Santos and Associates Pty Ltd v Gillard Turner and O'Brien Pty Ltd
[2003] WASC 184
SANTOS & ASSOCIATES PTY LTD & ORS -v- GILLARD TURNER & O'BRIEN PTY LTD & ANOR [2003] WASC 184
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2003] WASC 184 | |
| Case No: | CIV:1556/1999 | 2 SEPTEMBER 2003 | |
| Coram: | MASTER NEWNES | 26/09/03 | |
| 26 | Judgment Part: | 1 of 1 | |
| Result: | Amendments allowed in part | ||
| B | |||
| PDF Version |
| Parties: | SANTOS & ASSOCIATES PTY LTD (ACN 009 241 552) GLOWTIME PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 068 367 653) RIVERVIEW HEIGHTS PTY LTD (IN LIQ) (ACN 059 202 138) GILLARD TURNER & O'BRIEN PTY LTD (ACN 009 101 286) RON NORBERT GAJEWSKI |
Catchwords: | Practice and procedure Application to amend statement of claim Whether amendments embarrassing Turns on own facts |
Legislation: | Nil |
Case References: | Minero v Redero, unreported; SCt of NSW (Santow J); 29 July 1998 Newman v Coropean [2002] WASC 79 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Atkinson v Fitzwalter [1987] 1 ALL ER 483 Bruce v Odhams Press Ltd [1936] 1 KB 697 Davis v Commonwealth of Australia (1986) 68 ALR 18 Hooker Corporation Ltd v Commonwealth of Australia (1986) 65 ACTR 32 Queensland v Pioneer Concrete (1999) ATPR 41-691 Rubenstein v Truth and Sportsman Ltd [1960] VR 473 Westpoint Corporation Pty Ltd v Coles Supermarkets Australia Pty Ltd (1996) 71 FCR 584 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
GLOWTIME PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 068 367 653)
Second Plaintiff
RIVERVIEW HEIGHTS PTY LTD (IN LIQ) (ACN 059 202 138)
Third Plaintiff
AND
GILLARD TURNER & O'BRIEN PTY LTD (ACN 009 101 286)
First Defendant
RON NORBERT GAJEWSKI
Second Defendant
(Page 2)
Catchwords:
Practice and procedure - Application to amend statement of claim - Whether amendments embarrassing - Turns on own facts
Legislation:
Nil
Result:
Amendments allowed in part
Category: B
Representation:
Counsel:
First Plaintiff : Mr R H B Pringle QC
Second Plaintiff : Mr R H B Pringle QC
Third Plaintiff : Mr R H B Pringle QC
First Defendant : Mr M H Zilko SC
Second Defendant : Mr G S Gough
Solicitors:
First Plaintiff : Mountains Lawyers
Second Plaintiff : Mountains Lawyers
Third Plaintiff : Mountains Lawyers
First Defendant : Redding & Associates
Second Defendant : Minter Ellison
Case(s) referred to in judgment(s):
Minero v Redero, unreported; SCt of NSW (Santow J); 29 July 1998
Newman v Coropean [2002] WASC 79
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
(Page 3)
Case(s) also cited:
Atkinson v Fitzwalter [1987] 1 ALL ER 483
Bruce v Odhams Press Ltd [1936] 1 KB 697
Davis v Commonwealth of Australia (1986) 68 ALR 18
Hooker Corporation Ltd v Commonwealth of Australia (1986) 65 ACTR 32
Queensland v Pioneer Concrete (1999) ATPR 41-691
Rubenstein v Truth and Sportsman Ltd [1960] VR 473
Westpoint Corporation Pty Ltd v Coles Supermarkets Australia Pty Ltd (1996) 71 FCR 584
(Page 4)
1 MASTER NEWNES: This is an application by the plaintiffs for leave to file and serve a substituted statement of claim in terms of a minute of substituted statement of claim dated 26 August 2003. The application was opposed by the defendants.
2 The minute of substituted statement of claim is in the following terms:
"1 The plaintiffs and the first defendant (previously named Gillard Turner & O'Brien Pty Ltd) are companies for the purposes of the Corporations Act.
2. At all material times up to 21 August, 1996 the second defendant ('Gajewski') was a director of the first defendant ('Gillards') and thereafter until late 1997, a consultant to Gillards, and until 27 November, 1996 a shareholder in Gillards.
3. At all material times -
(a) Gillards has carried on business as certified practising accountants, and
(b) Gajewski has been a certified practising accountant.
The first plaintiff 's claim - the investment in Riverview
4. Gajewski was at all material times (and more particularly during and from 1993) until -
(a) 5 June, 1996, a director and the secretary of Coropean Pty Ltd ('Coropean');
(b) 17 November, 1997, a 50% shareholder in Coropean.
5. At all material times until the second half of 1997 -
(a) Gillards provided accountancy services including the preparation and lodgement of financial statements, annual returns and taxation returns to both Coropean and the third plaintiff ('Riverview'),
(Page 5)
- (b) Gajewski as a director of and then as consultant to Gillards was in charge of the provision of such services to Riverview.
