Samfa Pty Ltd v Hilane Pty Ltd and Ors

[2011] VSC 644

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

LIST A
No. 5061 of 2011

SAMFA PTY LIMITED (ACN 080 069 692)	Plaintiff
v
HILANE PTY LTD (ACN 080 047 730) & Ors (according to the attached Schedule)	Defendants

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JUDGE:	Davies J
WHERE HELD:	Melbourne
DATE OF HEARING:	30 November 2011 and 1 December 2011
DATE OF JUDGMENT:	15 December 2011
CASE MAY BE CITED AS:	Samfa Pty Ltd v Hilane Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2011] VSC 644

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PRACTICE AND PROCEDURE – Application for summary judgment – Applicable principles – “No real prospect of success” – Sections 61 and 63 of the Civil Procedure Act 2010 (Vic)

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff and First Defendant by Counterclaim	Mr. S E Marks SC with Mr. N De Young	Pointon Partners
For the First to Fifth Defendants and Plaintiffs by Counterclaim	Mr. N O’Bryan SC with Mr. C Shaw	Logie-Smith Lanyon
For the Sixth and Seventh Defendants	No appearance for or on behalf of the Sixth and Seventh Defendant
For the Second Defendant by Counterclaim	Dr. O Bigos	Arnold Bloch Leibler

HER HONOUR:

1. This is an application by the plaintiff (“Samfa”) for summary judgment against the first to fifth defendants (“the defendants”). The application is made under r 23.01 of the Supreme Court (General Civil Procedure) Rules2005 (“SCR”) and ss 61 and 63 of the Civil Procedure Act2010 (Vic) (“CPA”).

The plaintiff’s claim

1. Samfa has sued on the terms of an agreement for the payment of an amount of $5 million. As the material facts supporting the claim have been admitted in large part by the defendants, the claim can mostly be described in narrative form.

1. Samfa, Border Australia Pty Ltd (“Border”)[1] and the first defendant (“Hilane”) (collectively the “original DFO partners”) formerly carried on business in partnership developing and operating direct factory outlets (“DFOs”) at Moorabbin, Essendon and Homebush.[2] There were separate partnerships for each venture, known as the DFOM Partnership, the DFOE Partnership and the DFOH Partnership (collectively the “original partnerships”).[3] After 21 February 2005, Border and Hilane also carried on business with the second defendant (“Volt”) (collectively “the new DFO partners”) through new partnerships (the “new DFO partnerships”), developing and operating new DFOs which included a DFO at South Wharf in South Melbourne (the “South Wharf asset”).[4]

   [1]Border was a defendant to the action but Samfa has settled its claim against Border.

   [2]Amended Statement of Claim (filed 21 November 2011), 3 [9]; Defence and Counterclaim (filed 1 December 2011), 3 [9].

   [3]Ibid.

   [4]Amended Statement of Claim (filed 21 November 2011), 4 [11]; Defence and Counterclaim (filed 1 December 2011), 3 [11].

1. In August 2010, an offer was made for the original partnership assets and the South Wharf asset (collectively the “sale assets”).[5] In September 2010 the new DFO Partners in contemplation of, and in order to secure the agreement of, Samfa to a sale of the original partnership assets, entered into an agreement with Samfa titled “Deed of Acknowledgment” (“Acknowledgment Deed”).[6] The Acknowledgment Deed contained provisions that:

   (a)each party acknowledged that it had consented to the sale of the sale assets on the terms of the offer (cl 2(a));[7]

   (b)each party acknowledged and agreed that Samfa was entitled to a priority payment in preference to the entitlement of the other partners of an amount up to, but not exceeding the first $5 million (“the priority payment”) from the surplus of the sale proceeds after payment of all transaction costs in connection with the sale and after payment of all amounts secured by any security over the sale assets (“the sale surplus”) (cl 4.1(a));[8] and

   (c)each party acknowledged and agreed that they would do all acts, give irrevocable directions and otherwise execute and deliver all requested documentation to ensure that the priority payment was made to Samfa (cl 4.1(b)).[9]

   The third, fourth and fifth defendants (collectively the “managing agents”) were also parties to the Acknowledgment Deed. The managing agents had been the managing agents for, and the owners of the assets of, the original partnerships on trust for the original partnerships.[10] 

   [5]Amended Statement of Claim (filed 21 November 2011), 5 [12] and [13]; Defence and Counterclaim (filed 1 December 2011), 3 [12] and [13].

