The Duke Group Ltd (in Liquidation) v Angus Claymore Pilmer, Alan Robert Crawford, Domenic Vincent Martino, Peter John Messer, Peter Lawson Munachen, Geoffrey James Stokes and Robert John Gray, Francis Anthony..

[1994] SASC 4905

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA MULLIGHAN J

CWDS
Practice - Practice and procedure - obligation to plead facts to be proved in defence of claim for general damages for breach of contract and tort - material facts alleged in statement of claim upon which claim for damages based denied in defence - circumstances in which different facts alleged by the defendants should be pleaded discussed. Supreme Court Rules rr46-47; Norris v McNair (1992) 167 LSJS 389 and In Re Robinson's Settlement: Gant v Hobbs (1912) 1 Ch 717 referred to. Rupcic v AW Baulderstone PL and Ors (1987) 46 SASR 99 and Williams v Aust Telecommunications Commission (1988) 52 SASR
215, applied.

HRNG ADELAIDE, 28 September, 5, 17 October 1994 #DATE 20:12:1994

Counsel for plaintiff:     Mr T A Gray QC with Mr S Lipman,
   Mr R J Whitington and Mr A D'arcy

Solicitors for plaintiff:    Fisher Jeffries

Counsel for defendants:     Mr J Mansfield QC with Mr S Lane
   and Mr P Zappia

Solicitors for defendants: Phillips Fox

ORDER
Publication of reasons for rulings.

JUDGE1 MULLIGHAN J During the course of the trial of this action I gave rulings as to whether the defendants could adduce certain evidence in view of the state of the pleadings and I now give reasons for those rulings.

2. A brief description of the nature of the plaintiff's action against the first defendants and the fifth defendants ("the defendants") is set out in my reasons for rulings in The Duke Group Ltd (In Liquidation) v Pilmer and Ors No 1 published on 4th November 19924

3. The plaintiff's claim for damages is based upon loss allegedly caused by the money and shares expended in the acquisition of all of issued capital in Western United Ltd ("Western United") by Kia Ora Gold Corporation ("Kia Ora") in early 1988. It paid nearly $26m in money and issued 67.9 million shares to the Western United shareholders. In the statement of claim the plaintiff's claim is quantified at $85,443,058, being the difference between the amount of money and value paid by Kia Ora for all of the shares in Western United and their value at the date of the takeover. The date of the takeover is particularised at 31st December 1987. In addition the plaintiff also claims damages for loss of use of assets including available money in accordance with the principles discussed in Walker and Ors v Hungerfords and Ors (1987) 49 SASR 93 and Hungerfords and Ors v Walker and Ors (1990) 171 CLR 125. In brief terms this claim has been particularised as the loss of the opportunity to raise capital by the issuing of shares by reason of having done so for the purpose of the takeover as well as the loss of use of the $26m or so. The plaintiff claims damages under this head of loss for the total period from the takeover until the present time. Depending upon the method of assessment, the damages could amount to many tens of millions of dollars. In their Defence the defendants deny liability and that the plaintiff suffered the loss alleged or any loss, including any damages for loss of use of assets. The defendants go on to plead that if the plaintiff did suffer the loss alleged or any loss, such loss was caused by the sharemarket crash in October 1987, the negligence of the plaintiff, the negligence of the directors of the plaintiff and/or the actions of the shareholders of Kia Ora.

4. The plaintiff called Mr Easton, a highly qualified expert accountant. He has given evidence-in-chief about a variety of matters which must be proved by the plaintiff to make out its case, including matters going to liability as well as damages. As to the latter, he has valued both Kia Ora and Western United and their respective subsidiary companies in order to determine the true value, at allegedly relevant times, of the shares in both companies as a basis for measuring the loss said to have been suffered by the plaintiff by reason of the takeover, which it alleges, could not have occurred if the first defendants had not made the report favourable to the takeover. He has made a calculation of what income the plaintiff would have earned if it had invested money at various commercial rates of interest. The evidence thus far is capable of proving that both before and after the takeover, Kia Ora had substantial sums of money which it invested with Western United in its business of merchant banking. During 1987 Kia Ora sold its interest in a gold mine for approximately $66m and consequently had substantial money to invest. The plaintiff claims that if the takeover had not occurred it would have had the money expended in the takeover to invest and the opportunity to issue shares for other investment purposes. The loss of the money and the loss of that opportunity are said to be compensable and one method of measuring those losses may be by the assessment of compound interest on the amount of the losses as quantified to the present time.

