Wunda Joinery Pty Ltd (in Liquidation) v Wunda Projects Australia Pty Ltd (No 2)
[2008] SASC 199
•21 July 2008
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
WUNDA JOINERY PTY LTD (IN LIQUIDATION) & ANOR v WUNDA PROJECTS AUSTRALIA PTY LTD & ORS (NO 2)
[2008] SASC 199
Reasons of Judge Lunn a Master of the Supreme Court
21 July 2008
PROCEDURE
Pleading under 2006 Rules - pleading of evidence contrary to 6R98(b) - held not to be disallowed as no sufficient prejudice shown under 6R 104(b) - held particulars before defence should only be ordered under 6R 102 where there would be substantial prejudice to the other party in pleading a defence or for other good reason - no such particulars ordered before defence.
WUNDA JOINERY PTY LTD (IN LIQUIDATION) & ANOR v WUNDA PROJECTS AUSTRALIA PTY LTD & ORS (NO 2)
[2008] SASC 199Reasons on plaintiff’s application for permission to file a further statement of claim.
JUDGE LUNN: The background to this matter is set out in my Reasons published on 16 August 2007, [2007] SASC 301, which I will not repeat. By an application of 2 April 2008 the plaintiffs have applied for permission to file a further statement of claim. The form of that proposed new statement of claim has evolved progressively and, as amended at the hearing before me, it is that annexed to an e-mail from the plaintiffs’ Sydney solicitors dated 30 June 2008. The first four defendants have raised no objection to the proposed new statement of claim and did not take part in the argument. The only contest was from the 5th and 12th defendants, being respectively Bartons CA Pty Ltd (“Bartons”) and David Leinert (“Mr Leinert”).
The pleading of evidence.
Objection was taken to paragraphs 17, 20, 21, 25, 26, 89-92 and 111 and 112 of the proposed new statement of claim that each was no more than a pleading of evidence and not material facts, and therefore was contrary to 6R 92(2)(b).
These paragraphs read:
17From about 1997, Nowak provided the Company with taxation advice.
…..
20Nowak attended monthly meetings with Mr Marveggio in order to provide advice as to strategic planning and direction of the business.
21From 1999, Nowak promoted a tax minimisation scheme to some of his clients which involved the following features:
21.1The appointment of IF Trustees (NZ) Limited, a company incorporated in New Zealand and whose registered office was 470 Parnell Road, Auckland, New Zealand, as the trustee of an off-shore superannuation fund;
21.2The employer would enter into a trust deed, which gave IF Trustees (NZ) Limited an absolute discretion as to whether to provide any benefits to employees upon their death or retirement;
21.3Loans were made by Equity Investment Bank (“EIB”), a bank licensed to carry on banking business in Vanuatu, where the funds in respect of the loans were, as part of the same series of transactions:
(a)advanced to the employer,
(b)then transferred into an account held by IF Trustees (NZ) Limited,
(c)then transferred into an account held by Security Life Insurance Company Limited, which company was incorporated in Vanuatu, and was an associate of EIB.
21.4At all times the funds advanced by EIB remained in bank accounts held with EIB in Vanuatu and, as the last stage of the transactions, were transferred into Security Life Insurance Company Limited’s account held with EIB;
21.5The employer was obliged to make interest payments, but only obliged to make principal repayments at the end of the loan, which loan could be rolled over, further delaying the obligation to make principal repayments;
21.6Security Life Insurance Company Limited, issued insurance bonds;
21.7Nowak and/or Marveggio informed the Company’s banker on or shortly prior to 26 July 2000 that if necessary or desirable, the bonds were able to be “liquidated”, with the funds from the liquidation available to the employer to repay the obligation to EIB;
Particulars
Internal Memorandum from David Stowe, an employee of the NAB and the local manager of the Company’s account, dated 26 July 2000 states that “we are advised that due to the fact that the funds are invested in a tax haven they could be liquidated, clear the loan with the offshore bank and there would be sufficient surplus to cover the tax liability”.
