Song v South Beach Management Pty Ltd as trustee for the South Beach Two Development Trust [No 4] - [2023] WASC 298

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   SONG -v- SOUTH BEACH MANAGEMENT PTY LTD AS TRUSTEE FOR THE SOUTH BEACH TWO DEVELOPMENT TRUST [No 4] [2023] WASC 298
CORAM:   SEAWARD J
HEARD:   28 JULY 2023 (FURTHER WRITTEN SUBMISSIONS FILED ON 31 JULY 2023)
DELIVERED          :   8 AUGUST 2023
FILE NO/S:   CIV 3152 of 2019
BETWEEN:   CHANGFU SONG
First Plaintiff
YUANCHAO XUE
Second Plaintiff
TOPSTAR MARKETING (AUST) PTY LTD
Third Plaintiff
AND
SOUTH BEACH MANAGEMENT PTY LTD AS TRUSTEE FOR THE SOUTH BEACH TWO DEVELOPMENT TRUST
First Defendant
CAMERON ANDREW KEAST BARR
Second Defendant
LLOYD RICHARD CLARK
Third Defendant

Catchwords:

Summary judgment - Breach of fiduciary duty - Accessorial liability - Causation - Whether there is a real question to be tried that the defendants breached their fiduciary duty - Whether the breaches resulted in loss of entire investment - Complex issues of law - Factual disputes not possible to resolve by summary judgment - Whether summary judgment should be entered for part of a claim - Some other reason to be a trial

Strike out - Whether pleading discloses no reasonable cause of action - Further and better particulars provided - Pleading does not fail to disclose a reasonable cause of action - Pleading will not prejudice, embarrass or delay the fair trial of the matter

Legislation:

Rules of the Supreme Court 1971 (WA) O 14

Result:

Applications dismissed

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr K Dundo
Second Plaintiff	:	Mr K Dundo
Third Plaintiff	:	Mr K Dundo
First Defendant	:	Mr M L Bennett
Second Defendant	:	Mr M L Bennett
Third Defendant	:	Mr M L Bennett

Solicitors:

First Plaintiff	:	KD Legal
Second Plaintiff	:	KD Legal
Third Plaintiff	:	KD Legal
First Defendant	:	Bennett
Second Defendant	:	Bennett
Third Defendant	:	Bennett

Case(s) referred to in decision(s):

Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102
Brickenden v London Loan and Savings Co [1937] 3 DLR 465
DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97
English v Vantage Holdings Group Pty Ltd [2021] WASCA 47
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609
Helmers v Como [2014] WASC 396
Make it Raine Money Pty Ltd v Alvaro [2022] WASC 282
NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2020] WASCA 107
Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146
Target Holdings Ltd v Redferns [1996] 1 AC 421
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484
Zaghloul v Bayly [2021] WASCA 125

SEAWARD J:

Introduction

The writ in this matter was filed on 19 December 2019 and was amended on 3 February 2020. The statement of claim was filed on 3 February 2020 and has been amended on six occasions. There has been one summary judgment application filed by the defendants (and dismissed), the defendants have been successful in one strike out application (with leave given the plaintiffs to replead) and there have been numerous subpoenas issues and applications for specific discovery.
The action concerns a property development at South Fremantle. In short, in 2011 the plaintiffs invested in the (then) proposed development by purchasing units in the South Beach Two Development Trust (the Trust). The first defendant was the trustee. The Trust was established by a Deed of Settlement purportedly made on 20 May 2011 (Trust Deed). The Trust was established as a unit trust and initially all units were of one class, of equal value, and ranked equally with all other trust units. However, by a Deed of Variation purportedly made on 20 May 2011 (Deed of Variation), the Trustee purported to amend the Trust Deed to establish four classes of units. By a Deed of Amendment (Deed of Amendment) purportedly made on 27 May 2011, the trust purported to amend the Trust Deed by an amendment which in effect enabled the Trustee to issue different classes of trust units; provided that the Trustee could only be removed by unanimous resolution of the unit holders; removed restrictions on the Trustee's power to amend the Trust Deed; and removed a provision enabling unit holders to amend the Trust Deed by Special Majority.
In June and July 2011, in reliance on information contained in what is described as the First Information Memorandum, the first and second plaintiffs each agreed to purchase 1,000,000 Ordinary Units in the Trust at one dollar per unit. That investment was made without any knowledge of the Deed of Variation or the Deed of Amendment.
At this point in time, the proposed development consisted of the construction of 38 residential units. In order to facilitate the development, in May 2011 the first defendant entered into a development agreement with a group of companies which are collectively described as the Match Group or M Group. It is not necessary for present purposes to set out the precise details of these various companies and their inter‑relationships. Relevant for present purposes is that the second and third defendants were at all material times the directors of a number of these companies, and the ultimate shareholders in the parent company are companies whose sole directors are the spouses of the second and third defendants.
At some point around September 2011, and without informing the first and second plaintiffs, the first defendant proceeded with a larger proposed development consisting of 67 residential apartments, and took steps to obtain development approval for this larger development. At some point around this time it appears that there was a change in the development agreement with the M Group, and the agreed fees payable to the M Group increased with the increase in the project size.
In February 2013, without informing the first and second plaintiffs and without their knowledge and approval, the Trustee issued a further 3,160,000 ordinary units in the Trust.
On 6 August 2014, without informing the first and second plaintiffs, and without their knowledge or approval, the Trustee executed a deed poll determining to issue 3,500,000 preferred units in the trust (Class P Units); suspending all rights of Ordinary Unit holders while Class P Units were in issue; and giving holders of Class P Units a preferred income to be paid before any holders of ordinary units could participate in any distribution of revenue or any return of income or capital. The Class P Units were issued on various dates in December 2014 and February 2015. On about 15 March 2015, without informing the first and second plaintiffs, and without their knowledge or approval, the first defendant issued a further 181,500 Class P Units to one of the M Group companies.
On about 7 August 2015, the third plaintiff became the holder of 1 million Ordinary Units formally held by the second plaintiff.
The property development proceeded in the larger form. When completed, the holders of the P Class Units received a return on their investments, but there was insufficient money left over to pay the plaintiffs (as Ordinary Unit holders) any return of their capital or any share of profit, and as such the plaintiffs have lost their entire investment.
The original versions of the statement of claim (and the defence) proceeded broadly on the basis of the summary of facts outlined above. In particular, the various purported amendments to the Trust Deed referred to above were pleaded. The defendants' application for summary judgment dated 11 September 2020 also proceeded on this basis.
However, at all times the plaintiffs questioned the dates of the Deed of Variation and the Deed of Amendment and whether these documents were actually executed on a later date and backdated to 2011. In furtherance of this hypothesis, the plaintiffs issued numerous subpoenas and on 24 October 2022 obtained orders for specific discovery in relation to this issue.
As a consequence of this order for specific discovery, and the work done in obtaining emails and other documents from the emails of a former employee of the first defendant, the defendants came to the conclusion that:
(a)the Trust Deed was not signed until around 27 June 2011;
(b)the Deed of Variation was not signed until around 29 June 2011; and
(c)the Deed of Amendment was likely prepared by a former employee (Mr Stuart Macdonald) sometime between 15 October 2013 and 28 July 2014.
The defendants' solicitors advised the plaintiffs' solicitors of this conclusion by letter dated 9 March 2023. An explanation of the above is contained in the affidavit of the second defendant affirmed 16 March 2023. I will return to this affidavit during the course of these reasons.
This disclosure has, unsurprisingly, resulted in a change in the course of the proceedings. Pursuant to orders made on 18 April 2023, the plaintiffs have filed a second substituted statement of claim and an application for summary judgment. That application is opposed by the defendants, who have in turn filed an application to strike out certain paragraphs of the second substituted statement of claim. The plaintiffs have also sought several costs orders.
These matters were heard before me on 28 July 2023. The matter is listed for a mediation conference on 10 August 2023 (that mediation conference having previously been adjourned to address the disclosure by the defendants). Owing to the length of time this matter has been before the court, and the upcoming mediation conference, I have considered the summary judgment and strike out applications first and these reasons address these applications. My decision and reasons in relation to the costs applications will follow separately.
For the reasons set out below, notwithstanding the disclosure by the defendants, I do not consider this to be an appropriate case in which to order summary judgment. I am also of the view that the defendants' application to strike out certain paragraphs of the second substituted statement of claim should be dismissed.

Plaintiffs' summary judgment application

The application

The plaintiffs apply by chamber summons dated 19 May 2023 seeking the following orders:
1.The Plaintiffs have leave to bring this application for summary judgment.
2.Pursuant to Order 14 rule 1 of the Rules of the Supreme Court 1971 (WA) the Plaintiffs' application for summary judgment be granted:
(a) as to the First Plaintiff the sum of $1,000,000 plus interest at the rate of 6% per annum from 27 July 2012; and
(b) as to the Second Plaintiff the sum of $1,000,000 plus interest at the rate of 6% per annum from 22 July 2012.
3. The Defendants pay to the Plaintiffs, the costs of the proceedings on an indemnity basis (being reasonable party/solicitor's costs) alternatively on a party/party basis, to be taxed if not otherwise agreed and payable forthwith.
The plaintiffs' application for summary judgment seeks the entirety of the sum claimed in the prayers for relief. That is, the plaintiffs seek the entirety of their individual investments in the Trust. However, the application for summary judgment is not based on all of the plaintiffs' claims against the defendants in the second substituted statement of claim.

