17
into effect under the Judicature Act 1876 (Qld) for the administration in the one
court of the rules of common law and equity. Brevity was the intent, in contrast to
18
the prolix pleadings of common law and particularly equity beforehand. Perhaps the drift of history has caused a loss of focus as to the importance of the purpose of the reform. That said, a lengthy pleading is not necessarily a vice. Where it is prepared with great precision and isolates the issues, there is no cause for complaint.
But where a pleading alleges a lengthy historical account of facts that occurred over an extensive period of a commercial relationship, then particular specific causes of action are pleaded on the basis that the reader is invited to find the relevant material facts for any cause of action in all that has gone before, the price for the death of that hero, brevity, is not paid in the valuable coin of precision. Instead, the reader is invited on a would-be treasure hunt, with the unlikely satisfaction that after looking in every nook and cranny, and trying every combination possible, there will be an
Archimedian “Eureka” moment.
Where a pleader has fallen into this error, there is a remedy. It is to require that the pleading identify the material facts for each cause of action. That will exclude those
facts which go to another cause of action, as well as any “narrative” non-material
facts. A direction can be made, for example, that the pleader separately plead the
19

material facts for each cause of action alleged. But that is not often a remedy
which will lead to expedition or a minimum of expense, and so must be used in
sparing measure.

At the risk of stating the obvious, it is as well to recall just what a material fact is. In its primary meaning, a material fact is a fact that the plaintiff must prove to succeed in a claim for relief upon a cause of action. The conceptual power of the material fact model of pleading is not recognised often enough. There is a trend to treat this most fundamental of procedural rules as something which is best overtaken by detailed factual and legal submissions. I could not disagree more strongly with that view and I am glad to say that the pleading rules have not been altered to countenance it. There is a place for detailed factual and legal submissions, but it is not as replacement for the identification of the material facts.
The cases have long recognised the negative proposition that if any one material fact
20
is omitted, the pleading of a cause of action is bad. I prefer to look at it from the positive side. If a plaintiff proves all the material facts, it must succeed on the cause of action. Thus the case is reduced to its factual skeleton in law. By adhering to the concept of a material fact in the practice of pleadings, the courts serve the purposes of efficiency and cost-saving which inform the procedural rules. The only issues joined are upon material facts. The only evidence led proves or disproves the material facts. The decision in the case is not affected by the irrelevant and the decision maker is not distracted from the material facts.
This model is based on the concept that the decisional process is ordinarily a judgment following a trial, where the issues of material fact as defined by the pleadings are determined. These days, civil trials are conducted by a judge sitting alone, except in rare cases. But the conceptual model of a trial of the issues of fact, resulting in findings and verdict, is still the basis of the process which can be traced backwards through the common law.
Prior to a trial, the material fact conceptual model may come into play where the
facts alleged do not disclose a reasonable cause of action or defence. The procedure
upon demurrer no longer exists in civil proceedings, although it is retained in the
criminal jurisdiction. Instead, the opposite party may apply to strike out all or part
21
of the pleading on that ground.
As well, the court may strike out a statement of claim or part of a statement of claim
if it: has a tendency to prejudice or delay the fair trial of the proceeding; or is
unnecessary or scandalous; or is frivolous or vexatious; or is otherwise an abuse of
22

the process of the court. This is the basis of the defendants’ strike out applications.

Alternatively, if the facts alleged are sufficient to disclose a reasonable cause of
action but are not supportable as a matter of evidence, the court may intervene upon

23

an application for summary judgment. Although evidence was relied upon by the parties on some points, no party applied for summary judgment on the current applications.

Another relevant interlocutory principle emerges from the material fact model of pleading. The pleading must not oppress a defendant by vague or uncertain allegations, lacking particularity. This principle is applied with rigour where the
allegations made against a defendant are of fraudulent or serious misconduct –
“fraud must be pleaded specifically and with particularity.”[24] In such a case, more
precision is required than in other cases. As well, the proof required is affected,
although the standard remains on the balance of probabilities – “the nature of the issue necessarily affects the process by which reasonable satisfaction is attained.”[25]
These are venerable principles that are re-expressed and applied in the context of the material fact model of pleading under the rules of court. At their root is the notion that a defendant is entitled to know the case it has to meet at trial.
[24]
[25]
Informed by those considerations, the search in paragraphs [1] to [241] for the precise material facts that constitute the specific breaches of the covenant or contract is objectionable pleading. In my view, even if it does not offend the requirements
that the pleading “must… be as brief as the nature of the case permits [and] not
[contain] the evidence by which the facts are to be proved.”[26] For brevity, I will call such a problem the “narrative defect”. Unhappily, it will soon become apparent that it affects other pleaded causes of action in the 3FASOC – in fact it permeates the
3FASOC.
[26]
The narrative defect obscures the articulation of exactly what constitutes the relevant breaches of covenant or contract.
Inducing breach of contract
Mio makes a claim for damages for inducing breach of contract. Mio submits that
“to the extent that the pleading alleges inducement of breaches of the PMA by
Mango, [Mio] accepts that only KHD has standing to bring this claim.” Mio
submits that it has sought leave to do so in proceeding 11109 of 2012. As will become apparent later, ultimately Mio did not press that aspect of the application for leave under s 237 of the Corporations Act.
The claim for damages for inducing breach of contract is a claim for compensatory damages in tort. The compensation is to be assessed on the footing that the plaintiff
should be “put… in the same position as he would have been in… if the tort had not
been committed.”[27] That is, as if the defendants had not induced Mango to breach

the PMA. The assessment compares the actual events that have occurred and the
[27]
hypothetical case of what would have happened absent the tortious conduct.

