Rozenblit v Vainer and anor
[2014] VSC 510
•10 October 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2013 6645
| BORIS ROZENBLIT | Plaintiff |
| v | |
| MICHAEL VAINER and ALEXANDER VAINER | Defendants |
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JUDGE: | LANSDOWNE AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 October 2014 |
DATE OF JUDGMENT: | 10 October 2014 |
CASE MAY BE CITED AS: | Rozenblit v Vainer and Anor |
MEDIUM NEUTRAL CITATION: | [2014] VSC 510 |
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PRACTICE AND PROCEDURE – Application for leave to amend the statement of claim – Proposed causes of action arising out of the liquidation of a company – Plaintiff not a member of that company at the time of the liquidation – Proposed causes of action dependent on assertion that the plaintiff held an equitable interest in shares pursuant to a constructive trust – Plaintiff failed to establish that he would have the right to prosecute a grievance about the liquidation on such a basis – Leave to amend in that and other respects refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Korman | Lloyds & Barclay Lawyers (t/a Abrahams Meese Lawyers) |
| For the Defendants | Mr M. McNamara | CIE Legal |
HER HONOUR:
Introduction
By summons filed 29 August 2014, the plaintiff seeks leave to file and serve an amended statement of claim and an expedited trial on a date to be as soon as possible after 1 February 2015. I heard only the first of these applications on 1 October 2014. The question of expedition is a matter for the associate judge in charge of listing and it would be my intention to refer that application to her at an appropriate time.
The plaintiff’s summons was supported by an affidavit of his solicitor, Sofija Lozanova, sworn 29 August 2014, which exhibited a proposed amended statement of claim. That proposal was then overtaken by a further proposal, exhibited to a supplementary affidavit of Ms Lozanova filed and sworn 2 September 2014.
In all, five iterations of a proposed amended statement of claim were served on the defendants prior to hearing on 1 October 2014. The first two had been served on the defendants’ solicitors on 19 August and 21 August 2014 respectively. The plaintiff sought leave to file the second of these at a directions hearing held before me on 25 August 2014. That application was opposed, and I directed that application be made in the usual way on summons. The summons filed on 29 August 2014 was the product of that direction.
The iteration of the proposed amended statement of claim exhibited to the solicitor’s affidavit of 29 August 2014 was the third iteration, and that exhibited to her supplementary affidavit of 2 September 2014 the fourth.
The defendants’ written submissions were received by the Court late on the day before hearing, 30 September 2014. They referred to a fifth iteration which had been received by them the day before. As no such fifth iteration had been received by the Court, I caused enquiry to be made of the solicitor for the plaintiff who then sent to the Court a further affidavit sworn by her on 30 September 2014 which exhibited that fifth iteration.
At hearing, counsel for the plaintiff did not seek to rely on the fifth iteration. He said that it had been served under cover of a without prejudice letter. This was a surprising submission, given that both the letter and the fifth iteration were exhibited to the third affidavit sworn by Ms Lozanova 30 September 2014 which had been sent to the Court by email and was formally filed in court on the day of hearing.
In any event, counsel for the plaintiff made his submissions on the basis of the fourth iteration. In the course of those submissions, he conceded that some further amendments were required to a number of paragraphs. His further proposed amendment to one of those paragraphs, paragraph 80, were confirmed in writing to the Court and to the defendants after the hearing.
The defendants’ written material is confined to one affidavit of solicitor Mark Waters sworn 29 September 2014 and filed 30 September 2014 and the written submissions to which I have referred.
Existing claim
I have drawn this account of the existing claim from the current pleadings being the statement of claim filed with the writ on 23 December 2013 and defence and counterclaim filed 14 February 2014. The counterclaim was subsequently dismissed by consent.