- 6. From 5 December, 1987 until 30 March, 1993 Gajewski was a director of and 25% shareholder in Chereeba Pty Ltd ('Chereeba')
7. Michael Herbert Reginald Powell ('Powell') was
(a) at all material times since 9 February, 1993, a director of and 50% shareholder in Riverview,
(b) between 5 December, 1987 and 30 March, 1993 a director of and 25% shareholder in Chereeba;
(c) at all material times a director of and 50% shareholder in Coropean;
(d) at all material times a friend of Gajewski.
8. In or about February, 1993 -
(a) Chereeba owned and operated the business of the Swanbourne Hotel ('the business') in Swanbourne;
(b) at the instance of Powell, Riverview as trustee of the Hospitality Investment Unit Trust ('the HIU Trust") acquired the business from Chereeba;
(c) at the instance of Powell, Riverview issued to Coropean 200,000 units in the HIU Trust for no consideration and 100,000 units to each of Hewett's and Walsh's family trusts for $100,000 in each case.
9. In or about October or November, 1993, at a meeting in Powell's office at the Swanbourne Hotel -
(a) Powell stated to Santos Ezcaray ('Ezcaray') representing the first plaintiff ('Santos') in the presence and hearing of Gajewski, that he was selling 100,000 of the 200,000 units held by Coropean in the HIU Trust for $100,000 at the same price per unit at which Coropean had
(Page 6)
- acquired 400,000 units and that Santos was getting a great deal;
- (b) Powell showed Ezcaray some financial statements spread on the desk at which he, Ezcaray and Gajeswki were seated, which included Riverview's balance sheet as at 30 June, 1993 which had been prepared by Gillards, and Gajewski orally represented to Ezcaray that the figures in the financial statements were fine.
- 10. (a) In or about January, 1994 Santos applied to the National Australia Bank for a loan of $100,000 to enable Santos to acquire 100,000 units in the HIU Trust from Coropean.
(b) At a meeting in Powell's office in late January, 1994 between Powell, Gajewski and Ezcaray, Gajewski said he would discuss that application with Santos' accountant Frank Del Borrello.
- 11. The balance sheet referred to in paragraph 9(b) above embodied representations -
(a) that the trust funds had accumulated income of about $384,004, total assets worth about $432,008, total liabilities of about $48,004 and net assets of about $384,004;
(b) that goodwill of the business was worth $319,294 or thereabouts.
12. In consequence of the matters pleaded in paragraphs 9 and 10 above Gajewski on behalf of Gillards knew that Ezcaray on behalf of Santos would rely and/or was relying on the representations pleaded in paragraph 11 above in relation to the purchase of the 100,000 units.
13. Ezcaray on behalf of Santos was induced by the representations pleaded in paragraphs 9(b) and 11 above to agree in or about January, 1994 to pay, and to pay on about 10 February, 1994, $100,000 for half of Coropean's 200,000 units in the HIU Trust.
(Page 7)
- 14. The said representations were false, in that -
(a) the accumulated income of the trust funds was not $384,004 (nor $400,000) and in particular Coropean had paid nothing for the 200,000 units it held in the HIU Trust;
(b) Riverview had not purchased goodwill from Chereeba nor paid Chereeba for goodwill;
(c) the business had no goodwill or alternatively goodwill of insignificant value;
(d) the net assets of the trust were insignificant.
15. By reason of the following matters:-
(a) Gillards were the accountants for both Riverview and Coropean, Gajewski was in charge of the provision of accounting services by Gillards to Riverview and Gajewski was a director of Coropean;
(b) Gajewski and Powell were guarantors of a debt for arrears of rent of Chereeba to the owner of the Swanbourne Hotel and it was in their mutual interest to the knowledge of Gajewski for 100,000 units in the HIU Trust to be sold so that the debt could be paid (as it was from the payment of $100,000 by Santos);
(c) Gillards knew (by Gajewski) that Santos would rely and/or was relying on the representations in Riverview's balance sheet as at 30 June, 1993 in purchasing the 100,000 units.
(d) Gajewski made the representation pleaded in paragraph 9(b) above on behalf of Gillards;
Gillards and Gajewski owed to Santos duties of reasonable care and skill -
(i) at the time the representation pleaded in subparagraph (d) was made, not to make such representation without having
(Page 8)
- diligently investigated whether it was true and whether Riverview's balance sheet as at 30 June, 1993 embodied correct information;
- (ii) further or alternatively, not to allow Powell to use such balance sheet in negotiations with Santos without having ensured that it embodied correct information;
(iii) between the time the said representation was made and the time in February, 1994 when Santos paid $100,000 for the 100,000 units to investigate diligently whether the representations pleaded in paragraphs 9(b) and 11 above were true and correct and to inform Santos that they were not, or alternatively to warn Santos that such investigation had not been performed or had not been performed adequately.
