Moss v Cave (No 2)
[2010] SASC 323
•22 November 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MOSS v CAVE & ORS (No 2)
[2010] SASC 323
Reasons of Judge Lunn a Master of the Supreme Court
22 November 2010
PROCEDURE
Application to join additional defendants – whether causes of action against new defendants were out of time either under Limitation of Actions Act 1935 or in Equity – held 6R 74(5) did not bar joinder of a claim otherwise out of time under a statutory provision where the summons was to be endorsed under s 48(4) of the Limitation of Actions Act with a claim for an extension of time but joinder was not to be made retrospective to the commencement of the original action – any issue about delay in Equity to be left for the trial – no cause of action for damages under s 1324 of the Corporations Act to be permitted where no proper basis for an injunction under that section against that defendant – joinder allowed but not new statement of claim in form proposed.
MOSS v CAVE & ORS (No 2)
[2010] SASC 323JUDGE LUNN:
Reasons on plaintiff’s application to join two additional defendants and to amend the Statement of Claim
On an application dated 3 June 2010, FDN 49, the plaintiff seeks to join Piper Alderman, a legal firm which previously acted for the other defendants, as a new fourth defendant in this action. By another application issued on 13 July 2010, FDN54, the plaintiff seeks to join the first defendant as a fifth defendant in his capacity as the trustee of the Cave Superannuation Fund. If these joinders are permitted, he seeks to file a fresh statement of claim in the form as exhibited “MAH-1” to the affidavit of his solicitor filed on 28 September 2010, FDN64,[1] (“the new SOC”).
[1] By Practice Direction 5.11 the title of that statement of claim will need to comply with that Practice Direction.
It is convenient to set out here all the relevant parts of the new SOC:[2]
[2] This version, as quoted, does not differentiate between what is in the existing statement of claim and the proposed amendments. In some instances particulars have been omitted as they are not relevant to anything which I have to now decide.
1At all times material to this claim a company Frontier Holdings Pty Ltd …. (“the company”);
….
1.2 Carried on business as a finance broker in and about the state of South Australia under the registered business names “Frontier Finance” and “Frontier Home Loans”; (“the business”)
….
2As at December 2000, the company was the trustee of a trust named “Frontier Finance Trust” and carried on the said business in that capacity.
3At all material times, the first defendant has been a director of the company.
4In December 2000, the plaintiff and the first defendant orally agreed that (“the December 2000 agreement”):
4.1 They would acquire the said business from the Frontier Finance Trust.
4.2 The said business would be owned by them in the proportions of 55% owned by the first defendant, or interests associated with him, and 45% owned by the plaintiff, or interests associated with him.
4.3 They would acquire the company as the corporate vehicle through which they would own and conduct the business.
4.4 The plaintiff would contribute $100,000 in respect of the acquisition.
4.5 The first defendant would contribute $125,000 in respect of the acquisition.
….
4.7 The plaintiff and the first defendant would each be directors of the company.
4.8 The shares in the company would be owned by them in the proportions of 55% owned by the first defendant, or interests associated with him, and 45% owned by the plaintiff, or interests associated with him.
5The December 2000 agreement gave rise to a quasi-partnership between the plaintiff and the first defendant.
6At all material times to this claim the first defendant owned the plaintiff a duty as fiduciary to act with the utmost good faith in relation to his dealings with the plaintiff (“the fiduciary duty”).
….
6B By reason of the fact that:
6B.1 the first defendant controlled the fifth defendant;
6B.2 the first defendant caused the fifth defendant to contribute the funds that the first defendant had agreed to contribute under the December 2000 agreement;
6B.3 the first defendant caused the fifth defendant to hold the interest in the company that would otherwise have been held by the first defendant arising out of the December 2000 agreement;
the fifth defendant entered [and] became a party to the quasi-partnership relationship with the plaintiff alleged at paragraph 5 and owed to the plaintiff the same fiduciary duty as is owed by the first defendant as alleged in paragraph 6.
7The first defendant and the fifth defendant breached the fiduciary duty by reason of the facts alleged in paragraphs 8, 12 and 15 to 23 below.
….
9 The plaintiff was appointed a director of the company on 21 February 2001.
10On or about 27 December 2001, 45 shares in the company were issued to the plaintiff and 53 shares were issued to the fifth defendant, such that the plaintiff held 45 of 100 issued shares in the company and the first defendant owned or controlled 55 of 100 issued shares in the company.
10AOn 27 December 2001 the plaintiff became the holder of 45% of the issued shares in the company.
