Riverland Fruit Cooperative Ltd (in liq) v 007 953 380 Pty Ltd & Ors - [2008] SASC 258

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
RIVERLAND FRUIT COOPERATIVE LTD (IN LIQ) v 007 953 380 PTY LTD & ORS
[2008] SASC 258
Judgment of The Honourable Justice Bleby
17 July 2008
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS - GENERALLY
Application for permission to amend statement of claim - whether facts pleaded in the alternative are inconsistent with plaintiff's primary case - consideration of plea of alternative facts inconsistent with other pleas as to the state of knowledge of the plaintiff - whether plea of estoppel defective - whether amendment pleads material facts or a mere possibility based on an hypothesis that the court will make certain findings - permission to amend statement of claim refused, in part.
Supreme Court Rules 1987 (SA) r 2A, r 46, r 46A; Supreme Court Civil Rules 2006 (SA) r 98, referred to.
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Brailsford v Tobie (1889) 10 ALT 194; Issitch v Worrell (2000) 172 ALR 586; Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 14 NSWLR 124; West Rand Central Gold Mining Co Ltd v The King [1905] 2 KB 391, applied.
JC Decaux Pty Ltd v Adshel Street Furniture Pty Ltd (2000) 178 ALR 339, considered.

RIVERLAND FRUIT COOPERATIVE LTD (IN LIQ) v 007 953 380 PTY LTD & ORS
[2008] SASC 258
Civil

BLEBY J: Since 21 February 2008 I have been managing this action as a complex action pursuant to r 2A of the Supreme Court Rules 1987 (“the 1987 Rules”). On 17 June 2008 I made an order that all further proceedings in the matter be henceforth carried out in accordance with the Supreme Court Civil Rules 2006 (“the 2006 Rules”).
On or about 30 May 2008 the plaintiff’s solicitors supplied to the defendants’ solicitors a copy of a proposed Third Further Amended Statement of Claim (“the amended statement of claim”) with a view to obtaining the defendants’ consent to the filing of the amended statement of claim. The plaintiff’s intention to do so had been flagged at a directions hearing before me on 16 May 2008, but as in the case of straightforward applications in the course of managing a complex action, I did not require a formal application for permission to amend the statement of claim to be filed. Nevertheless, the court was aware of such application from 16 May.
By letter dated 13 June 2008 the defendants’ solicitors indicated that they did not object to certain of the proposed amendments but did object to others. I had previously indicated that, in that event, I would appoint a date for the hearing of argument as to whether the plaintiff should have permission to file the amended statement of claim.
Although the hearing of the argument for permission to amend took place after 17 June when I made the order that proceedings be henceforth carried out in accordance with the 2006 Rules, I regard the application as having been made at least by 16 May, and therefore under the 1987 Rules. The significance of that, if any, will appear later in these reasons.
The plaintiff is a cooperative of fruit growers in the Riverland region, engaged in the business of the production and sale of fruit and fruit products.
The first defendant was previously known as Robern Menz Pty Ltd and is referred to in the amended statement of claim as “Robern”. I will refer to it by that name also. The second defendant is Robern Menz (MFG) Pty Ltd. Both corporations are part of the Robern Menz Group and were involved in the sale, packaging and processing of fruit products.
In mid-1999 the plaintiff and Robern entered into a joint venture by establishing a joint venture vehicle, Sunnyland Fruit Pty Ltd (“Sunnyland”). They did so by what is described in the statement of claim as “the Shareholders Agreement”. Sunnyland borrowed a significant sum from the ANZ Bank with the plaintiff and Robern providing security for the loan in the form of a joint and several guarantee. In June 2000 a decision was made to inject further capital into Sunnyland, with the plaintiff and Robern providing equal amounts by way of a shareholder’s loan.
The joint venture failed, and in early December 2000 the ANZ Bank appointed receivers and managers of both Sunnyland and the plaintiff. Both companies eventually went into liquidation. Arising out of the failure of the joint venture the plaintiff now pleads a number of causes of action against Robern, Robern Menz (MFG) Pty Ltd, and the directors of those companies. It is not necessary to recite details of all the various causes of action pleaded. It is sufficient to note that one of the causes of action is based on alleged misleading and deceptive conduct by Robern. It is necessary to outline briefly the nature of those claims.
Paragraphs 26 to 31 of the statement of claim give particulars of a number of representations allegedly made by Robern as to its business activities, and how the representations were made. They are collectively described as “the Robern representations”. Paragraphs 32 and 33 plead the falsity of the Robern representations. Paragraph 34 pleads:
Robern intended Riverland to assume, and Riverland did assume, that each of the Robern representations were true.
