Idoport Pty Ltd & Anor v National Australia Bank Ltd & 8 Ors; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd

Page Paragraph An overview of the proceedings and the relevant pleading….… 2 5 The structure of the relevant paragraphs…….…………………. 3 9 Structure of the Pleading…………………………………………. 3 10 The manner in which the parties addressed submissions………. 4 11 The primary approach of the defendants……………………….. 4 12 The principles Interference with contractual relations………………………….. 5 13

State of Mind…………………………………………….………… 5 14 Outsiders influencing the independent volition of a contracting party……………………………………………… 6 17

The "acting bona fide within scope" issue……………………….. 19 51

Business Plans……………………………………………………… 26 70 Dealing with the balance of the defendants submissions Paragraph 54………………………………………………………. 34 88

Mr Krasnostein's knowledge……………………………………... 34 89 Knowledge of the substance of the obligations pleaded as implied terms………………………………………….. 34 91

Procuring breaches of contract…………………………………… 42 Issue 1………………………………………………………. 42 112 Issue 2………………………………………………………. 43 115

Participation in breaches of fiduciary obligation.……………….. 43 117 Particulars……………………..…………………………………… 44 120 Date from which leave to amend should run…………………….. 45 133

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION - COMMERCIAL LIST

50113/98 IDOPORT PTY LIMITED & ANOR v NATIONAL AUSTRALIA BANK LIMITED & 8 ORS

50026/99 IDOPORT PTY LIMITED & ANOR v DONALD ROBERT ARGUS

3991/00 IDOPORT PTY LIMITED ("JMG") v NATIONAL AUSTRALIA BANK

1 On 12 March 2001 a judgment was delivered in these proceedings ([2001] NSWSC 142) dealing with the first tranche of the amendments sought by the plaintiffs in the proposed Fourth Further Amended Statement of Claim ["the fourth statement of claim"]. It is now necessary to deal with the balance of the notice of motion filed on 5 March 2001 seeking the second tranche amendments which cover the causes of action now pursued against the individual defendants. 2 Perhaps the first point to be made is that one is dealing with no less than 112 pages of pleading requiring to be closely considered in terms of the second tranche amendments. At the same time the Court and the defendants must also cope with the 209 pages of particulars (which although also dealing with first tranche amendments, very substantially deal with second tranche amendments). 3 In these circumstances, where so much time and effort has obviously been made by the plaintiffs to plead their cases against the individual defendants, it may seem somewhat surprising that the defendants are content at this stage of the proceedings to assay the task of seeking to demonstrate that the cases sought to be propounded against the individual defendants are so clearly untenable that they cannot possibly succeed. However buoyed by both the statement of principle by Dixon J in Dey v Commissioner for Railways (New South Wales) (1949) 78 CLR 62 at 91 that "the fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceedings amounts to an abuse of process or is vexatious", as well as by the statement of principle by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (New South Wales) 1964 112, CLR 125 at 130, that "argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiffs is so clearly untenable that it cannot possibly succeed", the defendants have not been daunted by the task ahead of them. 4 To do justice to the defendants' submissions and of course to determine the application having heard submissions from both parties, the threshold difficulty is that the judgment requires to deal succinctly with the complex maze of pleaded paragraphs and particulars.

An overview of the proceedings and the relevant pleading 5 It seems inappropriate for the court to presently and at this stage in the proceedings launch into a detailed overview examination of the nature of the proceedings and of the central issues when, at least for present purposes, it should suffice for the reader to be referred to the interlocutory judgment dealing with the applications for appointment of receivers and managers and seeking injunctive relief ([1999] NSWSC 828). Whilst the pleadings have moved on considerably in a number of areas since the state of the pleadings on the occasion when that interlocutory hearing took place, the interlocutory judgment generally serves to outline, on an overview basis, the nature of the case sought to be made. 6 Both parties have generally accepted that the proper construction of the subject contracts is central to the determination of many of the fundamental issues litigated. 7 The plaintiffs, as the current version of the pleading which is now sought to be propounded makes plain, rely not only upon alleged express terms but also upon a number of implied terms. 8 The scheme of the pleading sought to be propounded is to allege: (a) breaches of contract by NAB; (b) breaches of contract by NMG; (c) that NAB procured and induced NMG to commit its breaches of contract; and (d) that the individual defendants procured and induced NAB and/or NMG to commit the alleged breaches of contract.

The structure of the relevant paragraphs 9 The plaintiffs seek to plead against the individual defendants principally on two causes of action. These are for the tort of procuring breaches of contract and for participation in breaches of fiduciary duty [cf paragraph 55.6]. Relief is also sought in terms of alleged contravention of Section 42 of the Fair Trading Act 1987 and participation in NAB's and NMG's alleged contravention of Section 52 of the Trade Practices Act and of Section 42 of the Fair Trading Act [cf paragraph 57.1 (5) (a) - (c)].

Structure of the pleading 10 The structure of the pleading against the individual defendants is broadly as follows: · Identification of the individual defendants' directorships and executive positions - [paragraph 54 on page 55]; · A series of paragraphs dealing seriatim with the alleged knowledge or state of awareness of individual defendants across particular timelines [paragraphs 54A - 54F]; · A series of paragraphs dealing with the 11 particular subject matter heads [paragraphs 54G.1 - 54DC and following]; · A series of paragraphs dealing seriatim with the alleged "wrongful conduct" of individual defendants, in each case concluding with paragraphs which [by reference to earlier paragraphs] assert that the individual defendant has caused and procured each of NMG and NAB to breach provisions of the Consulting Agreement and has caused, procured and assisted each of NAB and NMG to act in breach of fiduciary duty and has participated in NAB's and NMG's breaches of fiduciary duty [paragraphs 54DI - 54DM]; and · Paragraphs pleading the participation of the individual defendants in the alleged contraventions by NAB and NMG of the Trade Practices Act and Fair Trading Act [paragraphs 57.1-57.2].

The manner in which the parties addressed submissions 11 The approach to submissions in terms of the second tranche amendments was that the plaintiffs first sought to propound a particular set of amendments in terms of the cases against the individual defendants. The defendants addressed in detail in terms of the alleged shortcomings of that pleading. The plaintiffs then substantially reformulated the pleading sought to be propounded against the individual defendants. The defendants then addressed in terms of the alleged shortcomings of the new pleading and the plaintiffs replied. On a number of occasions written submissions were taken from each of the parties and both parties addressed from the bar table. In consequence the sequence of written submissions is difficult to follow as certain of those submissions were overtaken by events. The short summary of the written submissions before the court in terms of property is to be found that transcript pages 8077 - 8078.

The primary approach of the defendants 12 Outside of a number of matters of detail and certain miscellaneous matters the primary approach taken by the defendants in their final submissions was generally to assert that: (1) the pleading and the particulars continue to fall short of what is required in terms of the proper manner of pleading and particularising the requisite elements of the subject causes of action; (2) the very serious allegations now made in the final version of the further amended statement of claim sought to be propounded require a clear and cogent statement of the facts relied upon in support of those allegations-there being on the defendants' submissions, no such clear and cogent statement at this time. (3) the pleading of inducing breach of contract cannot stand for the reason that the individual defendants are not third parties who stand outside the contractual relation alleged to have been interfered with. They are said at all material times to have been directors of the relevant companies and as such the defendants submit that they cannot be made liable for the tort of inducing breach of contract where, in exercising their functions as directors, it may be posited on the pleading issue, that they have caused the company to breach its contract: Said v Butt (1920) 3 KB 497 at 506; O'Brien v Dawson (1942) 66 CLR 18 at 34. (4) the allegations made in the final version of the further amended statement of claim now sought to be propounded do not overcome the O'Brien v Dawson issue identified in (3).

Interference with contractual relations 13 It is convenient to commence with an examination of the relevant principles dealing with two aspects of this tort with which the parties submissions treated extensively. These are the relevant state of mind of the defendant and the requirement that the defendant be in the position of an outsider influencing the independent volition of a contracting party.

State of Mind 14 In Short v City Bank of Sydney (1912) 15 CLR 148 at 160, Isaacs J said that to constitute the cause of action for inducing a breach of contract: "… the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach." 15 The joint judgment of the New South Wales Court of Appeal (Sheller, Stein and Giles JJ) in Fightvision Pty Ltd v Onisforou and others (1999) 47 NSWLR 473 at 509, after citing the above passage from Short, put the matter as follows: "In summary, the defendant must know of the contract and sufficient of its terms to know that what the defendant induced or procured the party to the contract to do would be in breach of the contract. If the defendant knew of the existence of the contract but believed reasonably that what the defendant induced or procured the party to do was not a breach, or reasonably believed that the contract had been rescinded or performance waived, the defendant had not knowingly induced or procured the breach." 16 Later in the same judgment the Court at 512 said that the position might be stated as follows: "The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he had sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention."