Relevant pleadings

The second substituted statement of claim is complex. For the purposes of this application, I have summarised only the relevant parts of the pleadings.
The plaintiffs' application is founded on the following pleaded claims only:[1]
(a)that the first defendant owed to the holders of Ordinary Units in the Trust the following duties:
(i)a fiduciary duty to conform to and carry out the terms of the Trust (Trust terms duty);[2] and
(ii)a fiduciary duty to perform the Trust honestly and in good faith, for the benefit of the Unitholders (duty of honesty and good faith);[3]
(b)that the first defendant breached the Trust terms duty by purporting to amend the Trust Deed by the Deed of Amendment, by purporting to amend the Trust Deed by the Deed Poll and by issuing the Class P units;[4]
(c)that the first defendant breached the duty of honesty and good faith by backdating the Deed of Amendment; by executing the Deed Poll in purported reliance on the powers conferred on the first defendant by the Deed of Amendment and by issuing the Class P units in purported reliance on the powers conferred on the first defendant by the Deed Poll;[5] and
(d)that the second and third defendants, as the directors of the first defendant, induced and procured the breaches by the first defendant of its duties as trustee.[6]
[1] Plaintiffs' submissions dated 19 May 2023 [1] - [3], [18], [48].
[2] Second substituted statement of claim [117(b)].
[3] Second substituted statement of claim [117(c)].
[4] Second substituted statement of claim [120(b)] - [120(d)].
[5] Second substituted statement of claim [121].
[6] Second substituted statement of claim [126].
The plaintiffs' case that the second and third defendants induced and procured the breaches by the first defendant of its duties as Trustee are particularised as follows:[7]
A.Barr and Clark were at all relevant times directors of SBM, made all decisions of SBM, procured all resolutions of SBM, and caused SBM to act in breach of its duties as Trustee.
B. Barr and Clark signed significant documents for SBM, including the Information Memorandum, the Development Management Agreement, the Trust Deed, the Deed of Variation, the Second IM, the Deed of Amendment, the Deed Poll, the construction facility agreement with the Commonwealth Bank and the construction contract with Resolute.
C. SBM was a special purpose trustee company established exclusively to conduct the Trust and to acquire and develop the Property and had no other function.
D. The breaches by SBM of its duties as Trustee resulted in gains for Match Projects and Match Property. Barr and Clark were directors of Match Projects and Match Property and their wives held economic interests in these companies via the shareholdings of Hudson Management (WA) Pty Ltd and Chicago Management Pty Ltd in Match Pty Ltd, the holder of all shares in Match Projects and Match Property.
[7] Second substituted statement of claim [126].
The relevant pleading as to causation for these alleged breaches is contained in [123] of the second substituted statement of claim, which provides (relevantly for present purposes):
By reason of each and all of the breaches of duty pleaded in paragraphs … 120 and 121 Xue and Song:
(a) suffered suspension and effective extinguishment of the income and capital distribution rights attaching to their units in the Trust, when the Trustee agreed to issue and did issue Class P units to cover the shortfall in funding of the Project; and
(b) as a result, lost the entire value of their investments in the Trust.
The plaintiffs do not seek summary judgment on any of the other bases contained in the second substituted statement of claim including the alleged breach of the duty of care and skill;[8] the alleged breach of the Trust terms duty associated with the purported amendment of the Trust Deed by the Deed of Variation;[9] the further bases alleged as to the first defendant's breach of the duty of honesty and good faith;[10] and the claim of misleading and deceptive conduct alleged as against the defendants.[11]

Evidence

[8] Second substituted statement of claim [117(a)], [119], [38].

[9] Second substituted statement of claim [120(a)].

[10] Second substituted statement of claim [121(a)] and [122].

[11] Second substituted statement of claim [127] - [129].

The plaintiffs rely on the following affidavits in support of their various applications:
(a)affidavit of Tak Fa Winnie Lai Hadad, sworn 22 October 2020 (First Hadad affidavit);
(b)affidavit of Tak Fa Winnie Lai Hadad, sworn 2 November 2020 (Second Hadad affidavit);
(c)affidavit of Tak Fa Winnie Lai Hadad, sworn 19 May 2023 (Third Hadad affidavit);
(d)affidavit of Frances Lai, affirmed 19 May 2023 (Lai affidavit);
(e)affidavit of the second defendant, affirmed 12 September 2020 (First Barr affidavit);
(f)affidavit of the second defendant, affirmed 2 December 2020 (Second Barr affidavit);
(g)affidavit of the second defendant, affirmed 16 March 2023 (Third Barr affidavit);
(h)affidavit of the third defendant, affirmed 2 December 2020 (Clark affidavit); and
(i)affidavit of Demi Ellen Swain, sworn 14 December 2020 (Swain affidavit).
Set out below is a summary of those parts of the above affidavits that are relevant to the summary judgment application.

First Barr affidavit

The First Barr affidavit was affirmed by the second defendant in support of the defendants' previous summary judgment application. It contains 226 attachments and is 3001 pages. The affidavit was only relied on by the plaintiffs in so far as it attaches the following relevant documents: the Trust Deed; the Deed of Variation; the Deed of Amendment and the Deed Poll. An understanding of these documents is relevant to the summary judgment application.

Trust Deed

The trust was created by the Deed of Settlement dated 20 May 2011, by which the Settlor created a unit trust for the benefit of the specified unit holders: Hudson Management (WA) Pty Ltd as trustee for the Clark Family Trust, and Chicago Management Pty Ltd as trustee for the Boston Management Trust. The settled monies were $2 and the value of the specified units was $2.
By cl 3.1, the beneficial interest in the trust was divided into Trust Units to be issued by the Trustee to Unitholders. Unless otherwise provided in sch 3, all Units were to comprise one class and be of equal value, and the rights attaching to a Trust Unit, to rank equally with any other Trust Unit.
Where sch 3 provided for Units to be divided into classes, each class of Units was to confer the rights and be subject to the restrictions and be differentiated in the manner set out in the Schedule in addition to other rights and restrictions contained in the Deed. The provisions of sch 3 were to prevail in the event of any inconsistency. Before amendment, sch 3 of the Trust Deed was blank.
The Unitholders could at any time by Special Majority Consent appoint a replacement Trustee by written instrument, and could by Special Majority Consent at any time remove a Trustee and engage a replacement Trustee.
By cl 17.1:
The Trustee is not liable for:
(a)any Loss to the Trust Assets or to any Unitholder or other Person as a result of the Exercise of, or failure to Exercise, any power conferred on the Trustee by this deed or by Law; or
(b)any Default under any Liability or trust of any nature or description,
except in the case of actual fraud or wilful misconduct on the part of the Trustee.
The Trustee had the power to amend any trust or provision of the Trust Deed but that power was limited to amendments that were minor, technical or administrative in nature; or where the trustee reasonably believed that the amendment 'will not have any prejudicial effect on any Unitholder, or Trust Unit held by that Unitholder'.[12]
[12] Trust Deed cl 23(a)(ii).
Unitholders could by Special Majority Consent at any time amend any trust or provision of the Deed, by way of revocation, addition or other Amendment, or any previous Amendment. The power to amend was also limited, so that an amendment must not 'prejudicially affect the beneficial entitlement to any income or capital Distribution to or for any Unitholder before the date of that Amendment'.[13]
[13] Trust Deed cl 23(c)(i).
By cl 27.3, the trustee was entitled to exercise any power 'in the absolute and uncontrolled Decision [sic] of the Trustee, without necessity for the Consent of any Person and without the Trustee being under any Liability, or being legally required or compelled by any Person, to Exercise that power'. The Trustee was not legally required or compelled to provide or communicate any reason to any Person for the Exercise of that power.

The Deed of Variation

The Deed of Variation is dated 20 May 2011. The date is in handwriting on the first substantive page. The Deed of Variation is signed by the second and third defendants and there is no date immediately proximate to the signature clause.
At the time of the Deed of Variation there were only two unit holders. The Deed of Variation amended the trust deed by replacing sch 3. Under the new schedule, until the Trustee otherwise determined, the units in the Trust were to comprise four classes of units with varying entitlements to vote and to receive income.

The Deed of Amendment

The Deed of Amendment is signed by the second and third defendants and is dated as made on 27 May 2011. The date is located immediately above the signature clause, with the year being in typed text and the day and month inserted in handwriting.
The Deed of Amendment recited that the amendments made in it had been approved by Special Majority Consent of Unit holders on 27 May 2011. At that time, the sole unit holders were Hudson Management (WA) Pty Ltd as trustee for the Clark Family Trust, and Chicago Management Pty Ltd as trustee for the Boston Management Trust.
Schedule 3 was deleted. Clause 3.1 was replaced. By cl 3.1A, the trustee could now determine to create and issue further Trust Units of the same class or of a different class to those already on issue. The rights, obligations and restrictions attaching to a class of Trust Unit were to be subject always to the rights, obligations and restrictions which attach to Trust Units issued in other classes.
The power of Unit holders to remove and replace the trustee was amended by requiring a unanimous resolution, rather than Special Majority Consent.
Further, cl 23 was replaced with a clause permitting the Trustee to make an amendment to the trust deed in its absolute discretion and on such terms as it sees fit.

The Deed Poll

On 6 August 2014, by an instrument executed as a deed poll by South Beach Management, the Trust Deed was varied so that it comprised Ordinary Units and Class P Units.
Holders of Ordinary Class Units were 'in the absolute discretion of the Trustee' and subject to the rights of holders of Class P Units, entitled to participate in a distribution of the benefit of all or any part of the net income of the Trust; entitled to participate in any distribution of capital of Trust Assets on the winding up of the Unit Trust; and entitled to receive upon redemption the face value of the units redeemed.[14]
[14] Deed Poll of Amendment, sch 3, cl 3.
By cl 3.2, in effect, the rights, interests and entitlements of Ordinary Class Unit holders were suspended until all Class P Units had been redeemed by payment in full of the Class P Redemption Price and all outstanding Preferred Income.
The entitlements of holders of Class P Units, set out in cl 4, included to participate in any distribution of capital on winding up ahead of all other Unit Holders; to receive upon redemption, the face value of the units (to be paid out of the capital of the Trust), plus all outstanding Preferred Income (to be paid out of capital or net income). Preferred Income provided, in effect, 12% per annum, compounding monthly, on the Redemption Price of the Class P Units, or 15% if paid after the specified Target Date (the date 24 months from the date of issue).

