BETWEEN : T BOASE & J L BOASE ATF THE BOASE SUPER FUND

AXIS INTERNATIONAL MANAGEMENT PTY LTD (ACN 075 799 772)

MORGAN ALTERUTHEMEYER COMMERCIAL LAWYERS & MIGRATION AGENTS

Practice and procedure - Pleadings - Application to strike out part of statement of claim - Turns on own facts

Paragraph 12 of the statement of claim struck out with leave to replead

Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82

Breen v Williams [1996] HCA 57; (1996) 186 CLR 71

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

Joyce v Palassis [2008] WASCA 151

Joyce v Palassis [No 5] [2009] WASC 6

Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986)

MacMahon Contractors Pty Ltd v Woodside Energy Ltd [2008] WASC 271

Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165

The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239

1 The plaintiffs' claim arises from their failed investment of funds in the Firepower Group. They sue seven defendants.

2 The fourth, fifth and sixth defendants apply to strike out par 12 of the plaintiffs' amended statement of claim dated 14 August 2009. For the reasons that follow I would strike out par 12 of the statement of claim. In summary, in my opinion, the pleaded facts do not reveal any reasonable cause of action in favour of the plaintiffs against the fourth, fifth and sixth defendants.

Strike out applications: general principles

3 The principles to be applied in considering an application under O 20 r 19(1)(a) were summarised by Master Staples in Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986), BC8601931, 6 - 7, as follows:

(1) The rule is intended to apply only to cases which are really not arguable and not to cases where under the previous practice demurrer would have been the proper course: Packard v Transport Trading and Agency Co Ltd (1912) 14 WALR 191 per Burside J at 195.

(2) On the application, not only must all the facts alleged in the statement of claim be accepted as true, but it must be taken for granted that on all other points the pleading is unassailable: Niven v Grant (1903) 29 VLR 102 per Holroyd J at 106.

(3) Great care must be exercised to ensure that a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal: General Steel Industries Inc v Commissioner for Railways NSW [1964] HCA 69; (1964) 112 CLR 125 at 130.

(4) But the rule should not be reserved for those cases where argument is unnecessary to show the futility of the plaintiff's claim. Argument, even extensive argument, may be necessary to demonstrate that the plaintiff's case is so clearly untenable that it cannot possibly succeed: [General Steel Industries Inc v Commissioner for Railways NSW (130)].

(5) As a general rule, a plaintiff is 'entitled... as of right to have his case heard, to have the facts found and then to argue the question of law as it arises before the trial Judge upon the facts as found. It is only in cases in which it can be seen from the outset that, however the facts be found, there is no basis for the legal conclusion contended for by the plaintiff that the pleading should be struck out: Dalgety Australia Ltd v Rubin [(Unreported, WASC Full Court, Library No 5485, 24 August 1984)] per Burt CJ.

(6) A court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie: Hospitals Contribution Fund of Australia v Hunt (1982 - 1983) 44 ALR 365 per Master Allen.

4 More recently, Templeman J summarised the principles relevant to a strike out application in MacMahon Contractors Pty Ltd v Woodside Energy Ltd [2008] WASC 271 [11] - [26]. His Honour referred to and applied the following statements of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82:

It is, I think, important when approaching an issue of that kind to bring to mind the contemporary purposes of pleadings. The purposes of pleadings are, I think, well known and include the definition of the issues to be determined in the case and enabling assessment of whether they give rise to an arguable cause of action or defence as the case may be, and apprising the other parties to the proceedings of the case that they have to meet.

In my view, the contemporary role of pleadings has to be viewed in the context of contemporary case management techniques and pre-trial directions. In this Court, those pre-trial directions will almost invariably include; firstly, a direction for the preparation of a trial bundle identifying the documents that are to be adduced in evidence in the course of the trial; secondly, the exchange well prior to trial of non-expert witness statements so that non-expert witnesses will customarily give their evidence-in-chief only by the adoption of that written statement; thirdly, the exchange of expert reports well in advance of trial and a direction that those experts confer prior to trial; fourthly, the exchange of chronologies; and fifthly the exchange of written submissions.

Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and apprising the parties to the proceedings of the case that has to be met.

In my view, it follows that provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence, as the case may be, and apprising the parties of the case that has to be met, the Court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the Court to be spent extensively debating the application of technical pleadings rules that evolved in and derive from a very different case management environment [4] - [7].

5 It can be seen that it remains an essential requirement for a pleading to fulfil its basic functions of identifying the issues, disclosing an arguable cause of action and apprising the parties of the case that has to be met.

6 I have taken into account that the plaintiffs are litigants in person. See, in this regard, LexisNexis, Civil Procedure WA (at 10 November 2009) [20.19.1A].

7 Paragraph 12 of the statement of claim is in the following terms.

1. Although the Second, Fourth, Fifth and Sixth Defendants owed the Plaintiffs a fiduciary responsibility in accordance with their Australian Financial Services Licence, they all:

12.1 failed to act with care and diligence in continuing to allow the First and Third Defendant to operate with Authorised Dealers Representative status and the Proper Authority Holder Licence granted to him by the Second Defendant and its Directors when they knew he was involved in the promotion of and selling of (bogus) FHG Ltd shares which were not on their approved products list;

12.2 The Second, Fourth, Fifth and Sixth Defendants all failed to apply appropriate supervision of the First Defendant and Third Defendant which that supervision was at all material times required by the Corporations Act 2001;

12.3 an employee of the Second Defendant, a Mr John Ellis, attended a meeting of Firepower Holdings Group Ltd ("FHG) shareholders on 14 December 2006 at the Perth Convention Centre where the Third Defendant and Mr Tim Johnston, Chairman of FHG Ltd, presented an update on the current position of FHG Ltd;

12.4 on the day after it attended the abovementioned FHG Ltd meeting on 15 December 2006, the Second, Fourth, Fifth and Sixth Defendants Representative, Mr John Ellis, went to the office of the First and Third Defendant with Mr David Mortimer, the Sixth Defendant, and canceled the Letter of Authority of the Third Defendant;

12.5 failed to take any steps to advise the Plaintiffs of the reason it had withdrawn the Letter of Authority (or even that it had?) of the Third Defendant the day after the FHG Ltd meeting, ie on 15 December 2006.

12.6 failed to revoke the Letter of Authority of the Third Defendant when they knew he was in breach of his Proper Authority from at least early 2006, contrary to; Corporations Act 2001 - 916A - sub-section 3, 3A and 4;

12.7 had statutory obligations, at all material times, as a financial services licensee under 912A(1) of the Corporations Act 2001 to;

(1) do all things necessary to ensure that the financial services covered by the Licence are provided efficiently, honestly and fairly, and

(2) comply with the conditions on the Licence; and

(3) comply with the financial services laws; and

(4) unless the licensee is a body regulated by APRA -- have adequate risk management systems; and

(5) ensure that its representatives are adequately trained, and are competent, to provide those financial services; and

(6) take reasonable steps to ensure that its representatives comply with the financial services laws;

(original emphasis)

8 Paragraph 12 is worded somewhat ambiguously. Read literally it might be read as alleging that each of the second, fourth, fifth and sixth defendants held an Australian Financial Services Licence (AFSL). However, it is clear from the plaintiffs' submissions that that is not what is intended. Rather, the second defendant (Sagecorp) held an AFSL (statement of claim par 2.2).

9 The fourth, fifth and sixth defendants (the director defendants) were directors of Sagecorp (see the particulars of par 11.9 of the statement of claim).

10 The language of par 12 is that the relevant defendants owed the plaintiffs a 'fiduciary responsibility'. The plaintiffs' submissions emphasise that language and say that they have not alleged a fiduciary duty. That does not assist the plaintiffs. There is no doctrine of fiduciary responsibility distinct from fiduciary duty. Consequently, I take the statement of claim as alleging that the director defendants owed the plaintiffs a fiduciary duty.

