Sims v Suda Ltd
[2014] WASC 3
•10 JANUARY 2014
SIMS -v- SUDA LTD [2014] WASC 3
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASC 3 | |
| Case No: | CIV:1535/2012 | 19 JULY 2013 | |
| Coram: | REGISTRAR C BOYLE | 10/01/14 | |
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Statement of claim struck out with leave to bring in minute of proposed substituted statement of claim | ||
| C | |||
| PDF Version |
| Parties: | DOUGLAS ARTHUR SIMS SUDA LTD |
Catchwords: | Pleading Elements of contract Consideration Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 208, s 209 |
Case References: | Fazio v Fazio [2012] WASCA 72 Guinness plc v Saunders [1990] 2 AC 63 [HL]; [1990] 1 All ER 652 Hall v Busst (1960) 104 CLR 206 Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986) Marist Brothers Community Inc v The Shire of Harvey (1994) 14 WAR 69 Neilson v City of Swan [2006] WASCA 94 Pao On v Lau Yiu Long [1980] AC 614 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 577 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
SUDA LTD
Defendant
Catchwords:
Pleading - Elements of contract - Consideration - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 208, s 209
Result:
Statement of claim struck out with leave to bring in minute of proposed substituted statement of claim
Category: C
Representation:
Counsel:
Plaintiff : Mr T J Hammond
Defendant : Mr J R Ludlow
Solicitors:
Plaintiff : Patti Chong Lawyer
Defendant : Downings Legal
Case(s) referred to in judgment(s):
Fazio v Fazio [2012] WASCA 72
Guinness plc v Saunders [1990] 2 AC 63 [HL]; [1990] 1 All ER 652
Hall v Busst (1960) 104 CLR 206
Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986)
Marist Brothers Community Inc v The Shire of Harvey (1994) 14 WAR 69
Neilson v City of Swan [2006] WASCA 94
Pao On v Lau Yiu Long [1980] AC 614
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 577
1 REGISTRAR C BOYLE: At all material times (as the best stories begin) the plaintiff Mr Douglas Sims was a director of the defendant, an unlisted public company. He also had executive roles at times.
2 The plaintiff claims that he and the company entered into a binding agreement under which the company was to pay him money and issue him with shares. It has done neither, and Mr Sims sues. The defendant applies to strike out the statement of claim and for an order dismissing the action and requiring the plaintiff to pay the costs.
When a pleading may be struck out
3 The principles applicable were not in dispute at the hearing. Both parties accepted that they are conveniently summarised in the much-cited reasons of Master Staples in Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986):
(1) The rule is intended to apply only to cases which are really not arguable and not to cases where, under the previous practice, demurrer would have been the proper course: Packard v Transport Trading Agency Co Ltd (1912) 14 WALR 191 at 195;
(2) on the application, not only must all the facts alleged in the statement of claim be accepted as true, but it must be taken for granted that on all other points the pleading is unassailable: Niven v Grant (1903) 29 VLR 102 at 106;
(3) great care must be exercised to ensure that the plaintiff is not improperly deprived of his or her opportunity to have a trial of his or her case by the appointed tribunal: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130; [1965] ALR 636 at 639; (1964) 38 ALJR 253 at 255; BC6400590;
(4) the rule should not be reserved for those cases where argument is necessary to show the futility of the plaintiff's claim. Argument, even extensive argument, may be necessary to demonstrate that the plaintiff's case is so clearly untenable that it cannot succeed: General Steel Industries Inc v Commissioner for Railways (NSW), above, (CLR) at 130; (ALR) at 639; (ALJR) at 255. However, the statements in General Steel, above should not be given canonical force: Batistatos v Roads & Traffic Authority (NSW) (2006) 227 ALR 425; 80 ALJR 1100; [2006] HCA 27; BC200604226 at [46].
(5) as a general rule a plaintiff is entitled as of right to have his or her case heard, to have the facts found and then to argue the question of law as it arises before the trial judge upon the facts as found. It is only in cases in which it can be seen from the outset that, however the facts be found, there is no basis for the legal conclusion contended for by the plaintiff that the pleading should be struck out: Dalgety Australia Ltd v Rubin (WASC Full Court, Lib No 5485, 24 August 1984, unreported;
(6) a court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie: Hospitals Contribution Fund of Australia v Hunt (1983) 44 ALR 365 at 373.