Paragraphs 35 to 38 of the statement of claim plead particulars of another representation allegedly made by Robern described as “the Robern Financial representation” and the supply of certain financial information about itself described as “the Financial Information”. The representation and information related to the financial standing of Robern. Paragraph 39 of the statement of claim pleads:
39Robern intended Riverland to assume, and Riverland did assume, that by executing the Shareholders Agreement and the Guarantee and Indemnity, and by purchasing the Sunnyland shares, Robern was capable of meeting, and intended to meet its financial obligations pursuant to the Shareholder’s Agreement and the Guarantee & Indemnity.
Paragraphs 39A to 39D of the amended statement of claim seek to plead another set of representations allegedly made by Robern described as “the Robern solvency representation”. As the description suggests, it alleges certain representations as to the solvency of Robern at the time of entering into the transaction. These paragraphs are not objected to by the plaintiff.
Paragraph 40 of the statement of claim pleads the plaintiff’s reliance on the Robern representations and the Robern Financial representation in entering into the transaction. Paragraph 41 repeats an allegation of the falsity of the Robern representations.
Paragraph 41A of the amended statement of claim, not objected to by the plaintiff, alleges that all three sets of representations were false because Robern was insolvent at the time of entering into the agreements. Paragraph 42 of the statement of claim alleges that the Robern financial representations were false because Robern did not intend to meet or have the capacity to meet its obligations. The allegation is that it was proposed as the contracting party in order to protect the manufacturing business of the Robern Menz Group. Subsequent paragraphs to paragraph 41A, including paragraph 44A in the amended statement of claim, not objected to by the plaintiff, plead what is described as the Robern Menz Group strategy and its intention, its implementation and its consequences in law. Those details are not relevant for present purposes.
Paragraph 48A of the amended statement of claim contains the key to the defendants’ objection to the proposed amendment. It is necessary to set it out in full:
Estoppel
48AIn the alternative to the matters pleaded in paragraphs 26 to 48, if the Court finds (as pleaded in the Amended Defence to the Second Further Amended Statement of Claim) that:
48A.1Throughout the course of the negotiations with Riverland prior to the entry of Riverland and Robern into the Shareholder’s Agreement, verbal and written representations were made to Riverland only by the Robern Menz Group.
48A.2The representations were made by the Robern Menz Group as a whole and not solely by the individual companies comprising the Robern Menz Group.
48A.3The Robern Menz Group made representations as to the business conducted by the Robern Menz Group and the plans and intentions of the Robern Menz Group.
48A.4Any representations were not made with respect to the affairs, operations, planned and intentions of the Robern Menz Group alone, but were made with respect to the overall affairs, operations, plans and intentions of the Robern Menz Group.
48A.5Riverland knew or alternatively ought to have known that such representations as were made referred to the Robern Menz Group and not Robern alone.
Then:
(a)Robern intended Riverland to rely on the representations in this paragraph 48A described.
(b)The effect of the representations described was to convey to Riverland and it was the intention of the Robern Menz Group to convey to Riverland that the Robern Menz Group would be responsible for the liabilities of Robern Menz pursuant to the Shareholder’s Agreement and the Guarantee & Indemnity.
(c)Riverland did rely on the representations described in that it:
(i)acquired 50% of the issued capital of Sunnyland.
(ii)entered into the Shareholder’s Agreement and the Acquisition and Supply Agreements.
(iii)gave the Guarantee & Indemnity.
(iv)executed the Marketing Agreement.
(d)Riverland would not have done those things described in (c) above if the representations described had not been made.
(e)Riverland’s reliance on the representations described will occasion detriment to Riverland if the Robern Menz Group now maintains (as it does) that only Robern is responsible for liabilities pursuant to the Shareholder’s Agreement and the Guarantee & Indemnity being the only member of the Robern Menz Group to execute those documents.
The actual estoppel is not pleaded in that paragraph but in paragraph 98.2.4A, being the prayer for relief:
In the alternative to the relief claimed in paragraphs 98.2.1 to 98.2.4, a declaration that MFG is estopped from asserting that only Robern is responsible for the liabilities pursuant to the Shareholder’s Agreement and the Guarantee & Indemnity.
The principal argument of the defendants is that the plea in paragraph 48A is embarrassing in that it pleads facts inconsistent with the primary case of the plaintiff. Although it is pleaded in the alternative, there is an inconsistency pleaded as to the state of knowledge of the plaintiff which is impermissible.
