Nelson Capital Pty Ltd v Short
[2004] WASC 68
•8 APRIL 2004
NELSON CAPITAL PTY LTD -v- SHORT & ORS [2004] WASC 68
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASC 68 | |
| 08/04/2004 | |||
| Case No: | CIV:2736/2002 | 5 APRIL 2004 | |
| Coram: | MASTER SANDERSON | 5/04/04 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Amendment allowed | ||
| B | |||
| PDF Version |
| Parties: | NELSON CAPITAL PTY LTD (ACN 081 483 730) ANTHONY NELSON SHORT HALLCREST INVESTMENTS PTY LTD (ACN 064 752 361) AMADEUS ENERGY LTD (ACN 058 714 408) |
Catchwords: | Practice and procedure Application to amend statement of claim Turns on own facts |
Legislation: | Nil |
Case References: | Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
ANTHONY NELSON SHORT
First Defendant
HALLCREST INVESTMENTS PTY LTD (ACN 064 752 361)
Second Defendant
AMADEUS ENERGY LTD (ACN 058 714 408)
Third Defendant
Catchwords:
Practice and procedure - Application to amend statement of claim - Turns on own facts
(Page 2)
Legislation:
Nil
Result:
Amendment allowed
Category: B
Representation:
Counsel:
Plaintiff : Mr M L Bennett
First Defendant : Mr M S Van Brakel
Second Defendant : Mr M S Van Brakel
Third Defendant : Mr M C Hotchkin
Solicitors:
Plaintiff : Bennett & Co
First Defendant : Clayton Utz
Second Defendant : Clayton Utz
Third Defendant : Hotchkin Hanly
Case(s) referred to in judgment(s):
Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1
Case(s) also cited:
Nil
(Page 3)
1 MASTER SANDERSON: This is the plaintiff's application for leave to amend its statement of claim in terms of a minute of proposed amended statement of claim dated 10 February 2004 ("the Minute"). At the conclusion of the hearing I indicated to the parties that I would grant the plaintiff leave to amend in terms of the Minute. (Counsel for the plaintiff did seek leave to make one further amendment and I will deal with that matter in the course of these reasons.) I indicated to the parties that I would provide reasons for my decision. These are those reasons.
2 The first four paragraphs of the Minute identify the parties. Importantly, the first defendant is said to have been, until 15 July 2001, a director of the second defendant and until 24 December 2002, a director of the third defendant. By par 5 it is pleaded that on or about February 1998 the plaintiff and the second defendant entered into a written partnership agreement, pursuant to which they were to provide corporate advisory services in Western Australia and further facilitate investment opportunities for the benefit of the partnership. Further particulars are provided. It is said that it was intended that the partnership would assist in the raising of debt and equity funding to enable development and commercialisation of emerging companies and projects, it was to provide corporate structuring advice and other business advisory services and would be compensated by equity participation in companies or projects in which the partnership was involved. By par 6 it is pleaded that it was an express term of the written partnership agreement that the partners agreed to act in utmost good faith and to avoid conflicts of interest between the partnership and their own interests. By par 7 it is pleaded that consequent upon their partnership agreement, the plaintiff and the second defendant entered into a fiduciary relationship which had certain consequences. The parties were to act in good faith, avoid situations of conflict of interest, avoid profiting personally from partnership opportunities and account for all benefits obtained from the partnership business. By par 8 it is pleaded that at all material times during the conduct of the partnership, the plaintiff was represented by its director, Justin Birchmore, and the second defendant was represented by the first defendant. It is worth interposing at this point to say that, by par 17 of the Minute, it is pleaded that in July 2002 the partnership was dissolved and the plaintiff acquired the second defendant's interest in the partnership.
