Built NSW v Evolvebuilt Contracting

Judgment (ex tempore - revised 13 March 2014) 1HIS HONOUR: I am concerned today with a notice of motion to strike out a prayer for relief in the plaintiff's amended summons, and paragraphs of the list statement that set out the background, the issues, and the "pleadings" relevant to that prayer for relief. 2There was a subcontract between the plaintiff and the first defendant, the first defendant having since gone into administration, whereby the first defendant undertook to perform certain building work. The third defendant was the sole director of the first defendant. The plaintiff claims that the first defendant falsely or incorrectly certified payment claims, with the intention that the plaintiff should rely upon them to make payment, and that the plaintiff did so rely upon them. The allegedly false or incorrect certifications related to payment of wages and subcontractors debts. The plaintiff became liable for payment of those amounts and now seeks to recover them. 3The case against the second defendant can be put to one side. 4The case against the third defendant has two aspects. One is a claim that the third defendant, as the person in effect in control of the operations of the first defendant, caused the first defendant to submit the relevant certifications knowing them to be false or incorrect, or recklessly indifferent as to whether they were false or incorrect. That is said to amount to fraud, or misleading or deceptive conduct, on the part of the third defendant. 5The other aspect of the claim against the third defendant seeks to make what might be called creative use of s1324(10) of the Corporations Act 2001 (Cth). 6The plaintiff says, and this must be correct, that as a director of the first defendant, the third defendant owed the duties set out in ss 180 and 181 of the Corporations Act. It says that the third defendant breached those duties in various ways, some only of which overlap precisely with the case of deceit or misleading or deceptive conduct that is alleged against the first defendant (and, it must be said, in the alternative part of the case against the third defendant). In those circumstances, the plaintiff seeks to call in aid the somewhat obscurely drafted provisions of s1324(10) of the Corporations Act. 7The third defendant submits that it follows inevitably from the reasoning of the Court of Appeal of the Supreme Court of Queensland in McCracken v Phoenix Constructions (Qld) Pty Ltd (2012) 2 Qd R 27 that the claim as pleaded cannot be sustained. The fundamental argument that the third defendant wishes to put is that, following in particular from what Fraser JA said in that case, s1324(10) gives no right to a person in the position of the plaintiff. Alternatively, the plaintiff says, such rights as the subsection gives are available only when there is a prayer for injunctive relief (see s1324(1)). 8There is very great force indeed in these submissions. Orthodox principle says that I should follow the decision in McCracken unless persuaded that it was plainly wrong. If I may say so with the greatest of respect, I do not have that degree of certainty; on the contrary. 9Whether or not the precise ratio in McCracken is directly applicable to the pleaded facts is a different question. I have not heard argument on that point, for reasons that will become apparent. 10The plaintiff wishes to get over the s1324(1) problem by amending yet again, so as to claim injunctive relief against the third defendant. That relief would include a prayer for an order that the third defendant pay the plaintiff whatever is found to be due, and a prayer that the third defendant complete, or cause to be completed, the books and records of the first defendant. 11It may be wondered whether the first proposed "injunction" is capable of answering that description. The second probably could. The third defendant says that it lacks utility, because this is a matter for the administrator. But that question of utility, it seems to me, is not a matter to be dealt with, in respect of the proposed prayer for injunctive relief, on this hearing. 12The question of utility is however very important in a broader sense. 13Section 56 of the Civil Procedure Act 2005 (NSW) directs the Court's attention to taking steps to procure the just, quick and cheap resolution of the real issues in dispute. The following sections of the Civil Procedure Act flesh out, in particular contexts, the application of that command. 14Practice Notes have been made which seek to give effect, in the general case, to the "just quick and cheap" imperative. For cases (such as the present) in the Technology and Construction List, the relevant Practice Note is Practice Note SC Eq 3. 15Paragraph 62 of that Practice Note states that "as a general rule applications to strike out... will not be entertained". It does accept that "sometimes [such] applications are appropriate". However, it warns the profession to "expect strictness in declining to entertain such applications". 16Obviously enough, if an application to strike out would have the effect of dismissing the whole of a plaintiff's case, it would possess very substantial utility by avoiding the expense of a hearing. That would be a circumstance that would justify entertaining such an application. 