Rozenblit v Vainer (No 2)
[2015] VSC 234
•28 May 2015
| 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 | Defendant |
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JUDGE: | LANSDOWNE AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 February 2015 |
DATE OF JUDGMENT: | 28 May 2015 |
CASE MAY BE CITED AS: | Rozenblit v Vainer and anor (No 2) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 234 |
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PRACTICE AND PROCEDURE – application to amend statement of claim – whether a company can be directly liable for a wrongful share transfer – claims arising from a liquidation based on alleged breach of trust by the holding company of a shareholder – insufficient and inconsistent pleading in multiple respects - leave to amend refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Korman | Lloyds & Barclay Lawyers (t/a Abrahams Meese Lawyers) |
| For the Defendant | Mr M. McNamara | CIE Legal |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Facts and the plaintiff’s claims......................................................................................................... 1
Claim arising from the allocation of shares in VRT Global.................................................... 4
Claims arising from the transfer of the plaintiff’s shares in VRT Global............................. 5
Claims arising from the liquidation of VRT Global................................................................ 7
Re-pleading of loss....................................................................................................................... 9
Operation of a business by the first defendant subsequent to the liquidation................... 9
Claims against the company arising from the share transfer..................................................... 9
The defendants’ objections........................................................................................................ 10
The change is unnecessary............................................................................................... 10
The company is not liable for the transfer of its own shares...................................... 12
Inconsistent pleading........................................................................................................ 13
Amendments do not arise from the earlier reasons..................................................... 14
Claimed breach of fiduciary duty by the first defendant arising from the share transfer. 14
New claim of knowing receipt against the second defendant................................................. 17
New claim for loss............................................................................................................................ 17
Claims arising from the liquidation of VRT Global................................................................. 19
No or insufficient pleading of a cause of action........................................................... 21
Objections of form............................................................................................................. 24
Matters of proof................................................................................................................. 25
Summary............................................................................................................................. 26
New claims arising from the operation of Polymeric Powders Pty Ltd................................. 26
Summary of conclusions on the objections................................................................................ 30
Discretion........................................................................................................................................... 32
Orders................................................................................................................................................. 32
HER HONOUR:
Introduction
The application before me is made by the plaintiff on summons filed 10 November 2014. The plaintiff seeks leave to file and serve an amended statement of claim. The summons was supported by an affidavit exhibiting the then proposed amended statement of claim. Further changes were made to the proposed amended statement of claim closer to the hearing date and a consolidated proposed amended statement of claim was received by the Court on 9 February 2015. That is the document that formed the subject of the hearing.
The application is opposed, with some limited exceptions. The defendants say large portions of the proposed amendments are flawed in law or do not disclose a cause of action. They also oppose the application on discretionary grounds, which they say should tend against the grant of leave. These discretionary factors include the period of time since the proceeding commenced, the number of attempts by the plaintiff to formulate his statement of claim, the absence of, in the defendants’ submission, a proper explanation for the application, and an unsatisfied costs order. The costs order was made by consent between the parties and in part arose from a prior unsuccessful application by the plaintiff for leave to amend his statement of claim.
The solicitor for the defendant swears to these discretionary matters in his affidavit affirmed 11 February 2015. Both parties have also filed written submissions.
Facts and the plaintiff’s claims
It is helpful first to set out a brief factual summary, based on allegations that are agreed, amendments not opposed and a report prepared by the liquidators of VR Tek Global Pty Ltd.[1] It should not be necessary to have recourse to any external factual material to determine an application to amend a pleading, but in this case both parties rely on the Liquidators’ Report and it is helpful to have some regard to it to better understand their respective contentions.
[1]Liquidators’ Report 26 February 2014 in respect of VR Tek Global Pty Ltd (in liquidation) (‘Liquidators’ Report’), which is referred to in the plaintiff’s statement of claim and exhibited by the defendants as MW-2 to the affidavit of Mark Waters sworn 29 September 2014 in the earlier application.
The statement of claim was filed with the writ on 23 December 2013. A defence and counterclaim were filed 14 February 2014. The counterclaim was subsequently dismissed by consent.
I heard a previous application for leave to amend the statement of claim in October 2014. That application was unsuccessful.[2] The proposed amended statement of claim now before the Court is in substantially different form to that there considered, but still seeks relief in respect of a major aspect of the amendments earlier considered, being that related to the liquidation of a company. The current proposed amended statement of claim seeks this relief, however, by a significantly different route.
[2]Rozenblit v Vainer and anor [2014] VSC 510.
On the existing pleadings, the parties agree that the plaintiff and the first defendant entered into an oral agreement (‘the Agreement’) prior to October 2006 to jointly develop and commercialise tyre recycling technologies and processes (‘the Business’). The plaintiff contends that he had invented in Russia certain recycling processes and technology (‘the Recycling Technology’), further developed that technology when he arrived in Australia in 1994, and was to contribute it to the Business. The defendants contend that the first defendant was also to contribute his commercial and tyre recycling technology to the Business. The parties agree that their combined ownership interests in the Business was to be divided in a ratio of 45 per cent for the plaintiff and 55 per cent for the first defendant and that all decision‑making in relation to the Business would be by agreement between the plaintiff and the first defendant.
The parties agree that on 3 October 2006 the plaintiff and the first defendant entered into an agreement (‘Implementation Agreement’) to implement the Agreement. They agree that there were terms of the Implementation Agreement that the Recycling Technology would be developed and commercially exploited through VR Tek Pty Ltd (‘VRT’) acting as trustee for the VR Tek Unit Trust (‘Trust’) and VR Tek Operations Pty Ltd (‘Operations’). The units in the Trust and the shares in VRT and Operations would be owned 45 per cent by an entity nominated by the plaintiff and 55 per cent by an entity nominated by the first defendant, and all decision‑making in relation to the Trust, VRT and Operations would be by agreement between the plaintiff and the first defendant. The plaintiff and the first defendant were each to be directors of VRT and Operations and to keep each other fully informed in relation to their activities regarding the joint venture and any events or information affecting it. The defendants contend that there were further terms of the Agreement relating to financial matters.
The plaintiff now seeks by his proposed amended statement of claim to add further details in relation to the creation of VRT, the Trust and Operations.[3] The defendants object to these proposed amendments solely on the basis that they are related to other amendments to which they object. Assuming for current purposes that the factual material stated in the proposed amendments is correct, VRT, the Trust and Operations were all established in October 2006 in conformity with the terms of the Implementation Agreement. In other words, the plaintiff and first defendant were directors of VRT; the corporate entity nominated by the first defendant, Vinetree Pty Ltd (‘Vinetree’), was allocated 55 of the 100 shares in VRT and the plaintiff 45 of the shares; VRT was appointed the trustee of the Trust; 45 of the 100 units in the Trust were allocated to the plaintiff and 55 to Vinetree; the plaintiff and first defendant were also appointed directors of Operations, and 55 of the 100 ordinary Operations shares were allocated to Vinetree and the remaining 45 shares to the plaintiff.
[3]Proposed new paragraphs 8A-E.
