Frazer v SR7 Pty Limited and Ors

Judgment 1By Summons filed on 30 November 2012, the Plaintiff, Mr Peter Frazer, sought a mandatory injunction for delivery by the Defendants, SR7 Pty Limited ("SR7") and Messrs Daniel and Griffin, of certain documents; injunctions restraining the disposition of certain property; a declaration that a shareholders agreement was valid and binding on the shareholders in SR7; an order restraining the Company and Mr Daniel from paying any money to Mr Daniel until an equal amount of money as currently paid to him was paid to Mr Frazer and Mr Griffin; or alternatively orders for the appointment of a receiver and manager. That Summons also sought interlocutory relief. 2By Statement of Claim filed on 5 March 2013, Mr Frazer sought a declaration that a shareholders agreement alleged to have been executed by SR7 and Mr Griffin is valid and binding; a declaration that Mr Frazer had been oppressed within the meaning of s 232 of the Corporations Act 2001 (Cth) and an order that SR7 be wound up under s 233 or alternatively s 461(1)(k) of the Corporations Act. The relief claimed also included an order for damages against Messrs Daniel and Griffin, orders for contempt against Messrs Daniel and Griffin in respect of an alleged failure to comply with orders made by the Court on 4 December 2012 and an order that Mr Daniel pay to the Company or its liquidator the amount of $168,000 and other sums found to constitute a loan to him with interest. 3By a Notice of Motion filed on 27 March 2013, Messrs Daniel and Griffin apply to strike out the Statement of Claim or specified paragraphs of it under rule 14.28(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). UCPR r 14.28 permits the Court to order that the whole or any part of a pleading be struck out if the pleading, relevantly, has a tendency to cause prejudice, embarrassment or delay in the proceedings or is otherwise an abuse of the process of the Court. The reference to "embarrassment" in this rule is to the concept described by Tamberlin J in Shelton v National Roads & Motorists Assn Ltd [2004] FCA 1393 at [18]; (2004) 51 ACSR 278, namely that: "Embarrassment in this context refers to a pleading that is susceptible to various meanings, or contains inconsistent allegations, or in which alternatives are confusingly intermixed, or in which irrelevant allegations are made that tend to increase expense. This is not an exhaustive list of situations in which a pleading may be embarrassing ..." 4That observation was approved in McGuirk v University of New South Wales [2009] NSWSC 1424, where Johnson J noted (at [30], [33]) that a pleading is embarrassing when it is unintelligible, ambiguous, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him, or if the allegations are made at such a level of generality that the defendant does not know in advance the case he has to meet, and that the appropriate remedy in such a case is to strike out the pleading rather than to order the provision of particulars, as it is not the function of particulars to take the place of the necessary averments in a pleading. His Honour also observed (at [35]) that it is not the court's function to settle a party's pleading; the court is confined to the function of ensuring that pleadings are within the rules and fulfil the functions for which they exist; and the commingling of objectionable matter with other matter may lead to the conclusion that the pleading as a whole would tend to embarrass the fair trial of the action and ought to be struck out. 5In exercising the Court's power to strike out a Statement of Claim under UCPR r 14.28, the Court must have regard to the role of pleadings and must give effect to the overriding purpose stated in s 56(1) of the Civil Procedure Act 2005 (NSW), namely "to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings". Section 58(1) requires the Court to act in accordance with the dictates of justice, and s 58(2) requires that the overriding purpose specified in s 56(1) be taken into account. The role of pleadings includes to define the issues in the proceedings and provide the basis upon which evidence may be ruled admissible or inadmissible at trial upon the ground of relevance: Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 at 664. It is, of course, well-established that pleadings should state with sufficient clarity the case that must be met by a defendant and pleadings so as to define the issues for decision and ensure the basic requirements of procedural fairness, namely that a party should have the opportunity to meet a case against him or her: Banque Commerciale SA v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286, 296, 302-3. 