NRMA v Yates

[1999] NSWSC 701

CITATION:	NRMA v YATES [1999] NSWSC 701
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	1486/99
HEARING DATE(S):	18/06/99
JUDGMENT DATE:	13 July 1999
PARTIES :	NRMA v IAN YATES
JUDGMENT OF:	Master Macready at 1

COUNSEL :	T.E.F. Hughes QC & A Leopold for the plaintiffs J. Garnsey QC and B.J. Camilleri for the defendant
SOLICITORS:	Freehill Hollingdame & Page for the plaintiffs Mr B.J. Camilleri
CATCHWORDS:	Practice. Whether whole defence or merely parts of the defence should be struck out. Held following Trade Practices Commission v David Jones Aust Pty Ltd 7 FC 109 at 115 and Turner v The Bulletin Newspaper Co Pty Ltd (1974) 131 CLR 69 at 94 that the whole of the defence should be struck out.; Equity. General principles. Defences to claims of disclosure of confidential information. Nature of public interest defence discussed. Whether it is arguable that the English approach to this defence may be followed in Australia.
CASES CITED:	Gartside v Outram (1857) 26 LJ Ch 113, Attorney General v Observer Ltd (1990) 1 AC 109 Castrol Aust Pty Ltd v Emtech Associates Pty Ltd (1980) 33 ALR 31 Beloff v Pressdram Ltd (1973) 1 AllER 241 Bacich v Australian Broadcasting Corporation (1992) 29 NSWLR Corrs Pavey Whiting & Byrne v The Collector of Customs (1987) 14 FCR 434 A v Hayden (1984) 156 CLR 532 Allied Mills Industries Pty Ltd v Trade Practices Commission (1980) 55 FLR 125 Woodward v Hutchins (1977) 1 WLR 760 David Syme & Co Ltd v General Motors-Holden's Ltd (1984) 2 NSWLR 294 Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86.
DECISION:	Para 67

- 31 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

MASTER MACREADY

Tuesday 13 July 1999

1486/99 N.R.M.A. LIMITED v IAN YATES

JUDGMENT

1    MASTER: This is the hearing of a motion filed on 18 June 1999 whereby the plaintiffs seek to strike out the amended Defence of the defendant filed on 17 June 1999 and seek an order that the contents of paragraphs 46, 48, 58, 69 and 73 of the amended Defence filed on 17 June 1999 not be published until further order.

2    In the principal proceedings the plaintiffs seek to restrain the defendant, who is a director of the plaintiffs, from disclosing any of what is described as “Project Outlook Confidential Information” other than to members of the Boards of the plaintiffs or duly qualified legal representatives acting for him in these proceedings. The Project Outlook Confidential Information is information touching upon proposals for the change of the plaintiffs’ corporate organisation and membership structures. On 24 February 1999 His Honour Mr Justice Windeyer heard an interlocutory application and as a result an earlier ex parte order was continued and the defendant was restrained until the final determination of the action or until further order from disclosing any of the project outlook confidential information other than to members of the Boards of the plaintiffs or duly qualified legal practitioners acting for him in these proceedings unless with the consent of the first plaintiff on terms agreed by the first plaintiff.

3    The second claim in the Notice of Motion arises because it is alleged that the Defence which has been filed discloses information which was subject to the restraining orders of the Court made on 20 and 24 February 1999. During the hearing of the motion I made an order that the contents of the relevant paragraphs be not disclosed until further order in order to preserve the situation pending my decision in this matter.

4    When the matter was commenced before me the defendant made certain minor amendments to the terms of the Defence to meet some of the objections which had been voiced by the plaintiffs. Those amendments were as follows:-

5    Paragraph 64 - First line delete “instituted and”

6    Paragraph 63 - Second and third lines delete “against Mr Yates seeking orders restraining him from”

7    It also foreshadowed an amendment to paragraph 48 to insert a date at the commencement of the paragraph.

8    The Defence is a long document being of some 57 pages and incorporates by reference particulars occupying another 24 pages. In order to comprehend the Defence it is useful to set out a summary of the structure of the Defence.

Paragraphs 1 to 4

9    These contain allegations of the steps which led to the supply to the plaintiffs of Project Outlook documents and their receipt by Mr Yates. The Defence admits most of the allegations but puts in issue the confidentiality of the information. Mr Yates also alleges that any disclosures made by him of the information was required by the proper performance of his duties as a director. No complaint is made about these paragraphs of the Defence.