The plaintiff’s claim arises out of a business previously conducted by him and the first defendant which was intended to develop and commercialise tyre recycling. The parties agree that there was an initial oral agreement to this effect in September and October 2006 which was followed by a written agreement dated 3 October 2006. The written agreement provided that there would be a number of commercial vehicles, including a unit trust and a company to be called VR Tek Operations Pty Ltd (‘VRT Operations’). The units in the trust and shares in the other company vehicles were to be owned 45% by an entity nominated by the plaintiff and 55% by an entity nominated by the first defendant. Decision‑making was to be by agreement between the plaintiff and the first defendant and they would each be directors of the relevant companies.
The plaintiff alleges that on or about 13 August 2009 the first defendant made arrangements for the incorporation of a company called VR Tek Global Pty Ltd (‘VRT Global’) of which both the plaintiff and first defendant were to be directors and whose share capital was to be constituted by 400 ordinary shares. The plaintiff contends that in breach of the oral agreement arrived at in September and October 2006 the share allocation in respect of 175 allocated shares only afforded him 38.86% of those shares (being 68 ordinary shares) when he should have received 79 shares (being 45% of the said 175 shares). The plaintiff contends that 55% of the said 175 shares, namely, 96 shares, should have been allocated to the entity associated with the first defendant, being a company Vinetree Pty Ltd (‘Vinetree’) when in fact the first defendant allocated 107 shares to Vinetree. Accordingly, the plaintiff claims that 11 shares which should have been his were allocated, in breach of the 2006 agreement, to Vinetree.
The plaintiff contends that there was then a restructure of the shareholding in VRT Global which occurred on 30 October 2009 by virtue of which existing shareholders were each issued 1,799 shares for each share they then held. As a consequence, at paragraph 24 of the statement of claim the plaintiff pleads that Vinetree held 19,800 shares in VRT Global which the first defendant should have allocated to the plaintiff. This existing allegation is repeated in proposed new paragraphs 10D and 10E.
The defendants deny the allegation of a restructure. Their contention is that the share allocation in respect of VRT Global in 2009 was not made pursuant to the oral agreement of 2006, but pursuant to a written shareholders agreement dated 30 September 2009. They contend at paragraph 10A of the defence that by that shareholders agreement the parties agreed that:
(a) VRT Operations held 50% of the issued capital of VRT Global, being 200 A‑class shares;
(b) Vinetree held 26.75% of the issued capital of VRT Global, being 107 B‑class shares;
(c) the plaintiff held 17% of the issued capital of VRT Global, being 68 B‑class shares; and
(d) Stennlake Pty Ltd (‘Stennlake’) held 6.25% of the issued capital of VRT Global, being 25 B‑class shares.
This dispute about share allocation in VRT Global is the first limb of the plaintiff’s case as originally pleaded.
The second limb of the plaintiff’s case as originally pleaded is the allegation that the first defendant in 2011 wrongly caused the transfer of all of the plaintiff’s then shareholding in VRT Global to the second defendant (who is the father of the first defendant) without consideration.
Each of these two limbs was expressed in the statement of claim as arising by virtue of multiple different causes of action. The damages claimed were expressed to be the value of the shares at the relevant time.[1]
[1]Paragraphs 62 to 64 of the statement of claim.
Proposed amendments
Allocation of shares
The first set of amendments proposed by the plaintiff in the fourth iteration of the proposed amended statement of claim are at paragraphs 10A to 10E inclusive. They are said by the plaintiff to better plead out the plaintiff’s case in relation to the allocation of shares, and to be essential to a proposed new alternative basis for calculating loss. That new alternative basis (which is one of a number of new bases advanced) is based on a percentage of total shareholding.
The defendants contend that these proposed amendments underpin other claims now sought to be added, which claims should be refused as no cause of action is shown. The defendants object to paragraphs 10A to 10E on that basis but no other.
Transfer of Vinetree’s shares
The next substantial set of proposed amendments are at paragraphs 19A and 19B. These proposed amendments set out more alleged facts relating to the share transfer in 2011, including that two other shareholders in VRT Global, being Stennlake and Vinetree, also transferred all their shares to the second defendant for no consideration.