The plaintiff wishes to add by proposed new paragraph 8E that two years later, in November 2008, the shares that the plaintiff and Vinetree each held in Operations were transferred to VRT as trustee of the Trust so that Operations became wholly owned by VRT, which in turn was beneficially ultimately owned by the unit holders in the Trust.
A further corporate vehicle, VR Tek Global Pty Ltd (‘VRT Global’) was subsequently incorporated, in August 2009. The make-up of the shareholding in VRT Global at its inception is not agreed on the material before me, save that the defendants contend[4] and the plaintiff seeks to plead[5] that Operations owned 50% of the total shares in VRT Global. They agree that the Operations’ shareholding was by way of A Class shares. The balance of the shareholding is agreed on the pleadings as to number, but not agreed as to class, of share. The defendants contend[6] that the plaintiff owned B class shares, as did Vinetree and another corporate entity Stennlake Pty Ltd (‘Stennlake’). The plaintiff seeks to plead that he, Vinetree and Stennlake were issued Ordinary shares.[7] At some point the second defendant, who is the father of the first defendant, also was issued or acquired some B Class shares.[8] The rights assigned to each of these classes of shares is also not entirely clear on the material before me. Nor is it clear who were the original directors. The plaintiff pleads that he was an original director of VRT Global.[9] The defendants deny the paragraph in which this is pleaded, but it is not clear if they also deny that the plaintiff was an original director.[10] Presumably these matters would be easily ascertainable from a company search.
[4]Defence and Counterclaim filed 14 February 2014 at [10A].
[5]Proposed Amended Statement of Claim at [10]- this amendment is not opposed.
[6]See footnote 4.
[7]The Liquidators’ Report records three classes of shares, being A and B Class and Ordinary- page 2.
[8]Ibid. The plaintiff contends that this occurred in two tranches, in October 2009 and November 2010- statement of claim at [62].
[9]Statement of claim at [10].
[10]Defence at [10].
Claim arising from the allocation of shares in VRT Global
In his existing statement of claim the plaintiff contends that the first defendant wrongfully allocated shares in VRT Global as between the plaintiff and Vinetree, with the effect of disadvantage to the plaintiff, and advantage to his own interests. This claim, the share allocation claim, is brought pursuant to various causes of action and was maintained in the proposed amended statement of claim considered by the Court in October 2014. The plaintiff now seeks leave to withdraw the share allocation claim, and amendments to that effect are not opposed.
Claims arising from the transfer of the plaintiff’s shares in VRT Global
The principal remaining claim made by the plaintiff in his existing statement of claim arises from the transfer in late 2011 of all of his shares in VRT Global to the second defendant. By the time of the subsequent liquidation of VRT Global the second defendant was also a director. It is not entirely clear on the material before me when this appointment was made, although it seems from the defence that it may have occurred in late 2011 at the same time as the share transfer.[11] The plaintiff appears to agree with this timing, as he wishes to plead that the second defendant became a director of VRT Global and Operations on 7 December 2011.[12] At some point it appears that the plaintiff was removed or resigned as a director.[13]
[11]Defence and Counterclaim at [12A].
[12]Particulars to proposed paragraph 83.c.
[13]He does not appear as a director in the Liquidators’ Report.
There is a major factual dispute on the existing pleadings as to the circumstances surrounding this share transfer. The plaintiff contends that it occurred at a shareholders meeting on 7 December 2011, apparently without his attendance, and that the transfer was for no consideration and without his consent. The defendants contend that it occurred at a shareholders meeting on 2 November 2011 attended by a number of persons, including the plaintiff with an interpreter; that the transfer was in consideration of monies invested by the second defendant; and that the plaintiff consented to the transfer.
In his existing statement of claim, the plaintiff advances a number of causes of action arising from what he says was the wrongful transfer of his shares in VRT Global. He now seeks to maintain only some of them, and to recast others.
The plaintiff wishes to maintain his current claim, pleaded at paragraphs 25-26 of the statement of claim, for breach of contract against the first defendant in respect of the first defendant’s actions in arranging the share transfer, being alleged breaches of the Agreement and the Implementation Agreement.
The plaintiff seeks to remove his current claim, pleaded at paragraphs 27-31 of the statement of claim, against the first defendant pursuant to s 18 of the Australian Consumer Law. That claim alleges misleading and deceptive conduct by the first defendant by omission in relation to the share transfer, being failing to properly notify the plaintiff of the effect of the share transfer. The plaintiff now seeks to recast that claim as a claim to the same effect against VRT Global. The allegation the plaintiff now wishes to make against VRT Global is that it, as the company, arranged the transfer of its own shares and owed an obligation to the plaintiff as a shareholder to disclose to him the proposed transfer and its effect. The plaintiff seeks no relief against VRT Global for its alleged conduct (VRT Global is of course in liquidation) but wishes to add claims for accessorial liability against both the first and second defendants as being persons ‘involved’ in this alleged contravention of s 18 by VRT Global.[14] These proposed changes are all opposed.
[14]Proposed new paragraphs 31A-31H.
The plaintiff has in paragraphs 39-41 of the statement of claim a current claim against the first defendant for unconscionable conduct in relation to the share allocation, which he seeks to withdraw. The defendants state that they oppose this amendment,[15] but it would seem to be of the same character as the other amendments that seek to withdraw claims arising from the share allocation, which they do not oppose. I will treat it in that light.
[15]Defendants’ Outline of Submissions at [13(6)] page 6.
The plaintiff seeks to add, however, a claim that VRT Global acted unconscionably and in breach of ss 20, 21 or 22 of the Australian Consumer Law in respect of the share transfer. As in relation to the claim for breach of s 18 of that Law, the plaintiff wishes to add claims for accessorial liability against both the first and second defendants.[16] These amendments are opposed.
[16]Proposed new paragraphs 41A-41I.
The plaintiff seeks to remove his current claims in deceit and undue influence as against the first defendant arising from the share transfer. These changes are not opposed. He seeks to amend his current claim of breach of fiduciary duty as against the first defendant arising from the share transfer. These amendments are opposed.
The plaintiff has existing claims as against the second defendant for knowing assistance to the share transfer and in unjust enrichment. To those claims he wishes to add a claim of knowing receipt (of the transferred shares) against the second defendant.[17] Those amendments are opposed.
[17]Proposed new paragraphs 57A-57E.
Amendments to the claims for loss arising from the share transfer are also opposed. I will deal with these amendments separately.
Claims arising from the liquidation of VRT Global
Approximately a year after the share transfer, on 27 November 2012, VRT Global went into voluntary liquidation. The members at that time were Operations (400,000 Class A shares) and the second defendant (80,000 Class B shares and 320,000 Ordinary shares). The directors at that time were the first and second defendants, and Mr David Freeman.[18] In other words, at the time of the resolution to wind up VRT Global, the plaintiff was neither a director nor a shareholder, although he retained a financial interest through his unit holding in the Trust, which in turn through its trustee, VRT, wholly owned Operations.
[18]Liquidators’ Report at pp 2-3.