6In Kirby v Sanderson Motors Pty Ltd [2002] NSWCA 44; (2001) 54 NSWLR 135 at 142-143, Hodgson JA (with whom Mason P and Handley JA agreed) in turn referred to: "The requirement for a pleading to state material facts which is to be found in the Rules includes the cause or causes of action which are relied upon. Materiality of facts means how those facts are material to a cause of action." 7In Gunns Ltd v Marr [2005] VSC 251 at [57], in a passage subsequently approved by Garling J in Young v Hones [2013] NSWSC 580 at [82], Bongiorno J observed that: "Not only must the pleading inform the defendants of the case they must meet now, but it must clearly set out the facts which the plaintiffs must assert to make good their claim with sufficient particularity to enable any eventual trial to be conducted fairly to all parties. Vague allegations on very significant matters may conceal claims which are merely speculative. If this be not the case, the plaintiffs must put their allegations clearly." 8In Downer Connect Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2008] VSC 77 at [2]-[4], Harper J (as he then was) observed that "one of the primary purposes [of pleadings] is to reveal to the opposite party how the party pleading puts its case", and then dealt with a common response to criticism of a pleading (which Mr Frazer advances here, as I will note below): "A complaint that the pleadings do not achieve this end is often met with the response that the opposite party knows very well, from documents and perhaps other sources, what the case against it is. This is no answer at all, at least unless the relevant documents are properly incorporated into the pleading. It is, as a general proposition, true to say that each pleading should be sufficient in itself. And although an element in an adversarial process, pleadings are themselves intended to be the opposite of adversarial, at least to the extent that they must, if they are to perform one of their proper functions, inform the opposite party of the case that party will have to meet at trial. But pleadings have another important audience: the Judge or Magistrate. In most cases, the opposite party will have the assistance of some knowledge of the factual background - some knowledge, in other words, of the facts against which the pleadings can be assessed. The tribunal of fact will never be in that position. The pleadings must therefore be drawn so as to allow the impartial and uninformed reader to know what the case is about. This end cannot be achieved unless the pleadings form a coherent narrative, of material fact, with the necessary detail included as particulars. They must be drawn with a careful eye to the evidence that will necessarily be called if the case is to be made out. If the party pleading does not have that evidence, then the case ought not go to trial. Indeed, it is generally true to say that it ought not to proceed beyond the point at which the party pleading appreciates, perhaps because the very act of pleading reveals it, that there is and will remain a gap in the evidence upon which the cause of action or defence is based and without which that cause of action or defence will fail." That passage was in turn approved by Ferguson J in Taylor v Lederman & Ors [2013] VSC 99 at [3]. 9The relevant authorities were summarised in McGuirk v University of New South Wales above at [21]-[35], where Johnson J noted that the function of pleadings is to state with sufficient clarity the case that must be met by a defendant, and pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her, and that proper pleading is of fundamental importance in assisting courts to achieve the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings, as prescribed by s 56 of the Civil Procedure Act 2005: McGuirk at [21], [24]. The pleaded allegations 10The Statement of Claim pleads that Mr Frazer holds 30 of the 90 ordinary shares in SR7 and Messrs Daniel and Griffin each hold 30 ordinary shares in the Company. The Statement of Claim then continues with several introductory paragraphs, which seem to provide a broad summary of the allegations made by Mr Frazer. These include a pleading, in paragraph 7, that Messrs Daniel and Griffin have breached unidentified sections of the Corporations Act and the following additional pleadings: "8. [Mr Frazer] asserts that [Mr Daniel] and [Mr Griffin] have conspired against [Mr Frazer] to unlawfully and in breach of the shareholder agreement, and/or in breach of their fiduciary duty to [Mr Frazer] and/or in breach of sec.232 of the Corporations Act 2001 to the detriment of [Mr Frazer]. 9. [Mr Frazer] asserts that [Mr Daniel] and [Mr Griffin] have in their dealings in respect to the [Company] acted in breach of the section 184 of the Corporations Act 2001 by in one or more of the following ways: being intentionally dishonest, or not acting in the best interests of the [Company], and/or not acting for proper purposes. 