3 By par 9 it is pleaded that in or about July 1999, in the course of carrying on the partnership, the first defendant identified an opportunity for the development and commercial implementation of the production of diesel fuel from vegetable oils or animal waste fats. This is defined in the pleading as "the Bio-Diesel Project". Paragraphs 9.1.1 through to 9.1.4 set out in some detail the circumstances in which the partners became
(Page 4)
- aware of the Bio-Diesel Project and what they did to advance their interests in it. Without going through what is pleaded in detail, it is said that by August 1999 the partners had agreed that the partnership "would act to assist … with the Bio-Diesel Project opportunity".
4 Paragraph 9.2 identifies what is defined as "the Control Room Project". The Control Room Project involved technology developed by Honeywell Ltd for the monitoring and control of power delivery by the Internet. Paragraphs 9.2.1 and 9.2.2 set out the circumstances in which the partnership became aware of the Control Room Project and what steps were taken to advance this interest. Based upon the pleading, it would appear that the opportunity went no further than the partnership identifying the technology and suggesting certain companies which might be interested in developing it. By par 10 it is pleaded that both the Bio-Diesel Project and the Control Room Project were within the scope of the partnership business and that the "opportunities" enured for the benefit of the partnership.
5 By par 11 it is pleaded that "by reason of the matters referred to in par 7, the second defendant, by itself, and its director, the first defendant" owed to the plaintiff certain duties. These duties mirror precisely what is pleaded in par 7. It is par 11 counsel sought to amend. The consequence of the amendment would be that par 11 would refer to both pars 7 and 8. Paragraph 11 is important in the context of the pleading as a whole and I will return to it in due course.
6 Paragraphs 12 and 13 are central to the plaintiff's claim. I will quote them in full:
"12. In breach of the terms of the written partnership agreement referred to in paragraph 6 hereof and in breach of the obligations referred to in paragraph 11 hereof alternatively each such obligation at a date and time not presently known to the Plaintiff, the Second Defendant through its director, the First Defendant, procured the Third Defendant to acquire alternatively to develop, alternatively the Third Defendant acting with the knowledge and information of the Second Defendant through its director the First Defendant, acquired alternatively developed the Projects referred to in paragraph 9 hereof to the exclusion of the Partnership alternatively the Plaintiff:
(Page 5)
- 12.1 On 11 May 2001, Australian Renewable Fuels Pty Ltd ACN: 096 782 188 ('ARF') was incorporated by the Third Defendant as a wholly owned subsidiary for the purpose of undertaking the Bio-diesel Project;
12.2 Daryl Butcher is the Managing Director of ARF;
12.3 The First Defendant was a director of ARF from 11 May 2001 until 24 December 2002;
12.4 The Third Defendant entered into a strategic alliance with Honeywell Ltd to utilise the control room technology the subject of the Control Room Project and Virtual Control Systems Ltd ACN 088 221 078 ('VCS') a subsidiary of the Third Defendant was utilised as the entity which would commercialise this control room technology; and
12.5 The First Defendant was a director of VCS from 13 December 1999 until 27 November 2000.
Particulars
Full particulars will be provided after discovery has been given and interrogatories administered.
- 13. At the material times referred to in paragraph 12 hereof:
13.1 the First Defendant was a director of the Third Defendant;
13.2 the First Defendant's knowledge of the matters referred to in paragraph 9 hereof is thereafter to be imputed to the Third Defendant;
13.3 the First and Third Defendants thereby knowingly participated in the conduct of the Second Defendant referred to in paragraph 12 hereof."
(Page 6)
- and failing to avoid a conflict of interest. By par 16 it is pleaded that the second defendant acted in breach of its fiduciary duties. Paragraph 17 I have already mentioned. It pleads the dissolution of the partnership in the acquisition of the second defendant's interests in the partnership by the plaintiff. It also refers to the plaintiff's entitlement to the partnership assets. This plea is important to ground the prayer for relief. It also feeds into par 18, which pleads that the plaintiff was entitled to the benefit of "the matters" referred to in par 9. Paragraph 19 pleads loss and damage for a claim based in contract. Paragraph 20 pleads equitable claims. Paragraph 21 pleads equitable claims in the alternative.