Outsiders influencing the independent volition of a contracting party 17 It is quite plain that the person who commits the tort must be a third party, someone who stands outside the contractual relation being interfered with. The third party cannot be the alter ego of one of the parties to the contract [cf Rutherford v Poole [1953] VLR 130 at 135 per Herring CJ]. 18 O'Brien v Dawson (1941) 41 SR 295 (and in the High Court (1942) 66 CLR 18) involved the plaintiffs having sued a company and two of its directors for conspiracy to injure the plaintiffs, alleging that in pursuance of the conspiracy the defendants took possession of certain theatres and ejected the plaintiff from those theatres. On the evidence the plaintiff was shown to have been in occupation of the theatres under an agreement with the defendant company. The evidence was to the effect that the defendant company acting by the defendant directors terminated the agreement and ejected the plaintiff from the theatres. The verdict of the jury for the plaintiff was set aside by the Full Court and judgment ordered to be entered for the defendants, principally upon the ground that breach of contract by a company acting through the medium of its board of directors does not amount to a conspiracy. Judgments in both the Full Court and the High Court also dealt with whether or not breaches of contract by a company acting through the medium of its board of directors might amount to a tortious procurement of a breach of contract. 19 Jordan CJ in O'Brien v Dawson [41 SR 295 at 307] put the matter as follows: "The next question is whether, if an ordinary limited liability company is a party to a contract, and its directors acting as such, and in the course of conducting the company's business at a Board meeting, resolve that the company shall refuse to perform a contract to which it is a party, the directors knowing that the refusal cannot be legally justified, and effect is given to this resolution, the directors concerned are guilty of the tort-and presumably also of the crime-of conspiracy. I am of opinion that in such a case it is entirely artificial to speak of the directors as "procuring" the company to break its contract in the sense in which this word used in the Lumley v Gye type of case. An incorporated company is a figment of the law. It is incapable of acting except through agents. Its directors are persons who have been authorised by the constituent members of the corporation to cause acts to be done on its behalf. They are its agents who have power to control it's acts. It cannot act at all except through them or through some other authorised agents. They are not in the position of outsiders who are influencing the independent volition of a contracting party who is capable of exercising volition for himself. It is their volition and theirs only which determines the making, the performance or the breach of the company's contract. In my opinion on the state of facts assumed, they stand in the same position as regards liability to a charge of conspiracy as do joint contractors. This is not to say that every boardroom constitutes an Alsatia in which persons may conspire to their heart's content and with complete impunity so long as they do so in the character of directors of a company and employ the machinery of their company for carrying their conspiracy into effect. It means only that the mere fact that the directors who determine whether or not a company shall perform the obligations of a contract are several in number makes them no more subject to the law of conspiracy then would be a single managing director if it were he who determined it…. Directors of a company are, however, personally responsible for any torts committed by their company in the procuring of which they are personally implicated … But there is authority for the proposition that the fact that one or more directors of a company acting as such , are the instruments by which the company, without just cause, refuses to perform a contract does not confer on the other party to the contract a right to sue directors in tort on the footing that they have procured a breach of contractual rights…" [emphasis added] 20 The judgment of McTiernan J. in the High Court O'Brien v Dawson [66 CLR 18 at 34] includes the following: "A commits an actionable wrong against B if he procures C to break its contract with B… Hence McCardie J said in Pratt v British Medical Association that it is necessary in dealing with actionable conspiracy to distinguish it at once the line of decisions which establish this proposition. He added: "An individual can commit the tort as effectively as an aggregate of persons. The effect of a conspiracy to commit a wrong within Lumley v Gye is of importance only in considering the weight of the acts alleged and the extent of the resultant damage…. But an action by the plaintiff would not lie against the company for procuring a breach of its own contract with him nor against the individual defendants on that cause of action if in terminating the agreement they were acting in pursuance of their authority as directors … There is no evidence that they were not acting in pursuance of that authority" 21 Starke J. at 32 put the matter as follows: "A company 'cannot act in its own person for it has no person' (Ferguson v Wilson (1866) 2 Ch.App 77 at 89). So it must of necessity act by directors, managers or other agents. The company, if it were guilty of a breach of its contract in this case, acted through its director, the respondent Doyle, but it is neither 'law nor sense' (Lagunas Nitrate Co.v Lagunas Syndicate (1899) 2 Ch 392 at 431) to say that Doyle in the exercise of his functions as a director of the company combined with it to do any unlawful act or become a joint tortfeasor. Again it is equally fallacious to assert that Doyle knowingly procured the company to break its contract. The acts of Doyle were the acts of the company and not his personal acts which involved him in any liability to the plaintiff . But I would add that it does not follow that a director of a company would escape personal liability under cover of the company's responsibility if he himself became an actor and invaded the plaintiffs rights , as by trespassing on his land, or seizing his goods and so forth. And for similar reasons the contention is equally untenable that Doyle and the respondent Dawson combined together or engaged in common in knowingly procuring a breach by the company of its contracts. Dawson if he is guilty of a breach of his contract with the plaintiff is of course liable in damages. And here, I think, there is some evidence that the company knowingly, through its director Doyle, procured the breach of Dawson's contract with the plaintiff. Doyle was I think, acting within the scope of his functions as a director of the company in procuring Dawson to terminate his employment with the plaintiff and to enter into an agreement with the company. It was an unlawful act of the company done through its director Doyle. But Doyle is not involved in the act otherwise than as a director. It was again the company's act." [emphasis added] 22 I take it as clear law that so long as a director is acting within the scope of his authority, the company is responsible for the acts of the director. In other words, the director's acts are the acts of the company. If the director could by acts within the scope of his authority, induce the company to breach a contract, then the invidious situation which would result would be that the company would be inducing a breach of its own contract. 23 This reasoning appears clear from Said v Butt (1920) 3 KB 497 where McCardie J dealt with proceedings in which the plaintiff, a Russian gentlemen of independent means went to the Alice Theatre to see a new play. The defendant, the managing director of the theatre company, gave orders to the attendants that the plaintiff was not to occupy his seat and his money was to be returned to him. In the result the plaintiff was refused admission to the performance. He sued the defendant on the ground that he had wrongfully and maliciously procured the company to breach the contract made when the plaintiff had purchased a ticket for a seat entitling him to view the performance. 24 McCardie J found against the plaintiff because he could not establish the existence of a contract and hence could not prove that the defendant had caused any breach of a contract. His Lordship further considered what would have been the position had there been a contract and observed that strange results would flow from treating servants acting within the scope of their authority as being liable in an action for interference with their employer's contract with another person. His Lordship said (at 504-505): "if the plaintiff is right in his contention, it seems to follow that whenever either a managing director or a board of directors, or a manager or other official of a company, causes or procures a breach by that company of its contract with a third person, each director or official will be liable to an action for damages, upon the principal of Lumley v Gye as for a tortious act. So, too, with the manager or other agent of a private firm, who does the like thing. This far-reaching result of the principle here suggested by the plaintiff is emphasised, when it is remembered that in an ordinary action for breach of contract the plaintiff recovers his pecuniary loss only: whereas in an action for wrongfully procuring a breach of contract the damages against the wrongdoer are at large, and may vastly exceed the sum recoverable in a mere claim for breach of contract against the contract …" 25 After making it plain that his Lordship had not been able to locate any decisions supporting the view that a servant could be liable in tort for procuring a breach of his masters contract with another, his Lordship continued (at 505-506): "But the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v Gye principle must therefore fail, just as it would fail if brought against the master himself for wrongfully the procuring a breach of his own contract…. To hold otherwise might create at least three actions whenever a managing director or other authorised agent knowingly procured a breach of the employer's contract. First, an action based on contract against the employer for the pecuniary loss caused by the breach of contract; secondly, an action for tort against the agent who had procured the breach of contract, wherein the damages would be at large and might include every element of annoyance, inconvenience, or in dignity; and thirdly, an action against the employer himself for the tort was wrong committed by his authorised agent in procuring the employer to break his contract with the plaintiff…. 26 His Lordship concluded with a holding in which the expression "acting bona fide within the scope of his authority" was used. This formulation occasions some difficulties of interpretation. I shall return to examine the matter ["the acting bona fide within scope issue"] below. 27 The essential proposition ["the O'Brien v Dawson principle"] is then that directors are not liable for the tort of inducing breach of contract where, in exercising their functions as directors and in acting within authority, they have caused the company to breach its contract. Hodgson CJ in Eq. As his Honour then was, had occasion in the recent decision Tsaprazis v Goldcrest Properties 2000 18 ACLC 285 at 288 to accept and apply this basal proposition. 28 Although as the defendants point out, it is correct that O'Brien v Dawson did not concern procurement of breach of contract but rather conspiracy, courts in Australia since that time have clearly correctly treated what was said in O'Brien on the subject of procurement of breach of contract as binding in terms of principle. The significance of the claim being one for conspiracy demonstrates that the doctrine extends to acts of the officer which caused his or her company to commit a tort. 29 Although the plaintiffs cited a number of authorities said to support their submissions as to the appropriate principles, in my view the O'Brien v Dawson principle is binding upon a court of first instance in this country. 30 There is no issue but that the individual defendants were from time to time directors or officers of either NAB or NMG or both. Indeed the essential gravamen of the cases pleaded and pursued relies upon the individual defendants having been directors or officers of the relevant companies at particular points in time in order to sheet home liability to NAB and NMG by the claim that it was through and by reason of the acts of the individual defendants that the companies themselves breached their contracts. Such a pleading is indeed far removed from any case that any director either acted as an entire stranger or acted wholly outside of his powers. [cf the words used by Mc Cardie J in Said v Butt] 31 In the latest version of the fourth further amended statement of claim sought to be propounded the plaintiffs have generally given the same or similar particulars in respect of the alleged liability of the individual defendants for the tort of inducing breaches of contract. It is convenient to simply set out the "particulars of liability of Mr Krasnostein as an individual," being particulars of paragraphs 54 DI.4 [see the corresponding paragraphs 54 DJ.4, 54 DK.4, 54 DL.4 and 54 DM.4]: Particulars of liability as individual