….
13At a meeting of the plaintiff and the first defendant on 21 March 2003:
3.1 The plaintiff and the first defendant disagreed as to the entry by the company into a lease of premises at Suite 1, 148 Greenhill Road.
3.2 The first defendant on his own behalf and on behalf of the fifth defendant announced that, in view of the disagreement as to the entry into of the lease, the relationship between the plaintiff and the first defendant was broken down and it was his intention to wind up the company.
14Since 21 March 2003, the relationship between the plaintiff and the first defendant has broken down.
14AOn a date no later than the 24th day of September 2003, the first defendant engaged the fourth defendants to act as solicitors for him and/or the company and to provide legal advice and assistance to him in relation to the affairs of the company.
….
17By further notice dated 26 September 2003, the first defendant called a general meeting of the members of the company on 27 October 2003 for the purpose of passing resolutions to remove the plaintiff as a director and appointing Maxine Cannizzaro (the second defendant) as a director of the company.
18On 27 October 2003, the first defendant purported to hold a general meeting of the company and purported to cause to be passed resolutions:
18.1 removing the plaintiff as a director; and
18.2 appointing the second defendant as a director of the company.
19The only member present at the meeting of 27 October 2003 was the first defendant.
19A The second defendant was present at the meeting of 27 October 2003.
19BMr James Dickson of the fourth defendant attended the meeting in the capacity as solicitor.
20The resolutions passed at the meeting of 27 October 2003 were void and in breach of the Articles of Association of the company in that:
20.1 There was not a quorum present at the meeting being 2 members present as required by s249T of the Corporations Act nor 2 members.
20.2 In the alternative to sub paragraph 20.1. there was not a quorum present at the meeting being 2 members entitled to vote present as required by Clause 42 of the Memorandum and Articles of Association of the third defendant.
….
21The first defendant purported to grant a proxy to the second defendant for the purpose of the meeting on 27 October 2003 as a device to create a quorum of members comprising the first defendant and the second defendant to enable the first defendant to cause the aforesaid resolutions to be passed.
21A The:
21A.1 Meetings referred to in paragraphs 15,16 and 17 were called;
21A.2 Meeting referred to in paragraph 18 was held;
23A.3 Resolution referred to in paragraph 20 was passed and implemented;
in the way referred to in paragraphs 14A to 21 inclusive on the advice of and with the direct and knowing assistance of the fourth defendant, in that James Dickson of the fourth defendant:
….
22The plaintiff has been excluded from the management of the affairs of the company in every respect since 27 October 2003.
23Since 27 October 2003, the first, second defendant and fifth defendants have conducted the affairs of the company:
23.1 So as to benefit the first defendant and/or the fifth defendant to the exclusion of the plaintiff.
23.2 So as to benefit the second defendant to the exclusion of the plaintiff.
Further particulars will be provided after disclosure and inspect of the books and records of the company with respect to the period from 27 October 2003 until the present.
23A.1Acted as solicitors on the record for first defendant in these proceedings.
23A.2On instructions of the first defendant filed an amended defence on 8 July 2009.
23A.3At paragraph 15 of the amended defence alleged that the holding of a meeting and the passing of the resolutions as alleged at paragraph 18 above were valid.
….
[Sub-paragraphs 21A.4 – 21A, which are in effect particulars of 21A.3, have not been included.]
24At all material times to this claim the first defendant, and the second defendant since 27 October 2003, owed duties as directors of the company pursuant to the provisions of the Act (“the statutory duties”).
….
[What is then pleaded are breaches of directors’ duties imposed by ss 181(1), 182(1), 184(1) and (2) of the Corporations Act 2001.]
25he first defendant breached the statutory duties and the fiduciary duty by reason of the matters alleged in paragraphs 8, 12 and 15 to 23 above….
25AThe fifth defendant breached its fiduciary duty to the plaintiff by reason of the matters alleged in paragraphs 8, 12 and 15 to 23 above….
26The second defendant breached the statutory duties by reason of the maters [sic] alleged in paragraph 23 above….
26ABy reason of the facts alleged in paragraphs 14A, 19B, 21A…. the fourth defendant:
26A.1 Aided, abetted and counselled;
26A.2Was directly and/or indirectly and/or knowingly concerned in or a party to;
the conduct of the first defendant, second defendant and fifth defendants referred to in paragraphs 21, 22, 23, 25, 25A and 26 hereof insofar as the conduct involved the matters referred to in paragraphs 15 to 21A hereof.