The plaintiff says that the direct relevance of these proposed new paragraphs is only in relation to Vinetree’s shares (as it is now pleaded by proposed paragraph 10E that those shares at the time of the share transfer included shares that should have been allocated to the plaintiff). The plaintiff says that the reference to Stennlake at proposed paragraph 19A is included for completion.
The defendants oppose paragraphs 19A and 19B only for the same reasons that they oppose proposed new paragraphs 10A to 10E.
Appointment of liquidators by the defendants
Proposed paragraphs 19C to 19K inclusive would insert new causes of action arising from the subsequent liquidation of VRT Global on 27 November 2012. The thrust of the plaintiff’s case as he now seeks to put it in relation to this liquidation is as follows.
The plaintiff contends that the defendants caused the liquidation of VRT Global, as the directors of VRT Global, but they were not authorised to do so because, amongst other matters, the required notice was not given to VRT Operations (a shareholder), the required consents by all members were not given, and the meeting was not properly constituted.
The plaintiff contends that at the time VRT Global was put into liquidation it was solvent and it was not in the interests of the members as a whole for it to be placed into liquidation when solvent, although it was in the interests of the defendants. Alternatively, the plaintiff contends that if VRT Global was in fact insolvent at the time it was put into liquidation, this insolvency had been occasioned by the actions of the defendants.
The final factual element to this proposed new claim is that after the liquidation, the defendants ‘or their associated entities’ acquired the business formerly conducted by VRT Global and continue to operate it.[2] No particulars are given as to who those ‘associated entities’ are, or whether the transfer was to them or the defendants. It may be that the plaintiff does not currently know these facts, because the particulars to proposed paragraph 19J, which makes this allegation of transfer of the ‘Established Business’ to a ‘different vehicle’ concludes ‘Further particulars may be provided closer to trial’. ‘Established Business’ is defined by proposed 19D to ‘primarily comprise’ ‘intellectual property’, ‘plant and equipment’, and ‘a business processing or seeking to process end-of-life tyres’.
[2]This is contended at proposed new paragraphs 19D, 19J and 19K.
Various causes of action are then pleaded to arise from these allegations. The first is the allegation, at proposed new paragraphs 70-79, that in making the representation to the liquidator that a valid resolution had been passed for the voluntary winding up of VRT Global, the defendants engaged in misleading or deceptive conduct, or failed to disclose necessary matters, in trade and commerce in breach of s18 of the Australian Consumer Law 2010 (Cth). It is sought to be alleged at proposed paragraph 78 that the plaintiff thereby suffered loss and damage, being 32.25% of the value of the ‘Established Business’ conducted by VRT Global just prior to the liquidation. The percentage is calculated as 32.25% by proposed paragraphs 67-69 inclusive, which assume that the plaintiff succeeds in relation to his allegations about wrongful share allocation, wrongful share transfer and the wrongful placing of VRT Global into liquidation.
It is also sought to be alleged, at proposed paragraphs 80-86 inclusive, that the second defendant was in breach of his fiduciary duty to the plaintiff, or alternatively acted in breach of trust, by causing VRT Global to go into liquidation. This allegation depends on the existence of a constructive trust in favour of the plaintiff over the plaintiff’s VRT Global shares that had been transferred to the second defendant at the time of the share transfer in 2011, which constructive trust is said to give rise to the fiduciary duty or duty as trustee. That constructive trust is proposed to be pleaded at paragraphs 41A(c), 45A and 57A. I will return to it shortly. It is proposed to be pleaded, at proposed paragraphs 85 and 86, that the plaintiff suffered loss and damage as a consequence of this breach of fiduciary duty or breach of trust, being the loss of value of the shares, and that the second defendant holds on constructive trust for the plaintiff ‘any profits earned or other benefits obtained as a result of transferring the Established Business to the Defendants or their related entities’.