(a) Mr Krasnostein is and was at all material times an officer of NAB. As such he at all times was and acted at all times as a stranger to NMG, the NMG Group and their interests and was in the position of a third party in relation to NMG and the NMG Group, whether or not he purported to act as an officer of NMG and the NMG Group companies, or of NAB and of the NAB Group. (b) Further, Mr Krasnostein, to the extent he purported to act as an officer of NMG and NMG Group companies has not acted and continues to fail to act bona fide within the scope of his authority as an officer of NMG and of companies within the NMG Group: (i) See (a) above. (ii) Further, by the conduct pleaded in paragraphs 54 DI.1, DI.2, DI.3 and DI.4, he has acted in breach of and continues to act in breach of his general law and statutory duties as officer of NMG and of companies within the NMG Group: (A) at general law, he has failed to act honestly in the interests of and for the benefit of NMG and the NMG Group companies; and not to act in the interests of or for the benefit of persons other than NMG and the NMG Group companies; and not to act capriciously or wholly unreasonably; and not to act so as to place himself in a position of conflict with its [sic] duties and obligations as a fiduciary; and (B) he has acted in breach of his obligations as an officer of NMG and of companies within the NMG Group under and in contravention of section 232 of the Corporations Law (1990 - 1999) and (a) failed to act honestly in the exercise of his powers and in the discharge of the duties of his office, and (b) in the exercise of his powers and in the discharge of his duties, he has failed to exercise the degree of care and diligence that a reasonable person in a like position would exercise in the circumstances of NMG and of the companies within the NMG Group of which he was an officer, and (c) he has made improper use of his position to gain directly and indirectly an advantage for NAB and to cause detriment to NMG and of companies within the NMG Group of which he was an officer; and (C) he continues to act in breach of his obligations as an officer of NMG and of companies within the NMG Group under and in contravention of sections 180, 181 and 182 of the Corporations Law (1999) by (a) in the exercise of his powers and in the discharge of his duties, failing to exercise the degree of care and diligence that a reasonable person in a like position would exercise in the circumstances of NMG and of companies within the NMG Group of which he is an officer occupying his office with the same responsibilities, and (b) failing to exercise his powers and discharge of duties of his office in good faith in the best interests of the corporation and for a proper purpose; and (c) improperly using of his position to gain directly and indirectly an advantage for NAB and to cause detriment to NMG and of companies within the NMG Group of which he was an officer. (c) Further, in the circumstances, the dominating concern of Mr Krasnostein was to carry out acts which in the light of his knowledge he knew to have the natural and probable consequences of depriving JMG of its contractual rights and benefits as asserted by JMG. 32 It should be noted that in the case of Messrs Courtney and McKimm, the two non executive directors of NMG and Ausmaq Systems, an additional sentence is to be found as the first sentence of particular (a). This sentence reads: "Mr [McKimm/Courtney] in fact acted at all material times substantially not in the interests of NAB and the NAB Group and without any or any sufficient substantial regard to the interests of NMG and NMG Group companies of which [each of them] was a director." 33 It is also appropriate to note that although Mr Argus is the sole defendant in proceedings 50026 of 1999, the version of the third amended statement of claim sought to be propounded in those proceedings is virtually precisely in the same form as the version of the fourth further amended statement of claim now sought to be propounded in proceedings 50113 of 1998. Hence although one must look for example to the third amended statement of claim in the Argus proceedings in order to locate the paragraphs dealing with alleged wrongful conduct of Mr Argus, the convenient course is simply to proceed on the basis that these reasons are intended to also cover the claim against him for the tort of inducement of breach of contract. The allegation against him is that he was at material times the chief executive officer and managing director of NAB being succeeded in that role by Mr Cicutto. 34 In the circumstances and notwithstanding the extent and detail of the alleged actions of the individual defendants to be found in the proposed amended pleading and in the particulars, subject only to the acting bona fide within scope issue, the substantial question as it seems to me, which is raised by the defendants, is whether the O'Brien v Dawson principle puts the plaintiffs out of court in terms of a misconceived endeavour to ground a cause of action upon the proposition that a director acting within authority is capable of being said to have procured the company of which he is a director to break its contract. 35 The plaintiffs advance the proposition that there is or may be a relevance in the type of authority which on legal principle, the individual director may be seen to have held when binding the company by his conduct. The plaintiffs submit that it is possible to draw a distinction between the acts of a director which are carried out within actual authority and the acts of a director which are carried out within ostensible authority. The proposition is that a director, depending upon the facts, is capable of being held to have acted within ostensible authority but outside of actual authority and in that circumstance is capable of being held to have procured the company of which he is a director to breach its contract. [Transcript pages 8182.35, 8183.3] The submission appears to endeavour to outflank the O'Brien v Dawson principle by endeavouring to restrict that proposition to circumstances in which the director acted within actual authority. In short the plaintiffs seek to reformulate the O'Brien v Dawson principle to include the additional word which appears in parenthesis in the following reformulation: "The directors are not liable for the tort of inducing breach of contract where, in exercising their functions as directors and in acting within (actual) authority, they have caused the company to breach its contract".

The suggested reformulation would leave in place the proposition that when directors acting within ostensible authority have caused a company to breach it's contract, the directors may be liable for the tort of inducing breach of contract. 36 Mr Bathurst not only submitted that the plaintiffs' submissions were misconceived as a matter of law but also submitted that the plaintiffs' case was "on any view of the matter, an actual authority case." [transcript page 8190] 37 Originally the plaintiffs' central submission appeared to be that if a particular director was at a particular point in time on the board of both NMG and NAB and can be shown whilst at board meetings of NMG, to have acted in the sole interests of NAB and in a fashion antithetic to the interests of NMG, then this director, by reason of his undoubted (in that circumstance) breaches of fiduciary obligation owed to NMG, must be seen to have been acting outside of the authority conferred upon him by NMG to act as a director of that company. I would reject that submission. It seems to me that a director who acted in the way posited exposes himself to an action by NMG for breaches of fiduciary duty owed to it. He may clearly be liable for sundry breaches of the Corporations Law. He may be otherwise liable for example to creditors. However it seems to me that there is substantial authority for the proposition that none of this is to say that he acted outside of his authority. 38 The above approach seems to me to hold good regardless of whether the particular director may, for example have been a director of other companies within the NAB Group. Here again it seems to me that if the position posited be that the director was on the board of NAFM and also on the board of NMG and whilst on the board of NMG is to be taken as having acted in the sole interests of NAFM and/or NAB and in a fashion antithetic to the interests of NMG, none of this is to say that he acted outside of his authority. 39 To take the matter further, postulate one of the defendants having been at a material point in time, a director of one or more companies within the NAB group but not having been at that point in time on the board of NMG. It seems to me that it does not follow from the mere fact that in the course of his exercising his functions as a director of such company or companies, such a person is said to have caused one or more of such companies to itself cause NMG to breach its contract with JMG, he must be held to have acted outside of his authority to act as an instrument of the companies on whose boards he sat. 40 On principle and by definition, as long as the acts of such a director were acts within authority, the director cannot be said to have acted otherwise than as the alter ego of the company on who's board he sat at the time when the material decisions were made. On principle and by definition it is that company which must be said to have stood outside the contractual relation and to have interfered with it. On principle and by definition, the director in those posited situations is simply not acting in a personal capacity or otherwise than as the alter ego of the company which is said to have engaged in the subject conduct said to constitute the tort. 41 Ultimately but again subject to the acting bona fide within scope issue, the question becomes whether or not the plaintiffs have pleaded and particularised a case to the effect that the individual personal defendants personally became actors and invaded the plaintiffs rights, as would for example be possible if a company director personally seized a plaintiff's property or personally trespassed upon a plaintiff's land. Absent the element of becoming a personal actor in that sense, the director is simply not acting in his own person, his acts being in law no more than the acts of the corporate defendant. 42 Leaving to the side for the moment the position of Messrs Courtney and McKimm [which is dealt with below], notwithstanding the plaintiffs' submissions to the contrary I am unable to discern in the pleading or the particulars any case capable of amounting to the other individual defendant directors [including Mr Argus] being said to have so conducted themselves in any aspect of the subject litigation as to be capable of a resultant holding that they personally became actors thereby moving outside of their capacity as having acted as the instruments of the corporate defendants. In particular I am not persuaded that any of the submissions of the plaintiffs ( which seek to assert that the plaintiffs have pleaded or furnished particulars of conduct which, depending upon the facts, might establish personal involvement and liability on the part of these individual defendants for procuring breaches of contract) are of substance. [See paragraphs 11.13 of MFI P118] 43 At no stage during the plaintiffs opening address was I able to discern even a hint of a suggestion that the plaintiffs had pleaded or furnished particulars of conduct of these individual defendants which could be described as moving those defendants into the very different environment of having become personal actors rather than instruments of the corporate defendants. Nor am I able to discern any such hint from the latest version of the proposed pleading or particulars. No section of the pleadings or particulars alleges any form of personal interest of any of these individual defendants. To the contrary the pleadings expressly assert that these defendants acted in the interests of NAB. 44 Paragraph 54 serves to identify the formal positions of all of the individual defendants in terms of the relevant corporate defendants: "54 The Plaintiffs repeat from paragraphs 2, 3, 4, 5, 6 and 7 above the following facts and matters: (c) The fifth defendant, Mr Barnes, is and was at all material times an officer and employee of NAB and is the Managing Director of NAB and since 11 December 1997 has been a director of NAFM and was until on or about 29 April 1998 a director of and the Chairman of Directors of NMG and NMG's wholly owned subsidiaries Ausmaq Systems and AUSMAQ New Zealand Limited ("AUSMAQ New Zealand"). (d) The sixth defendant, Mr Cicutto, is and was at all material times an officer and employee of NAB, is the Managing Director and Chief Executive Officer of NAB, since on or about 9 March 1998 has been a director of NAFM, and since on or about 29 April 1998 has been a director and Chairman of Directors of NMG, Ausmaq Systems, and AUSMAQ New Zealand. (e) The seventh defendant, Mr Krasnostein, since in or about November 1996, is and was at all material times an officer and employee of NAB and is the General Counsel of the NAB Group and since on or about 19 November 1996 has been a director of Ausmaq Systems, and since on or about 13 January 1997 has been a director of NMG, and since on or about 23 January 1997 has been a director of AUSMAQ New Zealand. (f) The eighth and ninth defendants, Mr Courtney and Mr McKimm, are and have at all material times been, directors of Ausmaq Systems since on or about 6 November 1996, and directors of NMG since on or about 13 January 1997." 45 A common form of paragraph wording which is to be found across the subject matter heads from paragraphs 54G .1 and following, is exemplified by paragraph 54T.4 (3) which is in the following terms: "By reason of the facts and matters pleaded in paragraphs 54T.1 to 54T.3 respectively in the case of each, at the time of the acts and matters pleaded in paragraphs 54O to 54R, each of Mr Krasnostein, Mr Courtney and Mr McKimm, (3)…acted with reckless indifference to JMG's rights, preferred the interests of NAB and the NAB group and acted predominantly for the benefit of NAB and the NAB Group and not in interests of or for the benefit of, but to the detriment of NMG and the NMG Group and JMG.…" [cf paragraph 54DH.7 in the Argus pleading to like effect] 46 Again leaving to the side questions as to the position of Messrs Courtney and McKimm, these are not allegations consistent with a case that any of the remaining individual defendants [including Mr Argus] became personal actors at any point in time. No case is pleaded or particularised to the effect that these individual defendants were manifestly or at all, joint participants (acting personally) with the corporate defendants. 47 Finally, and if the plaintiffs' contentions concerning the distinction between actual and ostensible authority had any relevance to the issue (which in my view they do not), it is convenient to briefly refer to the general principles. 48 In Northside Developments Pty Ltd v Registrar General (1989) 170 CLR 146 Brennan J. (as His Honour then was) at 171-172 set out those general principles in the following terms: "A company, being a corporation, is a legal fiction. Its existence, capacities and activities are only such as the law attributes to it. The acts and omissions attributed to a company are perforce the acts and omissions of natural persons. A company is bound by an act done when the person who does it purports thereby to bind the company and that person is authorised to do so or the doing of the act is subsequently ratified… Authority for the purpose is derived either directly from the constitution of the company or from some antecedent act (typically, a resolution of the governing body) which is itself by on the company. As between a company and a party who deals with it, a company is bound by an act purporting to bind it not only when the person who does the act as the company's authority to bind it by that act but also when that person is held out by the company and in that authority and the party dealing with the company relies on that person's ostensible authority. Conversely, the company is not bound when the person who does the act has neither actual nor ostensible authority bind the company by doing the act which the other party asserts to be binding on the company. The foundation of ostensible authority is estoppel, as Diplock LJ pointed out in Freeman & Lockyer v Buckhurst Properties (Mangal) Ltd: "An 'apparent' or 'ostensible' authority…is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To be relationship so created the agent is a stranger. He need not be (although the generally is) aware of the existence of the representation but you must not purport to make the agreement as principal all himself. The representation, when acted upon by the contract are by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract. Although Diplock LJ confined his observations to the ostensible authority of an agent to bind his principal to a contract, the principles he stated apply mutatis mutandis to authority to bind a company by other acts done purportedly on behalf of a company: see Armagas Ltd v Mundogas S.A." 49 Even had whole of the plaintiffs' submissions concerning the distinction between actual and ostensible authority been relevant to the issue, the submissions are in my view misconceived in any event as the pleading and particularisation of the plaintiffs' case [see for example the conduct described under the 11 subject matter heads, paragraphs 54G.1 - 54DC] simply do not give rise to any conceivable question as to ostensible authority, this not being a case in which issues concerning any form of representation by estoppel capable of being relied upon by third parties are raised as part of the inducing breach of contract causes of action. The pleading and particulars do not suggest any legal relationship between any of NAB Group Company defendants and any other relevant contractor of the type referred to by Diplock LJ. 50 In the result, subject only to the acting bona fide within scope issue, the plaintiffs, construct is fatally flawed. One is not dealing with questions of matters of fact which required to be litigated. One is dealing with the pleading and the particulars to the pleading. Outside of possible questions as to the position of Messrs Courtney and McKimm, the plaintiffs have pleaded and particularised a case of the other individual defendants [including Mr Argus] acting within authority as officers or instruments of relevant corporate defendants for the purpose of sheeting home liability for breaches of contract to those corporate defendants. At no stage through their submissions on this application have they submitted that their cases against these individual defendants are put on the basis that these defendants conduct described under the 11 particular subject heads [pleading paragraphs 54G.1 - 54DC], was conduct carried on outside of some form of authority conferred by relevant corporate defendants upon those personal defendants.