4 This summary has been referred to with approval so many times that it must be taken as settled and binding authority. For example, see Neilson v City of Swan [2006] WASCA 94 [18].
The history of the pleading and objections
5 The current version of the statement of claim is described as a further substituted statement of claim. It is in fact the fifth version of the statement of claim in this action. From the outset, it has been apparent that the plaintiff's pleading faced difficulties. It seemed from the beginning that the plaintiff had a problem with the question of consideration, and the defendant has long been insistent on what I will call the fiduciary question. The strike out application relies on both, and I will deal with the fiduciary question first.
Can a director contract with the company for further benefit?
6 The defendant submitted that it was not open to the plaintiff, as a director of the defendant and therefore a fiduciary of it, to claim any remuneration or benefit from the company other than as expressly provided by his contract of employment or his engagement as a director. It might be thought that this was an objection properly to be raised by way of defence, not a ground to strike out the statement of claim as disclosing no cause of action. However, the submissions of the defendant at the hearing of the application squarely put the proposition that it was not that the plaintiff's claim was open to an objection to be pleaded as a defence, but that the plaintiff's claim was unsustainable as pleaded.
7 The defendant's submission is that in order for a company validly to contract with a director, the approval of the company in general meeting is required. That is, the submission goes, that approval is necessary in order to give the company the capacity to contract with its director. On this view, the failure to obtain that authority is not a mere irregularity: it means that the company has no capacity to enter into the contract, which is accordingly unenforceable.
8 That was what the House of Lords concluded in Guinness plc v Saunders [1990] 2 AC 63 [HL]; [1990] 1 All ER 652, considering the articles of association of the plaintiff company and the provisions of the Companies Act (UK). The result follows from the long-established principle that a fiduciary is not able to benefit from his office in the absence of clear authority. The defendant submitted that s 208 of the Corporations Act 2001 (Cth), read in light of the Guinness principle, has the effect that in the absence of authority conferred by a general meeting, the defendant company simply did not have the legal capacity to contract with the plaintiff as he pleads.
9 That submission, it seems to me, runs aground on s 209 of the Corporations Act, which in part reads,
(1) If the public company or entity contravenes section 208:
(a) the contravention does not affect the validity of any contract or transaction connected with the giving of the benefit; and
(b) the public company or entity is not guilty of an offence.
Did the plaintiff give good consideration for the contract?
11 The question of consideration has dogged the plaintiff's pleadings from the start. It is worth repeating that this is the fifth version of the statement of claim. Earlier versions approached the question differently. Each in essence pleaded that the plaintiff did certain things to the benefit of the company, and then made an agreement with the company that it would pay him for having done so. The plaintiff did not plead that he had done these things at the request of the company. Nor did he plead that he did these things as part of his then-existing relationship with the company: indeed, it is central to his case that what he did was outside the scope of his engagements from time to time.
12 The rule that past consideration is not good consideration comes very early in any undergraduate course in contract law. However, accessible authorities on just what it means are few and far between. Both parties submitted that the principle is perhaps best explained in the advice of the Privy Counsel in Pao On v Lau Yiu Long [1980] AC 614, at 629,
An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors' request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.
13 That passage required three elements. The first is that the act must have been done at the request of the promisor. The defendant asserts that this is not pleaded. It is necessary to examine the structure of the statement of claim in some detail.
How the plaintiff pleads his case
14 The plaintiff claims variously to have invented, devised or developed five entities. One is a patent, two are trademarks and two are described as strategies. The pleading in relation to each must be considered in turn.
15 The first relates to what is referred to as the Clip-On device. The plaintiff pleads that he invented this in the period from January to May 2006 (statement of claim 3). He applied for a provisional patent in May 2006 and a standard patent in May 2007.
