because Richard Lim's initial EBITDA calculation was a bit higher (Fountainhead $975,000)."
21 The note sets out calculations of the way in which the figure of 15.95 million shares was arrived at for Fountainhead. It shows that the figures for earnings before interest, tax, depreciation and amortisation, as found by Mr Lim, had differed from those which had been assumed at the joint venturers' meeting of 28 November 2000. Instead of Fountainhead's earnings being $1.16 million they were found to be $933,000; instead of earnings for Mountain Valley, which is another name for Waterman, being $.62 million they were $615,000. Thus, the relative proportions of Fountainhead and Mountain Valley of the total earnings of the "Sydney group" were found by the auditor to be different to those which had been assumed, as well as the auditor finding that the total earnings of those two companies were less. Thus, the amount of 15.95 million shares agreed to be allocated to Fountainhead was actually less than the amount which would have been allocated in accordance with the figures which were assumed at the meeting of 28 November 2000.
22 However, that is not the totality of the evidence on this topic.
23 The evidence of the defendant also includes, as annexure F to the affidavit of Mr Conn, a memorandum which Mr Stone prepared on 22 April 2001. That memorandum was prepared at a time when the Palm Springs directors had become dissatisfied with Mr Darling's conduct concerning the bringing of the Lithgow Valley business into the joint venture and the directors were thinking about seeking an explanation from Mr Darling concerning those events.
24 Mr Stone's memorandum records some of the events of the negotiating meeting held on 28 November 2000 and (expanding abbreviations):
"Subsequently Mark Darling purchased the Lithgow Valley business for $1.075 million and then on-sold it as part of Fountainhead for four million Palm Spring shares and $322,500."
25 Mr Stone's memorandum also says that, since then, the Palm Springs directors had been made aware that.
"The information tabled by Mark Darling setting out the business of Lithgow Valley to be purchased, and upon which Palm Springs based the four million share consideration, was incorrect."
26 The memorandum records that Palm Springs directors believed they had been misinformed in relation to:
"The provision of incorrect financial information by Palm Springs directors and auditors resulting in an over allocation of Palm Springs shares to Mark Darling for the Lithgow Valley business."
27 I should also say that the evidence shows that the agreement for sale of shares had annexed to it a copy of the accounts of Fountainhead up to 30 June 2000. Those accounts included note 2, setting out events subsequent to balance date. One of the events listed is that:
"Fountainhead entered into an agreement to purchase Lithgow Valley Springs ( Sydney Bulk Division ) for $1,075,000." (emphasis added)
28 The ordinary meaning of this note would suggest that it was not the entirety of Lithgow Valley Springs which was purchased.
29 The approach which I take to the application of Pt 38 r 8 is that, in proceedings such as the present, which is brought by summons without pleadings, it is possible to use this rule to achieve, in effect, a summary dismissal of a defence which does not deserve to go to trial. That is not the only use which can be made of Pt 38 - as well it can be used to strike out material which is completely irrelevant or in some other way an abuse of the process of the court. When it is being used in the first way, however, it is appropriate that the court should use standards similar to those which are used for the summary striking out of claims and defences in accordance with General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; this requires it to be quite clear that the matter being struck out cannot succeed. However, as well, as General Steel also makes clear, detailed examination can sometimes be needed to show that a claim or defence is without substance.
30 In FAI Insurances Limited v. Pioneer Concrete Services (1987) 15 NSWLR 552 Young J helpfully summarised the authorities relating to an equitable defence of unclean hands. At 561 his Honour summarised the law by saying:
"However, the more one examines the rule in its application in the cases, the more one can see that it is only if the right being sought to be vindicated by the plaintiff in a court of equity, is one which if protected, would mean the plaintiff was taken advantage of his own wrong, that the court will either debar him from relief or perhaps say he is not a proper plaintiff in a representative suit."
31 Here, if an unclean hands defence were to succeed, it would be necessary for Palm Springs to show that, if Mr Darling were to obtain an order for rectification, and in consequence receive 15.95 million shares rather than 15.5 million shares, he would be receiving the advantage of his own wrong. It would be necessary for the defendant to show that the number of shares allotted to Mr Darling was fixed at 15.95 million in circumstances where conduct which equity would regard as bad behaviour on his part had led to that number being arrived at, or maintained.
32 As the summary of the evidence which I have given so far shows, there are some pieces of evidence on which it might be possible to conclude that the number of shares allotted was arrived at taking into account the availability of Lithgow Valley assets and that a breach of duty owed by Mr Darling to Palm Springs had played a role in that number being arrived at.
33 It is not appropriate on an application such as this for me to express a view about the strength of that case and I do not do so. All that is necessary is that I come to the view, which I have come to, that the case is not so clearly hopeless that it should not go to trial. Thus, those aspects of the affidavits which go to this possible unclean hands defence will remain.
34 There are two other aspects of the affidavit material which Mr Darling seeks to have struck out. One is material which details the circumstances in which he came to be dismissed from a position which he held for a short time in 2001 as an executive of Palm Springs. Those circumstances include, in part, the events relating to the bringing into the joint venture of Lithgow Valley. However, there were other matters of complaints which were raised by Palm Springs and were put to Mr Darling in the time leading up to his dismissal.