21.8The employer would:
(a)assert that IF Trustees (NZ) Limited was a “non-complying superannuation fund within” the meaning of section 267(1) of the Income Tax Assessment Act 1936 (Cth) and sections 39, 40, 42 and 45 of the Superannuation Industry Supervision Act 1993 (Cth);
(b)claim a deduction under s 82 AAE of the Income Tax Assessment Act 1936 (Cth) equivalent to the amount of the loan funds.
…..
25On or prior to 9 February 1999, Nowak informed Mr Marveggio, and Mr Marveggio became aware, of the features of the tax minimisation scheme referred to in paragraph 21 above.
Particulars
25.1Nowak provided the Company with taxation advice.
25.2Nowak attended monthly meetings with Mr Marveggio in order to provide advice as to strategic planning and direction of the business.
25.3Mr Marveggio implemented the tax scheme as described in detail in paragraphs 27 to 60, 65 to 69 and 94 to 96.
26Nowak advised Mr Marveggio to enter into a tax minimisation scheme:
26.1of the type referred to in paragraph 21 above, involving the establishment of the Wunda International Super Fund (the “Super Fund”); and
26.2involving the establishment of the Wunda Joinery Corporate Welfare Program (the “Welfare Program”) set out more fully in paragraphs 30 to 32 below.
(the “Tax Minimisation Scheme”).
…..
89On 13 July 2000, the Company sought approval of the National Australia Bank (“NAB”) to release funds to the Company because of a concern following the sale of a property over which the NAB held security.
90In an internal advice, entitled a “Fate Advice” dated 13 July 2000, from the head office in SA to the branch officer, the NAB:
90.1Observed that the Company continued to undertake various tax minimisation strategies or schemes which it needs to fully understand in assessing the request;
90.2Sought further information, including double entry book-keeping recording the transaction, clarification of the impact of the transaction on future accounting periods, and future or potential tax liability that may exist.
91In response to the “Fate Advice”, the branch officer wrote to the head office in SA by memorandum dated 19 July 2000:
91.1Attaching the Press Release from the Assistant Treasurer dated 30 June 2000 and referred to in paragraph 81 and 82 above;
91.2Stating that legislation had been enacted to “close the loophole” which indicated that “the law may not be perfect and the schemes could be OK, but only just”.
92On 21 July 2000, and after consideration of the memorandum dated 19 July 2000, the NAB head office in SA, rejected the request to release the secured funds to the Company, because of a concern that the Taxation Minimisation Scheme was not tax effective and that the ATO would challenge the validity of the deductions it had claimed for the financial year end 30 June 1999.
…..
111The effect of the Reorganisation Agreements was that the Company was rendered unable to pay its debts as they fell due, nor could it meet its contingent liabilities, without support from the Partnership by means of the Quarterly Hiring Fee or an indemnity in respect of the Company’s liabilities.
112The Quarterly Hiring Fee was recorded in the Company’s financial statements as having only been paid once and pursuant to clause 5.2 of the Trading Stock Replacement Bailment Agreement the indemnity was limited to losses sustained by the Company to the extend that the cost of Trading Stock (as defined) exceeded the amount of Trading Stock Value (as defined) and did not generally indemnity the Company in respect of its debts and contingent liabilities.
Although it was not referred to in the course of argument the relevant law on the topic is set out in the following passages from the judgment of White J in Holcon Australia Pty Ltd & Ors v Corporation of the Town of Walkerville & Anor, 13 December 2007, Judgment No [2007] SASC 437 (“Holcon’s case”):
16(6RR98 and 99(1) and (2) are quoted)
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The plaintiffs submitted that these rules effected some significant changes to the pleading regime which applied under the 1987 Rules.
17In the 1987 Rules, the obligation to plead the facts necessary to give fair notice of the party’s case at trial appeared in the sub-rule governing the content of defences. In the 2006 Rules, it appears in R 98 which applies to all pleadings. Further, subrule 98(2)(d) requires the pleading to contain such “facts” as give fair notice of the party’s case at trial whereas the 1987 Rules required a pleading of such further “material facts” as were necessary to give the opposing party fair notice of the defendant’s defence. Contrary to the plaintiffs’ submission, I doubt that these are significant differences. Subrule 98(2)(b) and (c) should be read together. A pleading must state the material facts relied upon and must give fair notice of a party’s case at trial but is not, in either case, to include evidence or argument. The observations of the Full Court in H Stanke & Sons Pty Ltd v O’Meara ((2007) 98 SASR 450) concerning the obligation to plead only material facts and not evidence are, in my opinion, equally applicable to subrule 98(2)(b) of the 2006 Rules.