The defendants point out, correctly, that there is no plea in paragraph 48A(b) or at any other point in the pleading, of the essential elements of an estoppel plea.[1] There is no plea that the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the Robern Group or expected that a particular legal relationship would exist between them. Subparagraph (b) merely pleads the effect of the alleged representations, with the subsequent subparagraphs pleading reliance and detriment, as if it were a plea based on misleading and deceptive conduct. There is also no plea that the defendants induced the plaintiff to adopt the assumption or expectation.
[1] See Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428-429 Brennan J.
As will be seen, these omissions are significant if the plaintiff wishes to make good an estoppel plea. To say that I accept and rely on your representation that a certain state of facts is true, without knowing whether it is true but relying on the fact that you made the representation, is not the same as to say that, because of your conduct or representation, I hold a genuine belief and assumption that a certain state of facts is true which it is not, or that a certain legal relationship between us exists when it does not.
However, the defendants’ argument assumed that the plea is one of estoppel, presumably from the subheading to paragraph 48A and the prayer for relief contained in paragraph 98.2.4A. The defendants argued that the plea must therefore carry with it an implication that the plaintiff believed or assumed that the Robern Menz Group would be responsible for the liabilities of Robern under the relevant agreements. It submitted that that assumption and belief is inconsistent with the matters pleaded by the plaintiff and advanced as its primary case, particularly as pleaded in paragraphs 34 and 39 of the statement of claim where a different assumption and belief is pleaded.
Rule 46.09(1) of the 1987 Rules, which has application by virtue of r 46A.16, provides that a party “shall not plead an allegation of fact or a new ground or claim inconsistent with his previous pleading”. Sub-rule (2) of that rule does not prevent the making of allegations in the alternative. The 2006 Rules have provisions to similar effect.[2] However, merely because a fact is pleaded in the alternative does not mean that an inconsistency can be avoided. Particularly is this so where the inconsistent pleas relate to the state of knowledge or state of mind of the party concerned.
[2] See Supreme Court Civil Rules 2006 r 98(6) and (7).
In Brailsford v Tobie[3] the defendant pleaded two inconsistent pleas in the alternative. In deciding that one of them should be struck out, Holroyd J said:
I can quite conceive of cases where it would be not only allowable but proper for a party to claim alternative relief, especially where on a given state of facts it may be doubtful as to what relief he may be entitled. In a case of this nature, however, I think it would be most improper to allow the defendant to plead as she has done. The actual facts must be within her own knowledge, and that being so she has set up two sets of facts inconsistent with one another. If this were allowed it would be permitting a party knowing the facts to deliberately place on the record statements, one or other of which must be known to be a lie.[4]
[3] (1889) 10 ALT 194.
[4] Ibid 195-196.
In Issitch v Worrell[5] Drummond J, with whom Spender and Katz JJ agreed, said, in relation to a similar plea:
But once the appellant decided to answer the claim made on her in respect of the $110,167 in the way she did, she was not entitled thereafter to set up in the alternative the inconsistent answer she now suggests she would also have relied on, if only absence of consideration had been specifically pleaded by the trustee. A party can as a general rule plead inconsistent sets of facts in the alternative (cf O 11 r 8(2); Re Morgan (1887) 35 Ch D 492 and Delfino v Trevis (No 1) [1963] NSWR 191 at 196), but not where one of those sets must be known to the party to be false. It has long been recognised that such a pleading is embarrassing and will be struck out.
[5] (2000) 172 ALR 586; [2000] FCA 477.
His Honour then referred to Brailsford v Tobie and the passage quoted above, and continued:
Whether or not the gloss on the general rule referred to in Brailsford has its foundation in the old requirement for sworn pleadings, it is in accord with modern practice in not permitting parties to litigate whatever issues they choose, only the crucial issues: see, for example, Ashmore v Corporation of Lloyd’s [1992] 1 WLR 446 at 448 and, more generally, UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 at 459.[6]
[6] Ibid 594-595; [32]-[33]. See also J C Decaux Pty Ltd v Adshel Street Furniture Pty Ltd (2000) 178 ALR 339, 343; [2000] FCA 1118, [20]-[21], Weinberg J.
Based on these authorities, the defendants argued that the state of belief or assumption on the part of the plaintiff to be implied from the plea in paragraph 48A of the amended statement of claim, namely, that the Robern Menz Group was or would be responsible for liabilities under the shareholder’s agreement and guarantee and indemnity, is inconsistent with the earlier plea that it believed and assumed that Robern was so responsible. I am not satisfied that that is necessarily so, given that an assumption that one member of a corporate group would be responsible for the liability does not necessarily exclude a belief that other members of the group would also be so liable. However, such a conclusion is somewhat speculative because the pleading in paragraph 48A and paragraph 98.2.4A of the amended statement of claim does not plead any assumption or state of belief on the part of the plaintiff. As a plea of estoppel it is defective. It cannot be made good merely by placing a heading over paragraph 48A or by pleading estoppel as an alternative prayer for relief. In my opinion, the pleading is defective for that reason, and I would reserve any decision on inconsistency of the pleading until it actually arises. As a purported plea of estoppel, it fails to plead the necessary elements and must be disallowed on that basis.