Second Barr affidavit

The Second Barr affidavit was also filed in support of the defendants' previous summary judgment application and specifically addresses the Trust Deed, the Deed of Variation and the Deed of Amendment. The second defendant deposes that he: does not recall signing the Trust Deed, the Deed of Variation or the Deed of Amendment;[15] details the usual practice for the preparation of trust documents, namely that they were prepared by a former employee Mr Stuart Macdonald and both he and the third defendant would then review the documents at meetings and then the documents would either be amended or finalised for signing;[16] that whilst he does not specifically recall, to best of his information, knowledge and belief, the documents used to create the Trust went through the same process;[17] and that by reason of his usual practice he believes that the documents were signed on the date stated in the documents.[18]
[15] Second Barr affidavit [13].
[16] Second Barr affidavit [7] - [8].
[17] Second Barr affidavit [9].
[18] Second Barr affidavit [13] - [14].
The second defendant also deposes that if anyone had asked him to backdate a documents he would have declined to do so and that to the best of his knowledge, information and belief he did not backdate the Trust Deed, the Deed of Variation or the Deed of Amendment.[19]

Clark affidavit

[19] Second Barr affidavit [15] - [16].

In the Clark affidavit, the third defendant deposes to the same effect as the second defendant in the Second Barr affidavit.[20]

Third Barr affidavit

[20] Clark affidavit [5] - [11], [16] - [19].

The Third Barr affidavit was affirmed on 16 March 2023. In that affidavit, the second defendant refers to the Second Barr affidavit and what it says about the execution of the Trust Deed, the Deed of Variation and the Deed of Amendment.
The second defendant then refers to the orders for specific discovery made by Allanson J on 24 October 2022. The second defendant deposes that he instructed his information technology providers to extract and provide to his solicitors a large number of electronic documents saved in various formats from various Microsoft Outlook mailboxes, home computer drives and network drives, including in relation to Mr Macdonald. The second defendant deposes that after his solicitors had reviewed a subset of these documents, they showed him documents which has led him to believe that the various trust documents were not signed on the dates recorded on them. The second defendant goes on to verify a list of documents produced in response to the orders for specific discovery.
The second defendant deposes that based on what he has been shown, he now believes that:
(a)the Trust Deed dated 20 May 2011 was likely executed on around 27 June 2011;
(b)the Deed of Variation dated 20 May 2011 was likely executed on around 29 June 2011; and
(c)the Deed of Amendment dated 27 May 2011 was likely prepared by Stuart Macdonald sometime between 15 October 2013 and 28 July 2014.
Further, the second defendant goes on to depose that he wishes to correct statements made in the Second Barr affidavit as follows:
17I still do not recall signing the original trust deed, the variation deed or the deed of amendment and the Disclosure Documents were not available to me when I affirmed my affidavit. I apologise for my affidavit being in error.
18At the time between 2011 and 2014, I trusted Stuart Macdonald and would execute documents at his request which may have occurred at times when I did not properly review the documents I was executing. I trusted and relied upon the confirmation as to the date of execution in his affidavit signed (but not sworn) on 13 December 2020, which is attachment 'DES-1' to the affidavit of Demi Ellen Swain sworn 14 December 2020.
19Neither I nor Lloyd Clark were copied to the emails:
19.1between Stuart Macdonald and Mercia Taxation and Accounting in June 2011, relating to the preparation of the deed of variation;
19 .2emails between Stuart Macdonald and McMahon Clarke, sent between 24 September 2013 and 16 October 2013, which relate to the preparation of a deed of amendment, for an unrelated project; or
19.3 emails between Stuart Macdonald and Chew and Matthews in July 2014, relating to the preparation of the deed poll of amendment.
20 I have no recollection of ever seeing these emails before they were provided to us by Bennett following their review of documents for specific discovery.
21I never instructed Stuart Macdonald to prepare the deed of amendment and I do not recall any conversations with him about preparing the deed of amendment and I am sure I never instructed him to back date the deed of amendment.
22 I am informed by Mr Lloyd Clark and verily believe that he also:
22.1 had not seen the emails referred to in paragraph 19 above until they were provided by Bennett following their review of documents for specific discovery;
22.2 reposed the same trust in Stuart Macdonald;
22.3 like me, executed documents at Mr Macdonald's request;
22.4 has no recollection of the signing of the original trust deed, the variation deed or the deed of amendment; and
22.5never instructed Mr Macdonald to backdate any of these documents.

Lai affidavit

Ms Lai is a solicitor employed by the firm of solicitors acting for the plaintiffs. Ms Lai's affidavit is relevant to the summary judgment application in so far as it attaches copies of the following documents: the Investment Management Agreement executed by the first plaintiff and the first defendant, dated 23 June 2011 and 12 July 2011[21] and the Investment Management Agreement executed by the second plaintiff and the first defendant, dated 8 July 2011.[22]
[21] Lai affidavit FL-1.
[22] Lai affidavit FL-2.
The affidavit also attaches an email exchange between Stuart Macdonald and Mr Idris Matthews of Chew + Matthews solicitors dated 28 July 2014. In that email, concerns are raised about the validity of the amendments made to the Trust Deed.[23] That email chain also attaches a copy of two documents.[24] First, a document purporting to be the minutes of a meeting of Match Securities Limited held on 20 May 2011 (and purportedly signed by the third defendant on 23 May 2011) in which the directors reviewed and accepted the Trust Deed and what appears to be the Deed of Variation and agreed to subscribe for the units. Secondly, a document purporting to be the minutes a meeting of Match Securities Limited held on 27 May 2011 (and purportedly signed by the third defendant on 30 May 2011) in which the directors reviewed what appears to be the Deed of Amendment and accepted the changes.

Swain affidavit

[23] Lai affidavit FL-6.

[24] Lai affidavit FL-6.

Ms Swain is a solicitor employed by the firm of solicitors representing the defendants in this matter. The Swain affidavit was sworn for the purpose of a hearing before Smith J on 14 December 2020 (which concerned an application for inspection of documents produced in response to a subpoena issued by the plaintiffs). The relevance of the affidavit is that it attaches an affidavit affirmed (but not witnessed) by Mr Stuart Macdonald on 2 December 2020. In that affidavit, Mr Macdonald deposes that he commenced employment as Business Manager with the M Group of companies in February 2009 and later transitioned to the position of Chief Financial Officer.
Mr Macdonald also deposes that as Business Manager and later Chief Financial Officer he was responsible for arranging for trust documents to be prepared for property development projects involving the M Group. Mr Macdonald deposes to his usual practices in this regard and then details the process adopted in relation to (relevantly) the Trust Deed, the Deed of Variation and the Deed of Amendment. Mr Macdonald deposes that:
25It was not my practice to backdate documents following execution by the directors of M Group, nor would I have backdated a document had I been instructed to do so. I do not recall receiving an instruction from either director (nor anyone else at M Group) to backdate a document.

Third Hadad affidavit

Ms Hadad is a solicitor employed by the law firm representing the plaintiffs and deposes that she has verbally interpreted and explained to the first and second plaintiffs the circumstances that have arisen upon the receipt of the Third Barr affidavit and that:
4On the basis of the matters now pleaded in the Second Substituted Statement of Claim, I am informed by the Plaintiffs and verily believe that the Plaintiffs hold the view that the Defendants have no defence to the claim sought in the application for summary judgment.

Summary of plaintiffs' case

Breach of Trust terms duty

The plaintiffs submit that there is no real question to be tried that the first defendant breached the Trust terms duty.
It is not controversial that the first defendant, as trustee of the Trust, owed a duty to the Unitholders (being the beneficiaries of the Trust) to administer the Trust in accordance with the terms of the Trust Deed.[25] The plaintiffs submit that by purporting to amend the Trust Deed by backdating the Deed of Amendment and by doing so in circumstances where it was stated that the amendments had been made in 2011 in accordance with the procedure set out in the Trust Deed (which was not the case) the first defendant breached the Trust terms duty.
[25] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 [32].
The consequence of this breach led to the first defendant executing the Deed Poll to amend the Trust Deed to permit the first defendant to issue Class P Units. The first defendant later issued Class P units. As each of these steps were contingent upon the Deed of Amendment, the plaintiff submits that the first defendant breached the Trust terms duty in carrying out each of these steps.

Breach of duty of honesty and good faith

The plaintiffs also submit that there is no real question to be tried that the first defendant breached the duty of honesty and good faith by the first defendant.
It is not controversial that a trustee owes a duty to the beneficiaries to perform the trust honestly and good faith for the benefit of the beneficiaries.[26] The plaintiffs' case in relation to the breach of the duty of honesty and good faith by the first defendant is based on the same matters relied upon for the breach of the Trust terms duty. The plaintiffs submit that the circumstances surrounding the execution of the Deed of Amendment were fundamentally dishonest and intended to allow the first defendant as trustee to assume power which the Trust Deed did not give, without going through the required process of amendment mandated by cl 23 of the Trust Deed. The subsequent actions of executing the Deed Poll and issuing the Class P units were a continuation of this dishonest course of conduct.
Accessorial liability of the second and third defendants
[26] Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 [149].
The plaintiffs' claim that the second and third defendants induced and procured the breaches is based on the particulars to [126] of the second substituted statement of claim.
The central plank of the plaintiffs' accessorial claim is that the second and third defendants (as directors of the first defendant) signed the relevant documents. The key document is the Deed of Amendment and the date on that document is wrong and it states that the amendments were made in accordance with the procedure set out in the Trust Deed (which was not the case). The Deed of Amendment was then relied upon to execute the Deed Poll and issue the Class P units. The plaintiffs submit that immediately above the signature clause in the Deed of Amendment is the date of the document, which is 27 May 2011. The plaintiffs submit that the second and third defendants must have seen this date, must have known that it was wrong and therefore signed a document with an incorrect date and later purported to rely on it.
In relation to the third defendant, the plaintiffs also submit that the third defendant signed two purported minutes of meetings of an M Group company, again with the incorrect date. That date is immediately below the third defendant's signature and again the plaintiffs submit that the third defendant must have seen this date, must have known that it was wrong and therefore signed a document with an incorrect date and later purported to rely on it.

