Consideration
20 There is no issue about the principles to be applied in considering the third defendant's motion. The Court should proceed with caution before striking out a statement of claim, or any part of it: Murex Diagnositics Australia Pty Limited v Chiron Corporation (1995) 55 FCR 194.
21 In Banque Commerciale SA, En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at 286, Mason CJ and Gaudron J said:
The function of pleadings is to state with sufficient clarity the case that must be met. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. (Reference omitted.)
Weinberg J in McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409 at 417-421 has considered the terms of O 11 of the FC Rules and usefully discussed a number of decisions dealing with O 11. I respectfully adopt his Honour's observations. Consequently, in considering the adequacy of the pleadings, the Court will adopt a sensible and robust approach.
22 Paragraph [94] in essence contains two main allegations.
23 The first allegation is that the third defendant was in breach of the Agreement as, while administering the Trust, the redemption payment was made without a valuation in conformity with the Constitution, and specifically the unit price calculation undertaken by the third defendant which was contrary to the requirements of the Constitution. The proposed amendments provide particulars that, had the unit price calculation been undertaken in accordance with the Constitution, the carrying value of the Firewire investment should have been reduced by $3,820,659 or 23 cents per unit before the redemption was paid, as particularised in the expert report of Mark Vartuli dated 30 September 2010. The second allegation is that the third defendant was in breach of the Agreement as it failed to inform the second defendant in writing, as required by clause 8.2 of the Agreement, that the payment of the redemption amount to Christie was without a valuation in breach of the Constitution and the Act.
24 The third defendant contends that [94] is flawed because it really complains that the first defendant was responsible for the valuation of the net assets of the Trust, and that the plaintiff has not anywhere pleaded that the third defendant was responsible for the correctness of that valuation for the purposes of the redemption. It further complains that [94] does not plead material facts which would constitute a breach or breaches by it of a specific term or terms of the Agreement. It raises the following particular complaints in relation to each sub-paragraph of [94] and the sub-paragraphs cross-referenced therein:
· [94.1.1] and [94.1.2] do not correlate with the contractual obligations pleaded in respect of the clauses identified in [94.1.3], namely 5.2, 5.3(e) and 5.3(m); and that those sub-paragraphs do not plead that third defendant was obligated to obtain a valuation from an approved valuer prior to paying out a redemption, or how it was required under the Constitution to prepare a unit price calculation or how the price was calculated contrary to the Constitution;
· [94.2.1] and [79.4] do not plead any obligation to appoint an approved valuer, and [94.2.1] and [79.8] do not plead how unit holders were treated unequally and unfairly or how the first defendant did not exercise its powers in the best interests of the Trust;
· [94.2.2] and [82.1] do not plead how the first defendant acted dishonestly, unfairly or had inadequate resources or was incompetent;
· [94.2.3] does not plead how the redemption was in breach of s 993C of the Act;
· [94.3] does not identify what provision of the Constitution was breached by the third defendant or how;
· [94.4] does not identify which of the 11 requirements of s 912A of the Act was breached by the third defendant or how;
· [94.5] does not identify which of the 6 obligations imposed by reg 7.8.02(1) of the Regulations was breached by the third defendant or how;
· [94.6] to [94.8] are irrelevant because there is no plea of an obligation imposed by clauses 6.3(i), 6.1(a) or 6(c); and
· [94.9] and [94.10] do not plead how the third defendant acted negligently.
25 In my view, as the plaintiff contended, [94] of the amended statement of claim clearly pleads that the payment of the redemption by the third defendant, while administering the Trust on behalf of the first defendant, was made without a valuation that was in conformity with the Constitution and specifically that the unit price calculation undertaken by it was contrary to the requirements of the Constitution. Elsewhere in the amended statement of claim, there is detail as to why the third defendant was obligated to provide administration services to the Trust which would conform to the Constitution, and to provide such services in a manner that would ensure the first defendant could comply with its obligations under the Constitution and the Act. Whether those allegations are made out is, of course, a matter later to be decided. I also consider that the pleading identifies the failure by the third defendant to warn the second defendant, as the director of the first defendant, that the payment of the redemption was made without a valuation in conformity with the Constitution and the Act constituting a breach of clause 8.2 of the Agreement.
