Smith v Noss
[2002] NSWSC 730
•20 August 2002
CITATION: Smith v Noss [2002] NSWSC 730 CURRENT JURISDICTION: Equity Division FILE NUMBER(S): SC 3697/01 HEARING DATE(S): 16 April 2002 JUDGMENT DATE: 20 August 2002 PARTIES :
Bronwyn Smith (Plaintiff)
Stephen Thomas Frere Noss (Defendant)JUDGMENT OF: Master McLaughlin
COUNSEL : N. McCaffery (Plaintiff)
W. Hodgekiss (Defendant)SOLICITORS: Cowley Hearne Lawyers (Plaintiff)
Gells, Lawyers (Defendant)CATCHWORDS: Practice and Procedure - Application to strike out pleading - Issue estoppel in other proceedings - Whether the present claim is subject to that issue estoppel - Nature of former relationship between parties - Whether a partnership - Form of defence and cross-claim - Whether defective as being prolix or embarrasing - Nature of relief sought - Whether damages are available in addition to equitable compensation - Exemplary damages available as equitable relief. LEGISLATION CITED: Partnership Act 1892
Supreme Court Act 1970
Fair Trading Act 1987CASES CITED: Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1
Digital Pulse Pty Limited v Harris (2002) ACSR 487
General Steele Industries Inc. v Commissioner for Railways (1964) 112 CLR 125
Grant v Dawkins [1973] 3 All ER 897
Hamer-Mathew v Gulabrai (McLaughlin M, 7 September 1995, unreported; Court of Appeal, 26 June 1997, unreported)
Helmore v Smith (1886) 35 Ch D 436DECISION: See paragraph 57.
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
MASTER McLAUGHLIN
Tuesday, 20 August 2002
3697/01 BRONWYN SMITH -V- STEPHEN THOMAS FRERE NOSS
JUDGMENT
1 MASTER: There are presently before the Court two notices of motion.
2 The first in point of time is that filed on 21 November 2001 by the Plaintiff, Bronwyn Smith. She seeks thereby an order that the defence and cross-claim filed on 2 October 2001 be struck out pursuant to Part 15 rule 26 of the Supreme Court Rules.
3 The second was filed on 10 April 2002 by the Defendant, Stephen Thomas Frere Noss, who seeks thereby an order that the statement of claim be struck out.
4 The substantive proceedings were instituted by statement of claim filed by the Plaintiff on 23 July 2001. The Plaintiff and the Defendant were both solicitors by profession. Throughout the months of October and November 2000 they practised their profession conjointly under the designation Noss & Smith Partners. The precise nature of the conjoint relationship between the Plaintiff and the Defendant during that period is in dispute between the parties. Suffice it to so say, however, that, whatever might have been the appropriate categorisation, that relationship came to an end on 30 November 2000. Subsequently, on 16 March 2001 John Frederick Lord, chartered accountant, was appointed receiver and manager of the legal practice formerly known as Noss & Smith Partners, by order of the Supreme Court in proceedings 1101 of 2001.
5 By the statement of claim filed in the present proceedings the Plaintiff seeks declaratory relief concerning the nature of the professional relationship between the parties and the basis upon which they “conducted their legal relations”, as well as a declaration that the Plaintiff validly rescinded “the joint enterprise agreement” on 30 November 2000. In addition, the Plaintiff seeks damages, and, in the alternative, damages pursuant to section 68 of the Fair Trading Act 1987, and, in the alternative, further or other relief pursuant to section 72 of the Fair Trading Act, and, in the alternative, further or other order [sic] pursuant to section 73 of the Fair Trading Act, together with interest pursuant to the Supreme Court Act 1970.
6 The Defendant on 2 October 2001 filed a defence and cross-claim.
7 By that defence the Defendant denies that the parties negotiated the terms of a joint enterprise, and asserts that the parties negotiated the terms of a partnership between them. The Defendant denies various alleged representations in the statement of claim (which are relied upon to ground the relief under the Fair Trading Act).
8 In essence, the Defendant by the defence puts in issue the assertion of the Plaintiff that the nature of the relationship was (as described by the Plaintiff) a “joint enterprise”, and asserts that the relationship was a partnership. Paragraph 17.1 of the defence is in the following terms,
- Further, or in the alternative, in answer to the whole of the statement of claim, the Defendant says that the Plaintiff is estopped, by reason of the signing of consent orders in proceedings between the parties in this Honourable Court numbered 1101 of 2001, from denying the existence of a partnership between the parties and asserting the “joint enterprise” in the terms alleged or at all.