Causation and entitlement to equitable compensation

The plaintiffs submit that using hindsight and common sense, the breaches by the defendants have resulted in the plaintiffs' losing their entire investment in the Trust. The plaintiffs' case in this regard is that the breaches resulted in the Class P Units being issued, which had the consequence that the plaintiffs' rights as Ordinary Unit holders were immediately suspended. Once the development was concluded, the remaining revenue was used to pay the Class P Units holders and there was no money left to make any payments to the plaintiffs (or the other ordinarily unit holders). Therefore, the plaintiffs lost their entire investment and this is the appropriate quantification of the equitable compensation.

Overview of defendants' response

The defendants accept that the matters disclosed in the First Barr Affidavit are likely to result in a finding that the first defendant committed a breach of trust. However, the defendants submit that the matters disclosed in the Second Barr Affidavit do not resolve the issues of the accessorial liability of the second and third defendants; the extent of the plaintiffs' loss; causation and the plaintiffs' entitlement to the amount of equitable compensation pleaded. The defendants' case is that there are outstanding complex questions of law and fact in relation to these aspects of the plaintiffs' case such that this is not a suitable case for summary judgment. These are discussed later in these reasons.
Further, the defendants submit that there are other good reasons why there should be a trial of all of the plaintiffs' claims including that the plaintiffs have not complied with the requirements of the Rules of the Supreme Court 1971 (RSC) O 14 r 2(1) in that the affidavits in support of the application have not verified the facts upon which the plaintiffs' claim is based; and entering summary judgment in relation to only part of the plaintiffs' case is unlikely to reduce the length of the trial due to the overlapping and interwoven nature of the factual matters and evidence.

Legal principles

The plaintiffs' application is made pursuant to O 14 r 1 of the RSC which relevantly provides as follows:
… the plaintiff may, on the ground that the defendant has no defence to a claim included in the writ, or to a particular part of such claim, or has no defence to such a claim or part except as to the amount of any damages claimed, within 21 days after an appearance or such later time by leave of the Court, apply to the Court for judgment against that defendant.
The principles to be applied in determining an application for summary judgment are well established. See for example Zaghloul v Bayly:[27]
The principles to be applied on an application for summary judgment are well established. The critical issue is whether it is clear that there is no real question to be tried. The issue is framed in this manner as it is only in the clearest of cases, where there is a high degree of certainty about the outcome if the proceedings were allowed to go trial, that summary judgment ought properly to be granted. The exercise of powers to summarily terminate proceedings must always be attended with caution.
There are cases where the court has considered it appropriate to determine questions of law on a summary judgment application. There should be summary judgment if the facts are undisputed and the law is clear. In general, however, an application for summary judgment is not the occasion to dispose of difficult or substantial questions of law which cannot be determined without full argument. It will usually be appropriate to leave the determination of such questions for trial.
[27] Zaghloul v Bayly [2021] WASCA 125 [116] - [117] (footnotes omitted).
See also NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd.[28]

Disposition

[28] NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd[2020] WASCA 107 [51], [55] (Murphy JA).

The defendants concede in their written submissions that the evidence in the Third Barr affidavit will likely establish that there has been a breach of trust by the first defendant. However, the defendants do not go so far as to concede each of the breaches as alleged by the plaintiffs in the summary judgment application. Rather, the defendants' submissions focus on the extent to which it can be said that there is no real question to be tried in relation to the accessorial claim against the second and third defendants and issues of causation generally. The defendants go on to submit that in light of there being a real question to be tried on each of these matters, it is not appropriate to grant summary judgment over all or part of the plaintiffs' claim.

In light of the defendants' submissions, I will consider the issues of the accessorial liability of the second and third defendants and the questions of causation first, proceeding for the purpose of this consideration on the basis that the plaintiffs have a very strong case for a breach of the Trust terms duty (at least) by the first defendant and that they may well be able to establish that the first defendant has no defence to this claim.

Accessorial liability of the second and third defendants

The plaintiffs' case as against the second and third defendants is that, as directors of the first defendant, each induced and procured the breaches by the first defendant of its duties as Trustee.[29]
[29] Second substituted statement of claim [126].
The situations in which a third party will be liable for a breach of trust by a trustee are usefully summarised in Jacobs' Law of Trusts in Australia as follows:[30]
At the present stage of development in Australia, accessorial liability for breach of fiduciary duty (including breach of trust) may be divided into at least the following categories:
(a) The first limb of Barnes v Addy: receipt of trust property with particular types of notice.
(b) The second limb of Barnes v Addy: assisting in (that is, participating, without inducing or procuring) a dishonest and fraudulent design on the part of the fiduciary with particular types of notice.
(c) Procuring or inducing a breach of fiduciary duty (whether that breach be a dishonest or fraudulent design or not) with a particular mental state. An example may be found in the liability of a solicitor who persuades a trustee to apply trust property in a way the trustee honestly believes is permissible but which the solicitor knows to be a breach of trust, a fact which the solicitor deliberately conceals from the trustee. This is the category with which the Privy Council was dealing in Royal Brunei Airlines Sdn Bhd v Tan. The High Court kept the rules of distinct from those applying to the second limb of Barnes v Addy in Farah Constructions Pty Ltd v Say-Dee Pty Ltd …
(d) A company which is the 'corporate creature, vehicle, or alter ego' of the fiduciary who uses it to secure the profits of, or to inflict the losses by, the fiduciary's breach of fiduciary duty is fully liable for the profits made from, and the losses inflicted by, the fiduciary's wrong.
(e) A person who presumes to act as a trustee though not so appointed and then commits a breach of trust or makes a profit from the position may be liable as a trustee de son tort.
[30] Heydon JD & Leeming MJ, Jacobs' Law of Trusts in Australia (8^th ed 2016) [13-35] (footnotes omitted).
Although the plaintiffs' case proceeded on the basis of category (c) above, category (d) would also appear to be open on the pleadings.
Both parties proceeded on the basis that the plaintiffs' accessorial claim based on procuring or inducing the breach would require a demonstration of knowledge on the part of the second and third defendants.[31] This is consistent with the authorities.[32]
[31] Plaintiffs' submissions 19 May 2023 [43] - [45]; Defendants' submissions in response to the plaintiffs' summary judgment application, 28 June 2023 [33].
[32] See Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 [76] - [77], [106]; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 [161] - [165].
The plaintiffs' case is that both the second and third defendants have signed the Deed of Amendment immediately below the date and therefore must have known that the date was wrong; that they were signing a backdated document, and therefore must have known that the Deed of Amendment was not being prepared in accordance with the requirements of the Trust Deed. Although part of the date is handwritten, the plaintiffs refer to the year (2011) being typed.
The plaintiffs also rely on the Deed Poll, which is dated 6 August 2014 and which in cl 1.1 includes the following definition of Trust Deed:
Trust Deed means the South Beach Two Development Trust deed dated 20 May 2011 as amended by deed of variation dated 20 May 2011 and deed of amendment dated 27 May 2011.
The plaintiffs say that the first and second defendants must have known that this was incorrect, and yet signed the Deed Poll in any event.
Further, in relation to the third defendant, the plaintiffs also rely on the two M Group minutes, purportedly signed on 23 May 2011 and 30 May 2011. The date is immediately below the third defendant's signature, and the plaintiffs submit that the third defendant must have known that the date was wrong; that he was backdating his signature and therefore was signing two incorrect documents.
The difficulty for the plaintiffs is that the defendants have put on evidence for this hearing which puts this submission into contest. In the Third Barr affidavit, the second defendant deposes that he does not recall signing (relevantly) the Deed of Amendment; he trusted Mr Macdonald and would execute documents at his request; that this may have occurred at times when he did not properly review the documents he was executing; that he trusted and relied upon the confirmation as to the date of execution in Mr Macdonald's affidavit affirmed (but not witnessed) on 13 December 2020 (attached to the Swain affidavit); that he was not copied into the emails with Chew + Matthews in July 2014 and that he never instructed Mr Macdonald to prepare the Deed of Amendment or to back date the Deed of Amendment. The second defendant goes on to depose that he is informed by the third defendant, and verily believes, that his position in relation to these matters is the same as the second defendant.
The earlier Second Barr affidavit and the Clark affidavit do not advance the plaintiffs' case. In each affidavit the defendants depose that they had no recollection of signing the Deed of Amendment; go on to set out their usual process for signing documents of this type; and by reason of their usual practice they each believe that the Deed of Amendment was signed on the date stated in the deed.
On the basis of the above evidence, there is a factual issue in dispute to resolve regarding the second and third defendants' level of knowledge in relation to the execution of the Deed of Amendment (and the other trust documents) which is not possible for me to resolve at this interlocutory stage.
Further, to the extent the accessorial liability may fall within category (d) from the list contained in Jacobs' Law of Trusts in Australia (corporate alter ego), this will also require a factual enquiry into the circumstances surrounding the operations of the first defendant as a corporate trustee which is not possible for me to resolve at this interlocutory stage and absence clear evidence on these matters.
Accordingly, I do not consider it can be said that there is no real question to be tried in relation the plaintiffs' accessorial claim, and therefore it is not appropriate to order summary judgment on this aspect of the plaintiffs' claim.