26BBy virtue of the conduct referred to in paragraphs 14A, 19B, 21A and 23A the fourth defendant aided and abetted the breach of the fiduciary duty by the first defendant and the fifth defendant.
27As a consequence of the breach of the statutory duties and the breach of the fiduciary duty by the first and second defendants, the plaintiff has suffered los and damage.
….
[The particulars of loss have been omitted.]
28Further, or in the alternative, the conduct of the first, second defendant and fifth defendant was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiff for the purposes of section 232 of the Act (“the oppressive conduct”)
PARTICULARS
The plaintiff repeats the particulars provided in paragraphs 7 to 23, 25 and 26 hereof as particulars of the oppressive conduct.
29The plaintiff is a person entitled to orders in the nature of mandatory and prohibitory injunctions against the first and second defendants pursuant to s1324(1) of the Act in relation to the conduct and matters which constitute breach of the statutory duties and aiding and abetting such breaches.
30Further, or in the alternative, the plaintiff is a person entitled to an award of damages against the first, second, and fourth defendants pursuant to s1324(10) of the Act.
31Further, or in the alternative, the plaintiff is entitled to an award of equitable compensation against the first, second, and fifth defendants for the breach of fiduciary duty.
31AFurther, or in the alternative, the plaintiff is entitled to an award of equitable compensation against the fourth defendant on account of the fourth defendant aiding and abetting the breach of fiduciary duty by the first and fifth defendants.
32Further, or in the alternative, the plaintiff is entitled to such relief pursuant to s233 of the Act against the first and second defendants on account of the oppressive conduct as this Honourable Court sees fit.
....
34If, which is denied, the plaintiff’s claim for equitable compensation against the fourth defendant for aiding and abetting a breach of fiduciary duty by the first defendant is barred by the operation of s35 of the Limitation of Actions Act 1935, then the plaintiff seeks an extension of time pursuant to s48(1) of the Limitations of Actions Act 1935 on the following grounds:
….
[The pleading of alleged new material facts and the grounds for the extension have been omitted.]
The remedies sought are:-
1 Orders in the nature of mandatory and prohibitory injunctions against the first, second and fourth defendants pursuant to s1324 of the Act;
2 Further, or in the alternative, damages against the first, second and fourth defendants pursuant to s1324(10) of the Act.
3 Further, or in the alternative, equitable compensation against the first, second, fourth and fifth defendants.
4 Orders for such relief pursuant to s233 of the Act as to this Honourable Court seems fit.
5 In the event that the plaintiff’s claim for equitable compensation against the fourth defendant is statute barred, then an order pursuant to s48(1) of the Limitation of Actions Act 1935 extending time.
….
I deal first with the application to join Piper Alderman and the proposed pleadings against it.
A joinder of Piper Alderman should be permitted where the Court is satisfied under 6R 74(1) that it had an interest in the subject matter of the action or its joinder is necessary to enable the determination of some related dispute, and thus to avoid a multiplicity of proceedings. As the proposed new statement of claim seeks damages or equitable compensation from Piper Alderman arising out of the same transactions as are the subject of the actions against the first to third defendants, these requirements for joinder are satisfied if the new SOC pleads any reasonable cause of action against it. Similarly, the new SOC is to be permitted if it discloses a reasonably arguable cause of action against Piper Alderman.[3]
Accessorial liability under the second limb of Barnes v Addy
[3] Duke Group Ltd (In Liquidation) v Arthur Young (Reg.) (1991) 159 LSJS 362; Pavlovic & Another v Commonwealth Bank of Australia (1992) 56 SASR 587.
This cause of action requires that Piper Alderman must be shown to have knowingly assisted some other defendant who was a fiduciary in their dishonest and fraudulent design. Counsel for Piper Alderman submitted that there was insufficient pleading of any fraud by it. It is only equitable, and not, legal fraud which is required, and there is respectable authority that that can be constituted by a serious breach of fiduciary duty.[4] The matters pleaded in the new SOC could reasonably give rise to a finding of such fraud.
[4] Farah Constructions Pty Ltd & Ors v Say-Dee Pty Ltd (2007) 230 CLR 89 at 164-167; Consul Development Pty Ltd v D.P.C. Estates Pty Ltd (1975) 132 CLR 373 at 398 per Gibbs J.