Paragraphs 5 to 5.4

These paragraphs plead that no obligation of confidence arose in the circumstances that:-

(a) the proposed demutualisation was contrary to the compact in the articles (para 5.3(a)(b)),

(b) the President’s team, being the majority of the Board, conducted themselves in a manner (set out in paras 34-75 of the Defence) which was wrongful and thus no obligation of confidentiality arose (para 5.3(c)(d)), or

(c) the disclosure was necessary for Mr Yates to carry out his duties as a Director (para 5.4).

Paragraph 6

This paragraph pleads that:-
(a) The disclosure was necessary for Mr Yates to carry out his duties (para 6.1).

(b) If any obligation of confidence arose, to grant relief would be a breach of the compact in the articles (6.2).

(c) If any obligation of confidence arose, to grant relief would countenance a breach of duty by the Directors (para 6.3).

(d) If any obligation of confidence arose, to grant relief would be oppressive and in breach of s 246AA of the Corporations Law (para 6.4).

(e) If any obligation of confidence arose, to grant relief would facilitate conduct in breach of s 52 of the Trade Practices Act, s 995 and s 996 of the Corporations Law and s 42 of the Fair Trading Act .

Paragraph 7

10    This paragraph pleads

(a) the defence of unclean hands.

(b) that the plaintiff is not entitled to relief as it would be contrary to the public interest.

Paragraphs 8 to 75

11    These paragraphs contain a pleading of matters relating to the history of the demutualisation proposals both past and present including allegations of conduct said to be breaches of duty by Directors.

Paragraph 76

12    This paragraph pleads that the present proceedings are an abuse of process as they were instituted for the improper purpose of preventing a proper consideration of the proposals and to denigrate and discredit the defendant, Mr Yates, as a Director.

Paragraph 77.1

13 This paragraph claims that the affairs of the plaintiff are being conducted in an oppressive manner contrary to s 246AA of the Corporations Law and seeks relief including an appointment of a receiver. It is alleged that if relief in the action were granted to the plaintiffs that such relief would allow the oppressive conduct to continue.

Paragraph 77.2

14    This paragraph pleads

(a) a defence of unclean hands.

(b) that to grant relief would not be in the public interest

15    The particulars to which I have referred contain a series of allegations about actions by a number of the Board members and the Chief Financial Officer concerning the sale of various shares in Washington H. Soul Pattinson Ltd and Brickworks Ltd which were part of the plaintiffs’ investment portfolio. It then alleges breaches of duties by various Directors in respect of the sale of those shares. It should be noted that these particulars were formerly in the original Defence and have been given as particulars in basically the same form as they originally appeared.

16 The plaintiffs in their submissions suggested that, because of the manifold faults in the Defence, the whole Defence should be struck out rather than individual paragraphs and that the defendant should be ordered to replead. They relied upon well known statements in Trade Practices Commission v David Jones Aust Pty Ltd 7 FCR 109 at 115 and Turner v The Bulletin Newspaper Co Pty Ltd (1974) 131 CLR 69 at 97.

17    It is probably useful to deal with a number of matters of principle which appear in relation to some of the defences pleaded before descending into the detail of the criticisms of the actual pleading.

18    The first matter which I will address is the pleading which appears in paragraph 5.3(a)(b) and 6.2(a)(b) and (c). The thrust of the Defence is that the demutualisation process was contrary to the Memorandum and Articles of Association of each of the two plaintiffs and the general intention and common understanding of members of the basis upon which they have from time to time been admitted to membership, namely, that their respective businesses and undertakings would be conducted as mutual companies and associations together in accordance with the articles.

19 According to the plaintiffs’ submissions these pleadings were based upon the unsound, implicit assumption that the plaintiffs are precluded from changing their articles in order to demutualise. The defendants rely upon the principle that equity will restrain conduct otherwise authorised where to engage in such conduct would be entirely outside what can fairly be regarded as having been within the general intention and common understanding of the members when they became members. This principle was referred to in an earlier case concerning the previous attempt at demutualisation, namely, Fraser v NRMA Holdings 55 FCR 452 at page 481. As was pointed out by the majority, conduct of that nature will give the court the power to wind up the company on the just and equitable ground and there was no reason in principle, according to the majority, why equity should not intervene at an earlier point to restrain that conduct.

20    It would be inappropriate on an application such as the present to decide whether in fact such a common understanding can be deduced from the terms of the Memorandum and Articles of each of the plaintiffs. The way in which it is alleged is set out in detail in paragraph 13 of the Defence. The comments of the Full Court in Fraser’s case does lend support for at least there being an arguable case in respect of the second plaintiff. The submissions of the plaintiffs did not address what follows if such a common understanding is found to exist by the trial judge. The question would then be whether the existence of such common understanding may either detract from the confidentiality of the material or be a reason why Mr Yates may disclose the material to members being presented with a proposal which was the opposite of the common understanding. Given the absence of argument on the point and appreciating that the answer may well be different depending upon when the material was to be disclosed to members, I would be reluctant to say that the general thrust of the allegation by way of Defence should be struck out.