   [6]Amended Statement of Claim (filed 21 November 2011), 6 [15]; Defence and Counterclaim (filed 1 December 2011), 10 [15].

   [7]Deed of Acknowledgment (September 2010), Cl 2(a) (Exhibit RE-4 to the  affidavit of Richard Hedley Earl sworn 28 November 2011).

   [8]Amended Statement of Claim (filed 21 November 2011), 5 [14(a)]; Defence and Counterclaim (filed 1 December 2011), 4 [14]; Deed of Acknowledgment (September 2010), Cl 4.1a; Definition of  “Sale Proceeds”, “Sale Surplus” and “Senior Debt”, Cl 1.1, (Exhibit RE-4 to the  affidavit of Richard Hedley Earl sworn 28 November 2011).

   [9]Amended Statement of Claim (filed 21 November 2011), 5 [14(b)]; Defence and Counterclaim (filed 1 December 2011), 4 [14]; Deed of Acknowledgment (September 2010), Cl 4.1(b), (Exhibit RE-4 to the  affidavit of Richard Hedley Earl sworn 28 November 2011).

   [10]Amended Statement of Claim (filed 21 November 2011), 2-3 [5], [6], and [7]; Defence and Counterclaim (filed 1 December 2011), 3 [5], [6] and [7].

1. The sale assets were sold on 23 September 2010[11] and the proceeds were placed with the sixth and seventh defendants (“Tan Partners”), legal practitioners, to hold as trustees.[12] By agreement made between the claimants to the proceeds contained in, or evidenced by, a document titled “Letter of Variation to Facility Agreement” dated 26 October 2010, the proceeds are to be paid and distributed by Tan Partners to claimants when, and only when, there is unanimous agreement in writing to the distribution given by all claimants. Each party is to use reasonable endeavours to procure the agreement of all claimants to the distribution of the sale surplus.[13] The claimants include Samfa and the new DFO Partners.[14]

   [11]Amended Statement of Claim (filed 21 November 2011), 6 [16]; Defence and Counterclaim (filed 1 December 2011), 10 [16].

   [12]Amended Statement of Claim (filed 21 November 2011), 7 [19] and [20]; Defence and Counterclaim (filed 1 December 2011), 10 [19] and [20].

   [13]Amended Statement of Claim (filed 21 November 2011), 7 [19]; Defence and Counterclaim (filed 1 December 2011), 10 [19],  Letter of Variation to the Facility Agreement (26 October 2010) (Exhibit 5 to the affidavit of Richard Hedley Earl sworn 28 November 2011).

   [14]Amended Statement of Claim (filed 21 November 2011), 7 [18]; Defence and Counterclaim (filed 1 December 2011), 10 [18].

1. As at 31 August 2011, the total sale surplus available for distribution to all claimants,  was $61,041,270.[15] Of that amount, Samfa and the new DFO partners are collectively entitled to a distribution to them of approximately $7,332,903, as evidenced in a spreadsheet.[16] The defendants have not authorised or directed Tan Partners to pay Samfa the amount of $5 million in priority to their entitlements, although Samfa has made repeated demands on them that they do so in accordance with cl 4.1 of the Acknowledgment Deed.[17]  Samfa has sued for specific performance of the Acknowledgment Deed, payment of the amount of $5 million and damages in the nature of interest for loss of use of  money.

   [15]Amended Statement of Claim (filed 21 November 2011), 6 [17]; Defence and Counterclaim (filed 1 December 2011), 10 [17].

   [16]Amended Statement of Claim (filed 21 November 2011), 8 [21]; Defence and Counterclaim (filed 1 December 2011), 10 [21]; Spreadsheet (as defined in paragraph 21 of the Plaintiff’s Amended Statement of Claim) (Exhibit 7 to the affidavit of Richard Hedley Earl sworn 28 November 2011).

   [17]Amended Statement of Claim (filed 21 November 2011), 9-13 [24], [26], [29] and [30]; Defence and Counterclaim (filed 1 December 2011), 11-12 [24], [26], [29] and [30].