The acting bona fide within scope issue 51 It is convenient to return to examine this issue which has its apparent source in the following passage from the judgment of McCardie J in Said v Butt at 506: "I hold that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken. I abstain from expressing any opinion as to the law which may apply if a servant, acting as an entire stranger, or wholly outside the range of his powers, procures his master to wrongfully break a contract with a third person " [emphasis added] 52 In D.C Thomson and Company Limited [1952] Ch 680-681), Evershed MR cited this passage with approval. He added at 681: "As was pointed out by Mr Gardiner, so long as the servant acted within the scope of his authority, the master would be responsible for the act of the servant; in other words, the servant's acts would be the master's acts, and the curious situation would then result that the master would be inducing a breach of his own contract. Quite plainly, he could not be sued both for breach of contract and also for inducing his own breach-in the latter event, the damages being at large. So much, I think, emerged from the case of Said v Butt". 53 The plaintiffs also seize upon the above holding by McCardie J in Said v Butt [dealing with a servant acting bona fide within the scope of his authority procuring or causing the breach of a contract between his employer and a third person not thereby becoming liable to an action of tort at the suit of the person whose contract has thereby been broken] and submit that the plaintiffs are entitled to plead and to litigate the issue of whether or not the relevant acts and conduct of the individual defendants were otherwise than bona fide within the scope of their authority. The submissions focus upon the suggested uncertainty as a matter of law and of fact as to what constitutes a director's acts which may be seen to fall within the description, "acts carried out bona fide within the scope of authority". 54 The proposition for which the plaintiffs contend is that the issues raised must involve determination of questions of fact which cannot be decided on a strike out application. The submission is that the question of what is "bona fide within the scope of authority" is not limited to nor determined by questions of actual authority and raises complex questions of fact, or of law and fact. The submission is that the issue is whether or not the tortfeasor officer has placed himself in such a position as to be independently liable as a wrongdoer. 55 The use of the words 'acting bona fide within the scope of his authority' or 'acting in the interests of the company' raise a number of questions as to precisely what is meant. 56 One such question is as to whether the words are to be read as: (i) acting bona fide and within the scope of his authority/in the interests of the company or (ii) acting bona fide or within the scope of his authority/in the interests of the company. 57 The plaintiffs cited a Canadian authority which appears not only to endorse the conjunctive interpretation but to extend the principles by a further formulation. In Imperial Oil Ltd v C & G Ltd 1989 62 DLR. (4th) 261, a decision of the Newfoundland Court of Appeal, Marshall JA. delivering the judgment of the court said inter alia: "A director will be immune from liability for procuring the breach where he or she acts bona fide within the scope of his or her authority in the best interests of the company. When not so acting, the director does not attract automatic liability unless the circumstances show that his or her dominating concern was focused upon depriving the complainant of its contractual benefits . Company directors may, therefore, incur liability for instigating a breach of contractual obligations by the company whose affairs they are directing. That liability will, however, have to be weighed against the individual director's duty to the company and will depend upon the circumstances of each case." [at 266-267] [emphasis added] 58 As the extract from the plaintiffs' reformulated pleading set out above [see paragraph 31] makes plain, the plaintiffs seize upon this formulation of 'dominating concern'. 59 This decision is referred to in Balkin and Davis, Law of Torts, 2nd ed, Butterworths 1996 page 607 at footnote 53. The footnote appears at the end of the paragraph reading: "If the party whose breach of contract is complained about is a company, the injured person will not be permitted, as a general rule, to allege that a director of the company has induced it to act contrary to its contractual obligations. The director is regarded as the alter ego of the company so that to allege that the director has induced a breach of the company's contract is seen as equivalent to alleging that a natural person has induced him or herself to hinder performance of a bargain. The suggestion has, however, been made that a director may be personally liable for this tort if it is shown that he or she has not acted bona fide and has acted outside the scope of authority." 60 The footnote refers also to Cook Strait Skyferry Ltd v Dennis Thomson International Ltd [1993] 2 NZLR 72 at 78. That was a decision by Master Kennedy-Grant of the New Zealand High Court. Master Kennedy-Grant held that a director of a company could be liable for procuring a breach of contract by the company of which he was a director if he did not act bona fide or did not act within the scope of his authority and that it was a matter of fact whether the particular director had acted outside the scope of his authority so that it could not be said that the causes of action alleging procurement of breach of contract would not succeed. Master Kennedy-Grant essentially followed a decision of Gault J in Centrepac Partnership and others v Foreign Currency Consultants Ltd (1989) 4 NZCLC 64,940. The approach taken by Master Kennedy-Grant in interpreting a passage from the decision in Centrepac was to view the relevant passage as implicitly accepting that a director could be liable for procuring a breach of contract by the company of which he was a director. The inference was that significance required to be placed upon the express abstention by McCardie J in Said v Butt from expressing any opinion as to the law which may apply if a servant acting as an entire stranger, or wholly outside the range of his powers, procured his master to wrongfully break a contract with a third person. 61 In Ridgeway Maritime Inc v Beulah Wings Ltd [The "Leon"] 1991 2 Lloyds Law Rep 611 which is also referred to in the footnote to Balkin and Davis, Waller J at 624 - 625 having referred to a number of authorities, also dealt with the question of the proper meaning of the words "bona fide in the interests of the company" and put the matter as follows: "I do not find those authorities very helpful in the context of deciding when a director or an employee can be liable for inducing the company for which he works to break its contract. It seems to me to be a very different question as to whether an employee is personally liable for a tort committed by the company in which the employee may have been personally involved as compared with whether the employee takes on personal liability in relation to breach of a contract which the company entered into. It is relatively easy to see that some complicity in the commission of the tort may and should render an individual liable, but it is certainly not right that simple complicity in a breach of contract by the company should render the individual liable. There certainly are well-known circumstances in which an employee may be liable for inducing a breach of contract where the employee is himself acting unlawfully including in breach of his own contract with his employer. Mr Joseph suggested (following Clerk & Lindsell) that if the employee or director were not acting "bona fide" then he could be liable for procuring a breach. I find the words "bona fide", if they are meant to add anything to acting unlawfully, quite difficult in this context. Do they contemplate that an individual who knows that what he is doing will lead to the company being in breach of contract being somebody not acting bona fide? Or do the words bona fide relate to the relationship of the individual with the company i.e. if he is seeking to force the company to do something contrary to its own interests? If the latter, I am not satisfied that without the action of the employee also being a breach of contract or legal duty to the employer , it could found an action in tort for inducing a breach." [emphasis added] 62 It may seem curious that no Australian Court appears to have had to deal with a claim that a director was liable for the tort of inducing a breach of contract between the company of which he was a director and a third party on the basis that his acts in procuring the company to breach the contract, were acts carried out otherwise than bona fide in the interests of the company with the result that he must be regarded as having acted as an entire stranger to the company and/or as having acted wholly outside the range of his powers. 63 Nor have I been able to locate in any of the decisions cited by the plaintiffs any authority binding upon this Court to support the proposition emphasised in the above excerpt from Imperial Oil. And notwithstanding the detailed analysis of principle to be found in Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980 [unreported Federal Court of Australia, August 2000 - Finkelstein J] it seems that his Honour accepted the proposition that directors are not liable for the tort of inducing breach of contract, where, in exercising their functions as directors, they have caused the company to breach a contract. It is important to bear in mind the distinction between on the one hand, the area of discourse with which the pleadings in the present proceedings and this judgment are concerned, namely the tort of inducing breach of contract (which treats with the intentional interference with economic relationships), and on the other hand, the principles applicable to particular torts such as trespass or conversion or the statutory tort of infringement of copyright. Certain of those distinctions are pointed up by observations made by Lindgren J in a case involving a directors liability for copyright infringement, Microsoft Corporate v Auschina Polaris Pty Ltd 1996 36 IPR 225 at 236 in comparing situations in which there have been dealings between the plaintiffs and the corporate wrongdoer ("dealings cases") and cases in which there have not. Presumably the distinction is the reason why one finds no reference to O'Brien v Dawson in decisions such as Microsoft or King v Milpurrurru (1996) 66 FCR 474. Lindgren J put the matter as follows: "In my view, it is important at the outset to note two distinctions. The first distinction is between cases in which there have been dealings between the plaintiffs and the corporate wrongdoer (dealings cases) and cases in which there have not. An illustration of the former is the case in which the company and the directors are sued in respect of advice negligently given by the company through the director to the aggrieved party. In cases of that kind, a most important consideration intrudes: the plaintiff has consented to deal with the company as distinct from the director. Where the dealings are contractual, it is elementary that the outsider's rights are against the company, not the director who has represented it. It may be that concurrently with its contractual obligations the company has incurred commensurate or similar non-contractual obligations to the other contracting party. In contractual cases, the non-liability of the director has nothing to do with the limited liability of members of the company; cf s. 516 of the Corporations Law. A director is not liable for the company's breach of contract because the company, rather than the director, is the contracting party. It may be that a similar observation can be made in relation to a director's liability for those torts of the company which arise out of dealings between it and the aggrieved party. But the distinction between the director and the company is irrelevant where, as in the present case, there is no question of the aggrieved party having consented to deal with the company" 64 Returning to the instant proceedings the question for decision is whether the effect of the new pleading and particulars of liability of the individual defendants [see paragraph 54 D1.4 and corresponding paragraphs] with the express allegations that the directors failed to act bona fide within the scope of their authority as officers or directors of NMG and the NMG Group and the other allegations set out in paragraph 31 above, is that the plaintiffs' case cannot be said to be 'so clearly untenable that it cannot possibly succeed.' 65 Even if the correct principle be that the acts within authority, of a company director/officer in procuring the company to breach a contract with a third party, if constituting acts carried out otherwise than in the interests of the company, may lead to the director/officer being liable for inducing a breach of contract (which I very much doubt), the present pleading against all personal defendants with the exception of Messrs Courtney and McKimm, appears not to be able to take advantage of that principle. This is because at one and the same time as alleging that the individual defendants acted otherwise than in the interests of NMG (or otherwise breached their general law and statutory duties owed to NMG), the pleading and particulars squarely assert a case that the same individual defendants in so acting, were acting within authority as instruments (directors or officers) of NAB or of companies (other than NMG) within the NAB Group. Hence the plaintiffs in pointing at the conduct of these individual defendants said to be conduct carried out otherwise than bona fide in the interests of NMG, also plead and pursue a case to the effect that this very same conduct was carried out by these same defendant directors/officers acting as the alter ego of the NAB Group Company defendants. 66 The inevitable consequence seems clear. The plaintiffs seek to colour these individual defendants as having acted in a personal capacity when so conducting themselves as to cause NMG to breach its contract with JMG. The vehicle which they use in this endeavour is to suggest that these individual defendants acted otherwise than bona fide in the interests of NMG and/or breached duties at one time or another said to have been owed by them to be NMG. But at one and the same time as seeking to distance these individual defendants from their capacity as having acted as organs of NMG, the plaintiffs positively plead and assert a case to the effect that the very same conduct of these individual defendants [as in that exercise is said to have been conduct otherwise than bona fide in the interests of NMG and/or is to have constituted conduct in breach of duties owed to NMG], constitutes conduct of these individual defendants acting in their capacity as organs of NAB or companies within NAB Group. The forensic reason for the construct appears to be in order for the plaintiffs to sheet home liability for the conduct to NAB or other companies within the NAB Group. Whatever be the reason the construct simply does not run. 67 The position of Messrs. Courtney and McKimm may be seen to be somewhat different to that of the other personal defendants in this regard. This is because they are not said to have ever been directors, officers or employee's of NAB or of other NAB Group companies. The case is pleaded against them only as having been directors of NMG [it being common ground that they were the only non-executive directors]. 68 In the circumstances where the Court's holding will lead to a withholding of leave to plead the tort of inducing breach of contract as against Messrs Krasnostein, Cicutto, Barnes and Argus, it seems appropriate to reserve leave to both parties to address further submissions as to the altered landscape where only Messrs Courtney and McKimm may remain as arguable candidates for a pleading of the tort. In that circumstance I reserve for decision following receipt of further submissions, the question of whether or not the plaintiffs have failed to plead or particularise a case which on any view is capable of a resultant holding that Messrs Courtney or McKimm personally became actors thereby moving outside of their capacity as having acted as the instruments of NMG or of Ausmaq Systems. 69 In the result leave to plead the causes of action asserting that Messrs Krasnostein, Cicutto, Barnes and Argus induced breaches of contract is to be refused. The paragraphs of the statement of claim presently on the record pleading those causes of action against those defendants will be struck out. Costs of and occasioned by or relating to the causes of action disallowed will in accordance with the defendants' concession at transcript 6711 be reserved to be dealt with in the final judgment.