18Ordinarily, one would expect that a statement of claim which complied with the requirements of subrules 98(2)(a)-(c) inclusive and R 99 would, without more, plead sufficient facts to give fair notice of the plaintiffs’ case at trial. It is likely to be a rare case in which a plaintiff would need to plead additional facts in a statement of claim in order to comply with subrule 98(2)(d). When it is necessary to plead an additional matter for the purpose of giving fair notice, it is a material fact, and not evidence, which is to be pleaded. Accordingly, insofar as the plaintiffs sought to justify some of the content of the statement of claim on the basis that it was a pleading of facts (not material facts) necessary to give the defendants fair notice of their claim, I indicate now that I do not accept the submission.
…..
23The narrative sequence in the plaintiffs’ pleadings does, in my opinion, incorporate a reasonable amount of evidence. That pleading of evidence is not necessary or appropriate. Much of the matter pleaded is distinguishable from the material facts upon which the plaintiffs rely. I do not accept the submission of the plaintiffs that it was necessary to plead the earlier negotiations and arrangements in order to plead material facts supporting the existence of an intention to create legal relations. The existence of such an intention has not been pleaded at all. …..
24However, in my opinion, if the first five lines of paragraph 82 are ignored, it is an adequate pleading of the Principal Sale Agreement. ….. The first five lines do, however, incorporate a pleading of evidence.
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38….. R 104 provides that (in the absence of abuse of process) the Court must be satisfied that a pleading’ non-compliance with the rules “prejudices the proper conduct of the action”. A prejudice of the relevant kind may exist in a range of circumstances including the filing of any answering pleading, the identification of the documents required to be disclosed, the proofing of witnesses and the conduct of the trial itself. Although I consider that there is some merit in the defendants’ submissions concerning deficiencies in the statement of claim, I do not consider that those deficiencies are such as to prejudice the proper conduct of the action.
…..
40….. the prejudice to defendants arising from a plea of evidence is not now as great as it may once have been. Rule 100 of the 2006 Rules governs the content of defences. For present purposes it is significant that it does not require a defendant to plead to all allegations in a statement of claim. …..
This decision did not refer to 6R 102(2) and (3) which provide:
(2)The further particulars are, however, to be confined to facts that are material to the party’s action.
(3)The Court will only make an order for further particulars if satisfied that –
(a)the pleadings do not give fair notice of a party’s case; and
(b)the order is necessary to avoid substantial prejudice to the party in whose favour the order is to be made.
I do not consider that 6R 102, which was cited to me, can affect the interpretation of 6RR 98 and 99 as laid down in Holcon’s case. That decision is binding upon me. If any different interpretation is to be placed on the new Rules, it will be presumably be a matter for the Full Court.
On what was laid down in Holcon’s case much of what is pleaded in the paragraphs quoted above from the proposed new statement of claim is only the pleading of evidence, although it has the effect of giving notice to the defendants of what the plaintiffs’ case will be at trial. Paragraph 6R 104 provides:
104The Court may strike out a pleading in whole or part if the pleading –
(a)does not comply with these Rules; and
(b)is an abuse of the process of the Court or prejudices the proper conduct of the action.
In respect of these paragraphs it is not suggested that there is any abuse of process. The issue here is therefore whether insofar as they are in breach of 6R 98(b) they prejudice the proper conduct of the action. (Although this is an application for permission to file a new statement of claim, 6R 104 is relevant in that permission is to be granted unless the paragraphs in question, if pleaded, would be struck out under 6R 104: Abrook v Paterson, Full Court, 3 March 1995, Judgment No S 4990, unreported.)