The 3FASOC alleges inducement of breaches of the SHD by Mango against parties
defined as the “Other Defendants”. They are the corporate BMD defendants. The
allegation of inducement of breach of contract is made about each and every breach of covenant or breach of contract pleaded. The particulars rely on paragraphs [1] to [258] and [263] to [267] of the 3FASOC.
There are some obvious possible defects. For example, although it is alleged that
Macequest is one of the Other Defendants, and that the Other Defendants “procured, induced and dealt with KHD in such a way as to cause” all the alleged breaches of
contract, the only allegations made against Macequest are that it is an ultimate holding company and that it was party to arrangements alleged in paragraph [100] of
the 3FASOC and defined as the “Parties‟ Intentions” and the “Parties‟ Agreement”.
As will appear later, the central attack on the 3FASOC made by the BMD defendants is that paragraph [100] is objectionable. But even if it were not, Mio does not allege that anything was done by Macequest to procure, induce or deal with KHD in any way. And it is not alleged that any of the actions of any party which
may have procured, induced or dealt with KHD was done as Macequest‟s agent.
The complaint at this point is the narrative defect. There is no specification as to what act by any of the Other Defendants was a tortious inducement of any breach of contract. Not only is it impossible for any of those defendants to tell what specific conduct is the subject of any of the alleged torts, it is impossible to tell which breach of contract the impugned act might go to.
28
From Lumley v Gye, which established the tort of inducing breach of contract, until
the most recent formulation of the tort of interfering with contractual relations in the
29
High Court, I doubt that it has been thought that the tort could be constituted by conduct without identifying the act or acts which constitute the interference with the contractual relations as a material fact. In my view, the 3FASOC does not do so. The person searching for the tortious conduct is bound to drown in the sea of the narrative.
Paragraph [277]

Paragraph [277] of the 3FASOC alleges:
“Further, or in the alternative, each of Bird, Ingram, Thomson, Barrett,
Mango, Varitimos and Rex engaged in the conduct in the premises alleged for the purpose of benefitting the Other Defendants so as to secure the profits of the development of the Property for the benefit of their corporations, and to inflict losses upon KHD and the Original Shareholders.

Particulars

The plaintiff relies upon the whole of the conduct pleaded in
paragraphs [1] to [258] hereof.”

It is an allegation of fact of the purposes of the named defendants in engaging in the conduct alleged against them.
Mio submitted that the role of this paragraph was to rely on the first basis of liability
articulated by the Full Court of the Federal Court in Grimaldi v Chameleon Mining
30
NL (No 2). That basis exists “where the third party is the corporate creature,
vehicle, or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or
to inflict the losses by their breach of fiduciary duty…”. Mio did not state how the
Other Defendants fitted into that classification, but that point may be passed by.
The causes of action are KHD‟s claims.
In any event, as particulars of paragraph [277], Mio relies on the whole of the conduct pleaded in paragraphs [1] to [258]. Thus the cause of action or causes of action suffer from the narrative defect.
Inducement of breach of fiduciary duty
Paragraph [278] of the 3FASOC alleges that the Other Defendants knowingly
induced KHD‟s directors to breach their “Director‟s Duties” to KHD, owed in
equity or under the statutory obligations of a director under the Corporations Act. Mio alleges in paragraph [269] that there were 7 distinct such duties. Because the
duties are duties owed to KHD, the causes of action are KHD‟s claims.
This category of cause of action is to be contrasted to liability as a knowing
31

participant under the second limb of the rule in Barnes v Addy, as explained in
32

Farah Constructions Pty Ltd v Say-Dee Pty Ltd.

More recently, the Hon. William Gummow AC has written an article further
33
explaining his view of the scope of this cause of action. Mio identified it as the third basis of liability in Grimaldi, and as a category of cause of action where it is not necessary to show any dishonest or fraudulent design. The cases referred to in
the authorities are cases of breach of trust, not breach of a director‟s duties, but that
point may be passed by.
Yet again, as particulars of the knowing inducement, Mio relies on the whole of the conduct pleaded in paragraphs [1] to [258]. The causes of action suffer from the narrative defect.
Knowing participation in breach of fiduciary duty
Paragraph [279] of the 3FASOC is intended to be a claim for knowing participation
by the Other Defendants in a breach of Director‟s Duties by the directors of KHD, in
accordance with second limb Barnes v Addy liability as explained in Farah. Mio
alleges that there was a “fraudulent and dishonest scheme… to deprive KHD and the
original shareholders of the benefit of the development of the property and the profits thereof and to benefit themselves and other entities in the BMD Group and
the B&B Group…”.
Because the duties were duties owed to KHD, the causes of action are KHD‟s
claims.
As particulars, Mio relies upon paragraphs [1] to [258]. These causes of action suffer from the narrative defect.
As well, Mio particularises that the fraudulent and dishonest nature of the scheme
“arises from the Parties‟ Intentions and the Parties‟ Agreements…”. That is, the
matters alleged in paragraph [100] of the 3FASOC.
A similar claim is advanced against the fifteenth to eighteenth defendants in paragraph [280] of the 3FASOC.
Involvement in directors’ contraventions of Corporations Act duties
Paragraph [281] of the 3FASOC sets up a claim against Mango and the Other Defendants as persons involved in the contraventions of the directors of KHD of obligations owed under the Corporations Act.
The 3FASOC does not set out the factual basis of such liability. It appears to be that under the Corporations Act a company may recover compensation for loss or damage suffered by a contravention of a relevant provision of that Act from a person involved in the contravention.
I note the following relevant provisions of the Corporations Act, namely:

(a) under s 79, a “person involved” in a contravention is defined to
include a person who is “knowingly concerned” in the contravention;

(b) under s 1317E(1), relevant sub-sections of ss 180, 181 and 182 are
defined as a “civil penalty provision”;

(c) under ss 181(2) and 182(2) a person involved in a contravention of the section is a contravenor;
(d) under s 1317H(1) a court may order a person to compensate a corporation for damage suffered by the corporation if the person has contravened a civil penalty provision in relation to the corporation;
(e) under s 1317J(2) a corporation may apply for a compensation order; but
(f) under s 1317J(4), only ASIC or the corporation may so apply; and
(g) no reference is made in s 1317H or 1317J to a person involved in a contravention.

Thus, the basis for liability as a “person involved” in the alleged contraventions of

s 180 of the Corporations Act is not apparent. As well, the particular factual basis
for the involvement is not alleged.

Because it is the corporation which may recover the damages, the causes of action
are KHD‟s claims.
As particulars of the involvement of Mango and the other defendants in the contraventions by the directors, Mio relies upon paragraphs [1] to [258]. These causes of action suffer from the narrative defect.
Registration of Mio as a member
Although Mio alleges that it is a shareholder and member of KHD in paragraphs [1(b)] and [289] of the 3FASOC, Mio does not allege (or appear to contend) that its name is entered in the register of members of KHD. As previously discussed, the evidence is that it is not.
Paragraph 1 of the claims for relief is for an order under s 82 of the Trusts Act vesting the Spencer Family Trust Shares in Mio. Paragraph [290] alleges an entitlement to such an order, if Mio is not a person to whom a share in KHD has been transmitted by operation of law.
As to s 82 of the Trusts Act, a change or retirement of a trustee is a basis for a court
34

to make a vesting order. It does not appear that there is any other person interested
in the Spencer Family Trust who is a party to the proceeding.