In the proposed amended statement of claim considered by the Court in October 2014 the plaintiff contended that the placement of VRT Global into voluntary liquidation was wrongful and sought relief against the first and second defendants arising from the liquidation. Various causes of action were advanced to support the claimed relief. The defendants objected to the proposed claims for relief arising from the liquidation on the basis that the plaintiff was not a member of VRT Global at the time it was placed into liquidation, and so had no standing. The plaintiff contended that he could seek relief on the basis that his former shares in VRT Global had been wrongfully transferred to the second defendant, who accordingly held them on constructive trust for him. The then proposed amended statement of claim also sought to allege this constructive trust. In the result, I rejected both the amendments that sought to introduce this constructive trust and the amendments that sought to introduce claims for relief arising from the liquidation of VRT Global.
The plaintiff now seeks to bring claims for relief arising from the liquidation of VRT Global by a different route. In short, what he wishes to contend is that VRT, as trustee of the Trust, breached the Trust by failing to direct its wholly owned subsidiary, Operations, to oppose the liquidation of VRT Global. He asserts that he had a financial interest in the Trust, through his unit holding (said in the proposed amended statement of claim to be 960 or 969 of the 3000 units) and that those units became worthless on the liquidation of VRT Global because the Trust had no assets other than its interest in Operations, which in turn had no assets other than its shareholding in VRT Global.[19] The plaintiff does not seek any relief against VRT for this claimed breach of trust. I was informed that VRT is in liquidation. The causes of action he seeks to advance arising from the liquidation are two.
[19]Proposed new paragraphs 68,69,70 and 71.
As against the first defendant, he seeks to plead a cause of action for knowing inducement of the breach of trust by VRT.[20]
[20]Proposed new paragraphs 70-75.
As against the second defendant, the plaintiff seeks first to plead that the liquidation of VRT Global was part of a design (‘Acquisition Plan’) of the first defendant to commence a business ‘functionally identical to the Business utilising VRT Global’s plant and equipment’.[21] It is sought to be pleaded that the first defendant, as a director of VRT, had a fiduciary obligation ‘not to place himself in a position where his personal interest conflicted with the best interests of the Trust unit holders as a whole’ and that the Acquisition Plan was in the interests of the first defendant, but not in the interests of VRT, whose interests were those of the Trust unit holders as a whole.[22] It is sought to be pleaded not only that the first defendant breached his fiduciary obligations by implementing the Acquisition Plan, but that this breach was fraudulent and dishonest.[23] The cause of action against the second defendant arising from the liquidation of VRT Global is then said to be knowing assistance to this dishonest and fraudulent breach of fiduciary obligations.[24]
[21]Proposed new paragraph 76.
[22]Proposed new paragraphs 78 and 77 respectively.
[23]Proposed new paragraphs 79 and 81.
[24]Proposed new paragraphs 82-84.
All of the proposed amendments to introduce claims arising from the liquidation of VRT Global are opposed.
Re-pleading of loss
The plaintiff seeks to amend his pleading in respect of loss arising from the share transfer, and to add a plea of loss arising from the liquidation of VRT Global. These amendments are opposed.
Operation of a business by the first defendant subsequent to the liquidation
The plaintiff seeks to add a new claim, formulated in two proposed causes of action, as against the first defendant arising from the operation of a business by him from early 2013 that is said to be ‘functionally indistinguishable’ from the Business and the business carried on by VRT Global.[25] The proposed causes of action are for breach of contract of the (2006) Agreement[26] and for breach of fiduciary duty arising from that Agreement[27]. These amendments are opposed.
[25]Proposed new paragraphs 88-91.
[26]Proposed new paragraphs 92 and 93.
[27]Proposed new paragraphs 94-99.
Claims against the company arising from the share transfer
The plaintiff says that he wishes to recast the claims of misleading and deceptive conduct, and of unconscionable conduct, in relation to the share transfer, which are currently made against the first defendant, to claims made against the company itself, VRT Global, because he now considers that the earlier approach was in error. Counsel for the plaintiff relies on Hamilton v Whitehead[28] in this regard. In that case, a company was charged with criminal offences constituted by actions of its managing director, Mr Whitehead. Mr Whitehead was charged with being knowingly concerned in the commission of those offences i.e. as an accessory. Before a magistrate, all charges against both the company and Mr Whitehead were dismissed. On appeal to the Supreme Court of Western Australia, the informant was successful and the company was found guilty of some of the charges. The judge did not, however, also find Mr Whitehead guilty as an accessory in respect of those charges, because he held it would be oppressive to prosecute him personally for the same acts he undertook as the company. The High Court held on appeal that that approach was wrong on the facts of the case, because the offence in question imposed direct liability on the company. The company was required to act through living persons, in this case Mr Whitehead, who in that respect constituted the company. That did not, however, prevent him from being also liable as an accessory.[29]
[28](1988) 166 CLR 121
[29]Ibid, at 127-128.
By parity of reasoning, the plaintiff seeks to plead that the company VRT Global itself had an obligation not to offend ss 18, 20, 21 and 22 of the Australian Consumer Law, and that it did so by failing to notify the plaintiff of the proposed share transfer and its effect, and by acting unconscionably having regard to its knowledge (founded on the knowledge of the first defendant) that the plaintiff was in a position of special disadvantage in relation to it.
The defendants’ objections
The change is unnecessary
The defendants submit that the recasting of the claims of breach of ss 18, 20, 21 and 22 of the Australian Consumer Law so that they are made against the company is unnecessary. They rely on Houghton v Arms[30] as authority for the proposition that the claims can be brought against the first defendant as a principal. That case concerned a civil claim for misleading and deceptive conduct brought against both a company and two employees. The claim against the company was brought under the then federal legislation, the Trade Practices Act 1974 (Cth), and the claim against the employees was brought under the then state legislation, the Fair Trading Act 1999 (Vic). The claim against the employees was brought against them as principals, not accessories to the acts of the company. Ultimately, the High Court found that they were liable as principals.
[30](2006) 225 CLR 553.
In my view, Houghton v Arms does not show, as the defendants contend, that the first defendant may, or must, be sued as a principal in relation to the share transfer. I consider that what the two cases, Houghton v Arms and Hamilton v Whitehead, show is that the appropriate approach will depend on the facts of the case and the particular statutory framework. In particular, it will be relevant whether or not direct liability is imposed on the company and whether or not there is provision for accessorial liability as against individuals.
In both cases, the Court was of the view that the company was liable as a principal. This is consistent with the plaintiff’s desire to claim against the company. In Hamilton v Whitehead, the Court held that the director whose acts constituted the acts of the company, could also be liable as an accessory. In other words, he could act in dual capacities- as the company, and as an individual. This approach was expressly approved by the Court in Houghton v Arms.[31] In that case, the company was found liable at trial on the basis of acts of the employees, and the employees were also found individually liable in respect of those same acts. In that case, the liability of the employees was as principals, but it is important to understand that, at the time of their acts, there was no provision in the state legislation for accessorial liability. In that context, the Court found that there was no reason to read down the state provision so as to exclude the direct liability of persons who engage in misleading or deceptive conduct as employees.[32]
[31]Ibid, at [46]-[47].
