Chan & Ors v Macarthur Minerals Ltd & Ors [2017] QSC 13

This matter has been placed on hold for the moment following determination of some issues.

I will update you again when these issues have been determined, but no action is required for the time being.

[29] Although it is obvious enough that the email exchange arguably supports the proposition that the "draft MMS Option Agreement" to which the legal adviser referred had been placed on hold at some time on or prior to 28 April 2010, how it is that that connects up with -

• (a) the "could not or would not" part of the pleaded case; or
• (b) either of the two pleaded types of option agreements,

[30] Whether or not the emails can support some part of what is pleaded in [53] of the statement of claim turns on how the reference to the "draft MMS Option Agreement" is interpreted. It is for the plaintiffs to explain what their case is concerning the reference, and to do so in a way which makes it clear how the email arguably supports the pleaded case. The present problem is that the reference to the emails does not, without some further pleaded context, support the pleaded allegation. And even if that is done, how are the emails relevant to the proposition that a decision was made that Macarthur could not or would not have done something?

[31] After the hearing of the application, the plaintiffs filed a further written submission which advised that they proposed to amend the particulars to [53] of the statement of claim:

• (a) to make it clear that the true position was to be inferred from the evidence relied upon;
• (b) to delete the words in subparagraph (a), "statement to that effect" and replace them with the words to the effect, "a negative statement about entering any agreement with First Strategic";
• (c) to make it clear that it is alleged that both types of option agreements were on hold;
• (d) which would entitle the plaintiffs to rely upon evidence obtained by disclosure.

[32] No amendments were formulated so it is not possible to form a view whether the proposed amendments would address all the matters which I have identified as problems for the current form of the pleading.

[33] The result of the foregoing is that [53] of the statement of claim should be struck out.

[34] Logically, the plaintiffs' case cannot stand without a proper plea of a decision having been made which was of such a nature as to render misleading the subsequent representations concerning Macarthur's intention.

[35] However, I am not presently persuaded that an arguable plea cannot be formulated. For that reason, it seems to me to be inappropriate to grant a more significant remedy to the defendants than striking out [53] of the statement of claim, with leave to replead.

[36] I conclude that [53] of the statement of claim should be struck out, with leave to re-plead.

The suggested defects in the plaintiffs' pleaded claims for damages

[37] The relevant aspects of the substantive law may be briefly stated:

• (a) A plaintiff is entitled pursuant to s 82 of the Trade Practices Act to recover loss or damage which the plaintiff has suffered "by" conduct which contravened s 52.
• (b) The plaintiff must show that the losses suffered are causally related to the contravening conduct. In this regard, in Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525, the joint judgment of Mason CJ, Dawson, Gaudron and McHugh JJ stated that s 82(1) should be understood as taking up the common law practical or common-sense concept of causation as discussed in March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506.
• (c) Of course, the offending conduct need not be the sole cause of the plaintiff's loss: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at [33] and [216]. It will suffice if the contravening conduct was a cause which materially contributed to the loss, despite the fact that there may have been other causes.

Given the long history of the common law's recognition of the concept of remoteness in assessing damages in contract and tort and its relationship with the issue of causation, it seems proper to read the term "by" in s 82 as including the concept of remoteness. By remoteness, I mean that the loss or damage was not reasonably foreseeable even in a general way by the contravener.

[38] As many of the defendants' complaints concern the adequacy of the plaintiffs' pleading of the causal link between the conduct which the plaintiffs impugn and the loss which they say they suffered, it is also appropriate to set out some general propositions concerning the requisite content of an adequate pleading of a causal link in such circumstances.

[39] As a general proposition, the defendants are entitled to have pleaded a direct and unambiguous identification of the material facts relied on to establish the causal link which the law requires and which, at least arguably establishes that link: Lee v Abedian [2016] QSC 92 at [81].