- 16. In breach of such duty Gillards and Gajewski negligently-
(a) made the representation that Riverview's balance sheet as at 30 June, 1993 was fine without having investigated diligently or at all whether that was true and correct;
(b) allowed Powell to use such balance sheet in negotiations with Santos for the sale of 100,000 units in the HIU Trust without having ensured that such balance sheet embodied correct information;
(c) failed to investigate diligently or at all after the representation pleaded in paragraph 9(b) above had been made whether that representation and/or the representations pleaded in paragraph 11 above were true and correct;
(d) failed to inform Santos at any material time that such representations were false;
(Page 9)
- (e) failed to warn Santos that the correctness of any of the representations had not been investigated adequately or at all.
- 17. In consequence of such negligence Santos has suffered damages in the sum of $100,000 being the amount it paid to Coropean for 100,000 units of no or negligible value which were and remained unsaleable and valueless until a winding up order in insolvency was made against Riverview on 16 June, 1999.
The second plaintiff's claims assigned to the first plaintiff
18. The second plaintiff ('Glowtime') carried on business from about May 1995 until 1 May, 1999 (on which date Charles Phillipe Louis Nilant and Oren Zolar were appointed as joint and several administrators of Glowtime under the Corporations Law) as an hotel and a backpacking hostel in its own corporate capacity until March 1996 and thereafter until 1 May, 1999 as trustee for the Globe Backpackers Unit Trust ('the GPU Trust').
19. Since about March, 1995 Powell and Ezcaray have been the directors of Glowtime and its shareholders have been Coropean and Santos (holding one $1-00 share each).
20. In or about February or March 1995 Powell on behalf of Glowtime engaged Gillards to prepare financial statements, annual returns, taxation returns and to do associated company secretarial work for Glowtime, and Gillards in fact prepared such annual statements and taxation returns in or about 1998.
Particulars of agreement
- The best particulars Santos is able to give before full discovery and answers to interrogatories of the allegation that Gillards were engaged to perform the work referred to is that Gillards accepted delivery of Glowtime's books of account and records shortly after 30 June in the years 1995, 1996 and 1997 for the purpose of doing accounting work for Glowtime, that Gajewski assisted in establishing Glowtime in 1995 that thereafter Powell as a director of Glowtime often conferred with Gajewski representing
(Page 10)
- Gillards and that from time to time Gajewski told Santos during 1996 to 1998 that the work of preparing financial statements for Glowtime was in hand.
- 21. Prior to 1995 the Australian Society of Certified Practising Accountants ('the Society') had issued to certified practising accountants ('accountants') practising in Australia a handbook embodying guidelines as to the responsibilities of accountants to their clients, including the responsibilities of accountants to their corporate clients, which included –
(a) providing advice on all manner of accounting requirements to enable its corporate client to fulfil its statutory reporting requirements;
(b) preparation of financial statements, taxation returns and other accounting statements to enable the corporate client to fulfil its statutory obligations;
(c) reporting any discrepancies or unusual transactions recorded in the books and records to the directors and shareholders of the corporate entity;
(d) bringing to the attention of the directors and shareholders of the corporate entity any matter that, in the course of undertaking their accounting obligations, appears to be inconsistent with good financial management of the corporate entity;
(e) disclosing to all directors and shareholders any interest the accounting firm, its directors consultants or employees have in the corporate entity or any related entity of the corporate entity;
(f) disclosing to all directors and shareholders any transactions between the accounting firm its directors, consultants or employees and the corporate entity, or any related entity of the corporate entity;
(Page 11)
- (g) providing complete disclosure to the directors and shareholders of the corporate entity of any matter relevant to the affairs of the corporate entity.
- 22. There were implied terms in the engagement of Gillards by Glowtime as its accountants –
(a) that in addition to the tasks Gillards expressly agreed to perform for Glowtime, Gillards would follow the said guidelines of the Society and in particular carry out the responsibilities therein in relation to Glowtime as a corporate client;
(b) that Gillards would perform its obligations and discharge its responsibilities to Glowtime with reasonable care and skill and reasonably promptly.
23. Such implied terms arose from –
(a) the professional standing of Gillards as accountants;
(b) the engagement of Gillards to do work requiring specialised skill and care;
(c) the facts pleaded in paragraphs 2 – 13 above;
(d) the circumstance that Gajewski on behalf of Gillards provided professional assistance and advice in the establishment of Glowtime;
(e) the circumstance that Santos as shareholder and Ezcaray as director of Glowtime were and would be dependent upon Gillards for the provision of reliable and comprehensive information in a timely fashion as to the financial position of Glowtime and as to the activities of Powell in relation to Glowtime and Riverview;
(f) the fact that Gillards knew (by Gajewski) that Powell was a compulsive gambler on horse-racing and that Powell and Gajewski had borrowed money from Riverview on numerous occasions for the purpose of betting on horses;
(Page 12)
- (g) the fact that neither Gillards nor Gajewski had disclosed to Ezcaray that Gajewski was a director of Coropean.