10. [Mr Frazer] says [Mr Daniel] and [Mr Griffin] acted negligently or lacked good faith in breach of express obligations under the shareholders agreement causing loss and damage to [Mr Frazer]." Paragraph 8 of the Statement of Claim appears to be ungrammatical or possibly to be missing matters that would complete the allegations sought to be made. Paragraph 9 of the pleading contains an allegation of intentional dishonesty, not linked to any other allegations of fact contained in the Statement of Claim. It seems to me that paragraphs 7-10 of the Statement of Claim are not proper pleadings. To the extent that material facts pleaded in the Statement of Claim are alleged to give rise to causes of action, those causes of action should be properly pleaded and not asserted in this general way. At best, the paragraphs are duplicative of matters later alleged in the Statement of Claim and, to the extent that they seek to expand Mr Frazer's claim beyond that otherwise pleaded, they do not properly plead it. 11Paragraph 16 of the Statement of Claim pleads that a shareholders agreement was prepared and approved by Messrs Frazer and Griffin who signed the document but not signed by Mr Daniel. It is pleaded that the management of SR7 was conducted by Messrs Frazer, Daniel and Griffin as shareholders and as if it was a quasi-partnership until May 2012 and that Mr Frazer worked continuously in the Company's business from the commencement of that business and continuing until May 2012 when he left the Company because of disputes he had "with [Mr Daniel] and not rectified by Mr [Griffin]". I accept the submission of Messrs Daniel and Griffin that that paragraph 16 is not appropriately pleaded, since, to the extent that the disputes between Mr Frazer and Mr Daniel are relevant, their nature, timing and circumstances needs to be identified. The relevance of the claim that the disputes were not rectified by Mr Griffin is also unclear, leaving uncertain whether it is suggested that Mr Griffin was under an obligation to rectify the disputes between Mr Frazer and Mr Daniel that was in some way breached, and what was the source of any such obligation. 12Numerous paragraphs of the Statement of Claim are in conclusory form, so that the pleading of facts is mixed with, and often obscured by, the asserted conclusions. For example, paragraph 17 reads as follows: "[Mr Frazer] left the employ of [the Company] on May 2012, partly but mainly because of the continual breaches of the shareholders agreement by [Mr Daniel] and [Mr Griffin] with respect to the payment of drawings equally to the shareholders and in circumstances where by May 2012: (a) [Mr Daniel] with the acquiescence of [Mr Griffin] was indebted to the Company in the sum of about $168,000; (b) Where [Mr Griffin] refused to enter a loan agreement and pay interest on what was a loan to [Mr Griffin]; (c) Where [Mr Griffin] failed to execute the shareholders agreement and in other circumstances pleaded in this Statement of Claim." 13In my view, paragraph 17 is not properly pleaded, so far as the provisions of the shareholders agreement that are alleged to have been breached are not identified, the acts or omissions constituting the alleged breach are not identified, and the paragraph does not make clear how Mr Daniel is bound by the shareholders agreement if, as alleged in paragraph 16, he has not signed it. This paragraph also mixes allegations of fact and allegations of breach, including the fact that Mr Frazer left SR7's employ; an allegation that there were continual breaches of unidentified terms of the shareholders agreement; that those breaches were "with respect to the payment of drawings equally to the shareholders", presumably because that did not occur; that Mr Daniel was indebted to SR7 in a specified sum; that Mr Griffin had refused to enter a loan agreement and pay interest upon a loan to Mr Daniel, and by reference to a range of other unidentified circumstances pleaded in the Statement of Claim. 14Paragraph 19 of the Statement of Claim alleges a conspiracy between Messrs Daniel and Griffin to conclude an arrangement for sale of the Company and its assets to a third party. The pleading does not identify the basis of the characterisation of this matter as a conspiracy and not merely an agreement. Paragraph 20 of the Statement of Claim alleges that Messrs Daniel and Griffin made an offer to acquire Mr Frazer's shares for no consideration other than the release of alleged personal liabilities of Mr Frazer, which is said to have been in "furtherance of their own interest" and "for the purpose of gaining a financial advantage for themselves", to which is added the parenthetical comment that it was the first of two such attempts. Particulars are then provided which do not have any obvious relationship with the allegation made. 15Paragraph 22 of the Statement