[40] In Graham & Linda Huddy Nominees Pty Ltd v Byrne [2016] QSC 221, Jackson J collected some further general statements of principle, to similar effect (emphasis added and footnotes omitted):

[26] However, there is no shortage of relevant case law [concerning the extent of pleading required to establish causal link between breaches of contract or negligence and loss]. In Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd, Chesterman J said:

"In any cause of action in respect of which causation is an essential element it is necessary to plead the material facts which are said to give rise to the causal connection. In particular it is necessary to plead the facts which lead to a reasonable inference that the acts complained of (here the relevant non-disclosure) and the alleged later event (here the making of the dragline agreement) stand to each other in the relation of cause and effect. ...

[27] Another well-known judgment in this area is Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd, where French J said:

"The material facts establishing the necessary causal link should be pleaded. In cases of contravention of s 52 said to be constituted by misrepresentation this will generally require more than appears in the opening words of par 50: 'by reason of such conduct ...'.

Some guidance to the proper approach may be derived from the ordinary rule of pleading applicable in cases of fraud of which Lord Watson said in Dow Hager Lawrance v Lord Norreys (1890) 15 App Cas 210 at 221:

'... The ordinary rule of pleading applicable to cases of fraud, ... was thus expressed by Earle Selborne in Wallingford v Mutual Society (1880) 5 App Cas 685 at 697: "General allegations, however strong may be the words in which they are stated, are insufficient to amount to an averment of fraud of which any court ought to take notice." It is not a sufficient compliance with the rule to state facts and circumstances which merely imply that the defendant, or someone for whose action he is responsible, did commit a fraud of some kind. There must be a probable, if not necessary, connection between the fraud averred and the injurious consequences which the plaintiff attributes to it; and if that connection is not sufficiently apparent from the particulars stated, it cannot be supplied by general averments. Facts and circumstances must in that case be set forth, and in every genuine claim are capable of being stated, leading to a reasonable inference that the fraud and the injuries complained of stood to each other in the relation of cause and effect.'

A perusal of the relevant precedents in [Bullen, Leake & Jacob's Precedents of Pleadings 12th ed, pp 702-7] supports the view that the approach enunciated by Lord Watson is equally applicable to actions for negligent misstatement."

[41] The plaintiffs claim to have suffered the following types of losses in consequence of defendants' misleading and deceptive conduct:

• (a) the amounts paid by the first plaintiff for legal services relating to the appointment of the liquidators and for the services of the liquidators;
• (b) the expenses incurred by the plaintiffs in unsuccessfully defending the Insolvent Trading Proceeding;
• (c) the amounts paid by the plaintiffs pursuant to the judgment of this Court in the Insolvent Trading Proceeding, both for the principal sum and for costs; and
• (d) the amounts paid by the first plaintiff to First Strategic to enable it to meet debts incurred by it.

[42] It is appropriate to analyse the suggested defects in the pleading in relation to each category of loss.

The amounts paid by the first plaintiff for legal services relating to the appointment of the liquidators and for the services of the liquidators

[43] The current form of the statement of claim relevantly pleads:

• (a) (at [59]) the assertion that in allowing First Strategic to incur certain specified obligations and debts the plaintiffs as directors of First Strategic "exposed themselves to being liable to First Strategic and any liquidator appointed to First Strategic for" those obligations and debts;
• (b) (at [60]) on or about 17 November 2010 First Strategic resolved that it would be wound up and a liquidator appointed;
• (c) (at [61]) in the period between on or about 15 November 2010 and 7 July 2011, the first plaintiff made payments totalling $147,190.37 for legal services relating to the appointment of the liquidator and to the liquidator for their services;
• (d) (at [66(a)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts;
• (e) (at [66(c)]) the further counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the first plaintiff would not have had to make the payments referred to at statement of claim [61]; and
• (f) (at [67(f)]) that "as a consequence of the misleading and deceptive conduct ... [the first plaintiff] suffered loss and damage as referred to in [statement of claim [61]]".

