The Pleading Issue
67Neither the Statement of Claim nor any version of it made an express claim for equitable or statutory compensation against Felicity. The first question to be decided in Felicity's appeal is whether, in those circumstances, it was open to the primary judge to award compensation against her.
68In the course of the hearing of the appeals, senior counsel for the plaintiffs and the Company propounded a proposed third further amended statement of claim containing an additional prayer for relief, being an order that Claude, Anthony and Felicity jointly pay to the Company such equitable compensation as the Court may determine to be appropriate. It was made clear that the additional prayer was intended to be an alternative to the prayers for the avoidance of the Transfers, not a prayer consequential upon such avoidance. The proposed third further amended statement of claim also seeks to extend the enquiry to determine the amount of compensation payable by Felicity to the Company, as well as by Claude and Anthony, and to extend the order to compensate the Company for damage suffered by reason of the contraventions to Felicity, as well as Claude and Anthony.
69If the allegations made in the Statement of Claim were established, it would follow, although it has never been pleaded expressly, that Felicity contravened the provisions of s 181 and s 182 of the Corporations Act, insofar as she was knowingly involved in Claude and Anthony's contraventions. Felicity's knowing involvement under s 79(c) of the Corporations Act was pleaded against her (see para [53] above). However, the absence of an express allegation that by reason of her knowing involvement Felicity was herself a contravener, coupled with the absence of any prayer for an order for compensation under s 1317H(1) against her, indicate that no claim was being made against Felicity beyond the prayers that the Transfers be set aside.
70There was apparently no reference to Felicity paying either equitable or statutory compensation in the course of the trial. Nevertheless, the Company relies upon the way the proceedings were conducted as justifying an order for compensation against Felicity, despite the failure to claim such relief in the final iteration of the Statement of Claim. It is therefore necessary to say something about the proceedings below.
71On 13 October 2011, shortly before the evidence ended, counsel for Claude and Anthony said that, on his understanding of the case, it would be necessary for the primary judge to make a determination of the value of the Shares if her Honour were of the view that there was a sale at a significant undervalue. Counsel referred to the fact that the relief sought was compensation and that even if that claim for compensation was for a buyout order at a particular price, rather than a money amount, her Honour could not grant it "without getting down to tin tacks on the figures". Counsel said that he was not sure how the plaintiffs were putting their case procedurally and said that, if they were able to persuade her Honour that there was a sale at an undervalue, the question would be "[w]hat next?". Counsel said that he was not sure what the plaintiffs' answer to that question would be but, in any event, his clients wanted the opportunity of having the submissions in writing.
72Senior counsel for the plaintiffs responded by saying that there was evidence as to the value of the Shares. He said that even if the primary judge were to determine their value, it would not necessarily be determinative of the equitable compensation payable. He pointed out that a separate order for a damages enquiry was claimed in the Statement of Claim. The primary judge observed that that was a different question and that the plaintiffs were asking the Court to look at the question of value to decide whether the Transfers were at an undervalue. Senior counsel for the plaintiffs accepted that to do so the Court would need to ascertain the true value of the Shares.
73At that point, senior counsel for Felicity intervened, indicating that he supported what counsel for Claude and Anthony had said. He said, however, that the case against Felicity was a little more complex in that it depended on imputed or constructive notice of matters that may or may not be breaches of fiduciary duty. He said that putting aside the allegation of intent to defraud creditors, and assuming oppression be found, there was a question as to whether the Court should grant relief tailored to Felicity. He said that the appropriate course would be for the plaintiffs to provide final written addresses and for Felicity to be entitled to respond.
74In the course of argument on the following day, counsel for the plaintiffs said that he had not yet dealt with the relief that his clients were actually seeking. He said that he was still awaiting final instructions but expected that the plaintiffs would seek the orders in the derivative proceedings, namely, that equitable compensation be paid to the Company by each of the defendants and that the Company be wound up and a liquidator appointed. Counsel for Claude and Anthony asked that a timetable for written submissions as to relief be fixed. Counsel for Felicity joined in asking for a timetable on the basis that the case against her was not spelt out to enable her properly to meet it. He said that the submission on behalf of the plaintiffs that had just finished was "a fairly broad brush". Counsel for Felicity did not respond to counsel for the plaintiffs' suggestion that his clients would be seeking orders that equitable compensation be paid to the Company by "each of the defendants". The reference to "each of the defendants" would logically include Felicity.
75It appears to have been accepted by the parties that the question of relief would be deferred until after the primary judge had reached her conclusions as to whether there had been breaches of fiduciary and statutory duties and oppressive conduct under the Corporations Act. While no formal orders were made to that effect, the fact that no written submissions were made on the question of relief immediately following the completion of the evidence is consistent with there having been a common understanding that the question of relief would be deferred. In her reasons of 27 April 2012, the primary judge directed "[a]s requested" that the matter be listed again for the parties to make submissions as to the appropriate relief.