5. During the course of cross-examination of Mr Easton, Mr Mansfield sought to adduce evidence as to three matters said to bear upon the assessment of damages. The first relates to the claim for loss of use of assets, including money and the loss of the opportunity to issue shares. He seeks to prove that in the course of the reverse takeover of Kia Ora by the Duke Group in about the middle of 1988 the plaintiff expended what money it had, or a considerable amount of money, in that transaction and thereby became insolvent, a condition from which it did not recover and other matters regarding the manner in which the directors of Kia Ora conducted the affairs of the company and completed transactions from which some of them benefited substantially. In my view those matters, if true, are relevant to the assessment of damages and to other matters in issue which may bear upon the question of liability. Although occurring in 1988, they may assist in the resolution of other issues such as relevant conduct of directors in connection with the takeover of Western United. The plaintiff's case is that none of these matters can have any bearing upon any issues as to liability or damages because the reverse takeover could not have occurred if the takeover of Western United had not proceeded. It is, as yet, too early to determine all of the ways in which this evidence could be relevant to facts in issue. It is sufficient to identify issues which have arisen and to which the evidence sought to be adduced is relevant.

6. The second matter is the evidence which Mr Mansfield seeks to adduce as to the directors of Kia Ora in May 1988 purporting to deem that the shares issued by that company for the purpose of the takeover of Western United were issued at 60 cents, a discount from par value of 40 cents. The plaintiff's claim for damages is based upon the actual value of the shares at relevant times, not upon any deemed or artificial value.

7. The third matter is the evidence sought to be led from Mr Easton to support the hypothesis that whatever occurred in the takeover of Western United, Kia Ora did not suffer loss and if it did, its shareholders, or many of them, would be impermissibly enriched by an award of damages as sought by the plaintiff. That hypothesis has some complexities, but if it is sound in law, it will have an impact upon the plaintiff's claim for damages.

8. Mr Gray objected to evidence being adduced as to any of these matters as they are not raised in the pleadings. Mr Mansfield disputes that contention. He contends that the material fact which is raised in the relevant pleading, the Statement of Claim, is that the plaintiff suffered the losses as alleged and that all the defendant is seeking to do is to adduce evidence as to that material fact in order to disprove it. It has denied the material fact in accordance with the relevant rules of court and has put that fact in issue, which issue falls to be determined upon the consideration of all relevant evidence.

9. In order to resolve these contentions, it is necessary to determine the extent of the obligations of the defendants as to pleadings pursuant to the Rules.

10. Rule 46 contains various rules relating to pleadings, including the Defence. Those of significance for present purposes are:
    1. R46.04(1) requires a pleading to be as brief as
    possible and provides, inter alia, that the pleading must
    contain a statement of the material facts on which the
    party relies but not the evidence by which the facts are
    to be proved and that it shall state the specific relief
    claimed and shall contain sufficient particulars of the
    claim, defence or other matters pleaded.

2. R46.04(2) provides that no technical objection shall be
    raised to any pleading on the ground of alleged want of
    form.

3. R46.04(3) is as follows:
    "(a) Where a plaintiff seeks relief in respect of several
    distinct claims or causes of action founded upon separate
    and distinct facts they shall be stated, so far as may be,
    separately and distinctly.
    (b) The same rule applies where a defendant relies upon
    several distinct grounds of defence, set-off or
    counterclaim, founded on separate and distinct facts".

4. R46.04(4) is as follows:
    "(a) At the trial, subject to subrule(b) hereof, the
    court:
    (i) shall grant all such relief on any cause of action
    to which the parties might be entitled on the evidence
    whether or not the relief granted is expressly requested
    in the pleadings;
    (ii) will apply the rules as to admissibility of
    evidence, insofar as they require a consideration of the
    issues raised on the pleadings, without undue
    technicality and with regard to the substantial merits
    of the case, and, while having regard to the issues
    raised on the pleadings, will not refuse to admit an
    item of evidence solely on the ground that it relates to
    facts or matters not expressly pleaded;
    (b) nothing in subrule(a) hereof allows the court to grant
    relief or admit evidence if to do so would infringe the
    principles of caseflow management as set out in Rule 2 or
    if by reason of surprise, the course of the trial or for
    any other reason, it would otherwise be unfair to do so."

