Schwartz, D.C.& Ors v South Australia Public Service Savings & Loan Society Ltd
[1994] FCA 670
•16 SEPTEMBER 1994
DEAN CHRISTIE SCHWARTZ AND OTHERS v SOUTH AUSTRALIA PUBLIC SERVICE SAVINGS AND
LOAN SOCIETY LIMITED AND OTHERS AND SIMMONDS CAIN PTY LTD AND OTHERS
No. SG57 of 1992
FED No. 670/94
Number of pages - 9
Practice and procedure
COURT
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BRANSON J
CATCHWORDS
Practice and procedure - pleadings - application to strike out - whether pleadings disclose a reasonable cause of action - pleading that a director and secretary of a society is performing duties in his/her capacity as an employee - vicarious liability - pleading that an employer owes the members of a society a duty of care to ensure that its employee will perform his/her duties as director and secretary with all due care, skill and diligence - further and better particulars
Federal Court Rules O11 r16
Beach Petroleum NL v. Johnson (1991) 105 ALR 456
Re Co-operative Travel Society and Ors (1978) ACLC 40-396 at 29,831
General Steel Industries Inc v. Commissioner for Railways (1964) 112 CLR 125
Kondes v. State Transport Authority (1984) 154 CLR 672 at 679
Bruce v. Odhams Press Ltd (1936) 1 KB 697
HEARING
ADELAIDE, 27 July 1994
#DATE 16:9:1994
Applicants: No Appearance
Counsel for the First Respondent: Mr G Feary
and Cross-Claimant (South
Australia Public Service Savings
and Loans Society Limited)
Solicitors for the First Respondent : Piper Alderman
Counsel for the Second Respondent: Mr G Feary
and Cross-Claimant
(Charles Chipperfield)
Solicitors for the Second Respondent: Piper Alderman
Counsel for the Third Respondent,: Mr D Trim with
Cross-Respondent and Cross-Claimant Mr M Bevilacqua
(Bain and Company Limited)
Solicitors for the Third Respondent: Mouldens
Fourth Respondent, Cross-Respondent : No Appearance
and Cross-Claimant (Bennett
Johnston Consultants Pty Ltd)
Counsel for the Fifth Respondent,: Mr D Trim with
Cross-Respondent and Cross-Claimant Mr M Bevilacqua
(Bain and Company
Investor Services Limited)
Solicitors for the Fifth Respondent: Mouldens
Counsel for the Cross-Respondent and: Mr D Trim with
Cross-Claimant (Adam Barrymore Mr M Bevilacqua
Catford)
Solicitors for the Cross-Respondent: Mouldens
Counsel for the Cross-Respondent and: Mr G Coppola
Cross-Claimant (Horwath and Horwath)
Solicitors for the Cross-Respondent: Kelly and Co.
Counsel for the Cross-Respondent: Mr M Evans
(Simmonds Cain Pty Limited)
Solicitors for the Cross-Respondent: Fountain and Bonig
ORDER
THE COURT ORDERS THAT:
1. As to the Amended Cross-Claim of Bain and Company Limited and
Bain and Company Investor Services Limited
(a) Paragraphs 6.1 and 7.1 will be struck out.
(b) The Cross-Claimants will have leave to make consequential amendments.
2. As to the Amended Cross-Claim of Adam Barrymore Catford
(a) Paragraphs 6.1 and 7.1 will be struck out.
(b) The Cross-Claimants will have leave to make consequential amendments.
3. As to the Amended Cross-Claim of Horwath and Horwath (in respect
of the Cross-Claim against Horwath and Horwath by Bain and Company Limited and Bain and Company Investor Services Limited)
(a) Paragraphs 8.1, 12 and 15.1 will be struck out.
(b) The Cross-Claimant will have leave to make consequential amendments.
4. As to the Amended Cross-Claim of South Australia Public
Service Savings and Loans Society Limited and Charles Chipperfield
(a) Paragraphs 6.1 and 7.1 will be struck out.
(b) The Cross-Claimant will have leave to make consequential amendments.
5. The time within which the Cross-Respondent Simmonds Cain Pty
Ltd is to file its defence is extended until the next directions hearing in this matter.