8 Before dealing with the defendant's specific complaints, it is instructive to stand back and look in broad terms at the case put against the defendants. In February 1998 the plaintiff and the second defendant entered into a partnership. By its very nature the partnership was not dealing with tangibles. It was not selling socks or hats or the like. It was not even a partnership which was providing services - services such as might be provided by an accountant or a merchant banker. As pleaded, it was a partnership designed to develop ideas and concepts in such a way that commercial enterprises could be established. Such business arrangements are not uncommon. They are part and parcel of this State's entrepreneurial culture. However, such partnerships do present particular problems. There is no difficulty in deciding what is a partnership when the business is selling hats or socks. There are also well-established rules for determining the nature and value of assets of a professional business such as an accountancy practice - the value of the work in progress, the goodwill and so on. But the position becomes somewhat more difficult when the assets of the partnership are said to be ideas or concepts which, of themselves, have no form or structure and which all parties would agree are a long way from being developed into commercial enterprises. The plaintiff has chosen to refer to these concepts as "opportunities". The idea that these opportunities could be the property of the partnership was at the forefront of the criticism directed at the pleading by counsel for the first and second defendants. Counsel also took issue with the form of the pleading; but as much as anything, he was critical of the premise underlying the pleading - that is, the concept that nebulous ideas were the property of the partnership.
9 Returning then to an overview of the claim, the plaintiff says that the second defendant, through its director the first defendant, procured the third defendant to develop the projects. It is clear then that the third defendant's liability, if any, is derivative - that is to say, it is alleged to have been knowingly concerned in the breach by the first and/or second
(Page 7)
- defendants of their fiduciary duties. There is not and there could not be any claim made in contract against the third defendant.
10 Finally, there is a question of timing. The first defendant was a director of the second defendant until 15 July 2001. He was a director of ARF from 11 May 2001 until 24 December 2002 and he was a director of VCS from 13 December 1999 to 27 November 2002. He was a director of the third defendant until 24 December 2002. By par 11 of the statement of claim the plaintiff alleges that the first defendant, as a director of the second defendant, owed fiduciary duty to the partnership. Although the plea is not explicit, it would seem that what is alleged is that these fiduciary duties continued even after the first defendant ceased to be a director of the second defendant. Paragraph 12 refers to events which took place, in part at least, after the first defendant ceased to be a director of the second defendant. That is a point of some significance.
11 Dealing first with the criticisms of counsel for the first and second defendants, a number of complaints are made about the pleading of both the Bio-Diesel Project and the Control Room Project. As to the Bio-Diesel Project, it is said that there is an inadequate pleading of the opportunity allegedly presented at the partnership in August 1999. It is said that the specific role of the partnership in relation to fundraising and other services is not identified, nor is the timing of the partnership's involvement. Further, it is said there is no pleading of the precise terms of the agreement allegedly reached between the partnership and the engineers who developed the Bio-Diesel Project. The first and second defendants say this is a fundamental omission because they are entitled to know how it is alleged there has been a breach of the partnership agreement or fiduciary duties. It is also said that the plaintiff's plea that a breach of the partnership agreement or breach of fiduciary duties arises merely from the incorporation of a company (ARF) in May 2001 and the directorship of that company by the first defendant. The first and second defendants say that the pleadings do not identify how it is alleged that the incorporation of ARF and the directorship of ARF by the first defendant conflict with the partnership roles of fundraiser and provider of corporate advisory services. Finally it is said that there is no pleading or particularisation of how it is contended the partnership has been excluded from any opportunity originally presented to it.
12 In my view, these criticisms of the pleading take too narrow a view of the nature of the case that is put against the defendants. As I have already said, the plaintiff bases its case on the opportunity lost to the partnership. A reading of the pleading shows, in my view, sufficient similarity between the Bio-Diesel Project and what has been developed by
(Page 8)
- the third defendant, given the relationship between all three defendants, to call into question whether or not the opportunity available to the partnership has been exploited by the defendants, either in breach of their contractual obligations or in breach of their fiduciary duties. I think it is fair to say that given the fiduciary relationship which undoubtedly exist between the plaintiff and the second defendant and possibly the first defendant, equity will look carefully at whether or not the defendants have gained any advantage from information gained in the course of the trust.