On balance I am not satisfied that there is sufficient prejudice to the proper conduct of the action from any of these proposed paragraphs which would justify refusing permission to plead them. Their content is likely to be the subject of evidence led by the plaintiffs at the trial. The fact that they have been pleaded will overcome any objection to their admissibility under 6R 103 that the defendant has been taken by surprise by these matters. It will also mean that documents on the matters pleaded will be disclosable as directly relevant under 6R 136(1)(a) rather than possibly under (b).
The 5th and 12th defendants did not raise any specific ground of prejudice that they would suffer if these pleadings are allowed to stand. They complained of a lack of particularity in some instances, but, as stated below, it is premature to address that until after the close of pleadings. It was not suggested that the subject matter of the paragraphs was irrelevant or would unduly lengthen or complicate the trial. The overall benefits to the fair trial of the action on this material being pleaded outweigh any possible detriments, and therefore prejudice has not been established.
Particulars before defence.
Neither Bartons nor Mr Leinert have yet filed a defence. In the Supreme Court Civil Rules 2006 there is no direct equivalent of R 46.16 of the repealed Supreme Court Rules 1987, or rules in other jurisdictions, which precluded an order for particulars being made before the filing of a defence, except where they were necessary or desirable to enable the defendant to plead or would be ordered for some other special reason. There is no decided authority on the entitlement to particulars before defence under 6R 102.
The new Rules on pleadings are generally to be interpreted to produce a similar effect to the repealed Rules on the topic, except where a change was clearly intended: Holcon’s case above. Thus I consider that 6R 102(3)(b) (quoted above), where it refers to “to avoid substantial prejudice to the party in whose favour the order is to be made” should be interpreted in this context in a similar fashion to the authorities under the repealed 87R 46.16(1). This means that the defendants must either show that they would incur “substantial prejudice” in having to plead to the statement of claim in its unparticularised form or that there is some other special reason why they should have the particulars at this stage. In its general discretion under 6R 102 the Court should not make an order for particulars until the pleadings are complete merely because the defendants may be able to show “substantial prejudice” in the later conduct of their case. Those matters are better considered after the close of pleadings when the completed pleadings have disclosed the matters which need to be resolved by a trial. The defendants referred me to my decision in Schrader v Australian Broadcasting Corporation, 23 July 2007, [2007] SASC 270, where I said:
I consider that under RR 54 and 102 of the Supreme Court Civil Rules 2006 as a general rule permission should not be granted to file an amended pleading if the Court would order further particulars of that pleading under R 102(3).
In that case a defence had been filed and the application for permission to file the new pleading was made after the close of pleadings. It is consistent with my present ruling that the matter should be viewed as if the pleading was filed and an immediate application for further particulars was made.
Neither Bartons nor Mr Leinert have shown that any of their complaints about lack of particularity of the statement of claim would substantially prejudice them in pleading to the proposed statement of claim. Likewise, they have not shown any other special reason why the further particularity should be ordered at this stage of the action. Accordingly, I do not propose to disallow any part of the new statement of claim for want of particularity, but this will not preclude the defendants from renewing their application under 6R 102 after the completion of the pleadings. This is sufficient to deal with the objections to the proposed paragraphs 104, 143, 150 and 151, and they will be allowed.
The pleaded case against Bartons.
Paragraph 14 pleads that Mr Leinert was a director of Bartons between August 2000 and July 2006. Paragraph 16 pleads that George Nowak (“Mr Nowak”) was a director of Bartons between approximately 31 August 2000 and 9 January 2002. Paragraph 17 pleads that from about 1997 Mr Nowak provided taxation advice to the 1st plaintiff. Other paragraphs plead Mr Nowak in about 1999 advised the director of the 1st plaintiff to enter into a tax minimisation scheme. Bartons was incorporated on 31 August 2000. Paragraph 93B pleads:
At or about the time of its incorporation, Bartons was aware of the matters pleaded in paragraphs 34, 61, 86A, 87 and 93.
Particulars
Nowak and Lienert were directors of Bartons at the time of incorporation and their knowledge is to be attributed to Bartons by reason of the fact Bartons was retained by the Company to provide financial advice, to prepare financial statements for the year ended 30 June 2000 and to prepare the Company’s taxation return for the year ended 30 June 2000.
