CHAPPELL -v- GOLDSPAN INVESTMENTS PTY LTD [No 3] [2015] WASC 277 (8 March 2016)

2 The plaintiff, Robert Hitchcock, died on 7 April 2015, after the application was heard. The court was advised of his death on 2 July 2015. It may be necessary for a personal representative in Western Australia to be appointed and substituted as the plaintiff to enable this matter to proceed. I will refer to the plaintiff, where that term may include any personal representative, and to Mr Hitchcock where the reference is to him personally.

3 The first defendant (Goldspan Investments Pty Ltd) and fourth defendant (Peter Robert Hallam) are related - Mr Hallam is a director and shareholder of Goldspan. I will refer to them by name, when referring to each individually, and by the defendants when referring to both of them or to all defendants in the action.

4 The current plea is the further reamended statement of claim, dated 3 December 2014. It pleads the following case.

5 Until 30 July 2011, Mr Hitchcock held 20% of the shares in Capital Turbines Australia Pty Ltd, later named Ctec Pty Ltd, and then later named Forge Power Pty Ltd (the Company). Goldspan was also a shareholder. Mr Hallam was not a shareholder in the Company, but was the sole director and shareholder of Goldspan.

6 On or about 16 March 2005, the shareholders of the Company entered into a shareholder agreement (the Agreement) [6].

7 On or about 30 July 2011, the Company and Mr Hitchcock entered into a Share Buy Back Agreement and a variation of the Agreement. Mr Hitchcock transferred his shares to the Company for the sum of USD$1,150,000.

8 On or about 13 January 2012, Forge Group Ltd entered into a conditional agreement to purchase the entire share capital of the Company for a total maximum payment of $38 million. The purchase agreement was completed on or about 23 January 2012.

9 The plaintiff alleges that various breaches of duty caused Mr Hitchcock to part with his shares when and for the price he did. Had Mr Hitchcock remained a shareholder when the Company was sold to Forge Group Ltd, he would have received a little more than $7 million for his 20% interest. The plaintiff claims that amount, less the amount Mr Hitchcock received for his shares, as damages or compensation under various causes of action.

10 The principles to be applied on an application to strike out are well known.

11 Where it is contended that the pleading does not disclose a reasonable cause of action, 'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable: Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers - Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157 [54]. The question is whether it would be open to the first defendant on the pleadings to prove facts at the trial which would constitute a cause of action: see Mutual Life & Citizens' Assurance Co Ltd v Evatt [1970] UKPCHCA 2; (1970) 122 CLR 628, 631.

12 There is a need for caution in exercising a power to summarily determine proceedings. The court will only strike out in a clear case: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, 129 - 130. The defendants should only be denied the opportunity to proceed in the ordinary way, and after taking advantage of the usual interlocutory processes, if there is a high degree of certainty about what the outcome would be should the matter go to trial: see Agar v Hyde [ 2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46].

13 It is necessary to consider the role of pleadings in the context of case management techniques, including the pre-trial exchange of witness statements: Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [8] (Barclay Mowlem). This approach does not deny the need for a statement of claim to state the material facts to support the claim for relief, and for the pleadings to define with clarity and precision the issues or questions which are in dispute between the parties and are to be determined by the court - these requirements were reaffirmed by the Court of Appeal in Nyoni v Patterson [2012] WASCA 171 [36] [38].

14 Pleadings ensure a basic requirement of procedural fairness, and, to do so, must state the case sufficiently clearly to allow the other party a fair opportunity to meet it: Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279, 286 - 287; Gould v Mount Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490, 517; Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 [26]. What is needed to satisfy the requirement for a clear statement of the case will depend upon the nature of the allegation. Serious allegations, such as fraud or dishonesty, must be pleaded and particularised: see, for example, Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [170].

15 The plaintiff's claim that the defendants' conduct was unconscionable carries a pejorative moral judgment or moral obloquy: Hurley v McDonald's Australia Ltd [1999] FCA 1728; (2000) ATPR 41-741 [22]; Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132 [43]; or it at least involves 'some degree of moral tainting ... that permits the opprobrium of unconscionability to characterise [it]': Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell [2011] NSWCA 389 [293]. Such an allegation should be pleaded clearly and with sufficient particularity.