Business Plans 70 The plaintiffs seek to include amongst the amendments to the statement of claim which are pressed, a number of claims relating to the alleged submission by JMG prior to 30 September 1998, 30 September 1999 and 30 September 2000 of Business Plans for NMG, Ausmaq Systems and the Ausmaq Service for the years ending 30 September 1999, 2000 and 2001 respectively. The allegation is that the JMG Business Plans for the years ended 30 September 1999, 30 September 2000 and 30 September 2001 respectively provided for and recommended in substance the adoption and implementation of the JMG Business Plan for 1999, 2000 and 2001 years respectively with additions and variations [Proposed fourth further amended statement of claim at paragraph 54BS]. 71 It is common ground that the structure of the proposed pleading seeks to allege a failure by the corporate defendants NMG and NAB to take proper steps by way of putting into place actions to implement the JMG Business Plans which failure is to constitute relevant breaches of certain terms of the Consulting Agreement. 72 It is convenient to adopt an internal dictionary in relation to Business Plans: · The Business Plan which received specific reference in the Consulting Agreement (which required JMG to submit a draft of the proposed Business Plan within 45 days of the date of the Consulting agreement) (sometimes called "the scenario 1/2 Plan and being the plan in respect of which scenario 1 only is said to have been approved) will be referred to as "the 1997 Business Plan" · The Business Plan for the year 1 October 1997 up to 30 September 1998 will be referred to as "the 1998 Business Plan" and which is said to have provided for and recommended the adoption and implementation of the 1997 Business Plan. · The Business Plan for the year 1 October 1998 up to 30 September 1999 will be referred to as "the 1999 Business Plan". · The Business Plan for the year 1 October 1999 up to 30 September 2000 will be referred to as "the 2000 Business Plan". · The Business Plan for the year 1 October 2000 up to 30 September 2001 will be referred to as "the 2001 Business Plan". 73 The statement of claim form which predates the proposed fourth further amended statement of claim includes allegations in respect of:

The 1997 Business Plan · failure to approve the 1997 Business Plan [paragraph 50.2] · failure to implement the 1997 Business Plan [paragraph 50.9] The 1998 Business Plan · failure to approve the 1998 Business Plan [paragraph 50.4] · failure to permit and provide all things necessary for JMG to prepare and submit the 1998 Business Plan [paragraph 50.4]