16 The second entity is the ArTiMist trademark. The plaintiff pleads (statement of claim 7) that he devised this in February 2007. He makes the same plea of having devised at the same time the NiCoSorb trademark (statement of claim 9). That is the third entity.
17 There is no plea in relation to any of the Clip-On device, the ArTiMist trademark or the NiCoSorb trademark that it was invented or devised at the request of the defendant.
18 Fourthly, the plaintiff pleads that he devised the Star Strategy on or about 8 February 2007 (statement of claim 12). There is no plea that he did so at the request of the defendant.
19 It is, however, pleaded (statement of claim 13) that implementation 'was undertaken by the plaintiff at the request of the defendant'.
20 Fifthly, there is the BPAG Strategy. Mr Sims pleads that he devised this in approximately February 2007 (statement of claim 14). This strategy relates to manufacturing rights for the device associated with the ArTiMist trademark. There is no plea that the device itself was the plaintiff's invention. It is pleaded that the strategy was executed between September 2007 and May 2008 at the request of the defendant (statement of claim 15).
21 While there were five entities, as I have styled them, the plaintiff does not plead that there were five separate agreements for him to be rewarded for them. At pars 17 to 20 of the statement of claim, the plaintiff pleads that there was one agreement, on which he sues.
22 Despite the scrutiny to which the plaintiff's pleadings have been subjected, there is still a cloud of uncertainty obscuring the claimed agreement.
23 At par 17, the plaintiff pleads that the agreement was entered into between February and November 2007. That is a remarkably long period. It should always be possible to say when a contract came into existence.
24 In a classical analysis, it is when the offer is accepted. Any uncertainty over the date on which the contract became complete and enforceable only arises because of evidentiary uncertainty about when a particular event occurred: there may be doubt, for example, about whether a written acceptance was delivered, or a conversation took place, on Tuesday or Wednesday. But there will still be a short interval of time during which those things are said to have taken place.
25 Even in the sort of case in which a contract emerges from a course of conduct, such as was considered by the Full Court in Marist Brothers Community Inc v The Shire of Harvey (1994) 14 WAR 69, it is always possible to give a definite date by which it can be said that there is an enforceable contract.
26 In neither type of case is it likely that the point at which a contract came into existence cannot be narrowed down any further than to a nine-month period. Nine months is the gestation period for humans, not for contracts. A plea that a contract came into existence in a nine-month period is embarrassing.
27 The plaintiff's submissions placed reliance on Fazio v Fazio [2012] WASCA 72. That submission misses the critical point. Fazio was a case concerned with the same type of problem as Marist Brothers. It did not involve anything like the facts here. The plaintiff refers in particular to the principles outlined in Fazio at [188] to [195]. They are simply of no help in dealing with the difficulties I have identified in this pleading.
28 Paragraph 17 of the further substituted statement of claim in fact continues the attempted emulsion of immiscible fluids that has confused the plaintiff's claim from the beginning. That is apparent from an analysis of pars 18 to 20 and 23 to 24, which at least explain (if they cannot justify) the nine-month period.
29 There are in fact two exchanges. Paragraphs 18 to 20 deal with the first. Paragraphs 18 and 19 plead that a Mr Dermot Patterson 'acting on behalf of the Defendant' made certain 'representations' to the plaintiff. For present purposes, I treat this (although perhaps I need not) as a plea that the defendant made the 'representations' by the agency of Mr Patterson. These representations are said to have been made '[i]n about February 2007' (par 18).
30 There are two representations pleaded. One is that the plaintiff '… should be rewarded by' the defendant for developing the two pleaded strategies, and for selling to the defendant the two trademarks and the provisional patent: par 18. The second is that the defendant could not then afford to pay the plaintiff, but that if he were (in effect) to transfer his rights in the trademarks and the patent to the defendant, the reward for his doing so 'would be fixed by mutual agreement at a later date': par 19.
31 It is curious that this paragraph does not mention the two 'strategies' described earlier, but that is perhaps incidental.
32 Paragraph 20 pleads that the plaintiff 'verbally agreed to the terms as pleaded and particularised' at pars 18 and 19.