9 By his cross-claim the Plaintiff asserts the existence of a partnership between the Plaintiff and the Defendant, the terms of which partnership were not reduced to writing. The Defendant, by paragraph 5, asserts,
- At all times during the partnership and thereafter pending proper winding up of the partnership assets and payment of liabilities the cross-claimant and the cross-defendant were and continued in a fiduciary relationship as partners and owe a fiduciary duty of care to the other.
10 The Defendant then alleges certain specified breaches of the asserted fiduciary duty owed to him by the Plaintiff.
11 The Defendant further alleges, by paragraph 7,
- In further breach of the fiduciary duty owed to the cross-claimant the cross-defendant refused to co-operate with the cross-claimant and the Receiver of the partnership.
12 Particulars of that allegation are then set forth. The Defendant alleges that, arising out of the various breaches asserted in the cross-claim, he has suffered considerable loss and damage.
13 The relief sought in the cross-claim is as follows:
(1). An order that an account be taken of the dealings of the cross-defendant in relation to the partnership Noss & Smith Partners in breach of her fiduciary duty.
(2). An order that an inquiry be held into the amount of damages suffered by the cross-claimant by virtue of the cross-defendant’s breaches of her fiduciary duty.
(3). Equitable compensation.
(4). Damages.
(5). Exemplary damages.
(6). Interest.
(8). Indemnity costs.(7). An order that the cross-defendant pay all costs and disbursements as incurred or rendered by the Receiver and Manager, Lord & Brown, Chartered Accountants.
14 I have had the benefit of receiving written outlines of submissions from Counsel for the respective parties concerning the two applications. Those written outlines will be retained in the Court file.
15 Although the application of the Defendant to strike out the statement of claim was the later of the two notices of motion filed in this matter, nevertheless, logically, it would appear appropriate that I should proceed to deal first with that application (such sequence being adopted at the hearing of the two applications).
16 The notice of motion filed on behalf of the Defendant does not identify the basis upon which the Defendant seeks the order that the statement of claim be struck out. In its terms, that relief would appear to be sought pursuant to the provisions of Part 15 rule 26 of the Supreme Court Rules. That rule relates to the striking out of a pleading. As I understand it, the Plaintiff brings the present application pursuant to the provisions of subrule (1) of that rule, which subrule provides,
Where a pleading -
(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;
(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or
the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleading be struck out.(c) is otherwise an abuse of the process of the Court,
17 As I understand it, the Defendant submits that the pleading does not disclose a reasonable cause of action or that it is otherwise an abuse of the process of the Court, in consequence of the orders made in proceedings 1101 of 2001.
18 Essentially, the challenge to the statement of claim is that the cause of action asserted therein is a cause of action grounded upon rights arising under the Fair Trading Act, that those rights and any cause of action asserted thereunder by the Plaintiff are inconsistent with the existence of a partnership between the Plaintiff and the Defendant, and that, in consequence of the orders of the Court made on 15 March 2001 and entered on 26 April 2001 in proceedings 1101 of 2001, there is a res judicata between the parties in respect to the nature of the relationship between the parties, with the result that the Plaintiff cannot now assert that that relationship was other than a partnership; that is, that the existence of a partnership between the Plaintiff and the Defendant is res judicata between those parties.
19 The foregoing orders of 15 March 2001 certainly contemplated that the relationship between the parties was that of a partnership. Various of those orders include such phrases as “the partnership business”, the “said partnership business”, “the partnership property”, “the asset and liability position of the partnership”, “the assets and liabilities of the said partnership” (orders 2, 3, 4, 5).
20 It should, however, be recognised that in reaching a decision as to the existence of a partnership (as distinct from some other kind of relationship or activity) the Court looks to substance rather than to form, and will not necessarily be bound by phrases or descriptions that the parties themselves may have chosen to use. (See Lindley & Banks on Partnership (17 ed., 1995), paragraphs 5-03, 5-07, see, also, Paterson v McKenzie [1921] GLR 43; Canny Gabriel Castle Jackson Advertising v Volume Sales (Finance) (1974) 131 CLR 321 at 326-328.) Thus the foregoing phrases in the wording of the orders (which were made by consent, not after a hearing at which evidence was received by the Court) will not necessarily be determinative of the existence of a partnership. Further, it should be recognised that the subject matter of which Mr Lord was appointed receiver and manager was “the legal practice formerly known as Noss and [sic] Smith Partners). It should also here be noted that in her statement of claim the Plaintiff does not deny the existence of a partnership.
