Idoport Pty Ltd & Anor v National Australia Bank Ltd & Ors

PARTIES : Idoport Pty Limited & Anor (Plaintiffs) National Australia Bank Limited & Ors (Defendants) JUDGMENT OF : Einstein J

COUNSEL : JJ Garnsey QC, RC Titterton (Plaintiff) RM Smith SC (Defendants) SOLICITORS : Withnell Hetherington (Plaintiffs) Freehil Hollingdate & Page (Defendants) CATCHWORDS : Practice and Procedure - Application to strike out sections of defence to first cross-claim - Second cross-claim - Necessity to gain leave to file second cross-claim - When plaintiff can further plead a cross-claim against a defendant - Matters appropriately pleaded as cross-claim - Matters appropriately included as amendment to statement of claim - Second cross-claim not necessarily inappropriately pleaded. - Practice and Procedure - Limitation periods - Applicability of limitation period to second cross-claim - Approach of Court to submission that leave to file second cross-claim should be refused because it is out of time - Leave not refused on grounds that second cross-claim is out of time. - Practice and Procedure - Pleadings and particulars - Specificity of pleading - Necessary particulars for a claim under s75B of the Trade Practices Act 1974 - Need to plead knowledge of essential matters under s75B - Need to particularise provenance of knowledge with specificity - Where effect of allegation of knowledge comes close to allegation of fraudulent intention particulars of knowledge may often be necessary - Particulars not sufficient. Fair Trading Act 1987 (NSW) Fair Trading Act 1985 (Vic) LEGISLATION CITED : Limitation Act 1969 Supreme Court Act 1970 (NSW) Trade Practices Act 1974 (Cth) Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202 Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 Baldry v Jackson [1976] 2 NSWLR 415 Burgess v Beethoven Electric Equipment Ltd [1943] 1 KB 96 Chan Cuong SU T/A Ausviet Travel v Direct Flights International Pty Ltd (No 2) (1999) ATPR 41, 677 Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 323 Henriksens Rederi A/S v THZ Romilplex (The Brede) [1974] 2 QB 233 CASES CITED : Hornsby Building Information Centre Pty Ltd v Sydney Information Centre (1978) 140 CLR 216 Lyons v Kern Konstructions Pty Ltd (1983) 70 FLR 135 McDonnell & East Ltd v McGregor (1936) 56 CLR 50; R v Associated Northern Collieries (1910) 22 CLR 738 Rajski v Bainton (1990) 22 NSWLR 125 Renton Gibbs Ltd v Neville & Co [1900] 2 QB 181 Vagg v ANZ Banking Group Pty Ltd (1992) 38 NSWLR 160 Wardley v Western Australia (1982) 175 CLR 514 Yorke v Lucas (1985) 158 CLR 661 DECISION : Notice of Motion seeking to strike out sections of amended defence to first cross-claim to be dismissed. Leave granted to file proposed second cross-claim excluding s 75B count.