The 1999 Business Plan · failure to permit and provide all things necessary for JMG to prepare and submit the 1999 Business Plan [paragraph 50.5] 74 The new proposed paragraph 54BU seeks to plead that in about September to November 1998, 1999 and 2000 respectively, the Boards of the NMG and of Ausmaq Systems decided not to adopt and disapproved the 1999, 2000 and 2001 JMG Business Plans. The following paragraphs seek to plead this conduct as breaches of terms of the Consultancy Agreement. 75 Hence it is put by the defendants that the effect of the amendments now sought to be propounded is that the plaintiffs wish to litigate the alleged fact and consequence of the failure to adopt (and indeed the disapproval of) the 1999, 2000 and 2001 JMG Business Plans. 76 The defendants submit that from a review of the pleadings these matters were not in the issue up to this point in time. 77 The defendants submit that in order to litigate these issues it would be necessary for an investigation to be carried out as to the respective merits of each of the subject plans and as to whether and to what extent NMG may have been better off had NMG proceeded to adopt one or more of the proposed 1999, 2000 and/or 2001 Business Plans. 78 Mr Lovell in his affidavit of 2 March 2001 dealt with the question of prejudice as follows: 'Paragraph 54BT of the draft 4FASOC pleads, amongst other things, that NAB approved business plans prepared and submitted by NMG and AUSMAQ System for the years ended 30 September 1999 and 30 September 2000, and it is pleaded in paragraph 54BU that the JMG business plans for those years, and for the year ending 30 September 2001, were rejected. It is alleged that, by so acting, each of Mr Krasnostein, Mr McKimm and Mr Courtney procured breaches of contract, and participated in breaches of fiduciary duty. If leave is granted to the plaintiffs to amend the statement of claim by adding paragraphs 54BM to 54BX, and subject to some specificity in particularisation, the defendants would investigate whether it may be necessary to adduce additional evidence to address those allegations. Those investigations would, in my view, need to deal with, amongst other things, the following matters: (a) the business plan process for the 1998/1999, 1999/2000 and 2000/2001 financial years, including NMG's and AUSMAQ System's reasons for adopting the business plans which were adopted in preference to the JMG plans; (b) major business decisions made by AUSMAQ during those financial years, including technical, marketing, financial and strategic decisions; (c) major business initiatives undertaken during those financial years, including clients targeted, clients signed up, key staff engaged and IT initiatives pursued; (d) the performance of the business during those financial years, including in relation to technical, marketing and financial issues; (e) contact with JMG; (f) the performance of JMG; and (g) the conduct of JMG. Paragraph 54BH, if leave is granted, would also (again subject to some specificity in particularisation) necessitate consideration of various of the factors outlined above, including (e) to (g) above. As well as dealing with these matters by initially considering whether it may be necessary to obtain evidence from potentially a number of witnesses at AUSMAQ, it would be necessary to take instructions from at least Mr Krasnostein, Mr McKimm and Mr Courtney on these matters, particularly their reasons for making the business decisions they did in those financial years. It would also be necessary to consider whether expert evidence is required as to the operations of the business for the period 1999 to 2001. It would also be necessary in this area to consider, in conjunction with Counsel, whether the matters revealed in the investigations, and in any evidence prepared, may need to be put in cross examination to witnesses, including Mr Maconochie, Mr Hume, Mr McMullan, Mr Bray and the sales and dealer witnesses.' 79 Mr Lovell gave evidence at transcript page 6489 as follows: Q "In relation to the matters you refer to, the investigation and possible evidence you refer to in paragraph 83, that's as to the business plans, who would be involved in that?" A "You're probably also then looking at taking statements from the directors were this amendment to be made. Again, you would need at least, I would have thought, two partners and probably three or four solicitors. The problem is they are going to be the same sort of partners and solicitors that are going to be working on the other matters as well, and particularly in circumstances where you have got individual defendants you have to take a fair bit of time, obviously, to explain what you're doing and why you're doing it because they are the individual defendants. They actually take longer in one sense than getting instructions just from the Bank" 80 Mr Garnsey QC submitted that the sole evidence which the plaintiffs would seek to adduce in respect of the 2000 and 2001 Business Plans was to be found in paragraphs 22.1 - 22.28 and 23.1 - 23.13 of Mr Maconochie's statement of 8 March 2001 MFI P116. [Transcript at page 7033]. 81 The burden of Mr Garnsey's submissions was that the plaintiffs have always pleaded a breach of terms of the Consultancy Agreement by way of a failure of the relevant corporate defendants to adopt and implement scenario 2 initially (at a point in time when only scenario 1 had been adopted) and that the plaintiffs had always pleaded the defendants relevant breach as including adoption of what has been referred to as the Meikle/Clark Business Plan in about August of 1997. His submission was that the plaintiffs claims were grounded upon and went no further than the proposition that the failure of the relevant corporate defendants to approve scenario 2 excluded the technical and commercial development of the Ausmaq System, excluded the global exploitation of that System and resulted in loss and damage occasioned to the plaintiffs which simply continued over the years. The submission was that the plaintiffs do not "seek to adduce any evidence in addition to the evidence that is already there about scenario 2 and the Meikle/Clark Business Plan,….to say the 2000 or the 2001 business plans have any effect on the damages that have otherwise been accrued". [Transcript at 7034]. 82 Mr Garnsey put the matter as follows: "our case is that there has been a continuing failure to implement scenario 2 and we say, yes, there is the failure. You adopted the Meikle/Clark Business Plan which was diametrically opposed to our business plan and scenario 2, and that is evidence of the failure. You adopted your plan for the next year, which is the same as Meikle/Clark and that is evidence of the failure. We say at the same time we have asked you to adopt scenario 2 in the form of the next business plan for the next year and you have refused, and that is further evidence of the failure and likewise, if your Honour pleases." [Transcript at 7037]. 83 On the plaintiffs' case the proposed amendments to introduce the new allegations concerning the additional Business Plans do not change the quantum of damages at all. [Transcript at 7032]. This was "because of the nature of the business plans, the nature of the Meikle/Clark Business Plan, and the fact that [JMG's business plans] had not been at all adopted, and the [adoption of] Meikle/Clark abandoned scenario 2 and just resulted in the stultification." [Transcript at 7032]. 84 At the same time Mr Garnsey answered in the affirmative the question from the Court: "Do the plaintiffs claim that there was a breach of contract or of fiduciary obligation in failure of the NMG to adopt or appropriately deal with in some way the 1999, 2000 and 2001 business plans?" [Transcript at 7034]. 85 To my mind the position is quite clear in that if the plaintiffs are to be granted leave to raise the new allegations in a pleading which pleads new breaches of the Consultancy Agreement then there can be no question of limiting the ambit of the issue. Either the plaintiffs are to be permitted to plead identified breaches of the Agreement and are then to be entitled to litigate the issue of whether those breaches occurred and whether any, and if so what, consequential loss flows from those breaches or they are not entitled to so plead and hence to litigate that issue. 86 The principles which are to be applied by the Court in dealing with an application for leave to amend have been referred to on a number of occasions in interlocutory judgments delivered in these proceedings. It suffices to simply repeat paragraphs 42-45 of the judgment delivered on 7 December 2000 [2000] NSWSC 1141 which were in turn set out in paragraph 12 of the Judgment delivered in relation to the first tranche of the amendments [2001] NSWSC 142: "In State of Queensland v J L Holdings Pty Ltd (1996) 189 CLR 146 the High Court carefully analysed the development up to January 14 1997, of approaches taken to the exercise of the discretion to permit amendments to pleadings. Generally that judgment of the High Court, without purporting to be exhaustive, serves to set out the types of consideration which ought to direct the mind of the decision maker on such applications. However, the court accepted that the trial judge is afforded a large discretion in relation to the exercise and that it would be unwise and contrary to principle to seek to fetter that discretion with rigid rules. The special significance of the decision is to direct the mind of the decision maker to many of the considerations which may be taken into account in exercising the discretion and to emphasise, if it needed to be emphasised, that justice is the paramount consideration in determining such an application. J L Holdings dealt, of course, with the particular circumstances before the court and whilst the general statements to be found in the joint judgment of Dawson, Gaudron and McHugh JJ and in the judgment of Kirby J assist a decision maker considerably, the obvious fact is that each and every case in which an application for leave to amend is pursued requires the court to deal with the special and peculiar matrix of circumstances which obtain at the material point in time in the litigation in respect of which such application is pursued. To my mind the following statements of principle affirmed in JL Holdings are fundamental and clearly and succinctly express the general approach to be taken: (a) "Now, I think it is a well established principle that the object of Courts is to decide the right of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself, and in conformity with what I have heard laid down by the under division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment has a matter of favour or of grace" [Cropper v Smith (188 4) 2 6 CH D 700 per Bowen LJ at 710] (b) "As the defence, if established, would be a complete answer in the either action, the amendments sought should have been an amount unless it appeared that injustice would thereby have been an occasion to the respondent, there being nothing to suggest fraud or improper concealment of the defence on the part of the appellants. With the exception of the suggestion of prejudice arising in respect of the loss of the possible claim against the nominal defendant, the matters relied upon by the respondent in opposition to the amendments sought go at the most to delay and irregularity only, matters which are relevant to costs by do not constitute injustice to the respondent in the sense in which that expression is used" [Clough v Rogers (1974) 48 ALJR 481 at 482] A recent development in this State, which the Court is also entitled and indeed required to take closely into account, relates to Part 1 of the Supreme Court Rules as modified by Amendment No 337, which elucidates the overall objectives of practices and procedures as specified in the Rules. The overriding purpose of the Rules is to facilitate the "just, quick and cheap resolution of the real issues" in civil proceedings. The overriding purpose clause imposes an obligation on the Court to give effect to the overriding purpose when it exercises any of its powers." 87 I have come to the view that the exercise of the court's discretion should be in favour of permitting these amendments on the basis only that there is to be a three week hiatus in the continued hearing. I take into account the defendants concession at transcript 8104.28 as well as the dynamic situation in which the extancy of the Consulting Agreement means that obligations such as requiring JMG to submit business plans, only crystallise following the commencement of the hearing. The situation is clearly an unusual one. The court will not sit during the last week of June or during the first two weeks of July. Consistently with the evidence given by Mr Lovell this period should in my view suffice to permit the defendants to stand back from the ongoing hearing and have a proper opportunity to work through precisely how to approach the new causes of action. It seems to me that the court is able within the constraints of the litigation to accommodate any prejudice to the defendants by appropriate orders. As pointed out in Idoport Pty Ltd v NAB [2000] NSWSC 1141 where the defendants obtained leave to amend although late to plead a substantive issue, a somewhat flexible approach is required to be taken in these proceedings where the scale of the litigation, the stakes in issue and the public interest most particularly require the Court to permit the parties to litigate substantive issues wherever practical and wherever case management procedures, as a matter of protecting the fair interests of the other party, seem capable of permitting this to occur. Whilst the 'enough is enough' proposition [see [2000] NSWSC 1141] is carefully taken into account, justice remains the paramount consideration in determining the application for leave to amend. The plaintiffs' evidence is the evidence served. The plaintiffs have accepted that if and to the extent that these amendments will lead to the defendants having to complement their evidence by additional statements and to the defendants having an entitlement at an appropriate time to recall earlier witnesses who have already been cross examined so as to further cross-examine those witnesses on the new issues, the grant of leave to amend must carry with it that entitlement. On that basis only leave to amend is granted. Costs of and occasioned by the amendment seem appropriate to be reserved.