[32]Ibid, at [40]-[41].
Here, the plaintiff now seeks to claim against the company as directly liable and the defendants as accessories, on the basis of the provisions for accessorial liability contained in the Australian Consumer Law. I do not consider the fact that, in a different statutory context and on different facts, employees of a company were held to be liable as well as the company as principals means that the plaintiff’s desired approach is bad in law, or that it is unnecessary. To find that the change is unnecessary would be to find that the direct claim can be successfully brought against the first defendant, rather than the company. That will depend on the facts, which are not before me. Direct liability as against the company, and accessorial liability as against the defendants, is the approach that the plaintiff now wishes to take. Whether or not he succeeds on the facts is a matter for trial. Accordingly, I would not refuse leave for these amendments on the basis that they are unnecessary.
The company is not liable for the transfer of its own shares
The defendants submit that the proposed reformulated claims directly against the company misunderstand the involvement of a company in a share transfer. They also ask how the company could itself be liable to pay for its own shares, as is envisaged by the particulars to proposed paragraph 41C.
Counsel for the plaintiff conceded in discussion that it was unusual to speak of a company being liable in respect of the transfer of its own shares, but said that direct liability arose on the facts of this case because the share transfer was effected by cancellation of the plaintiff’s shares and issue of the same number of shares to the second defendant, each without consideration. Whether or not that is what occurred is a matter of fact for trial. I do not consider the defendants’ contention that what occurred was a transfer of shares, not a cancellation and reissue[33] to be a reason to refuse leave to plead the contrary.
[33]Defendants’ Outline of Submission at page 6.
Inconsistent pleading
I do, however, accept the defendants’ contentions that aspects of the proposed new paragraphs are embarrassing, and also that some aspects of the proposed new paragraphs are inconsistent with aspects of the existing pleading, which are not sought to be changed. An example of an embarrassing pleading is the use of ‘either’ in the particulars to proposed paragraph 41C. This is not a mere alternative plea in law arising from an asserted fact- the plaintiff does not identify on which of two possible versions of the facts (he was not notified at all, or he was notified inadequately) he relies.
Examples of inconsistency are helpfully set out at in paragraph (4) of p5 of the Defendants’ Outline of Submission. In short, the first paragraph of the proposed new plea against the company (proposed paragraph 31A) expressly refers to and relies upon existing paragraphs that relate to the characteristics of the first defendant and the relationship between the plaintiff and first defendant (existing paragraphs 2, 20 and 21) and the Agreement and Implementation Agreement, which were entered by the plaintiff and first defendant only, and well prior to the existence of VRT Global (existing paragraphs 6, 7, 20 and 21). These are the matters that are said to have given rise to a reasonable expectation that VRT Global would notify the plaintiff of the share transfer and its effect, yet why they should give rise to an expectation that the company, as opposed to the first defendant, would do that is not pleaded.
Similarly, the particulars to proposed paragraph 31C adopt other existing paragraphs that refer only to the first defendant. It is not pleaded how these matters, which relate to the first defendant, are now said to infect the actions of VRT Global. The answer may be that the first defendant was the managing director of VRT Global at the time it is now said as a company to have infringed the Australian Consumer Law. This is pleaded in relation to the proposed accessorial liability of the first defendant for the claimed misleading conduct by omission (in the particulars to proposed paragraph 31F) but not in relation to the proposed principal liability of VRT Global.
In my view these matters of pleading are a basis for refusing leave to amend in the current proposed form, but may be capable of relatively easy correction. In relation to the respective roles of the first defendant and the company, for example, there is reference in the parallel reformulated claim of unconscionable conduct in respect of the share transfer as against the company, rather than the first defendant, to the first defendant being the managing director of VRT Global and ‘the only person managing and directing VRT Global’s operations’.[34] The defendants take objection to the reformulated unconscionable conduct claim, on the basis that it conflates the position of the first defendant and VRT Global, but in my view the particulars as just quoted are sufficient to attribute matters relating to the first defendant to VRT Global.
[34]Particulars to proposed paragraph 41A.
Amendments do not arise from the earlier reasons
The final matter on which the defendants rely in opposition to these reformulated claims is that the amendments do not arise from my reasons in dismissing the plaintiff’s earlier application. Plainly they do not, because these proposed claims were not under consideration at that time at all. I do not consider that to be a bar in itself to the grant of leave. It is, however, a significant matter to be taken into account in the exercise of the discretion to grant leave, if the proposed amendments are otherwise in proper form, that the plaintiff now seeks to so substantially reformulate this aspect of his case, and to do so without any explanation on oath. I will return to the question of discretion at a later point in these reasons.
Claimed breach of fiduciary duty by the first defendant arising from the share transfer
The plaintiff has alleged throughout that the first defendant owed him fiduciary duties (content unspecified) pursuant to the Agreement, the Implementation Agreement and as a director of VRT Global by reason of certain matters. These allegations appear at paragraphs 46-48 of the statement of claim. The defendants have throughout denied these allegations, save that they admit that the first defendant, as a director of VRT Global, owed fiduciary duties to the plaintiff. The defence and counterclaim takes no objection to the lack of specification of the content of the fiduciary duties pleaded.
The plaintiff seeks to amend his claim by adding a further reason why the first defendant owed the plaintiff fiduciary duties pursuant to the Agreement (proposed paragraph 46(d)); by adding an allegation of breach by the first defendant by acting in his own and not the plaintiff’s interest in respect of all the pleaded fiduciary duties (proposed paragraph 50A) and by amending the plea of loss.
The proposed addition to the reason why the first defendant owed the plaintiff fiduciary duties is to add a cross reference to an existing plea at paragraph 20 that the plaintiff relied on the first defendant by reason of various matters. Paragraph 20 is denied in the defence and counterclaim and answered by an assertion that the plaintiff obtained assistance from others.[35]
[35]Defence and Counterclaim filed 14 February 2014 at [20] and [20A].
The plaintiff now seeks to amend paragraph 20 to remove reference to an identified time period within which the Agreement was in effect, and replace it with a reference to an unspecified time period being ‘the period the Agreement was in effect’; and to add reference to any future vehicle through which the ‘Business’ was to be operated. These amendments are presumably to ground the allegations now sought to be made at proposed paragraphs [88]-[99] of breach of the Agreement by the first defendant by carrying on a business after the liquidation of VRT Global in 2012.
The amendments to paragraph 20 are opposed. I will consider them in conjunction with proposed paragraphs 88-99. Subject to that consideration, I do not consider there is any basis to oppose the proposed amendment by paragraph 46(d) to incorporate paragraph 20 by reference into paragraph 46, as both paragraph 20 and paragraph 46 are existing pleas. The amendment merely better relates them.
The defendants object to the proposed plea of breach, because it is not pleaded how the share transfer was in the first defendant’s interests, as opposed to that of his father, who was the transferee. I accept this objection. I do not accept the plaintiff’s submission that it is self-evident from the admitted fact that the second defendant is the first defendant’s father. It is not necessarily the case that an action that is in the interests of a relative, even a close relative, of a person under fiduciary obligations is also in the interests of the person with those obligations. Something more must be alleged. The plaintiff relies in this regard on a passing reference in a family provision case to the self-evident conflict of interest shown by the relationship of father or grandmother executor and child or grandchild residuary beneficiary as against the life interest of another beneficiary.[36] I do not think that that reference, made on the facts of quite a different case, can be helpfully applied in the current context.