21 Whilst it may be that the foregoing orders constitute a res judicata between the parties in respect to the existence of a partnership between the parties, that fact, even if established, does not, of itself, appear to me to preclude the existence of rights and liabilities under the Fair Trading Act. In this regard, I note that the definition of the phrase “trade or commerce” appearing in section 4 of the Act, “includes any business or professional activity”. Upon its face, the statutory prohibition contained in section 42(1) appears to be of general application and would appear to have application to the professional practice of solicitors.
22 But, in any event, it is not necessary that I should be persuaded that such a submission in this regard must of necessity succeed. It is only necessary that I be satisfied that the assertion that the provisions of the Fair Trading Act are not precluded by the existence of a partnership should not be doomed to failure. I am certainly not satisfied that that assertion must of necessity fail.
23 Consonant with the principles enunciated in such cases as General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125 at 128-129 per Barwick CJ, the power to strike out a pleading upon the ground that it discloses no reasonable cause of action should be exercised only in plain and obvious cases.
24 In consequence, therefore, I am not persuaded that the statement of claim discloses no reasonable cause of action. Neither am I persuaded that it is otherwise an abuse of the process of the Court. Accordingly, I propose to dismiss the notice of motion filed by the Defendant on 10 April 2002.
25 I turn now to the application by the Plaintiff to strike out the defence and the cross-claim.
26 The notice of motion expressly states in that regard that the relief is sought pursuant to Part 15 rule 26 of the Supreme Court Rules. That rule relates to the striking out of a pleading, not to the dismissal of a cause of action.
27 It is submitted on behalf of the Plaintiff that the defence, whilst bearing “the hallmark of orderly thought and temperate expression”, becomes from paragraph 12 thereof, prolix, disorderly, obscure and embarrassing within the meaning of the rule; and that paragraphs 12 and 17 of the defence and the whole of the cross-claim (from paragraph 5 thereof) lead inevitably to the assertion made in paragraph 10 of the cross-claim of an entitlement to exemplary damages or damages in the nature of “personal injury”, such an assertion being (so it is submitted on behalf of the Plaintiff) bad in law.
28 The Plaintiff complains that paragraph 12 (b) of the defence is unintelligible, and as such has a tendency to cause prejudice to the Plaintiff in attempting to plead thereto.
29 I am in agreement that that subparagraph manifests a confusion on the part of the pleader between the belief of the Defendant which the Defendant admits in the first part of that subparagraph, and an inability which was the subject of the belief (referred to, in an otherwise unattached fashion, in the latter part of that subparagraph). I am in agreement that the form of the pleading in paragraph 12(b) is defective, and that that subparagraph should be struck out, with leave being granted to the Defendant to replead.
30 The Plaintiff submits that paragraph 17.1 alleges an estoppel which is unknown to law. I do not agree with that submission. For the reasons which I have already expressed concerning the application of the Defendant in respect to the statement of claim, I do not consider that the existence of such an estoppel as is here alleged is determinative of the proceedings.
31 In consequence, therefore, it seems to me that at least the last part of paragraph 17.1 (“and asserting the “joint enterprise” in the terms alleged or at all”) should be struck out, with leave to the Defendant to replead.
32 As to the cross-claim, the Plaintiff complains concerning the form of paragraph 5.
33 It is submitted on behalf of the Plaintiff that, whilst it is correct to state that partners owe fiduciary duties to each other, that expression is meaningless without specific reference to both the circumstances and the context of the particular relationship between the particular parties.
34 By paragraph 5 the Defendant alleges that at all times during the partnership and thereafter, pending proper winding up of the partnership assets and the payment of liabilities, “the cross-claimant and the cross-defendant were and continued in a fiduciary relationship as partners and owe a fiduciary duty of care to the other”. (I would here interpolate that the last part of that paragraph, although its intended meaning is reasonably clear, is somewhat infelicitously drafted). Without a considerable expansion of factual matters relating to the circumstances and context of the specific partnership between the Plaintiff and Defendant, the assertion in this paragraph that the parties “were and continued in a fiduciary relationship as partners” is of little assistance in grounding a cause of action.