16 Providing a pleading fulfils its basic function by identifying the issues, disclosing an arguable cause of action, and apprising the other party of the case it has to meet at trial, then the action should proceed: Murchison Zinc Company Pty Ltd v Thiess Contractors Pty Ltd [2000] WASCA 167 [38]; Barclay Mowlem [5] [9].

17 The Agreement is central to the claim. On or about 16 March 2005, the shareholders of the Company entered into the Agreement [6]. The statement of claim pleads express terms to the effect that:

7.1 the Shareholders would each hold or have held for them 1 ordinary share in the Company, each share comprising 20% of the Company's share capital (definition of 'Shareholder' in clause 1.1 read with clause 3.1);

7.2 the Company's board of directors would include each of the second to fourth defendants (clause 4.1);

7.3 the Company would provide to each director and the Shareholders, not less than every 3 months, reports comprising the Company's financial statements and information concerning the activities of the Company that are material to the Company's performance (clause 8.3);

7.4 the Shareholders agreed not to dispose of any share to a third party and to disclose any offer to purchase shares to other Shareholders and to comply with pre-emptive rights of the Shareholders before disposing of any shares (clauses 10 and 11);

7.5 the Shareholders agreed not to engage in conduct which might reduce the value of the shares or the business of the Company (clause 15);

7.6 the Shareholders undertook with each other to exercise all their votes, powers and rights under the Company's constitution so as to give full force and effect to the Agreement and ensure that the Company fully and promptly observed, complied with and gave effect to the requirements and intentions of the Agreement and the Company's constitution (clause 20.3); and

7.7 the Shareholders were at all times to provide each other with all information in their possession or control and suitable access to their respective books and records as was necessary to enable each party to make all proper estimates and assessments and carry out all of their obligations and protect their rights under the Agreement (clause 21).

18 It became apparent in the course of the application that the plaintiff relies also on provisions of the Agreement to the effect that:

1. 'Any obligations imposed on the Company ... will constitute an obligation on each of the Parties to procure the compliance of the Company with such obligations' (cl 2.1).
2. The obligations of each shareholder in cl 20.3 include an obligation to exercise its powers 'through any Director appointed by it and (to the extent permitted by law) to procure that any Director appointed by it (whether alone or jointly with any other person) shall procure that matter or thing'.

19 Although counsel for the plaintiff agreed that the statement of claim would be amended to plead cl 2.1, he denied that the pleading was deficient without it. The plaintiff is required to plead the material facts on which he relies for his claim, including the effect of any document, if material: Rules of the Supreme Court 1971 (WA) O 29 r 8. If the plaintiff will rely at trial on a breach by the defendants of an obligation under the Agreement, such as the obligation to procure compliance by the Company, then the obligation is a material fact and it should be pleaded.

20 Similarly, in written submissions, the plaintiff asserted that a fiduciary relationship arose between Mr Hallam and Mr Hitchcock, and the other parties to the agreement, 'by reason of the relationship between the various parties to the agreement, the surrounding circumstances known to the parties, and the object of the agreement'. In oral submissions, counsel denied the need to plead surrounding circumstances on which he relied and said 'I don't rely on it today' (ts 123). If the plaintiff seeks ultimately to rely on surrounding circumstances as material to a finding that Mr Hallam was subject to fiduciary obligations arising from the Agreement, those circumstances are material facts on which the plaintiff relies and should be pleaded.

21 The plaintiff pleads that each of the defendants, alternatively the first, second and third defendants, at all material times owed Mr Hitchcock a fiduciary duty 'to not act in a manner which was not in the interests of all of the Shareholders, through not sharing with the plaintiff any information that each defendant ... might have had in his or its possession or control, the nondisclosure of which might have materially prejudicially affected the rights of the plaintiff under the Agreement' [8].

22 The duty is said to be 'by reason of' the matters at [3] and [5] - [7] of the statement of claim: Mr Hallam was a director of the Company, and the sole director and sole shareholder of Goldspan; Mr Hitchcock and Goldspan (and the second and third defendants) were shareholders in the Company; and Goldspan and Mr Hitchcock (and the other shareholders) entered into the Agreement. The plaintiff also pleads, in [5], that Mr Hitchcock transferred 20% of his shares to Goldspan which held those shares as trustee for the plaintiff. The fiduciary duty pleaded, however, is common to all defendants and is not alleged to be based on Goldspan's position as trustee.