21    The next major area concerns the pleadings in 5.3(c)(d)and in paragraph 6.3. In general these plead that some or all of the President’s team, being the majority of Board, conducted themselves in a manner which was wrongful and thus either no obligation of confidentiality arose or, alternatively as pleaded in 6.2, the Court would not in its discretion, enforce the obligation. The plaintiffs criticise these pleadings on three bases.

1. The actions to be incorporated by reference which are pleaded in paragraphs 34 to 75 do not deprive the information of its confidential quality.
2. The allegations are based upon defective material.
3. The allegations deal with individual conduct which is not attributed to the company. It is the plaintiffs’ claim which is being resisted not a claim of individual directors.

22 The defendant relies in his submissions on what he says is the special defence of “public interest” which applies and which may incline a court either to find that the information is not confidential or to decline to enforce the confidentiality. He refers in submissions to the debate which appears in paragraph 4123 of Equity Doctrines and Remedies by Meagher, Gummow and Lehane, Third Edition. It is plain from that discussion that there is a substantial difference between what is said to be the law in England and that which may apply in Australia. In Attorney General v Observer Ltd (1990) 1 AC 109 at 268-269 and 282-283, Lord Griffith and Lord Gough accepted the recent extensions to the original formulation of the principle said to flow from Gartside v Outram (1857) 26 LJ Ch 113 where it was said there could be no confidence in an “iniquity”. The extension was that this principle would include cases in which it is in the public interest that the confidential information should be disclosed. That approach involves a Judge balancing the public interest in upholding the right to confidence which is based on the moral principles of loyalty and fair dealing against some other public interest that will be served by the publication of the confidential material. In this country this proposition has been doubted and critically examined. In Castrol Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 33 ALR 31, Mr Justice Rath held that a just cause for breaking a confidence must be more weighty and precise than a public interest in the truth being told. He followed Ungoed-Thomas J in Beloff v Pressdram Ltd (1973) 1 All ER 241 where His Honour said at 260:-

“The defence of public interest clearly covers and, in the authorities does not extend beyond disclosure…of matters carried out or contemplated, in breach of the country’s security, or in breach of law, including statutory duty, fraud, or otherwise destructive of the country or its people, including matters medically dangerous to the public, and doubtless other misdeeds of similar gravity. Public interest as a defence in law, operates to over-ride the rights of the individual (including copyright) which would otherwise prevail and which the law is also concerned to protect. Such public interest, as now recognised by the law does not extend beyond misdeed of a serious nature and importance to the country and thus, in my view, clearly recognisable as such.”

23 Rath J’s view was approved by Brownie J in Bacich v Australian Broadcasting Corporation (1992) 29 NSWLR 1.

24 The matter was further considered by Mr Justice Gummow as a member of the Full Bench of the Federal Court in Corrs Pavey Whiting and Byrne v The Collector of Customs (1987) 14 FCR 434. His Honour’s decision was a minority decision but because of the way in which he approached the construction of the relevant legislation he was the only one who had to consider the particular question with which we are now concerned. His Honour went back to an early starting point and considered Gartside v Outram to determine for what principle it was authority. He found that the case provided an insufficient basis for the present English public interest defence to which I have referred. The basic principle to come from the case he expressed in the following terms:-

“From this consideration of Gartside v Outram I conclude that that case provides insufficient basis for any ‘public interest defence’ of the kind that, in its name, has been developed in the recent English authorities. The truth as to what Gartside v Outram decided is less striking and more readily understood in terms of basic principle. It is that any court of law or equity would have been extremely unlikely to imply in a contract between master and servant an obligation that the servant’s good faith to his master required him to keep secret details of his master’s gross bad faith to his customers. Likewise, before any express contractual obligation of confidence is enforced at law or in equity the term relied on must be valid at law. A v Hayden provides one example. Cases where express terms, allegedly designed to protect trade secrets, have been struck down as being in restraint of trade provide further examples: Drake Personnel Ltd v Beddison (1979) VR 13 at 19-21; Pioneer Concrete Services Ltd v Galli (1985) VR 675. The case presented to us is not one of an express or implied contractual term as to confidence; it follows from what I have said as to Gartside v Outram that that case does not assist the
appellant in the way the appellant submitted.”

