Wealth Psychology Pty Ltd at Trustee for the Private Trust t/as Taxation Strategies and Accounting Services v Morhall [No 3]
[2021] WADC 13
•12 FEBRUARY 2021
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: WEALTH PSYCHOLOGY PTY LTD at Trustee for the PRIVATE TRUST t/as TAXATION STRATEGIES & ACCOUNTING SERVICES -v- MORHALL [No 3] [2021] WADC 13
CORAM: REGISTRAR KINGSLEY
HEARD: 21 AUGUST 2020
DELIVERED : 12 FEBRUARY 2021
FILE NO/S: CIV 4140 of 2016
BETWEEN: WEALTH PSYCHOLOGY PTY LTD at Trustee for the PRIVATE TRUST t/as TAXATION STRATEGIES & ACCOUNTING SERVICES
Plaintiff
AND
JOHN IVOR MORHALL
Defendant
Catchwords:
Practice - Application to strike defence and counterclaim - Turns on own facts
Legislation:
Competition and Consumer Act 2010 (Cth), sch 2
Fair Trading Act 2010 (WA)
Legal Profession Act 2008 (WA)
Tax Agent Services Act 2009 (Cth)
Result:
Application successful
Representation:
Counsel:
| Plaintiff | : | Ms C E MacMillan |
| Defendant | : | Mr K C B Staffa |
Solicitors:
| Plaintiff | : | HWL Ebsworth Lawyers (Perth) |
| Defendant | : | Legal Success Pty Ltd |
Case(s) referred to in decision(s):
Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281
Walker v Bowry [1924] HCA 28
Wealth Psychology Pty Ltd as Trustee for the Private Trust t/as Taxation Strategies & Accounting Services v Morhall [2019] WADC 149
REGISTRAR KINGSLEY:
The plaintiff (Wealth) pleads that the defendant (Morhall) verbally engaged Wealth for the provision of taxation and accounting services (Verbal Agreement).
In or about July 2014 Wealth and Morhall entered into a written agreement for the provision of taxation and accounting services according to Wealth's terms of engagement (Written Agreement).
Wealth pleads that in accordance with the Verbal Agreement and the Written Agreement, Wealth performed taxation services for Morhall and to Morhall's company, Pipewest Pty Ltd (Pipewest). As a result of the taxation services rendered, Wealth pleads that Morhall is indebted to Wealth in the sum of $166,231.41.
Wealth goes on to plead that in March 2015 a provisional liquidator was appointed to Pipewest, and Wealth submitted a formal proof of debt to the provisional liquidator. The provisional liquidator allowed Wealth's claim to the extent of $60,500, including GST, for work done for an ATO audit of Pipewest. Wealth's claim is for the balance of monies owing.
Morhall filed an amended defence and counterclaim in April 2020. The amended defence is comprehensive and detailed. Wealth says that the defence and counterclaim is incomprehensible. Hence, Wealth has brought an application seeking that the amended defence be struck out in its entirety and judgment entered for Wealth on the grounds, primarily, the amended defence is prejudicial and embarrassing and may delay the fair trial of the action.
Wealth's application is also brought on the grounds that the amended defence pleads irrelevant material and is confusing. Wealth's application also seeks that the amended counterclaim be struck for the same reasons.
Plaintiff's submissions
Wealth submits that it is entitled to know the case that has been made against it and should not be burdened with deciphering Morhall's case from a confusing and scattered pleading. Wealth submits that in relation to the Verbal Agreement and the Written Agreement, Morhall denies these agreements but then pleads (at pars 2A - 2C and 2E - 2F, 4, 6, 10, 11 and 12 of the defence) matters relevant to the terms of the Verbal Agreement and the Written Agreement.
Wealth submits that Morhall makes inconsistent and conflicting allegations in that, Morhall in his defence:
(a)makes a bare denial of the agreements (par 2(b));
(b)pleads alternative terms to the Verbal Agreement and Written Agreement (collectively referred by Morhall to as the Engagement Agreements) (par 2A);
(c)admits material terms of the Written Agreement (pars 2B(a), 2B(d) and 2B(e)); and
(d)positively pleads terms of the Verbal and Written Agreements (pars 2B and 2C).