23 The plaintiff pleads that each defendant breached his fiduciary duty pleaded in [8]. In substance, it pleads the following conduct breached the duty:

1. In or around late 2008, Mr Hitchcock advised the defendants of his desire to sell his shares, and between 2009 and 30 July 2011, Mr Hitchcock and the defendants negotiated the sale of Mr Hitchcock's shares to the defendants [16].
2. During the course of the negotiations, the third defendant and Mr Hallam 'for themselves and on behalf of the other defendants' made certain statements to Mr Hitchcock [17]. In further and better particulars, Mr Hitchcock says the statements were made in the course of negotiations in which Goldspan and Mr Hallam were 'actively involved' in emails which were copied to Goldspan.
3. The statements were false at the time of being made, or became false subsequently [18].
4. During the course of the negotiations, none of the defendants disclosed to Mr Hitchcock that the statements were false or had become false [19].
5. During the course of the negotiations, none of the defendants disclosed to Mr Hitchcock certain information relating to expressions of interest and tenders for new contracts, and the development of a relationship with Forge [20]. Three tenders resulted in the Company being awarded contracts, although only one contract was awarded before July 2011. It should be accepted for the purposes of this application that the information was capable of being material to the prospects of the Company and the worth of Mr Hitchcock's shares.
6. On or about 30 July 2011, as a result of the negotiations, the second to fourth defendants (that is, the directors of the Company) caused the company to enter into a Share Buy Back Agreement with Mr Hitchcock, and Mr Hitchcock and the defendants entered into a Deed of Variation of the Agreement [21].

24 The plaintiff pleads in [26] of the statement of claim:

Further or alternatively, by engaging in the conduct pleaded in paragraphs 17 - 21, each of the first, second and third defendants breached the term of the Agreement pleaded in paragraph 7.3, further or alternatively paragraph 7.4, further or alternatively paragraph 7.5, further or alternatively paragraph 7.6, further or alternatively paragraph 7.7.

25 The plea that Mr Hallam breached the Agreement was deleted in an earlier amendment.

26 The plaintiff further says that, from not later than 2009, the defendants were aware of Mr Hitchcock's poor health [27]. They sent the Share Buy Back Agreement and the Deed of Variation, without explanation, when they were aware that Mr Hitchcock had, just days before, undergone major surgery [28]. In particulars, the plaintiff refers also to an email from Mr Hitchcock to the defendants informing them that he required $43,000 for upcoming medical expenses, and a later email that he needed to sell his shares to move to a warmer climate.

27 In further and better particulars, the plaintiff pleads that the Share Buy Back Agreement was sent to Mr Hitchcock by email on 18 July 2011, and the Share Buy Back Agreement and Deed of Variation by email on 28 July 2011. The emails 'did not contain any explanation regarding the current circumstances of the Company or the terms of the Share Buy Back Agreement or the Deed of Variation'. The plaintiff also gives further particulars that in or around early 2010 he underwent heart stent and cataract surgery, in or around July 2010, he underwent pacemaker surgery, and he underwent neck surgery in July 2011.

28 The statement of claim pleads that by engaging in the conduct pleaded in [17] to [21], in circumstances where the defendants were aware of Mr Hitchcock's poor health and special disability as pleaded in [27] and [28], the defendants engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law, further or alternatively engaged in unconscionable conduct, in contravention of s 20 of the Australian Consumer Law [29].

29 An almost identical plea is made in [30], save that the legislation pleaded is s 52 and s 51AC of the Trade Practices Act 1974 (WA), and the plea includes that the defendants 'engaged in, further or alternatively, were involved in' that contravening conduct.

30 In [31], the statement of claim pleads that the defendants engaged in misleading or deceptive conduct or unconscionable conduct in contravention of s 10 and s 11A of the Fair Trading Act 1987 (WA).

31 The plaintiff accepted at the hearing of the application that the references to [7.4] and [7.5] in [26] should be deleted.