[44] The defendants' contention is that the pleading does not set out material facts which lead to a reasonable inference that -

• (a) the misleading and deceptive conduct complained of (effectively the relevant non-disclosure of Macarthur's true intention once the alleged April 2010 decision had been made); and
• (b) the alleged later event (here the first plaintiff's decision to pay legal expenses incurred in relation to the appointment of the liquidator to First Strategic, or for the services provided by the liquidator),

stand to each other in the relation of cause and effect. The defendants say the cause of the loss was obviously the first plaintiff's decision to incur the relevant expenses, not anything else.

[45] For their part, the plaintiffs submitted that they had pleaded a classic "no transaction" case: no agreements would have been entered, payments made or debts incurred if Macarthur had advised the plaintiffs that it would not enter into an option agreement to purchase the shares or Area 317. The plaintiffs submitted that the defendants' proposition that there was no causal link between the impugned conduct and the plaintiffs' decision was the kind of approach rejected by the High Court in Medlin v State Government Insurance Office [1995] HCA 5; (1995) 182 CLR 1 because it wrongly focussed on the intervening decision. They relied on the highlighted parts of the following passage (at 6-7) from the judgment of the plurality (although expressed in relation to the law of negligence, the observations are just as relevant to causation under the Trade Practices Act):

For the purposes of the law of negligence, the question whether the requisite causal connexion exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities, as a matter of commonsense and experience (16). And that remains so in a case such as the present where the question of the existence of the requisite causal connexion is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage. In such a case, the "but for" test, while retaining an important role as a negative criterion which will commonly (but not always) exclude causation if not satisfied, is inadequate as a comprehensive positive test (17). If, in such a case, it can be seen that the necessary causal connexion would exist if the intervening act or decision be disregarded, the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has had the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision. It will be seen that, on the plaintiff's evidence, the present was such a case.

[46] I agree with the defendants' complaints. The plaintiffs' argument seems to assume that in a "no transaction" case, all pecuniary losses which would not have been incurred but for the impugned conduct must be regarded as having been caused by the impugned conduct. That is incorrect. The argument ignores the earlier part of the passage quoted from Medlin. In a case where the question of causation is complicated by an intervening act or decision of the plaintiff, reliance merely on "but for" causation is inadequate as a comprehensive positive test. It is certainly inadequate on the facts of this case.

[47] The appropriate course here is to require the plaintiffs to articulate the material facts which establish the causal link in the way required by the cases I have referred to at [39] and [40] above. That will require the articulation of facts which as a matter of common sense and experience lead to a reasonable inference that the impugned conduct and the relevant category of loss stand in the relationship of cause and effect. In this case, absent a pleading of facts which establish a reasonable inference that the impugned conduct was itself a direct or indirect contributing cause of the plaintiffs' decision to appoint a liquidator and then to pay the expenses claimed under this heading, it is difficult to imagine how the requisite causal link could be established.

[48] The plaintiffs' pleading does not articulate material facts which justify the reasonable inference that the impugned conduct was itself a direct or indirect contributing cause of the plaintiffs' decision to appoint a liquidator and to incur the expenses. If there is a way to do that[3], it has not yet been done. The pleading of the two counterfactual propositions identified at [43](d)] and [43](e)] above are not sufficient and amount to little more than "but for" propositions. I note too that there is merit in the defendants' further criticism of the plea "would not have had to" in [66(c)]. What is intended to be encompassed by that proposition is entirely unclear.

The expenses incurred by the plaintiffs in unsuccessfully defending the Insolvent Trading Proceeding

[52] The current form of the statement of claim relevantly pleads:

• (a) (at [59]) the assertion that in allowing First Strategic to incur certain specified obligations and debts the plaintiffs as directors of First Strategic "exposed themselves to being liable to First Strategic and any liquidator appointed to First Strategic for" those obligations and debts;
• (b) (at [60]) on or about 17 November 2010 First Strategic resolved that it would be wound up and a liquidator appointed;
• (c) (at [62]) on 29 August 2012 First Strategic and the liquidator of First Strategic issued the Insolvent Trading Proceeding;
• (d) (at [63]) the plaintiffs -
  • (i) defended the proceedings on the grounds that the first plaintiff was willing and able to provide or cause to be provided sufficient amounts to enable First Strategic to meet all of its debts when due; and
  • (ii) in defending the claim by the liquidators and the Insolvent Trading Proceeding, the first plaintiff expended $1,051,381.60 and the third plaintiff expended $615,805.00;
• (e) (at [66(a)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts;
• (f) (at [66(c)]) the further counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the first plaintiff would not have had to make the payments referred to at statement of claim [63]; and
• (g) (at [67(f)] and [67(g)]) that "as a consequence of the misleading and deceptive conduct ... [the first and third plaintiffs] suffered loss and damage as referred to in [statement of claim [63(b)]]".