76A directions hearing was held on 17 May 2012. Before that directions hearing, the plaintiffs and Claude and Anthony had prepared draft orders, but Felicity had not. At that directions hearing, senior counsel who had represented Felicity at trial was unable to attend, though junior counsel at trial did so. The primary judge asked counsel for Claude and Anthony, in relation to the date for the next directions hearing, whether it mattered that senior counsel for Felicity would again be away as "he is going to support your [Claude and Anthony's] submissions anyway". Counsel for Claude and Anthony said that he did know if that were the case. Junior counsel for Felicity then said that he also was "not so sure about that", as Felicity's "interest is slightly different to [Claude and Anthony's] because she wasn't a director and whether she is jointly and severally liable to each of the three components of damages is a question".
77The primary judge fixed the next directions hearing for the later date of 12 June 2012, when senior counsel for Felicity could attend and after written submissions were exchanged, rather than simply disposing of the matter after oral argument without senior counsel for Felicity being able to attend. Her Honour directed that junior and senior counsel for Felicity together propound their suggested orders and serve them on the other parties and send them to her Honour's chambers in the next few weeks.
78Thus, written submissions were exchanged concerning the competing versions of the proposed orders. The plaintiffs' submissions outlined the differences between the proposed orders. On the one hand, Claude and Anthony proposed a retransfer of the Shares and an enquiry as to any loss suffered by the Company, which would take into account allowances in favour of the defendants, as an alternative to equitable compensation. On the other hand, the plaintiffs contended that they were entitled to elect for equitable relief and that compensation orders were the most appropriate remedy since if the Company reacquired the CaTTO share, so that it owned half of CaTTO, it would be tied to a business controlled by Claude as a director of CaTTO and as the owner of the only other share in CaTTO. The plaintiffs also referred to the separate matter of compensation orders under the Corporations Act, indicating that such orders should be made for the reasons given in relation to equitable compensation.
79In her written submissions of 11 June 2012, Felicity pointed out that she was not a director, employee or agent of the Company, and that she herself did not breach any fiduciary duty as a director or officer of the Company. Rather, she said, she received the Shares as transferee and paid the consideration fixed. She said that there was no conduct on her part that affected the value of the Shares either before or after the Transfers. In those circumstances, she contended, an order for retransfer of the Shares was the only appropriate order against her.
80Felicity also submitted that the compensation for breach of fiduciary duty would be the amount required to restore the assets that the beneficiary was deprived of by the defaulting fiduciary. She submitted that that amount should be assessed as at the date when the restoration was to be effected, whether the value of the relevant assets to be restored had risen or fallen. She contended that the plaintiffs were not entitled to the declarations and orders in the form sought against her by the plaintiffs.
81Felicity asserted that the plaintiffs had not presented any case or adduced any evidence to the effect that the Company would and could have realised the Shares at the date of the Transfers at the value now proposed. She said that, at best, the plaintiffs were entitled merely to an order for an enquiry based on the present value of the Shares, rather than a declaration as to the quantum of compensation. She also pointed out that there were no specific findings of knowing involvement in relation to her under s 79(c) of the Corporations Act and contended that the principles of equitable compensation applied to compensation under s 1317H.
82Thus, it is clear that Felicity resisted the plaintiffs' claim that she was liable to pay equitable or statutory compensation to the Company. However, she made no complaint at that stage in the proceedings that that relief was not available because of a pleading deficiency.
83At the further hearing on 12 June 2012, counsel for Claude and Anthony said, in relation to the question of whether there should be an order for compensation, that a retransfer of the Shares was appropriate, coupled with an order for an enquiry as to the appropriate compensation. That was consistent with their written submissions. Counsel for Felicity adopted what counsel for Claude and Anthony had said, but not all of the orders proposed. Counsel for Claude and Anthony supported Felicity's position by saying that if there were to be an enquiry it should be confined to Claude and Anthony, as they were the directors of the Company and any breach was by them alone.
84Counsel for Felicity submitted that she should not be made a party to any enquiry for equitable compensation and that the only relief against her should be for retransfer of the Shares, with appropriate allowances. He said that if the primary judge were minded to order an enquiry, Felicity adopted Claude and Anthony's submissions as to the nature of the enquiry and that equitable compensation was to be assessed as at the end of the enquiry when the order is made.
