STATE BANK CASE RULING No. SCGRG 94/983 Judgment No. 6111 Number of Pages - 7 Procedure - Supreme Court Procedure

[1997] SASC 6111

IN THE SUPREME COURT OF SOUTH AUSTRALIA

OLSSON J

Procedure - Supreme Court procedure - South Australia - practice under rules of court - application by defendants, pursuant to SCR 46.18, to strike out significant elements of formulation of claim as an abuse of process - application portion of more general application to strike out - defendants sought to rely on evidentiary material extraneous to formulation of claim and not referred to in it - discussion of interpretation of SCR46.18 and its inter relationship with SCR 3.04(e) and SCR 25.04 and inherent jurisdiction of court - tendering of evidence of type proposed not authorised by SCR 46.18 in circumstances - abuse must be demonstrable on face of pleading in relevant circumstances - application, in reality, an impermissible attempt to resort to an SCR 25.04 type procedure - evidence ruled inadmissible. Brimson v Rocla Concrete Pipes Ltd (1982) 2 NSWLR 937, applied.

ADELAIDE, 17-30 December, 1996, 3 February - 12 March 1997 (hearing), 27 March 1997 (decision)

#DATE 27:3:1997

#ADD 27:4:1997

Plaintiff The State of South Australia:

Counsel: Mr J Wells QC, with him Mr P Slattery and Mr J Blue - Solicitors: Crown Solicitor

Plaintiff The State Bank of South Australia:

Counsel: Mr J Wells QC, with him Mr P Slattery and Mr J Blue - Solicitors: Crown Solicitor

Defendant Peat Marwick Mitchell & Co,:

Counsel: Mr D Horton QC, with him Mr J Karkar QC, Mr D Ryan and Mr H Insall - Solicitors: Freehill Hollingdale & Page

Defendant Peat Marwick Hungerfords:

Counsel: Mr D Horton QC, with him Mr J Karkar QC, Mr D Ryan and Mr H Insall - Solicitors: Freehill Hollingdale & Page

Defendant Touche Ross & Co:

Counsel: Mr D Horton QC, with him Mr J Karkar QC, Mr D Ryan and Mr H Insall - Solicitors: Freehill Hollingdale & Page

Defendant Kpmg Peat Marwick:

Counsel: Mr D Horton QC, with him Mr J Karkar QC, Mr D Ryan and Mr H Insall - Solicitors: Freehill Hollingdale & Page

Defendant Peat Marwick:

Counsel: Mr D Horton QC, with him Mr J Karkar QC, Mr D Ryan and Mr H Insall - Solicitors: Freehill Hollingdale & Page

Order: evidence ruled inadmissible.

OLSSON J

1. The proceedings currently before me arise from an application made by the defendants which, in its amended form, seeks to have the plaintiffs' Amended Formulation of Claim (AFOC), or, alternatively, significant elements of it, struck out.

2. A number of weeks have been occupied in exploring various issues as to whether, pursuant to SCR 46.18, AFOC, or segments of it, ought to be struck out, either as disclosing no cause of action on the face of the pleading, or because they are said to be offensive to my order made in this action on 29 March 1996 and/or the general principles of pleading.

3. However, one aspect of the application was deferred for debate at the conclusion of that exercise, because Mr Wells QC, of senior counsel for the plaintiffs, raised objection to my entertaining it at all on the basis indicated by Mr Horton QC, of senior counsel for the defendants. These reasons are limited to a resolution of that objection.

4. By paragraph 5 of their application, the defendants aver that significant areas of pleading relating to topics such as the alleged single audit contract, the State Bank Centre project, the Oceanic acquisition, audit activities related to the so-called Reserve Bank Agreements and what were said to be repeated allegations of fraud ought, pursuant to Rule 46.18(e) or, alternatively, pursuant to the inherent power of the Court, to be struck out as an abuse of the process of the Court.

5. In seeking to prosecute that aspect of the application, Mr Horton QC has intimated that he will seek to place before me evidentiary material of a documentary nature which is not adverted to in the AFOC, but has been procured from the possession of the plaintiffs. Without being fully definitive it may be said that this primarily relates to minutes of relevant Board meetings, certain reports and correspondence with and from a senior Treasury officer.

6. Broadly speaking, what the defendants seek to propound, with the aid of that material, is the proposition that various pleas of the plaintiffs are not sustainable, because the Board of the Bank and/or the Treasurer were, at all material times, well aware of certain situations (of which it is suggested by the plaintiffs that they were not aware) and that the transactions sought to be sheeted home to alleged defaults of the defendants were not the product of any such defaults, but of conscious, authorised decisions of the Bank and Treasurer, well knowing of the relevant risks being run or, for example, of the consequences of maintaining initiatives 'off balance sheet', or the dubious commercial validity of what was in contemplation by reason of inappropriate values being ascribed to proposed acquisition targets.

7. I hasten to say that such a description is a very inadequate, shorthand resume of what was indicated by Mr Horton QC, but it will, in my view, suffice to indicate the general nature of the material sought to be relied upon.

