Norcross Pictorial Calendars Pty Ltd v Central Coast Council

[2018] NSWSC 1475

Supreme Court

New South Wales

Medium Neutral Citation:	Norcross Pictorial Calendars Pty Ltd v Central Coast Council [2018] NSWSC 1475
Hearing dates:	27 August 2018
Date of orders:	02 October 2018
Decision date:	02 October 2018
Jurisdiction:	Common Law
Before:	Lonergan J
Decision:	Pursuant to Uniform Civil Procedure Rules r 14.28(1)(a) the plaintiffs’ Statement of Claim is struck out.
Catchwords:	CIVIL PROCEDURE – application for claim to be summarily dismissed or struck out
Legislation Cited:	Uniform Civil Procedure Rules 2005 rr 13.4, 14.28
Cases Cited:	General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Johnson v Gore Wood & Co (a firm) [2001] 1 All ER 481; [2000] UKHL 65; [2002] 2 AC 1; [2001] 2 WLR 72
Category:	Procedural and other rulings
Parties:	Norcross Pictorial Calendars Pty Limited (Plaintiff) Central Coast Council (Defendant)
Representation:	Counsel: D H Murr SC (Plaintiff) R D Marshall SC; E A Walker (Defendant)   Solicitors: Holman Webb (Plaintiff) Central Coast Council (Defendant)
File Number(s):	2017/348639

Judgment

1. The defendant, Central Coast Council, seeks summary dismissal of the proceedings and in the alternative that the Statement of Claim be struck out.

Background

2. The proceedings arise from a joint venture agreement in 2002 between the first plaintiff, Norcross Pictorial Calendars Pty Ltd (“Norcross”) and Gosford City Council (now amalgamated with Wyong Shire Council to comprise Central Coast Council) (“the Council”).

3. The Joint Venture Agreement (“JVA”) included express terms that Norcross would construct a car park for the benefit of the Council. The Council would remain registered proprietor of the land until the option was exercised or lapsed. The JVA also warranted that Council had complied with all environmental laws and that the land had not been used for activity involving pollutants, contaminants or waste.

4. There was a specific term in the JVA that the Council would indemnify Norcross against any loss, claim, liability, cost or expense suffered by them in respect of any contamination or pollution of the land, or carrying out any remediation work required to remove contamination from the land.

5. There was provision in the JVA for a “successor” (not defined) to take over rights and obligations under the JVA:

19.9   Successors and Assigns

The obligations imposed and the rights conferred on the parties under this Agreement are binding upon any successor to the party and such successor must upon such succession assume all rights and by the provisions of this Agreement, mutatis mutandis, as if such successor were named in this Agreement as a party, but this clause does not permit the obligations and rights to be transferred or otherwise dealt with or disposed of by any of the parties (whether upon a sale or for security or upon enforcement of a security or otherwise) otherwise than in accordance with the terms and conditions of this Agreement.

6. The Council granted a call option to Norcross to purchase (or for a nominee of Norcross to purchase) a specified part of the land for the price of $1.

7. Between 2002 and 2004 the car park was built.

8. On or about 18 March 2005, Norcross appointed PTL Land Pty Ltd (“PTL Land Co”), a wholly owned subsidiary of Norcross, as its nominee for the purpose of the option. PTL Land Co exercised the option to purchase the land, and a contract for sale of the land in exchange for $1 was completed, also on 18 March 2005.

9. In about February 2015, PTL Land Co commenced a development on the land, including an underground car park, led to the discovery of contamination on the land comprising asbestos, acid sulphate soil and general solid waste.

These proceedings and the Statement of Claim

10. Proceedings were commenced by Norcross as the first plaintiff and PTL Land Co as the second plaintiff on the basis that the land was contaminated and damage was suffered.

11. The Statement of Claim (verified by Mr Coulson on 16 November 2017 (in his role of Director of both plaintiffs)) claimed that PTL Land Co was entitled to sue on the indemnity set out in clause 7.2 of the JVA and alternatively for breach of warranty set out in clause 7.1 of the JVA, because it was the “successor” to the JVA to Norcross by issue of clause 19.9 of the JVA.