Wealth submits that there are inconsistencies in par 2B with 2F in that at par 2B there is an allegation that Wealth was required to act in the best interests of Morhall and Pipewest, but at par 2F of the defence there is a denial that Morhall engaged Wealth other than to act for Pipewest.
Wealth submits that par 2E of the defence alleges the Written Agreement does not comply with Accounting Professional & Ethical Standards (APES Code) for Terms of Engagement, but does not go on to plead that the Written Agreement had to comply with the APES Code or which parts of the APES Code applied.
Wealth submits that pars 6 and 7 of the defence form part of a defence based on the High Court decision in Walker v Bowry.[1] Wealth submits that this court determined, as a preliminary issue, that Walker v Bowry did not offer Morhall a defence and accordingly pars 6 and 7 should not remain in the defence.[2]
[1] Walker v Bowry [1924] HCA 28.
[2] Wealth Psychology Pty Ltd as Trustee for the Private Trust t/as Taxation Strategies & Accounting Services v Morhall [2019] WADC 149 [79].
Wealth then takes issue with the pleadings concerning the liquidator submitting that pars 5(a) - 5(i) of the defence are irrelevant, although pars 5(h) and 5(i) appear to relate to the counterclaim.
Wealth submits that Morhall both admits and denies par 12 of the statement of claim which pleads that a provisional liquidator was appointed to Pipewest on 31 March 2015. Whilst admitting the application for appointment of a provisional liquidator and the order appointing the provisional liquidator, Morhall makes various pleas in relation to events surrounding the appointment of the liquidator and then otherwise denies par 12 of the statement of claim.
Wealth pleads that Wealth submitted a formal proof of debt to the liquidator who allowed the claim to extent of $60,500 (including GST) for work done for an ATO audit of Pipewest (par 13 of the statement of claim). Wealth submits that Morhall denies this allegation but pleads Wealth submitted a proof of debt which was settled by payment of $60,500 and then pleads irrelevant and immaterial matters concerning the liquidator's appointment and concerning payment by the liquidator to Wealth (par 6 of the defence).
Defendant's submissions
In essence, it would appear that Morhall admits that Wealth issued invoices and that Morhall has not paid those invoices. Morhall denies liability for payment. It would appear that the thrust of the defence is the counterclaim. The counterclaim alleges that Wealth owed duties to Pipewest or Morhall under the APES Code and under the Tax Agent Services Act 2009 (Cth).
Further, Morhall pleads in the counterclaim that Wealth engaged in legal work for Pipewest when Wealth did not hold any qualification, licence, practising certificate or insurance to carry out legal work within the meaning of the Legal Profession Act 2008 (WA).
Morhall pleads that Wealth failed to act in the best interests of Pipewest and made improper use of its position as an accountant to gain financial advantage for itself by way of fees charged.
In his submissions Morhall has set out a comparison of the defence and the amended defence to support the proposition that there has been no substantial amendment and any amendment is to clarify pleas in the defence.
Discussion
A proper pleading will identify the issues, disclose an arguable cause of action or defence and apprise the parties of the case that has to be met. If a pleading fulfils those functions, then a court ought be reluctant to allow the time and resources of parties to be spent extensively debating the application of technical pleading rules that evolved and are derived from different case management environments.[3] One of the primary objects of a pleading is to inform the opposing party the case that it must meet.
[3] Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281.
The defence
Paragraph 1 of the defence admits par 1 of the statement of claim and goes on to plead those matters that form the foundation for the counterclaim.
Paragraph 2 of the defence goes on to deny pars 3, 4, 6, 8, 10, 11, 13 and 14 of the statement of claim and refers more particularly in par 2B of the defence to par 5 of the statement of claim ‑ the material terms of the Written Agreement.
Paragraph 2 of the defence, Morhall denies par 3 of the statement of claim (that Morhall verbally engaged Wealth) and par 4 of the statement of claim (that Morhall entered into a written agreement with Wealth).
Whilst there is some ambiguity in par 2A of the defence as who was the client of Wealth that ambiguity is clarified in par 2B(d)(i) where Morhall pleads Pipewest was the client. The defence has a consistent theme ‑ it is not Morhall who is liable to Wealth, but Pipewest.
