CONTINENTAL CONVEYOR & EQUIPMENT P/L & ORS v WILLIAMS & ORS

COUNSEL : A. Bouris - Plaintiffs L. Aitken - Second, Third and Fourth Defendants Mallesons Stephen Jacques - Plaintiffs SOLICITORS : Tzovaras Yandell - First Defendant Furlong & Associates - Second, Third and Fourth Defendants CATCHWORDS : PRACTICE AND PROCEDURE - allegations of knowledge or constructive knowledge in statement of claim - all possible formulations of knowledge pleaded - application to strike out paragraphs of statement of claim - answers to request for particulars overly complex - no requirement to plead source of knowledge - whether basis of allegations of knowledge sufficiently revealed - whether reasonable cause of action disclosed - desirable for basis of trial to be clarified - appeal filed out of time - time for appeal. LEGISLATION CITED : Supreme Court Rules Pt 1 r 3(2), Pt 2 rr 3(1), 5(1), Pt 16 rr 3, 7 Baden v Societe Generale [1993] 1 WLR 509 CASES CITED : Gertsh v Atsas [1999] NSWSC 898 Royal Brunei Airlines v Tan [1995] 2 AC 378 DECISION : See paras 22 & 23

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1622/99 CONTINENTAL CONVEYOR & EQUIPMENT PTY LTD & ORS v. GARY ALEXANDER WILLIAMS & ORS

JUDGMENT 1 HIS HONOUR: In these proceedings the interests of the second, third and fourth defendants are associated and they have common representation. They are not associated with the first defendant. In outline the plaintiffs claim to the effect that the first defendant, Mr Williams, was the managing director of the plaintiff companies, referred to as the Continental companies, and as managing director Mr Williams did business with the second defendant which used the trade name Cross Country and traded as a dealer in motor vehicles in Muswellbrook; the third defendant Mr Pike was the director or managing director of Cross Country and the fourth defendant, Mr Gane, was the sales manager. It is alleged that Mr Williams on behalf of the Continental companies bought motor vehicles on hire purchase at prices which were in excess of the list prices recommended by Ford Australia for the vehicles, that he did not obtain discounts for the Continental group which could have been obtained with fleet operator status accorded by Ford Australia, and that he authorised sales on consignment of vehicles owned by the Continental companies at unrealistic and uncommercial prices. The excess prices paid are alleged to total $79,104, the claims relating to fleet discounts amount to $85,467 and the losses on sales on consignment are alleged to have amounted to $34,125.74. 2 The second, third and fourth defendants applied by Notice of Motion of 2 September 1999 for an order that certain paragraphs of the Statement of Claim be struck out on the basis that they disclosed no reasonable cause of action or would otherwise cause prejudice or delay in the proceedings. The application was heard by Master MacLaughlin who on 15 December 1999 for reasons then published ordered that one paragraph, paragraph 49 of the Amended Statement of Claim, be struck out and gave the plaintiffs leave to file a further Statement of Claim on or before 1 February 2000. The plaintiffs filed a Further Amended Statement of Claim a little out of time, on 2 February 2000. These defendants wish to appeal against the Master's decision and they applied by Notice of Motion of 6 March 2000 and Amended Notice of Motion of 27 March 2000 for an order extending the time to appeal. They also (irregularly) filed a Notice of Appeal on 6 April 2000. 3 There is a right of appeal within 28 days of a decision, the period from 25 December to 9 January both inclusive is excluded (see Pt 2 r 5(1)), and the time fixed by the rules may be extended (see Pt 2 r 3(1)). Allowing for the excluded 16 days, the time for appeal was 44 days and expired on 28 January 2000. The solicitors representing these defendants notified the solicitor for the plaintiffs on 23 February that they were instructed to appeal and sought consent to an extension which, after correspondence, was not forthcoming. This notification came 26 days after expiry of the time for appeal fixed by the rules, and 24 of those days were during the law term. The solicitor for these defendants on affidavit explained the delay by saying that because of the intervention of the Christmas vacation and the summer holidays he had only recently been able to confer with his clients and with counsel, and that counsel had been appearing in appeals until 15 February. This is not a satisfactory explanation for the delay, but it does show that the delay was not caused by any change of course after a decision to accept the Master's judgment. The reasons for the delay cannot be conclusive of the question of extension of time for appeal. I should also address the merits of the appeal. 4 Aspects of the Master's decision which these defendants wish to challenge are illustrated by paragraph 39, which was unchanged in the Further Amended Statement of Claim: At the various times the respective Continental companies entered into the transactions referred to in paragraphs 7, 16 and 19 above, and at the time Cross Country supplied or sold motor vehicles for the purposes of those transaction, Cross Country:

(a) knew; alternatively, or additionally (b) wilfully closed its eyes to; alternatively, or additionally (c) wilfully and/or recklessly failed to make such enquiries as an honest and reasonable person would have made concerning; alternatively, or additionally (d) had knowledge of circumstances which would have indicated to an honest had reasonable person facts concerning,

(i) paragraphs 7 to 12 above; (ii) paragraphs 14 to 18 above; (iii) paragraphs 19 to 22 above; and (iv) paragraphs 24 and 25 above. 5 Paragraphs 40 and 41 continue: 40. By reason of the facts and matter referred to in paragraph 39 above, the second defendant failed to observe the standards of an honest person placed in the circumstances of the transactions referred to in paragraphs 7, 16 and 19 above. 41. By reason of the facts and matters referred to in paragraphs 39 and 40 above: (a) the second defendant was involved and/or participated in the breaches of fiduciary duty by Williams referred to in paragraph 25 above; and

(b) thereby caused the Continental companies referred to in that paragraph to suffer loss and damage. 6 The form of the allegation in paragraph 39 is to be understood as adopting four categories in the scale of knowledge specified by Peter Gibson J in Baden v. Societe Generale [1993] 1 WLR 509 at para 250, pp 575-6, and the formulation in paragraph 40 is drawn from the opinion of the Privy Council in Royal Brunei Airlines v. Tan [1995] 2 AC 378 at 390F, which disapproved of Peter Gibson J's formulated scale of knowledge at 392G. Their Lordships' disapproval does not necessarily put an end to use of the four categories in view of the use of similar categories in Australian case law earlier than the decision in Baden: see the review of authorities in Gertsch v. Atsas & Ors [1999] NSWSC 898 (unreported, Foster AJ), 1 October 1999, at paras [26] to [42]. As the pleading is based on all forms of knowledge or constructive knowledge which are supportable by judicial opinion it cannot be said that it fails to allege a recognisable ground of suit; or that it should be struck out for that reason. However, it suffers severely from a generalised difficulty of understanding what in substance is alleged. 7 Paragraph 39 and later paragraphs which take a generally similar form allege knowledge (or other circumstances which can be referred to for present purposes as constructive knowledge) of facts which in many earlier paragraphs were alleged to be bases for remedies against the first defendant, Mr Williams. In his judgment at paragraph 20 the learned Master, after referring to paragraph 39, said: It does not seem to me in those circumstances that they are entitled to have set forth in the pleading identification as to the source of their knowledge. 8 Part 16 r 3 requires a party pleading any condition of mind to give particulars of the facts on which the party relies, but excludes knowledge. The Master's observation reproduces the substance of this provision of the Rules, and in my view it is not reasonably arguable that it is erroneous. Particulars of knowledge are dealt with by Pt 16 r 7; subr (2) gives the court power to order a party to file and serve particulars of the facts on which the party relies where knowledge is alleged. This being so, it would plainly have been erroneous to strike out paragraph 39 or corresponding paragraphs on the ground that they were not sufficiently particular with respect to knowledge. As I indicated during argument I am of the view that extension of time for appeal should not be granted as the appeal is not fairly arguable. 9 However, the material which was shown to me and the argument on the Notice of Motion satisfied me, as I pointed out to the parties' representatives during the hearing, that I should take under consideration making an order under Pt 16 r 7(2) requiring the plaintiffs to file and serve particulars of the facts on which they rely where they allege knowledge in a number of paragraphs of the further Amended Statement of Claim. I have in view the need to furnish the defendants with information about the basis of the plaintiffs' claim which will enable the trial of the proceedings to take place on a fair basis without surprise, whether the information is required by the Rules to be given in the pleading or not. I also have in view the object of facilitating the just, quick and cheap resolution of the real issues in the proceedings, and the duty of the court to seek to give effect to the overriding purpose referred to in Pt 1 r 3(2). 10 In my view preparation of the proceedings for hearing on a proper basis requires that the defendants give particulars of the allegations of knowledge and constructive knowledge in a clear way. The particulars already given appear in a bundle of correspondence (Ex 1). The particulars are unsatisfactory in that they do not clearly show the matters particularised, but they are also unsatisfactory in that they are not readily available on the court file in a form which can be clearly understood. 11 It is apparent that paragraph 39 makes the allegations of knowledge, or constructive knowledge, in four different ways alternatively, that alternative (c) itself contains alternatives, and that that allegation is applied to the facts and matters referred to in each of 17 earlier paragraphs of the Statement of Claim. In the correspondence about particulars this was dealt with as follows: With respect to the "state of knowledge" referred to as part of the "particulars" to paragraph 39, please state all the material facts and circumstances upon which the plaintiffs rely to demonstrate the state of mind of the second to fourth defendants with respect to the first defendant's actions. 12 This was answered as follows: This is not a proper request for particulars with respect to the third and fourth defendants. With respect to the second defendant, the relevant state of knowledge is as particularised in paragraphs 1, 2 and 3 above and under paragraph 39 of the Amended Statement of Claim. 13 The plaintiff also requested particulars with respect to paragraph 62 of the state of mind of Mr Pike there alleged, and with respect to paragraph 79 of the state of mind of Mr Gane there alleged. The answers were as follows: The state of knowledge of the third defendant as alleged in paragraph 62 by reference back to the pleading in paragraph 60. Please refer also to the particulars under paragraph 39 of the Amended Statement of Claim and those set out in paragraphs 1, 2, 3, 4 and 5 above. The plaintiffs say that these particulars are applicable also to the state of mind of the third defendant.