- 24. From September 1995 Riverview was insolvent or alternatively in a precarious financial position.
Particulars
From September, 1995 until it went into liquidation in insolvency on 16 June, 1999, Riverview had an endemic shortage of working capital, lived from hand to mouth so far as cash flow and payments to creditors were concerned and often made late payments to creditors on occasions after threats of legal proceedings. Further information by way of an expert's report will be provided before trial.
25. Without the knowledge or consent of Ezcaray, Powell caused Glowtime to make the following payments generally by cheque in respect of unsecured loans to Riverview to or for the account of Riverview:
(a) between 24 September, 1995 and 30 June, 1997 as follows –
|
|
|
|
| $800 |
|
| 2,158 |
|
| 375 |
|
| 10,000 |
|
| 10,000 |
|
| 300 |
|
| 10,000 |
|
| 550 |
(Page 13)
|
| 40,000 |
|
| 15,000 |
|
| 3,000 |
|
| 10,000 |
|
| 5,000 |
|
| 5,000 |
|
| 5,000 |
|
| 5,000 |
|
| 5,000 |
|
| 5,000 128,183 |
- against which Riverview made repayments totalling $30,583 leaving a balance owing by Riverview to Glowtime for such period of $97,600;
(b) between 1 July, 1997 and 30 June, 1998 as follows:
|
|
|
|
| $15,000 |
|
| 97 |
|
| 10,000 |
|
| 20,000 |
|
| 20,000 |
|
| 5,000 |
|
| 250 |
|
| 5,000 |
|
| 5,000 |
$80,347 |
- against which Riverview made repayments totalling $38,399 during such period and a further repayment of $2,000 on 14 October, 1998, leaving a balance for such second period of $41,948 and a balance overall owing by Riverview to Glowtime of $139,548.
- 26. Riverview has not repaid any part of the sum of $139,548 and when it went into liquidation (in insolvency) on 16 June, 1999 it owed Glowtime $150,000 or thereabouts which is irrecoverable.
27. By reason of the following matters it is to be inferred that Gajewski and Gillards knew at least by October, 1996 that Glowtime was making unsecured advances to Riverview -
(a) shortly after 30 June in 1995 and 1996 (as she also did shortly after 30 June, 1997) Pauline Rose (an employee of Riverview and/or Glowtime) completed the writing up of the books of account and records of both Glowtime and Riverview, which books of account and records were then delivered to Gillards by Powell;
(b) those books of account and records revealed loans by Glowtime to Riverview;
(c) the books and records of both Glowtime and Riverview were kept at the Swanbourne Hotel in a room under the control of Powell while Powell managed that hotel and in a room under the control of Powell in or near Glowtime's premises at 497 Wellingto Street, Perth, while Powell managed Glowtime's business operations;
(Page 15)
(d) Gajewski often called to see Powell at the Swanbourne Hotel when Powell was there and at Glowtime's premises, when Powell was there;
(e) Gajewski dealt solely with Powell in relation to the financial affairs of Glowtime and Riverview, and in particular Ezcaray was excluded from all discussions between Powell and Gajewski.
- 28 Neither Gajewski nor any other representative of Gillards informed Ezcaray at any time from 1995 to 1998 -
(a) that Glowtime had made unsecured loans to Riverview;
(b) that Riverview owed considerable balances to Glowtime;
(c) as were the facts, that neither Glowtime's nor Riverview's business was doing well;
(d) of financial details about either Glowtime or Riverview.
29. Had Ezcaray been informed about the unsecured loans, as a director of Glowtime and the representative of Santos as a shareholder, he would immediately have taken accounting and legal advice and have taken steps on such advice to prevent any further loans being made by Glowtime to Riverview and to recover the amount owing by Riverview to Glowtime.
30. Further, Gillards did not prepare financial statements or tax returns for Glowtime for the financial years which ended on 30 June 1995, 1996 and 1997 until about April, 1998 when the notes to the accounts for 1995/96 and 1996/97 included loans to Riverview owing in the sum of $20,000 as at 30 June, 1996 and in the sum of $97,601 as at 30 June, 1997.
31. In breach of the implied terms pleaded above Gillards negligently -
(a) failed to provide reasonably promptly financial statements and tax returns for Glowtime for the
(Page 16)
- financial year which ended on 30 June, 1995, 1996 and 1997 in each case;
(b) failed to inform Ezcaray by October, 1996 that Glowtime had made unsecured loans to Riverview which failure was contrary to the guidelines referred to above;
(c) failed if (which is not admitted) there were impediments to prompt provision of financial statements to inform Ezcaray about such impediments;
(d) failed to inform Ezcaray in or about September, 1996 that Hewett and Walsh (referred to in paragraph 8(c) above and who had been directors of Riverview since about March 1993) had resigned in writing their directorships in Riverview on the ground that Riverview was insolvent, a matter known to Gillards by Gajewski at the time;
(e) by Gajewski falsely informed Ezcaray that the businesses of Glowtime and Riverview were doing well;
(f) by Gajewski falsely impliedly represented that financial statements for Glowtime were being completed.