35 In so far as the Lithgow Valley events were put to him, his response is material which could be relevant to an assessment of what the truth was concerning those Lithgow Valley events. In so far as other matters of complaint were put to him, however, they seem to me to have no relevance. The complaints which were made were that he was incorrectly charging expenses to the company, taking holidays at inappropriate time, and a collection of other complaints about his performance. I cannot see that any of these matters, whether true or not, will assist the court in deciding whether Mr Darling has unclean hands in making his claim for rectification.
36 The second additional type of material which Mr Darling seeks to have struck out is material which is of an introductory or background nature but so remote that it does not affect the probabilities of matters in issue. There were several matters in the present affidavits which go back to events in the eighties; there were events in the nineties which are recounted which lead absolutely nowhere so far as a decision in this case is concerned. It would be a waste of Mr Darling's time and money to have to reply to this material in these circumstances where it leads nowhere. It is appropriate that this type of material is struck out.
37 The approach that I adopt to striking out evidence under Pt 38 r 8 is one which seeks to look to whether there is any substance in matters which are put forward. There are numerous passages in the affidavits of the defendant which are hopelessly bad in form and suggest that the draftsperson either did not know about or did not care about complying with the rules of evidence. Examples include:
"Mr McLaren and I were critical of Mr Darling towards the end of the conference and we obviously upset him when we again told him he wanted too much for his business and as a result he did not then speak to us for the rest of the conference."
"Many hours of discussion took place and it was agreed that Palm Springs proceed with the joint venture and purchase all of the companies owned by those present subject to Palm Springs auditors verifying the assets and liabilities of the company and another firm of chartered accountants were to examine the income and expenses, number of coolers, customers, etc. on behalf of Palm Springs."
38 It is not the task of the court on an application such as this to make ruling about such obviously bad evidence. Thus the rulings which I will now make are not intended in the slightest to influence the trial Judge, whoever he or she might be, in making rulings about admissibility of evidence at the trial. Rather, the rulings I make are ones which are directed to whether there is any substance in a defence involved in the material, or whether material is quite clearly incapable of affecting the probability of any fact in issue in the proceedings.
39 I make the following rulings:
40 In the affidavit of John Kenneth Bowman of 21 November 2001 I strike out par 2; in par 4 I strike out the third sentence beginning "I recall that" to the end of the paragraph; I strike out the whole of par 5; In par 6 the second sentence I strike out the words "and I believe that Mr Darling's business lost customers in this area."; the whole of par 7 is struck out; the whole of pars 9 and 10 are struck; the balance of the affidavit is not struck out.
41 In the affidavit of William John Conn of 21 November 2001 I strike out pars 34, 35 and 36.
42 In the affidavit of Patrick Charles Oliver Stone sworn 27 November 2001 I strike out pars 64 to 66; I should say that I have not struck out pars 60 to 63, notwithstanding that it contains hearsay, because of the approach I am taking to the substance of the matter; I strike out pars 68 to 79 inclusive.
43 In the affidavit of Adrian Schindler sworn 20 November 2001 I strike out par 5; in par 20 I strike out the second sentence to the end of par 20; I strike out par 21 to the end of the affidavit.
44 In the affidavit of Rodney John Kearns of 20 November 2001 I strike out par 39 to the end of the affidavit.
45 In the affidavit of Malina Kearns in par 2 I strike out from the second sentence beginning "At that time Mr Darling" to the end and the whole of pars 3 to 7 inclusive; I strike out par 39 to the end of the affidavit.
46 I mentioned before that this is a case which has been commenced by summons. The course of the argument before me has shown that the defence, at least, is a complex one. It seems to me that it is quite clear what Mr Darling's case is - he says that it was by mistake that the agreement for sale included the figure of 19.5 million shares rather than 19.95 million shares. However, the nature of the defences which Palm Springs seeks to rely on should, in my view, be more clearly articulated. Given the difference that there is between various deponents of the defendant, concerning the basis on which the precise number of shares allotted was arrived at, it is also appropriate that the defence of Palm Springs be verified.
47 I direct the defendant, on or before 4 p.m. on Thursday 26 September 2002, file and serve a document verified in the same manner as a defence, setting out all matters, other than simple traverses of claims made by the plaintiff, on which it seeks to rely by way of defence.
48 I have heard argument as to costs. Mr Darling submits that costs should be costs in the cause; Palm Springs submits that costs should be the defendant's costs in the cause. It is correct to say that the bulk of the material which was objected to by the plaintiff has remained on. It is also correct to say that some material objected to has been struck out. The material which has been struck out will, to some extent, shorten the trial. The plaintiff, before bringing these proceedings, wrote on 11 March 2002 inquiring how the defendant said the evidence which had been filed was relevant to an issue in the proceedings. That request was met with an uninformative answer. It seems to me that that is something which is appropriate to take into account in the order that I make. As well, if it were to be the case at trial that the defendant were to fail on the defence of unclean hands, it seems to me that it would not be appropriate for the plaintiff to then be required to bear its own costs of the challenge which has been made to the material. I think that the argument which has occurred today is something which will be bound to contribute to the ultimate resolution of the decision of the case in so far as unclean hands is concerned.
49 In those circumstances the appropriate order is that the costs of the motion be costs in the cause.
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