Counsel for Bartons contended that this paragraph did not amount to a sufficient plea in law that Bartons was aware of the matters previously known to Mr Nowak and/or Mr Lienert about the affairs of the 1st plaintiff prior to 31 August 2000. He relied on authorities such as Re Hampshire Land Company [1896] 2 Ch 743 that the personal knowledge of an officer of a company could not be imputed to the company unless he has some duty imposed on him to communicate his knowledge to the company and there was some duty imposed on him by that company to receive the notice. I consider that it is reasonably arguable here that the necessary duties are to be implied from the particulars that Bartons were retained by the 1st plaintiff in relation to its business affairs when it was highly likely that all concerned knew of the previous involvement of Mr Nowak and Mr Lienert in the earlier affairs of the 1st plaintiff. Insofar as it may have been suggested that this had to be pleaded in the body of paragraph 93B rather than in the particulars that is of no consequence as under the present Rules there is no longer a distinction between the pleading of material facts going to the cause of action and particulars of them: Wunda Joinery Pty Ltd v Wunda Projects Australia Pty Ltd, Lunn M, 16 August 2007, [2007] SASC 301 at [10]. Accordingly, I will allow paragraph 93B.
Paragraph 114 pleads:
114In or about August 2001, Bartons were retained by the Company to:
114.1advise of the transfer of assets from the Company to the Partnership;
114.2transfer the assets the subject of the Asset Transfer (“the August 2001 Retainer”).
In its original version there were particulars to paragraph 114 which were a cross-reference to paragraphs 35 and 36 of an affidavit of Mr Marveggio sworn in earlier Federal Court proceedings. After I complained that this was not a proper way in which to give particulars the proposed statement of claim was further amended to delete those particulars. Counsel for Bartons said this paragraph was “absolutely central” to the case again Bartons but it did not plead sufficient material facts to show that the retainer was of Bartons rather than of Mr Nowak. The material fact on which the cause of action is based is that there was a retainer between the 1st plaintiff and Bartons. The material facts about how that retainer came into being is a matter of particulars. I do not see how Bartons will be prejudiced in pleading to paragraph 114 in its proposed form, and it will be allowed.
Paragraph 115 pleads:
115In or about August 2001, Bartons advised the Company to transfer to the Partnership title to the assets the subject of the Plant Bailment Agreement and the Trading Stock Replacement Bailment Agreement (“the August 2001 Advice”).
Particulars of the August 2001 Advice
115.1The August 2001 Advice was oral and given in a conversation between Mr Marveggio on behalf of the Company and Nowak on behalf of Bartons.
115.2Mr Marveggio was advised by Nowak on behalf of Bartons that rather than taking a bailment of the Company’s plant and trading stock it would be more prudent for there to be an outright sale of the Company’s assets and an assignment or novation of certain liabilities of the Company to the Partnership.
The objection is that there are no material facts pleaded of the alleged agency of Mr Nowak for Bartons. A sufficient material fact for the cause of action is that Mr Nowak was the agent of Bartons. What created that agency is a matter for particulars. There is no prejudice to Bartons or Mr Lienert in pleading to paragraph 115 in its proposed form.
Paragraphs 117 and 117.4
117In about August 2001 Lienert, on behalf of Bartons, with the authority of Mr and Mrs Marveggio, created and processed a series of journal entries for the year ended 30 June 2000.
Particulars
…..
117.4The journal entries did not record any consideration paid or support given by the Partnership to the Company (including by way of an indemnity) for any debts or liabilities, including contingent liabilities, which were not recorded in the Company’s financial statements.
The objection taken is that there were no material facts pleaded of the true market value or how the consideration was inadequate or below the true market value. Counsel asserted that it was only a conclusion that had been pleaded, and that the objective facts on which it was based needed to be pleaded: H Stanke & Sons v O’Meara (above) at [91]; Holcon’s case (above) at [31]. I do not accept that paragraph 117 is a plea of a sale at below market value. It is only a plea about journal entries. It does not plead the effect of the journal entries. I do not see how on the basis of what is pleaded in paragraph 117 any issue of value is raised in it by the 1st plaintiff. There is nothing objectionable in the pleading of paragraph 117 and it will be allowed.