1. Although the defendants have admitted the Acknowledgement Deed and cl 4.1 as a term of the Acknowledgement Deed,[18] they have denied the allegation that Samfa is entitled to the priority payment before distribution of the new DFO partners’ portion.  They have raised by way of defence that:

   (a)the Acknowledgement Deed is liable to be set aside in equity or under s 87 of the Trade Practices Act 1974 (Cth) and /or s 109 of the Fair Trading Act 1999 (Vic) for material misrepresentation of fact;[19] and

   (b)that the Acknowledgment Deed has been superseded and replaced by a further agreement made 9 September 2011.[20]

   [18]Defence and Counterclaim (filed 1 December 2011), 4 [14].

   [19]Defence and Counterclaim (filed 1 December 2011), 7 [14D] and 10 [14J].

   [20]Defence and Counterclaim (filed 1 December 2011), 11 [28].

2. The defendants have also raised a counterclaim against Samfa premised on those defences not succeeding. The counterclaim arises out of the settlement of claims made by Samfa against Border in this proceeding and a third party claim brought by the principals and directors of Border against the principal and director of Samfa in a different proceeding in the Supreme Court.  The terms of settlement are contained in two agreements (“the settlement”).  It is alleged in this proceeding that the alterations to the financial arrangements between the parties to the Acknowledgment Deed that were effected by the settlement have removed the substratum of the Acknowledgment Deed and constitute an equitable fraud upon the defendants within the meaning of the fourth category identified in the Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125 at 156.[21] 

   [21]Defence and Counterclaim (filed 1 December 2011), 14 [38].

Applicable principles for summary judgment

1. In order to succeed on the application for summary judgment, the Court must be satisfied that the defences and counterclaim have “no real prospect of success”, which is the test prescribed in s 63 of the CPA. This is a less stringent test than the test for summary judgment prescribed in r 23.01(1)(a) of the SCR.[22] Whereas the power of the Court under r 23.01(1)(a) of the SCR to order summary judgment is exercisable only if it is clear on the pleadings or from extrinsic evidence that the defence is unsustainable in fact or in law,[23] certainty of failure does not need to be demonstrated under s 63 of the CPA. An application under s 63 of the CPA is directed at the prospects of success.

   [22]Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 2) [2011] VSC 168; Dattner v Wharton [2011] VSC 610, 13 [43].

   [23]Onus v Alcoa of Australia Ltd (1981) 149 CLR 27, 57; Spencer v The Commonwealth (2010) 241 CLR 118.

1. The meaning of the expression “no real prospect of success” in s 63 of the CPA has been considered in numerous cases in this Court. It has been held consistently that the expression requires the Court to be satisfied that the prospects of success are “fanciful” or “not realistic”, if summary judgment is to be ordered.[24]  In order to form the requisite state of satisfaction, the Court must make an assessment of the prospects of success of the defence and counterclaim. If the Court concludes that the prospects are not realistic, Samfa is entitled to summary judgment

   [24]JBS Southern Australia Pty Ltd v Westcity Group Holdings Pty Ltd [2011] VSC 476; Matheson & Anor v Spark & Anor [2011] VSC 378; Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222.

1. I turn now to a consideration of the defences raised and the counterclaim.

Paragraphs 14A to 14J: the alleged misrepresentation of fact

1. The defendants’ case is that the Acknowledgement Deed no longer binds them for the reasons set out in paragraphs 14A to 14J of the defence.[25] It is sufficient for present purposes to focus on the allegations in paragraphs 14A to 14E, as paragraphs 14F to 14J are mirror pleadings and the like conclusion will follow.

   [25]Defence and Counterclaim (filed 1 December 2011), 4 [14].