The Rules of Court are to be construed and applied so as
    best to ensure the attainment of the objects of caseflow
    management set out in R2.02 but their purpose as set out
    in R2.01 must always be kept in mind, namely:
    "R2.01
    These Rules are made for the purpose of establishing
    orderly procedures for the conduct of litigation in the
    Court and of promoting the just and efficient
    determination of such litigation. They are not intended
    to defeat a proper claim or defence of a litigant who is
    genuinely endeavouring to comply with the procedures of
    the Court, and are to be interpreted and applied with the
    above purpose in view."

5. R46.12 is as follows:
    "A party in his or her defence or any subsequent
    pleading:
    (1) Shall not plead a mere joinder of issue on any
    question of fact.
    (2) Shall specifically admit or deny every allegation of
    fact (including particulars) in the pleading to which the
    defence or subsequent pleading relates, and allegations
    which are not specifically denied shall be deemed to be
    admitted.
    (3) May state that the party does not know and therefore
    cannot admit a particular fact alleged, in which case the
    particular fact shall be deemed to be denied.
    (4) Shall specifically plead any fact or matter which:
    (a) might make any claim or defence of the opposing party
    not maintainable;
    (b) if not specifically pleaded might take the opposing
    party by surprise;
    (c) raises issues of fact or any mixed question of fact
    and law not arising out of the preceding pleading."

6. R47.0 provides that a defendant must plead specifically
    on every ground of defence on which he relies, together
    with the facts upon which the ground of defence arises.

11. Before considering the respective arguments as to the issues raised by the objections, it is appropriate to have regard to the purpose of pleadings which is evident in these rules. In order to do so, it is necessary to refer only to two cases. In Rupcic v AW Baulderstone Pty Ltd and Ors (1987) 46 SASR 99 Cox J made the following observation (at p100):
    "The new Rules make a number of important changes to
    the former pleading requirements. The old
    philosophy, that an adroit defendant could, and
    should, simply dispute the plaintiff's allegations,
    without more, and give practically nothing away about
    his own case, has been discarded."

12. He went on to discuss the pleading requirements under the old Rules of Court and, in particular, as to the purpose of alleging material facts upon which a party relied and the true purpose of particulars and said, at p101:
    "The new Rules, however, are based on a policy of
    full disclosure by defendants no less than by
    plaintiffs. In this respect they do not distinguish
    between pleadings and particulars. Accordingly,
    r46.04 requires that any pleading shall 'contain
    sufficient particulars of the claim, defence or other
    matter pleaded', ... refers to 'every material
    allegation of fact in a pleading (including
    particulars)": see also r46.16. The old distinction
    between pleadings and particulars has gone."

13. He noted other significant changes and said, at p.102:
    "The most radical of the pleading changes is made by
    r46.13: 'Where a party intends to prove a different
    version of facts than that relied upon by the
    opposing party, he shall plead his version of the
    facts'. The defence pleader who does not want to
    give anything away, may be able to cope with (the
    person) r46.12, in large part at least, by adopting a
    new technique. Rule 46.13 presents him with a more
    difficult problem. If he has no quarrel with the
    plaintiff's version of the facts, and simply wants to
    put him to proof of those facts or to challenge the
    legal consequence that is said to flow from them, a
    conservative defence that conforms with r46.12 will
    be enough. Very often, however, a defendant does not
    accept the plaintiff's version of the facts, as
    alleged in the statement of claim, and proposes to
    put forward at the trial a different account of what
    happened. He will not be permitted to do so if he
    has not pleaded it affirmatively in his defence. The
    version of the plaintiff that he will be obliged to
    challenge and answer specifically may be in the body
    of the statement of claim or it may be in the
    particulars; and such particulars may be stated in
    the original statement of claim or they may be
    supplied later: cf rr46.16 and 46.20. Rule 46.13
    thus creates for a defendant a continuing obligation.
    The rule applies to damages, including particulars of
    injuries, as well as to the cause of action itself.
    If a pleading does not comply with the rules as to
    pleadings, it may be struck out: r46.18."