NOTE: Settlement and entry of Orders is dealt with in Order 36 of the
Federal Court Rules.
JUDGE1
BRANSON J By Notice of Motion dated 12 July 1994 the Cross-Respondent Simmonds Cain Pty Ltd ("the Cross-Respondent") seeks orders that certain paragraphs of Amended Cross-Claims filed against it be struck out on the grounds that they disclose no reasonable cause of action and/or have a tendency to cause prejudice or embarrassment and/or constitute an abuse of the process of the Court. The first Amended Cross-Claims concerning which complaint is made are those filed on behalf of Bain and Company Limited and Bain and Company Investor Services Limited on the one hand and Adam Catford on the other. So far as is here relevant these Cross-Claims are in identical terms. The paragraphs which the Cross-Respondent seeks to have struck out are paragraphs 4.3, 6.1, 7.1 and 8. It will assist in the understanding of the criticisms of these paragraphs if they are seen in the context in which they are pleaded. Leaving aside certain Particulars (either wholly or in part) pleaded under certain of the paragraphs the relevant pleadings is as follows:-
"3. The Cross-Respondent is and was at all material times:-
........ ........ ........ ........ ........ .. 3.6 The employer of Alan Woodrow Heiser
("Heiser").
4. At all material times:-
4.1 Heiser was a Director and Secretary of the Society.
4.2 Heiser was also a servant and agent of the Cross-Respondent. 4.3 The duties performed by Heiser as a Director and Secretary of the Society were performed by him in his capacity as a servant and agent of the Cross-Respondent. PARTICULARS The Cross-Claimants rely upon the fact that certain documents, including the following, were addressed to Heiser or to the Society at the office of the Cross-Respondent.
........ ........ ........ ........
6. In the premises .... the Cross-Respondent owed to the Applicants as members of the Society duties of care to ensure:-
6.1 That Heiser would perform or observe his duties as a Director and Secretary of the Society with all due care, skill and diligence. ........ ........ ......
7. In breach of the duties referred to in the last preceding paragraph the Cross-Respondent:-
7.1 Failed to ensure that Heiser performed or observed his duties as a Director and Secretary of the Society with all due care skill and diligence.
........ ........ ......
8. Further, or in the alternative, the Cross-Respondent is vicariously liable for the breaches of duty on the part of its servants and agent Heiser set out in paragraphs 7.1.5 and 7.1.6 hereof."
Paragraphs 7.1.5 and 7.1.6 appear under the heading PARTICULARS immediately below paragraph 7.1. They list alleged breaches of duty owed by Heiser as a Director of the Society and as the Secretary of the Society respectively to the Applicants as members of the Society. Having regard to the approach adopted by Von Doussa J in Beach Petroleum NL v. Johnson (1991) 105 ALR 456 I will not stop to consider whether certain of the matters set out under the heading PARTICULARS ought technically to have been pleaded as material facts.
The Society referred to in the above pleadings is the Family Security Friendly Society registered under the Friendly Societies Act of 1913 (Qld.) ("the Society").
Mr Evans, who appeared as counsel for the Cross-Respondent, sought to draw a distinction between the pleading in subparagraph 3.6 that the Cross-Respondent was the employer of Heiser and the pleading in subparagraph 4.2 that Heiser was the servant and agent of the Cross-Respondent. He argued, in effect, that the two pleadings did not refer to the two sides of the one relationship but rather that they identified different relationships. In the context of the pleading as a whole it seems to me that the two subparagraphs seek to describe the one relationship from the two different perspectives, namely that of the Cross-Respondent and that of Heiser. The plea that Heiser was "a servant and agent of the Cross-Respondent" is in its context I consider no more than a plea that Heiser was the employee of the Cross-Respondent. Had I formed the view that the plea was properly interpreted as having a wider meaning I would have required particulars to have been given as to the extent of the asserted agency as the price of saving the pleading from being struck out on the ground that it was embarrassing.