This is particularly so when par 4 of the defence is considered. There Morhall clearly pleads, the Verbal Agreement and Written Agreements, were between Wealth and Pipewest.
Paragraph 5 of the defence Morhall admits par 12 of the statement of claim (the appointment of a liquidator) and then goes on to give context to the appointment. However Morhall then concludes par 5 of the defence by denying par 12 of the statement of claim.
Wealth, in my opinion, is entitled to object to this plea. Paragraph 12 of the statement of claim is one sentence. Morhall admits the plea, gives context, and then denies the plea.
In my opinion the context of the appointment of the liquidator is part of the factual matrix giving rise to the counterclaim. In my opinion that context is best seen in the counterclaim, not the defence.
Paragraph 5 is struck.
Paragraph 6 of the defence pleads to par 13 of the statement of claim (the submission of a proof of debt by Wealth to the liquidator). Paragraph 6 of the defence details the context of the proof of debt and then strays into detail which more properly forms part of the counterclaim.
In par 8 of the defence Morhall again refers to par 13 of the statement of claim, pleading that the 'WP's Pipewest claim' (a defined term) did not solely relate to work done for an ATO audit of Pipewest.
In my opinion this is a consistent plea of Morhall ‑ that Wealth's client was Pipewest, that Wealth undertook work for Pipewest and Morhall, for which Pipewest would be invoiced.
The concerns of Wealth in relation to pars 10, 11 and 12 of the defence are well founded. These paragraphs refer to pars 3 and 4 of the statement of claim. The paragraphs are out of context.
Wealth was concerned that pars 6 and 7 of the defence maintain a defence based on Walker v Bowry. The pleas in pars 6 and 7 were the foundation for the now abandoned pleas in pars 8 and 9 of the defence.
As the pleas in pars 6 and 7 do not provide a foundation for a remedy, and for the reasons in [29] above, pars 6 and 7 are struck.
The counterclaim
Wealth submits that equally the counterclaim is confusing, contains irrelevant material and fails to fulfil the basic function of a pleading.
Wealth submits that par 61 of the counterclaim (the prayer for relief) seeks damages for:
(a)breach of fiduciary duty;
(b)breach of contract;
(c)negligence;
(d)breach of duty of care; and
(e)breach of sch 2 Competition and Consumer Act 2010 (Cth) (Consumer Law) and Fair Trading Act 2010 (WA).
Wealth submits, in relation to the breach of fiduciary duty, there is no plea of the duty owed by Wealth to Morhall. Further, Wealth submits there are no material facts to establish Wealth was in a position of conflict nor that Wealth made an improper gain from its position as a fiduciary.
In relation to breach of contract, Wealth submits that Morhall has pleaded inconsistent terms of the Verbal Agreement and the Written Agreement between Wealth and himself. Wealth submits that it is not possible for it to determine what is alleged constitutes the agreement between the parties.
In relation to Morhall's plea that Wealth was negligent, Wealth submits that Morhall has not pleaded any material fact to establish a claim in negligence. As for the claims under the Consumer Law, Wealth submits that there is no allegation that it has engaged in misleading and deceptive conduct in contravention of the Consumer Law and that there is no cause of action which would entitle it to damages.
In any event, Wealth submits any allegation in relation to Pipewest is irrelevant. Pipewest is a deregistered company and Wealth submits there is no plea that Morhall has a right to pursue a claim against Wealth for or on behalf of Pipewest. Thus, any allegation concerning any infringement of Pipewest's rights or alleged loss raise irrelevant and in material issues.
Morhall submits that there is no confusion in the counterclaim and that it has a live issue as to whether Wealth is claiming fees for, in effect, legal work.
Discussion
In my opinion, in this case, the counterclaim should be a complete pleading, without the need to refer to the defence. In this case the defence is relatively simple. Morhall pleads he is not the client and therefore not liable to pay the invoices tendered by Wealth, and the Agreement is unenforceable as it does not comply with the APES Code.
The counterclaim is of some complexity, raising the issues referred to in [32] above. Morhall, as plaintiff, must plead all material facts to support the issues raised.
The significant issue in the counterclaim is that, consistently with the defence, Morhall pleads that it engaged Wealth to act as the tax agent and accountant of Pipewest. At par 16 of the amended counterclaim, Morhall pleads that Morhall engaged Wealth to act for Pipewest under a defined scope of instructions. Thus, the counterclaim is a claim on behalf of Pipewest against Wealth.