1. The defendants have alleged that before they entered into the Acknowledgment Deed, Samfa made the following representations to them:

   14A (a)The directors of Samfa from the time Porz ceased to be a director of Samfa on 12 July 2010 until the time the Acknowledgement Deed was entered into in September 2010 (“the Relevant Time”) had no knowledge of the borrowing or security arrangements which had been entered into by or on behalf of the Original DFO Partners in relation to the projects which were developed by the New DFO Partners, including the South Wharf Asset;

   (b)The first defendant (“Hilane”) and the second defendant (“Volt”) and their directors (including Geoffrey Porz, who at all relevant times was a director of Hilane and Francesco De Rango, who at all relevant times was a director of Volt) had breached fiduciary duties which they owed to Samfa in causing or permitting the borrowing and security arrangements described in paragraph (a) above to occur;

   (c)Samfa had claims against Hilane, Volt, De Rango and Porz in respect of these alleged breaches of duty which Samfa was entitled to and intended to pursue against them;

   (the “Fiduciary Representations”).

   Particulars

   The Fiduciary Representations were made verbally by Richard Earl, the solicitor for Samfa, in telephone conversations and at meetings with Porz and his advisor which occurred in July, August and September 2010 and in letters from Samfa’s solicitors, Earl & Associates to Hilane, Volt, Porz and De Rango’s solicitor dated 23 July 2010 and 2 September 2010…[26]

   “Porz” is a reference to Geoffrey Porz who was a director of Samfa from 16 November 1999 until 12 July 2010.[27]  The “borrowing or security arrangements” in subparagraph 14A(a) is a reference to borrowings from the original DFO partnerships and securities granted over the assets of the original DFO partnerships to finance projects developed by the new DFO partners, including at South Wharf.

   [26]Defence and Counterclaim (filed 1 December 2011), 4 [14A].

   [27]Exhibit RE1 to the affidavit of Richard Hedley Earl sworn 28 November 2011.

2. It is then alleged that Hilane and Volt entered into the Acknowledgement Deed:

   14BIn reliance upon the Fiduciary Representations, and in order to obtain releases from the claims which Samfa had made against Hilane, Volt, Porz and De Rango in the Fiduciary Representations…[28] 

   The reference to the “releases” in paragraph 14B is a reference to cl 3.2(a) of the Acknowledgement Deed by which Samfa unconditionally and irrevocably released the defendants, amongst others, from all claims arising from, or connected to, directly or indirectly, all loans, guarantees, and securities provided by the original DFO partnerships  in favour of, or to the benefit of, the new DFO partnerships.

   [28]Defence and Counterclaim (filed 1 December 2011), 5 [14B].

3. It is further alleged that the fiduciary representations were false because:

   14C(a)in fact during the Relevant Time, Samfa knew about the transactions which had been undertaken by the New DFO Partners using the assets of the Old DFO Partners because:

   (i)Porz and Graeme Samuel had discussed those transactions in earlier years; and

   Particulars

   Samuel communicated with Porz in and after 2005 concerning the Original DFO Businesses including the borrowings and security arrangements which had been entered into by or on behalf of the Original DFO Partners in relation to the projects which were developed by the New DFO Partners, including the South Wharf Asset.

   (ii)During the Relevant Time (but not before), Samuel was in effective control of Samfa.

   Particulars

   Samuel’s de facto control of Samfa should be inferred from the following facts:

   (a)Samfa was an entity created by Samuel and part of his family group.

   (b)In discussions between Porz and Andrew Kroger, who was a director of Samfa from 13 April 2006 until 19 March 2011 and sole director from 20 October 2010, after the Acknowledgement Deed was entered into, it became apparent to Porz that Samuel was playing an active role in the management and affairs of Samfa at the Relevant Time.

   Further particulars will be given following discovery by the plaintiff and the return of subpoenas which will be necessary for Hilane and Volt to seek to have issued in order to obtain production of all relevant documents concerning Samuel’s involvement in and knowledge of the affairs of Samfa at all relevant times.

   (b)Samfa was an entity created by Samuel and part of his family group and yet at no time, despite being aware of the transactions which had been undertaken by the New DFO Partners using the assets of the Old DFO Partners, had Samuel ever complained about Porz’s conduct in that regard or taken any steps to remove Porz as a director of Samfa and thereby acquiesced in what had occurred and what Porz had done and so there was no proper basis in fact or in law for Samfa to complain about Hilane, Volt, Porz or De Rango’s roles in respect of any of those matters.[29]

   The reference to “Samuel” is a reference to Graeme Samuel, a current director of Samfa.  It is to be noted that it is not part of the defence that Samuel was a director of Samfa during “the relevant time”, viz: between 12 July 2010 (the date on which Porz resigned as a director of Samfa) and September 2010 (when the Acknowledgement Deed was signed) or at any time prior to July 2010.