12. Pleaded as a “Further or alternative count” (as opposed to “further and in the alternative”), it was claimed that because PTL Land Co is a wholly owned subsidiary of Norcross, Norcross has suffered losses identical to those already claimed by PTL Land Co, and, by reason of the indemnity clause 7.2 of the JVA, the Council is liable to indemnify Norcross for the losses and expenses set out in the Statement of Claim.

13. Paragraphs 24-26 of the Statement of Claim pleaded the circumstances as follows:

24.   Further or in the alternative, because PTL Land Co is the wholly owned subsidiary of Norcross, Norcross has suffered losses and expenses in the same amount as the losses and expanses to PTL Land Co.

25.   By reason of the indemnity in clause 7.2 of the JVA, the Council is liable to indemnify Norcross for the losses and expenses referred to in paragraphs 15, 18 and 20 above.

26.   Further or in the alternative, by reason of the breach of warranty alleged in paragraph 22 above, Norcross has suffered loss and damage.

14. The defendant disputed this was a valid pleading. The corresponding paragraphs of the Defence state:

24.   The Defendant denies paragraph 24 and further says that the matters pleaded in the paragraph and the two paragraphs that follow it do not disclose a cause of action and should be struck out.

25.   The Defendant denies paragraph 25.

26.   The Defendant denies paragraph 26.

15. The defendant filed a notice of motion on 22 June 2017 seeking summary dismissal or striking out of the Statement of Claim because PTL Land has no standing to sue the Council as it is not a party to the JVA, and Norcross has no standing to sue the Council for losses allegedly suffered by PTL Land.

16. The defendant contends that the nomination of PTL Land as the party to receive the property under the option, does not make PTL Land the “successor” to Norcross within the meaning of the JVA.

17. The defendant further contends that Norcross has not suffered any loss because any loss is PTL’s loss and as a wholly owned subsidiary of Norcross, it means the principle that a shareholder cannot sue a third party wrongdoer for the loss incurred by a company applies.

UCPR Rules and legal principles

18. The defendant Council relies on Uniform Civil Procedure Rules 13.4(1)(b) that the Statement of Claim discloses no reasonable cause of action. Rule 13.4 provides:

13.4   Frivolous and vexatious proceedings   

(1)   If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings:

(a)   the proceedings are frivolous or vexatious, or

(b)   no reasonable cause of action is disclosed, or

(c)   the proceedings are an abuse of the process of the court,

the court may order that the proceedings be dismissed generally or in relation to that claim.

(2)   The court may receive evidence on the hearing of an application for an order under subrule (1).

19. The test for summary dismissal is set out at General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. Barwick CJ stated (at 129):

“It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action – if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal – is clearly demonstrated.”

20. Various expressions of the test to be applied were then listed by Barwick CJ including, “so obviously untenable that it cannot possible succeed”, manifestly groundless”, “so manifestly faulty that it does not admit of argument”, “discloses a case which the Court is satisfied cannot succeed”, “no possibility can there be a good cause of action”, it is “manifest that to allow [the pleadings] to stand would involve useless expense”. [1] And further,

“At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the Statement of Claim, even if proved, cannot succeed; or ‘so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument’; so to speak apparent at a glance’.”

1. General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129.

21. Argument can still be necessary to determine the application. As Barwick CJ stated:[2]

…I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possible succeed.

2. General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130.

22. In the alternative, an application for the entire Statement of Claim to be struck out is pursuant to r 14.28, which provides:

14.28   Circumstances in which court may strike out pleadings

(1)   The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading:

(a)   discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or

(b)   has a tendency to cause prejudice, embarrassment or delay in the proceedings, or

(c)   is otherwise an abuse of the process of the court.

(2)   The court may receive evidence on the hearing of an application for an order under subrule (1).

Submissions and argument

23. Senior counsel for the defendant, Mr Marshall, submitted that the effect of the arrangement between the Council and Norcross meant that on one view, the parties had “fallen between two stools”. That is, one has contractual rights but no loss (i.e. Norcross) and the other one has a loss but no contractual rights (PTL Land Pty Ltd). Mr Marshall disputed that the construction of a car park by PTL Land could affect a “succession” within the meaning of the JVA. He argued that the exercise of an option by a nominee and the mere giving of notice that there was a nominee on “intermediate appellate court authority from interstate” is “directly against that concept”.