25    His Honour went on to formulate an alternative basis, namely, that the case stood for the fact that even if the plaintiffs had valid legal rights they would have been denied equitable relief in accordance with the principle of unclean hands. He finally commented:-

“If there be some other principle of general application inspired by Gartside v Outram , it is in my view of narrower application than the ‘public interest defence’ expressed in the English cases. Such a narrow principle would not be concerned with contractual protection of confidence. Where the plaintiff asserts a contractual right, the law of contract, supplemented by equitable defences were equitable relief is sought, sufficiently deals with the situation. Any principle of the kind I am now considering will be applied in equity where there is no reliance on contractual confidence. That principle, in my view, is no wider than one that information will lack the necessary attribute of confidence if the subject matter is the existence or real likelihood of the existence of an iniquity in the sense of a crime, civil wrong or serious misdeed of public importance, and the confidence is relied upon to prevent disclosure to a third party with a real and direct interest in redressing such crime, wrong or misdeed.”

26    It can be seen that Mr Justice Gummow’s analysis, like that of Rath J, is substantially narrower than the formulation which now applies in England. The defendant conceded that he would need to rely upon the English formulation in order to support the pleading. The defendant submits that on a strike out basis such a pleading is permissible in order to allow him to argue the matter. I would have thought that if a trial judge in this division were clearly bound to follow the approach of Gummow J or Rath J then the pleadings should be confined to that law.

27 The principles have not finally been determined by an appellate court in this country. Some justices of the High Court discussed Gartside v Outram in A v Hayden (No 2) (1984) 156 CLR 532, the case which concerned the botched ASIS “practice” raid on the Sheraton Hotel in Melbourne in 1983. The ASIS operatives involved sought the enforcement of confidentiality terms in an employer/employee contract whilst the Commonwealth wished to reveal their names to the Victorian police for the purpose of investigating criminal prosecutions. Gibbs CJ at 545 and Wilson and Dawson JJ at 571-573 discussed a possible refusal to grant injunctive relief in terms of the public interest involved in the administration of justice, specifically the revelation that crimes had been committed.

28 Gibbs CJ (who was in the minority because he required more precise details of the alleged criminal offences) made some broader obiter comments on the scope of the rule noting the expansion of the concept of “iniquity” in Gartside v Outram to mean misconduct generally and disagreeing with the view of Sheppard J in Allied Mills Industries Pty Ltd v Trade Practices Commission (1980) 55 FLR 125 at 167 that the public interest in disclosure of iniquity will always outweigh the public interest in the preservation of private and confidential information. Gibbs CJ thought a weighing up of the nature of the offence and the public interest in disclosure was required. He also noted with caution the decision in Woodward v Hutchins (1977) 1WLR 760; (1977) 1 All ER 751 considered to be the high-water mark of the “public interest defence” in English law where the public interest in the disclosure of the truth was said to outweigh the interest in confidentiality even where there had been no misconduct. He refers to Rath J’s disapproving judgment in Castrol Australia Pty Ltd v Emtech Associates Pty Ltd & Ors (1980) 33 ALR 31.

29 The matter appears to have been referred to in two cases in the New South Wales Court of Appeal. David Syme & Co Ltd v General Motors-Holden’s Ltd (1984) 2 NSWLR 294 concerned an appeal from a decision granting interlocutory injunctive relief to GMH. An employee of GMH had leaked allegedly confidential technical and project information which was then published in a Japanese magazine and which the appellant now wanted to publish. The appellant had submitted that injunctive relief should be denied on the basis of the public’s right to know and argued that where maintaining confidentiality would mislead the public about a subject in which the public has a legitimate interest in being informed, the court must balance the competing public interests. The Court of Appeal found no reason to interfere with the trial judge’s rejection of this defence at the interlocutory stage. However, the court did consider its nature. Hutley JA at 306 said:

“The proprietary right in its confidential information of this kind is not to be weighed against other circumstances, except in cases where questions of iniquity are involved.”

30 Samuels JA at 309 thought that cases of misconduct should be seen as representing a category of cases where the public interest to know should prevail over the public interest in maintaining confidentiality. He agreed with Lord Denning’s view in Woodward v Hutchins (1977) 1 WLR 760 at 764; (1977) 2 All ER 751 at 754 that “it is a question of balancing the public interest in maintaining the confidence against the public interest in knowing the truth”. This, of course, is contrary to the approach of Gummow J.

31 Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86 was the Spycatcher case. Kirby P discussed a defence of public interest in relation to the disclosure of confidential information being the publication of a book about the activities of MI5, the British spy agency.

32    The majority of Kirby P and McHugh JA had different grounds for their decisions to dismiss the appeal. Kirby P had already determined that the New South Wales Court Appeal had no jurisdiction to hear an application to enforce a public foreign law but this view was not shared by McHugh JA, the other member of the majority. On that basis Kirby P went on to discuss his views on the respondent’s defence of public interest. And so the application of the public interest defence was for him obiter dicta. Street CJ and McHugh JA did not make any findings on the defence but approached the question by making a government/private information distinction.

