Perpetual Trustees Victoria Ltd v Dunlop

[2009] VSC 331

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 5764 of 2008

PERPETUAL TRUSTEES VICTORIA LIMITED (ACN 004 027 258)	Plaintiff
v
ALEXANDER BOYD DUNLOP who defends by his litigation guardian JOHN STEWART FERGUSON DUNLOP	Defendant
NATHAN ALAN PAUL STEWART	Third Party
THE NAP GROUP PTY LTD (ACN 089 104 076)	Fourth Party

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JUDGE:	FORREST J
WHERE HELD:	Melbourne
DATE OF HEARING:	7 August 2009
DATE OF JUDGMENT:	18 August 2009
CASE MAY BE CITED AS:	Perpetual Trustees Victoria Limited v Dunlop & Ors
MEDIUM NEUTRAL CITATION:	[2009] VSC 331

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PRACTICE AND PROCEDURE – Appeal from Associate Justice - Pleadings – Application for summary judgment pursuant to r 23.01 – Failure to particularise allegations of fraud – Further discovery before repleading the statement of claim.

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APPEARANCES:	Counsel	Solicitors
For the Defendant	Mr R. Young	Rosemarie Ryan Lawyers
For the Third & Fourth Parties	Mr J. Slonim	Mason Sier Turnbull Lawyers

HIS HONOUR:

Introduction

1. Alexander Dunlop is the defendant to a claim brought by Perpetual Trustees Victoria Limited (“Perpetual Trustees”) seeking possession of a property at Smiths Gully (“the property”).  The primary claim by Perpetual Trustees alleges that Mr Dunlop signed a loan agreement and executed a mortgage in its favour over the property.  Mr Dunlop suffers from a mental infirmity and appears by a litigation guardian. 

1. Pursuant to order 11 of the Supreme Court (General Civil Procedure) Rules 2005, Mr Dunlop joined as third and fourth parties Nathan Stewart and The Nap Group Pty Ltd (“the other parties”); [1] Mr Stewart is said to be the agent of The Nap Group.

   [1]A fifth party was also joined, KRG Enterprises (Vic) Pty Ltd, but for present purposes its involvement can be ignored.

1. The statement of claim by Mr Dunlop against the other parties alleges, inter alia, that by their trickery and fraud Mr Dunlop’s signature was procured to the loan agreement and mortgage.  It also makes several other claims against the other parties, unrelated, it seems, to the loan documents and the mortgage but related to the association between Mr Dunlop and the other parties.

1. The other parties (who are jointly represented by the one solicitor) sought to have the third party notice struck out and judgment given in their favour pursuant to r 23.01 of the Supreme Court Rules.

1. Associate Justice Daly dismissed their summons and made orders pursuant to Mr Dunlop’s oral application that each of the other parties provide particular discovery before the repleading of the statement of claim could be considered.

1. Pursuant to r 77.06(1) of the Supreme Court Rules, the other parties appeal her Honour’s orders.

1. For reasons which I shall set out in a moment, I am satisfied that the claims against the other parties should not be dismissed.  However, the statement of claim is in such a form at the present time that I think that it should be struck out with a right to replead the claim.  For reasons which I shall endeavour to articulate, I do not think that such repleading should be undertaken until discovery is completed.

The allegations in the claims against the other parties

1. Mr Dunlop’s allegations relating to the primary claim against Mr Stewart are as follows:[2]

   [2]These allegations were replicated against The Nap Group.

“3.  At all material times the Defendant:

(a)  Was under a disability;

(b)  Was suffering from Chronic Schizophrenia;

(c)  Was a heavy drinker of alcohol;

(d)  Was incapable of understanding the written word;

(e)  Was an invalid on a Disability Support Pension;

(f)  Lacked legal capacity to enter into any contract;

(g)  Lacked capacity to conduct litigation;

(h)  Never had any independent legal or financial advice;

(i)  Regarded the Third Party as a friend.

4.  At all material times the Third Party knew that:

(a)  the Defendant  was under a disability;

(b)  the Defendant was suffering from a serious mental disorder;

(c)  the Defendant was often affected by alcohol;

(d)  the Defendant was incapable of understanding the written word;

(e)  the Defendant lacked legal capacity to enter into contracts;

(f)  the Defendant never had any independent legal or financial advice;

(g)  the Defendant regarded the Third Party as a friend;

(h)  he had a fiduciary duty to the Defendant.

5.  That because of the Defendant’s demeanour, it was obvious or ought to have been obvious to any person including the Third Party that the Defendant suffered from a mental disorder.