[36]Chris v Wood [2007] NSWSC 377 at [19].
The same difficulty arises in respect of the allegation of conflict between duty and the first defendant’s own interest in existing paragraph 50. That paragraph is denied, but has not been challenged on pleading grounds and nor is it sought to be amended. The lack of challenge to paragraph 50 is somewhat inconsistent with the opposition to proposed paragraph 50A, but the onus remains on the plaintiff to justify the amendment. I do not consider that the Court should speculate as to what is to be pleaded, and so would refuse leave to insert proposed paragraph 50A.
I also accept, as noted earlier, the defendants’ contention that the existing claim for breach of fiduciary duty (which pleads that the first defendant ‘arranged’ the share transfer) is not consistent, without more, with the reformulated claim that the company ‘arranged’ the share transfer (proposed paragraph 31A.a). This requires correction.
The defendants also now seek to impugn the pleading of the breach of fiduciary duties on the basis that it does not identify the content of the duties, as opposed to the source from which they arose. I accept the validity of this as an objection, but if it has occasioned prejudice to the defendants or is otherwise of real significance it should have been made by strike out application in respect of the existing statement of claim, which relevantly has been in this form throughout. Accordingly, it alone would not justify refusal of leave to make the other amendments to this portion of the pleading. The refusal of leave to insert the allegation of breach may mean, however, that the plaintiff wishes to reconsider the whole of this plea of breach of fiduciary duty and in so doing insert allegations as to the content of the duties. This will then inform a recast plea of breach.
I would grant leave to make the amendment sought in paragraph 46(d) (I will separately consider the proposed amendments to paragraph 20) but refuse leave to add proposed paragraph 50A. I will return to the objections to the new loss claim shortly.
New claim of knowing receipt against the second defendant
This claim, sought to be made in proposed new paragraphs 57A-57E, depends on the plea that the first defendant ‘arranged the Share Transfer in breach of his fiduciary obligations to the Plaintiff’ (see proposed paragraph 57A). Accordingly, it is subject to the same criticisms of inconsistent pleading as to who effected the share transfer (the first defendant or the company?), and of inadequate pleading of breach of fiduciary obligation by the first defendant as identified above. It fails for the same reasons.
New claim for loss
The plaintiff seeks to add a new paragraph, proposed paragraph 65, which is expressed to be in the alternative to the existing paragraphs pleading the quantum of loss arising from the share transfer. The existing paragraphs quantify his loss arising from the share transfer as ‘at least’ the historical value of his ordinary class shares, multiplied by the number of the plaintiff’s ordinary shares transferred. The value of his ordinary class shares is pleaded as being at least $5 per share, on the assertion that that was the value of B class shares at two points in time, and B class shares were of lesser value than ordinary shares. The intention of the proposed new paragraph appears to be, in the alternative, to quantify his loss as a percentage of the value of ‘VRT Global’ at the time of the share transfer, being the percentage which the plaintiff’s shareholding bore to the whole of the shareholding, irrespective of class of share.
The defendants object to this paragraph noting that it contains within it three reference points, which may be different- a percentage of ‘VRT Global’s shares’ or ‘VRT Global’s share capital’ or ‘VRT Global’s total share capital’ (which I assume to be intended to be the same); the ‘value of the Business’ (which is defined earlier in the pleading to be the business to be conducted by virtue of the oral agreement in 2006 between the plaintiff and the first defendant); and ‘the value of VRT Global at the time of the Share Transfer’.
I agree that the use of three possibly different reference points within the paragraph introduces confusion and uncertainty and the paragraph is embarrassing. The plaintiff says that there is no intention to depart from valuation of the company on the basis of the value of its shares. If that is so, it is not made plain. The reference to ‘the Business’ is particularly confusing, given that that agreement preceded the creation of VRT Global by a number of years.
This deficiency could be readily cured by clearer pleading. However, I will refuse leave to amend to introduce paragraph 65 in its current form. Accordingly the proposed amendments that introduce internal reference to it also fail.
The defendants also contend that it is not clear how the approach in proposed paragraph 65, if it is based on value of the shares in VRT Global, is different from the claim already made by paragraph 64. If, as I have assumed, the intention is to allow for quantification based on a valuation of the whole of the shareholding in VRT Global at the time of the share transfer, rather than the historical value of the plaintiff’s shares, which were said to be of higher value than the B class share value adopted as a baseline value, then there is a difference, but it could be made plainer. This factor alone would not justify refusal of leave, but as leave will be refused for the reasons I have identified, it could perhaps be addressed if leave is given to re-plead.
Claims arising from the liquidation of VRT Global
The defendants object to the proposed amendments to plead claims arising from the liquidation of VRT Global. These claims are pleaded at proposed paragraphs 66-84, all of which are new.
As I understand this new set of claims, the plaintiff seeks to assert in proposed paragraph 70 that VRT, the trustee of the Trust, owed a duty to the beneficiaries of the Trust (which included the plaintiff) to act in their best interests ‘as a whole’. I assume that this is intended to mean, not to prefer the interests of one set of unit holders, such as the first defendant, over the interests of another. Proposed paragraph 71 seeks to plead that VRT breached that trust by failing to direct its wholly owned subsidiary, Operations, which held 50% of the shares in VRT Global, to vote against the liquidation. This is said to have been a breach because financial forecasts as at December 2011 were to the effect that VRT Global would have significant net worth in the foreseeable future. Proposed paragraph 71.d pleads that as a consequence it was ‘in the best interests of the Trust unit holders as a whole for VRT Global to continue to trade rather than to place itself into voluntary liquidation’.
In pre-emptive response to any allegation that the liquidation was necessary because of insolvency, proposed paragraph 67 pleads that the liquidation was not necessary, because VRT Global was either solvent, or could have been readily returned to solvency. At proposed paragraphs 68, 69 and the particulars to 80.d.ii the plaintiff seeks to plead his interest in the Trust (from which follows his standing to question the liquidation) and at proposed paragraph 69 the loss he suffered by reason of the liquidation.
The complication with the proposed claim is that the plaintiff makes no claim for relief for this breach of trust directly against VRT (which, I was informed, is in liquidation). He seeks to recover against the first defendant, for knowing inducement of that breach of trust (proposed paragraphs 73-75). He also seeks to assert that the first defendant breached a fiduciary obligation as director of VRT, and that that breach was fraudulent and dishonest (proposed paragraphs 76-81). The foundation of this assertion is the allegation that the first defendant caused the liquidation of VRT Global as part of a design (‘the Acquisition Plan’) to cause VRT Global to go into liquidation, to then acquire the plant and equipment of VRT Global and subsequently to commence a business ‘functionally identical’ to ‘the Business’ i.e. the business that the plaintiff and the first defendant agreed in 2006 to operate together.