Causation and assessment of equitable compensation

The remedy sought by the plaintiffs is equitable compensation in the amount of $1,000,000 for each plaintiff,[33] being the entirety of their investment in the Trust.
[33] Second substituted statement of claim, prayer for relief.
The plaintiffs submit that the relevant test for the assessment of the amount of equitable compensation is that stated by Lord Browne‑Wilkinson in Target Holdings Ltd v Redferns:[34]
Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and commonsense, can be seen to have been caused by the breach.
[34] Target Holdings Ltd v Redferns [1996] 1 AC 421 , 439.
The plaintiffs also refer to the High Court of Australia authority on this issue, being the case of Youyang Pty Ltd v Minter Ellison Morris Fletcher.[35] In Youyang the plaintiff company (Youyang) paid money to the solicitors of an investment company. The money was required to be released by the solicitors in part for a bearer deposit certificate which provided security for the investment. Upon the delivery of that certificate the remainder of the money was to be paid by the solicitors to the investment company for investment in speculative money market activities. The solicitors paid the money to a prime bank but they did not obtain the correct bearer certificate. Youyang later authorised, by a Deed Poll, the withdrawal of the funds from the prime bank and the deposit of the funds with an overseas prime bank with an identical deposit certificate. The solicitors deposited the funds with the overseas prime bank. Once again, the solicitors did not obtain the correct bearer deposit certificate. The funds were later withdrawn from the overseas prime bank and they were then invested and lost.
[35] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484.
The case before the High Court centred around the calculation of the loss suffered by Youyang, and what regard could be had to the effect of the later events on the liability of the solicitors. The High Court observed that equity provides a range of remedies for breaches of trust.[36] The nature of that remedy may vary to reflect the terms of the trust, and the breach of which complaint is made. The High Court held that there is no equitable by‑pass of the need to establish causation, and went on to consider what loss had been suffered by Youyang by reason of the breach of trust or default in the performance of the solicitors' duties as trustee.[37] In so doing, the High Court distinguished the facts of Youyang from many other authorities.
[36] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 [37].
[37] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 [43] - [44].
The High Court ultimately found that as the trustee solicitors held the investor's money on trust and were only to release it for investment upon the provision of the correct security, the fact that the money was invested and later lost (and the security was altered) was not material to the loss suffered in that case. The High Court held that the solicitors were liable to Youyang for the full amount of the lost investment.[38]
[38] Defendants' submissions in response to the summary judgment application, 28 June 2023 [51], [63], [69].
The plaintiffs submit that using hindsight and commonsense, the breaches by the defendants have resulted in the plaintiffs losing their entire investment in the Trust. The plaintiffs' case in this regard is that the series of breaches resulted in the P Class Units being issued, which had the consequence that the plaintiffs' rights as Ordinary Unit holders were immediately suspended. Once the development was concluded, the remaining revenue was used to pay the P Class Unit holders and there was no money left to make any payments to the plaintiffs (or the other Ordinarily Unit holders). Therefore, the plaintiffs lost their entire investment and this is the appropriate quantification of the equitable compensation.[39]
[39] Plaintiffs' submissions, 19 May 2023 [40] - [42].
The defendants submit that the issues are not as simple and straightforward legally or factually as is put by the plaintiffs.[40] The defendants raise a number of legal and factual issues in this regard.[41]
[40] Defendants' submissions in response to the summary judgment application, 28 June 2023 [7].
[41] Defendants' submissions in response to the summary judgment application, 28 June 2023 [8] - [30].
First, the defendants submit that in order to assess the plaintiffs' entitlement to equitable compensation, it is necessary to have regard to the different conceptual bases by which equity will award compensation and then apply those to the present facts. In this regard the defendants rely on the decision of Edelman J in Agricultural Land Management Ltd v Jackson [No 2][42] where his Honour discusses the history of equitable compensation and distinguishes between 'substitutive compensation' and 'reparative compensation'.
[42] Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102 [334] - [349].
Edelman J notes that historically, the mechanism by which equity courts generally gave effect to monetary remedies against custodial fiduciaries was through orders which followed a process of accounting, there being three different forms of account: the account of administration in common form; the account on the basis of wilful default; and the account of profits.[43]
[43] Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102 [334].
In relation to the account in common form, Edelman J explains as follows:
335In relation to the account in common form, if the evidence disclosed an unauthorised disbursement then the plaintiff could 'falsify' the unauthorised entry. The falsification would have the effect of creating a deficit between the account and the fund. The custodial fiduciary would be required to replenish the fund to that extent of the unauthorised entry.
336When an account in common form was sought, it did not matter whether the dissipation of the asset would have occurred even without the unauthorised act. The analogy for an account in common form is with specific performance or a common law action in debt …
…
338The 'compensation' order following the common account required the defendant to perform his or her duty to maintain the trust fund in an authorised manner. It was not a sufficient response to a disallowance, or falsification, that the disbursement would have been lost even if the trustee had acted properly …
…
342In other words, the orders which followed the common account were not concerned with whether the plaintiff had suffered loss. They required the defendant to pay the money equivalent of the performance of his or her duty.
In relation to the account of the basis of wilful default, Edelman J explains that:
347In contrast with orders sought following a common account, the account which was taken on the basis of wilful default was substantially different. Those orders were dependent upon proof of a loss. An account taken on the basis of wilful default required the plaintiff to show that the custodial fiduciary, in breach of duty, failed to obtain a benefit for the fund. On the taking of the account the plaintiff could then 'surcharge' the account by the value of the rights that the custodial fiduciary would have obtained had the duty not been breached.
348As Dr Elliott and Professor Mitchell have observed, the historic difference between a claim based upon falsification of a common account and a claim based on surcharge of an account on the basis of wilful default has been concealed in modern cases which generally refer to both as 'equitable compensation'. Even in the leading decision of Street J in Re Dawson reference is made to equitable compensation claims which were concerned with loss and which would have historically been treated as based upon wilful default. Those cases are of a fundamentally different character from cases of restoration on a common account. In wilful default claims, the claim is in the nature of a claim based on breach by a trustee. And the account taken on the basis of wilful default asks whether loss has been suffered.
Edelman J helpfully summarises the two different types of equitable compensation as follows:
349… has suggested the use of the labels 'substitutive compensation' and 'reparative compensation' to differentiate the two types of claim. The former, based on the common account, describes a claim for the substituted value of the asset dissipated without authority: it demands that the trustee perform his or her duty to maintain the assets or fund. The latter, based on the account on the basis of wilful default, describes a claim for reparation for the loss suffered by breach of duty.
The defendants submit that the difference between the two types of equitable compensation is significant here as two fundamental questions to be determined are (a) what is the loss caused by the first defendant's breach of trust; and (b) whether it is open to the defendants to assert that the breach of trust causes no damage for the reason that the beneficiaries would, if asked, have authorised the very action which constituted the breach.
The learned authors of Meagher, Gummow & Lehane's Equity Doctrines & Remedies do not support the nomenclature adopted by Edelman J.[44] The learned authors note that equitable compensation is a developing area of the law, in which the rules for recovery are less developed than the rules for proprietary remedies, but go on to summarise the key principles as follows:[45]
(a)Prima facie, the defendant is liable to pay equitable compensation for all loss to the trust fund or to the principal suffered by reason of the breach.
(b)The defendant may show that the true loss is smaller than the amount in (a) by showing that the trust fund or the principal would have suffered that loss (or part thereof) even if the defendant had not committed the relevant breach.
(c)Equitable compensation is payable under (a) or (b) will be reduced to the extent that the defendant shows that:
(i)the defendant has already satisfied that loss in whole or in part;
(ii)the defendant is entitled to offset some amount.
[44] Heydon JD, Leeming MJ & Turner PG, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5^th ed, 2015) [23-610].
[45] Heydon JD, Leeming MJ & Turner PG, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5^th ed, 2015) [23-020].
As to how a loss may be demonstrated by a plaintiff, the learned authors note that:[46]
Sometimes the facts will speak for themselves in that proof of the breach will also be proof, at least prima facie, of the plaintiff's loss. For example, if a trust beneficiary shows that the trustee committed a breach of trust by disposing of trust property without power to do so …
However, proof of a breach of duty may be proof of no more than that.
[46] Heydon JD, Leeming MJ & Turner PG, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5^th ed, 2015) [23-175].
The defendants submit that given the nature of the Trust and the nature of breaches of trust, the plaintiffs are properly seeking reparative compensation.[47] The defendants submit that this is not a case of substitutive compensation as this is not a case where the first defendant held each plaintiffs' $1,000,000 investment on trust for the plaintiff or guaranteed a return of $1,000,000 to each plaintiff. Any return on the plaintiffs' investment was always speculative and based on the commercial performance of the development, with the plaintiffs only ever entitled to a proportion of the total trust assets. Further, the plaintiffs' investment was always intended to be used to further the development. This submission is borne out by the Investment Management Agreements signed by each of the plaintiffs when they invested in the Trust. Clause 2 of each agreement provides as follows:[48]
Investor capital will be drawn down in full prior to any loans. These funds will be used to acquire the land, pay for transaction costs and other expenses as detailed in the financial statements provided for the purpose of developing the property known as Lot 462 South Beach, Fremantle, Perth, Western Australia.
[47] Defendants' submissions in response to the summary judgment application, 28 June 2023 [26] - [28].
[48] Lai affidavit FL-1 and FL-2.
The defendants also rely on the fact that the plaintiffs were not the only Ordinary Unit holders in the trust,[49] and therefore not the only unit holders entitled to payment at the completion of the development.
[49] Second substituted statement of claim [41].
Secondly, the defendants submit that even if this were to be a case of substitutive compensation, it would be necessary to falsify not merely the payment of funds to the Class P Unit holders, but also to falsify the investment by the Class P Unit holders.[50] During oral submissions the parties accepted that the development would not have been finalised (at least in the larger form) without the investment by the Class P unit holders. Given the project has been completed, it is difficult to see how both can be falsified in the manner that is required for a common account.
[50] Defendants' submissions in response to the summary judgment application, 28 June 2023 [18] - [22].