32 The plaintiff, accordingly, relies on three quite disparate obligations: the obligation on the Company to provide financial statements and information by reports not less than every three months [7.3]; the obligation to exercise votes, powers and rights under the Company's constitution 'so as to give full force and effect to the Agreement and ensure that the Company fully and promptly observed, complied with and gave effect to the requirements and intentions of the Agreement and the Company's constitution' [7.6]; and the obligation to provide each other with all information and access to their respective books and records 'as was necessary to enable each party to make all proper estimates and assessments and carry out all of their obligations and protect their rights under the Agreement' [7.7]. Despite the very different obligations, the plea is that the same conduct, pleaded in [17] to [21], breached one or more of those terms.

33 Paragraph 7.3 pleads an obligation imposed on the Company by cl 8.3. But failure by the Company to comply with its obligation to report financial information has not been pleaded. The conduct alleged is failure by the defendants to themselves disclose information. As I have noted earlier, the plaintiff intends to rely on cl 2.1 of the Agreement and the obligation on the parties to the Agreement to procure the compliance of the Company with its obligations. But the plaintiff has not pleaded that obligation. The allegation of breach of cl 8.3 cannot stand on the facts currently pleaded.

34 The defendants' complaint is wider. They submit that [26] is deficient because it does not say how it is that, by engaging in the particular conduct alleged against it, Goldspan breached the agreement. Specifically, the defendants refer to the allegation of breach of cl 15, pleaded in [7.5]. The plaintiff, however, no longer relies on that plea or breach of cl 15, so it is not necessary to further consider that complaint.

35 Further, the defendants point out, and the plaintiff concedes, that one of the statements said to be false is patently true.

36 More generally, the defendant complains that, in the absence of a plea identifying the acts which are said to amount to a breach of a particular provision of the Agreement, it does not have 'the first idea' of the case it is supposed to meet.

37 The plaintiff's general position is that [26] of the statement of claim is clear in its terms and informs Goldspan of the case that it must meet, and that whether the conduct pleaded amounts to breaches of those terms of the agreement is a question to be ventilated at trial.

38 In my opinion, however, the plaintiff's approach is too superficial. Paragraph 26 requires amendment. Some of the defendants' complaints have been met by the plaintiff's concession that it will plead cl 2.1, and that it does not rely on those clauses of the Agreement summarised in [7.4] and [7.5] of the statement of claim. The reference to [7.3] in [26] must also be struck out, as the conduct relied upon is not capable, on its face, of giving rise to a breach of cl 8.3.

39 The references to the obligations pleaded in [7.6] should also, in my opinion, be struck out. Paragraph 7.6 pleads the obligation under cl 20.3 relating to the exercise of votes, powers, and rights under the Company's constitution so as to give full force and effect to the Agreement. The general reference to [17] to [21] does not state clearly what conduct of Goldspan is said to breach that obligation.

40 It is, however, arguable that [17] to [20] plead facts which are sufficiently referable to cl 21 (pleaded in [7.7]) to allege an arguable case of breach, and to inform Goldspan of what is alleged against it.

41 Paragraph 26 will be struck out, save for the reference to [7.7]. The plaintiff will have leave to replead. The plaintiff may have an arguable case for a wider breach of contract claim to be ventilated at trial, but it is not a claim which could be sustained on the matters currently pleaded.

42 The same conduct is relied upon as breaching the fiduciary duty pleaded in [8] of the statement of claim. That duty is quite specifically, if confusingly, stated: 'to not act in a manner which was not in the interests of all of the Shareholders, through not sharing with the plaintiff any information that [the defendants] might have had in his or its possession or control, the nondisclosure of which might have prejudicially affected the rights of the plaintiff under the Agreement'. The duty is pleaded against both Mr Hallam and Goldspan.

43 The plaintiff's general claim is that the contractual relationship provides a foundation of obligations that give rise to the fiduciary relationship. The plaintiff contends that Mr Hallam associated with the plaintiff (and other shareholders) for a common end, based upon mutual trust and confidence that they would engage in a particular activity or transaction for joint advantage only. It is mutual trust and confidence which underlies most consensual fiduciary relationships: see, for example, United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, 13 (Mason, Brennan, Deane JJ).