… The plaintiffs refer to the particulars provided under paragraph 39 of the Amended Statement of Claim and to the particulars referred to in paragraphs 1, 2, 3, and 4 above. The plaintiffs further say:

(a) With respect to sub-paragraph 39(ii) as follows: (i) as to paragraph 14 of the Amended Statement of Claim, the fourth defendant was aware of the matters pleaded by reason of his involvement as sales manager of the second defendant in the transactions pleaded between the respective plaintiff companies and the second defendant; (ii) as to paragraph 15, the plaintiffs repeat the particulars in sub-paragraph (i) above; (iii) as to paragraph 16, the plaintiffs repeat the particulars in sub-paragraph (i) above; (iv) as to paragraph 17, the plaintiffs repeat the particulars in sub-paragraph (i) above;, the fourth defendant knew that the first defendant was a director and the Managing Director of the respective Continental companies, that he acted for and on behalf of the plaintiff companies, variously, in having those companies enter into transactions pleaded and that he personally arranged and directed those transactions with the second defendant. In addition, the plaintiffs say that the fourth defendant's conduct and/or state of knowledge was the same as the conduct and/or state of knowledge pleaded in sub-paragraphs (b), (c) and (d) of paragraph 39 with respect to the second defendant; (v) as to paragraph 18, the plaintiffs repeat the particulars referred to in sub-paragraph (iv) above and say further that the fourth defendant knew that the first defendant took no steps to obtain the fleet discounts. (b) With respect to sub-paragraph 39(iii) of the Amended Statement of Claim, the plaintiffs say: (i) as to paragraph 19(i), the plaintiffs repeat, with respect to paragraph 19, the particulars provided with respect to paragraph 14 referred to in sub-paragraph (a)(i) above and the particulars provided with respect to paragraph 17 referred to in sub-paragraph (a)(iv) above; (ii) as to paragraph 20, the plaintiffs repeat the particulars referred to in sub-paragraph (i) above; (iii) as to paragraph 21, the plaintiffs repeat the particulars referred to in sub-paragraph (i) above; (iv) as to paragraph 22, the plaintiffs repeat the particulars referred to in sub-paragraph (ii) above and say further that each of the matters pleaded in sub-paragraphs (a), (b), (c) and (d) of paragraph 22 of the Amended Statement of Claim were matters that were known to the fourth defendant by reason of his involvement and participation in the transactions summarised as the "Sale Agreement" (but not the auction agreement) as pleaded and particularised. (c) With respect to sub-paragraph 39(iv), the plaintiffs say: (i) as to paragraph 24, the fourth defendant knew of the position of director and managing director held by the first defendant with the respective Continental companies and knew, and/or had one or more of the states of knowledge described in sub-paragraphs (b), (c) and (d) of paragraph 39, that by reason of those positions, the first defendant had the fiduciary duty pleaded; (ii) as to paragraph 25, particulars have been provided in paragraph 3 above and in sub-paragraphs (a) and (b) above in this paragraph 16. The matters pleaded in sub-paragraphs (i) and (ii) of paragraph 25 were known to the fourth defendant by reason of the fourth defendant's involvement and participation in the transactions as pleaded and particularised. 14 Whatever these answers may communicate is concealed behind a chain or fog of references and cross-references, and the particulars are of no real use for the defendants' task of recognising what is alleged against them and preparing to meet it, or for the court's task of recognising during the hearing what is in issue for the purpose of deciding evidence questions, and at the end of the hearing for the purpose of determining the issues. At this stage I am not concerned to decide whether the plaintiffs' case is a good case, if the allegations in the pleading are made out, or whether it should succeed; I am concerned with sufficient particularisation and with preparation for a fair trial without surprise. 