33 Kirby P at 170 adopted Megarry V-C’s definition of “public interest” in British Steel Corporation v Granada Television Ltd (1981) AC 1096 at 1113: “something which is of serious concern and benefit to the public”. His Honour went on to say that the word “iniquity” in Gartside v Outram did not express a principle but is “simply an instance of the wider category of the public interest in disclosure which may sometimes, even if rarely, outweigh the public interest in confidentiality and secrecy: cf Gibbs CJ in A v Hayden (No 2) (1984) 156 CLR 532 at 545f.” The public interest in information about the behaviour of national security agencies and the defence of democratic institutions was determinative. (see 170).

34    His Honour also eschewed an approach to Gartside v Outram on the basis of the equitable principle of “clean hands” at (171).

35    The case went on appeal to the High Court who dealt with it without the need to consider the “public interest” defence. Given the dicta of Mr Justice Kirby in the Court of Appeal and the High Court dicta referred to above it could not be said that a judge at first instance would be bound to adopt the narrower view. Accordingly, I will assess the pleading on the basis that the broader English approach would be appropriate.
36    It is necessary to look at the allegations which are incorporated into the pleading in order to appreciate the nature of the public interest defence and in doing so it is worth bearing in mind the other attacks made upon these paragraphs by the plaintiffs, namely, that they lack material detail and are related only to conduct by individuals rather than conduct of the plaintiff companies themselves. I turn to the particular paragraphs in the defence.

Paragraph 34 Coordination of Demutualisation and Election

37    This paragraph in the pleading alleges that the demutualisation programme and the re-election of directors due in 1999 will be coordinated to occur at the same time to assist in the re-election of the persons who will support Mr Whitlam and the President’s team at board meetings. Given the particulars it is likely to be a matter which is a board decision.

Paragraphs 35 to 37 The One Mutual Proposal

38    These recite some actions by some board members on an earlier demutualisation proposal which was abandoned in early 1998. The relevance to any possible defence is hard to see.

Paragraph 38 Project Outlook Engagement of Consultants

39    This is a reference to the resolutions for the consultants to do a scoping study in May 1998.

Paragraphs 39 to 40 Takeover Committee

40    These paragraphs are not contentious.

Paragraphs 41 to 45 Protocol for the Consultant’s report.

41    These paragraphs plead the passing of resolutions by the boards which adopted a media spokesperson protocol whereby only Mr Whitlam and Mr Dodd were to speak or comment on the consultant’s report. The relevance of paragraphs 41 and 42 is not apparent.

Paragraphs 46 to 51 Draft and Final “Confidential Reports”.

42    These paragraphs plead the preparation of a draft report and make allegations about its contents.

43    Paragraph 50 makes allegations of failure of some of the directors to bring the report to the Board’s attention, to make enquiry about matters in the report and to consider what are now alleged to be defects in the report.

44    Paragraph 51 then pleads that in so acting those directors committed various breaches of duty owed to the company. The particulars in respect of the alleged breaches of duty are inconsistent with the allegations in paragraph 50. See for instance the allegation that the report was propounded in the particulars provided under paragraph (d) of 51(C). Those particulars also contain an allegation that certain directors failed to act honestly in the interests of the plaintiffs but acted in their own interests. The circumstances particularised of failing to act honestly do not support such an allegation. It is a wholly deficient pleading in this regard.

45    More importantly, however, these paragraphs raise a matter of substance and that is what is the role of allegations of breach of duty by directors in the course of board processes. This one is a particularly stark example because it concerns a draft report and that draft report was not acted on by the company. The pleading is extremely confusing in its terminology but appears to address both the draft and the final report. It seems to me that these allegations have been made in order to add colour to what might be described in the words of Gartside v Outram as “an iniquity”. If there is to be some public interest reason why the confidentiality which belongs to the company should not be protected or held to arise, such reason must come from actions of the company. In many cases these actions will be those of individuals whose actions can be attributed to the company. See for example the facts alleged in Gartside v Outram. In my view, individual actions, of which this is a good example, by directors in the processes leading up to a board decision could not be relevant to any such defence. Such actions may be a matter of complaint which the company may wish to take up with the directors. In short the actions do not show that the company has committed “an iniquity”.

Paragraphs 52 Report Enquiry Committee

46    This pleads the establishment of a Report Enquiry Committee to enquire into breaches of confidentiality concerning the report.