44 The only facts pleaded against Mr Hallam, however, are that he is a director of the Company, a director and shareholder of Goldspan, and that Goldspan is a shareholder and a party to the Agreement. Mr Hallam was not a party to the Agreement. Although he is named in it, as a director of Goldspan, he is not personally subject to obligations under the Agreement. There is no allegation that Mr Hallam, by word or deed, otherwise undertook mutual obligations of trust and confidence, or agreed to act on behalf of the interests of the plaintiff in the exercise of any power or discretion.

45 Counsel for the plaintiff sought to overcome that gap in a variety of ways: by referring to Mr Hallam's role as 'nominated director' of Goldspan; by general references to cases where it has been found that a person has undertaken to act on behalf of another as 'found in the facts of the particular case' (particularly cases where both are parties to a joint venture) (ts 119). The difficulty for these arguments lies in the limited pleading. This was emphasised by the plaintiff's reference in written submissions to 'the surrounding circumstances known to the parties' as facts giving rise to the fiduciary relationship. The plea does not identify any relevant surrounding circumstances. It is not, as counsel submitted, just a matter for evidence.

46 A further difficulty is the failure in the statement of claim to identify the information which the plaintiff alleges the defendants were obliged to but did not disclose. On the facts pleaded, Mr Hitchcock was in the United States and, presumably, not closely involved in the conduct of the business. This may be a case where the defendants know the facts which the plaintiff does not. In such a case, an insufficiently particularised allegation may be made in the statement of claim, and the plaintiff be permitted to obtain discovery of documents and answers to interrogatories before providing the necessary particulars: Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566, 570; Snelgrove v Great Southern Managers Australia Ltd (In liq) (Receiver and Manager Appointed) [2011] WASC 103 [55]. In the context of current case management practices, the plaintiff's claim in this regard will need to be clearly stated before trial, but perhaps after discovery.

47 But even allowing for the plaintiff's need to obtain further information on discovery, the material facts pleaded are insufficient to support a claim of breach of fiduciary duty against Mr Hallam. The assertion that the fiduciary relationship arose by reason of the relationship between the various parties to the Agreement is too nebulous a basis upon which to plead that fiduciary obligations imposed on a stranger to the Agreement. The categories of relationships giving rise to fiduciary duties are not closed. But there must be something pleaded which, by reference to established principles, is capable of giving rise to such a duty. Where the duty is so specifically identified in the terms which the plaintiff has set out in [8], it is necessary to identify material facts which could support a finding that Mr Hallam undertook obligations with regard to information in his possession or control, the non-disclosure of which might prejudicially affect the rights of the plaintiff.

48 The reference in [8] to Mr Hallam should be struck out.

49 With regard to Goldspan, the plaintiff relies on the matters pleaded at [5] to [7], including that Goldspan is a party to the Agreement. At [5], the plaintiff also pleads that Mr Hitchcock transferred his shares to Goldspan, which held those shares as trustee for him. The plaintiff does not, however, rely on Goldspan being a trustee. He relies on the specific obligation in [8] which is common to all parties to the Agreement.

50 In considering the sufficiency of the plea of fiduciary duty on Goldspan, there are competing considerations.

51 First, the parties chose to carry on business through a corporation, with the benefits of that arrangement. Equity does not impose fiduciary duties between parties who have made a deliberate commercial decision to adopt a commercial structure in which they would owe duties, but to the corporation and as directors: see Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 [86]. The plaintiff has not pleaded facts (either statements or conduct) indicating that the parties intended to create legal obligations over and above the obligations which attended the legal structure they adopted, and the particular contractual obligations each assumed: see Crossman v Taylor (No 3) [2011] FCA 734 [301] [302].

52 Second, although the parties to the Agreement accepted mutual obligations, as defined in that Agreement, the scope of any fiduciary duty 'must accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it is consistent with and conforms to the scope and limits of that relationship': Howard v Commissioner of Taxation [2014] HCA 21 [34] (French CJ and Keane J); Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 102 - 103; Clay v Clay [2001] HCA 9; (2001) 202 CLR 410 [46] [47]. Counsel for Goldspan referred also to Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1, 17, where Bryson J said: 'There is ... a source of fiduciary obligations in the general law which is additional to the terms of parties' agreements but there are in my opinion no grounds for imposing on the parties wider obligations than those which by their agreement they imposed on themselves'. Counsel posed the question that, when the only relevant ground for the existence of the duty is the Agreement, how is that contractual obligation 'transmogrified into the fiduciary duty that's expressed with the quadruple negative?' (ts 80).