The next cause of action said to arise from the wrongful liquidation of VRT Global is the proposed pleading at proposed paragraphs 87-90 as against the first defendant. This cause of action is said to be that the first defendant knowingly assisted the second defendant in his ‘dishonest and fraudulent design’ to ‘cause VRT Global to be put into liquidation, and to profit and/or enable his son to profit thereby by transferring or enabling to be transfer of the Established Business to himself, his son, or their related entities’ (proposed paragraph 87). It is sought to be alleged that by virtue of this knowing assistance, the first defendant holds on constructive trust any profits earned or other benefits obtained as a result of his assistance to the second defendant.
Finally, there is proposed to be an alternative claim for equitable compensation as against both defendants arising from the alleged constructive trusts in favour of the plaintiff (proposed paragraph 91).
Constructive trust as against the second defendant
At proposed paragraphs 41A, 45A and 57A it is sought to be alleged that the second defendant, from the time of the share transfer, held two quantities of VRT Global shares on constructive trust for the plaintiff.
Proposed paragraph 41A relates to the original wrongful allocation by the first defendant of 11 shares to Vinetree that should have been allocated to the plaintiff, which it is intended to be pleaded resulted in an allocation of shares on the restructure to Vinetree which should have been allocated to the plaintiff, which were then transferred from Vinetree to the second defendant without consideration. The first two of these transactions are said to give rise to constructive trusts in each case in Vinetree in favour of the plaintiff, and on the transfer to the second defendant, a constructive trust over all the transferred shares in favour of the plaintiff as against the second defendant. The particulars state that this is because the second defendant ‘was not a Bona Fide Purchaser for Value Without Notice, and the trust property can consequently be traced into his hands.’ The facts on the basis of which it is said he was on notice of the earlier constructive trusts in Vinetree are not pleaded, at least in this proposed paragraph.
Proposed paragraph 57A is sought to be added to a claim that is already pleaded, at paragraphs 52-57, that the second defendant gave knowing assistance to a claimed breach of fiduciary duty to the plaintiff by the first defendant in transferring to the second defendant in 2011 all of the shares the plaintiff held in VRT Global. The existing claim against the second defendant, at paragraph 57, is that the plaintiff suffered loss in arranging the transfer (currently pleaded to be the value of the shares). Proposed paragraph 57A would add a claim that as a result of this knowing assistance, the second defendant held on constructive trust for the plaintiff the 108,800 VRT Global shares transferred from the plaintiff to the second defendant in 2011.
Proposed paragraph 45A adds together the two sets of shares said to be held on constructive trust by the second defendant in favour of the plaintiff, the 19,800 shares said in proposed paragraph 41A to be held on constructive trust because of the original wrongful allocation by the first defendant, and the additional 108,800 shares held by the plaintiff and transferred to the second defendant in 2011. The total of these two numbers of shares is 128,600 shares. Proposed paragraph 57A, which is pleaded to arise from a wrongful act of the second defendant, is not referred to and the trust in respect of both the 19,800 shares in Vinetree’s name prior to the transfer and the 108,800 shares in the plaintiff’s name prior to the transfer is said to arise from the wrongful acts of the first defendant only, respectively in the share allocation and in the share transfer.
New claims for loss
Proposed amendments to paragraphs 62-63, and proposed new paragraphs 65-69 would correct the existing means of calculating the plaintiff’s loss (share value) by limiting that means to the value at transfer and add new claims as to the calculation of the plaintiff’s loss. The proposed new means of calculation require the business conducted by VRT Global at the time of share allocation and at the time of the share transfer to be ascertained, or, in the alternative, the ‘current value’ of the ‘Established Business’ now transferred to the defendants ‘or their associated entities’.
Objections to the proposed amendments
The defendants object to the grant of leave to amend in the form of the fourth iteration of the proposed amended statement of claim both on pleading grounds relating to the content of the proposed amendments, and on discretionary grounds.