   [29]Defence and Counterclaim (filed 1 December 2011), 5 [14C].

4. Paragraphs 14A to 14C in this form were handed up to the Court on the second day of the hearing, after senior counsel for the defendants was provided with the opportunity to re-plead this part consistently with the way in which the defence was articulated by him in oral argument.  Of particular importance was the need to clarify that it was not part of the defence that Samfa knew about the putative borrowings and securities that had been entered into by, or on behalf of, the original DFO partners at the time that those transactions occurred.  The defence, rather, is that Samfa knew about the transactions when the representations pleaded in paragraph 14A were made because Samuel was in effective control of the company at the time of the making of the representations and Samuel had known all along about the transactions and had acquiesced in what had occurred.  

5. It is noteworthy that it was also not part of the defence that Samuel was in effective control of Samfa when the claimed breaches of fiduciary duties allegedly arose. The defence, rather, is that as Samfa was an entity created by Samuel and part of his family group, it was therefore inconsistent for him, when he was a shadow director, to be instructing the solicitors of Samfa to complain about the roles of Hilane, Volt and their directors in relation to the borrowing and security arrangements that were entered into with the new DFO partners with respect to the original partnership assets.[30]

   [30]Transcript of the Proceedings (1 December 2011), 136-7.

6. The allegations, in my view, raise a fanciful defence that has no real prospects of success. For a representation to be actionable, it must be false and the misleading representation must have induced the entry into the contract sought to be avoided, in this case the Acknowledgment Deed. If Samfa had a claim for breach of fiduciary duty against Hilane, Volt and their directors, it was a claim that had arisen before Samuel became its effective owner. Consequently, Samuel’s acquiescence to the borrowing and security arrangements as alleged would not defeat Samfa’s claims against Hilane and Volt for breaches of fiduciary duties owed to Samfa at the time such borrowings and security arrangements were entered into.  Consequently, neither the representations alleged in paragraph 14A nor the element of inducement based on the making of those representations as pleaded in paragraph 14B support in law or fact an actionable misrepresentation to set aside the Acknowledgement Deed. The same conclusion applies to paragraphs 14F to 14J of the defence and counterclaim.

Paragraphs 28 and 28A: the alleged new agreement

1. To understand the defence raised in paragraphs 28 and 28A, it is necessary to return to the narrative description drawn from admitted facts in the statement of claim and to the allegations constituting the breach of contract claim in the statement of claim.

2. On 21 March 2011 Samfa gave Tan Partners an authority to pay and distribute the sale surplus in accordance with the spreadsheet, as modified by the Acknowledgment Deed.[31] It is alleged in the statement of claim, and admitted, that Samfa has made repeated demands to each of the new DFO partners calling upon them to give Tan Partners an irrevocable direction and otherwise to execute and deliver all requested documentation to ensure that the priority payment is made to Samfa in accordance with cl 4.1 of the Acknowledgement Deed.[32]  It is not in dispute that the new DFO partners have not given that direction.

   [31]Amended Statement of Claim (filed 21 November 2011), 9 [23]; Defence and Counterclaim (filed 1 December 2011), 10-11 [23]; Exhibit RE-8 to the affidavit of Richard Hedley Earl sworn 28 November 2011.

   [32]Amended Statement of Claim (filed 21 November 2011), 9 [24]; Defence and Counterclaim (filed 1 December 2011), 11 [24].

1. It is alleged that on about 9 September 2011, claimants demanded payment of their share of monies from the sale surplus.[33]  The allegation is particularised as follows:

   [33]Amended Statement of Claim (filed 21 November 2011), 11 [27].

   Particulars

   A.On or about 2 September 2011, Perpetual Trustee Company Ltd, one of the lender Claimants, served a creditor’s statutory demand for debt on DFOE and DFOH and, at the time of so doing, warned that if all Claimants did not agree to the distribution to it of its share of the Sale Surplus forthwith, it would proceed to wind up DFOE and DFOH.

   B.Following this, a meeting was held on 9 September 2011 at Gadens, Bourke Place, 600 Bourke Street, Melbourne at which Simon Tan attended and the Claimants attended by their representatives, in person or by telephone.  At this meeting all or many Claimants demanded payment of their share of monies from the Sale Surplus.