A vesting order is an order that is usually sought against the retiring trustee and any beneficiaries concerned. KHD is only interested in who is entitled to be registered as a member. An order against it may not be appropriate. That may be illustrated
by the fact that Mr Vicca is a director of KHD. Any order that Mio‟s name be

entered in the register of members, as a member, is one that binds the directors as an
organ of the company. That includes Mr Vicca.

The BMD defendants submit that relief could not be granted for the same reasons
that they contend that Mio does not have standing for a grant of leave under s 237 of
the Corporations Act. I do not agree. They are different questions. If Mio has been
appointed trustee of the Spencer Family Trust, it may be entitled to relief by way of
vesting order, irrespective of whether it is presently entitled to be registered as a
member under s 236(1)(a)(i) of the Corporations Act. Andco Nominees Pty Ltd v
35
Lestato Pty Ltd illustrates the width of the Court‟s power under s 82. It is not
appropriate to make a final determination of whether the discretion should be exercised in the course of the application by the BMD defendants to strike out the 3FASOC.
Paragraph 2 of the claims for relief in the 3FASOC is for an order under s 1071F of
the Corporations Act requiring the twelfth and thirteenth defendants to register the
transmission of the Spencer Family Trust Shares in the books and records of KHD.
The claim appears to be brought against Mr Varitimos and Mr Rex as directors of
36

KHD and KHD itself.

Although the order claimed in paragraph 2 of the claims refers to “books and
records” that is imprecise. As previously noted, a company must keep a register of
37

members. A person who has agreed to become a member and whose name is
38

entered in the register of members is a member. The person becomes a member
39

upon their name being entered in the register.

The power in s 1071F is intended to enable the court to correct the register of
members or to enforce a person‟s right to become a member. In this case, the
correction or enforcement which may be required would be that Mio be entered as a
member as transferee of the Spencer Family Trust‟s shares held by Richard Spencer.
The proper defendants to such an application may include the directors as the
“relevant authority” but an order is made against the company.[40]
[40]
It may be possible to obtain an order to rectify the register of members of a company under s 233 of the Corporations Act. Paragraph [290] appears in a section of the
3FASOC which is headed “Oppression”, but s 233 is not the apparent basis on
which order 2 is sought.
As well, the usual basis for an order that a person be entered in the register of
members under s 1071F is that the relevant authority of the company refuses or fails
to enter the person in the register after a lawful request. Usually, a transferee of an
issued share will lodge an instrument of transfer which complies with s 1071B and
41
is executed by the existing shareholder as transferor.
From the paragraphs referred to above, and the submissions made by Mio and the
BMD defendants, it appears that Mio‟s contention is that its appointment as trustee
is the basis of its entitlement to be registered as the member holding the Spencer
Family Trust‟s shares in KHD. But it is not alleged that Mio has requested that the
directors of KHD enter it as a member in the register of members.
The transfer of a share to a person requires that the person agrees to become a member of the company and their name is entered on the register of members: s 231. The constitution of many companies confers a power on the directors to approve a transfer of shares.
In any event, subject to s 1071B(5), a corporation must only register a transfer of
securities if a “proper instrument of transfer” has been delivered to the company:
s 1071B(2) of the Corporations Act. An exception exists where a right to the
security “has devolved by operation of law”. That would include a trustee in

bankruptcy. But it may or may not include a trustee appointed out of court. The
parties did not address this question.

The 3FASOC may plead an incomplete basis for an application for an order under s 1071F. That question was not argued on the applications to strike out and, accordingly, I do not consider it further.
Invalidity of meetings
Paragraph 6 of the claim for orders in the 3FASOC seeks declarations pursuant to s 1322 of the Corporations Act that meetings of directors of KHD purportedly held on or about 30 August 2004, 15 December 2011, 23 February 2012, 29 March 2012 and 2 November 2012 are not valid proceedings of KHD. An order that each of the resolutions giving the Management Committee the power to appoint agents, sell the Land and receive settlement monies be set aside is sought. The ground is that each

of the meetings of directors “has caused or may cause substantial injustice that
[42]
cannot be remedied by other order of the Court”.[42]

It is not entirely clear against whom these orders are sought, but it would appear to include the relevant directors at the time and Mango as the other shareholder.
At least in relation to the 15 December 2011 meeting and thereafter, the directors were Mr Varitimos, Mr Vicca and Mr Rex. Mr Vicca is not a party to the proceeding. The basis of the claim of invalidity of these meetings appears to be, at least in part, the absence of a quorum at a meeting of directors, as alleged in paragraph [244] of the 3FASOC. The absence of a quorum seems to be the product
of Mr Vicca‟s decision not to attend any meeting proposing a resolution which he
does not consider to be in the interests of the successors to the original
43
shareholders.
As to the meeting of 30 August 2004, the directors were Mr Ingram, Mr Byrd, Richard Spencer and Ms Perovich. Mio alleges in paragraph [93] of the 3FASOC that no meeting took place and in paragraph [94] that there was no notice and no quorum of directors at the meeting.
The relief which is sought in paragraph 6 of the claim for orders is not sought under s 233 of the Corporations Act.
BMD defendants’ application to strike out paragraph [100]
In every place where I have identified that a cause of action suffers from the narrative defect, the paragraphs relied upon include paragraph [100] of the 3FASOC.
That paragraph alleges as follows:
“Parties’ Intentions, Parties’ Agreement and the ensuing facts
100. From at least 30 August 2004, Babcock & Brown Australia Pty
Ltd (“B&BA”), BBA, Prime, Mezzanine and BBREF (at that
time members of the Babcock & Brown Group of Companies
(“B&B Group”)) and Mango, Urbex, BMD Properties, BMD
Holdings and Macequest (members of BMD Group)
(collectively “the Parties”) intended (the “Parties‟ Intentions”)
and agreed (the “Parties‟ Agreement”) that:

(a) interest would not be paid on (i) Prime-to-Mango FA; (ii) Mezzanine-to-Prime FA; and (iii) BMD/BBREF-to- Mezzanine FA, where if interest under (i), (ii) and (iii) was not paid, interest would be calculated at the rate payable thereunder capitalised and compounded monthly in arrears;
(b) the entities liable to pay interest under each of the FAs (Mango, Prime and Mezzanine respectively) would not be in a position to pay any interest;
(c) the Property owned by KHD would be subject to securities that could be called upon for the defaults of Mango, Prime and Mezzanine for the benefit of BMD Properties (and ultimately, BMD Holdings and Macequest) and BBREF (and ultimately, B&BA) and KHD deprived of the Property
(“Option to Utilise the Property in payment of Interest”);

(d) that they would enter into a competing joint venture pursuant to which unless BMD Properties fulfilled the Payment Condition Precedent (paragraph [84](l) above) (which involved either the Original Shareholders agreeing to include the interest costs under the Mezzanine-to-Prime FA as
“Costs” for the purpose of cl. 11.1 of the PMA and for the
purpose of calculating “Profit” under the PMA or else being
removed), BBREF would be given priority over BMD Properties to repayment of its $6M plus interest calculated as
in (a)(iii)) (“Option if OS could be removed”);

(e) interest under the Mezzanine-to-Prime FA would, if possible,
be included as a “Cost” for the purpose of cl. 11.1 of the
PMA either of itself or as the component of the cost of the Prime-to-Mango FA, thereby depriving KHD of the opportunity of earning profits in respect of the Project and the Original Shareholders of the opportunity of being paid dividends (cl. 6.1 of the SHD) and the parties would try to
achieve this (“Option to eliminate Profit and Dividends”); and

(f) the Parties would delay in the development of the Property and sale of lots so as to bring about the following consequences:

(i) the accumulation of interest under the Prime-to-Mango FA, and the BBREF/BMDP-to-Mezzanine FA to exorbitant levels;
(ii) the exposure of the Property to being sold to satisfy the obligations of Mango, Prime and Mezzanine to pay interest under the three FAs, rights capable of being exercised by Prime, Mezzanine, BMD Properties and BBREF as the interest accumulated;
(iii) the removal of the Original Shareholders as shareholders, by way of mortgagee sale or otherwise;
(iv) the depriving of KHD of the opportunity of earning profits;
(v) the depriving of the Original Shareholders of the opportunity of being paid dividends.
(g) the Original Shareholders would be kept from knowledge of
(i) the Parties‟ Intentions, (ii) the Parties‟ Agreement; and (iii)
the facts that arose as a result of the Parties‟ Intentions and
the Parties‟ Agreement; and

(h) the Original Shareholders would be led to believe that (i) Mango would only be responsible for paying interest at a rate of 13.5% under the Prime-to-Mango FA in accordance with cll. 7.3 and 9.3 of PMA; and (ii) any securities provided by KHD pursuant to cl. 9.2 of PMA would be securities for the
performance of Mango‟s obligations to Prime under the

Prime-to-Mango FA, which obligations would be paid by
Mango.

Particulars

(i) The plaintiff relies upon the following overt acts and
circumstances.
As to (a): The fact that there was such an agreement is to be
inferred from the fact that interest has never been paid on the facility agreements referred to, notwithstanding that in each case, interest on any view became due and payable within the meaning of cll. 7.3 and 9.3 of the PMA (as to the Prime-to- Mango FA see paragraphs [63] to [69] hereof; as to the Mezzanine-to-Prime FA see paragraphs [71] and [195] to [200] hereof; and as to the BMD/BBREF- to-Mezzanine FA see paragraphs [88] and [195] to [200] hereof). The plaintiff will provide further and better particulars after discovery herein.

As to (b): The fact that there was an agreement that the relevant entities would not be able to pay any interest is to be inferred from the fact that they have never paid any interest under the relevant facilities, and the fact that they have never had the financial resources to pay the interest as set out in the affidavit of Mr Mortensen dated 5 June 2012 filed in the interlocutory proceedings herein and the deferral of interest payments under the Deed of Consent and Amendment (see paragraphs [195] to [200] hereof). The plaintiff will provide further and better particulars after discovery herein.
As to (c): The fact that there was an agreement is borne out by the nature of the securities as set out in paragraphs [56] to [99] hereof, and the fact that those securities involved the participation of at least BMD Holdings, BMD Properties, Mezzanine, Prime and Mango whether directly or indirectly.
As to (d): This is the legal effect of the Payment Condition Precedent under the BMD/BBREF-to-Mezzanine FA. The plaintiff also relies upon the Dec-2004 Mango and B&B JV Agreement referred to in paragraph [101] hereof. The plaintiff will provide further and better particulars after discovery herein.
As to (e): This is the legal effect of what was sought to be done under the Payment Condition Precedent under the BMD/BBREF-to-Mezzanine FA, and the Dec-2004 Mango-B&BA JV Agreement referred to in paragraph [101] hereof. The plaintiff will provide further and better particulars after discovery herein.
As to (f): The fact that:
(i) substantial delays at the interest rates stipulated could result in the accumulation of interest to exorbitant levels is a matter of calculation and is borne out by the calculations contained in the affidavit of Ms K Toombes dated 5 June 2012;
(ii) the accumulation of interest would expose the Property to being sold is borne out by the interest calculations tendered by the first to seventh defendants in the interlocutory proceedings herein, and the fact that each of Mango, Prime and Mezzanine are not in a position to meet those liabilities; as deposed to in the affidavit of Mortensen of 5 June 2012 and the fact that there are powers of sale conferred by all of the relevant securities;
(iii) (i) and (ii) would enable the removal of the Original Shareholders is borne out by the particulars provided to (i) and (ii);