Their fundamental pleading objection is that the proposed expansion of the case to include allegations arising from the liquidation of VRT Global and alleged transfer of the business previously conducted by it to the defendants or other entities controlled by the defendants do not disclose any causes of action. The defendants say this is for several reasons. Dealing with their objections in the order in which they were put orally, they first complain about the lack of clarity in the identification of the business said to have been conducted by VRT Global immediately prior to its liquidation. They say that none of the intellectual property identified in the particulars to sub-paragraph (a) to proposed paragraph 19D was in fact owned by VRT Global (which appears to be conceded by counsel for the plaintiff); and that it would be critical for the plaintiff to identify whether the business concerned with the processing of end-of-life tyres that is referred to in sub paragraph (c) was in fact operating at the time of the liquidation, or only still proposed.
Secondly, the defendants submit that the proposed plea that the defendants were not authorised to put VRT Global into liquidation (proposed paragraph 19E) must fail. The registered shareholders of VRT Global at that time were the second defendant, and VRT Operations. The directors of VRT Operations were the first and second defendants, the plaintiff having ceased to be a director on 14 June 2012. The resolution on its face shows that both defendants were present at the meeting. As a consequence, all registered shareholders of VRT Global were present at the meeting, consented to the waiver of the required notice period, and voted in favour of the special resolution. Counsel for the defendants submits that it is the legal owners of the shares who are the members and so entitled to vote, and any claimed equitable entitlement of the plaintiff in VRT Global shares could not impact on voting rights.
The defendants next object to the proposed claims arising from the liquidation on the basis that it was plain that this was a members’ voluntary winding up, and so was available to the members whether or not the company was solvent or insolvent at the time. Counsel for the defendants submits that to plead proposed claims in the alternative depending on whether VRT Global was solvent or insolvent at the time is accordingly unnecessary, and would open up an extensive field of enquiry that is ultimately irrelevant. Counsel for the defendants also referred in detail to evidence which he said was inconsistent with the proposed plea that VRT Global was solvent at the time of the liquidation. If the plea otherwise disclosed a cause of action, I would consider whether it was proved on the evidence or not to be a matter for trial and so I will not in these reasons consider that evidence.
The defendants then say that the proposed paragraphs dealing with transfer of the ‘Established Business’ of VRT Global to the defendants or their associated entities (proposed paragraphs 19J and 19K) are embarrassing and because they amount to an allegation of dishonesty, not properly particularised.
The defendants object to the proposed plea that the defendants made a misleading or deceptive representation to the liquidator on the basis that it falls with the claims said to arise from the liquidation of VRT Global, and also because any such representation was, in any event, not in trade or commerce. They object to the proposed pleading in paragraphs 41A and 45A that the second defendant held shares on constructive trust for the plaintiff because the wrongful conduct said to underpin the constructive trust is pleaded to have been engaged in by the first defendant only. On enquiry from me, counsel for the defendants extended this objection to proposed paragraph 57A as well.
The defendants also object to the proposed new pleas as to loss, which would seek to value the business, rather than the shares. They say that as a matter of principle loss should be calculated on the value of what was taken, being the shares (which of course may reflect the value of the business conducted by the company in which the shares were held); that the proposed new methods are objectionable because there is no methodology identified to be employed to value the business; and also that the business can have no value as it no longer exists.
As a consequence of their objections to the claims arising from the liquidation of the company, to a claimed constructive trust in favour of the plaintiff and against the second defendant, and to seeking to value the business, rather than the shares, the defendants also object to the proposed new claims for breach of fiduciary duty and breach of trust as against the second defendant and the first defendant, and for equitable compensation. They also take the specific objection to the new knowing assistance plea against the first defendant in proposed paragraphs 87 and 89 that the allegations of fraud and knowledge there made are not properly particularised.
The defendants also object to the grant of leave on discretionary grounds, having regard to the principles enunciated in Aon Risk Services Australia Ltd v Australian National University[3] (‘Aon’) and the obligations imposed on parties by the Civil Procedure Act 2010. The first of these objections arises from the number of amendments and their complexity, which would occasion significant expansion to the case as originally pleaded with the need for further interlocutory steps, and consequent delay. The defendants note that the plaintiff seeks an expedited hearing despite the significant further delay that would be introduced if these amendments were allowed.
[3](2009) 239 CLR 175; [2009] HCA 27.