On the broader issue of the sustainability of the above pleadings, Mr Evans sought to characterise the pleadings in the following terms:-
"The allegation is that Heiser is performing his duties and obligations as a director of the society because he received certain correspondence addressed to him at the office of Simmonds Cain, that is, the allegation at its highest, and the other pleadings in relation to the breach by Heiser of his duties and the liability of Simmonds Cain for those breaches, all depend on this particular pleading in my submission."
I do not agree that this is the correct interpretation of the pleadings. The relevant material facts and conclusions of law pleaded by the Cross-Claimants include that:-
(1) the relationship between the Cross-Respondent and Heiser was that of employer and employee;
(2) Heiser performed his duties as Director and Secretary of the Society in his capacity as an employee of the Cross-Respondent;
(3) as a consequence the Cross-Respondent owed to the applicants as members of the Society a duty of care to ensure that Heiser would perform such duties with care, skill and diligence;
(4) the above duty of care was breached;
(5) further or in the alternative the Cross-Respondent is vicariously liable for the conduct of Heiser.
The reference to the receipt by Heiser of certain documents addressed to him or the Society at the office of the Cross-Respondent is included in the Amended Cross-Claims apparently as a particular of the plea that the duties performed by Heiser as Director and Secretary of the Society were performed by him in his capacity as the servant and agent of the Cross-Respondent. Such reference is not a particular of that plea. It appears to identify evidence which the Cross-Claimants would seek to rely upon at trial to establish such plea. It might be thought to be evidence of limited weight. However the pleadings as a whole are not properly to be understood as asserting, as Mr Evans put it:-
"that the mere fact that he has received his letters (at the Cross-Respondent's premises) therefore makes Simmonds Cain strictly liable for any breaches by way of vicarious liability."
The Cross-Claimants plead that the Cross-Respondent is vicariously liable for the actions of Heiser because Heiser was its employee and undertook his relevant duties in that capacity. Whether as a matter of evidence they can establish the material facts incorporated in such pleading is not a matter to be considered on a strike-out application.
Mr Evans further submitted that the claim made by paragraph 4.3 (that is, that Heiser performed his duties as a Director and the Secretary of the Society as a servant and agent of the Cross-Respondent) is clearly untenable as directors' duties and the duties of a secretary of a company or society are personal to the individual so appointed. This submission requires consideration to be given to The Friendly Societies Act of 1913 (Qld.) and the Rules of the Family Security Friendly Society registered under that Act.
The Friendly Societies Act of 1913 provides for the registration of, amongst other societies, friendly societies and requires such societies to have rules containing provisions in respect of the several matters set out in the First Schedule of the Act (sections 8 and 10). Section 12 of the Act provides that such rules shall from the date of their registration be valid and binding on every member of such society in so far as they are not contrary to the Act.
The First Schedule of the Friendly Societies Act of 1913 includes as subject matter for rules of societies registered thereunder the appointment and removal of a committee of management (by whatever name known), the appointment and removal of trustees and the appointment, removal and duties of other officers.
Clause 9 of the Rules of the Society deals with the topic of management of the Society. It includes the following subclauses:-
"9.1 The business and operations of the Society shall be managed by a Board of Directors and for that purpose the Board, except as hereinafter provided, shall have and may exercise the powers of the Society as if these had been expressly conferred on the Directors by a general meeting of the Society. The powers of the Board shall be subject to any restrictions imposed thereon by the Act or by these Rules. 9.2 The Board shall consist of at least seven members who shall be elected by the members of the Society at the Annual General Meeting as provided in these rules. A majority of the Directors shall be permanently resident in Queensland.
9.3 The Board shall elect from among its members a Chairman.
9.4 The Board shall be responsible for the general management of the Society including the payment of claims and the preparation and maintenance of the necessary records and books of account in respect to the management of the Society and any funds operated by the Society. 9.5 (not here relevant)
9.6 The Board may contract to employ persons, companies, incorporated bodies, or firms or engage professional advice on such terms and conditions as it considers appropriate for the efficient administration of the Society. The Board may appoint and remove officers who shall be responsible to the Board for the efficient operation of the Society.