- (i) On several occasions during 1996 and 1997 Gajewski orally stated to Ezcaray in response to the latter's questions that the businesses of Glowtime and Riverview were doing well and that preparation of their financial statements was in hand.
(ii) Santos repeats paragraph 24 above as to Riverview's financial position.
(Page 17)
- (iii) Glowtime's business was not doing well as it was short of funds due to the irrecoverable unsecured loans being made by it to Riverview.
(iv) It is to be inferred from delay in delivery of financial statements by Gillards for Glowtime for the years which ended on 30 June, 1995, 1996 and 1997 until April 1998 that such financial statements were not being completed until 1998 or late 1997.
(v) These are the best particulars that can be provided before full discovery and answers to interrogatories.
- 32. Further or alternatively -
(a) by reason of the matters pleaded in paragraphs 20,21,22 and subparagraphs (a) - (g) of paragraph 23 above, Gillards owed a duty of care and skill to Glowtime to perform the obligations and to discharge the responsibilities referred to in paragraphs 20 and 21 above reasonably promptly and with reasonable skill and care;
(b) Gillards was negligent in the respects pleaded in paragraph 31 above.
33. By reason of the said negligent breaches of implied terms and/or of negligence, Glowtime has suffered damages, being the amounts it lent and advanced to or for the account of Riverview from at least 1 November, 1996, less payments made by Riverview to the extent that those payments reduced the indebtedness of Riverview for advances after 1 November, 1996.
34. Further by reason of Gillards' failure to prepare annual financial statements reasonably promptly -
(a) the accounting staff of Glowtime and Riverview (whose financial statements as at 30 June, 1996 and 1997 were also prepared belatedly by Gillards during 1998) maintained accounting books and records under the control of Powell and without
(Page 18)
- any or any adequate guidance or correction by Gillards;
- (b) in consequence the books and records of Glowtime and Riverview were seriously inadequate and inaccurate.
- 35. In preparing the financial statements of Glowtime as at 30 June, 1995, 1996 and 1997 and later the financial statements of Riverview as at 30 June 1996 and 1997, Gillards obtained explanations only from Powell and none from Ezcaray, notwithstanding that there were numerous transactions recorded in Glowtime's books of account and records which were probably or possibly of a personal nature (relating to Powell) including very large telephone accounts and numerous transactions with American Express merchant facility.
36. The financial statements prepared by Gillards for Glowtime contained serious errors, and it was impossible for other accountants William Buck (WA) Pty Ltd to prepare Glowtime's financial statements as at 30 June, 1998 without reconstructing Glowtime's financial statements as at 30 June 1995, 1996 and 1997 at great expense, which reconstruction was not done. Particulars of the insufficiency of the books and records and of the financial statements of Glowtime for the years which ended on 30 June, 1995, 1996 and 1997 appear from copies of an independent audit report to the shareholders of Glowtime by Metcalf Spahn, accountants, dated 13 January, 2000 an affidavit of Frank Del Borrello sworn 17 August 1999 in COR 223 of 1999 and a letter dated 27 March 2000 from Frank Del Borrello dated 27 March, 2000 to Santos' solicitors, Mountains, copies whereof will be served separately.
37. The failures of Gillards to provide financial statements for Glowtime reasonably promptly, or to provide any guidance as to maintaining of Glowtime's books of account and records or to obtain explanations from Ezcaray as well as Powell were in negligent breach of the implied terms pleaded above.
(Page 19)
- 38. In consequence of such negligent breaches of contract, Glowtime incurred expense in attempting to have the deficiencies in Glowtime's books of account and records and in its financial statements as at 30 June, 1995, 1996 and 1997 rectified, in attempting to obtain financial statements as at 30 June 1998 and in paying an account from Gillards and thereby suffered loss and damage and in particular Glowtime paid -
(a) the sum of $2,805-85 to Gillards on or about 30 March, 1999 in respect of incorrect accounts prepared as at 30 June 1996 and 1997;
(b) the sums of $2,536-44 and $4,500-00 on or about 30 March, 1999 and 2 September, 1999 to William Buck (WA) Pty Ltd for review and preparation of draft financial statements for Glowtime as at 30 June, 1998, which could not be finalised until errors in the financial statements as at 1995, 1996 and 1997 had been corrected and those accounts had been reconstructed;
(c) the sums of $3,000 and $14,616-35 on or about 29 October, 1999 and 11 February, 2000 in respect of the said independent audit.
39. Santos makes claim in respect of the claims pleaded in paragraphs 18 - 38 above as the assignee thereof under a deed of assignment executed on 7 August, 2000.