13 The first and second defendants made similar, although more extensive, criticism of the pleading of the Control Room Project. It is said that there is no pleading of any specific opportunity that arose for the partnership in relation to the Control Room Project. It is said that the "opportunity" is not identified and accordingly it is not pleaded that the Control Room Project was within the scope of the partnership business. It was further said that there is no pleading that the partnership reached any consensus in relation to pursuing any form of opportunity in connection with the Control Room Project. There is no plea that the first defendant responded to the plaintiff's suggestion that an opportunity existed in relation to the Honeywell technology. It is further said that as the partnership was to benefit from their role as fundraisers and providers of corporate advisory services, the matter was at such an embryonic stage that no possible loss can be identified.
14 It is true that the opportunity identified by the pleadings in relation to the Control Room Project is extremely limited. It appears to amount to the plaintiff drawing to the attention of the first defendant an article dealing with the Honeywell technology and suggesting it might be of interest to two particular companies. However, it should be remembered that this is a pleading summons. It is for a Judge at trial to determine whether the concept once raised by one of the parties was an opportunity which was within the scope of the partnership. In my view, it would not be appropriate for me to refuse leave to amend as proposed by the plaintiff.
15 Turning then to the third defendant, its complaints about the pleading can perhaps be expressed in terms of a rhetorical question. What are the pleaded material facts which could possibly lead a Court to conclude that the third defendant was knowingly concerned in the breach by the first and/or second defendants of their fiduciary duties? Counsel for the third defendant submitted that it was manifest that there was no such connection and that there was no proper cause of action pleaded against the third defendant.
(Page 9)
16 The answer I think is found in par 12. What is said in that paragraph is that the second defendant, through the first defendant, its director, "procured" the third defendant to acquire or develop the projects. If the plaintiff had stopped there, the plea would have been perfectly proper. Doubtless the defendants could have asked for particulars. The plaintiff could have pointed to the exploitation of the Bio-Diesel Project by ARF, a wholly owned subsidiary of the third defendant, and the strategic alliance between the third defendant and Honeywell, and have said that further particulars would be provided after discovery. To an extent, subpars 12.1 through to 12.5 simply confuse the matter. It is also doubtful what par 13 adds to the plaintiff's claim. The pleading would not be defective if par 13 was not present. But what that paragraph does is alert the third defendant to the fact that the plaintiff says that the fact of the first defendant's directorship of the third defendant is a material fact relevant to the plaintiff's allegation that the third defendant was knowingly concerned in the first and second defendant's breach of trust.
17 In all the circumstances, I am satisfied that the pleading against the third defendant is proper. That is not to say that the pleading is not without its difficulties. But the case is somewhat unusual and that means that while the rules of pleading must be observed, some latitude must be given to the plaintiff in pleading its case.
18 In listening to the arguments on this pleading, I was reminded of the decision in Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1. That was a case where a director of a company tendered for a contract in competition with the company of which he was a director. The Court held that this was a breach of the director's fiduciary duties and the director was liable to account to the company. At the time the decision was seen as novel. It was thought to extend the range of fiduciary obligations owed by a director to the company beyond generally accepted limits. There is an element of that sort of extension about this claim. In particular, there is the question of the fiduciary obligations owed by the first defendant to the plaintiff and the partnership after his resignation as a director of the second defendant. What can be said, I think, is that any fair reading of the statement of claim allows the defendants to understand the case put against them. That is the function of pleadings and that is what has been achieved by the minute. On that basis I was satisfied that the pleading should stand.
19 I will hear the parties as to the precise form of orders and as to costs.
0
0
1