However, there is an even more fundamental reason why permission to amend in terms of paragraphs 48A and 98.2.4A of the amended statement of claim must be refused. Rule 46A.02(b) requires that a party must plead only the material facts relied upon. Rule 46A.03(a) requires that in an action such as the present, the statement of claim must plead the material facts relied upon to constitute a cause of action. Rules to similar effect are to be found in r 98(2)(b) and 99(1) of the 2006 Rules. The pleading must state all the facts upon which the particular cause of action depends. In Ritz Hotel Ltd v Charles of the Ritz Ltd[7] McLelland J said:
It is not sufficient to allege in a pleading what may be a ground of action or defence if something else were added which is not stated. It is necessary to allege what must, and not merely what may be, a ground of action or defence, as the case may be: cf West Rand Central Gold Mining Co Ltd v The King [1905] 2 KB 391 at 399 and see also Bruce v Odhams Press Ltd [1936] 1 QB 697 at 712-713; Rubenstein v Truth and Sportsman Ltd [1960] VR 473 at 476 and H 1976 Nominees Pty Ltd v Galli (1979) 40 FLR 242 at 246; 30 ALR 181 at 186-187.[8]
[7] (1988) 14 NSWLR 124
[8] Ibid 126.
In particular, it is necessary to allege in the statement of claim what must, and not what may, be a cause of action.[9]
[9] West Rand Central Gold Mining Company Limited v The King [1905] 2 KB 391 at 399, Alverstone LCJ, with whom Wills and Kennedy JJ agreed.
In this case paragraph 48A of the amended statement of claim does not plead material facts but a mere possibility based on an hypothesis that the court will make a set of fairly precise findings and that the defendants will plead those facts. It does not plead, as part of its case, the facts on which such findings might be based. It is not for the plaintiff to set up an hypothesis and then plead to it, thereby avoiding having to plead the actual facts which it asserts to constitute the cause of action. It makes it difficult, if not impossible, for a defendant to plead to because the defendant has no way of knowing what the finding of the court will be, or whether it will be completely in accordance with the assumption that is made or only with some part of it, and it does not know what the plaintiff’s position is if only some of the relevant facts are found by the court.
In my opinion, it behoves the plaintiff to nail its colours to the mast as to what its case against the defendants is. If it wishes to plead in the alternative that certain other representations were made or conduct engaged in, or if it intends to plead an alternative effect of certain representations or conduct of the defendants, it should do so, and plead all the material facts on which it proposes to rely in support of each cause of action pleaded. Those facts should be pleaded without reference to possible findings of the court or possible pleas of the defendants. If the plaintiff does so, it may or may not be able to plead an alternative state of mind or belief without raising an inconsistency. That is a matter to be determined if the pleadings are amended to allege what in fact the plaintiff asserts is its case against the defendants.

Under the 1987 Rules the pleading proposed would be struck out as disclosing no reasonable cause of action[10] or as having a tendency to cause embarrassment in the proceedings.[11] There is no direct counterpart in the 2006 Rules. However, r 104(b) of the 2006 Rules enables the court to strike out a pleading if it is “an abuse of the process of the court or prejudices the proper conduct of the action”. In my opinion, it is implicit in that rule that a pleading could be struck out for the same reasons, as mentioned above, especially if the statement of claim does not comply with the requirements of r 99, namely that it must state the basis of each cause of action and must contain a short statement of the material facts on which the cause of action is based.
[10] Supreme Court Rules 1987, r 46.18(a).
[11] Ibid par (c).
For these reasons the plaintiff cannot be permitted to amend its statement of claim to include paragraphs 48A and 98.2.4A as contained in the amended statement of claim. The plaintiff has permission to amend its statement of claim by inserting paragraphs 39A, 39B, 39C, 39D, 41A and 44A as contained in the amended statement of claim, and to file a Third Further Amended Statement of Claim accordingly.
The plaintiff may wish to consider whether it proposes to seek permission to make some other amendment to the statement of claim. I will hear the parties as to whether any directions relating to any such proposal should be given and as to the filing of an amended defence by the defendants.