AND Santos claims -
(1) damages against Gillards. and Gajewski under paragraphs 4 - 17 above;
(2) damages against Gillards under paragraphs 18 - 39 above;
(3) interest on such damages at the rate of 8% per annum in terms of the Supreme Court Act from 1 July, 1998 to the date of judgment."
(Page 20)
- ended. Senior Counsel for the plaintiffs has since sought to amend par 2 by inserting after "thereafter" the passage "until late 1997" and to amend par 5 by deleting "1998" and substituting "the second half of 1997".
4 The next objection was to par 5(a), on the grounds first, that the plaintiffs do not plead the terms upon which the accounting services were provided and secondly, that it was not apparent whether the description of the accountancy services was intended to be exhaustive or whether other, unspecified, accountancy services were referred to.
5 It was submitted on behalf of the defendants that the terms of any engagement to provide accountancy services were relevant to the alleged obligations of the defendants, such as the obligation pleaded in par 16(d) to inform Santos that the representation that the balance sheet of Riverview was reliable was false. It was argued that such an obligation would not ordinarily arise in a simple contract to prepare financial statements and it was therefore necessary for the defendants to know on what terms it is alleged the defendants had prepared such statements, in order for the defendants to understand on what basis the obligation was said to arise.
6 Senior Counsel for the plaintiffs said that the terms upon which the plaintiffs provided the accountancy services were irrelevant. The plaintiffs' case was simply that the defendants had prepared the financial statements and that Mr Gajewski, on behalf of Gillards, had orally represented to Mr Ezcaray, on behalf of the first plaintiff, that the figures in the financial statements were reliable and accurate. The duty to inform Santos that the balance sheet was not accurate or reliable arose by virtue of the matters pleaded in par 15. Nothing turned on the terms on which the defendants had been engaged to prepare the financial statements.
7 I accept that, as the plaintiffs' claim is put in the Minute, it is not necessary for the terms of the engagement to be pleaded in par 5(a) and the defendants' objection to it on that ground must fail.
8 I do not accept that the further objection as to the description of the accountancy services is made out. The plaintiffs' case relates to the financial statements and whether the specified accountancy services are, or are not, exhaustive does not give rise to any difficulty on the case as pleaded.
9 Objection was taken by counsel for the second defendant to par 7(d) on the basis that the plea was irrelevant. That point was not taken by Senior Counsel for the first defendant. Senior Counsel for the plaintiffs
(Page 21)
- said that the issue of the friendship of Mr Powell and Mr Gajewski will be a significant matter at the trial and the plea does no more than put the defendants on notice as to that. Although I do not think it is necessarily relevant to any matter in issue, I do not think the plea creates any particular embarrassment and I would allow it.
10 The defendants' counsel submitted that the plea in par 9(b), that Gajewski orally represented that the figures in the financial statements "were fine", was so vague as to be embarrassing. Senior Counsel for the plaintiff sought to amend the Minute in the course of the hearing to delete the word "fine" and insert "were accurate and reliable". I understood it to be accepted by the defendants' counsel that that resolved the matter.
11 Counsel for the second defendant submitted that the plea in par 10(b), that Gajewski said he would discuss with Santos's accountant the application by Santos to National Australia Bank for funds to purchase the units, was irrelevant and raised a false issue. I accept, however, the submission of Senior Counsel for the plaintiffs that it is relevant to the plea in par 12 that Mr Gajewski knew that, in relation to the purchase of the units, Mr Ezcaray was relying on the alleged representation as to Riverview's balance sheet.
12 Objection was also taken by counsel for the defendants to par 14, first, because, it was submitted, the expression "said representations" did not sufficiently identify the representations referred to; secondly, the plea that the "said" representation that "Coropean had paid nothing for the 200,000 units it held in the HIU Trust" was false was embarrassing because no representation to that effect was pleaded; and, thirdly, that the plea in par 14(b) was embarrassing because no such representation was pleaded. Senior Counsel for the plaintiff sought to amend the prefatory words of par 14 to read, "The said representations in paragraphs 9(b) and 11 were false" and I understand that that cured the first complaint. I consider, however, that the second and third objections, in relation to the second part of par 14(a) and in respect of par 14(b), are properly taken and that the pleas are embarrassing because they plead the falsity of representations which have not been alleged.
13 Counsel for the defendants objected to par 15(d)(ii) on the ground that it was unclear what was meant by the plea that the defendants were under a duty "not to allow" Powell to use the balance sheet without ensuring that it was accurate. Senior Counsel for the plaintiffs said that it simply meant that Gillards and Gajewski should not have allowed Powell to make representations about the balance sheet in the circumstances. I do
(Page 22)
- not, however, think that what the alleged duty involves clearly emerges from the pleading. In my view, there is uncertainty about what is encompassed by the expression "not to allow" and the plea, as it stands, is embarrassing.