9.  The NAP Group Pty Ltd was a finance broker and mortgage manager.

10.  The Third Party has by

(a) trickery

(b) fraud

obtained the Defendant’s signature on the:

(i) alleged loan agreements referred to in paragraphs 3A and 3B of the Plaintiff’s Amended Statement of Claim thereof

(ii) alleged mortgage referred to in paragraph 4 of the Plaintiff’s Amended Statement of Claim thereof;

(iii) alleged loan application to the Plaintiff dated 25 September 2006;

(iv) alleged loan agreement underlying the mortgage referred to in paragraph 33 of the Defence thereof; and

(v) alleged mortgage referred to in paragraph 33 of the Defence thereof;

11.  The Defendant did not at any time request the Third Party to obtain loans or mortgages from the Plaintiff on the Defendant’s behalf.

12.  The Third Party knew or ought to have known that the Defendant did not at any time have the financial capacity to pay any capital, interest or charges relating to any loans or mortgages from the Plaintiff out of his income.”

1. The statement of claim thereafter becomes somewhat discursive.  As best I can determine, it alleges a number of other claims which Mr Dunlop seeks to pursue against the other parties.  In particular, it seeks damages in relation to commission allegedly taken by the other parties regarding the loan.  It seeks damages in relation to a second loan agreement apparently entered into by Mr Dunlop with the asserted involvement of the other parties.  Finally, it appears to seek relief in the form of damages in relation to the purchase and rental of a property in Carlisle Street, St Kilda.

1. I should also add that the statement of claim contains a number of paragraphs which seem to plead detailed evidentiary matters, rather than the material facts.

Procedural background

1. The third party notices were issued in October 2008.  Subsequently, the other parties sought further and better particulars of a number of the allegations contained in the claims, including those of fraud and trickery.  In substance, none were forthcoming.  The other parties filed defences to the statement of claim, the filing of which closed the pleadings as between Mr Dunlop and the other parties.

1. On 18 February 2009, the other parties issued a summons seeking the striking out of Mr Dunlop’s claim and judgment in their favour.  In response, Mr Dunlop filed a summons seeking to have the other parties’ defences struck out on the basis of their failure to comply with orders for discovery.

The hearing before the Associate Justice

1. Both summonses came on for hearing before Associate Justice Daly on 22 July 2009 and were dismissed, but other orders as to discovery were made.

1. The other parties maintained before Associate Justice Daly that the material facts pleaded were not sufficient to ground a claim in fraud and therefore there ought to be summary dismissal of the claim.  At the same time, her Honour heard an application for further discovery made by Mr Dunlop in relation to the other parties.

1. Her Honour accepted that “the pleading as it stands does not adequately plead fraud”.  However, her Honour took the view that the defendant was “peculiarly disadvantaged in pleading out a case in fraud without discovery”, concluding that some, if not all of the information required by Mr Dunlop to plead out his case in fraud against the other parties may be contained in documents held by them.  Her Honour held that the other parties should provide further discovery and perhaps answers to interrogatories and then Mr Dunlop should have the opportunity to re-plead.  To further this exercise, she permitted further discovery of specific categories of documents to be provided by the other parties.

The strike out application

1. Rule 23.01, which is relied upon by the other parties in their application, provides:

“(1) Where a proceeding generally or any claim in a proceeding –

(a) does not disclose a cause of action

(b) is scandalous, frivolous or vexatious; or

(c) is an abuse of process

– the Court may stay the proceeding generally or in relation to any claim or give judgment in the proceeding generally or in relation to any claim.”

1. The law is clear as to when a provision such as r 23.01 can be applied.  In Webster v Lampard,[3] Mason CJ, Deane and Dawson JJ said:

“It is important to note at the outset that the issue before the learned Master on the application for summary judgment was not whether Mr and Mrs Webster would probably succeed in their action against Sergeant Lampard.  It was whether the material before the Master demonstrated that that action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail.  The power to order summary judgment must be exercised with ‘exceptional caution’ and ‘should never been exercised unless it is clear that there is no real question to be tried’.”[4]

[3](1993) 177 CLR 598, 602.

[4]See also Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 91, Fancourt v Mercantile Credits Limited (1983) 154 CLR 87, 99.

1. Their Honours cited with approval the following statement, also of the High Court, in General Steel Industries Inc v Commissioner of Railways (NSW):[5]

“Great care … be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal”.[6]

[5](1964) 112 CLR 125, 130.

[6](1993) 177 CLR 598, 603.