85The primary judge observed that even if an order were made under s 1317H, it was difficult to accept that that was the damage suffered by the Company. Her Honour said that the plaintiffs' difficulty was the parties' approach at trial, namely, that the Court should receive all the evidence, make findings and only then allow the parties to argue for the appropriate relief. Her Honour said that the finding that the Transfers were at an undervalue was not a finding of damage under s 1317H(2). After a further exchange with her Honour concerning the question of profits, counsel for the plaintiffs agreed to provide the Court with a note on the question of timing of compensation under the Corporations Act. Her Honour said that she would require some assistance as to the way in which s 1317H(1) operated.
86Again, it was clear that Felicity was opposing any order that she pay compensation. Again, however, no complaint was made about any pleading deficiency. Indeed, it is fairly arguable that her opposition could only have been on the basis that Felicity's counsel understood the issue to have been fairly joined at that point, such that it would be possible for the primary judge to order compensation against her.
87The plaintiffs made a further written submission in relation to s 1317H on 13 June 2012. That prompted a response from Felicity on 14 June 2012, in which the pleading deficiency was raised for the first time. Counsel for Felicity asserted that the plaintiffs were not entitled to the orders sought against her under s 1317H because no order for equitable compensation or compensation under 1317H had ever been sought against her or litigated. Counsel for Felicity also said that no such order had ever been sought or litigated against Claude or Anthony either. The response said that there was no issue in the proceedings that any compensation or damages at all, or in any particular amount, should be ordered against or paid by Felicity to the Company.
88Counsel for the plaintiffs replied with a further written submission on 18 June 2012, asserting that no leave had been sought by Felicity to make submissions on whether orders for compensation were ever sought or litigated against her. The reply asserted that she had made numerous submissions on the topic and had even used that topic to make a belated claim for costs. The reply said that if submissions had been made at the appropriate time, during the hearing on the orders for final relief, the plaintiffs would have responded by referring to s 90(1) of the Civil Procedure Act 2005, r 36.1 of the Uniform Civil Procedure Rules 2005 and prayer 14 of the Statement of Claim for "such further or other order as the Court may see fit".
89Counsel for Felicity rejoined with a further written submission on 18 June 2012, saying that the plaintiffs appeared to be seeking to have orders made on the basis of a proposed further amendment to the Statement of Claim. He said that Felicity wished to be heard in relation to any proposed further amendment.
90In her further reasons of 24 July 2012, the primary judge concluded that the appropriate order in the circumstances was for the Company to be wound up, rather than for the Shares to be retransferred to the Company. Her Honour does not appear to have adverted to the dispute concerning the adequacy of the prayers for relief in the Statement of Claim.
91Her Honour dealt with the issue of the compensation order by saying that there was an issue as to whether, in the light of the judgment of 27 April 2012, an order for equitable compensation should be made at all. Her Honour was not satisfied that it was appropriate to order equitable compensation for the difference between the consideration that Felicity paid and the value of the Shares, as referred to in the earlier reasons. Rather, her Honour considered that there should be an enquiry in relation to the amount of compensation to be paid to the Company.
92Her Honour then referred to the issue as to the compensation sought by the plaintiffs under s 1317H against Claude and Anthony, and against Felicity. Her Honour referred to Felicity's submission that she had not been found liable under s 79(c) of the Corporations Act, despite the finding of knowing receipt being made against her, so that the orders under s 1317H could not involve her. Her Honour accepted that submission. However, her Honour does not appear to have addressed Felicity's complaint that no order for compensation should be made against her at all, whether statutory or equitable, as none had been pleaded.
93It is true that it was not until the heel of the hunt that Felicity complained that compensation was never claimed against her in any iteration of the Statement of Claim. However, a fair reading of it discloses no intention on the part of the plaintiffs to seek any such relief from her. True, there were suggestions in the course of argument that the claims for compensation made by the plaintiffs might extend to her, as well as to Claude and Anthony. Further, in arguing that compensation should not be ordered against Felicity, because she was no more than a third party to the breaches, counsel for Felicity could be taken, at least implicitly, to have accepted that compensation could be ordered against her. On the other hand, any failure by counsel for Felicity to respond to suggestions that the claims for compensation might extend to her must be considered in the context of the complete absence of any suggestion in the Statement of Claim, or any version of it, that such relief was being sought against Felicity.
94The relevant claim for relief against Felicity was for the avoidance of the Transfers and for her to retransfer the Shares to the Company. Curiously, there was a prayer for an order that Claude and Felicity purchase the shares in the Company itself. That relief, however, was not pursued. The alternative relief was for declarations that Felicity held the Shares on trust for the Company, together with an enquiry to determine the amount of compensation payable by Claude and Anthony to the Company.