Thirdly, even if only the payment to the Class P Unit holders is falsified, the defendants submit that the plaintiffs would only be entitled to the payment of their share of the amount paid to the Class P Unit holders. As the defendants correctly observe, there is no evidence of the amount paid to the Class P Unit holders before the court and therefore the plaintiffs' respective shares of that amount cannot be calculated.[51]
[51] Defendants' submissions in response to the summary judgment application, 28 June 2023 [23] - [24].
Accordingly, the defendants submit that what the plaintiffs are really (conceptually) seeking is reparative compensation on the basis of wilful default of the trustee in executing the Deed of Amendment at some point in 2013‑2014 and the subsequent issue of the Class P Units. The defendants submit that this will involve a consideration of what would have happened but for that breach, and an assessment of what loss (if any) flowed from that. There is no evidence of this presently before the court.
Finally, the defendants submit that given the nature of the alleged breach and compensation being claimed, it is open to each to plead that the plaintiffs, if asked, would have authorised the issue of Class P Units.[52] In this regard, the defendants rely on the High Court authority of Youyang[53] and submit that the High Court adopted the following passage from the judgment of Hodgson JA in the Court of Appeal:
In my opinion, if a trustee wishes to assert that a breach of trust caused no damage for the reason that the beneficiary would, if asked, have authorised the very action which constituted the breach of trust, then there is at least an evidentiary onus on the trustee to make good that proposition.
[52] Defendants' submissions in response to the summary judgment application, 28 June 2023 [29] - [30].
[53] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 [60].
It is not entirely clear to me that the High Court adopted the above passage. However, at the same time the High Court did not find that such a consideration was inappropriate in principle, particularly in light of the court's approach to considering loss and events subsequent to the breach.
In response, the plaintiffs submit the issue of substitutive versus reparative compensation is not relevant.[54] Rather, the plaintiffs' case centres on the fact that the entirety of the plaintiffs' investment was lost and that this was the result of the series of breaches of the Trust Deed which culminated in the Class P Units being issued, which resulted in the suspension of all interests and entitlements of Ordinary Unit holders until all Class P Units had been redeemed and paid their entitlements in full. The plaintiffs submit that their loss was immediate upon the Class P Units being issued,[55] and therefore the appropriate response is to order the Trustee to refund the entire investment. The plaintiffs say that even if the nomenclature employed by Edelman J is adopted, for the above reasons this is not a case of reparative compensation, but rather a case of substitutive compensation.
[54] Plaintiffs' submissions in reply 14 July 2023 [8].
[55] ts 168.
The plaintiffs further submit that it was the issuing of the Class P Units, and the associated raising of capital, that allowed the development to proceed. The plaintiffs submit that if the Class P Units had not been issued, then the project would not have proceeded, the land that was held on trust could have been sold, and the funds returned to the Ordinary Unit holders.[56] The difficulty for the plaintiffs in relation to this submission is that there is no pleading in the second substituted statement of claim to this effect. Paragraph [124] does plead that if the plaintiffs were aware of certain information they could have taken steps to recover or protect their investments prior to the Trust being committed to complete the larger development. However, this paragraph is pleaded as specifically relating to the breach of duty pleaded in [122] of the second substituted statement of claim (which is not the subject of this application) and in any event does not go so far as the plaintiffs' submission.
[56] Plaintiffs' submissions 19 May 2023 [41]; ts 165.
Finally, the plaintiffs also rely on the decision of the Privy Council in Brickenden v London Loan and Savings Co[57] as authority for the proposition that it is not open to the defendants to plead that no loss has been suffered as the plaintiffs, if asked, would have authorised the issue of Class P Units. The plaintiffs rely on the following paragraph of Lord Thankerton:[58]
When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.
[57] Brickenden v London Loan and Savings Co [1937] 3 DLR 465.
[58] Brickenden v London Loan and Savings Co [1937] 3 DLR 465, 469.
The plaintiffs submit that having regard to Brickenden, it is open for the court to find that the invalid variations to the Trust Deed were material facts not disclosed to the plaintiffs and that it is not relevant to take into account any speculation as to what course the plaintiffs may have taken had they been fully aware of the material variations to the Trust Deed.[59]
[59] Plaintiffs' submissions in reply to the defendants' submissions in respect of the plaintiff's summary judgment application, 14 July 2023 [7].
An immediately apparent difficulty facing the plaintiffs is that Brickenden was based on a failure of the appellant (a solicitor) to disclose material facts to the respondent finance company that he was advising in breach of his fiduciary obligations to the finance company. Whilst the plaintiffs do plead an intentional failure by the first defendant to keep the plaintiffs informed of certain matters (and plead that this is a further breach of the duty of honesty and good faith)[60] this is not one of the breaches the subject of this summary judgment application,[61] and therefore has not been the subject of affidavit evidence verifying those facts.
[60] Second substituted statement of claim [122] and [124].
[61] Plaintiffs' submissions 19 May 2023 [3].
Further, there is a live question as to whether (or to what extent) Brickenden remains the law in Australia when it comes to considering an award of equitable compensation, following the decisions of the House of Lords in Target Holdings Ltd v Redferns[62] and the High Court in Youyang. In Youyang, the High Court distinguished the nature of breach before the court from the nature of breach in (amongst other authorities) Brickenden.[63] The High Court did not go on to further discuss the case. However, the High Court held that 'there was force' to the application of the following proposition from Target Holdings Ltd v Redferns:[64]
[T]he fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for 'stopping the clock' immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered.
[62] Target Holdings Ltd v Redferns [1996] 1 AC 421.
[63] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 [42].
[64] Target Holdings Ltd v Redferns [1996] 1 AC 421, 437.
The learned authors in Meagher Gummow and Lehane's Equity Doctrines and Remedies summarise the current position of the law in Australia in relation to Brickenden as:[65]
[A]n approach consistent with the current High Court decisions and considered dicta would be (a) to confine the Brickenden doctrine to attempts by fiduciaries to reduce or avoid orders to pay equitable compensation by arguing that the loss of which the principal complains would have been caused by some third party's fraud or dishonesty, even if the fiduciary had made the required disclosure; and (b) otherwise to permit all inquiries into what would have happened had the fiduciary made proper disclosure …
[65] Heydon JD, Leeming MJ & Turner PG, Meagher, Gummow & Lehane's Equity Doctrines & Remedies(5^th ed, 2015) [23-495].
The above would appear to leave open the pleading proposed by the defendants.
During the course of the hearing, the plaintiffs referred the court to an article by Professor Matthew Conaglen, Equitable Compensation for Breach of Trust: Off Target,[66] which the plaintiffs submitted supports their submissions in this regard. I allowed the defendants an opportunity to file short submissions in response, in which they referred the court to additional articles discussing the extent to which a trustee can argue that no compensation is payable following a breach of trust. It is not necessary for the purposes of dealing with the summary judgment application to summarise in any detail the content of the various articles relied on by the parties. The short answer is that each reveal that the legal questions raised by this case regarding causation and the assessment of equitable compensation are complex and not settled law in Australia.
[66] Conaglen M, 'Equitable Compensation for Breach of Trust: Off Target' [2016] Vol 40 MULR 126.
In all the circumstances, I am not satisfied that the plaintiffs have demonstrated that the defendants' submissions on this issue are so clearly untenable. There is no dispute that the effect of the Class P Units being issued was the suspension of the rights, interests and entitlements of the Ordinary Unit holders until all Class P Units had been redeemed and paid their entitlements in full. It is also not in dispute that the plaintiffs lost their entire investment in the Trust as there was insufficient money to redeem the Class P Units and pay the holders all of their entitlements. However, in accordance with Youyang, it is remains necessary for the plaintiffs to demonstrate that the loss suffered was caused by the breach. There are a number of contested legal and factual issues in relation to this aspect of the plaintiffs' claim, including:
(a)the legal basis upon which equitable compensation is to be assessed in the present case, including whether the loss suffered by the plaintiffs is to be assessed on the basis of the substitutive or reparative conceptual bases, and whether these are appropriate at all;
(b)if the issue of the Class P Units is to be falsified, must the associated investment in the Trust also be falsified, and what does this mean for the calculation of equitable compensation;
(c)what is the status of the decision of Brickenden in Australian law and can the defendants run a defence that no loss was caused to the plaintiffs by the breach because the Ordinary Unit holders, if asked, would have authorised issuing the Class P Units in order to obtain the necessary investment to complete the development;
(d)has any loss in fact been caused by the breach of trust, given the terms upon which the money was invested and the result of the property development;
(e)what is the value of the payments made to the Class P Unit holders at the completion of the development; and
(f)what would have occurred in 2013 - 2014 if the first defendant had not breached the trust by executing the Deed of Amendment and issuing the Class P Units and what impact (if any) does this have on the calculation of the amount of equitable compensation.
The questions of law raised by the defendants are not the subject of clear appellate authority, and it is not appropriate to dispose of these questions without a full trial and legal argument. Further, the defendants have raised factual matters which require further evidence at trial to resolve. Accordingly, it is not appropriate to order summary judgment on the plaintiffs' claim for equitable compensation in the amount of $1,000,000 for each plaintiff.

