Deemah Marble & Granite Pty Ltd v Sutherland

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION 2460 of 2001 YOUNG CJ IN EQ

Thursday 30 August 2001 DEEMAH MARBLE & GRANITE PTY LTD v SUTHERLAND

Judgment 1 His Honour: This is a notice of motion filed by the second and third defendants for particulars. I heard the application last Monday, 27 August 2001, virtually on the papers, though with the assistance of helpful oral submissions by Mr Robert Newlinds of counsel for the plaintiffs and Mr Steve Stanton of counsel for the defendants. I then reserved judgment until this morning so I could thoroughly digest those submissions. 2 Basically the plaintiffs' claim against the second and third defendants is that:

(a) On 8 August 2000 the first plaintiff was wound up;

(b) The first plaintiff was insolvent from at least April 1999;

(c) The second defendant was a director of the first plaintiff from 16 May 1996 to 30 September 1999;

(d) The second defendant was a de facto director from 1 October 1999 to the date of the winding up;

(e) The second defendant owed the first plaintiff fiduciary duties;

(f) On 20 July 2000 the second defendant caused the first plaintiff to sell a major asset at an under value to the third defendant;

(g) The second defendant so structured that transaction that a retention of $200,000 would in any event be paid to the third defendant;

(h) The second defendant was at all material times a director of the third defendant;

(i) Additionally, the second defendant was a shareholder and director of Petank Holdings Pty Limited (Petank) to which company he made an uncommercial loan of $200,000;

(j) The second defendant caused the first plaintiff to pay out $430,000 classed as "management fees" when he knew no managerial services had been provided to the first plaintiff. 3 Mr Newlinds says the three principal issues in the proceedings are:

(3) the managerial fees. 4 Although a statement of claim has been filed, no defence has yet been filed, but the second and third defendants have sought quite copious particulars. The first defendants are a firm of solicitors who are more or less in the position of stockholders and have not taken any part in the current motion. 5 Essentially the particulars sought are particulars under seven heads, though there are a number of individual requests for particulars within those heads. The seven heads are:

(B) provide full particulars of the facts, matters and circumstances as to why it is said the second defendant was a de facto director;

(C) provide full particulars of the allegations that Deemah Singapore was in a better position than was demonstrated in the agreement;

(D) specify the facts and circumstances as to how the second defendant is alleged to have been aware that such figures were inaccurate;

(E) what is it alleged is the true value of the shares;

(F) what were the alleged circumstances of the loan to Petank;

(G) how is it alleged the second defendant knew the loan would be of no benefit to the first plaintiff. 6 Before dealing with the request under these heads, I should set out a basic summary of the principles that I need to apply:

(1) The basal function of particulars is to reduce costs by alerting the opponent to the scope of the real case being made so the opponent is not caught by surprise, nor does the opponent waste time and money in preparing to meet issues that the other party does not intend to raise: see eg Sims v Wran [1984] 1 NSWLR 317, 321 and Banque Commerciale SA (In Liquidation) v Akhil Holdings Limited (1990) 169 CLR 279 at 286.

(2) Particulars are supplied of the material facts pleaded as P.E. Joske J said in Trade Practices Commission v Total Australia (1975) 24 FLR 413, 417: "While the defendant is entitled to know the case it is called upon to meet, it is not entitled to be told the evidence that will be called to prove the case. A defendant is entitled to ask for the material facts upon which the plaintiff will rely and he may make his request for the facts and matters relied on, which is taken to mean the same thing. When he asks for the facts and circumstances relied on he is going beyond the scope of particulars, and is probing for evidence."

(3) However, every litigation lawyer knows it may be appropriate, in order to carry out the aim which I have stated in (1), it will almost be inevitable to disclose some of the evidence, and that if this happens, it is no answer that evidence must be disclosed by the giving of the particulars. See Sims v Wran at 321 and Wilson v Wilson (1952) 69 WN 358.

(4) The party's obligation is only to supply the best particulars he or she can supply, provided that after discovery those particulars are supplemented, if possible; see Marshall v Inter-Oceanic Steam Yachting Co (1885) 1 TLR 394.

(5) When one party has the means of knowing the real facts, ordinarily the opponent will not be ordered to supply particulars until after discovery: Millar v Harper (1888) 38 Ch D 110; TPC v CC (NSW) Pty Limited (1995) 131 ALR 581, 593.

(6) The degree of particularity depends upon the nature of the case: American Flange and Manufacturing Co Inc v Rheem Australia Pty Limited [1963] NSWR 1121, 1126.

(7) In equity, because other remedies may seem appropriate, and because evidence is filed by affidavit, the Court is less likely to order particulars and will not permit parties to slow down proceedings unjustifiably in their preparation for trial. This proposition is partly derived from the American Flange case and partly from the tactic used up to about 1980 by large firms acting for defendants, who created delays by constant requests for copious particulars, a worldwide phenomenon, as shown by the judgment of Wessels JA in the Appellate Division of the Supreme Court of South Africa in Moaki v Reckitt & Colman (Africa) Limited (1968) 3 SA 98, 102.

(8) The order for particulars is discretionary, the object being to ensure the efficient process of the Court. 7 With these principles in mind, I will briefly consider each of the heads.