53 Third, there are clear warnings regarding '[o]verbroad assertions of fiduciary duties, uninformed by a close consideration of the facts and circumstances of the particular case, [that] are sometimes made for reasons which have nothing to do with the protective rationale of those duties': Howard v Commissioner of Taxation [35].

54 As the authorities emphasise, close consideration of the facts and circumstances of the particular case are necessary. At this procedural stage, the court is concerned only with the question whether the facts pleaded could reasonably give rise to the relief claimed, and, in this case, the duty on which that relief is based. The case pleaded by the plaintiff, relying on the specified terms of the Agreement, is limited. I am not, however, satisfied that it should be summarily dismissed. If, as the plaintiff asserts, the parties to the Agreement assumed mutual obligations, including the obligations to give full force and effect to the Agreement and to at all times provide each other with all information in their possession or control 'as was necessary to enable each party to make all proper estimates and assessments and ... protect their rights under the Agreement' (cl 20.3, cl 21) there is an arguable case for the pleaded fiduciary obligation, however inelegantly expressed.

55 This may be further supported by the foreshadowed plea that the shareholders were required to ensure compliance by the Company with its obligation to provide financial information and reports. I assume that plea will be made. Even if it is not, the present plea is sufficient so that it should not be summarily dismissed.

56 At the heart of the defendants' complaint is the allegation that the statements pleaded in [17] of the statement of claim were made 'for themselves and on behalf of the other defendants' by the third and fourth defendants. At the hearing of this application, counsel for the plaintiff accepted, if reluctantly, that the plaintiff should plead the material facts upon which he bases the conclusion that the statements were made on behalf of others. Counsel said that the plaintiff would plead both express and implied authority. The existing plea is inadequate and should be struck out, but there will be leave to re-plead.

57 The defendants further complain that the matters relied upon to found 'special disability' are not capable of supporting such a finding. The plaintiff pleads that: in March 2010, Mr Hitchcock needed money for medical expenses; he had surgery in June and September 2010; he had been advised in or about January 2011 to move to a warmer climate; and he had further surgery in July 2011. The defendants say that none of those things is an allegation of fact sufficient to establish a finding that either defendant had taken unconscientious advantage of Mr Hitchcock, such that his will was overborne so that his entry into the Share Buy Back Agreement was not independent and voluntary, or that he was unable to make a worthwhile judgment as to what was in his best interest. This is particularly so for Mr Hallam, when the only conduct alleged against him is a single sentence in an email he sent on 10 February 2011.

58 Section 20 of the Australian Consumer Law incorporates the notion of unconscionable conduct within the meaning of the unwritten law. It may include where one party to a transaction is at a special disadvantage 'because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests': Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362, 415 (Kitto J). In Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50, Allsopp CJ said:

Unconscionable conduct, as a coherent basis for relief, had, at its root, the protection of the vulnerable from exploitation by the strong: Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447, at esp 461462 and 474-475; Blomley v Ryan [1956] HCA 81; 99 CLR 362 at esp 405, 415 and 428-429; Louth v Diprose [1992] HCA 61; 175 CLR 621 at esp 626-627, 637 and 650; Bridgewater v Leahy [1998] HCA 66; 194 CLR 457 at 485-486; and Kakavas v Crown Melbourne Ltd [2013] HCA 25; 250 CLR 392. Equitable relief for unconscionable conduct is based on a principle, not a rule. The applications or exemplifications of the principle are impossible to describe fully. Care should be exhibited in dwelling over technically or textually on individual expressions of the general principle of normative values, rooted in Equity's remedying of injustice. That said, the expression of the underlying general principle by Mason J and Deane J in Amadio at 462 and 474 and Lord Selborne LC in Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 490-491 are enduring [282].

See also, Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392 [122] [124]; Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 [20] [26].

59 The authorities establish that a plea of unconscionable conduct will call 'a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [other party]': see Jenyns v Public Curator (Qld) [1953] HCA 2; (1953) 90 CLR 113, 118 - 119.