14. In Williams v Australian Telecommunications Commission (1988) 52 SASR 215 the Full Court had to consider certain matters of principle in relation to the Rules. King CJ said at p216:
    "It is true that the new Rules have made important
    changes to the system of pleadings designed to
    minimise the possibility of unfair surprise at trial.
    I adopt what has been said concerning them by Cox J
    in Rupcic v AW Baulderstone Pty Ltd (1987) 46 SASR
    99. The new Rules do not change, however, the
    fundamental nature, function or purpose of pleadings.
    The fundamental purpose of pleadings is to provide a
    structure or framework for the litigation designed to
    promote a just outcome. Pleadings achieve this
    purpose by performing two basic functions. The first
    is to define the issues between the parties thereby
    providing the basis for the determination of
    questions as to discovery before trial and
    admissibility of evidence at trial and of questions
    as to what the litigation has decided for the purpose
    of the Rules as to res judicata and issue estoppel.
    The second function is to give to the parties fair
    notice of the case to be made against them at trial
    thereby minimising the risk of injustice resulting
    from surprise. These fundamentals remain unaltered
    by the new Rules. Moreover, that general principle
    which governs the application of all procedural
    rules, namely that 'rules and forms of procedure are
    not ends in themselves, but means to an end, which is
    the attainment of justice', Union Bank of Australia v
Harrison Jones and Devlin Ltd (1910) 11 CLR 492 per
    Griffiths CJ at 504, applies with undiminished force
    to the new Rules as to pleadings. There is no reason
    to discard previous authority as to pleadings except
    so far as it is inconsistent with the new Rules.

The most important change made by the new Rules is
    the increased emphasis on the making of full
    disclosure to the opposite party of the case to be
    made at trial. This is seen particularly in the
    obligation to allege particulars in a pleading and to
    plead specifically to those particulars; and in the
    obligation placed on a party who intends to prove a
    different version of the facts to plead that
    version."

15. Even though some of the Rules considered in these cases have since been amended or repealed and both cases involved claims for damages for personal injuries, in relation to which there are special rules, the general observations to which I have referred are pertinent to all cases. Both of these cases were decided before amendments to the Rules on 28th October 1993. Before then, R46.12 was in different terms and R46.13, which has since been repealed, required a party who intended to prove a different version of facts than that relied upon by his opponent to plead his version of the facts. R46.13 was repealed following the decision of Judge Lunn in Norris v McNair
(1992) 167 LSJS 389 where he interpreted the Rule as imposing strict pleading requirements which, if not observed, would very likely lead to the exclusion of evidence at trial and the inability to prove aspects of the claim with harsh consequences to the defaulting party. On 27th September 1993 the former R46.04(4) was amended and R46.12 and R46.13 were repealed and the relevant Rules are now as I have mentioned.

16. Under the old Rules, Order 19 Rule 15, a defendant was not obliged to plead to facts relating to damages. No such exception is contained in the present Rules. Cox J took the view in Rupcic (supra) that the new Rules do apply to damages. Judge Lunn took the same view in Norris v McNair (supra), at pp10-11, and I agree. There is no reason to interpret R46 or R47 to exclude an obligation to plead to material facts relating to damages.

17. What then is the consequence of the changes to the Rules on 27th September 1993? Because of the repeal of R46.13 a defendant is no longer obliged to plead his version of the facts if different from the version alleged by the plaintiff. However, he must plead the material facts, not the evidence, upon which he relies (R46.04(b)) with sufficient particulars of defence (R46.04(f)) and every ground of defence, together with the facts upon which each ground arises. Furthermore he must comply with R46.12(4) which has taken the place of R46.13 and the former R46.14, also repealed on 27th September 1993. The latter provided that a party specifically plead special defences that might make any claim or defence of the opposing party not maintainable, or, if not specifically pleaded, might take the opposing party by surprise or that raised any issues of fact or mixed fact and law not arising out of the preceding pleading.

18. It is to be noticed that the new R46.12(4) does not limit the operation of the Rule to special defences, a change which, in my view, is of significance in the interpretation of the current Rules and in determining the reach of R46.12(4). The old R46.14 is in similar, but narrower, terms to the old Rule, O19 r13, and in similar terms to RSC O18 r8. A former English Rule, O19 r15, similar to the latter was discussed in In Re Robinson's Settlement: Gant v Hobbs (1912) 1 Ch 717 where Buckley LJ said, at p728:

    "The effect of the rule is, I think, for reasons of
    practice and justice and convenience to require the
    party to tell his opponent what he is coming to the
    Court to prove. If he does not do that the Court
    will deal with it in one of two ways. It may say
    that it is not open to him, that he has not raised it
    and will not be allowed to rely on it; or it may
    give him leave to amend by raising it, and protect
    the other party if necessary by letting the case
    stand over. The rule is not one that excludes from
    the consideration of the Court the relevant subject
    -matter for decision simply on the ground that it is
    not pleaded. It leaves the party in mercy and the
    court will deal with him as is just."