Paragraphs 53 to 57 Resolutions of 28 January 1999

This pleads a resolution of the board purporting to impose sanctions on the directors who might be found to have breached a duty of confidence in respect of the report. The pleading goes on to allege that the resolutions were proposed and supported by Mr Whitlam and members of the President’s team to prevent members of the companies being informed about the proposals in the report except by Mr Whitlam and Mr Dodd. Paragraph 56 then in a somewhat extraordinary way pleads that the resolutions were ultra vires and/or invalid and ineffective and/or should be set aside. If there is any claim to set them aside clearly that should be in a cross claim and not in a defence. There are a number of particulars given as to why the resolutions were ultra vires the board. In general terms they were:-
1. That the demutualisation was contrary to the compact in the articles.
2. The resolutions prevented directors informing members of the proposed breach of the compact.
3. The resolutions imposed a regime which prevented them from carrying out their duties as directors such duties apparently including bringing defects in the reports to the attention of members.

47    There was no articulation of how it might be said to be a duty to bring such matters to the attention of members in contrast with the directors’ duties to bring matters to the attention of the board for their debate. It will be seen that this general area concerns resolutions of the board which arguably, given the reference to the compact in the articles may mean that the board was embarking on a process which was contrary to that compact. Whether or not it could amount to a relevant public interest defence is a matter of some debate.

48    Paragraph 57 then goes on to plead that Mr Whitlam, Ms Keating and Mr Dodd breached their duties as a director in a number of ways. Some of these are linked to, for example, simply a placing before the board of a report which may have defects. Once again it appears to me that the breaches of duties which are alleged here are merely to add colour to a claim for some iniquity. In my view they are totally irrelevant. The relevant conduct is the conduct of the board perhaps in this case being the passing of the resolutions to which I have just referred.

Paragraph 58 and 59 A further Report

49    This pleads a further report discussing the principal report to which I have been referring.

Paragraph 60 Ernst & Young

50    This refers to a report commissioned from this firm. The relevance is not apparent.

Paragraph 61 Withholding of Information from Directors

51    This pleads that the plaintiffs have withheld information on the Project Outlook Report from Mr Yates.

Paragraphs 62 to 65 Injunction Proceedings

52    These paragraphs plead the commencement of these proceedings and the obtaining of the orders. They then allege that the proceedings were instituted for the purpose of preventing information from being disclosed to members of the plaintiffs concerning the reports. Paragraph 65 pleads that various persons were in breach of their duties as directors or officers. The relevance of these matters escapes me in the context of this claim which is that the proceedings were commenced for an improper purpose. In my view the pleadings should not stand in respect of paragraph 65.

Paragraphs 66 to 68 Resolutions of 25 February 1999 - The Project Outlook Steering Committee.

53    These paragraphs plead decisions of the Boards on 25 February which effectively establish a Steering Committee for demutualisation and put in place steps both as to membership and products available which would apply after that day. In paragraph 67 there is once again a claim that the resolutions were ultra vires the Boards and/or invalid and ineffective and/or should be set aside. The same comment about this setting aside not being appropriate as a defence is relevant. However, there are particulars which include, of course, the resolution being contrary to the compact in the articles and a number of other matters concerning what is alleged to be the ability of the plaintiffs to control membership. Once again it is worth noting that these are decisions of the Boards and therefore of the companies. The question which has to be resolved is whether or not such a decision might be one if it were, for instance, ultra vires which would attract the public interest defence. Given the possible width of such a defence the matter (excluding the claim to set aside the resolution) should be allowed to stand. Paragraph 69 once again pleads various breaches of director’s duties. In my view they are irrelevant to the question of whether the resolutions are ultra vires which depends upon the matters pleaded in paragraphs 66 and 67.

Paragraph 69 to 70 - Expenditure on Project Outlook.

54    This pleads expenditure on the project which is no doubt linked to the previous part of the pleading with which I have just dealt.
55    Paragraph 70 once again pleads various breaches of duties of the directors to the companies. Once again I am of the view that they are totally irrelevant to any public interest defence.

Paragraph 71 to 75 The Two-Mutuals Committee

56    This pleads the establishment of a committee of the Boards comprising Mr Yates and other directors to report on the disadvantages of the proposals in the report. Paragraph 74 then pleads that certain directors and the chief executive procured the committee to be unable to carry out its work by having the Boards pass some resolutions. The relevance of what the individuals did is not apparent and even if the Boards did decide to disband the committee I would not have thought that fact of itself would amount to conduct which would be within the wide public interest defence. Once again the allegations in paragraph 75 as to breach of duties by directors are irrelevant.