2. It is then pleaded in paragraph 28 as follows:

   28.To secure payment to the Claimants referred to in the preceding paragraph and [to preserve its rights under the Acknowledgement Deed], on 9 September 2011, Samfa agreed with an arrangement with the new DFO Partners to direct Tan Partners that:

   (a)all Claimants, other than the Original DFO Partners and the New DFO Partners, forthwith receive a distribution of the Sale Surplus in accordance with the Spreadsheet; and

   (b)the funds allocated to the Original DFO Partners and the New DFO Partners in the Spreadsheet continue to be held in trust by Tan Partners pending unanimous agreement by them,

   and such direction was given.

   Particulars

   A.Following the meeting of Claimants on 9 September 2011 referred to in particular B to paragraph 27, at 12.49pm that day Simon Tan emailed representatives of the Claimants proposing (inter alia) that “all claimants, other than the DFO Partners, would receive distributions in accordance with the attached spreadsheet and the funds allocated to the DFO Partners in the spreadsheet will continue to be held in trust pending unanimous agreement by the DFO Partner parties”.

   B.The Original DFO Partners agreed to the proposal by Simon  Tan referred to in particular A by:

   (a)emails from L Zwier on behalf of Border at 4:55pm and 7:22pm on 9 September 2011;

   (b)an email from M Elliot on behalf of Hilane at 5:14pm on 9 September 2011;

   (c)an email from M Braithwait on behalf of Samfa at 6:37pm on 9 September 2011.

   A copy of these emails is available for inspection at the offices  of the solicitors for Samfa.[34]

   [34]Amended Statement of Claim (filed 21 November 2011), 11 [28].

3. In their defence, the defendants say:

   28.They admit that on 9 September 2011, the plaintiff agreed with the New DFO Partners to direct Tan Partners that:

   (a)all Claimants, other than the Original DFO Partners and the New DFO Partners, forthwith receive a distribution of the Sale Surplus in accordance with the Spreadsheet; and

   (b)the funds allocated to the Original DFO Partners and the New DFO Partners in the Spreadsheet continue to be held in trust by Tan Partners pending unanimous agreement by them,

   (“the 9 September 2011 agreement”)

   and such direction was given, but say that the 9 September 2011 agreement was not entered into to preserve rights under the Acknowledgement Deed, but instead superseded and replaced the Acknowledgement Deed.

   Particulars

   The particulars of the 9 September 2011 agreement are contained in the documents which are particulars under paragraph 28 of the Amended Statement of Claim dated 4 November 2011.[35]

   [35]Defence and Counterclaim (filed 1 December 2011), 11 [28].

4. The documents referred to in the particulars under paragraph 28 include an email from Samfa’s solicitors  in which the following is stated:

   To facilitate the distribution of the Surplus to the claimants (other than to the DFO partners), Samfa gives its consent to a distribution of the Surplus in accordance with the proposal below that “all claimants, other than the DFO Partners, would receive distributions in accordance with the attached spreadsheet and the funds allocated to the DFO partners in the spreadsheet will continue to be held in trust pending unanimous agreement by the DFO partner parties.”[36]

   [36]Exhibit RE-11 to the affidavit of Richard Hedley Earl sworn 28 November 2011.

5. It is then pleaded in paragraph 28A of the defence that there has been no unanimous agreement between the original DFO partners and the new DFO partners as is required by the 9 September 2011 agreement and therefore that Samfa has no claim for any amount of those funds. 

6. I am satisfied that the defences raised in paragraph 28 and 28A have no real prospect of success.  Insofar as the email chain evidences agreement, the agreement concerns the distribution of the surplus funds to all claimants, other than the original and new DFO partners.  In other words, the new agreement as alleged does not purport to constitute an alteration to the contractual arrangements concerning the respective entitlements of Samfa and the new DFO partners, as provided for under the Acknowledgement Deed.  Furthermore, the new agreement is not inconsistent with cl 4.1 of the Acknowledgement Deed containing the “unanimous agreement” by the DFO partner parties as to how their share of the sale surplus is to be distributed amongst them. 