(A) Insolvency. Mr Newlinds says the allegation of fact is that the company is insolvent, a term which is defined in the Corporations Act 2001 (Comm) and means that the company cannot pay its debts as and when they fall due. Any further information in relation to that allegation can only be evidence. The fact is pleaded. The defendants know the case being made against them. There will be no surprise. There is no basis for further particulars. 8 In any event, the defendants have been directed to a preliminary insolvency report prepared by the liquidators, which shows the facts and evidence on which the liquidators rely. 9 Mr Stanton, on the other hand, says that it is not for the defendants to "trawl" through copious material provided by the plaintiffs, it is the plaintiffs' obligation to direct the defendants' attention to the real case that is being made. He says: …particulars of that insolvency must be properly pleaded and in a fashion readily identifiable to avoid resort to a fishing expedition to literally trawl over the material which is only a preliminary report, and upon a fair reading of it, hardly indicative of particulars of insolvency. In any event, the pleadings should be drawn in such a manner that particulars of insolvency are manifest on the face of it as it is vital to the causes of action pleaded under the Corporations Act." 10 The concept of "no trawling" is a novel one, perhaps invented in opposition to the "no fishing" prohibition that plaintiffs put on defendants. So long as the defendant has material in affidavit form or otherwise, which the plaintiff seeks to read to prove insolvency, then ordinarily the defendant is aware of the scope of the case that the plaintiff proposes to put and how the material facts are being deployed against the defendant. 11 I have found no case where any particulars have been ordered of an allegation of insolvency, nor was any referred to by counsel. The standard approach in preference cases in this Division is to require the liquidator to supply his report as to insolvency with a reference to documents and ensuring access is available to the supporting documents. In my view, provided this is done, and it must be being done in the instant case, no further particulars are necessary, and if the defendant has to spend some time considering all those facts, rather than have them put in some sort of neat paragraph, that is just a fact of life of being a defendant. 12 (B) As to the claim that the second defendant was a de facto director, the plaintiffs' answer is:

(b) the material already filed shows upon what the plaintiffs are relying. 13 I do not think the first answer is sufficient. The defendants are entitled to the facts as to why the plaintiffs say that the second defendant was a de facto director. I cannot see in the evidence filed to date any such information; it may be in the exhibits which I have not seen. It may also be that the plaintiffs can only give limited particulars at this point of time and, accordingly, should not be required to do anything further until there have been interrogatories and discovery. 14 Again, this is a case where the information is in the knowledge of the second defendant, rather than in the liquidators of the first plaintiff. It seems to me that paragraphs 2 and 3 of the request for particulars, with reference to paragraph 9 of the statement of claim, are within what I have just said, and the defendants are entitled to some detail. I will not order them on this motion because I can be confident that the liquidators will take notice of what is said and will either point to passages in the exhibits, or alternatively, will give an answer as to what particulars they can supply at this stage. 15 Further, paragraphs 4, 5 and 7 in the request under this head seek particulars of each decision that was made by the second defendant. The defendants are not entitled to this. This is within their knowledge anyhow, and paragraph 6 is, in my view, adequately answered. 16 (C) Mr Newlinds says that the only particulars that could be provided would be in accordance with annexure A to Ms Exner's affidavit. He further says it is difficult to see what the parties' true position on this topic really is. It may be the position that the accounts were inadequate. This is a true expert issue about which both sides will serve appropriate evidence. It is not appropriate to make orders in relation to particulars at this stage. It does appear from the third defendant's case that such discrepancies exist and, accordingly, the Court could not be satisfied that the request is made in good faith. 17 I would not wish to rule on the second matter, but it does seem to me that in Ms Exner's affidavit sufficient answer has been given. In equity, where the affidavit does give the information as to how a plaintiff's case is proceeding, one cannot say the particulars are reasonably necessary and so they are not ordered. 18 (D) Paragraph 9 in the request for particulars asks for full particulars as to how the figures do not adequately reflect the true position of Deemah Singapore. In my mind the material provided in the affidavit of Y C Liaw and J R Gibbons of 1 June 2001 are sufficient material. 19 Under this heading there are also paragraphs 10 and 11. Mr Stanton says no particulars have been given of how the second defendant knew all the matters alleged in paragraph 25 of the statement of claim. This seems to me to be a simple allegation of a material fact for which you do not get particulars. In any event, because of cases such as Tait v Woods (1884) 1 WN (NSW) 61, these facts being within the knowledge of the defendants, the defendants are not entitled to particulars. 20 As to the alternative allegation that the second defendant ought to have known, particulars do need to be supplied. Fox v H Wood (Harrow) Limited [1963] 2 QB 601, 604. However, it seems to me the answer in the latest document that these particulars are as set out in paragraphs 9(a), (b), (c) and (h) and 10 of the statement of claim is adequate. 21 (E) There is no doubt that the defendants are entitled to particulars as to what is the true value of the relevant shares. However, it is clear from the material that the best particulars have been supplied to this point of time. After discovery and interrogatories more might then be ordered but not at this stage. 22 (F) It seems to me that an adequate answer has been given at this stage, as has been the case with (G). 23 Thus it seems to me that I should dismiss the notice of motion. However, it is on the basis that within fourteen days the plaintiffs will point to exhibits which show the facts alleged as to how the second defendant was a de facto director. 24 I should thus make directions that the defendants file and serve a verified defence by 20 September 2001. I stand the matter over to the Registrar's list on 24 September 2001 at 9.30 am for mention. The proper order for costs is that the plaintiffs' costs of the motion are to be the plaintiffs' costs in the cause.

Last Modified: 09/21/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.