Proposed paragraph 80 pleads that the first defendant deliberately concealed his intentions and the fact that VRT Global could continue to trade from unit holders in the Trust including the plaintiff, and from the plaintiff as a co-director of VRT, and that the liquidation of VRT Global was in the interests of the first defendant, but not in the interests of ‘the Trust unit holders as a whole’. This allegation may also be intended to supplement the plea of breach of the obligation on the trustee VRT not to prefer the interests of one set of unit holders over another. Proposed paragraph 81 then pleads that in these premises, the acts of the first defendant to implement the Acquisition Plan and cause the liquidation of VRT Global constituted a fraudulent and dishonest breach of his obligations as a director of the trustee, VRT.
The plaintiff does not separately claim against the first defendant for this alleged fraudulent and dishonest breach of fiduciary obligations (as compared to his distinct claim at proposed paragraph 75 for loss by virtue of the first defendant’s knowing inducement of the breach of trust). He does, however, seek to utilise this claim of fraudulent and dishonest breach of fiduciary obligation as the basis for a claim for relief against the second defendant, for knowing assistance to that breach (proposed paragraphs 82-84).
It is apparent that the claims that are sought to be made are very complicated. They also require an examination of the solvency or otherwise of VRT Global and its financial prospects as at the date of liquidation, and they make serious allegations of fraud and dishonesty. Whether the amendments should be permitted involves both pleading considerations and, if they survive that scrutiny, questions of discretion, given the complication these claims for relief would no doubt add to the trial. In addition to these matters, the defendants have raised a number of concerns that in my view are really attacks on the likelihood of the plaintiff proving the allegations, and so properly for trial or summary judgment application based on no real prospect of success rather than a pleading contest.
No or insufficient pleading of a cause of action
I turn first to objections based on insufficient pleading of a cause of action.
The defendants submit that proposed paragraphs 66-69 do not disclose a cause of action. I think it is misconceived to view these paragraphs in isolation in this regard. In my view, they are to be read with at least proposed paragraphs 70 and 71 and are intended to plead a breach of trust by VRT, which in turn lays the foundation for the claims made against the first and second defendants.
The defendants object to the assertions in proposed paragraphs 66, 67 and 69 that VRT Global placed itself into liquidation. I accept the submission of the plaintiff that as ss 490 and 491 of the Corporations Act 2001 (Cth) speak of a company resolving to be wound up, it is possible to plead that the company placed itself into liquidation. The defendants also point to the seeming inconsistency of the claim that VRT Global placed itself into liquidation, and the many references to the first defendant personally arranging ‘all aspects of and incidental to the liquidation of VRT’ (for example at proposed paragraphs 73(b), 76(a), 80(a), and 83). I think it is sufficiently plain that it is intended to assert that while the company placed itself into liquidation, it was the first defendant who took the steps that caused that to occur.
The defendants submit that the plea in proposed paragraph 67(b)(ii) fails to disclose a cause of action. That subparagraph seeks to plead that VRT Global could have been returned to solvency by taking steps to compel the second defendant to honour his obligation to provide VRT Global certain ‘collateral’. The defendants submit that the second defendant was under no obligation to provide ‘collateral’, which is security for a loan, in the absence of a ready and willing lender. The subparagraph contains no plea that there was such ready and willing lender, or particulars of the proposed loan.
The paragraph is not intended, on my analysis, to plead a cause of action directly against the second defendant, for failure to comply with that promise, and so the absence of a plea that there was a lender does not cause it to fail for want of an essential element of this plea as a distinct cause of action. However, it is apparent that the plaintiff seeks to plead solvency, or ability to return to solvency, as an essential element of his claim of breach of trust by VRT, and consequential causes of action against the first and second defendants. I consider that the sub-paragraph fails to sufficiently plead how compelling the second defendant to provide collateral could have returned VRT Global to solvency, in the absence of the pleading of a proposed loan that only failed for want of collateral. I do not accept the contention of the plaintiff that the absence of a ready and willing lender is a matter to be pleaded in defence. For these reasons, I accept this objection, and would not grant leave for this subparagraph.
The defendants submit that the proposed paragraphs do not show why the directors of Operations were bound to follow a direction that, so the plaintiff alleges, should have been made by the directors of VRT to vote against the liquidation. I think this is sufficiently made plain by the plea in proposed paragraph 8E that Operations was wholly owned by VRT (and so obliged to act as VRT directed).
The better objection is that the proposed pleading fails to sufficiently plead why, in not instructing Operations to vote against the liquidation, VRT ‘acted to the detriment of the Trust unit holders as a whole’ (proposed paragraph 71- emphasis added). As is exposed by the particulars to proposed paragraph 80.d.ii, the first and second defendants held 1965 of the 3000 units in the Trust, or almost two thirds. The plaintiff held less than one third of the units. Both the first defendant (as a director of VRT) and the second defendant (as a director of Operations and of VRT Global) consented to the liquidation of VRT Global. It can be assumed then, that they also consented in their capacity as unit holders in the Trust. In other words, the majority of the unit holders consented to the liquidation. How then is it acting to the detriment of the unit holders as a whole to act as the majority wish?
I have given careful thought to this objection. On balance, I consider that the intent of the proposed pleading is to allege that the trustee VRT favoured the interests of one unit holder (the first defendant and his associated entities) or possibly two (both the first and second defendants and associated entities) over the remaining unit holders, including the plaintiff. This is what emerges from the intended pleas that the liquidation was part of a dishonest and fraudulent design to advance the interests of the first defendant in breach of his obligations to the plaintiff arising from the Agreement and in respect of the Business. I do not consider that the use of the phrase ‘as a whole’ is intended to imply that the majority rule.
Some confusion was also introduced by counsel for the plaintiff in submissions, when he submitted that it is the duty of a trustee to preserve the value of the assets of a trust, in this case the units. Such a duty is not pleaded. Had it been, it would not have been clear to me how allowing the liquidation breached that duty. If the shares held by Operations in VRT Global had current value, then presumably on a voluntary liquidation there would have been a return to shareholders, and ultimately to the unit holders in the Trust. The voluntary liquidation of VRT Global would have changed the nature of the assets held by the Trust but would not necessarily have rendered them worthless.
What is pleaded in proposed paragraph 71 is an obligation to ensure VRT Global continued to trade, on the basis of likely future value. The defendants assert that this allegation cannot be made good. If that is the case, that is a matter for trial or earlier application for summary judgment.
It follows that I do not accept the objection that the new claims do not expose causes of action.
Objections of form
However, I do accept the defendants’ objection to the phrase ‘functionally identical’ in proposed paragraph 76.c. This is a key element to the first defendant’s alleged dishonest and fraudulent breach of trust, which in turn is the foundation of the proposed cause of action of knowing assistance against the second defendant. It is not clear what this phrase means. I consider this a very significant deficiency given the seriousness of these allegations. This is particularly so given that the intended comparison is to the Business, which is the business the subject of the original oral agreement between the plaintiff and the first defendant in September and October 2006, the Agreement. This is three years before even the incorporation of VRT Global in August 2009, and more than six years before its liquidation in November 2012.