Counterclaim

1. The counterclaim is based upon the fourth head of equitable fraud identified by Lord Hardwicke LC in Earl of Chesterfield v Janssen.[37]  This category of equitable fraud was described by Lord Hardwicke LC as follows:

   [37](1751) 2 Ves Sen 125.

   A 4th kind of fraud may be collected or inferred in the consideration of this court from the nature and circumstances of the transaction, as being an imposition and deceit on the other persons not parties to the fraudulent agreement.  It may sound odd, that an agreement may be infected by being a deceit on others not parties: but such there are, against such there has been relief. …

   This Court therefore relieves against all such underhand bargains. …

   To apply this: thus far, and in this sense, is relief in a court of equity founded on public utility.  Particular persons in contracts shall not only transact bona fide between themselves, but shall not transact mala fide in respect of other persons, who stand in such a relation to either as to be affected by the contract or the consequences of it; and as the rest of mankind beside the parties contracting are concerned, it is properly said to be governed on public utility.[38]

   [38]Ibid, 100-101.

   It is well established that equitable fraud can be committed in circumstances which the common law ought not to regard as fraudulent. An actual intention to deceive does not need to be demonstrated. As noted by Viscount Haldane LC (as His Lordship then was) in Nocton v Lord Ashburton:[39]

   [39](1914) AC 932.

   In Chancery the term “fraud” thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction. 

   …. when fraud is referred to in the wider sense in which the books are full of the expression, used in Chancery in describing cases which were within its exclusive jurisdiction, it is a mistake to suppose that an actual intention to cheat must always be proved.  A man may misconceive the extent of the obligation which a Court of Equity imposes on him.  His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken by the court to have known, and his conduct has in that sense always been called fraudulent, even in such a case as a technical fraud on a power.  It was thus that the expression “constructive fraud” came into existence. … What it [fraud] really means in this connection is, not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience”.[40]

A number of Australian authorities have approved Nocton v Lord Ashburton and support the proposition that fraud in equity is a much wider concept than at common law.[41]  Thus Mahoney JA in Logue v Shoalhaven Shire Council[42] stated that:

Equitable fraud is not limited to conscious wrong–doing or over-reaching.[43]

Similarly, Hasluck J in Green v Wilden[44] said that equitable fraud “does not depend upon proof of subjective knowledge in a defendant of the relevant facts”.[45]  But whilst an actual intention to cheat or deceive is not required, there must at least be something about the arrangements which involves some element of unconscionability or circumstances “so offensive to public utility as to demand the intervention of equity”.[46]

[40]Ibid 953-954.

[41]See for example Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537, 555C-555E (Mahoney JA); Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261, 270-271 (Johnston J); GW Glenn Road Transport Pty Ltd (in liq) v Glenn (Unreported, Federal Court of Australia, R D Nicholson J, 2 June 1995); Cachia v Colaco (2003) 132 LGERA 62, 76 [69] (McClellan CJ); and Green v Wilden Pty Ltd [2005] WASC 83, [478] (Hasluck J).

[42][1979] 1 NSWLR 537.

[43]Ibid 555B.

[44][2005] WASC 83.

[45]Ibid [479].

[46]The Bell Group Limited (in liquidation) v Westpac Banking Corporation (No 9) [2008] WASC 239, section 22.2.2. 1268 [4885] (Owen J).

1. The categories of equitable fraud are not closed and some cases have applied the principle in circumstances of a “common dealing”. Here it is pleaded that the Acknowledgement Deed was a common dealing between Samfa, the defendants and Border, amongst others “all of whom were or were alleged to be liable to various financiers of the DFO Group who had made claims upon them following the collapse of DFO”.[47]  It is further alleged that on or about 7 October 2011 Samfa and Border entered into two settlement agreements pursuant to which they settled the claims previously made by Samfa against Border in this proceeding and also settled a third party claim brought by the principals and directors of Border against Samuel in another and separate Supreme Court proceeding.[48]  The terms and conditions of settlement are alleged to have included that upon receipt by Samfa of monies from the surplus sales, Samfa would pay the principals and directors of Border and entities related to them, including Border a particular sum of money.[49]  It is then pleaded as follows:

   37. The alterations of the financial arrangements between the parties to the Acknowledgement Deed which were effected by the Samfa-Border Settlement occurred without the knowledge or consent of the defendants.[50]

   38. The alterations of the financial arrangements between the parties to the Acknowledgement Deed which were affected by the Samfa-Border Settlement have removed the substratum of the Acknowledgement Deed and constitute an equitable fraud upon the defendants within the meaning of the fourth category identified in the Earl of Chesterfield v Janssen (1751) 2 Ves. Sen. 125 at 156.[51]

   [47]Defence and Counterclaim (filed 1 December 2011), 13 [34].