26 The plaintiff contends that the relevant provisions of the Constitution are pleaded at [7] and [8], and specific reasons of why those provisions are said to have been breached are pleaded at [79] and why the provisions of the Act are said to have been breached are pleaded at [82]. I accept that contention. In short, I am satisfied that [94] in relation to the first allegation (read together with [7], [8], [29.3], [29.4.2], [29.4.3] and [79]) discloses a reasonable cause of action, and is sufficiently clear and thus is not prejudicial or embarrassing. I am also satisfied that [94] in relation to the second allegation (read together with [7], [8], [29.7], [79] and [82]) discloses a reasonable cause of action, and is sufficiently clear and thus is not prejudicial or embarrassing.
27 However, I think that [94] should be more specific in relation to two elements. The first is the reference in [94] to an obligation to appoint an 'approved valuer' to value the Trust's assets before any redemption is made. Although the obligation to value the assets is clearly specified in [79], with reference to clause 17 of the Constitution (and [94] cross-references [79]), [79.4] refers to the obligation to appoint an approved valuer without pleading how this obligation arises. At [8.4] it is pleaded that the first defendant "shall have the right at any time to instruct an Approved Valuer." This is not an express obligation as alluded to in [94]. This issue can be remedied by the plaintiff specifying which express (if any) or implied term of the Constitution gives rise to such an obligation.
28 The second element is in relation to [94.2.3] which alleges that the third defendant has contravened s 993C of the Act. That section provides that it is an offence to contravene a requirement in the Regulations. It has not been specified which regulation or regulations have been contravened. The reference to regulation 7.8.02(1) at [94.5] may be the regulation to which the plaintiff refers. However this is not clear. The submissions do not clarify the plaintiff's intention. Again this can be remedied by the plaintiff specifying which regulation or regulations it claims to have been breached, thus putting the defendants on notice as to the claim under s 993C of the Act.
29 As to [98], the third defendant contended that it discloses no reasonable cause of action and intermixes alleged breaches in a manner which is prejudicial and embarrassing.
30 Paragraph [98] pleads that by the conduct referred to in [47] to [69] the third defendant failed to discharge duties or standards of care required of a custodian of the property of the Trust prescribed by:
· Part 7.8 Division 2, Subdivision A of the Act;
· Reg 7.8.01 and 7.8.02 of the Regulations; and
· ASIC Regulatory Guide 133.4;
as it:
· failed to ensure property of the Trust was not exposed to unnecessary risks;
· failed to ensure efficient operational arrangements existed for holding and dealing with property of the Trust;
· failed to keep property of the Trust separate from assets and liabilities of other persons or entities;
· paid out Trust monies (for redemption) to which the party was not entitled; and
· paid out $5,400,000 of Trust monies in manner that first defendant was not authorised
31 The conduct referred to in [47] to [69] relates to the circumstances of the redemption payment and the particulars of it, as well as the payment of $5,400,000 of Trust monies. The third defendant complains that [98] links these 22 paragraphs of conduct to five allegations of breaches of three instruments, one of which is an entire sub-division of the Act. It says this does not disclose a reasonable clause of action, and the intermixing of all these provisions, with reference to 22 paragraphs of conduct, is prejudicial and embarrassing and should be struck out.
32 Part 7.8 Division 2, Subdivision A of the Act and reg 7.8.01 and 7.8.02 of the Regulations relate to obligations of financial services licensees. The third defendant complains first that it is not anywhere pleaded that third defendant is a financial services licensee, and second that it does not say what specific provisions and regulations are claimed to apply nor does it plead material facts relating to such provisions or regulations in a clear way.