[53] The defendants argued that the pleading did not advance an arguable case that the amounts expended in unsuccessfully defending the liquidators' claim could be regarded as having been caused by their alleged misleading and deceptive conduct. The amounts were incurred because the plaintiffs made the decision to defend the case on a basis that the Court rejected. The costs incurred were not incurred by the defendants' conduct but were incurred because of the plaintiffs' own flawed decision, not apparently caused by the defendants.

The amounts paid by the plaintiffs pursuant to the judgment of this Court in the Insolvent Trading Proceeding, both for the principal sum and for costs

[60] The current form of the statement of claim relevantly pleads:

• (a) (at [40]) that First Strategic became indebted to creditors for various amounts;
• (b) (at [59]) the assertion that in allowing First Strategic to incur certain specified obligations and debts the plaintiffs as directors of First Strategic "exposed themselves to being liable to First Strategic and any liquidator appointed to First Strategic for" those obligations and debts;
• (c) (at [60]) on or about 17 November 2010 First Strategic resolved that it would be wound up and a liquidator appointed;
• (d) (at [62]) on 29 August 2012 First Strategic and the liquidator of First Strategic issued the Insolvent Trading Proceeding;
• (e) (at [63]) the plaintiffs defended the proceedings on the grounds that the first plaintiff was willing and able to provide or cause to be provided sufficient amounts to enable First Strategic to meet all of its debts when due;
• (f) (at [64](a)] and [65(a)]) on or about 4 April 2014 the Supreme Court of Queensland held that the first and third plaintiffs were personally liable for the debts of First Strategic in the amount of $1,349.131.03 and that the second plaintiff was personally liable for the debts of First Strategic in the amount of $1,322,867.35 and on 2 June 2014 the plaintiffs made payment to the liquidator and First Strategic in respect of those matters;
• (g) (at [64(b)] and [65(b)]) on or about 4 April 2014 the Supreme Court of Queensland ordered the plaintiffs to pay to First Strategic and the liquidator the costs of the proceedings, for which they subsequently paid $700,000.00;
• (h) (at [66(a)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts;
• (i) (at [66(c)]) the further counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the first plaintiff would not have had to -

The amounts paid by the first plaintiff to First Strategic to enable it to meet debts incurred by it

[65] The current form of the statement of claim relevantly pleads:

• (a) (at [31]) the assertion that in reliance upon the impugned conduct the first plaintiff made payment to First Strategic of $5,930.52 so it could make payment to its creditors as set out in a table identifying six amounts;
• (b) (at [37]) the assertion that in reliance upon the impugned conduct the first plaintiff made payment to First Strategic of $31,777.87 so it could make payment to its creditors as set out in a table identifying seven amounts;
• (c) (at [66(b)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts and the first plaintiff would not have made the payments referred to at statement of claim [31];
• (d) (at [67(a)]) that "as a consequence of the misleading and deceptive conduct ... [the first plaintiff] suffered loss and damage in the amount of $5,930.52 as referred to in [statement of claim [31]]"; and
• (e) (at [67(c)]) that "as a consequence of the misleading and deceptive conduct ... [the first plaintiff] suffered loss and damage in the amount of $31,777.87 as referred to in [statement of claim [37]]".