Thus, if KHD is unsuccessful, on a hearing of separate questions before the trial of the balance of the issues and claims in 4352 of 2012, the relevant BMD defendants and Tasovac will be exposed to obtaining an order for costs against KHD, which
will not be able to pay them (on Mio‟s case). However, if Mio remains the nominal
plaintiff it would most likely be liable to an order for costs for the claims in the proceeding it brings on behalf of KHD. It would not then be able to conserve its own assets to pursue the balance claims against all defendants. That would be an unacceptable result, in my view.
The furthest point to which Mio came on the question of costs was that “if push
came to shove we would be able to find some security in stages to enable us to
prosecute the leave which we would hope would be granted to us.” Although that
might be appropriate in some cases, in this case it seems to me that Mio‟s position is
not satisfactory. On the one hand, it wishes to conduct a large and complex proceeding in the Commercial list of this court, as articulated in the 3FASOC, and to do so in respect of part of that proceeding with the benefit of leave to proceed on behalf of KHD. On the other hand, it does not meet the obvious costs implications
of doing so and puts KHD and the other parties at risk for the other parties‟ costs if
the other parties are successful in the proceeding. Its strategy so far has been not to offer to do what it can to protect them against that exposure to costs. The beneficiaries of the Spencer Family Trust on behalf of which Mio acts are not
exposed. Instead, a half-hearted offer of “some” security is foreshadowed, as the
panacea to justify the grant of leave.
Thirdly, Mio already relies on the same allegations which comprise the limited leave
proposal as part of its claim for relief for oppression under s 233 of the Corporations
Act. Mio does not require leave under s 237 in order to be able to make the relevant
claims. This is a factor which may, although it is not one which must, tell against the
57
grant of leave. Thus paragraph 4(e) of the claim in the 3FASOC claims an order that Mango or BMD Holdings pay to Prime the amount owing under the Prime-to- Mango FA and paragraph 4(f) claims an order that Prime pay the amount owing under the NAB/CBA-to-Prime FA and redeem and cause to be cancelled the relevant securities. The primary reason advanced for the limited leave proposal under s 237 is so that such relief might be obtained by a determination of separate
questions before the hearing of the balance of 4352 of 2012. Although in Mio‟s
submissions in 11109 of 2012 dated 12 April 2013 some reliance was placed on the prospect that if leave is granted KHD would be entitled to relief even if Mio is not under s 233, in my view there does not seem to be much of any real reason to think that if KHD were entitled to such relief a discretion would not be exercised under s 233. This is not a case where there are other parties interested as members of KHD.
Limited leave proposal – Mango’s agreement to pay all costs
In any event, I turn to the question of whether there is a serious question to be tried on the claims which comprise the limited leave proposal.
What are “the arguments of KHD concerning Mango‟s „agreement to pay all costs in
relation to the Project as and when they fell due‟”? Mio submits that on the proper
construction of the PMA and the Prime-to-Mango FA Mango is obliged to pay the amount of the outstanding debt under the Prime-to-Mango FA to Prime and that an order to that effect should be made. The sum is $84.9 million.
The BMD defendants dispute that conclusion for several reasons:

(a)

first, that the debt is not owed because of the Deed of Consent and Amendment dated 15 June 2010 made as between Mango and Prime to extend the period for repayment of $84.9 million until 30 June 2013;

(b)

secondly, that no interest was payable because under clause 6.4 of the Prime-to-Mango FA it was payable only on demand and no demand was made;

(c)

thirdly, that no order can be made requiring Mango to pay the amount of the debt, because specific performance will not be ordered; and
(d) fourthly, that on 30 January 2013 further agreement was made to

58

extend the time when the debt is payable to 30 April 2021.

The BMD defendants submit that whether or not any amount was previously payable, the effect of a variation of the terms of the Prime-to-Mango FA in June 2010 as extended more recently is that no sum is presently payable and therefore no order for payment of the debt could be made against Mango.
These are essentially questions of construction of the relevant contracts. It is not
necessarily an answer to Mango‟s obligation to pay “all costs” under clause 7.3 of the PMA and to pay “any interest which may be payable” under clause 9.3 of the
PMA that Mango and Prime extended the time for payment of any amount that was already payable. It depends on the proper construction of the PMA.
For present purposes, in my view these questions raise a serious question to be tried for the purposes of s 237. It is inappropriate to say more about my view as to the strength or weakness of the argument where it is not to be finally decided.
As well, I note that if the questions of construction are not resolved in Mio‟s favour,
questions will remain whether Mango was in breach of contract, in failing to arrange finance for and to progress the development of the land in any event. In other words, the separate determination of the questions of construction will not resolve
the question of Mango‟s liability to KHD in respect of Mango‟s alleged breaches of

covenant and contract as alleged in the 3FASOC, or any other liability which would
flow from that.
Limited leave proposal – discharge by conduct

Mio alleges in paragraph [284] of the 3FASOC and submits that in particular the amendment of the Prime-to-Mango FA and other facility agreements by the June 2010 Deed of Consent and Amendment (and the June 2010 Consent to the Deed of Consent and Amendment) together with the discharge of the guarantee given by
BMD Holdings in respect of Prime‟s obligation to the NAB and the 4 February 2013

extensions discharged all of the securities granted by KHD and held by the Security
Trustee pursuant to the Security Trust Deed.

The BMD defendants submit that there is a fatal defect in that contention because all
the securities contain a provision which maintains KHD‟s liability even if other
securities are released.
Mio submits in reply that the provisions relied upon do not on their proper construction extend to the variations of the loan agreement and securities in the present case because they are variations beyond the purview of the original guarantee given by KHD.
These are again essentially questions of construction of the securities in the context of the guarantee as given by KHD.
Again, for present purposes, in my view, these questions of construction raise a serious question to be tried for the purposes of s 237. Again, it is inappropriate to say more about the strength or weakness of the arguments where they are not to be finally decided.
As noted before, the separate determination of the questions of construction will not
resolve the question of Mango‟s liability to KHD in respect of Mango‟s alleged

breaches of covenant and contract as alleged in the 3FASOC, or any other liability
which would flow from that.
Good faith