The defendants next say that there has been no adequate explanation provided for amendment at this stage, as required by Aon, or clear identification of the changes. They also exhibit correspondence by which the plaintiff refused to provide copies of documents the plaintiff refers to in the proposed amendment, and submit that this is a clear breach of the plaintiff’s obligations under the Civil Procedure Act 2010.
These discretionary matters do carry significant weight. However, as the plaintiff points out in reply, this application to amend is not made in the course of a trial and so the impact of amendment would be far less than in Aon. No trial date has been set. The matter has progressed to being set down for trial, if the pleadings are not amended, but if the amendments were otherwise acceptable on pleading grounds, then notwithstanding these discretionary matters I would grant leave. To the extent that amendment would extend the date for trial, there is no evidence of any special prejudice to the defendants (other than the usual prejudice occasioned by delay). On the evidence before me, further delay will cause potential particular prejudice only to the party seeking the amendment, as it is the plaintiff that claims to have grounds for expedition. In other respects, these discretionary matters could in my view be sufficiently addressed by orders for costs.
For the reasons now set out, however, I do not consider that the amendments survive some of the pleading objections taken, and I will refuse leave on those grounds. The discretionary matters may be relevant to whether leave to further attempt re-pleading should be given, if sought.
Discussion and determination
Causes of action arising from the liquidation of VIT Global
I will deal first with the second of the defendants’ pleading objections to these causes of action, being the objection that the plaintiff has no cause of action because he was not a member of VRT Global at the time it was put into liquidation.
The plaintiff’s case is that the plaintiff can pursue causes of action arising from the liquidation, notwithstanding that he was not at the time of the liquidation a registered shareholder. His shares had all been transferred to the second defendant by that time. The plaintiff says that he is able to pursue these causes of action because he had an equitable interest in the shares formerly owned by him which he says were wrongfully transferred by the first defendant to the second defendant. Counsel for the plaintiff concedes that this equitable interest could arise only by virtue of the plaintiff’s claim that the second defendant held those shares on constructive trust for him.
The proposed allegation of constructive trust is attacked by the defendants on other grounds and I will return to it shortly. But even if the allegation could be made good, I am not persuaded that the constructive trust so created would necessarily confer on the plaintiff an equitable interest in the shares, as opposed to being a device by which orders for compensation arising from the transfer may be made in favour of the plaintiff against the second defendant.
Counsel for the plaintiff relies on an extract from Equity and Trusts in Australia[4] in support of the proposed pleaded claim for constructive trust. In my view, even if the plaintiff was able to establish a constructive trust as against the second defendant in his favour in respect of the shares that had been transferred to the second defendant, the discussion of institutional constructive trusts commencing at paragraph 38.25 and continuing at paragraph 38.30 of that text makes it clear that a ‘constructive trust’ does not necessarily confer an equitable interest. At paragraph 38.25, the authors note (citations omitted):
The terminology “constructive trust” here should not be construed as necessarily conveying an interest in property. Rather, it is often used to explain the court’s jurisdiction to make an order in personam corresponding to the gain, such as an account of profits.
[4]G.E. Dal Pont and D.R.C. Chalmers, Equity and Trusts in Australia, 4th ed, Lawbook Co. 2007.
In other words, there are two different consequences of the construct ‘constructive trust’, only one of which is to confer an equitable interest. The discussion of the relevant authorities that then follows at paragraph 38.30 further amplifies this point.
Further, even if a constructive trust was held to be established and was held to confer an equitable interest on the plaintiff, I am not persuaded that an equitable interest (as opposed to the legal interest) in shares would confer a right in the holder of that equitable interest to challenge the liquidation of the company. The plaintiff has no authority for the proposition that it does or could, but equally nor did counsel for the defendants have any authority for the proposition he advanced in oral argument that an equitable interest cannot confer that right.