The ‘plant and equipment’ the subject of the alleged Acquisition Plan (pleaded at proposed paragraph 76) would also benefit from particularisation.
The defendants also contend that there are insufficient particulars of the second defendant’s alleged knowing involvement at proposed paragraph 83. These alleged deficiencies were not elaborated. In the absence of that elaboration, I would consider what is proposed to be particularised to be sufficient.
The defendants also object to the pleading of loss arising from the liquidation at proposed paragraphs 85 and 86. I agree that the particulars to proposed paragraph 85 are deficient because they seek to value units in the Trust on the basis of their value as at October 2009 i.e. shortly after the incorporation of VRT Global, without identifying why, as is contended, that remained their value in November 2012 i.e. just before the liquidation of VRT Global. This deficiency also then infects the quantification of the plaintiff’s loss in proposed paragraph 86. I do not accept the contention of the plaintiff that the link between a 2009 valuation and value at 2012 is a matter for evidence only. That evidence can only be obtained on the basis of an asserted factual link.
The defendants also object to the alternative mode of assessing the plaintiff’s loss in proposed paragraph 87, as a proportion of the total value of VRT Global. I do not consider this mode of pleading objectionable or deficient, as it sufficiently exposes in my view that the loss is intended to be arrived at by valuation of VRT Global at its liquidation. There is, however, an inconsistency between the number of units the plaintiff is said to have owned in the Trust in paragraphs 86 and 87 (969) and the number he is said to have owned in proposed paragraph 80 (960).
Matters of proof
Counsel for the defendants contends that permitting an inquiry into the solvency of the company, as proposed paragraph 67 would require, would enlarge the trial considerably to ultimately no purpose, and that the reliance sought to be placed by the plaintiff on aspects of the liquidators’ report is misconceived.
In relation to the first limb, that an enquiry into solvency would be to be no purpose, the plea of breach of trust by VRT, which is essential to the causes of action sought to be brought against the first and second defendants, would seem to require the plaintiff to show that VRT Global was solvent, or could have been returned to solvency. If it was insolvent, then irrespective of any anticipated future prospects, liquidation was appropriate. Accordingly, I do not consider that the enquiry into solvency that these paragraphs would require, if leave were granted, can be said to be unnecessary as a matter of law. Whether it succeeds as a matter of proof is for trial or application for summary judgment.
The second limb of this objection, that a number of the factual assertions made in proposed paragraph 67 as to solvency, or the ability to return to solvency, are incorrect or misconceived, is in my view a matter for evidence and proof at trial. I repeat my comments to the same effect in relation to the earlier proposed claims arising from the liquidation in my earlier reasons.[37]
[37]Rozenblit v Vainer and anor [2014] VSC 510 at [38].
The defendants also object to the reliance intended to be placed by the plaintiff on a business plan prepared in December 2011, in respect of the prospects of VRT Global at the time of the liquidation (proposed paragraph 71.c). Again, I consider this a matter of proof, not of pleading objection.
Similar objections on the basis of speculation or lack of prospect of success are taken by the defendants to the proposed cause of action against the second defendant at proposed paragraphs 76-84. These also go to proof, not pleading.
Summary
I will refuse leave to make the amendments that seek to plead new causes of action arising from the liquidation of VRT Global. I do so not because I consider that no cause of action is shown but because of their poor drafting.
New claims arising from the operation of Polymeric Powders Pty Ltd
The plaintiff wishes to add two new causes of action against the first defendant said to arise from the carrying on of a business through a company owned and controlled by him, Polymeric Powders Pty Ltd (‘Polymeric’) that is said to be ‘functionally indistinguishable’ from the business of VRT Global and the Business i.e. the business that the plaintiff and first defendant agreed to carry on by their oral agreement in September and October 2006. Those causes of action are breach of contract and breach of fiduciary duty. The defendants object to the proposed pleading to this effect.
I accept the defendants’ objections in two principal respects. The first is that the proposed pleading does not sufficiently particularise the basis on which it is asserted that the business of Polymeric is ‘functionally indistinguishable’ from the business previously owned and operated by VRT Global and the Business. This is perhaps sought to be achieved by the allegation that the business conducted by Polymeric utilises the Recycling Technology, which is earlier defined in the statement of claim at paragraph 4 as being ‘several related tyre recycling technologies and processes’ invented by the plaintiff between 1983 and 1994. The statement of claim pleads at paragraph 6(a) that the Business agreed in September and October 2006 to be conducted between the plaintiff and the first defendant was to further develop and commercialise the Recycling Technology.
The terms, ‘Recycling Technology’ and ‘Business’, so defined and utilised, have been a feature of the statement of claim throughout and have not been previously objected to, at least on application. The defendants have pleaded to paragraph 4, by not admitting the allegation, and to paragraph 6(a) by admitting the allegation. It accordingly follows that they knew at that time, and in that context, what the words meant. The terms are now sought to be put to a new use, however, and on analysis that use has introduced uncertainty.
I also accept the defendants’ objection to the phrase ‘functionally indistinguishable’. It is entirely unclear what this means. Is it intended to mean the same as ‘functionally identical’ in proposed paragraph 76? If so, at a minimum the same words should be used. As noted earlier, however, that would still not identify what is meant. The meaning of ‘identical’ or ‘indistinguishable’ may be sufficiently plain, but what does the word ‘functionally’ add or mean?
These two difficulties are exposed by the plea in proposed paragraph 91, which would seem to assert that the three businesses there identified, ‘the business owned and operated by Polymeric’, ‘the business previously owned and operated by VRT Global’ and the Business, are and were all ‘functionally indistinguishable’ one from the other. On its face, given that these various businesses came into being at different times over a period of seven years, this would be surprising as a matter of fact. As a plea, in my view it requires particularisation of what each business did or does. Particular difficulty arises from the fact that all these businesses are defined by reference to ‘further’ development of the Recycling Technology, without any particularisation as to the stage that ‘further’ development had reached at the inception of each of them.
As noted earlier, the ‘Recycling Technology’ is defined in paragraph 4 of the statement of claim as those technologies and processes invented by the plaintiff between 1983 and 1994. Paragraph 5 of the statement of claim then pleads that the plaintiff ‘further developed’ the Recycling Technology after he arrived in Australia in 1994. In other words, in the twelve years between 1994 and 2006 there were developments to the Recycling Technology. The statement of claim does not identify what these were.
The defendants admit that the intent of the agreement between the plaintiff and the first defendant in September and October 2006 (the Agreement) was to carry on a business (the Business) which required ‘the further development and commercialisation of the Recycling Technology’. Neither the statement of claim or the proposed amendments identify whether any ‘further’ development then ensued, and, if so, what.
In paragraphs 9 and 10 of the statement of claim it is pleaded that VRT Global was established ‘to promote the Business by further developing and commercialising the Recycling Technology’. VRT Global was incorporated in 2009, three years after the Agreement which established the Business. It is entirely unclear whether the use of the same word ‘further’ in relation to the incorporation of VRT Global means that the development of the Recycling Technology was still, in August 2009, at the same point it was in September and October 2006, or whether there had there been, as the usual meaning of the word would suggest, some change in those years?