8. Distilled to the essence, the contention advanced by Mr Wells QC is to the effect that this aspect of the defendants' application is not of a type authorised by SCR 46.18 and that it is impermissible to present it in the current context - much less to seek to adduce evidence of the nature contemplated.

9. In my view the correct resolution of the present contention necessitates a careful consideration of the scheme of the Supreme Court Rules.

10. As counsel correctly identified, there are, potentially, three separate provisions of the Rules which attract consideration.

11. SCR46 deals generally with the topic of pleadings and mandates specific requirements in relation to them. SCR 46.18 authorises the striking out of the whole or any part of a pleading in the circumstances postulated by it. Those circumstances are where a pleading - (a) discloses no reasonable cause of action or defence;

(b) does not comply with the Rules as to pleadings;

(c) has a tendency to cause prejudice, embarrassment or delay in the proceedings;

(d) is scandalous, frivolous, or vexatious or contains scandalous matter; or

(e) is otherwise an abuse of the processes of the Court. 12. There is some seeming overlap between the provisions of that rule and the content of SCR3.04, which purports to confer a series of general powers, including, in sub paragraph (e), a power to "strike out or dismiss any step in a proceeding which is vexatious, frivolous or an abuse of the process of the court."

13. It is at once to be seen that the latter provision is expressed in the most general terms and is chiefly intended to cater for situations not otherwise provided for. As the learned author of Lunn, Civil Procedure - South Australia points out, the power in sub paragraph (e) is limited to a 'step' taken in a proceeding and not to the whole proceeding. Moreover, it seems abundantly clear that SCR46.18 is intended to constitute a specific code related to pleadings; and that SCR3.04(e) is not intended to set up some alternative basis of power to deal with that topic. So much is apparent from the express use of the word 'step', by way of contrast with the reference in SCR46.18 to the content of pleadings.

14. At this point it is useful to contrast the rules to which I have referred with the procedure erected by the provisions of SCR25.04, which stipulates that - "(1) Where a defendant wishes to obtain summary judgment in an action or for any part thereof he shall:

(a) file his defence or affidavit in answer to the plaintiff's affidavit; (b) make an application for summary judgment in the action;

(c) file an affidavit showing why the plaintiff's claim cannot succeed or cannot succeed in this Court as the case may be on any possible view of the facts or the law.

(2) On the hearing of the application the Court may if it is satisfied that the defendant's contentions are correct enter judgment for the defendant, stay the action or make any other order which the justice of the case may require or treat the application as an application for directions." 15. This is part of a composite rule which replaced the earlier Order 10 and also incorporated other provisions of the old rules. It is a procedure whereby, subject to due observance of the prescribed conditions precedent, a defendant can terminate proceedings which are patently devoid of merit and do not raise a serious question capable of argument.

16. The so-called 'inherent' jurisdiction of the court is preserved by section 17 of the Supreme Court Act. The nature of it is discussed by the author of Lunn, at page 2143 of that work. It remains untrammelled by the rules of court as to its width, but the exercise of it is clearly to be seen reflected in various provisions of them, including, for example, SCR3.04.

17. In the context of the case at bar, a question immediately arises as to the scope of the inherent jurisdiction of the Court and also the intended scope of SCR46.18.

18. As to the former I accept that, for present purposes, the article written by the former Master Jacob "The Inherent Jurisdiction of the Court"
(1970) 23 CLP 23 contains an accurate summation of the circumstances in which an abuse of process may be dealt with, by stay, dismissal or striking out (as appropriate), as I have always understood them to be.

19. Without attempting to be fully exhaustive, he postulates the categories of proceedings susceptible of categorisation as an abuse as including any one or more of the following - (a) proceedings which involve a deception on the court, or are fictitious or constitute a mere sham;

(b) proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way;

(c) proceedings which are manifestly groundless or without foundation or which serve no useful purpose;

(d) multiple or successive proceedings which cause or are likely to cause improper vexation or oppression. 20. I consider that, when the phrase "abuse of process" is employed in both SCR3.04 and SCR46.18(e), it is intended that it reflect the concepts embraced by Jacob. For example, a claim which, on the face of it, is patently untenable is one which is "manifestly groundless or without foundation." Equally it is, to adopt the language of SCR25.04, also a claim which "cannot succeed on any possible view of the facts or the law."

21. In my opinion the only published authority which appears to be of direct assistance for present purposes, in considering the scheme of the interlocking provisions of the three rules to which I have just adverted, is the decision of Cross J in Brimson v Rocla Concrete Pipes Ltd (1982) 2 NSWLR
937. This is so notwithstanding that it focused upon a contrast of two rules of the New South Wales Supreme Court which, separately, bore upon pleadings and the substance of a claim in these terms: Pt 15, Rule 26 "(1) Where a pleading-

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the Court,

the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleading be struck out.

(2) The court may receive evidence on the hearing of an application for an order under subrule (1)."