1. The statement of claim against the other parties does, at the present time, identify a cause of action.  In respect of the primary claim, it asserts that the other parties knew of the various disabilities of Mr Dunlop and obtained his signature to the loan agreement and the mortgage by trickery or fraud.  It also endeavours to set up a series of other apparently related claims by Mr Dunlop against the other parties relating to the loan agreements, themselves, and dealings in association with the property in Carlisle Street.

1. In my view, the Associate Judge was correct in not striking out the statement of claim and entering judgment for the other parties as they sought.  The real vice with the statement of claim in its present form is the articulation, in a proper sense, of the various claims so that the other parties can plead to it.  This, it seems to me, is the real area of dispute between the parties on the appeal.

The statement of claim in its current form

1. Rule 13.02(1) requires a pleading to disclose all the material facts on which the party relies, but not the evidence by which those facts are to be proved.

1. Rule 13.10(1) requires a pleading to contain “necessary particulars of any fact or matter pleaded”.  R 13.10(3) provides:

“Without limiting paragraph (1), every pleading shall contain particulars of any

(a) misrepresentation, fraud, breach of trust, wilful default or undue influence; or

(b) disorder or disability of the mind, malice, fraudulent intention or other condition of the mind, including knowledge or notice – which is alleged.”

1. The underlying object of the rules of pleadings is to ensure that there is a fair trial between the parties.  Pleadings perform several functions in achieving this aim.  They limit the generality of the allegations and define the issues to be tried,[7] inform the opposite party of the nature of the case which has to be met,[8] and prevent surprise or ambush.

In Meckiff v Simpson,[9] the Full Court described a pleading as embarrassing in the following terms:

“Where the pleading is unintelligible, ambiguous, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him”.

[7]Zanardo v Ford Motor Company of Australia [1964] VR 769, 769; Gunns Limited v Alistah [2009] TASSC 45, [26].

[8]Gunns Limited & Ors v Alexander Marr & Ors (No. 2) [2006] VSC 329, [23], Barclay Mowlern Construction Ltd v Dampier Port Authority [2006] 23 WAR 82 [4]-[7].

[9][1968] VR 69, 70.

1. Where an allegation of fraud is made the pleadings must, as the Rules require, be particularised and make the claim sufficiently clear so that the opposing party can answer it.  The Rules of Pleading are the servants of the interests of justice.  In this case, those interests demand that Mr Dunlop have every opportunity to plead out an arguable case against the other parties.  On the other hand, they also require that the other parties have, at an early point of time in the proceeding, the opportunity to be properly appraised of the case against them, particularly when it involves allegations of fraud.  It is these two competing propositions that need to be reconciled.

1. The pleading of Mr Dunlop’s claim against the other parties is inadequate.  Allegations of fraud and trickery are not substantiated by the pleading of material facts.  The particulars substantiating the allegations and the pleading of the claims, unrelated to the primary claim, are confusing and, I accept, difficult, if not impossible, to plead to.  It is embarrassing in the sense described in Meckiff.

1. Although the other parties have already filed defences (which are essentially a set of non-admissions), I think that there is considerable force in the contention that the statement of claim in its current form is embarrassing and should be struck out.

1. Part of the problem, no doubt, confronting his legal advisers is associated with Mr Dunlop’s mental impairment, which must affect their ability to obtain instructions.  He appears by litigation guardian and an administrator has been appointed pursuant to the Guardianship and Administration Act 1986 (Vic). It was not disputed that he suffers from considerable mental infirmity at the present time.

1. Notwithstanding the difficulties facing Mr Dunlop’s legal advisers, it is still incumbent upon them to ensure that the claim is pleaded in accordance with the Supreme Court Rules and the need for a fair trial.  At the moment, the claim, for a variety of reasons, does not conform with the Rules.

1. It is on this point that I differ in my approach to that taken by the Associate Justice.  I do not think that the claim should proceed further until there is a proper articulation, in conformity with the rules, by Mr Dunlop of his allegations against the other parties.  This is particularly so when an allegation of “fraud and trickery” is made.  In my view, when such an allegation is made, it is important that the party against whom the allegation is made is informed as soon as is practicable of the nature of the allegation and its details.  The repleaded statement of claim will need to do so, as it will need to identify adequately the additional claims made against the other parties.

Should there be further discovery before repleading the statement of claim

1. At the hearing before the Associate Justice, orders were made for further discovery in accordance with r 29.08(2) which reads:

Where, at any stage of a proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any question in the proceeding may be or may have been in the possession of a party, the Court may order that party to make and serve on any other party an affidavit stating—

(a)whether that document or any, and if so what, document or documents of that class is or has been in that party's possession; and

(b)if it has been but is no longer in that party's possession, when the party parted with it and that party's belief as to what has become of it.