[66] The defendants do not seek to strike out the pleaded claim to recover for payments made by the first plaintiff to First Strategic after April 2010 for debts incurred by First Strategic after April 2010. However the defendants contend that it is not open to the first plaintiff to recover for:

• (a) payments made by him to First Strategic before April 2010, for debts incurred by First Strategic before April 2010; or
• (b) payments made by him to First Strategic after April 2010, for debts incurred by First Strategic before April 2010.

[67] The complaint in relation to (a) must be upheld. Both the incurrence of the debt by the company and the payment made by the first plaintiff, precede the alleged misleading and deceptive conduct. Indeed the plaintiffs concede as much because the plaintiffs' further written submissions filed after the hearing of the application advised that the relevant claim will be deleted.

[71] The defendants advanced an alternative attack on the damages case, the elements of which were as follows:

• (a) The amount of the plaintiffs' loss or damage is not represented by the amounts expended by them as alleged.
• (b) Had Macarthur not engaged in the misleading or deceptive conduct alleged, the best outcome for the plaintiffs was that an agreement be entered into with Macarthur conferring on Macarthur the options identified.
• (c) Therefore, the true measure of the plaintiffs' loss or damage is a sum representing an assessment of the value of the chance that Macarthur would enter into the alleged agreement and that, if such an agreement were entered into, Macarthur would, in due course, exercise the option granted to it by the agreement.
• (d) The statement of claim therefore quantifies the plaintiffs' claim on a wholly erroneous basis.

[72] I reject this argument. The compensation to which the plaintiffs are entitled if otherwise they make good their case is the money necessary to put them in the position in which they would have been if the contraventions had not occurred. The plaintiffs' case is that if the contraventions had not occurred, they would have been told that Macarthur had put the decision on hold, and the plaintiffs would then have decided not to proceed further. There would have been no agreement entered into with Macarthur. The proposition put in [71](b) above is misconceived.

[73] A further argument advanced by the defendants was that for some of the loss which was claimed by the plaintiffs, it was First Strategic and not the plaintiffs which was the proper plaintiff for the loss. The argument was that it was First Strategic and not the plaintiffs which must have suffered loss in consequence of First Strategic having become indebted to creditors in consequence of having acted in reliance on the defendants' misleading and deceptive conduct. I think the answer to this contention is that the plaintiffs' case must be assessed by reference to the case which they plead. It is not helpful to that task to speculate on the nature of the case which might have been brought by someone else, but has not been.

[74] I have determined that there has been an insufficient plea of the causal link between the impugned conduct and loss in respect of three out of the four categories of loss pleaded by the plaintiffs. I have not, however, formed the view that the problem is something which is not capable of being addressed by amendment which pleads appropriate additional facts.

[75] I think the better course is to strike out statement of claim [40], [61], [63], [64], [65], [66(c)], [67(b)], and [67(d)] to [67(g)] but with leave to replead. There are other matters of detail which the further submissions advanced by the plaintiffs concede should be attended to in relation to a contemplated further amendment, but as leave to amend is not needed, it does not seem to me that any order is required.

[76] I order that [40], [53], [61], [63], [64], [65], [66(c)], [67(b)], and [67(d)] to [67(g)] of the statement of claim be struck out, with leave to re-plead.

[77] I will hear the parties as to costs.

[1] First Strategic Development Corporation Limited (in liq) v Chan [2014] QSC 60 at [96] to [98].

[2] See also Stryke Corporation Pty Limited v Miskovic [2007] NSWCA 72 at [63], but cf the statement in Marks v GIO Holdings Australia Ltd [1998] HCA 69; (1998) 196 CLR 494 at [34].

[3] I am unwilling presently to express a view that this could not be done. If the pleading can be recast to remedy the flaws I have identified, I imagine it will require the plaintiffs to plead relevant material facts about the relevant decision maker(s); their decisions; and the consideration(s) which materially contributed to them in such a way as to justify the relevant reasonable inference of causality.

[4] On the question of whether the flaw can be redressed see footnote 3 above.

[5] First Strategic Development Corporation Limited (in liq) v Chan [2014] QSC 60 at [96].

[6] On the question of whether the flaw can be redressed see footnote 3 above.