60 The matters pleaded by the plaintiff include that in or around late 2008, Mr Hitchcock advised the defendants of his desire to sell to his shares. From 2009 to the Share Buy Back Agreement on 30 July 2011, he and the defendants negotiated that sale [16]. During that time, Mr Hitchcock was in the United States. During the course of the negotiations, one or more of the defendants made statements that conveyed a false picture of the worth and financial prospects of the Company [17]. Even if those statements, or some of them, were true when made, before the Share Buy Back Agreement was finalised the statements were no longer accurate. They were made in the context of a continuing commercial relationship where the parties had undertaken obligations to provide information to each other, and to require the Company to provide financial information and reports. None of the defendants, however, disclosed to Mr Hitchcock that the statements were false or had become false [19]. None of the defendants gave him information about contracts for which the Company had lodged expressions of interest or tenders. None of them advised him about the relationship being developed with Forge [20]. In 2010, the defendants were told that Mr Hitchcock needed money for medical and other expenses: [28] particular C; and that he underwent surgery in June and July 2010: [28] particular E, F. In the weeks immediately before the Share Buy Back Agreement was executed, the defendants were aware that Mr Hitchcock had undergone further surgery, was on heavy morphine doses and would likely require a stay in a rehabilitative hospital: [28] particulars H, I. That, in my view, pleads an arguable case.

61 While the plaintiff needs to attend to pleading the basis on which he says statements or representations were made with express or implied authority, the plea otherwise, in my view, is not liable to be struck out.

62 Similarly, the plea of misleading or deceptive conduct raises questions of fact to be determined having regard to what was said or done by the defendants, considered against the background of all surrounding circumstances: Taco Company of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177, 202. The court must have regard to the circumstances in which the emails were written, and the whole of the course of conduct of the parties. The question of fact should not be decided by examining the evidence about what was said in any particular email in isolation: see, for example, Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 [39].

63 There is, in my opinion, an arguable case against both Mr Hallam and Goldspan on the breaches of statute.

64 For these reasons, the following pleas should be struck out:

1. in [8], the reference to the fourth defendant by deleting the words 'each of the defendants, alternatively' in lines 2 and 3, and 'each defendant, alternatively' in line 5;
2. in [17], the words 'on behalf of the other defendants';
3. in [25], the reference to the fourth defendant; and
4. in [26], the references to [7.2], [7.3], [7.5], and [7.6].

65 I will hear the parties as to whether other orders are required.

66 I have considered whether judgment should now be entered on any part of the claim, particularly with regard to the claim against Mr Hallam. This is, however, the first occasion when the plea has been formally challenged. And the court should only enter summary judgment in the clearest of cases. I will not enter judgment, but require the plaintiff to bring in a minute of any proposed amendment within a specified time.

CITATION : CHAPPELL -v- GOLDSPAN INVESTMENTS PTY LTD [No 3] [2015] WASC 277 (S)

BETWEEN : PAULA SUSAN CHAPPELL IN HER CAPACITY AS THE LEGAL PERSONAL REPRESENTATIVE OF THE ESTATE OF ROBERT HASTINGS HITCHCOCK

Practice and procedure - Costs - Costs of strike out application where party successful in part - Turns on own facts

Supreme Court Act 1935 (WA), s 37(1)

Supreme Court Rules 1971 (WA), O 1 r 4B, O 14 r 8(1), O 66 r 1(1), (3)

Plaintiff to pay the defendants' costs of the application in part

1 ALLANSON J: On 4 August 2015, I gave reasons in an application by the first and fourth defendants for summary judgment, alternatively to strike out the statement of claim against them.

2 The matter is reasonably involved because the plaintiff's claim is in causes of action for breach of contract, breach of fiduciary duty, and contravention of consumer laws, and is also against multiple defendants. The defendants brought, but did not pursue, an application for summary judgment based on a deed of release. They did maintain an application for summary judgment based on the statement of claim failing to disclose a reasonable cause or causes of action.

3 The defendants only abandoned the application for the summary judgment based on the deed of release at the hearing, and the plaintiff (and the defendants) had prepared written submissions on the issue.

4 On the matters that did proceed, the plaintiff made some concessions. The statement of claim was struck out in part. I held that, on those matters where I had struck out the plea, it was not an appropriate case to enter judgment, but would give leave to the plaintiff to re-plead.