Action out of time
The plaintiff’s alleged cause of action against Piper Alderman under the second limb in Barnes v Addy arose by no later than 27 October 2003. The application to join Piper Alderman was not made until 13 July 2010. There was considerable argument about the effect of 6R 74(5) and (6), which provide:
(5)The Court cannot join a person as a defendant to an action under this rule if, because of the expiration of a period of limitation, an action based on the relevant cause of action could not be commenced against the person at the date of the order for joinder.
(6) However—
(a) the Court may treat an application to join a person as a defendant as originating process for an action against the person sought to be joined and may exercise any statutory power to extend the period of limitation accordingly; or
(b) the Court may, after the expiration of a relevant period of limitation, join a person as a defendant to an action if satisfied that the plaintiff genuinely intended to bring the action against that person but, as a result of a genuine mistake, failed in the action as originally formulated to identify that person, or to identify that person correctly, as a defendant.
If the cause of action against Piper Alderman was for breach of contract, it would clearly be barred by s 35(a) of the Limitation of Actions Act 1935. However, the contract upon which the claim is based, and which is pleaded in paragraph 4 of the new SOC, was made between the plaintiff and the first defendant. Piper Alderman was not a party to it. It is strongly arguable that s 35(a) does not bar a claim by the plaintiff against Piper Alderman based on accessorial liability for breach of any fiduciary duties of the first defendant arising out of the quasi-partnership created by that contract.
Although no provision of the Limitation of Actions Act, or any other legislation, expressly creates a time limit for claims in equity for breach of fiduciary duty, or accessorial liability flowing from them, Equity may refuse relief for them based on delay in circumstances analogous to time limitations for similar claims.[5] Counsel for Piper Alderman contended that such a limitation by analogy to one in contract would be imposed here, but counsel for the plaintiff submitted that it would depend upon all of the circumstances as they were found to be at trial and so it was a point that had to be left for the trial.
[5] Barker & Ors v Duke Group Ltd (in liq) & Ors (2005) 91 SASR 167.
In my view the proper interpretation of 6R 74(5) is that it only applies where it is beyond reasonable argument that the time limitation must defeat the claim. It needs to be read in conjunction with s 48(4) of the Limitation of Actions Act which provides:
(4)Where an extension of time is sought pursuant to this section in respect of the commencement of an action, the action may be instituted in the normal manner, but the process by which it is instituted must be endorsed with a statement to the effect that the plaintiff seeks an extension of time pursuant to this section.
Sub-r (5) does not operate, as is the case here, where the plaintiff is seeking an extension of time under s 48 and has pleaded reasonable grounds for it. By virtue of s 48(4) an action otherwise out of time under that Act can be commenced as at the date of the order for joinder if the summons is endorsed to comply with s 48(4). Thus by virtue of s 48(4) the condition for the operation of sub-r (5) is not satisfied. Sub-r (5) is also not to be interpreted to impose on the Court an impractical interlocutory exercise of determining whether the cause of action is statute barred except in clear cases. Likewise, even if delay in Equity can be categorised as “a period of limitation” for the purpose of sub-r (5), it is not for the Court on an interlocutory hearing to decide the issue where it is reasonably arguable. On this view of sub-r (5) it is not necessary to consider the submissions of Piper Alderman about the effect of sub-r (6)(a) and does the exercise there of any statutory power mean a power exercisable on the interlocutory hearing, or only potentially exercisable after a trial of the action. Sub-r (5) and (6) do not prevent the proposed joinder of Piper Alderman.
Claim for damages under s 1324(10) of the Corporations Act 2001
Section 1324 of the Corporations Action 2001 provides:
(1)Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:
(a) a contravention of this Act; or
…
(c) aiding, abetting, counselling or procuring a person to contravene this Act; or
….
the Court may, on the application of …. a person whose interests have been, are or would be affected by the conduct, grant an injunction …. restraining the first‑mentioned person from engaging in the conduct….
(6)The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:
(a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind….
(10)Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct …. the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person.
The authorities are that damages cannot be awarded under sub-s (10) in the absence of a proper basis for a claim for an injunction against that defendant under sub-s (1).[6] I do not consider that on the matters pleaded there is any reasonable basis shown for an injunction, now, or in the future, being granted under s 1324(1) against Piper Alderman in respect of any of the breaches of the Act referred to in the new SOC. Piper Alderman is no longer acting for any of the other defendants and, in view of this claim, it is highly unlikely to do so again. As stated below, I do not consider paragraph 23A of the new SOC is a proper pleading against Piper Alderman. While sub-s (6)(a) of s 1324 gives the Court power to grant an injunction even if it finds that Piper Alderman does not intend to engage again in the conduct in question, there must still be some proper basis made out why the Court would grant such an injunction. I do not consider that it would do so merely to give the plaintiff a cause of action against Piper Alderman for damages under sub-s (10) if it did not otherwise have it. The plaintiff is not to be permitted to pursue any claim for damages against Piper Alderman under s 1324(10).