of Claim in turn pleads: "[SR7] for whom Axis Legal asserted it represented fail to produce to [Mr Frazer] the Company's knowledge of the Letter of Intent ("LOI") referred to in paragraph 20(iii) or in the correspondence to [Mr Frazer's] solicitors Gells within its correspondence to Gells as particularised in paragraph 18." I accept the submission of Messrs Daniel and Griffin that this paragraph and, in particular, the concept of production of knowledge to Mr Frazer is obscure. Paragraph 23 then alleges that that failure: "was contrived by [Mr Daniel] and [Mr Griffin] with or without the express knowledge of the [Company's solicitors] for a purpose to conceal from [Mr Frazer] its then dealings with [the third party] and was an attempt to obtain a financial advantage to the detriment of [Mr Frazer]." This paragraph also seems to me to be confusing. In particular, the pleading does not identify any relevance of the fact that a step may or may not have been taken with the knowledge of the Company's solicitors, or of the alleged purpose, or of the attempt to obtain a financial advantage and what financial advantage was sought to be obtained. 16Paragraph 25 in turn pleads: "[Mr Frazer] had been informed by [SR7] and its Solicitors and/or [Mr Daniel and Mr Griffin] could reasonably have expected to join in the sale and earn not less than $2.5 million plus other bonuses dependent upon the utilisation of his intellectual property in what [third party] described as the "third party" Global Risk Services market." Again, this paragraph seems to me to be obscure. There may again be words missing from the first and second lines; it is not clear whether the reference to SR7 and the solicitors refers to the persons who informed Mr Frazer of something or instead to what Mr Frazer was told. It is also not clear whether the paragraph alleges simply that Mr Frazer had been informed of something, or whether it is also alleged that what he was informed of was the fact. The relevance of the information or the fact is also unclear. 17Paragraph 27 pleads that: "[Mr Daniel] thereby became in conflict of his interest to [Mr Frazer] and [SR7]. As a result it shall be alleged [Mr Daniel] used his position to attempt to coerce [third party] to assist [Mr Daniel's] ambition to financially disadvantage [SR7] and usurp [Mr Frazer's] reputation with [third party]." I accept Mr Daniel's and Mr Griffin's submission that this paragraph is also embarrassing. It begins with an allegation of conflict of interest, but the concept of an "interest" to Mr Frazer or to the Company, as distinct from a duty owed to Mr Frazer or the Company, is also obscure. The connection between that proposition and the allegation of coercion of the third party is unclear, and it is unclear whether it is alleged that the third party actually undertook any of the steps which Mr Daniel is alleged to have coerced it to assist Mr Daniel to undertake. 18Paragraph 33 of the Statement of Claim in turn alleges that: "During the conduct of the business of the Company, the Company by [Mr Daniel] and [Mr Griffin] permitted excessive money belonging to the Company for no benefit to the Company and/or for no commercial or benefit or purpose to the Company to be paid to [Mr Daniel] for his personal expenditure in circumstances where [Mr Daniel] was not entitled to such payments, the payment of the said funds was over and above that which was agreed to be paid to the shareholders." As Mr Daniel and Mr Griffin point out, this paragraph does not plead, as a matter of fact, what money was provided to Mr Daniel or when it was provided, or the terms of the alleged agreement as to what was to be paid by shareholders, by reference to which that money is excessive. I would add that the paragraph seems to me to be prolix and structured in a way that it would ultimately be very difficult to deduce what are the elements of any cause of action said to arise from it. Paragraph 34 in turns refers to payments contrary to an "equalisation program" which is said to have been determined at a shareholders meeting on 9 February 2011. Neither the terms of the equalisation program nor what occurred at the meeting on 9 February 2011 are pleaded. The paragraph concludes with a gratuitous reference to Mr Daniel's "extravagant lifestyle". In my view, the paragraph is also embarrassing. Paragraph 35 also refers to the release of funds contrary to the equalisation program, again in circumstances that its terms are not pleaded. 