Dealing with the balance of the defendants submissions

Paragraph 54 88 The defendants had no objection to this paragraph in its original or amended form and it will therefore be allowed.

Mr Krasnostein's knowledge 89 Paragraph 54A.1 is the first of the series of paragraphs dealing with the alleged knowledge of the individual defendants. The general approach of the defendants to the pleading and particulars as against each of the defendants may to a certain extent, be demonstrated by travelling through the defendants submissions relating to the pleaded case against Mr Krasnostein. Mr Krasnostein does apparently stand in a dimensionally different position to the other individual defendants because he was at all material times a lawyer holding a senior position with the NAB group. Nevertheless it remains convenient to deal with the approach taken to him in terms of sampling the defendants attack upon the subject particulars relating to all of the individual defendants. 90 There was no objection to subparagraphs (1) or (2) of the earlier version paragraph 54A which has now become 54A.1. Hence there is no objection to the proposition that the plaintiffs may plead that at material times Mr Krasnostein became aware of the substance and content of express provisions of the Consulting Agreement.

Knowledge of the substance of the obligations pleaded as implied terms 91 The first problem was previously said to arise in subparagraph (3) of the earlier version numbered paragraph 54A. This was where the plaintiffs sought to plead and also to furnish particulars to the effect that at material times Mr Krasnostein became aware of "the substance of the obligations pleaded as implied terms of the Consulting Agreement". The latest version of the pleading clearly constitutes a vast improvement on the earlier version in terms of the pleading knowledge. 92 Following the delivery of the judgment on the first tranche amendments, the relevant implied terms which are to be found in paragraph 18 of the pleading being propounded are as follows: '18.1 That NMG and NAB should take all reasonable steps to enable the implementation and operation of the Consulting Agreement, including the provision of adequate finance, management and personnel to enable the operation and commercialisation of the Ausmaq Systems and business throughout Australia and globally; 18.2 That NMG, NAB and JMG should cooperate to enable the performance by each party of its obligations under the Consulting Agreement; 18.3 That NMG and NAB should not conduct their respective businesses so as to affect prejudicially or diminish the value of the Performance Bonus or other rights of JMG under or in relation to the Consulting Agreement, or so as to render the Performance Bonus or other rights worthless; 18.4 That NMG and NAB should not conduct themselves or their respective businesses so as to make it difficult or impossible for JMG to carry out its obligations to provide services and otherwise under the Consulting Agreement; and 18.5 That NMG and NAB would not conduct or carry on or exploit or commercialise or implement or deal in any way with any service or any business using or marketing any service within the definition of the Ausmaq Service as defined in the Consulting Agreement or the Ausmaq IP as defined in the Consulting Agreement except in and by NMG or the NMG Group or by way of an Operating Entity as defined in the Consulting Agreement. 18.6 That NAB and NMG would take all reasonable steps to: (a) cause NAFM to list its financial products on the Ausmaq Service; and (b) cause Premium Financial Planners and other NAB Financial Planners to become active registered users of the Ausmaq Service.' 93 The defendants' original submission on the earlier version of the pleading against the individual defendants was that none of the particulars furnished were sufficient to provide any support for the proposition that Mr Krasnostein had acquired knowledge of the substance of the implied. This submission of course throws one back to examining what are the conceivable ways in which a person may acquire knowledge of an implied term of a contract. The court must of course deal in handing down the final judgment with the question as to whether any, and if so which, of the alleged terms should as a matter of law be as implied into the subject agreements. But at this stage and for the purpose of dealing with the defendants' submissions, the court must by definition, assumed that the alleged terms will in fact be implied. 94 It is pertinent to observe that Part 16 Rule 7 of the Supreme Court Rules require a party pleading any condition of mind to give particulars of the facts on which the party relies, but excludes knowledge. The plaintiffs have however, presumably by reference to the court's power under Part 16 Rule 7 (2) to order a party to file and serve particulars of the facts on which the party relies where knowledge is alleged, sought to furnish detail particulars of knowledge. 95 It is here pertinent to refer to a paragraph in the particulars [to be found on Page 27 of the defendants' landscape particulars chart MFI D71]. This reads: "As to actual knowledge, the plaintiffs contend that that term in law, includes in relation to participation in breach of fiduciary duty, all categories of knowledge or imputed knowledge recognised and consistent with the decision of the High Court of Australia in Consul Development Pty Ltd v DPC States Pty Ltd (1975) 132 CLR 373 and the New South Wales Court of Appeal in United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157, namely the first four categories of Gibson J. in Baden Delvaux v Societe Generale [1992] 4 All ER 161" 96 I do not propose to spend any real time in examining the catchment area of possible ways in which a person may be said to have acquired knowledge of the substance of an implied term. The very difficulty in proving the matter speaks volumes as to the arid nature of any such exercise currently being engaged in. It would be far easier to plead that a person had acquired knowledge that a claim was made suggesting the existence of an implied term. 97 Whilst the particulars which have been furnished are in many places difficult to follow, overlap and cover numerous areas, I am not satisfied that the position is as clear as the defendants suggest. Indeed during argument relating to the pleading and particulars of knowledge against Mr Krasnostein, Mr Bathurst was content to accept [transcript page 6670] that as he was a lawyer, it was arguable that Mr Krasnostein could have inferred the paragraph 18.2 term (described by Mr Bathurst as "the Mackay v Dick term") and the paragraph 18.4 term (which he described as "probably a variation on the Mackay v Dick term"-transcript page 6666). The plaintiffs have now engaged in a careful exercise of setting out the many facts, matters and circumstances upon which they propose to rely in seeking to make good their case seeking to establish the relevant knowledge perceived as underpinning the causes of action in respect of which knowledge is or may be a material element. As I read the pleading and followed certain of the earlier argument (see for example transcript pages 6697 and 6699), the plaintiffs have sought to furnish particulars to establish the proposition that the relevant individual defendants became aware or held a belief that obligations of the substance of those pleaded as implied obligations had been created. The defendants descending into the detail of each of the particulars, highlight those of the particulars in respect of which the defendants submit that as a matter of logic and in terms of an understanding of the matrix of fact with which the proceedings deal, it is said to simply be unarguable that these particulars support the proposition of the defendants' relevant awareness or belief of the particular matters dealt with. 98 Whilst it does seem that the plaintiffs in many cases seek in particular paragraphs of the voluminous particulars to rely on particulars which read on their own could not support the proposition of the defendants' relevant awareness or belief, the individual paragraphs furnishing particulars cannot be read as isolated from the whole of the particulars or as disconnected from other paragraphs also furnishing particulars. This is why even though I accept as of substance, the defendants' submissions that the particulars by reason of their prolixity and format occasion very special difficulties for the proceedings, it is simply at this stage of the proceedings inefficient and inappropriate for the court to travel through all of the particulars in order to direct that some be struck out and to permit others to remain. The case is too complex. The number of actors are too many. Their interrelationship and their dealings with one another are too complex. Understanding the basis of such knowledge or belief as each of them may have had as to the substance of the contractual obligations, requires the consideration of so many underlying factual matters including detail in documents as to make the exercise presently impossible of achievement. But more to the point perhaps, I am simply not satisfied that the plaintiffs' cases in terms of the shortcomings of the particulars are so clearly untenable that they cannot possibly succeed. The exercise of sifting through the detailed particulars in order to establish that the particulars do not and cannot as to any of them in any circumstances or in any way be seen as arguably particulars of the knowledge pleaded, does not substantiate the defendants' proposition. 99 The plaintiffs' purpose in pleading and seeking to particularise the knowledge which individual defendants are said to have is material to a number of issues raised by the pleading. The relevance of what may be described as imputed knowledge to the question of the determination of accessorial liability for breach of fiduciary duty is of course clear.