14 The allegation in par 22(b), that it was an implied term of their engagement that Gillards would perform their obligations "reasonably promptly", was objected to by counsel for the defendants on the basis that the expression " reasonably promptly" was vague and embarrassing. Senior Counsel for the plaintiffs asked rhetorically, how else would one express the obligation in that context? In my view, it is sufficiently precise.
15 The defendants objected to the plea in par 23(f), that Gillards knew that Powell was a compulsive gambler and that Powell and Gajewski had borrowed money from Riverview on numerous occasions for betting on horse races, on the ground that it lacked proper particulars. It was submitted that, in the light of the fact that the action has now been on foot for some four years, that there have been four minutes of proposed amendments of statement of claim since the existing statement of claim was served, and that the plaintiffs were now seeking the indulgence of the Court to amend the statement of claim, it was incumbent upon the plaintiffs properly to particularise the allegations of knowledge and of the alleged borrowings.
16 It was further submitted that in the circumstances the plaintiffs should also particularise all the pleas where it is stated that particulars will be provided after discovery and interrogatories. Pre-action discovery of all documents relating to the accounting records of the second and third plaintiffs for the period 1993 to 1998 was given by the first defendant in April 1999 and inspected by the plaintiffs' then solicitors at about that time. There followed correspondence between solicitors for the parties regarding the completeness of the discovery but that seems to have been resolved by about May 2001. Accordingly, the plaintiffs should have had access to all the relevant records that would enable them to particularise their case.
17 In my view, in the circumstances of this application, the plaintiffs should provide, not only in relation to this plea but also in relation to the other pleas in the Minute where it is sought to defer particulars until after discovery and interrogatories, the best particulars that they are currently able to provide, either as part of the statement of claim or, if the particulars exceeded three folios, as a separate document served with it.
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- Leave to amend in terms of par 23(f) would be conditional upon such particulars of it being provided. Senior Counsel for the plaintiffs said that the plaintiffs were in a position to give those particulars and would provide them.
18 The defendants took a substantive objection to the plea in par 24 that "from September 1995 Riverview was insolvent". It was submitted that, in light of the decision in Newman v Coropean [2002] WASC 79, it was not now open to the plaintiffs to allege that Riverview was insolvent. They relied on the principle of estoppel explained by the High Court in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 and on Minero v Redero, unreported; SCt of NSW (Santow J); 29 July 1998 which, it was submitted, was authority for the proposition that there need not be privity of parties for the principle to apply.
19 Newman v Coropean concerned an application by the liquidator of the third plaintiff that, among other things, certain transactions entered into between the third plaintiff and Coropean Pty Ltd were voidable transactions under s 588FE of the Corporations Law. One of the matters in issue on that application was whether the third plaintiff was insolvent between February 1993 and September 1993. Sanderson M, after observing that the third plaintiff had had "a hand to mouth existence", went on at [46]:
"Against that, a number of matters must be borne in mind. First, the [third plaintiff] made profits for the years 1994 and 1995. The profits were small, but they were nonetheless profits. Secondly, the current assets of the [third plaintiff] exceeded the current liabilities until 1997. While the position was tight, it was not desperate to the point where I could be satisfied that the [the third plaintiff] was, as at September 1993, insolvent."
20 It is clear that the only issue of solvency with which the learned Master was concerned was whether the third plaintiff was insolvent as at September 1993. Accordingly, the only finding made by the learned Master related to solvency as at that date. No finding was made as to the third plaintiff's solvency at any other time. I might observe that, although the learned Master referred to the third plaintiff having made a "small profit" in 1995, I take that, in the context, to be a reference to the financial year ended 30 June 1995.
21 In my view, there was nothing in the findings in Newman v Coropean that is necessarily inconsistent with the allegation in the
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- proposed statement of claim that the third plaintiff was insolvent as at September 1995. It is therefore unnecessary to consider the defendants' contention that an estoppel arises. I should say, however, that had it been necessary to do so I would have rejected that contention. In my view, the doctrine of estoppel as enunciated in Port of Melbourne Authority v Anshun Pty Ltd supra has no application to the circumstances of this case. The necessary connection between the parties and the issues in the two proceedings is simply absent.
22 The second defendant objected to par 27(c), (d) and (e) and the first defendant to subpar (e) of the Minute. Counsel for the second defendant said that the pleas in subpars (c) and (d) were irrelevant. I do not accept that submission and would allow those pleas. The objection to the plea in subpar (e), that "Ezcaray was excluded from all discussions between Powell and Gajewski", was to the use of the word "excluded". In the course of the hearing Senior Counsel for the plaintiffs sought to amend the plea to substitute "not included in any" for the words "excluded from all". I understood that that satisfied the defendants.
23 It was submitted by the defendants that par 28 introduced a new cause of action that was now statute-barred. Senior Counsel for the plaintiffs argued that the plea was simply part of the plea of causation and did not raise any new cause of action. It was, however, agreed by counsel for all parties that, if par 28 raised a limitation point, then the time when any amendment in those terms took effect should be left to the trial Judge, who can make that determination when the necessary findings of fact have been made. In the circumstances, I would allow the amendment on the basis that, if it be found to raise a new cause of action, the time when the amendment is to take effect is to be determined by the trial Judge.