Under s 237, it is required that the applicant for leave is acting in good faith.
A number of submissions were made by the BMD defendants to challenge Mio‟s
good faith. First, they submitted that the proceeding is brought in Mio‟s interests, not KHD‟s interests. Since Mio‟s interests as trustee of the Spencer Family Trust
and a person entitled to be registered as a member of KHD, depend at least in part
on KHD‟s position in respect of KHD‟s claims, there is no obvious conflict between
their positions which goes to Mio‟s good faith, in my view.
Secondly, in paragraph [180] of the BMD defendants‟ written submissions in 11109 of 2012 dated 25 January 2013, a number of criticisms are raised of Mio‟s conduct of the proceedings to date. They do not go to Mio‟s good faith in respect of the
limited leave proposal, in my view.
Thirdly, in paragraph [111] of the BMD defendants‟ written submissions in 11109
dated 3 April 2013, criticism is made of Mio or someone related to Mio attempting to apply pressure to the BMD defendants by supplying negative information to a trade supplier of the BMD Group. That conduct may be reprehensible or a breach of legal obligation, but it does not go to the bona fides of Mio in making the limited leave proposal, in my view.
On the contrary, in my view, there is no reason to treat the limited leave proposal as anything other than bona fide and I conclude that it is made in good faith.
Entitled to be registered as a member
The last point which is raised in opposition to the grant of leave is the BMD
defendants‟ submission that Mio is not a person “entitled to be registered as a
member” of KHD within the meaning of s 236(1)(a)(i) of the Corporations Act.
In my view, there was no reason disclosed by the evidence which necessarily repels a finding on the balance of probabilities that Mio is entitled to become registered as a member of KHD, for the purposes of making an application under s 237.
The BMD defendants contrary contention relies upon the fact that on 23 April 2009 Mio declined to execute a deed of accession. Mio also contended that it was not a shareholder because it had not made an application to the board of KHD to make Mio registered as a shareholder of KHD. The BMD defendants submit that in the absence of a satisfactory explanation for that position, it is impossible for the court to be satisfied that Mio is entitled to be registered as a member.
However, in support of this application Mio‟s director, Michael Spencer, stated that
his prior view that Richard Spencer might continue to hold the shares has “passed.”
He was cross-examined. Nothing emerged to suggest that he had not truly changed his mind about Mio becoming a shareholder, regardless of whether it was right not
do so when he declined on behalf of Mio in April 2009. On 9 January 2013, Mio‟s

solicitors requested to have Mio registered as a shareholder. To the date of hearing
the application, the request had not been satisfied.

In the end, the BMD defendants‟ position on this point did not seem to have any
substantial basis other than that Mio appeared to have changed its mind in 2009 and then back again in 2012 about whether it wanted to be registered. In my view, that does not represent a basis for concluding that Mio is not entitled to be registered as a member of KHD.
Dismissal of the proceeding
The BMD defendants, Mr Varitimos and Mr Rex applied for orders that the
proceeding against them be dismissed. The ground in each case was that Mio‟s
unsuccessful efforts to plead a viable statement of claim thus far warranted dismissal. The BMD defendants added to that evidence of costs it had incurred as against Mio and the impact that the proceeding was having on employees and some of the BMD defendants.
An important premise was that the defects in the statement of claim thus far demonstrate that a viable cause of action is not able to be pleaded. In my view, the cause of action for oppression is an important exception to that characterisation. There is no fundamental defect in the pleading in that respect, shorn of its excesses.
Secondly, in my view, Mio has a number of reasonably arguable causes of action for breaches of covenant or breach of contract.
Thirdly, in my view, Mio has a reasonably arguable cause of action for either a vesting order under s 82 of the Trusts Act or an order for registration as a member under s 1071F of the Corporations Act in respect of the Spencer Family Trust shares in KHD.
Although Mio has persisted in the face of clear opposition to its excessive pleadings of fraud and a number of causes of action against a number of the defendants which are not viable or not viably pleaded, it does not seem to me that the proceeding should be summarily dismissed at this stage, against any of the defendants.
That extends to Mr Varitimos and Mr Rex. From my discussion of their positions, it will be seen that there are significant flaws in the cases formulated against them to date, but they are at least concerned in the ongoing dispute as to whether Mio should be registered as a member. And there is at least a real possibility that Mio can formulate other claims against them, although it may not be able to do so.
Also from the discussion relating to Mr Duncan, it can be seen that there is a real question about whether Mio can formulate a viable cause of action against some of the ex-directors of KHD and some of the other BMD defendants. However, individual applications were not made on their behalves based on their separate positions, so it would be inappropriate to engage in that analysis when Mio has not been faced with that contention before now.
As to wasted costs, the defendants can be compensated by appropriate orders. If the
costs they have incurred are excessive that is not Mio‟s responsibility.
As to the impact on the BMD defendants‟ employees and business, there are
significant detriments that being involved in litigation may cause. The defendants have brought an appropriate application to deal with the excesses of the 3FASOC. But at this stage there has been no determination of whether there is substance in any of the allegations which Mio may be entitled to make in a properly prepared statement of claim.
In my view, Mio should have the opportunity in 4325 of 2012 to file a statement of claim that complies with the requirements of the UCPR. Because the subject of 11109 of 2012 is now taken up in 4352 of 2012, there is no justification for Mio to vex the defendants in that proceeding with duplication of the same allegations or subject matter. Proceeding 11109 of 2012 should be stayed, for the present, as an abuse of process.
Conclusion
For those reasons, I propose to order that:
On Mio‟s application to amend the claim in 4352 of 2012:

1. the application is dismissed.
2. the applicant pay the respondents‟ costs of the application.
On Mio‟s application for leave to bring the proceeding on behalf of KHD under
s 237 of the Corporations Act in 11109 of 2012 and 4352 of 2012:

3. the application is dismissed in both 11109 of 2012 and 4352 of 2012.
4. the applicant pay the respondents‟ costs of the application.
5. proceeding 11109 of 2012 is stayed.
On the BMD defendants‟ application to strike out the statement of claim and to
dismiss the proceeding in 4352 of 2012:

6. the statement of claim is struck out.
7. the respondent pay the applicants‟ costs of the application on the indemnity
basis.

On Tasovac‟s application to strike out the statement of claim and to dismiss the
proceeding in 4352 of 2012:
8. the statement of claim is struck out.
9. the respondent pay the applicant‟s costs of the application on the indemnity
basis.

On Mr Varitimos‟s application to strike out the statement of claim and to dismiss the
proceeding in 4352 of 2012:
10. the statement of claim is struck out.
11. the respondent pay the applicant‟s costs of the application on the indemnity
basis.

On Mr Rex‟s application to strike out the statement of claim and to dismiss the
proceeding 4352 of 2012:
12. the statement of claim is struck out.
13. the respondent pay the applicant‟s costs of the application on the indemnity
basis.

In 4352 of 2012 the plaintiff file and serve a further statement of claim.

1

The first to seventh, tenth, eleventh and fourteenth to eighteenth defendants.

2

The sixth defendant, Mango Hill (Prime) Pty Ltd (“Prime”) and the seventh defendant, Mango Hill
(Mezzanine) Pty Ltd (“Mezzanine”) became so in 2008.

Corporations Act, s 231.