95Under r 6.12(1), a statement of claim or summons must specifically state the relief claimed by the plaintiff. However, that requirement is not strictly enforced having regard to the provisions of the Civil Procedure Act 2005. Section 56 requires the just, quick and cheap resolution of the real issues in dispute, and s 22 and s 90 permit the Court to give such judgment as the nature of the case requires. More important still is r 36.1, which permits the Court at any stage of the proceedings to give such judgment or make such order as the nature of the case requires, whether or not the claim for relief extending to that judgment or order is included in any statement of claim or summons, that is to say, notwithstanding failure to comply with r 6.12(1). Further, s 63 of the Supreme Court Act 1970 requires the Court to determine proceedings finally and to grant all the remedies to which the parties are entitled. The effect of these various provisions, as well as the amplitude of the power of amendment in Pt 19 of the Rules, is generally that a party's failure to claim a particular form of relief in an originating process will not necessarily disentitle it from obtaining an appropriate order.
96Further, where parties agree about enlarging the scope of the dispute, the pleadings are not to be strictly enforced. For instance, fresh evidence that does not relate to the pleadings as they stand can be adduced. The governing principles are procedural fairness and not taking up too much of the Court's resources in a way that would be unjust to other litigants. It would not be unfair if submissions were made contemplating that relevant relief could be sought (see Wicks v Bennett [1921] HCA 57; 30 CLR 80 at 100).
97There was no express allegation in the Statement of Claim that Felicity contravened the Corporations Act. There was, however, the assertion, in para [155] of the Statement of Claim (see para [53] above), that she was liable for knowing involvement in Claude's and Anthony's breaches under s 79(c) of the Corporations Act.
98Under s 181(2), a person who is involved in a contravention of s 181(1) contravenes s 181(2). Under s 182(2) a person who is involved in the contravention of s 182(1) contravenes s 182(2). Section 1317H(1) then provides that a court may order a person to compensate a corporation if the person has contravened a civil penalty provision in relation to the corporation. Sections 181 and 182 are civil penalty provisions for that purpose. Thus, if Felicity was, by the operation of s 79, involved in the contraventions of s 181 and s 182 by Claude and Anthony, she could be the subject of an order under s 1317H.
99However, no such claim was made against her in the Statement of Claim. While it is the function of the Court, once a complaint is established, to formulate and mould the appropriate relief, it is necessary to have regard to the terms of the complaint as it is formulated in the relevant pleadings. In the present case, the only complaint made against Felicity, on a proper reading of the Statement of Claim, is that the Transfers to her should be set aside because she was knowingly involved in breaches of fiduciary duty or contraventions of the Corporations Act by Claude and Anthony. The complaint against Claude and Anthony, by stark contrast, is that they caused loss and damage to the Company. I do not consider that the function of the Court to mould and formulate the appropriate relief to give effect to the complaint against Felicity, that she received the Shares knowing that the Transfers involved breaches of fiduciary duty or contraventions of the Corporations Act, extended to granting relief in respect of a complaint, which had never been made, that Felicity had caused or occasioned damage or loss to the Company.
100It appears that the plaintiffs first made their claim for damages and compensation against Felicity in their written submissions after the evidence was complete. They did not ask the primary judge for leave to amend their prayers for relief to include claims for equitable damages or statutory compensation against Felicity. As I have indicated above, her Honour did not deal with Felicity's complaint that no such claim for relief was made against her, and it is not entirely clear why her Honour did not address that question.
101In this Court, the plaintiffs proffered an amendment to the Statement of Claim, whereby they sought the relief granted by the primary judge. Had that amendment been proffered to her Honour, it may well have been open to her Honour to grant leave to amend, on the ground that the amended pleading more fairly reflected the basis upon which the proceedings had been conducted. However, I am not persuaded that the proceedings were conducted on a basis different from that expressed in clear and unequivocal terms in the Statement of Claim.
102On the other hand, an appellate court is not in as favourable a position as the trial court when such questions arise. It is not always possible for an appellate court to perceive the nuances of the parties' conduct in a long trial in a way that would be apparent to a trial judge. While I do not consider that it was open to the primary judge to grant the relief on the basis of the pleadings as they stood, the tardiness of Felicity's complaint creates some disquiet. Clearly, the primary judge would be in a better position than this Court to determine whether leave should be granted to the plaintiffs to amend the Statement of Claim.
103In the circumstances, I consider that the order for an enquiry as to the existence and quantum of any loss to the Company should be set aside, insofar as it is for the purposes of making orders for equitable damages or statutory compensation to be paid by Felicity. The matter should be remitted to the primary judge for the purpose of considering any application for leave to amend that may be made on behalf of the plaintiffs. If leave to amend be refused, it would follow that there should be no order against Felicity for the payment of damages or compensation. If leave to amend were to be granted, it would then be open to the primary judge to make a further order for Felicity to pay equitable damages or statutory compensation, following an enquiry. Any further question as to the costs of the proceedings at first instance would be a matter for her Honour.