The third of these businesses which are said to be ‘functionally indistinguishable’ is the ‘business owned and operated by Polymeric’. That business is defined in proposed paragraph 90, again by reference to development of the Recycling Technology. The proposed paragraph pleads that the business of Polymeric was ‘developing and commercialising the Recycling Technology’. It is notable, that in respect of this business, the word ‘further’ in relation to the development of the Recycling Technology is not utilised. Is the intended meaning that Polymeric has gone back to the processes originally invented by the plaintiff up until 1994? If so, how is this identical to the Business, or the business of VRT Global, which are pleaded to have already involved further development of those processes? Given the looseness of language used throughout the proposed pleading, I consider it is more likely that the absence of the word ‘further’ is an unintended differentiation.
The intention of this analysis has been to show that the plaintiff has failed to sufficiently identify the content of the three businesses in question. His pleading utilises the same terms- ‘development’ or ‘further development’ of the ‘Recycling Technology’-in respect of the three businesses over seven years without particularisation as to what stage that technology had reached at the inception of each of those businesses. I consider that the proposed pleading is too uncertain to be responded to.
The second basis on which I consider that the defendants properly object to these proposed new causes of action is that they allege a breach in 2013 of fiduciary duty and contract pursuant to an agreement in 2006 without making it plain how that agreement, the Agreement, has survived the subsequent Implementation Agreement and the creation of multiple corporate entities in the succeeding years. This difficulty is compounded by the proposed amendments to paragraph 20 to delete any reference to a time period in which the Agreement was in effect, and to leave that at large, and to incorporate the possibility of other vehicles to operate the Business. I do not accept the contention of the plaintiff that the impact of the intervening events are matters for defence only.
It follows that I will not allow these amendments. I consider that the deficiencies are so substantial that no causes of action are sufficiently shown. If the plaintiff wishes to make these new allegations in relation to Polymeric he can no longer avoid clearly identifying the subsequent stages of development of the Recycling Technology and how that relates to the business conducted by VRT Global and the business conducted by Polymeric. He must also plead and particularise the period within which the Agreement was in force.
There is a further related deficiency correctly identified by the defendants. That is that the plea of loss in proposed paragraph 93 quantifies that loss on the basis of the original 45%/55% division in the Agreement, which was in relation to the Business, without reference to the far less substantial holding by the plaintiff in VRT Global as at the date of its liquidation. The plaintiff’s indirect holding in VRT Global at that time was only as to approximately one sixth, by reason of his one third holding in the Trust. While the 45% manner of calculation flows from the allegation of breach, which is in relation to the Agreement, it does not sit well with the factual allegation that the business carried on by Polymeric is ‘functionally indistinguishable’ from the business carried on by both VRT Global and the Business.
I will refuse leave to make these amendments.
Summary of conclusions on the objections
I would allow the amendments to which the defendants do not object, together with the proposed deletion of paragraphs 39-41 which seem to me to properly fall within the same category.
I would also allow the proposed new paragraphs 8A-8D if still pressed, notwithstanding the failure of the new causes of action that build upon them.
In respect of the remaining amendments, with the exception of the new claims in respect of Polymeric, I consider that broadly speaking the plaintiff has shown a legal basis for the new claims or reformulated claims. However, the proposed pleading contains multiple examples of loose language, and inconsistent or insufficient pleading and for that reason leave cannot be given to amend in its form.
In relation to the new claims in respect of Polymeric, I consider that the plaintiff has not sufficiently grappled with the necessary elements of his complaint. The proposed causes of action relate back to the 2006 Agreement, but they do not plead the basis on which the Agreement remained in force notwithstanding the events of the intervening years. Nor are the pleas of breach sufficient in the absence of proper identification of the extent to which the business of Polymeric is ‘functionally indistinguishable’ (which is also an objectionable phrase) from that of the Business. This would require particularisation of the stage of development of the Recycling Technology at the relevant periods.
In relation to the other amendments, I do not allow the proposed amendments formulating claims arising from the liquidation of VRT Global, by reason first of the failure to properly plead what is meant by the phrase ‘functionally identical’ in proposed paragraph 76.c. This is a similar difficulty to that exposed in relation to the claims about Polymeric. Further particulars are also required in respect of the valuation of the units in the Trust as at the date of the liquidation. Consistency is also required as to the number of units the plaintiff held in the Trust.
I do not allow the proposed amendments in respect of the share transfer, but only by reason of matters of drafting, which may be capable of fairly ready correction.
I would allow the proposed amendment to paragraph 46(d) to incorporate reference to paragraph 20, but would not allow the amendments to paragraph 20. I do not allow the proposed paragraph 50A without appropriate particularisation. The amendment to paragraph 51 fails as a consequence.
I do not allow the proposed new claim for knowing receipt against the second defendant in proposed paragraphs 57A-57E by reason of the inconsistent pleading as to who effected the share transfer and inadequate pleading of breach of fiduciary obligation by the first defendant.
I do not allow proposed new paragraph 65 as to loss but consider the pleading defect may be capable of fairly ready correction. Other proposed amendments that incorporate reference to this paragraph consequently fail in so far as they refer to this paragraph.
It will now be for the plaintiff to consider whether he wishes to proceed in respect of the amendments that I would allow.
Discretion
The defendants also object to the application to amend on discretionary grounds, having regard to the principles enunciated in Aon Risk Services Australia Ltd v Australian National University [38]. As the application fails on pleading grounds, it is not necessary in relation to the current proposed amended pleading to consider these discretionary factors. They will, however, be relevant if the plaintiff seeks in the orders to be made following these reasons the opportunity to further amend. In the event the plaintiff seeks that opportunity in the orders to be made, and it is opposed, I will hear the parties further. They may at that time rely on the evidence and submissions already put, in addition to any further submissions. I consider that to be the preferable course rather than expressing a view now, as the question of further leave was not ventilated at any length in argument.
[38](2009) 239 CLR 175.
Orders
I will ask the parties to draw orders to reflect these reasons, agreed if possible. If not agreed I will hear them further.
Also listed before me on the hearing of the plaintiff’s summons was the defendants’ objection to a subpoena issued by the plaintiff to Commonwealth Bank on 12 May 2014. The subpoena seeks
· financial documents relating to the first and second defendants, and to a number of corporate entities including those mentioned in the statement of claim (VRT, Operations and VRT Global) and other companies, which do not however feature in the statement of claim, and to Polymeric; and
· certain identified documents relating to an identified account in the name of VRT Global.
The notice of objection on the Court file identifies an objection in respect of ‘a number of bank accounts’ on the grounds of relevance. Unfortunately that notice does not attach the letter from the solicitors to the defendants making the objection, which may elaborate the objections and identify the bank accounts in question.
I did not hear any argument on the objection on the return of the summons, because it was agreed that it should await the determination of the application to amend the pleading. It is not immediately apparent to me from the subpoena and the notice of objection on the Court file how the objection to the subpoena is now affected by my determination on the application to amend. If there remains an issue on which the parties are not agreed, I will hear them on it.
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