33 ASIC Regulatory Guide 133.4 relates to standards of responsible entities in dealing with the property of a managed investment scheme. The third defendant complains that the plaintiff has not pleaded that third defendant is a responsible entity for the purpose of that clause of the regulatory guide.
34 The plaintiff contends that [98] relates to breaches of statutory duties as sub-custodian of the property of the Trust and as agent of the AFSL holder. It says those duties, and the fact that it alleges the third defendant is a sub-custodian of the property of the Trust, is sufficiently pleaded at [35] and [36]. The allegations at [98.1] to [98.3] are incidents of the role of a sub-custodian to ensure trust monies are safely maintained, and [98.4] and [98.5] plead that trust money was paid out to parties who were not entitled to it. It says that the case against the third defendant is clear and confined to the redemption payment made at an overvaluation and to the payment whereby $5,400,000 of Trust assets were paid away.
35 To some degree, I accept the contentions of the third defendant. Reference to Part 7.8 Division 2, Subdivision A, a sub-division of the Act, in my view does not give adequate notice of the particular provisions contravened. The plaintiff ought to specify which of the number of provisions in that sub-division apply. The third defendant is entitled to be notified as to what specific provisions in that sub-division are relied upon, in order to sufficiently know what case it has to answer. I also think the pleading in relation to ASIC Regulatory Guide 133.4 is not sufficient. That clause in the guide relates to the standards applicable to responsible entities, but it is not clearly pleaded that the third defendant is such a responsible entity and thus it is not clear how such a clause applies.
36 In my judgment, the appropriate course is to grant leave to the plaintiff to re-plead or refine its pleading to accommodate those concerns.
37 In other respects I am of the view that [98] sufficiently pleads the case to be confronted. The application of the Regulations specified is clearly set out. At [35] and [36] it is pleaded that the third defendant is a sub-custodian of the trust property, and therefore due to that role it is required to meet the duties set out in those paragraphs.
38 I propose to refuse the third defendant's application to strike out certain paragraphs of the plaintiff's amended statement of claim but to give the plaintiff leave to file and serve a further amended statement of claim in the terms of its present amended statement of claim but incorporating:
· the proposed amendments in the terms provided in the document entitled 'Plaintiff's Proposed Amendments to its Amended Statement of Claim' filed 20 October 2010;
· amendments to paragraphs [94.2.1] and or [79.4] specifying which clause of the Constitution it claims has been breached with respect to appointing an approved valuer;
· amendments to paragraph [94.2.3] specifying which regulations it claims have been breached;
· amendments to paragraph [98] specifying which sections of Part 7.8 Division 2 Subdivision A of the Act it claims have been breached and specifying how the third defendant is a responsible entity within the meaning of ASIC Regulatory Guide 133.4.
39 The plaintiff in its submissions requested that an order for costs be made against the third defendant. The third defendant's submissions do not address the issue of costs, but its notice of motion seeks an order that the plaintiff pay its costs of and incidental to the motion.
40 Section 43 of the Federal Court Act 1976 (Cth) gives the Court discretion to order costs. This discretion is unfettered, save only that it be exercised judicially and that it not be exercised against the successful party except for some reason connected with the case: Grey v Mango Pre Paid Calling Cards Pty Ltd [2005] FCA 362. The purpose of an order for costs is to compensate the party in whose favour the costs order is made for the costs of the application, and is not to punish the party against whom the order for costs is made: Latoudis v Casey (1990) 170 CLR 534 at 543, 563 and 567; Oshlack v Richmond River Council (1998) 193 CLR 72 at 96.
41 Although I have refused the application to strike out parts of the amended statement of claim, as I have identified some inadequacies in it that need to be re-pleaded, I do not think it is appropriate to make an order for costs in favour of the plaintiff. Neither the plaintiff nor the third defendant was entirely successful in relation to the application. In the circumstances I consider it appropriate to make no order for costs of the motion.
I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Ruling herein of the Honourable Justice Mansfield.