In order to cast some further light on this issue, I requested that the defendants refer me to the sections of the Corporations Act 2001 (Cth) (‘Corporations Act’) relevant to voting after the conclusion of the hearing. The defendants did so. Counsel for the plaintiff then contended that the voting rules of VRT Global were as stipulated in that company’s constitution, not in the Corporations Act, and so the sections of that Act to which the defendants referred are irrelevant. The constitution of VRT Global is not before me in evidence. Counsel for the defendants contends in a responsive short submission that member is there defined to mean ‘registered holder of any share or stock of the Company’. There is no dispute that at the time of the liquidation of VRT Global the plaintiff was not the registered holder of any shares in that company.
It may be that on analysis of the constitution of VRT Global properly in evidence, that analysis would show that it did confer on the holder of an equitable interest in shares some rights and so conceivably such a holder of an equitable interest could prosecute a grievance arising out of the liquidation of the company. The constitution is not, however in evidence. The argument put by counsel for the plaintiff also draws a very long bow, and depends on the acceptance by the Court of a number of preconditions. The onus is on the plaintiff as the party moving to amend his statement of claim. In my view, he has failed to show that he has the right to prosecute a grievance arising out of the liquidation of a company of which he was not a member at the time of the liquidation.
I also accept the objection by the defendants that the definition of ‘Established Business’ in proposed paragraph 19D lacks sufficient clarity, and in respect of the inclusion of intellectual property is demonstrably false. Counsel for the plaintiff conceded this point in argument, submitting that the inclusion of intellectual property should be further amended to be that intellectual property owned or used by VRT Global. I also accept the defendants’ objection that proposed paragraphs 19 J and 19K do not contain necessary particulars of what is essentially an allegation of dishonesty. Further, if there is intended by reference in proposed paragraph 19J to the purchase price of the plant and equipment to imply that this was acquired by the defendants at an undervalue, it is difficult to see how such a claim could succeed if, as the defendants assert, the sale by the liquidator was publicly advertised.
For all these reasons I would not grant leave for the proposed inclusion of claims arising from the liquidation of VRT Global.
Alleged constructive trust
I accept the defendants’ submissions that proposed paragraph 41A and sub-paragraph (a) of proposed paragraph 45A fail to disclose a proper basis for the allegation that the second defendant held 19,800 VRT Global shares on constructive trust for the plaintiff. This is because those pleas rely on allegations of unconscionable conduct or undue influence made against the first defendant only. The ‘tracing’ allegation that appears only in the particulars to sub-paragraph (c) of proposed paragraph 41A is insufficient to cure this defect. If there are material facts that affect the conscience of the second defendant so as to burden these shares with a constructive trust in favour of the plaintiff, those facts should be pleaded and not merely be referred to in a conclusory way in particulars.
The allegation at proposed paragraph 57A by contrast is supported by allegations of wrongdoing made directly against the second defendant, being his knowing assistance to the actions of the first defendant in respect of the share transfer. I would allow the proposed 57A subject to the question as to whether it can stand alone from other proposed amendments which I would not allow.
New claims for loss
The defendants object to these new claims for loss on two bases. The first is that loss should properly be calculated by the value of the shares, not by a proportion of the business carried on by VRT Global at different times, or by the defendants having acquired the ‘business’ of VRT Global. The second basis is that the definitions given of ‘Business’ (in existing sub-paragraph 6(a) of the statement of claim) and ‘Established Business’ at proposed paragraph 19D are confusing, inadequately particularised, and cannot ground a claim for loss to the plaintiff.
I would not at the pleading stage exclude a basis for calculating the plaintiff’s loss that is alternative to the value of the shares, provided that alternative basis was properly pleaded and particularised. However, as noted earlier I do accept the criticisms made by the defendants of the definition of ‘Established Business’ in proposed paragraph 19D. I am not persuaded that the further amendment proposed in the running of the argument, being to identify this intellectual property as that owned or used by VRT Global, is sufficient to deal with this difficulty.