24. I was not persuaded by this submission. Given that “successor” is not defined in the JVA, there must be a reasonable argument that PTL Land could be a successor as defined

25. Senior counsel for the plaintiff, Mr Murr, articulated the basis for the argument more clearly in his oral submissions than is set out in the Statement of Claim. He also tendered a signed and executed version of the Nominee Option Notice in favour of PTL Land, a document not previously in evidence.

26. Mr Marshall argued in reply that this still was not sufficient to confirm successorship, because all it does is confirm a nominee situation which has no bearing on that question. I do not agree that is necessarily correct when considered together with the contract executed on the same day and in any event, that would be an issue for the trial judge.

27. Mr Marshall submitted (persuasively) that it is not possible for Norcross to attempt to recover damages simply as the holding company of PTL Land. A series of cases were canvassed that dealt with that point. However, it seems to me that whilst those cases address matters of principle, they are not directly relevant to the real problem here which is that the loss claimed by Norcross in the Statement of Claim was not loss claimed to be suffered as the shareholder of PTL Land, but an attempt to claim exactly the same specific loss claimed by PTL Land that PTL Land had expended in making the land safe to build upon, a loss which clearly can only be claimed once.

28. Mr Murr argued that there was authority for the proposition that in the case of a small private company whose shares are not being traded, the value of the shares can be exactly equal to the value of the asset backing of the shares, and a diminution in that asset backing, can be a diminution of the value of the shares and that is why he pleaded that the loss is also suffered by Norcross (Johnson v Gore Wood & Co (a firm) [2001] 1 All ER 481; [2000] UKHL 65; [2002] 2 AC 1; [2001] 2 WLR 72). Whilst a reasonable argument, I doubt it applies here to the specific loss and expense identified.

29. Mr Murr argued that “successor” is a wider term than “nominee” and that cl 19 of the JVA makes it clear that “successor” could include a corporation to whom the land is sold.

30. Mr Murr argued that the executed Nominee Option Notice dated 10 March 2005, the same day upon which the Contract for Sale of land to PTL was completed, created “in the most simple ordinary sense” a “successor” to Norcross.

31. It seems from what was said in oral submissions that Norcross may have a cause of action to recover the damages suffered by PTL if PTL does not convince the trial judge it is the “successor” to the JVA, however that is not the effect of the way the plaintiffs’ respective causes of action are pleaded in paragraph 24 of the Statement of Claim.

Decision

32. The problems identified by Mr Marshall are ones that strike at the heart of the cause of action as currently pleaded. The first is that there is insufficient indicia pleaded to identify the basis upon which it is claimed that PTL Land is a successor to the JVA between the contracting Council and Norcross.

33. Second, there is no proper basis upon which Norcross can claim the damage referred to in paragraphs 15 and 18 of the Statement of Claim, which identify with specificity, particular expenses and loss incurred by PTL Land in the nature of redesign costs and diminution of the value of the development as a result of lost retail space as a result of redesign, as well as the costs of obtaining a contamination report.

34. Paragraph 24 of the Statement of Claim, by the use of the words “Further, or in the alternative” in effect pleads that both PTL Land and Norcross can both claim for the losses and expenses. This cannot be right as a matter of law that both plaintiffs can recover the same damages, i.e. that the defendant pays twice for one loss. The usual way of pleading in this circumstance would be to plead “Further and in the alternative”.

35. The Statement of Claim needs to be repleaded.

36. I decline to dismiss the proceedings because there is sufficient within the Statement of Claim and the material tendered in defence of the defendant’s dismissal application to support the existence of possibly reasonable alternative causes of action against the defendant. I decline to make the order sought in paragraph 1 of the notice of motion, however I strike out the whole of the Statement of Claim pursuant to Uniform Civil Procedure Rules 2005 r 14.28(1)(a), because it discloses no reasonable cause of action in its current form and needs to be repleaded.

Order

37. Pursuant to Uniform Civil Procedure Rules 2005 r 14.28(1)(a) the plaintiffs’ Statement of Claim is struck out.

Costs

38. As the applicant defendant has had success on its alternative order, I order that the plaintiffs pay the costs of the notice of motion.

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Endnotes

Decision last updated: 12 October 2018