15 The effect of paragraph 39 is that it is alleged that the second defendant had actual or constructive knowledge, in one of the four ways referred to, of every fact in paragraph 7 of the Amended Statement of Claim, and so on for each of many other paragraphs. For many of the facts that are alleged I do not find it possible to see how knowledge of them could contribute to the conclusion that the second defendant failed to observe the standards of an honest person, or otherwise how paragraphs 40 and 41 of the Amended Statement of Claim would be supported. However, the plaintiffs have chosen to make all the allegations, and they must give particulars of the knowledge alleged in a clear way. For some paragraphs in the Amended Statement of Claim which charge matters against the first defendant, for example, paragraph 9 which alleges that the first defendant knew or ought reasonably to have known that prices agreed by him for the hire purchase of motor vehicles were in excess of list prices recommended by Ford Australia, it can be seen how the knowledge of the second defendant of that fact might be relevant to some such conclusion. It is even more important that for those allegations also particulars should be given of the facts relied on in making the allegation of knowledge. 16 As the plaintiffs have chosen to make this mathematically complex web of allegations of knowledge and have chosen to allege that equitable remedies against these defendants are based on them, they should as a matter of procedural fairness be required to specify, allegation by allegation, for the information of each of these defendants and of the court, what facts are relied on in making the allegation of knowledge. As the pleadings stand, the particulars within the pleadings do not reveal any of this material, and do not serve the function of particulars by going beyond highly general allegations which they are said to particularise, and the purported particulars furnished in correspondence do not actually convey any further information. 17 The paragraphs which are formed on a similar model to paragraph 39 and 40 and which should also be particularised are the following: 42, 43, 45, 46, 49, 51, 53, 60, 61, 63, 64, 66, 70, 72, 74, 79, 80, 82, 83, 85, 86, 89, 91 and 93. 18 One function which I expect the particulars will serve is that, when the plaintiffs have to address what is meant by every one of the complicated web of some hundreds of allegations which are supported by paragraph 39 and other paragraphs of a similar model, the plaintiffs will confront the need to specify which of the allegations they substantially rely on, and many of them may well disappear. 19 If the position is, as submissions made by the plaintiff's solicitor to me appeared to indicate, although he did not speak so as to confine the pleading or bind the plaintiff, that all the matters of knowledge which are charged against the defendant are alleged to be things which the defendants knew and must have known because they were in business in the motor trade, it should be relatively simple for the plaintiffs to give particulars of what, on the face of things, is an enormously complex web of allegations, so as to identify those which the plaintiff regards as truly important and specify the circumstances in which it is alleged that it should be inferred that these defendants knew them. The observation was made that "they operate in this line of business and are able to recognise that each particular transaction is uncommercial to the point of dishonesty. Also they knew that there was a contractual right to a fleet discount and wilfully shut their eyes to the facts." If this is the real basis of the allegations on which liability is said to be based, it should not be hard to find a clear and direct way of saying so. 20 Order:

(1) Direct that the plaintiffs are to give particulars of the facts on which they rely in respect of each allegation of knowledge against each defendant, and in respect of each alternative form of the allegation of knowledge; and are to give such particulars separately in relation to each fact and matter to which an allegation of knowledge relates. The relevant allegations of knowledge are made in the paragraphs referred to in paragraph 17 of this judgment.

(2) Particulars are to be in writing and are to be filed and served within 14 days.

(3) Save as aforesaid the Notice of Motion of 6 March 2000 and Amended Notice of Motion of 27 March 2000 are dismissed.

(4) Each party's costs of the Notice of Motion and Amended Notice of Motion are costs in the proceedings.

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