5 The matter has not progressed following the hearing of the strike out application while the plaintiff's representatives have been taking steps to appoint a personal representative in Western Australia, following the death of Mr Hitchcock in the United States of America. The question of costs of an earlier proceeding to discharge an ex parte freezing order has also awaited the substitution of a plaintiff.

6 Those steps have now been completed and the proceedings continue in the name of Mr Hitchcock's personal representative in Western Australia.

7 Costs of and incidental to all proceedings in court are in the discretion of the court: Supreme Court Act 1935 (WA) s 37(1). The discretion must be exercised judicially. The Supreme Court Rules 1971 (WA) in O 66 r 1 (1), state the general rule that costs go to the successful party. There are many qualifications to that general rule. Where a party though generally successful in an action has, by the introduction of some issue or issues on which he has failed, increased the costs the Court may order such party to pay the costs of such issue or issues: O 66 r 1(3).

8 Where there is a mixed outcome, the apportionment of costs is very much a matter of impression and broad evaluation. Mathematical precision is illusory: Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261; Amaca Pty Ltd v Moss [2007] WASCA 162 (S) [6].

9 A further relevant qualification to costs going to the successful party is the 'general rule' relating to costs on an application for summary judgment. The usual order where an application for summary judgment is dismissed is that the costs of the application be costs in the cause, except where the party applying for judgment is aware or should be aware that the application is hopeless and that it has no prospect of succeeding: see O 14 r 8(1); Whitehall Holdings Pty Ltd v Custom Credit Corporation Ltd (Unreported, WASCA, Library No 920347, 19 June 1992), 2 4 (Ipp J); Dal Pont, The Law of Costs (3rd ed, 2013) 441-2 [14.25].

10 Each party submits that it was substantially successful. Breaking the matter down:

1. The plaintiff was successful to the extent that the defendants did not proceed on the application for summary judgment based on the deed of release.
2. The 'contract claim' was struck out against each defendant.
3. The 'breach of fiduciary duty claim' was struck out against Mr Hallam only, and not against Goldspan.
4. The 'Consumer Law claim' was struck out in part only.
5. Summary judgment was not ordered on those claims where the plea was struck out, but the plaintiff was given leave to re-plead.

11 Even on that summary, it is apparent that the defendants were the substantially successful party. In practical terms, the plaintiff must re-plead the cause of action on all but the claim for unconscionable conduct before the matter can proceed.

12 On the findings made in the application, while summary judgment was refused the application could not properly be described as one the defendants knew was without prospects of success. Having regard to the principle of proportionality, it would in my opinion be a poor use of the court's and the parties' resources to make an order for costs in the cause of that part of the application only. The more practical course is to take into account the fact that there was such an application and the time devoted to it in determining the proportion of the total costs that I think should be awarded, but otherwise to make no order as to costs on the application for summary judgment.

13 I am satisfied that the defendants should not have all of the costs of the application where the 'fiduciary duty claim' against Goldspan and one of the two 'Consumer Law' claims were not struck out. I also take into account that Mr Hallam is the sole director and sole shareholder of Goldspan and the two defendants have been jointly represented.

14 Considering the matter as a whole, the defendants should have an order for costs but only for part of the costs of the application. The defendants submit that an order that the plaintiff pay 70% of their costs would be the proper order. It is impossible to be more precise than that, and the defendants' submission accords with my impression of the relative success of the parties by reference to the substance of the issues argued.

15 When costs are awarded in an interlocutory application, the general practice is to order that they be paid forthwith. In the present case, there is a further qualifying factor: the plaintiff has been given leave to re-plead, but must file a minute of the proposed amended statement of claim. The defendants have submitted that any order as to when the costs of the strike out and summary judgment application be payable may await any further application in respect of the foreshadowed amended statement of claim. In my opinion, the submission of the defendants is the course most consistent with O 1 r 4B.

16 As a discrete issue, the defendants were successful in an application to discharge a freezing order made ex parte. The plaintiff should pay the costs of the application to discharge the freezing order. Those costs should be taxed, if not agreed, and payable forthwith.

1. The plaintiff to pay 70% of the first and fourth defendants' costs of the application for summary judgment, alternatively to strike out the statement of claim.
2. The plaintiff to pay the first and fourth defendants' costs of the application to discharge the freezing order.
3. The costs should be taxed, if not agreed, and are payable forthwith.