The Board shall appoint a Secretary who shall be required to furnish all necessary returns and information required by the Registrar, to keep the necessary accounting records of the management of the Society and of the various registered Funds. In the event of the Secretary failing to carry out these duties to the satisfaction of the Board, his appointment shall be terminated and a new Secretary appointed. The Board may appoint a person or firm to be the Actuary to the Society. The Actuary shall be, or if a firm the principals shall each be, a Fellow of the Institute of Actuaries of Australia or hold such other qualification as may be approved by the Registrar. In the event of the Actuary failing to perform his duties to the satisfaction of the Board his appointment shall be terminated and another Actuary appointed. In this event the Actuary shall be empowered to report to the Registrar in connexion with the affairs of the Society. The Secretary and Actuary shall be eligible to be members of the Board of Directors. The Directors shall be entitled to be reimbursed for any expenses properly incurred in their capacity as Directors and shall also be entitled to other remuneration as Directors. Additionally Directors appointed as officers and engaged in the administration of the Society will be entitled to remuneration on the terms and conditions agreed upon by the Board. 9.7 - 9.22 (not here relevant) 9.23 Persons, companies, incorporated bodies, and firms employed by the Directors shall not be liable to make good any deficiency which may arise or occur in the finances of the Society, but shall only be liable for property or money which shall be actually received by them on account of the Society."
As subclause 9.6 makes plain, the Secretary of the Society is to be appointed by the Board of Directors. He or she is to be required to undertake certain tasks of a clerical and accounting nature, and in the event that such tasks are not carried out satisfactorily the appointment is to be terminated and a new Secretary appointed. The Secretary is eligible to be a member of the Board of Directors - irrespective it would seem of whether or not he or she is a member of the Society. In this case it may be assumed that Heiser became eligible to be appointed as a director of the Society by reason of his being appointed as the Secretary of the Society.
Paragraph 4.7 of the Amended Cross-Claims plead that the duties performed by Heiser as a Director and Secretary of the Society were performed by him in his capacity as a servant and agent of the Cross-Respondent. For present purposes the truth of this plea as a matter of fact must be accepted.
Paragraph 8 of the Amended Cross-Claims plead that the Cross-Respondent is vicariously liable for the breaches of duty on the part of its servant and agent Heiser set out in paragraphs 7.1.5 and 7.1.6. Plainly this paragraph must stand or fall with the pleading that Heiser performed his duties as a Director and the Secretary of the Society in his capacity as a servant and agent of the Cross-Respondent. Are such duties capable as a matter of law of being performed by an individual in his or her capacity as an employee of another?
It seems clear that under the Corporation Law and its precursors the duties of a director of a corporation are personal. Generally speaking, the duties and liabilities of a director of a society are co-extensive with those of a company director (Re Co-operative Travel Society and Ors. (1978) ACLC 40-396 at 29,831). The position is not so clear in the case of company and society secretaries. However in this case it is the Friendly Societies Act of 1913 and the Rules of the Society which govern the status of Heiser as a Director and the Secretary of the Society.
In my view, having regard to the terms of the Friendly Societies Act of 1913 and the Rules of the Society, it cannot be said that the allegation of vicarious liability in the Cross-Respondent for the actions of Heiser as the Secretary of the Society is plainly untenable (see General Steel Industries Inc v. Commissioner for Railways (1964) 112 CLR 125). The duties which clause 9.6 of the Rules of the Society prescribe for the Secretary of the Society are essentially clerical and accounting in nature. They do not appear to call for the exercise of significant discretionary judgments. It is arguable that such duties are not personal in nature but may be performed by an individual in his or her capacity as an employee of another. In view of the apparent link between Heiser's appointment as the Secretary and as a director of the Society I consider that it would be inappropriate to strike out a portion of the allegation of vicarious liability. The allegation of vicarious liability will be allowed to stand as pleaded.
I turn to consider the terms of paragraphs 6.1 and 7.1 of the Amended Cross-Claims. Paragraph 6.1 asserts that the Cross-Respondent owed to the Applicants as members of the Society a duty of care to ensure that Heiser would perform or observe his duties as a Director and Secretary of the Society with all due care, skill and diligence.