   [48]Defence and Counterclaim (filed 1 December 2011), 13 [35].

   [49]Defence and Counterclaim (filed 1 December 2011), 13-14 [36].

   [50]Defence and Counterclaim (filed 1 December 2011), 14 [37].

   [51]Defence and Counterclaim (filed 1 December 2011), 14 [38].

2. Accepting that allegation on its terms and that there is foundation in law for an equitable fraud claim, I nonetheless do not accept on the case as pleaded that the defendants can succeed on an equitable fraud claim and I am satisfied that the counterclaim has no real prospect of success.

3. First, it is pleaded that the consequence of the equitable fraud is that it is the Acknowledgement Deed, not the settlement, which is liable to be set aside as against the defendants in equity.[52] But the equitable fraud, as pleaded, does not relate to the entry into the Acknowledgement Deed but rather the settlement reached between Samfa and Border.  The equitable fraud as pleaded is in the settlement dealings, not the transaction of the Acknowledgement Deed.  Thus, if equity is to intervene, it would be to upset the settlements as bargains which the Court should not allow to stand. 

   [52]Defence and Counterclaim (filed 1 December 2011), 14 [39].

4. Secondly, the binding nature of the Acknowledgement Deed insofar as it regulates Samfa’s entitlement to the surplus proceeds vis-à-vis the other claimants, remains unaffected and enforceable by those claimants, which include Hilane and Volt.  Accordingly the relief sought does not follow from the claim made.

CONCLUSION

1. For the above reasons, Samfa is entitled to summary judgment against the defendants. There is no warrant, in my view, for the exercise of discretion under s 64 of the CPA to allow the matter to proceed to trial.

2. In view of my conclusion, it is unnecessary to deal with Samfa’s alternative application that relevant parts of the defence and counterclaim be struck out.

3. It also follows from my conclusion that subpoenas served by the defence on a number of third parties which were subject to objection should also be set aside. 

SCHEDULE OF PARTIES

S CI 2011 5061
SAMFA PTY LTD (ACN 074 632)	Plaintiff
- and -
HILANE PTY LTD (ACN 080 047 730)	Firstnamed Defendant
VOLT HOLDINGS PTY LTD (ACN 052 479 320)	Secondnamed Defendant
DIRECT FACTORY OUTLETS ESSENDON PTY LTD (ACN 100 936 605)	Thirdnamed Defendant
DIRECT FACTORY OUTLETS HOMEBUSH PTY LTD (ACN 094 951 112)	Fourthnamed Defendant
DIRECT FACTORY OUTLETS PTY LTD (ACN 087 112 301)	Fifthnamed Defendant
SIMON H TAN	Sixthnamed Defendant
OLIVIA CRAZE	Seventhnamed Defendant
- and between -
HILANE PTY LTD (ACN 080 047 730)	Firstnamed Plaintiff by Counterclaim
VOLT HOLDINGS PTY LTD (ACN 052 479 320)	Secondnamed Plaintiff by Counterclaim
DIRECT FACTORY OUTLETS ESSENDON PTY LTD (ACN 100 936 605)	Thirdnamed Plaintiff by Counterclaim
DIRECT FACTORY OUTLETS HOMEBUSH PTY LTD (ACN 094 951 112)	Fourthnamed Plaintiff by Counterclaim
DIRECT FACTORY OUTLETS PTY LTD (ACN 087 112 301)	Fifthnamed Plaintiff by Counterclaim
- and -
SAMFA PTY LTD (ACN 074 632)	Firstnamed Defendant by Counterclaim
BORDER AUSTRALIA PTY LTD (ACN 074 632 983)	Secondnamed Defendant by Counterclaim