Objective dishonesty 100 It was common ground in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 that the appropriate test for accessorial liability for breaches of fiduciary duty was "objective dishonesty" in accordance with the reasons of the House of Lords in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. In Royal Brunei Lord Nicholls of Birkenhead delivering the judgment of their Lordships said: "Dishonesty Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts, in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective of standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonestly are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour. In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take other's property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless…." [at 389] "The accessory liability principle Drawing the threads together, their Lordships' overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. "Knowingly" is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden [1993] 1 WLR 509 scale of knowledge is best forgotten" at [392]. 101 A general set of submissions which the defendants put in relation to a number of the paragraphs of the pleading and particulars dealing with knowledge was that there were no material facts pleaded to show actual knowledge; there were no material facts pleaded to show that the individual defendants wilfully shut their eyes to something that was obvious; there were no material facts pleaded to show that the individual defendants wilfully and recklessly failed to make such inquiries as a reasonable man would make and there were no circumstances pleaded which would indicate to an honest and reasonable man the existence of certain of the matters which were pleaded. The submission was that in no way had the plaintiffs furnished proper particulars of facts, matters or circumstances which could conceivably be said to constitute the type of dishonesty which is a necessary ingredient of accessorial liability in terms of the principles laid down in Royal Brunei. And in endeavouring to make this proposition good, Mr Bathurst QC spent a great deal of time very carefully examining the pleading and the particulars in the most intricate way. 102 Notwithstanding that examination, I am not persuaded that the final version of the plaintiffs' pleading and particulars fails to plead or particularise material facts in support of the objective dishonesty assertion which is said to underpin the cause of action for participation in breach of fiduciary obligation. This is a matter which requires to be litigated in the circumstances of this case. The plaintiffs have made plain in very great detail the facts matters and circumstances on which they rely to support their case against the individuals for participation in breach of fiduciary obligation. They are entitled to have that case litigated if sufficient particulars have been supplied. In my view sufficient particulars have been supplied. And the whole question of the principles which as a matter of law require to be applied by the Court in dealing with accessorial liability issues will be the subject of final address and will be adjudicated in the final judgment. 103 In paragraph 4 of MFI D99 the defendants make plain that they do not contend, at least for the purposes of the current application, that a calculated omission to inquire for fear of unearthing fraud or a breach of duty is not relevantly equivalent to knowledge that would amount to objective dishonesty within the principles in Royal Brunei Airlines v Tan [1995] 2 AC 378. 104 At transcript 8091 Mr Bathurst made the point that the parties are at issue where the defendants' analysis [paragraph 5 of MFI D 99] of the authorities leads to the submission that what was described in Royal Brunei as "objective dishonesty" is unarguably a necessary ingredient for a claim under the second limb of Barnes v Addy. The plaintiffs contend to the contrary. However in a real sense this area of debate may, as Mr Bathurst pointed out at transcript 8091, have become academic for the reason that the plaintiffs have now made specific allegations of breach of fiduciary duty and of breaches of statutory duty against all the NMG directors as a linchpin of part of their case. Hence on Mr Bathurst's submissions, what the plaintiffs had now done was firstly to make it clear that on any view they were relying not only upon objective dishonesty, but had gone further to now also rely upon subjective improper purpose. [Transcript p 8092.5] 105 Mr Bathurst summarised the progression in terms of how the issue had originally been raised and how the issue was now raised with the new amendments as follows: "(a) In the first draft of this statement of claim the plaintiffs made allegations of participation in breach of fiduciary duty. The defendants put the proposition that to show such participation, one needed objective dishonesty and that no facts were pleaded to show objective dishonesty. (b) In particular, the defendants said that no facts were pleaded to demonstrate that the individual defendants knew of the fiduciary obligations and knew that they were being breached. For there to be objective dishonesty, the defendants said that there had to be at least either actual knowledge of those matters or wilful blindness. (c) The plaintiffs disputed those propositions. They rejected objective dishonesty as the criteria and they did not accept that actual knowledge or wilful blindness was necessary. They did however say that they had pleaded sufficient facts to assert actual knowledge or wilful blindness. (d) In the further statement of claim, no additional facts are pleaded, but the plaintiffs, far from asserting that they did not need to show actual knowledge or wilful blindness, have in fact, by making as a linchpin of their claim, both in respect of procurement of breach of contract and breach of fiduciary duty, impropriety by all the directors, except Mr Argus, in their capacity as directors of NMG, accepted what the [defendants] would say, on analysis, is no less a burden than wilful blindness or objective dishonesty, but indeed a higher burden which would be objective dishonesty plus subjective improper purpose because of the particular statutory and common law breaches now raised. (e) The plaintiffs have raised the bar without building up the facts to even get to the objective dishonesty hurdle… There are no additional facts pleaded in the new claim, just additional assertions of impropriety." [Transcript 8093 - 8094] 106 In short the defendants submit that the plaintiffs still face the problems which they always faced relating to the need to plead and to give proper particulars in respect of the element of objective dishonesty, but further submit that the plaintiffs now face additional problems because they have a subjective set of parameters to treat with. Put in another way, Mr Bathurst submitted that the way in which the plaintiffs had now pleaded lead to the Royal Brunei question being arguably immaterial. [Transcript 8094.15] 107 At transcript 8096.20 Mr Bathurst relied upon Greig v Insole [1978] 1 WLR 302 at 332 as setting out the conditions which common law required to be satisfied in order to establish the elements of a tort for a third person deliberately to interfere in the execution of a valid contract. Mr Bathurst relied upon this citation as emphasising the importance of intentional interference. (See MFI D99 at paragraph 6]. 108 The submission for which Mr Bathurst contended was that mere inactivity could not amount to interference. However the defendants accepted that it was arguable that conduct which directly disables a person from performing a contract can give rise to liability even if the conduct is otherwise lawful. That however was not the criticism which the defendants directed to certain aspects of the plaintiffs' pleading. The pleading alleged that a failure to procure performance could give rise to liability. The defendants' submission was that there is no authority to support the proposition that non-interference as distinct from interference, direct or indirect, could give rise to liability [paragraph 7 MFI D99] 109 I am not persuaded at this point in time in the proceedings to refuse leave to plead on this basis. The matter may be argued in final address.

Miscellaneous 110 In the light of the above decision rejecting the plaintiffs entitlement to plead and pursue a case for procurement of breach of contract against four of the six personal defendants, it becomes somewhat difficult to work out precisely what further submissions of the defendants remain outstanding for decision. 111 It may be convenient to deal with the pleading matters which remained extant for decision as at 11 April 2001 seriatim and following the approach taken by Mr Bathurst QC in identifying the matters requiring determination.

Issue 1 112 An issue arose as to whether the plaintiffs had pleaded material facts which if proved would establish the relevant breach of contract, it being necessary for the plaintiffs in making a claim for the tort of inducing or procuring breach of contract, to plead such material facts [transcript 8081.50]. The issue as to whether the relevant breach was properly pleaded arose in respect of the March Argus letter and the failure to obtain legal advice [transcript 8081.57]. No further question remained as to the Ausmaq strategy review following the indication Mr Garnsey at transcript 8082.17. 113 An issue arose to the defendants' proposition that a failure to prevent a corporation from breaching its contract or a failure to compel a corporation to perform its contract would not be sufficient to constitute the tort of procurement of breach of contract [transcript 8082.47 and paragraph 2 of MFI D 79]. 114 At least in relation to four of the six personal defendants, these issues would appear to, to have fallen away in the light of the above reasons rejecting the application for leave to plead the tort of inducing breaches of contract against those personal defendants.

Issue 2 115 The next issue was that the latest version of the statement of claim sought to be propounded by the plaintiffs is said by the defendants to make it clear that objective dishonesty or objective impropriety and subjective improper purpose are now pleaded. The defendants submit that there are no facts pleaded to make good those propositions and that even if the propositions were made good, the liability would still not attach [Transcript 8083.20]. However at transcript page 8085.30 Mr Bathurst conceded on behalf of the defendants that if facts were pleaded to show that the defendants knowing of the obligations of NMG to JMG, wilfully or recklessly conducted their affairs such that NMG breached a fiduciary duty it owed to JMG, then there would be an arguable case for participation in breach of fiduciary duty. 116 At transcript page 8085.36 Mr Bathurst also conceded that subject to the O'Brien v Dawson principle, if a party interfered in contractual relations either knowing he, she or it was causing a breach of contract or was recklessly indifferent to that fact, then there would be, an arguable basis for a claim of procurement of breach of contract. Again it seems that the rejection of leave to plead this tort against at least four of the individual defendants renders the argument otiose.

Participation in breaches of fiduciary obligations 117 The plaintiffs had summarised the defendants' submissions as to participation in breach of fiduciary duty as follows: "That directors of NMG and the NMG group of companies could not even arguably be liable for participating in breach of fiduciary duty by NMG although they knew of NMG's contractual obligations to third parties (JMG), whose interests and benefits were relevantly the same as those of NMG and the NMG Group companies, and who deliberately, or with a wilful shutting of eye's to the obvious, or wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make or with knowledge of certain circumstances which would indicate the facts to an honest and reasonable man, relevantly conducted the affairs of NMG and the NMG Group contrary to the interests of NMG and the NMG Group as a whole and in the interests of a third party (NAB), in breach of their duties as officers of NMG and the NMG Group." 118 The defendants submitted that if facts were pleaded to make out the above allegations then the plaintiffs would have an arguable basis to make a claim for participating in a breach of fiduciary duty. The defendants submitted that the difficulty was that such facts had not been pleaded [paragraph 1 MFI D 99]. I reject this submission as not of substance. 119 Paragraph 9.4 of MFI D99 was not pressed - Transcript 8101.12.

Particulars 120 At transcript 6954.21 Mr Garnsey accepted that certain materials were not relied on and particulars. It is important that any such concession be made in writing and the plaintiffs are directed accordingly. 121 The plaintiffs have agreed to cope with the difficulty raised at transcript 8115.7 as to the third bullet point of paragraph 54A.12. This issue therefore falls away. 122 Paragraph 54A.17 and its later counterparts or no longer pressed. [Transcript 8120 and 8121] This issue therefore falls away. 123 Paragraphs 16, 17, 18, 23, 24 and 27 of the defendants submissions MFI D99 are no longer pressed [transcript 8121]. 124 The plaintiffs have agreed to correct the typographic error in paragraph 54C.1. [Transcript page 8122.16] 125 I allow paragraph 54C.8. 126 I allow paragraph 54C.12 127 I note that the plaintiffs have agreed to accommodate the problem raised in the last sentence of paragraph 21 of MFI D99. [Transcript 8122.56, 8123.13] 128 I allow paragraph 54C.14. 129 Paragraph 25 of the defendants' submissions MFI D99 is no longer pressed. [Transcript 8123.37] 130 I allow paragraph 54F.22 131 The defendants complaints as to the manner of pleading exemplified in paragraph 54DI.51 are not of substance. Whilst the manner of pleading is certainly in my experience unusual I see no reason why as a matter of principle a plaintiff should not be entitled to plead a number of disjunctive paragraphs. 132 To the extent that the submissions in paragraphs 28-118 do not raise issues which fall away either by reason of the courts holding rejecting the plaintiffs entitlement to pursue four of the individual defendants on the cause of action for the tort of inducing breaches of contract, or by being matters which the plaintiffs have agreed during argument to accommodate, to my mind those submissions should be rejected as not of substance. I am simply not persuaded that at this point in time in the litigation it is appropriate on a summary basis to refuse leave to amend on the grounds set out in the submissions. Any remaining problems may be the subject of final address following the adducing of all evidence.

Date from which leave to amend should run 133 As to the date from which the leave to amend should commence to run, I wish to hear further from the parties following their having an opportunity to read these reasons. 134 The question of whether leave should be given to plead the tort of inducing breach of contract against Messrs Courtney and McKimm remains for decision to follow any additional submissions either party seeks to put. 135 In addition it may well be that the court has overlooked some aspect of the defendants or indeed the plaintiffs' submissions by reason of the number of occasions when submissions were taken and by reason of the movement by the plaintiffs in terms of producing the new version of the previous pleading and particulars against the individual defendants. In that event the parties are granted leave to point up those areas which will be dealt with in a short supplementary judgment.

I certify that paragraphs 1 - 135 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 2 May 2001

  Susan Piggott
  Associate

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