19. These observations were followed in Pirie v Richardson (1927) 1 KB 448 at p453 and find effect in the new Rules 46.04(4) and 46.12(4). It is not sufficient for a defendant who wishes to assert a factual basis for assessment of the plaintiff's damages merely to deny the facts asserted by the plaintiff. If a different factual basis is alleged, it should be pleaded so that there may be a responsive pleading admitting, denying or explaining that basis and thereby clarifying the issue to be determined and also for the purposes mentioned by King CJ in Williams. That is the obligation imposed by R46.04(1) and (3), R46.12(4) and R47.01.

20. I reject the argument that pleading of the relevant facts relating to the reverse takeover, need not be pleaded because, if proved, it would not make the plaintiff's claim not maintainable but only reduce the claim for loss of use of assets including money. In my view if their effect is to substantially reduce the claim, they make the claim, as made, not maintainable in the relevant sense. If the facts sought to be proved by the defendants and their arguments are sound in law, the claim would be reduced from a claim for loss of use of money for a period of about six years to a period of about seven months.

21. Also I reject the argument that the facts sought to be alleged by the defendants with respect to the reverse takeover could not take the plaintiff by surprise as they are, in effect, the conduct of, and consequently are well known to, the plaintiff. The element of surprise to which the Rules refers is not restricted to lack of knowledge. It is surprise in the sense of the matters in issue at the trial. As Buckley LJ said in In Re Robinson's Settlement: Gant v Hobbs (supra) there is the obligation on a party "to tell his opponent what he is coming to the Court to prove". Here, as the pleadings presently stand, the reverse takeover and its effect (if any) on the plaintiff's damages is not an issue. It was a very complicated transaction and the plaintiff is entitled to know what case is alleged by the defendants with respect to it so that it may be prepared to meet that case.

22. The case sought to be made by the defendants in response to this claim goes further than mere denial of the claim. They seek to make their case, at least in part, by the proof of this complicated transaction. In my view the current Rules require the relevant facts of that transaction upon which the defendant relies to be pleaded and I ruled accordingly.

23. The position is different with respect to the other two topics of evidence.

24. Whilst the defendants are seeking to adduce evidence as to the directors of Kia Ora purporting to deem that the shares issued for the purpose of the takeover of Western United were issued at a discount and thereby to establish a fact which may have some bearing upon the assessment of damages and perhaps others issue in the case, it is not necessary to plead that fact in order to prevent procedural or any other type of unfairness to the plaintiff. It is a discreet and uncomplicated fact which is not in dispute. The issue is more one of law, namely whether it has any bearing upon the quantum of damages suffered by the plaintiff.

25. Evidence as to the third matter should also be permitted without amendment. In essence, the defendants seek to establish, through the expert evidence of Mr Easton, propositions upon which may be erected legal arguments against the claim for damages. I doubt that Mr Easton's evidence as to these matters, whatever it maybe, will assist a great deal in the development of those arguments as the necessary factual basis is probably already in evidence having been adduced by the plaintiff. Nevertheless it cannot be said that the evidence sought to be lead is inadmissible and it is probably uncontentious. The arguments are likely to stand or fall on the propositions of law, which are accepted, and there is no need to require further pleading in order to prevent unfairness.

26. Before parting with the matters raised in argument, I must say that I have not attempted to determine the full extent of the obligations of a defendant pursuant to the Rules who wants to contest the factual basis of a plaintiff's claim for damages. Strict interpretation of the Rules could lead to absurd consequences, particularly if each and every fact, the combined force of which could deny or reduce an aspect of the plaintiff's claim were required to be pleaded, for example, that the plaintiff engaged in various physical activities on many occasions where the issue is loss of earning capacity. The Rules must be interpreted in a sensible manner and applied in such a way as to promote the just resolution of disputes in the circumstances of each case. It may be expected that in some cases the defendant will be required to plead specific facts and matters which deny the plaintiff's claim and in other cases that course will not be necessary. All I have attempted to do is to apply the Rules, as I have interpreted them, to the circumstances in this action in order to prevent unfairness to any party and to promote the efficient resolution of matters in issue.