4

Compare Re Independent Quarries Pty Ltd (1993) 12 ACSR 188 at 190; Andco Nominees Pty Ltd v
Lestato Pty Ltd (1995) 126 FLR 404; (1995) 17 ACSR 239.

5

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [174]; [2009] HCA 25.

See Corporations Act, s 53.

7

(2004) 51 ACSR 278 at [25]; [2004] FCA 1393.

8

(2006) 33 WAR 1 at [29]; [2006] WASC 161.
9 th

Treitel, The Law Of Contract, 7 ed, London, Sweet & Maxwell, p 450.

10

Trusts Act, s 15(1).

11

(1985) 157 CLR 215; [1984] HCA 68.

12

UCPR 65(1).

13

UCPR 60(1).

14

UCPR 149(1)(b).

15

A simple description of the pre-Judicature Acts processes of pleading may be found in Jacob &
Goldrein, Pleadings Principles and Practice, Sweet & Maxwell, London, at 19-26.

UCPR 149(1)(b).

17

It is unnecessary to essay the progenitors of the Queensland Act.

18

See for example the court‟s retaliation to a prolix pleading in Mylward v Weldon (1596) 21 ER 136;
[1595] EWCH Ch 1, referred to in Standard Bank PLC v Via Mat International Ltd [2013] EWCA
Civ 490 at [29].

19

Kirby v Sanderson Motors Pty Ltd (2002) 54 NSWLR 135; [2002] NSWCA 44 at [21].

20

Bruce v Odhams Press Pty Ltd [1936] 1 KB 697; Colavon Pty Ltd v Bellingen Shire Council [2008]
NSWCA 355 at [98].

21

UCPR 171(a).

22

UCPR 171(b)-(d).

23

UCPR 292 and 293.

Banque Commerciale SA (en liq) v Akhil Holdings Ltd (1990) 169 CLR 271 at 285; [1990] HCA 11.

Briginshaw v Briginshaw (1938) 60 CLR 336 at 362-363; [1938] HCA 34.

UCPR 149(1)(a) and (b).

Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185 at 191; [1966] HCA 38.

28

(1853) 118 ER 749; [1853] EngR 15.

29

Zhu v Treasurer of State of New South Wales (2004) 218 CLR 530; [2004] HCA 56.

30

(2012) 200 FCR 296 at [242]-[246]; [2012] FCAFC 6.

31

(1874) 9 LR Ch App 244.

32

(2007) 230 CLR 89 at [161]; [2007] HCA 22.

33

Gummow, Knowing Assistance, (2013) 87 ALJ 311 at 315.

34

For example, Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2012] WASC
460 at [58].

35

(1995) 126 FLR 404; (1995) 17 ACSR 239.

36

See, for example, Frigger v Lean [2012] WASCA 66 at [17].

37

Corporations Act, s 168.

38

Corporations Act, s 231.

39

Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104 at 117; [1982] HCA 17.

For example, Venture Platinum Pty Ltd & Anor v Rogue Constructions Pty Ltd (2006) 56 ACSR 802.

41

Beck v Tuckey (2007) 213 FLR 152; [2007] NSWSC 1065.

Corporations Act, s 1322(2).

43

Compare Whitehouse v Capital Radio Network Pty Ltd (2004) 13 Tas R 27; [2004] TASSC 12;
Re Pembury Pty Ltd [1993] 1 Qd R 125.

44

Presumably the “scheme” alleged in paragraph [279] of the 3FASOC.

45

Farah constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [171]-[180]; [2007] HCA 22.

46

Sugarloaf Hill Nominees Pty Ltd v Rewards Project Limited [2011] WASC 19 at [72].

47

(1971) 126 CLR 376 at 386.

Section 185(1)(a) of the Land Title Act 1994 (Qld).

49

[2007] NSWSC 1322.

50

Compare Power v Ekstein [2009] NSWSC 130 at [77]-[78] and Power v Ekstein (2010) 77 ACSR
302, [2010] NSWSC 137.

51

Exhibit 20 refers to an annexure which is said to identify the extent of the leave sought, but there was
no annexure to the exhibit.

52

In argument, the BMD defendants identified this as probably constituted by paragraphs [43], [63]-
[69] and [282] of the 3FASOC.

In argument, Mio confirmed that paragraph [284] of the 3FASOC was the critical allegation of
discharge.

54

[2003] 1 Qd R 186 at [15]; [2002] QCA 269.

Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523 at 531.

56

[2005] NSWSC 442 at [138].

57

Hassall v Speedy Gantry Hire Pty Ltd [2001] QSC 327; cf Matyear v Prismex Technologies Pty ltd

[2008] NSWSC 677.

58

Paragraph [260] of the 3FASOC.

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Citations

Mio Art Pty Ltd v Macequest Pty Ltd [2013] QSC 211

Most Recent Citation

Mahmood v Abdul Wahid and Sons Pty Ltd, in the matter of Abdul Wahid and Sons Pty Ltd (No 2) [2021] FCA 535

Cases Citing This Decision

20

Weststate Private Hospital Limited v CHPF South Bunbury Pty Ltd; Weststate Private Hospital Limited v Lautaret Pty Ltd [2025] QSC 247

Brisbane Airport Corporation Pty Ltd v Airservices Australia [2025] QSC 54

Cameron v Cameron [2023] QSC 61

Cases Cited

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Statutory Material Cited

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CITATION:	Mio Art Pty Ltd v Macequest Pty Ltd & Ors [2013] QSC 211
PARTIES:	MIO ART PTY LTD ACN 101 121 875
(plaintiff)
v
MACEQUEST PTY LTD CAN 101 563 649
(first defendant)
BMD HOLDINGS PTY LTD
ACN 010 093 348 (second defendant)
MANGO BOULEVARD PTY LTD
ACN 101 544 601 (third defendant)
URBEX PTY LTD
ACN 102 865 823 (fourth defendant)
BMD PROPERTIES PTY LTD
ACN 091 902 475 (fifth defendant)
MANGO HILL (PRIME) PTY LTD
ACN 110 696 565 (sixth defendant)
MANGO HILL (MEZZANINE) PTY LTD
ACN110697 400 (seventh defendant)
TASOVAC PTY LTD as Trustee of the Security Trust ACN 108 013 467 (ninth defendant)
KENNETH ROWLAND BIRD
(tenth defendant)
GARY WILLIAM INGRAM
(eleventh defendant)
JAMES VARITIMOS
(twelfth defendant)
WAYNE ROBERT REX
(thirteenth defendant)
RUSSELL JOHN THOMSON
(fourteenth defendant)
DAVID JOHN DUNCAN
(fifteenth defendant)
ANDREW MARCOS
(sixteenth defendant)
SCOTT WILLIAM POWER
(seventeenth defendant)
MICHAEL CHRISTOPHER POWER
(eighteenth defendant)
KINSELLA HEIGHTS DEVELOPMENTS PTY LTD
ACN 100 484 299 (twentieth defendant)
FILE NO/S:	BS 4352 of 2012
DIVISION:	Trial
PROCEEDING:	Application
DELIVERED ON:	19 August 2013
DELIVERED AT:	Brisbane
HEARING DATE:	30, 31 January, and 16 & 17 April 2013
JUDGE:	Jackson J
ORDER:	The order of the court is that:

CATCHWORDS:	PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER THE UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – PLEADING – STATEMENT OF CLAIM – AMENDMENT – where the plaintiff joins claims for relief under
Corporations Act 2001 (Cth), s 233 and other claims – where
the plaintiff applies for leave to bring the proceeding on behalf of a company under Corporations Act 2001 (Cth),
s 236 – where the plaintiff applies to amend the claim and statement of claim – where the defendants cross-apply to strike out the statement of claim and dismiss the proceeding – where statement of claim adopts narrative style – whether
statement of claim sufficiently pleads material facts for
separate causes of action – whether the statement of claim
sufficiently alleges fraudulent scheme
CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS' REMEDIES AND INTERNAL DISPUTES – PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER – STATUTORY DERIVATIVE ACTION – where the plaintiff seeks leave under
Corporations Act 2001 (Cth), s 237 to bring a cause of action
on behalf of the twentieth defendant against the other
defendants – whether leave should be granted
Corporations Act 2001 (Cth), s 53, s 79, s 150, s 157, s 168, s 169, s 180, s 181, s 182, s 231, s 232, s 233, s 234, s 236, s 237, s 1071B, s 1317E, s 1071F, s 1317H, s1317J, s 1322
Trusts Act 1973 (Qld), s 15, s 82 (1) r 149, r 171, r 292, r 293
Gummow, Knowing Assistance, (2013) 87 ALJ 311 Jacob & Goldrein, Pleadings Principles and Practice, Sweet & Maxwell, London,

COUNSEL:	F M Douglas QC and D Keane for the plaintiff (“Mio”)
D Kelly SC, M Hodge and D Butler for the first to seventh, tenth, eleventh and fourteenth to eighteenth defendants
(“BMD defendants”)
C M Muir for the ninth defendant (“Tasovac”) B Cohen (solicitor) for the twelfth defendant (“Varitimos”)
D Savage SC and P Corkery for the thirteenth defendant
(“Rex”)
SOLICITORS:	Delta Law for the plaintiff Carter Newell for the first to seventh, tenth, eleventh and fourteenth to eighteenth defendants King & Wood Mallesons for the ninth defendant Bartley Cohen for the twelfth defendant HWL Ebsworth for the thirteenth defendant

(a)	Mango, which became manager of the project;
(b)	the second defendant, BMD Holdings Pty Ltd, which guaranteed

(b)	make approvals or decisions that are required of the party in good faith and in the best interests of KHD and the conduct of the Business as a commercial venture (cl. 3.2(c));
(c)	not unreasonably delay any action, approval, direction, determination or decision which is required of the party (cl. 3.2(b)); and
(d)	give, without concealment or suppression, a true account of all transactions concerning the Business and KHD when and so often as an account is reasonably required (cl. 3.2(d)).

(d)	Mango would bear all costs of arranging such Loan (cl. 9.1); and
(e)	Mango would pay any interest which may be payable in respect of the Loan (cl. 9.3); and
(f)	Mango would pay all costs in relation to the Project as and when they fell due (cl. 7.3).

(d)	a Mango Director would be the Chairman of the Board of KHD (cl. 4.1(e));
(e)	a quorum for a meeting of the Board of KHD would be a Mango Director and an OSH Director (cl. 4.2(h));
(f)	meetings of the Board would be held once in every month (cl. 4.1(f));
(g)	the Chairman would have a casting vote at any meeting of the Board or of Shareholders at which there was an equality of votes (cl. 4.1(e)); and
(h)	a director could appoint an Alternate Director who was resident in Queensland if the director was not resident in Queensland or was temporarily absent from Queensland (cl. 4.2).

This is the sort of problem which was dealt with in Gould v Vaggelas	in relation to
overlapping claims for damages for the tort of deceit.

(c)	under ss 181(2) and 182(2) a person involved in a contravention of the section is a contravenor;
(d)	under s 1317H(1) a court may order a person to compensate a corporation for damage suffered by the corporation if the person has contravened a civil penalty provision in relation to the corporation;
(e)	under s 1317J(2) a corporation may apply for a compensation order; but
(f)	under s 1317J(4), only ASIC or the corporation may so apply; and
(g)	no reference is made in s 1317H or 1317J to a person involved in a contravention.

(a)	interest would not be paid on (i) Prime-to-Mango FA; (ii) Mezzanine-to-Prime FA; and (iii) BMD/BBREF-to- Mezzanine FA, where if interest under (i), (ii) and (iii) was not paid, interest would be calculated at the rate payable thereunder capitalised and compounded monthly in arrears;
(b)	the entities liable to pay interest under each of the FAs (Mango, Prime and Mezzanine respectively) would not be in a position to pay any interest;
(c)	the Property owned by KHD would be subject to securities that could be called upon for the defaults of Mango, Prime and Mezzanine for the benefit of BMD Properties (and ultimately, BMD Holdings and Macequest) and BBREF (and ultimately, B&BA) and KHD deprived of the Property

(a)	first, that the debt is not owed because of the Deed of Consent and Amendment dated 15 June 2010 made as between Mango and Prime to extend the period for repayment of $84.9 million until 30 June 2013;
(b)	secondly, that no interest was payable because under clause 6.4 of the Prime-to-Mango FA it was payable only on demand and no demand was made;
(c)	thirdly, that no order can be made requiring Mango to pay the amount of the debt, because specific performance will not be ordered; and
(d)	fourthly, that on 30 January 2013 further agreement was made to