24 Objection was taken to par 31 of the Minute. The first objection was to subpar (b), on the basis that it was not apparent what was alleged to give rise to an obligation to inform Ezcaray of the matters alleged. Senior Counsel for the plaintiffs sought to amend the Minute to add, after the words "the guidelines", the words "pleaded in paragraph 21(c), alternatively paragraph 21(d)". I understood that that overcame the defendants' concern and, in any event, would allow the plea as so amended. Senior Counsel also sought to amend the Minute to include a new par 3(c) to the effect that "Santos Ezcaray was a director of the second plaintiff", to clarify the significance of the allegations relating to the failure to inform Ezcarary of the matters referred to in par 31. There was also an objection by the defendants to par 31(c) on the basis that it
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was an anticipatory plea. Although I think there is some force in that contention, I would not disallow the amendment simply on that basis.
25 The defendants took objection to par 31(e) and (f) on the basis that those were, in effect, pleas of fraud and the particulars were incapable of supporting such a plea. Senior Counsel for the plaintiffs said that no allegation of fraud was intended and sought to amend the paragraphs to delete in each case the word "falsely" and to add at the end of each sentence ", which was incorrect". I understood that that overcame the objection and, in any event, would allow the plea as so amended.
26 The next objection was to the use of the expression "reasonably promptly" in the plea in par 32(a) that Gillards owed a duty of care to Glowtime to perform the obligations and discharge the responsibilities pleaded in pars 20 and 21 "reasonably promptly and with reasonable skill and care". It was argued that the expression "reasonably promptly" was so vague as to be embarrassing. I do not, however, consider that, in the context, the expression is embarrassingly vague and would allow it.
27 Paragraphs 34 to 38 of the Minute plead a discrete claim against the first defendant. Several objections were taken by the defendants to those paragraphs. It was submitted that there was no basis for the allegation in par 34(a) that Gillards had to provide "adequate guidance or correction to the accounting staff of Glowtime and Riverview" and that the expression in par 34(b), that the books were "seriously inadequate and inaccurate", was so vague as to be embarrassing, at least in the absence of proper particulars. It was also submitted that the implied allegation in par 35 that Gillards had acted in breach of their duty by seeking explanations only from Powell was embarrassing because there was no basis pleaded for any duty to seek explanations from any other person. It was also contended that it was embarrassing to plead that the transactions were "probably or possibly of a personal nature (relating to Powell)".
28 The plea in par 36 was attacked on the basis that the "serious errors" alleged were not particularised and it was inappropriate to refer, by way of particulars of the alleged errors, to the contents of various other documents which dealt with those matters and leave it to the defendants to work their way through those documents in an endeavour to ascertain what errors were referred to in the pleading.
29 The defendants also attacked par 37 on the basis that there was no plea of any obligation on Gillards to "provide any guidance as to maintaining of Glowtime's books of accounts and records". It was
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submitted that in the normal course accountants who were simply instructed to prepare financial statements would have no such obligation to their client and no express obligation was pleaded.
30 The defendants also objected to the use of the word "negligent" or "negligently" (as the case may be) in pars 31, 33, 37 and 38 on the basis that, given that the plaintiff also pleaded a claim in negligence, it was confusing and therefore embarrassing. Although Senior Counsel for the plaintiffs did not concede the point, he indicated that he was unconcerned whether the words remained in place or were removed. In my view, they should be removed to avoid the possibility of confusion. They do not appear to add anything to the plea.
31 It was submitted by Senior Counsel for the plaintiffs that if I were to find that there were serious difficulties with the pleas in pars 34 to 38, then they should be struck out with leave to replead separately from the balance of the statement of claim. They were a separate and relatively small claim and further consideration would have to be given to how best to plead them to meet the requirements of the defendant without incurring disproportionate costs.
32 I consider that the objections taken by the defendants to pars 34 to 38 are properly taken and I would not allow those amendments.
33 I would not, therefore, grant leave to make the amendments proposed in pars 14 (a), 14 (b) and 34 to 38. I would grant leave to amend in accordance with par 23(f) only on the condition that the amended pleading contained, or was accompanied by, proper particulars of the matters alleged. I would grant leave to make the proposed amendment in par 28 on the basis that, if it be found to raise a new cause of action, the time when the amendment is to take effect is to be determined by the trial Judge. I would grant leave to amend in accordance with pars 2, 5, 9(b), 27(e) and 31(b) on the basis that they are amended, as moved by Senior Counsel for the plaintiff during the course of argument (or in the case of pars 2 and 5, subsequently), in the terms to which I have referred.
34 It is an appropriate case where the plaintiff should have leave to bring in a further minute to deal with those parts of the existing Minute where leave has been refused. That, however, should be done within a specified time and I will hear counsel on that and on costs.
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