Paragraph 125 pleads:
125Following advice received from Bartons the Company was deregistered on or about 16 January 2002.
Particulars
Mr Nowak advised Mr Marveggio to sign a Form 6010 “voluntary deregistration of a company” which was signed by Mr Marveggio dated 16 January 2002.
Insofar that there is an objection that the alleged advice by Mr Nowak was not material to the causes of action, and is only evidence, it is to be disallowed for similar reasons given for paragraphs 20, 21, etc. Insofar that there is an objection that there are no material facts pleaded of the agency of Mr Nowak, it is to be disallowed for similar reasons given in respect of paragraph 115.
Paragraph 139 pleads:
139Bartons and Lienert owed the Company a duty of care in giving the August 2001 Advice and pursuant to the August 2001 Retainer to:
139.1exercise due care and skill in giving advice as to the transfer of the assets;
139.2take reasonable steps to ensure that the Company’s interest were protected, so as to ensure the Company received fair value as a result of the transfer;
139.3have regard to the ability of the Company to discharge its liability to creditors, actual, contingent or future, following the transfer of assets.
An objection in respect of the claim against Mr Lienert is that the retainer was allegedly of Bartons and the advice was allegedly given by Mr Nowak. I consider this objection is well taken. Paragraph 116 and 117, referred to by counsel for the 1st plaintiff, are not necessarily as extensive as what is pleaded in paragraph 139. Paragraph 139 is not confined to the events pleaded in paragraphs 116 and 117. Merely because Mr Lienert may have done some part of the work does not mean that he owed a duty of care to the 1st plaintiff for work which he did not personally perform. This paragraph will not be allowed.
Paragraphs 140 and 141 provide:
140In or about August 2001, Bartons and Lienert were aware, or ought to have been aware, at the time they were retained:
140.1of the matters referred to in subparagraphs 86, 104.3, 104.5 and 104.6;
140.2that the value of the assets, less the value of the liabilities, as recorded in the balance sheet, did not reflect the market value of the Company:
Particulars
The financial statement for the year ended 30 June 2000 and the figures particulars in paragraph 102 make it plain that the value of the Company greatly exceeded the transfer value of $85,226.
140.3That if the Company’s business was transferred to the Partnership at the value recorded in the balance sheet, the Company would become insolvent or would be unable to meet the future liability of the amended assessment in respect of the 1999 and 2000 income tax years.
141Bartons and Lienert breached their duty of care to the Company.
Particulars of breach
141.1Bartons and Lienert advised the Company to transfer the assets at a gross undervalue and made the journal entries referred to in paragraph 117.
141.2By reason of the transfer, the Company became insolvent or, alternatively, was unable to meet the future liability of the amended assessment in respect of the 1999 and 2000 income tax years.
These paragraphs plead the market value of the 1st plaintiff, but only in the context of what Bartons and Mr Lienert were aware of, not as objective facts. It would be an embarrassing pleading to raise the issue of market value in this context without there being an earlier pleading of the objective facts about such market value. It is unclear whether the plea is any wider than what has been pleaded in paragraphs 102, 107, 111, 112, 118-120, 122-124, 131, 136 and 138. It is ambiguous whether “as recorded in the balance sheet” in paragraph 140.2 refers to “the value of the assets” as well as “the value of the liabilities”. In any event, even if it is unclear to some extent, its general import in the context of the whole of the statement of claim is discernible, and there is no sufficient prejudice shown to the 5th and 12th defendants to bring it within 6R 104(b).
Paragraph 140 and consequentially paragraph 141, is expressly predicated upon Mr Lienert having been retained by the 1st plaintiff, but there is no pleading of this. Hence paragraphs 140 and 141 will not be allowed.
I will now hear the parties on any amendments the plaintiffs seek to the proposed new statement of claim to overcome the objections to the paragraphs which I have indicated I will disallow. I will also hear the parties on costs.