Pipewest is a deregistered company and has no legal standing. There is no coherent plea in the counterclaim as to how a loss to Pipewest attributable to Wealth's conduct may be claimed by Morhall.
Morhall in his counterclaim is pleading that Wealth, through purportedly providing legal advice, business advice and failing to act as a competent tax agent, caused a loss to Pipewest for which Morhall was personally liable as director (see pars 52 ‑ 56 of the counterclaim).
Morhall pleads that Wealth should have known that Pipewest did not have a tax liability of $84,040.80 to the ATO for the 2013 year but no facts are pleaded to support that plea.
Morhall pleads that Wealth exercised a contumelious disregard for the welfare of Morhall and Pipewest and as a result of that plea claims exemplary damages. There is no factual basis upon which the plea for exemplary damages can be maintained.
A common theme in the counterclaim is that Wealth owed fiduciary duties both to Pipewest and to Morhall. The essence of the fiduciary relationship is that the fiduciary is obliged to act in the interests of another party to the exclusion of the fiduciary's self-interest.
Whilst the relationship between Wealth and Pipewest is sufficiently pleaded, there are no material facts to establish how a fiduciary relationship arises between Wealth and Morhall ‑ though it is alluded to in par 18(d) of the counterclaim.
The claim for breach of contract has significant issues which, ultimately, may prove fatal under this head. Morhall pleads that the Verbal Agreement and Written Agreements were entered into by Pipewest. Thus the contractual relationship is between Wealth and Pipewest. Morhall pleads a contractual duty on the part of Wealth, arising from clause 31 of the Agreement, to attend to the affairs of Pipewest and Morhall with their best interests in mind (par 18(d) of the counterclaim).
There are no material facts pleaded how the contractual relationship between Wealth and Morhall is established, the content of any duty, and significantly, any loss arising from a breach of the contract.
The plea in negligence arises in pars 52 ‑ 56 of the counterclaim. The pleaded negligent act appears to be the advice given by Wealth to Morhall that Pipewest had a tax liability for $84,040.80 to the ATO. Morhall pleads that this advice was negligently wrong as Pipewest did not have a tax liability of $84,040.80 (without giving particulars). As a result of the advice Morhall had to source the funds to pay the ATO, and that is the loss suffered by Morhall.
I am satisfied that the plea in negligence is sufficient for Wealth to know the case it has to meet. Morhall has pleaded he is the sole director of Pipewest and that, as a director, a duty could be owed to Morhall in relation to the advice given in relation to Pipewest's tax liability.
A separate plea of a breach of duty of care is pleaded. This appears to arise from par 42 of the counterclaim and, as it is pleaded, is in reality part of the claim for breach of fiduciary duty.
As stated above the content of the fiduciary relationship between Wealth and Morhall has not been pleaded out. There are no sufficient material facts for Wealth to understand the case it has to meet.
Paragraph 60 of the counterclaim is a plea under the Consumer Law and the Fair Trading Act (2010). The content of the plea is spread over a number of paragraphs of the counterclaim ‑ for example pars 35, 36, 43 and 44.
The cause of action for contravention of statutory prohibitions against conduct that is misleading and deceptive requires clear identification of the conduct said to be misleading and deceptive.
Throughout the defence and counterclaim are references to misleading and deceptive conduct. It is not for Wealth to determine which paragraph of the defence and counterclaim is pleading the material facts to sustain a cause under the Consumer Law.
Insofar as the paragraphs pleading a claim under the Consumer Law relate to Pipewest, they must be struck.
Conclusion
The pleading of the defence and counterclaim do not, in my opinion, define and limit the issues, provide the ambit of discovery, and put Wealth on notice of the case it has to meet. Both pleadings are one of those instances where extensive cross referencing of facts has rendered the pleading unintelligible.
The defence and the counterclaim are struck.
It may well be that, with a coherent pleading, Morhall may be able to inform Wealth of his case. I will not enter judgment for Wealth but will give an opportunity to Morhall to replead.
I will hear counsel on the form of orders and on costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
CM
Court Officer
12 FEBRUARY 2021
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