Further, I accept the defendants’ criticism that the third element said to constitute the ‘Established Business’ is pleaded in a manner that is embarrassing. That proposed pleading is at proposed paragraph 19D(c) in these words: ‘A business processing or seeking to process end of life tyres’. I do not consider that this form of pleading can be adequately responded to, and it seems to demonstrate such a significant lack of information in the hands of the plaintiff that one wonders whether the claim can properly be made.
Proposed new paragraph 67 and 68 are premised on the plaintiff being able to successfully challenge the placing of VRT Global into liquidation. For the reasons already given, I do not consider that those proposed amendments should be permitted. Accordingly, paragraph 67, 68 and 69 fail as a consequence. They also seem to me to be questionable because they assume continuation of the ‘Established Business’ (inadequately defined as indicated) when that business, whatever it was, came to an end on the liquidation. This means of calculating the plaintiff’s loss speculates as to what would have occurred had, firstly, the liquidation not occurred and, secondly, the business (whatever it was- which is not made clear) continued and I would need some persuasion that that is likely to add utility to the plaintiff’s case.
Misleading or deceptive conduct by the defendants towards the liquidators
For the reasons already given I do not consider the plaintiff has established a basis on which the plaintiff can bring any claim in respect of the liquidation. A separate objection was taken by the defendants to the proposed misleading or deceptive conduct claim sought to be pleaded at paragraph 70-79, being that the provision of the resolution by the defendants to the liquidators was not in trade or commerce. Although it is not necessary to express a view in relation to this matter, given that the paragraphs fail for other reasons, if it were necessary I would accept the submission of counsel for the plaintiff that, on the basis of the authorities to which he has referred me, it is not unarguable that the appointment of the liquidators was in trade or commerce.[5]
[5]Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; NRMA Ltd & Anor v Yates [1999] NSWSC 859, at [34]; NewCap Reinsurance Corporations Ltd v Daya [2008] NSWSC 64, at [47].
Breach of fiduciary duty and breach of trust by the second defendant
As already indicated I would allow paragraph 57A which asserts that the second defendant held 108,800 VRT Global shares on constructive trust for the plaintiff from the time of the share transfer (if that paragraph could stand alone) but not the allegation as currently pleaded that the second defendant also held 19,800 VRT Global shares on constructive trust for the plaintiff (because that allegation is currently pleaded to arise only from actions of the first defendant). This is sufficient to defeat proposed paragraph 80 and following because that paragraph is in respect of the total 128,600 VRT Global shares. Counsel for the plaintiff also concedes that paragraph 80 as currently proposed would need further amendment to specify the fiduciary duties in question.
For these reasons I would not allow proposed paragraphs 80 to 86 as currently sought to be pleaded.
Allocation of shares and transfer of Vinetree’s shares
The defendants objected to proposed paragraphs 10A to 10E, 19A and 19B on the basis that they should fall with proposed paragraphs 41A and 45A(a) (the allegation of constructive trust against the second defendant arising from actions of the first defendant). The plaintiff says that these proposed amendments are for other purposes as well. As critical elements of the proposed new pleading fail, however, being the proposed causes of action arising out of the liquidation of VRT Global and at least some of the allegations of constructive trust as against the second defendant, in my view it would be preferable for leave to be refused in respect of the whole proposed amended statement of claim. I will hear the parties as to whether leave to serve a further proposed amended statement of claim should be given. If that leave is given, then further consideration can be given to these proposed paragraphs if they appear in that proposed amended statement of claim.
Conclusion and orders
For these reasons I will refuse leave to the plaintiff to amend the statement of claim in accordance with the fourth iteration of the proposed amended statement of claim. I will hear the parties as to whether leave to serve a further proposed amended statement of claim is sought, and if sought, should be given. I am mindful that the plaintiff who is in his 80s has also sought expedited hearing and it was apparent in the course of argument that amendments of such a sweeping nature as were proposed by the proposed amended statement of claim would require further interlocutory steps and so prolong the period to trial, and possibly the trial itself, even if expedition was otherwise given. The other matters of objection that I have noted from the defendants may also be relevant on a discretionary basis as to whether further leave to attempt repleading should be given.
I will also hear the parties as to costs.
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