35 I am in agreement with the submission made on behalf of the Plaintiff that the assertion that each partner owed “a fiduciary duty of care” to the other partner imports a concept which is unknown to the law. There is nothing in the Partnership Act 1892 (Part 2, Division 3 whereof deals with the relationship between partners) which supports the existence of such a duty, even if the Cross-Defendant, or the Court, be able from the pleading to discern the nature of the duty which is alleged by this somewhat novel phrase. Neither have I been taken to any relevant case law in this regard.
36 Although the phrase “fiduciary duty” has been used both in written submissions and in oral arguments, that is not a particularly accurate description of the nature of the duty that exists between partners. The duty is one of good faith and is of general application between partners. It arises out of the fiduciary relationship which exists between partners, as Vice-Chancellor Bacon made clear in Helmore v Smith (1886) 35 Ch D 436 at 444, where His Lordship said,
- If fiduciary relation means anything I cannot conceive a stronger case of fiduciary relation than that which exists between partners. Their mutual confidence is the life blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust each other that the business goes on.
37 The Plaintiff points to the breach of the foregoing alleged “fiduciary duty”, and observes that the subject matter of that alleged breach was specifically pleaded in paragraph 9 of the statement of claim and admitted by the Defendant in paragraph 8 of his defence. In consequence, therefore, it is submitted on behalf of the Plaintiff that the alleged breach (even if such duty existed) pleaded by the Defendant in paragraph 6 of the cross-claim is inconsistent with the admission of the material facts by his defence to paragraph 9 of the statement of claim. In consequence, therefore, it is submitted on behalf of the Plaintiff that paragraph 6 of the cross-claim is embarrassing. I am in agreement with that submission. Paragraph 6 will be struck out.
38 The Plaintiff complains concerning the form of the cross-claim, and submits that from paragraph 6 onwards, but particularly at paragraphs 6 and 7, the pleading is bad in form and contravenes the provisions of Division 3 of Part 15 of the Supreme Court Rules.
39 It is submitted that, in any event, paragraph 6 is unintelligible, prolix and embarrassing.
40 Whilst the form of paragraph 6 may be a matter which, in the eyes of the Plaintiff, could be improved, nevertheless, I do not consider that it is unintelligible. Neither do I consider that, although somewhat wordy, the paragraph could be described as being prolix. I would not be disposed, on account of the form of that paragraph, to strike it out.
41 Paragraph 7 of the cross-claim is in the following terms,
- In further breach of the fiduciary duty owed to the cross-claimant, the cross-defendant refused to co-operate with the cross-claimant and the Receiver of the partnership.
42 There are then set forth under the heading “Particulars” ten separate items of asserted factual matters.
43 It is submitted on behalf of the Plaintiff that paragraph 7 breaches the essential canon of modern pleading practice in confusing the functions of “the material facts” on the one hand and “particulars” on the other.
44 I am in agreement with that submission. It seems to me that the facts asserted in paragraph 7 are insufficient to sustain a cause of action grounded upon breach of the alleged fiduciary duty owed by the Plaintiff to the Defendant. The inadequacy in the paragraph itself cannot be cured by the provision of somewhat detailed factual assertions under the heading “Particulars”.
45 I am in agreement that the foregoing confusion between material facts and particulars is, as submitted on behalf of the Plaintiff, embarrassing for the following reasons:
(a) The general statements at paragraphs 5 and 7 of the cross-claim are never themselves properly particularised.
(c) The particulars do not serve their due purpose of defining the issues and evidence, but rather serve the apparent purpose of widening the insufficiently pleaded “material facts”.(b) All the material facts concerning the alleged cause or causes of action are not stated; but, on the contrary, the Plaintiff is left in the predicament of deciding whether she ought to plead to the particulars.
46 I am in agreement with the submission of the Plaintiff that the cross-claim including and after paragraph 5 thereof (but especially paragraphs 5 and 7 thereof) is embarrassing in form and should be struck out, with leave to the Defendants to replead.
47 Paragraph 7 asserts, at least implicitly, that the duty alleged to be owed by the Plaintiff to the Defendant extended to co-operation by the Plaintiff with the Receiver of the partnership. It will be observed that the Receiver is not a party to the present proceedings. Whether or not the Plaintiff, or indeed either of the parties, owed or continued to owe a duty in relation to the facilitation by the Receiver of his functions as an officer of the Court, it seems to me that any complaint of lack of co-operation is one which should properly be made at the instance of the Receiver himself. To the extent that it is made by the Defendant, it is difficult to see how that complaint can ground a cause of action in the Defendant. In any event, allegations of lack of co-operation by the Plaintiff with the Receiver, who is not a party to the present proceedings, must be embarrassing to the Plaintiff, who cannot from her own knowledge properly plead to that allegation.