Pt 13, Rule 5 "(1) Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings-

(a) no reasonable cause of action is disclosed; (b) the proceedings are frivolous or vexatious; or (c) the proceedings are an abuse of the process of the Court,

the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings.

(2) The court may receive evidence on the hearing of an application for an order under subrule (1)." 22. As to sub rule (2) of Pt15 R26, Cross J made the point that, whilst there was power to receive evidence and the court is always entitled to look at documents referred to in the statement of claim, it was proper to do so only insofar as it was necessary to explain the statement of claim itself; or to show that the statement of claim itself disclosed no reasonable cause of action; or to show how the statement of claim itself tended to cause prejudice, embarrassment or delay; or was otherwise an abuse of process.

23. He contrasted it with the procedure prescribed under Pt31 R2 of the New South Wales rules, which was said to be the normal method of attack for a defendant alleging fatal flaws in a plaintiff's statement of claim.

24. Cross J held that an order pursuant to Pt15 R26 could not be obtained in circumstances where the validity of the statement of claim was clearly arguable. It was only to be made in plain and obvious cases. As he put it, a pleading will not be struck out if it is merely demurrable; it must be so bad that no legitimate amendment would cure the defect; and that evidence is permitted to go only to the issue of whether the pleading is defective - not to whether the plaintiff's case is hopeless. He went on to comment - "Indeed, where a pleading is attacked under this rule the court will not make an order that the proceedings are an abuse of its process unless the defect is apparent in the pleading itself." 25. Cross J went on to contrast the situation which arose under Pt13 R5, which, he contended, was, in any event, intended only to facilitate the exercise of the inherent jurisdiction of the court.

26. He held that, on a motion under that provision, consideration is not limited to the statement of claim, but extends to the proceedings generally; and that regard could be had not only to the statement of claim, but also to the affidavit evidence and relevant documents.

27. He went on to make these fundamental points - "Where the court is asked to reject a plaintiff's case, either under its statutory rules or its inherent jurisdiction, the fundamental principle is that prima facie a plaintiff is entitled to have his case come to trial; and applications to deprive him of that right will succeed only in the clearest of cases. True, the court will not look merely at the suggested weakness of the plaintiff's case but - though to a less extent - at the suggested strength of the defendant's case; and, true, forensic argument and subsequent judicial reflection are not necessarily inconsistent with a firm conclusion that the cause of action should not be allowed to proceed. But fatal defects in the plaintiff's case must be very clear before the court will intervene in this.

... Until a defence is filed, which properly and fairly raises the contents of the documents as a defence, this Court cannot be certain ...[what]... course will be adopted. It follows in my view that it would be premature and improper for this Court to stay or dismiss the plaintiff's action because of a defence which may never be relied on." 28. I am satisfied that the foregoing reasoning is no less applicable to SCR46.18 and SCR25.04 respectively - the more so as the former does not even contain any express provision for admission of evidentiary material.

29. SCR46.18 directs its attention solely to the validity and propriety of the pleading as it stands. Whilst I do not totally discount the possibility of supporting an application pursuant to it by an affidavit demonstrating some appropriate aspect of abuse, by virtue of circumstances external to the proceedings (eg to demonstrate external circumstances indicating clear abuse), in essence, the rule restricts its attention to strike out by virtue of the content of the pleading itself - given the propriety of considering documents adverted to in it, to render it fully comprehensible (cf SCR 59.02). However, it is plainly not intended to be a vehicle for exploring contentious matters dependent on reference to extraneous documentary or other evidentiary material and/or inferences said to arise from them.

30. In the instant case Mr Horton QC refutes any suggestion that he relies on inferences. He says that the documents speak for themselves. Whilst that may be so, what he is plainly seeking to do is to have determined the validity of asserted bases of claim upon an examination of extraneous evidentiary material, as to which the plaintiffs' might even need to then adduce oral or other evidence in response. That is, plainly, not a process ever envisaged by SCR 46.18. It is an attempt to argue that a contention sought to be advanced by the plaintiffs is unsustainable as a matter of fact on evidence sought to be led; and not as a matter of law or pleading principle.

31. That being so, the remedy does not lie in resort to SCR46.18 or, for that matter, either SCR3.04 or any residual power arising from some other facet of the inherent jurisdiction of the court. In this regard I make the point that the use of the word "otherwise" in SCR46.18(e) would appear to be used ejusdem generis to the other content of the rule.

32. It is impossible to escape the conclusion that the defendants are, in practical terms, seeking, prematurely, to seek a remedy of the nature of that mandated by SCR 25.04 - without subjecting themselves to the rigours of that rule.

33. I therefore hold that they are not entitled to do so. When the situation develops to the stage that SCR 25.04 can properly be invoked according to its terms, then the defendants are entitled, if so advised, to seek to prosecute an appropriate application pursuant to it, supported by relevant evidence on affidavit.

34. In the meantime, any contention, for the purposes of paragraph 5 of the application before me, will have to be advanced on the basis of AFOC as it stands and applicable SCR 59.02 documents.

35. I rule and direct accordingly.