[6] Executor Trustee Australia Ltd v Deloitte Haskins Sells (1996) 22 ACSR 270; Artistic Builders Pty Ltd v Elliot & Tuthill [2002] NSWSC 16; Waterhouse v Waterhouse (1999) 46 NSWLR 449 at 490-1.
Accordingly, permission will be given to join Piper Alderman as a fourth defendant to the action, but limited to a claim for accessorial liability under the second limb of Barnes v Addy.
Pleading points
Counsel for Piper Alderman made some submissions which I accept about the pleading of various parts of the new SOC, which while not preventing the joinder of Piper Alderman, need to be addressed in a revised new SOC which will have to be put forward by the plaintiff.
I accept that paragraph 34 of the new SOC is incorrect in referring to s 48(1) of the Limitation of Actions Act as it only relates to limitations imposed by legislation. It may be that the plaintiff only needs to plead paragraph 34 in anticipation of a plea in the defence of Piper Alderman on the limitation point under s 35(a) of the Limitation of Actions Act on the ground that the cause of action is based in contract. It may be that any plea in answer to an equitable limitation as pleaded in the defence is more properly pleaded in a reply.[7]
[7] Section 48(4) of the Limitation of Actions Act creates the anomalous position that a plaintiff is required to plead his claim for s 48 extension in his statement of claim before the defendant has pleaded the bar under the statute.
I accept the contention of counsel for Piper Alderman that the cause of action for accessorial liability under the second limb of Barnes v Addy was complete as at 27 October 2003. I do not accept that paragraph 14A of the new SOC includes any retainer from the defendants to Piper Alderman to act for them in this action. Any loss for which the plaintiff could receive equitable compensation is unrelated to the matters pleaded to in paragraph 23A of the new SOC. That paragraph is not to be permitted.
I do not consider that paragraph 26A.2 can stand so far as it refers to the second defendant as she did not owe any fiduciary duties to the plaintiff whose breach could give rise to accessorial liability to Piper Alderman.
It is unclear to me whether the reference to paragraph 22 in paragraph 26A.2 of the new SOC is meant to extend the plea of the accessorial liability of Piper Alderman to events after 27 October 2003, and to impliedly to incorporate the matters pleaded in paragraph 24.
There is no plea that Piper Alderman were engaged by the fifth defendant or acted for him in that capacity. Hence there is no basis for any claim for accessorial liability for any breach of fiduciary duty by the fifth defendant.
It is unclear whether paragraph 26A in its reference to paragraphs 14A, 19B, 21A and 23A in its preamble, and to paragraphs 15 to 21A in its conclusion, limits the scope of the accessorial conduct of Piper Alderman complained of to that which occurred between 24 September 2003 and 27 October 2003, as pleaded in paragraph 14A. Insofar as it seeks to encompass accessorial conduct for acts of other defendants before and after those dates, it is an embarrassing and improper pleading.
Joinder of trustee of Cave Superannuation Fund as the fifth defendant
The first defendant has put forward written submissions opposing his joinder in this new capacity. Subject to any possible limitation defence, 6R 74(1) is satisfied for this claim against the trustee of the superannuation fund to be pursued in this action.
Order to be made
The orders for the joinder of the fourth and fifth defendants will be made in terms that they only be retrospective to the dates on which the applications for their joinder were made. They will not be made retrospective to the institution of this action on 23 May 2008. This will preserve rights of those defendants to pursue limitation type defences.[8] The plaintiff will need to put forward a revised version of the new SOC in the light of these reasons.
[8] Brook v The Flinders University of South Australia (1988) 47 SASR 119.
I have today made the following orders:
1Piper Alderman be joined as the fourth defendant in this action but only as from 3 June 2010.
2Peter Cave as the trustee of the Cave Superannuation Fund be joined as the fifth defendant, but only as from 13 July 2010.
3Permission to the plaintiff to amend the summons to make the necessary endorsements for the additions of the fourth and fifth defendants.
4Permission to file a new SOC in the form exhibited to the affidavit of Michael Hourigan filed on 24 September 2010 is refused.
5Costs reserved.
6Fit for counsel.
7Adjourned to directions hearing on Monday 13 December 2010 at 9:45am.
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