33 At that stage, the pleading looks like a classic claim of contract by offer and acceptance, but for one thing: the consideration to be paid by the defendant for the sale of the trademarks and the patent to it was not settled. The contract would fail for uncertainty.
34 That would not leave the plaintiff without any remedy. He could seek compensation quantum meruit: see Hall v Busst (1960) 104 CLR 206, 241 (Windeyer J), and Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 577. Such a claim is in the nature of a restitutionary claim, made on the basis that it would be unjust for the defendant to retain the benefit of what the plaintiff has provided without compensating the plaintiff. However, there is no such alternative claim to be found in the plaintiff's pleading.
35 The second exchange is set out in pars 23 and 24. Paragraph 23 pleads that about 8 October 2007 the plaintiff wrote to the defendant setting out a proposal for his reward. Paragraph 24 pleads that by letter dated 12 November 2007 the defendant agreed to that proposal. The proposal required that the plaintiff variously be paid a sum of money and be allowed to purchase at specified prices (presumably below true value) either shares or options in either the defendant or a company called BPAG. The plaintiff claims damages suffered by the defendant's failure to pay in accordance with the proposal.
36 Whereas the pleading refers to the result of the February exchange as 'the agreement', the October exchange is referred to as 'the contract'. It is not clear what the change in language signifies.
37 Paragraph 25 of the statement of claim reads,
By virtue of the matters pleaded and particularised at paragraphs 17-24 of the statement of claim, the Plaintiff and the Defendant agreed that the Plaintiff would pay to the Defendant a reward and/or confer upon him a benefit as set out in the proposal ('the contract').
38 That rather suggests that there was no binding agreement until the October-November exchange. However, earlier parts of the pleading suggest otherwise. For example, each of pars 21, 22 and 23 pleads that the plaintiff took certain steps 'pursuant to' the February agreement.
39 The pleading almost reads as if the plaintiff posits a hierarchy of enforceable undertakings, with 'agreement' at the bottom and 'contract' at the top. That can hardly be so.
40 That all leaves unresolved, in my view, the fundamental question: when did a binding contract between the plaintiff and the defendant come into existence?
41 If it is said to have been as a result of the February exchange, then the plaintiff faces the problem that, as the consideration ('reward') the defendant was to pay was unspecified, there was no certainty as to a critical term. There could be no binding contract.
42 On the other hand, if the contract was formed by the October-November exchange, then the difficulty the plaintiff faces is that by then he had performed all that he was to be rewarded for. His consideration was executed, not executory. If that is the plaintiff's case, then he could succeed only if he were to establish (among other things), in accordance with the principles explained in Pao On, that the acts he did were done at the request of the defendant. It seems to me that the existing pleading, as analysed above, does not do that. The defendant's submission as to this aspect of the pleading is made good.
What is to be struck out, and whether the plaintiff may re-plead
43 It follows that pars 3 and following of the statement of claim must be struck out. Since that is all but the briefest formal part of the document, it is more convenient to strike out the statement of claim entirely.
44 The next question is whether the plaintiff ought to have leave to re-plead. As I have mentioned already, there have now been five attempts at the statement of claim. That would normally be more than enough. But it does seem to me that, if the story is as the plaintiff tells it were made good by the evidence, then the defendant would have received the benefit (if any) of having come into control or ownership of the various entities without having in any way compensated the plaintiff.
45 There may be an arguable claim that the plaintiff can articulate: the present pleading does not do it. The appropriate order is for the plaintiff to bring in a further minute of proposed substituted statement of claim within a time to be limited. The balance of the application is to stand adjourned until that minute can be considered. If it still presents no arguable case, the action will be dismissed.
46 The plaintiff should not read the grant of one last chance to re-plead his case as a suggestion that he has a 'good' case. It is not: it is only that it is not quite possible yet to exclude any chance that he has a case worthy of taking to trial. First he must overcome the problems of contract formation and consideration by a new pleading. For the purposes of this application I have been able to deal with the fiduciary question quite shortly as a pleading point. However, as a matter of evidence, it would be a formidable obstacle for the plaintiff at trial.
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