17Mr Douglas QC, who appeared with Ms Rubagotti and Mr Kulkarni of counsel for the third defendant applicant, submitted that there was utility in dealing with the strike-out question in this case because it would narrow the issues for trial. That is undoubtedly correct, in a legal sense. The pleaded case would be contracted. However, in my view, it is by no means apparent that it is correct in a practical sense. 18It is necessary to look at the substance of the various claims that the plaintiff wishes to make. As I have said, as against the first defendant, the plaintiff says that it falsely or incorrectly certified that wages and other amounts owing to subcontractors had been paid. As against the third defendant, it says that he caused the relevant certifications to be made and delivered, and thus that he himself acted in the way that I have referred to earlier. 19It seems to me that this aspect of the case against the first and third defendants will inevitably require consideration of the records that were available, at the time the various certifications were made and delivered, to support (if they did) what was stated in the certifications. I say that because the case in fraud, or misleading or deceptive conduct, is put on the alternative bases that the declarations were knowingly false, or that they were made with reckless indifference as to their truth or otherwise. 20No doubt, the former is a precise inquiry. But even in the case of that precise inquiry, the material available to the guiding mind of the first defendant (being said to be the third defendant) may be of very considerable evidentiary significance. 21Further, when one turns to the alternative way in which that part of the case is put - reckless indifference - it is apparent that the question of what records there were, what was contained in them, and what (through them or otherwise) was known to the third defendant will be of key significance. 22The breaches of s180 of the Corporations Act that are alleged against the third defendant are that, in very broad generality, he failed to observe reasonable practices for the control and management of the first defendant or to ensure that such practices were adopted; that he failed to observe reasonable procedures for controlling the financial affairs of the first defendant, or to ensure that such procedures were adopted; and that he failed to observe reasonable practices to ensure that the first defendant kept proper records of its financial dealings, including between itself and its employees and subcontractors. 23Under s181 the alleged breaches are that the third defendant failed to act honestly and diligently in his supervision of the first defendant's financial records so as to ensure that they disclosed the true state of affairs between the first defendant and its employees and subcontractors; that he failed to act honestly and diligently in ensuring that the first defendant provided accurate certifications; and that he procured the first defendant to act deceitfully and misleadingly or deceptively. 24To my mind, in the absence of any evidence to the contrary, it is plain that there is likely to be a very substantial factual overlap between the different ways that the case against the third defendant is pleaded. It is my view, on the pleadings (and uninstructed by any evidence) that all the allegations that are made against the third defendant (and, for that matter, against the first defendant) will arise out of the same factual matrix, or will involve investigation of the same substratum of facts. 25As the case is pleaded, I am unable to discern any way in which the ambit of the evidence would be diminished, or preparation for hearing or hearing shortened, if the case were to run without the s1324(10) complication. 26It has not been submitted that there is any relevant distinction between the cases in damages. Again, I think, looking at the pleadings and uninstructed by evidence, it is apparent that the same evidentiary case will be relied upon to support the claims for damages against the first and third defendants, in all their different pleading manifestations. 27Accordingly, picking up on what Lord Templeman said in Williams and Humbert Ltd v W&H Trademarks (Jersey) Ltd [1986] AC 368 at 435-436, I am not satisfied that striking out the relevant prayer and paragraphs would substantially (I would have said, at all) reduce the burden of preparing for trial or the burden of the trial itself. 28In those circumstances, this seems to me to be an entirely appropriate case to exercise the strictness referred to in para 62 of Practice Note SC Eq 3. 29Accordingly, I decline to entertain the notice of motion. Since I have not ventured upon a consideration of its substantive merits, the appropriate case, as I indicated in the course of argument, is to stand it over to the hearing of the matter, with the question of costs to be in the discretion of the judge who hears it. [Counsel addressed.] 30The plaintiff, as I think I have flagged in the reasons just given, wishes to amend to claim injunctive relief so as to prop up its case under s1324(10). 31Mr Douglas very properly accepted that it follows from what I have just said that I should give that leave. I wish to make it clear that I do so without expressing any view whatsoever as to the merits of the prayers for injunctive relief. 32On the undertaking of the plaintiff's solicitor to pay any filing fee that may be chargeable I grant the plaintiff leave to amend its summons and to file in court the amended summons initialled by me and dated today's date. 33I list the matter for directions on 21 March 2014 in the Technology and Construction List.