19Paragraph 36 in turn alleges unauthorised payment of monies to Mr Daniel by Mr Griffin, although the intent (not achieved by the terms of the pleading) seems to be to allege that Mr Griffin authorised payment of money not by himself but by the Company. The paragraph concludes with a rolled-up allegation of failure to act in good faith and in the best interests of the Company, improper use of position to gain an advantage for Mr Daniel and breach of a partnership agreement. Whether the "partnership agreement" is the same or a different agreement from the shareholders agreement is unclear, and the term of the partnership agreement or shareholder agreement which is alleged to have been breached is not identified. 20Several paragraphs of the Statement of Claim refer to "ad hoc payments" which are unidentified (for example, paragraphs 37-38). Paragraph 37 refers to unidentified oral statements; paragraph 40 refers to "ad hoc loans" which are also unidentified; paragraph 45 contends that a letter breached the shareholders agreement, without identifying the terms of the agreement that were breached or why they were breached; and paragraph 46 alleges non-disclosure of certain matters as to the bonuses and benefits which Mr Frazer, Mr Daniels and Mr Griffin would receive if a sale of SR7's business proceeded, where the underlying facts are not pleaded. Paragraph 52 of the Statement of Claim pleads: "Further the attempts and conduct was in breach of sec 180 and 183 Corporations Act." Neither the attempts nor the conduct referred to in this paragraph are identified. 21Paragraph 53 in turn pleads that: "On 4 December 2013 this Honourable Court made orders by consent. Notwithstanding the orders the Plaintiff asserts the Defendants are in breach of orders and the breach constitutes contempt, which as at the date of this Statement of Claim continues." Neither the orders, nor the conduct said to breach them, nor why that breach is of a nature to give rise to a finding of contempt of Court is identified and a very serious allegation is made without being properly pleaded. As Mr Daniel and Mr Griffin point out, this paragraph also does not comply with the procedural requirements of Part 55 rules 6 and 7 of the Supreme Court Rules, in respect of a claim for contempt, and that non-compliance is particularly serious given the seriousness of the allegation advanced. 22It would be possible, but it is not necessary, to continue this exercise for much of the Statement of Claim. The general structure of the Statement of Claim mixes pleadings of fact, allegations of law and pejorative language in a manner which makes it difficult to identify either the matters of fact on which the Plaintiff relies, or how those matters of fact are relied upon in any coherent way to give rise to a cause of action. 23Mr Frazer responds to these criticisms that he has served evidence in the proceedings which goes to the material matters in dispute and has alleged causes of action that are fairly arguable. Nonetheless, the function of a Statement of Claim is, as the authorities that I have set out above make clear, to identify the case which here the defendants have to meet, and they and the Court should not be left to seek to deduce that case from Mr Frazer's evidence. Even if the causes of action that Mr Frazer asserts are fairly arguable, that is not an answer to the proposition that they are not properly pleaded. Mr Frazer also contends that the Defendants have in their possession and control all of the relevant documents and materials that relate to the various transactions involving SR7. In that event, the proper course for Mr Frazer is either to plead such matters as he can properly plead, having regard to the matters now known to him, or to take such interlocutory steps as he is advised to obtain access to documents necessary to complete a proper pleading. In any case, it does not seem to me that the structural defects with the present pleading - or, indeed, the fact that many paragraphs are difficult to follow as a matter of language - are explicable by any deficiencies in the documents presently available to Mr Frazer. Mr Frazer also accepted in submissions, that the Statement of Claim contained "one or two typographical errors which need to be corrected". It seems to me that the matters to which I have referred above are much more substantial than that description acknowledges. 24Many of the individual paragraphs to which I have referred are embarrassing and should individually be struck out. However, I have reached the firm view that the totality of the Statement of Claim is not structured in a way that properly identifies the case which Messrs Daniel and Griffin have to meet, and that the Statement of Claim as a whole would tend in its present form to embarrass the fair trial of the action and would not advance the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. For these reasons, the Statement of Claim should be struck out. 25I will allow leave for the Plaintiff to file a further Statement of Claim, within a relatively short period, in order to seek to remedy the defects in the present pleading. I will hear the parties as to costs.