1. At the hearing before me, there was argument as to when Mr Dunlop should replead the statement of claim.  Mr Slonim, who appeared for the other parties, submitted that not only was repleading necessary it should also be carried out forthwith.  Mr Young, who appeared for Mr Dunlop, whilst accepting that at some point of time it will be necessary to replead, argued that further discovery should be completed prior to him being required to replead.

1. In Lyons v Kern Konstructions (Townsville) Pty Ltd,[10] Fitzgerald J said:

Discovery may even be granted before delivery of a statement of claim or other pleading if exceptional circumstances exist and the discovery is necessary to the formulation of the pleading.

[10](1983) 47 ALR 114, 129; see also Perpetual Trustees Australia Ltd v Onesteel Trading Pty Ltd [2008] VSC 21 [14]-[25], Trade Practices Commission v CC (New South Wales) Pty Ltd (1995) 58 FCR 426, 438-439.

1. Permitting a party to carry out the inspection of documents prior to finalizing the pleading out of an allegation of fraud is well recognised.  As Cotton LJ said in Whyte v Ahrens:[11]

   [11](1884) 26 ChD 717, 722.

“The production of the books will enable the plaintiffs to define and state what it is they require the defendants to meet at the hearing, and they must do that before the hearing, in order to enable the defendants to meet it”.

And in similar terms, Bowen LJ in Leitch v Abbott:[12]

“It seems to me that the very fact that the pleader is unable to plead except in general terms, is in many cases the very reason why he should have discovery from the other party, so as to enable him to plead the fraud in detail.  If at a particular stage of an action you are stopped by reason of your ignorance of some fact which is known only to the other party, that is the very reason why you should have discovery of that fact from him, and what difference does it make whether you are stopped at the trial or before”.

[12](1886) 31 ChD 374, 379.

1. This case is somewhat different to the authorities referred to by counsel in argument.  Discovery has been provided by the other parties, but inspection delayed pending the outcome of this appeal.  The solicitors for Mr Dunlop now wish to have the opportunity to examine all documents which are the subject of discovery and further discovery prior to being required to replead.

1. Although the categories of documents identified by her Honour in the order for further discovery appear to apply primarily to the claim in relation to Carlisle Street (and not the primary claim), there is some prospect that such material will be germane to the allegations in relation to the primary claim.

1. Whilst it may be unusual for a Court to permit discovery before the conclusion of the pleadings (or, for that matter, before the delivery of an amendment to a statement of claim which may have been mortally wounded), the question must be whether the interests of justice are satisfied by permitting such a course.  This is such a case.  Mr Dunlop suffers from what appears to be a significant mental impairment.  It can be accepted that he is not capable, at least at times, of giving adequate instructions as to his dealings with the other parties.

1. True it may be that ultimately the process of discovery does not aid the pleading out of the claims of fraud or trickery.  Then so be it.  At least the interests of justice have been preserved by providing Mr Dunlop’s lawyers with the opportunity to obtain as much information as they can so that such a claim can be pleaded.

1. It was only faintly argued before me that her Honour’s orders for particular discovery should be disturbed.  Given the allegations made in the statement of claim, I am not persuaded that they are fishing and, in my view, those orders are appropriate.

Summary

1. There is no reason to give summary judgment for the other parties.  However, the statement of claim in its present form is inadequate and much of the other parties’ complaints about it are justified.  Mr Dunlop should be given the opportunity to replead the claim.  Given the unusual circumstances of this case, I think it desirable that discovery, in total, be completed before the claim is repleaded.

Orders

1. I propose to utilise the original orders of the Associate Justice in forming these orders.  Subject to hearing from counsel, I will make the following orders:

(1)       The appeal be allowed in part.

(2)       Orders 1 and 2 of the Associate Justice be affirmed.

(3)       Orders 3 and 4 be varied only to the extent that the affidavits be sworn, filed and served by 4.00pm on 28 August 2009.

(4)       Order 5 be varied only insofar as the inspection of documents is to be completed by 11 September 2009.

(5)       Orders 6 and 7 be set aside and in lieu thereof there be the following orders:

(6)       The statement of claim of the defendant is struck out with a right to replead the statement of claim.

(7)  The defendant file and serve an amended statement of claim on or before 9 October 2009.

(8)       The third and fourth parties file and serve defences to the amended statement of claim by 30 October 2009.

(9)       The Directions Hearing be adjourned to 10 November 2009 at 9.30am in the Associate Judge’s Court 3, Ground Floor, 436 Lonsdale Street, Melbourne.