It is not pleaded that the Cross-Respondent was appointed as Secretary to the Society or otherwise had any direct relationship with the Society. The concept of "non-delegable, personal duty" therefore does not arise (see The Commonwealth v. Introvigne (1982) 150 CLR 258).
On what basis then is it asserted that the Cross-Respondent owed a duty of care to the Applicants as members of the Society to ensure that Heiser would perform or observe his duties as a Director and Secretary of the Society with all due care, skill and diligence? As was pointed out by Mason J in Kondes v. State Transport Authority (1984) 154 CLR 672 at p679:-
"A classic definition of negligence was that expressed by Alderson B, in Blyth v. Burmingham Waterworks Co. ((1856) 11 Exch 781 at 784), in these terms: 'Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do.'
It has been accepted that the content of the ordinary common law duty of care is a duty to exercise reasonable care (and skill) or to take reasonable steps to avoid risk of harm to a person to whom the duty is owed. The degree or standard of care required varies with the risk involved."
In my view the Amended Cross-Claims do not plead material facts sufficient to support the asserted duty upon the Cross-Respondent to ensure that Heiser would perform his duties to the Society with all due care, skill and diligence. There is no plea, for example, that Heiser was known to the Cross-Respondent to lack the competence to perform such duties without supervision or that such duties were of a particularly difficult or hazardous character with a significant risk of error being made by an unsupervised employee. It is not the case that an employer is necessarily negligent in allowing an employee to work for another in circumstances in which the employer is not able to ensure the proper performance of such work.
Paragraphs 6.1 and 7.1 of the Amended Cross-Claims will be struck out on the ground that they disclose no reasonable cause of action.
There will be a need to make consequential amendments to the Amended Cross-Claims by reason of the striking out of paragraphs 6.1 and 7.1 thereof. The Cross-Claimants will have leave to amend accordingly.
The Cross-Respondent further seeks an order striking out certain sentences which appear in the Amended Cross-Claims and which advise to the effect that further particulars will be provided after discovery. I agree that such sentences form no proper part of the pleading and may be ignored. However I consider it unnecessary to strike them out.
The second Amended Cross-Claim of which complaint is made is that by Horwath and Horwath against Simmonds Cain (in respect of the Cross-Claims against Horwath and Horwath by Bain and Company Limited and Bain and Company Investor Services Limited). Application is made to strike out paragraphs 6, 8.1, 9, 10, 11, 12, 13, 14 and 15.1. Such paragraphs plead substantially the same matter as is pleaded in paragraphs 4.7, 6.1, 7.1 and 8 of the Amended Cross-Claim of Bain and Company Limited, Bain and Company Investor Services Limited and Adam Catford against Simmonds Cain. Consistently with my above reasons given in respect of the latter Amended Cross-Claim paragraphs 8.1, 12 and 15.1 of the Horwath and Horwath Amended Cross-Claim will be struck out. The sentences advising that further particulars will be provided after discovery will not be struck out.
The third Amended Cross-Claim of which complaint is made is that of South Australian Public Service Savings and Loans Society Limited and Charles Chipperfield against Simmonds Cain. Applicantion is made to strike out paragraphs 4.3, 6.1 and 7.1. For the reasons set out above paragraphs 6.1 and 7.1 of this Amended Cross-Claim will be struck out. The sentences advising that further particulars will be provided after discovery will not be struck out.
The Notice of Motion further seeks an order that the Cross-Claimants provide further and better particulars of their respective Amended Cross-Claims against the Cross-Respondent Simmonds Cain Pty Ltd in accordance with a request made to them. I agree with Mr Evans that in the circumstances it would be appropriate for fresh requests for particulars to be formulated in the light of these reasons.
The Amended Cross-Claims are seriously deficient in particularity. In my view the provision of particulars to the Cross-Respondent is desirable to enable the defendants to plead meaningfully in answer to the Amended Cross-Claims (see Bruce v. Odhams Press Ltd (1936) 1 KB 697). The time within which the Cross-Respondent Simmonds Cain Pty Ltd is to file its defences to the Amended Cross-Claims is extended until the next directions hearing in this matter when a further timetable can be set. I will hear counsel as to the costs of the Notice of Motion.
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