Summary judgment on part of the plaintiffs' claim

In light of my conclusions in relation to the plaintiffs' accessorial claim and the issues associated with causation and the assessment of the amount of equitable compensation, a question arises as to whether to exercise the power in O 14 r 1(1) to order judgment be entered on part of the plaintiffs' claim only, and order a trial on the accessorial claim and assessment of equitable compensation.
The plaintiffs urge me to adopt this course, whilst the defendants submit that,[67] pursuant to O 14 r 3(1), I should not order judgment be entered for part of the claim as there are other reasons why there should be trial of all aspects of the plaintiffs' claims. The defendants submit that entering summary judgment on part of the claim is unlikely to reduce the length of the trial as it will not resolve all of the matters at issue between the parties,[68] and the evidence in relation to one claim is 'interwoven into the factual narrative of the remainder of the facts relevant to the issues to be decided at trial'.[69]
[67] Defendants' submissions in response to the summary judgment application, 28 June 2023 [36] - [40].
[68] See for example Make it Raine Money Pty Ltd v Alvaro [2022] WASC 282 [13]
[69] See for example Helmers v Como [2014] WASC 396 [16].
I consider there is merit in this submission. Turning to the accessorial claim, this will involve leading much of the same evidence as associated with the breaches of trust alleged against the first defendant. It is not possible to factually separate the various claims as each are factually interwoven with the other.
In relation to the issues of causation and assessment of equitable compensation, as outlined by the High Court in Youyang,[70] equity provides a range of remedies for breaches of trust. The nature of that remedy may vary to reflect the terms of the trust, and the breach of which complaint is made. Consideration and determination of the questions of causation of the extent of any equitable compensation will therefore involve consideration of the facts associated with the breaches of trust, meaning that this evidence will need to be lead and considered (and appropriate findings made) in any event.
[70] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 [37].
In their written submissions, the defendants also rely on the fact that even if summary judgment were to be entered for the plaintiffs, there are other claims not covered by the application that would need to be heard in any event. As outlined earlier in these reasons, these are the alleged breach of the duty of care and skill by the first defendant;[71] the alleged breach of the Trust terms duty associated with the purported amendment of the Trust Deed by the Deed of Variation;[72] the further bases alleged as to the first defendant's breach of the duty of honesty and good faith;[73] and the claim of misleading and deceptive conduct alleged as against the defendants.[74]
[71] Second substituted statement of claim [117(a)], [119], [38].
[72] Second substituted statement of claim [120(a)].
[73] Second substituted statement of claim [121(a)] and [122].
[74] Second substituted statement of claim [127] - [129].
At the hearing of the application, counsel for the plaintiffs submitted that in the event that the plaintiffs were successful in their summary judgment application, the plaintiffs would not pursue the remaining claims contained in the second substituted statement of claim.[75] On one hand, if summary judgment over part of the plaintiffs' claim is not granted, the resulting trial may need to be longer to accommodate adjudication of these additional claims. This is a factor in favour of granting summary judgment over part of the plaintiffs' claim. However, whilst there are additional claims made by the plaintiffs, they all arise out the same set of facts. Given it will be necessary to consider much of this evidence for the purposes of considering the accessorial claims and the causation and assessment of equitable compensation, I do not consider the time saving to be as significant as it may first appear.
[75] ts 172 ‑ 173.
I am therefore of the view that even accepting that the plaintiffs have a very strong case for a breach of the Trust terms duty by the first defendant (and that they may well be able to establish that the first defendant has no defence to this claim), it is nonetheless appropriate that there should be a trial of all of the plaintiffs' claims at the one time and that it is not appropriate in this case to grant summary judgment over part of the plaintiffs' claim.

Affidavit

Finally, at the hearing of the summary judgment application, the defendants raised orally for the first time a submission that the plaintiffs had failed to comply with the requirements of O 14 r 2(1) in that they had not filed an affidavit verifying all of the facts on which the application was based, and that the deposes belief that the defendants do not have a defence was insufficient to meet the requirements of the rule.
In light of my conclusions in relation to plaintiffs' accessorial claim, the causation and assessment issues and the other reasons why a trial should take place, it is not necessary for me to consider and resolve this aspect of the defendants' response to the application. However, this conclusion should not be interpreted as in any way diminishing the requirement for, or importance of, compliance with O 14 r 2(1).

Defendants' strike out application

By application dated 2 June 2023, the defendants apply to strike out the following paragraphs of the second substituted statement of claim pursuant to O 20 r 19(1)(a) and (c) on the basis that each discloses no reasonable cause of action, or that they may prejudice, embarrass or delay the fair trial of the action:
(a)[121(a)] and the further and better particulars provided on 9 June 2023 (that the first defendant breach the duty of honesty and good faith by increasing the scope of the project with the objective of increasing the fees payable to the M Group);
(b)[123(a)] (causation); and
(c)[127] - [132] (misleading and deceptive conduct claim).

Legal principles

The legal principles governing strike out applications are well established. They were summarised by Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4][76] and approved by the Court of Appeal in English v Vantage Holdings Group Pty Ltd[77] and DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd:[78]
[76] Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [60(a)] - [60(j)].
[77] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [56].
[78] DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97 [226] (footnotes omitted).
(a) the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;
(b) a statement of claim must not plead allegations at too high a level of generality. A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;
(c) a statement of claim must state specifically the relief or remedy claimed;
(d) the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action. While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;
(e) in alleging no reasonable cause of action:
(i) the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action; and
(ii) 'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;
(f)the mere fact that a case appears weak is not of itself sufficient to strike out the action;
(g) in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;
(h) provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment;
(i) pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general; and
(j)irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues.

Paragraph [121(a)]

Paragraph [121(a)] pleads as follows:
SBM breached the duty of honesty and good faith by:
(a) increasing the scope of the Project as pleaded in paragraph 37, with the objective of increasing the fees payable to Match Projects and Match Property to the amounts pleaded in paragraph 40(d) and without any proper assessment of the benefits and risks which the increase in Project scope would bring to the Unitholders in the Trust;
Following a request, the following further and better particulars were provided by the plaintiffs:
That the defendants had the objective as pleaded is to be inferred from the following facts and matters:
A. As a result of the increase in Project scope, Match Projects became entitled to additional fees as pleaded in paragraph 40(d) and Match Property gained the opportunity to charge its 3% selling fee on the sale of 67 units instead of 38 units.
B. The Trustee (by Barr) wrote in an email to Ms Wu on 7 April 2014 that 'in chasing a super return for the investors it has been a lesson that sometimes it is not good to be too greedy on returns'. In fact the increase in Project scope did not offer any prospect of a higher return for investors: the projected return on the 38-unit development (as stated in the Xue IMA and the Song IMA) was 69% and the projected return on the 67-unit development (as projected by the Trustee at the time of issue of the Second IM, on the assumption that the Second IM would be fully subscribed) was 58.8%. It should be inferred that the greed influencing the Trustee related not to returns for investors but to fees for Match companies.
C. The Equity Raising Fee and Development Management Fee payable to Match Projects, and any selling fees payable to Match Property, were payable without regard to the profitability of the Project, and were therefore insulated against the additional risks associated with the 67-unit Project.
D. As pleaded in paragraph 114(d), up to November 2017 Match Projects charged project development fees of $863,000 to the Trust for the 67-unit Project.
The defendants submit that the particulars are inadequate to support the plea and instead present a post hoc ergo propter hoc argument: that because the M Group fees were increased by the increase in the scope of the project, the scope of the project must have been increased for that reason. The defendants submit that a plea that suggests a dishonest intent cannot be sustained on such flimsy foundations. The defendants also take issue with particular B and the interpretation placed on the email by the plaintiffs.[79]
[79] Defendants' submissions in support of strike out application 28 June 2023 [5] - [9].
I do not accept the defendants' submissions. The plaintiffs have particularised the plea that the first defendant increased the scope of the Project 'with the objective of increasing the fees payable' to the M Group as being an inferential claim, and have gone on to particularise the facts or matters from which they allege the inference can be drawn. The question of whether the plaintiffs will be successful in proving the inference pleaded is a matter for the trial. The defendants' attack on the plaintiffs' interpretation of the email pleaded in particular B is a matter which goes to the merits and is appropriately a matter for the trial.
Accordingly, I consider that [121(a)] of the second substituted statement of claim sufficiently informs the defendants of the case they need to meet on this issue, and I do not consider it can be said that it fails to disclose a reasonable cause of action, or will prejudice, embarrass or delay the fair trial of the matter.

Paragraph [123(a)] - causation

Paragraph [123(a)] is concerned with causation and provides as follows:
By reason of each and all of the breaches of duty pleaded in paragraphs 119, 120 and 121 [the first and second plaintiffs]:
(a)suffered suspension and effective extinguishment of the income and capital distribution rights attaching to their units in the Trust, when the Trustee agreed to issue and did issue Class P units to cover the shortfall in funding of the Project; and
(b)as a result, lost the entire value of their investments in the Trust.
The defendants submit that the manner in which the plaintiffs' claim for equitable compensation is pleaded is internally inconsistent and legally unintelligible. The defendants' complaint is that the plaintiffs plead that the Deed of Amendment was ineffective to amend the Trust Deed, given the backdating and associated failure to follow the procedure set out in the Trust Deed (see [61] of the second substituted statement of claim). It therefore follows, the defendants submit, that the Class P Units were never validly issued, and if the Class P Units were never validly issued, they could not have had the effect pleaded in [123(a)] of suspending and extinguishing the plaintiffs' rights.[80] The defendants submit that the plaintiffs cannot plead both that the Deed of Amendment was ineffective and also that the Class P Units had a certain effect on the plaintiffs' rights.
[80] Defendants' submissions in support of strike out application 28 June 2023 [10] - [12].
I consider that the defendants' submission misconstrues the plaintiffs' pleaded case.
The plaintiffs' pleaded case is that the amendments to the Trust Deed purportedly made by the Deed of Amendment and the Deed Poll were legally ineffective.[81] The plaintiffs do not plead that the suspension of their rights as Ordinary Unit holders was legally effective. Rather, the plaintiffs' case is that the first defendant proceeded as though the amendments were legally effective, as evidenced by issuing the Class P Units[82] and making payments to the Class P Unit holders in preference to the Ordinary Unit holders[83] and not making any payments to the Ordinary Unit holders.[84] The plaintiffs' case is therefore that as a result of the first defendant in fact acting as if the purported amendments were effective (when they were not), the plaintiffs suffered the complete loss of their investments.[85]
[81] Second substituted statement of claim [61] and [68].
[82] Second substituted statement of claim [81] and [83].
[83] Second substituted statement of claim [113] - [115].
[84] Second substituted statement of claim [116].
[85] Plaintiffs' submissions in opposition to the strike out application 14 July 2023 [9] - [11].
In the course of the summary judgment application the defendants raised a number of issues which go to the merits of the plaintiffs' case in relation to causation both from a legal and factual perspective, and in particular the extent to which the plaintiffs will be able to prove that the alleged breaches by the first defendant have resulted in the loss of the plaintiffs' entire investment. The defendants also rely on these matters for the purposes of the strike out application.[86] However, these are matters which go to the merits of the plaintiffs' case and are matters for the defendants to plead in their defence and then to argue at trial.
[86] Defendants' submissions in support of strike out application 28 June 2023 [14] - [15].
Accordingly, I am of the view that the current pleading sufficiently informs the defendants of the case they need to meet on causation, is not evasive and does not conceal or obscure the real questions in controversy and is not ambiguous or not reasonably intelligible. It therefore does not prejudice, embarrass or delay the fair trial of the action.
I also consider the plaintiffs have pleaded the material facts that at least arguably establish a necessary causal connection between a breach and the loss,[87] and therefore I do not consider it can be said that it fails to disclose a reasonable cause of action.