57    Standing back at this stage and looking at the matters stripped of the allegations of breach of director’s duties owed to the companies, one is left with a number of decisions of the companies which the defendant desires to plead as showing conduct which might amount to a public interest defence in respect of the confidential information. The relevant ones are as follows:-

The adoption of a media protocol.
The resolution imposing sanctions for breach of duty of confidence.
The improper purpose in bringing these proceedings.
The Boards’ resolutions of 25 February 1999.

58    The difficulty in this matter is, of course, that the confidential information is information which is said to be confidential at a particular time during the Boards’ deliberations of the matters. If the matters go forward to the members of the plaintiffs at an appropriate time and place, a lot of what is now confidential will be made publicly available either to the members and/or to a court if, for example, a scheme of arrangement is involved. I have indicated above a view that arguably the public interest defence might apply to the implementation of the demutualisation of proposals if they are contrary to any common understanding about the compact in the articles. In these circumstances the thrust of the pleading in respect of these matters should be allowed to stand.

59 The next area of principle I will consider is the claim that the grant of relief will further the oppressive management of the affairs of the plaintiffs in contravention of s 246AA of the Corporations Law. This claim is made in paragraph 6.4 and paragraph 77.1. Paragraph 6.4 merely baldly asserts that to grant relief in respect of conduct of which complaint is made would be to further the oppressive management and affairs of the plaintiffs in contravention of the section. That conduct is not defined. In paragraph 77.1 there is a general allegation of the affairs being conducted in a manner oppressive and unfairly prejudicial. It then says that members would be entitled to relief, that if the relief sought in the present Statement of Claim were granted it would continue that conduct and therefore that is a reason for refusing relief. Two things have to be observed about these two pleadings. The first of them is that neither of them in any way gives any proper pleading of the grounds or the facts and circumstances giving rise to oppression. The second one is that a court should not be asked to determine whether the affairs of the plaintiffs are being conducted in an oppressive manner without proceedings seeking relief having been instituted say, for example, by Mr Yates. In my view both these paragraphs should not be in the pleading.

60 The next matter of general principle which I will deal with is that which appears as a result of paragraph 6.5 and paragraph 78.1. Those paragraphs claim that the conduct (in one case contained in paragraphs 8 to 75) infringes s 52 of the Trade Practices Act 1974 and s 995 and s 996 of the Corporations Law and s 42 of the Fair Trading Act 1987 (NSW). The plaintiff relied upon Bank of New Zealand v Spedley Securities Ltd (in liq.) (1992) 27 NSWLR 91 which is authority for the proposition that conduct proscribed by s 52 cannot be relied upon as a defence in proceedings to establish a constructive trust. The defendants however relied upon Allied Mills Industries Pty Ltd v Trade Practices Commission (supra) the decision of Sheppard J to which reference has been made earlier. There the matter arose squarely for his Honour’s decision as to whether a breach of s 52 may constitute a relevant iniquity for the purposes of the rule formulated in Gartside v Outram. He concluded that it did notwithstanding the absence of criminality.

61    Whether a trial judge comes to a similar conclusion is a matter for him or her but at least on a strike out level the pleading of appropriate facts in order to support a breach of the provisions is an appropriate matter of defence. However, the difficulty with the pleading is the rolled up way in which it deals with the matters said to give rise to the particular conduct. It is simply a bald incorporation by reference of virtually the whole pleading. In my view, given the different matters involved in this area the pleading should carefully set out the particular facts which are said to give rise, for example, to the misleading and deceptive conduct.

62 The next matter of substance is the pleading of the defence of unclean hands which appears in paragraph 7.1 and paragraph 77.2(a). No particulars are given in respect of paragraph 7.1 and in respect of 77.2(a) particulars are given of that allegation and the public interest claim. Those particulars include a course of conduct comprising a failure to permit adequate and proper investigation and consideration of the affairs of the plaintiffs, withholding of information from directors particularised in the Washington H. Soul Pattinson Ltd & Brickworks Ltd particulars together with the conduct pleaded in paragraphs 24 to 75 of the defence. The Soul Pattinson & Brickworks particulars as I have already mentioned comprise a separate document of some 24 pages dealing with a variety of allegations concerning the sale of a number of investments held by the plaintiffs. The thrust of the particulars is the role played by two directors in carrying out certain decisions of the Boards of the plaintiffs to sell shares. In my view none of those particulars would support some action by the company which would be an answer to the equity claimed in the present case. It is totally removed from the subject matter of the present case which is confidential information in a particular report. It goes without saying that for the defence of unclean hands to operate at all the impropriety complained of “must have an immediate and necessary relation to the equity sued for”, see generally FAI Insurance Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552 at 557E to 561E. In my view the matters referred to in these particulars cannot be raised as a defence of unclean hands. There are other matters referred to in the pleading and it will be apparent from what I have earlier said about the cases that one view of the public interest defence is that it might be akin to a defence of unclean hands. To the extent that the public interest matters are allowed to be pleaded, I would have thought that it would have been appropriate for them to also have been pleaded in the alternative as a defence of unclean hands.