11 The director defendants submit that there are no facts pleaded in the statement of claim to support a conclusion that they owed the plaintiffs a fiduciary duty.

12 For the reasons that follow I accept that submission.

13 The director defendants' submissions focus upon the plea that a fiduciary duty existed. They do not deal with the question of the content of any duty. There may be room for doubt as to whether the alleged fiduciary duties pleaded in par 12 conform with the established doctrine in Australia that a fiduciary duty is proscriptive, not prescriptive. See in that regard Breen v Williams [1996] HCA 57; (1996) 186 CLR 71, 113, 137 - 138; Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; [2001] HCA 31; (2001) 207 CLR 165 [74] and The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239 [4539] - [4545]. However, it is not necessary or appropriate to express any concluded views on this question.

14 It is the relationship between the parties that founds a fiduciary duty owed by one party to another. Consequently, in determining whether A owes B a fiduciary duty, attention must be directed to the character of the relationship in light of all the facts and circumstances; see, for example, Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41.

15 There are a number of relationships that are accepted to be fiduciary in character. One is the relation between a company and its directors.

16 The plaintiffs' submissions refer to a passage from 'Butterworth's Concise Australian Legal Dictionary' that describes directors' duties. That passage states, among other things, that the position of a director is a fiduciary position. There is no doubt about that proposition. What the plaintiffs' submission overlooks is that a director of a company is in a fiduciary relationship with the company, not with persons who have dealings with the company.

17 Thus, the plaintiffs were not in a relationship with the director defendants that is an accepted category of fiduciary relationship. Consequently, the plaintiffs must plead the facts and circumstances said to support the conclusion that the relationship was fiduciary in character.

18 The facts said to give rise to the conclusion that one party owed a fiduciary duty to another must be pleaded. See, for example, Joyce v Palassis [2008] WASCA 151 [28] - [32] and Joyce v Palassis [No 5] [2009] WASC 6 [21] - [27].

19 The facts said to give rise to the alleged fiduciary duty are not pleaded in the statement of claim. Insofar as any facts are pleaded (or stated in particulars) they are not arguably sufficient to give rise to a fiduciary duty. In particular, the pleaded facts that

(1) the defendant directors were directors or representatives of Sagecorp;

(3) Sagecorp, as licensee, permitted the first defendant (Axis) and the third defendant (Ward) to act as its representatives;

(4) Ward gave the plaintiffs some documents and material in the name of Sagecorp;

(5) Axis and Ward had dealings with and gave financial advice to the plaintiffs;

(6) Sagecorp and the defendant directors were aware of Ward's promotion of the Firepower Group

20 are not sufficient to found, even arguably, a fiduciary duty owed by the director defendants to the plaintiffs.

21 The plaintiffs' submissions deal specifically with the content of sub-pars 12.1, 12.2, 12.5 and 12.6 of the statement of claim. Those paragraphs each involve an allegation as to the conduct constituting the breach of fiduciary duty. They do not involve a pleading of material facts which give rise to the alleged fiduciary duty. As Le Miere J observed in Joyce v Palassis [No 5] [27] the pleading of an alleged fiduciary obligation and its content is not a pleading of material facts to found the alleged duty.

22 The plaintiffs' submissions also refer to s 180 and s 181 of the Corporations Act and the duties created by those sections. Again, those are duties owed to the company. Neither the Corporations Act nor the general law gives rise to a general right on the part of a person to claim for loss they say they suffered in consequence of a breach by a director of a duty owed by the director to a company.

23 For these reasons I would strike out par 12 of the statement of claim with leave to replead.

24 I would order that the plaintiffs pay the fourth, fifth and sixth defendants' costs of the application which I fix at $1,650 pursuant to the practice directions.