Paragraphs [127] - [132] - misleading and deceptive conduct

[87] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [102] - [104].

Paragraphs [127] - [132] concern the plaintiffs' claim that the defendants engaged in a course of misleading and deceptive conduct.
The defendants submit that these paragraphs roll‑up separate misleading and deceptive conduct claims, thereby obscuring the claim or claims actually advanced against the defendants. The defendants identify a number of issues in this regard.
The first concerns [127] which pleads as follows:
Having induced Song and Xue to invest in units of the Trust on the basis set out in the Information Memorandum, and subsequently decided (as pleaded in paragraphs 37 and 38) to proceed with a larger Project, SBM, Barr and Clark engaged in a course of conduct calculated to mislead or deceive Song and Xue as to the financial status of the Project and conceal the Loss of Rights Risk. That course of conduct consisted of the following acts and omissions: …
The plaintiffs go on to plead nine separate acts/omissions.
The defendants submit that the paragraph is unclear as on one hand the words 'Having induced Song and Xue to invest in units of the Trust on the basis set out in the Information Memorandum …' obliquely suggest a misleading conduct claim based on the alleged inducement of the first and second defendants to invest in the trust in the first place. However, on the other hand the words, 'SBM, Barr and Clark engaged in a course of conduct calculated to mislead or deceive Song and Xue as to the financial status of the Project and conceal the Loss of Rights Risk' appear to confine the misleading and deceptive conduct claim to the concealment of the Loss of Rights Risk.[88] The Loss of Rights Risk is defined in [67] of the second substituted statement of claims as:
The Deed Poll had a prejudicial effect on Xue and Song as unitholders in the Trust, and on their units, in that it created units which ranked in preference to the units held by Xue and Song and created a risk that the income distribution, capital distribution and redemption rights attaching to those units might be suspended or extinguished.
[88] Defendants' submissions in Support of strike out application 28 June 2023 [19] - [20].
The defendants submit that if the plaintiffs' claim is the latter, then the introductory words are irrelevant. If, however, the plaintiffs claim is the former, then such a claim must be separately and expressly pleaded.[89]
[89] Defendants' submissions in Support of strike out application 28 June 2023 [22] - [24].
I do not accept the defendants' complaints as to [127]. On a fair reading of [127] in the context of the second substituted statement of claim as a whole, the plaintiffs' plead that the defendants engaged in a course of conduct calculated to mislead or deceive the first and second plaintiffs as to the financial status of the Project and conceal the Loss of Rights Risk (that is, the latter of the two alternatives identified by the defendants). Further, that this course of conduct arose after two other steps had occurred: first the defendants had induced the plaintiffs to invest on the basis of the First Information Memorandum (in which it is pleaded the proposed project would be a development of 38 apartments);[90] and second the defendants subsequently decided to proceed with a larger project (which is pleaded as being 67 apartments).[91] That course of conduct is then pleaded in [127(a)] - [127(i)].
[90] Second substituted statement of claim [9].
[91] Second substituted statement of claim [37] - [38].
Accordingly, I do not accept that [127] rolls‑up separate misleading and deceptive conduct claims, obscuring the claim or claims actually advanced against the defendants or that any words are irrelevant.
The defendants also submit that [127] suffers from the same difficulty as [123] in so far as it refers to the Loss of Rights Risk, in that the Loss of Rights Risk only arises if the Class P Units are validly issued.[92] For the reasons set out in relation to [123], I do not accept this characterisation of the plaintiffs' case. The definition of the Loss of Rights Risk in [67] does not alter the plaintiffs' case in this regard, as the plaintiffs plead in [68] that the Deed Poll was ineffective to amend the Trust Deed.
[92] ts 190.
During the hearing of the application, the defendants also raised issues regarding the particularisation of [127]. To the extent the defendants assert that the particulars pleaded could not sustain the plea as against the first defendant, I consider that the paragraph identifies the cumulative course of conduct which the plaintiffs submit amounts to misleading and deceptive conduct. The defendants also submit that the particulars do not adequately distinguish between the various defendants, and it is not clear which conduct is directed towards the first and second defendants. In response, the plaintiffs submit that the first defendant can only act through the second and third defendants and that all particulars applicable to all.[93] I am of the view that the current pleading identifies the various factual matters which the defendants are required to meet in response to this part of the plaintiffs' claim. I am satisfied that it does not conceal or obscure the questions to be tried. The extent to which the plaintiffs are able to establish the matters particularised are sufficient to make out their case against the second and third defendants is a matter going to the merits of their case, and is appropriate to be considered at trial.
[93] ts 200.
The second set of paragraphs the subject of the application are [130] and [131] concerning loss and causation. The paragraphs are as follows:
130Xue and Song suffered loss through the suspension and effective extinguishment of the rights to receive income and capital distributions from the Trust attaching to their ordinary units, when SBM:
(a) became aware of a shortfall in its capacity to contribute the required amount to the cost of funding development of the larger-scope Project; and
(b) in order to make up that shortfall, issued Class P units as pleaded in paragraphs 81 and 83.
131. Because of the misleading or deceptive conduct of SBM, Barr and Clark as pleaded in paragraph 127, Song and Xue lost the opportunity to take action to recover or protect their investments in units of the Trust, before the Trust was committed to undertake the larger development of 67 apartments.
Particulars
If Xue and Song had been properly informed between October 2013 and August 2014 of the true financial status of the Project and the Loss of Rights Risk arising from the proposed issue of Class P units, and in particular of the fact that the income and capital participation rights attaching to their units in the Trust would be suspended upon the issue of Class P units, they could have applied to the Court for:
A. relief under Part 5-2 of the Australian Consumer Law, alternatively Part 2 Division 2 of the ASIC Act, including orders that the Xue IMA and the Song IMA be declared void ab initio and that their investments in the Trust be repaid to them; or
B. removal of SBM as Trustee and appointment of a receiver of the property of the Trust.
The defendants submit that the two paragraphs are inconsistent unless pleaded as alternatives. The defendants submit that the plaintiff could plead that they either: (a) suffered loss through the issue of Class P Units and extinguishment of their income rights ([130]); or alternatively (b) that they suffered loss when they lost the opportunity to recover or protect their investment before the trust was committed to undertake the larger development ([131]). They cannot succeed on both claims at the same time.[94]
[94] Defendants' submissions in Support of strike out application 28 June 2023 [26] - [27].
I am of the view that this misconstrues the effect of these two paragraphs. Paragraph [130] details the loss which the plaintiffs' say they suffered upon the Class P Units being issued. Paragraph [131] pleads the causal link between that loss and the conduct of the defendants, by pleading that because of the defendants' misleading and deceptive conduct the plaintiffs' lost the opportunity to take steps to prevent suffering that loss (those steps are then particularised). The paragraphs are not alternatives but rather are cumulative.
Finally, the defendants submit that [131] suffers from the same defect identified and discussed in the defendants' submissions in opposition to the plaintiffs' summary judgment application, being that the plea of 'effective extinguishment of the rights to receive income' is inconsistent with earlier pleas and conceals the plaintiffs' claim for damages and therefore it should be struck out on that basis.[95] For the reasons set out above in relation to [123], I do not accept that there is any defect in [131] on the basis of the plea of 'effective extinguishment' of the plaintiffs' rights to receive income.
[95] Defendants' submissions in Support of strike out application 28 June 2023 [28].
Accordingly, I am of the view that [127] ‑ [132] sufficiently inform the defendants of the case they need to meet on the misleading and deceptive conduct claim and do not obscure the claim or claims actually advanced against the defendants. They therefore does not prejudice, embarrass or delay the fair trial of the action.
I also consider the plaintiffs have pleaded the material facts that at least arguably establish a necessary causal connection between allegedly misleading and deceptive conduct of the defendants and the loss the plaintiffs' claim to have suffered,[96] and therefore I do not consider it can be said that the paragraphs fail to disclose a reasonable cause of action.
[96] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [102] - [104].

Conclusion

For the reasons set out above, I do not consider this to be an appropriate case in which to order summary judgment over all or part of the plaintiffs' claims the subject of their application.
In addition, I am of the view that the particular paragraphs of the second substituted statement of claim the subject of the defendants' strike out application do not suffer from the defects alleged and the application should be dismissed.
I will hear further from the parties as to costs following the delivery of my reasons for decision in relation to the plaintiffs' various costs applications.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CH
Associate to Justice Seaward
8 AUGUST 2023