48 I am in agreement with the submission on behalf of the Plaintiff that factual matters asserted in paragraph 8 do not disclose any cause of action known to the law.
49 In respect to paragraph 9, the Plaintiff complains that this paragraph is in form prolix, embarrassing and calculated to prejudice the Plaintiff, and that, in any event, it does not disclose a cause of action known to the law. Further, that it is bad in form, for the same reasons that it is submitted that paragraph 7 is bad for the law.
50 For the reasons which I have set forth in respect to paragraph 7, I am in agreement with the foregoing submissions of the Plaintiff in respect to paragraph 9. That paragraph will be struck out.
51 In respect to paragraph 10 the Plaintiff submits that assertions of an entitlement to damages are made therein which are unknown to the law. Specifically, it is submitted that the particulars appended to that paragraph do not justify any claim for relief asserted thereunder.
52 The Plaintiff complains concerning the relief sought in the cross-claim. In particular, it is submitted on behalf of the Plaintiff that the claim for damages is misconceived, particularly where such a claim is made in addition to claims for account and equitable compensation. The Plaintiff complains especially concerning the claim for exemplary damages.
53 Further, it is specifically submitted that there is no entitlement to exemplary damages between partners under Australian law. The reasons, in accordance with the submission of the Plaintiff, are twofold. Firstly, in the light of the prayer for equitable compensation, a prayer for exemplary damages would constitute a penalty. Secondly, in respect of damages grounded upon contract, the instant case does not come within the category of contracts in which such an award could be made.
54 It is my understanding that, strictly speaking, prayers for relief in a pleading do not constitute a part of the pleading. Further, that it is always open to a Court of Equity to mould the form of the relief which it will grant in such a fashion as to make that relief appropriate to the situation and rights which have been established by the party claiming and entitled to relief.
55 Moreover, it is my understanding that, whilst the phrase equitable compensation is the nomenclature appropriate to a monetary award made in the former Court of Chancery, the word damages is the nomenclature appropriate to a monetary award made in the Courts of Common Law at Westminster for invasion of the Plaintiff’s common law rights or failure to perform obligations owed him at common law by the Defendant. The power of the Court of Chancery to award damages was in a state of uncertainty before the enactment of Lord Cairns’s Act (21 & 22 Vic. c. 27), section 2 whereof has been re-enacted (although not in identical terms) by section 68 of the Supreme Court Act 1970. (See Grant v Dawkins [1973] 3 All ER 897; generally, as to the distinction between equitable compensation and damages, see Meagher, Gummow and Lehane, Equity – Doctrines and Remedies, (2 ed.), 1984, paragraphs 2301, 2305f.)
56 In Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 at 90, the Court of Appeal of New South Wales (Spigelman CJ, Sheller and Stein JJA) said,
- The rules for the recovery of equitable compensation are less developed than the rules for proprietary remedies in equity. The rigour of the remedy is of comparatively recent vintage. At this stage of the development of the remedy, each case requires a precise focus on both the nature of the obligations and the nature of the breach.
Exemplary damages as a form of equitable relief are available in appropriate cases (see Digital Pulse Pty Limited v Harris (2002) ACSR 487 (Palmer J); see, also, Hamer-Mathew v Gulabrai (McLaughlin M, 7 September 1995, unreported; affirmed by the Court of Appeal (Meagher, Beazley, Stein JJA), 26 June 1997, unreported)). In any event, I would not be disposed, merely because of the precise nature of the relief sought therein, to strike out the cross-claim.
57 Accordingly, I make the following orders:
(a) I order that the notice of motion be dismissed.
(1). Upon the notice of motion filed by the Defendant on 10 April 2002:
- (b) I order the Defendant pay the costs of the Plaintiff of the aforesaid notice of motion.
(2). Upon the notice of motion filed by the Plaintiff on 21 November 2001:
(a) I order that the defence and cross-claim filed on 2 October 2001 be struck out.
(c) I order that the Defendant pay the costs of the Plaintiff of the aforesaid notice of motion.(b) I grant leave to the Defendant to file an amended defence and an amended cross-claim on or before 10 September 2002.
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