63 The final matter of principle with which I wish to deal is that contained in paragraph 76. This paragraph alleges that the proceedings have been commenced and have been continued for the purposes set out in paragraph 64 and to denigrate and discredit Mr Yates as a director, being improper purposes. It alleges that the proceedings are an abuse of process. There is a basic flaw in the pleading in that it does not allege that this is the predominate purpose, see Williams v Spautz (1992) 174 CLR 509. For this reason the pleading should be struck out and indeed the defendant concedes that this allegation will have to be made. Once again the pleading in paragraph 76 alleges that a whole raft of matters, namely, those in paragraphs 8.1 to 75 of the defence lead to a view that the proceedings have been continued for improper purposes. This is not a very satisfactory way of dealing with such a pleading and consideration will have to be given to this when the matter is repleaded. In respect of some of the particulars given there is a reference to the personal spite and antipathy of Mr Whitlam. One of these involves matters which are set out under Particular (b) and no doubt they may constitute a matter which it is appropriate to include. Particular (a) is the events in the Pattinson and Brickworks Particulars. Any attempt to incorporate the whole of the particulars from that document under this sub-heading, I think, would be quite inappropriate. There may be one or two resolutions moved by Mr Whitlam which may go to the spite and antipathy in some arguable way and they could be particularised. The matter should be addressed by reference to the precise matters of relevance.

64    I have earlier referred to the plaintiffs submission that the whole pleading should be struck out. Clearly there are many parts of the pleading which can stand. However, what is apparent from the way it is drafted is that there has probably been limited time to get it into an appropriate final form. The matter came before me on short notice because I had time available to deal with it and I have no doubt the defendants, if they had had a little more time, may have considered some of the matters which were ultimately raised in argument. However, I think this is one of those cases where there are quite a number of difficulties in the pleading and it would be more appropriate if the pleader, with the benefit, hopefully, of these reasons, can recast the whole pleading in a form which makes it easy for the court and the plaintiffs to understand.

65    Accordingly, I think it is appropriate that the defence be struck out. Although struck out it will remain on the court file and this raises for consideration the order which I made about restricting publication of paragraphs 46, 48, 58, 69 and 73. I think it goes without saying that the defendant should not achieve something which he is prohibited from doing by a court order merely by repeating such matters in a defence. There is no harm in them being repeated in the defence. However, given the interlocutory orders clearly that material should not be made available while those orders are in force.

66    In my view those paragraphs if published would disclose some of the material protected by the court’s orders and, accordingly, I propose to allow the order which I made in this regard on 18 June 1999 to continue until further order.

67    The orders that I make are:-

1. I strike out the defence filed 17 June 1999.

2. I order the defendant to file an Amended Defence and serve it within 21 days of today’s date.

3. Exhibit A before me, a confidential exhibit, may be returned to the plaintiffs upon their undertaking to make it available in the event of any appeal from this decision.

4. Subject to any submissions, I order the defendant to pay the plaintiffs’ costs of the motion.

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

MASTER MACREADY

Tuesday 13 July 1999

1486/99 N.R.M.A. LIMITED v IAN YATES

EXPLANATORY MEMORANDUM

In this action the two plaintiffs, NRMA Ltd and NRMA Insurance Ltd are suing Mr Yates, one of their directors, to restrain the publication of certain information given to the Boards of the plaintiffs which information the plaintiffs regard as confidential. There are already in place, following a hearing before Justice Windeyer, orders restraining the publication of that material until the final hearing of the proceedings.

This judgment concerns the form of a defence filed by Mr Yates in answer to the plaintiffs’ claim which the plaintiffs seek to strike out for a number of different reasons. In considering whether the defence should be allowed the court is not now deciding whether the defences advanced by Mr Yates are an answer to the plaintiffs’ claim. The task of the court is to see whether the defences are ones which can fairly be argued at the final hearing of the case.

The allowing of a defence to remain at this stage of the proceedings does not mean that the court has decided that the particular defence will be successful at the final hearing of the proceedings.

The court in its orders has struck out the defence but has allowed a further defence to be filed which is in accordance with the LEGAL principles set out in this judgment. In particular the judgment allows defences to be put forward which rely upon public interest considerations and what is suggested to be the general intention and common understanding of the members when they became members, namely, that the plaintiffs would continue to carry on their businesses as mutual companies and associations together in accordance with their respective Memoranda and Articles of Association.

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