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

50113/1998 - IDOPORT PTY LTD AND ANOR v NATIONAL AUSTRALIA BANK LTD AND ORS JUDGMENT 1 These proceedings are fixed for final hearing to commence on 24 July 2000. 2 The general nature of the proceedings was outlined in an interlocutory judgment delivered on 19 August 1999. Since that date there have been numerous contested motions and contested directions hearings. The pleadings have also moved on in terms of a number of further issues being raised and further particulars being furnished. At the same time very extensive discovery has been given and numerous statements filed and served from a large number of witnesses. The general state of the matter as at mid April 2000 was set out in a judgment dealing with a contested application relating to use of the Technology Court. [SC 50113/9 8] 3 The matter has most recently been before the court on 18 May, 1 June and 13 June during which extensive submissions have been received from both parties on questions related to the amended first cross-claim filed on 17 March 2000. The formal position is that there is before the court a motion brought by the plaintiffs for leave to file a second cross-claim which is resisted. The notice of motion was filed on 16 May 2000. At the same time there is before the court a motion filed on 29 May 2000 in which the defendants seek to strike out sections of the proposed amended defence to the first cross-claim. Importantly the matters sought to be raised in the proposed amended defence to the first cross-claim are in large measure mirrored in the proposed second cross-claim. For obvious reasons the motions have been heard together. 4 I propose to often use in this judgment the terms 'plaintiffs and 'defendants' as shorthand for identification, accepting that a more formally correct approach would be to refer to the cross-claimants or cross-defendants as the case may be. The identity and differences in the parties to the statement of claim, and to first and proposed second cross-claim are well understood. I note in passing the tendency of the parties to use the term "the Bank" [often referred to as 'NAB'] or "Mr Maconochie", as shorthand for referring to the defendants or the plaintiffs. 5 I note that during the course of the hearing of the subject motions Mr Smith who argued the matter on behalf of the Bank sought to tender for the purpose only of the issues raised on the motions, a number of documents. These were respectively marked for identification 1, 2 and 3 on 18 May 2000. The Court reserved the question of admissibility to be dealt with in the judgment. In my view these documents are admissible going as they do to questions of background and explanation of the matters sought to be pleaded or already pleaded. They will be marked as exhibits D1, D2 and D3. 6 These pleading issues have progressed, regrettably, in a most inefficient fashion. As the detailed transcript of submissions taken on the above dates will make plain, the plaintiffs have taken the course, on more than one occasion, of dealing with submissions put by the defendants as to suggested shortcomings of the defence to the first cross-claim and of the proposed second cross-claim, by amending the form of those pleadings prior to the occasion when the proceedings have next been before the court for further argument. The parties have accepted that the earlier notices of motion are to be treated as extending to embrace the later versions of the pleadings. As the parties have taken the course of utilising detailed written submissions in association with their oral address, it has become very difficult, to say the least, for the court to keep up with the parties in endeavouring to follow precisely which points previously made by the defendants have now been corrected by the plaintiffs amendments and which points remain live. However at least one by-product of this unusual approach taken in past weeks has been that many of the points first and even subsequently, raised by the defendants, have now been satisfactorily dealt with by the plaintiffs in their endeavours to obtain leave to file the proposed second cross-claim and to propound their proposed amended defence to the first cross-claim. 7 An important consideration is that the proposed second cross-claim seeks to join two individuals, Messrs McKinnon and Moore as cross-defendants. These persons are not presently parties to the proceedings at all and bearing in mind the nature of the proceedings and the size of the subject monetary claims sought to be pursued by the plaintiffs in the second cross-claim, the question of joinder of the new cross-defendants has now become extremely pressing. It is however clearly the case that Messrs McKinnon and Moore whom the plaintiffs assert, were closely involved in the negotiations leading to entry into of the subject agreements, already have some familiarity with the proceedings as they have each filed lengthy statements. Further the court has been informed that should leave to file the second cross-claim be granted, the same legal representatives who now appear for the other defendants will represent Messrs McKinnon and Moore. 8 At this stage in the proceedings when the final hearing is due to commence in approximately four weeks, the court has a real reticence in being drawn into the closest of examinations of pleadings. The third further amended statement of claim pursued by the two plaintiffs against the nine defendants covers some 73 pages. The intricacies of that pleading and of the particulars to it require painstaking attention to matters of detail. A number of causes of action are relevant. The pleadings which follow are also quite intricate and of course interrelated. 9 The trial judge will be in a position after the parties open their cases [the defendants having indicated a present intention to so open], to be in a position to follow precisely how the cases are to be put. 10 In proceedings of this nature it is particularly important for the court in dealing with pleading issues, to be careful about its approach to the pending hearing and for the court to avoid withholding from a party, it's due entitlement to present its case to the court, save to the extent that the deficiencies and shortcomings of pleadings sought to be propounded, clearly require such an approach. 11 On the other hand certain of the points sought to be raised by the defendants have had merit and the court must not shirk its responsibility, where substantive problems are shown up in pleadings proposed to be propounded, of properly dealing with claims of inadequacy, inconsistency, ambiguity and shortcomings in the furnishing of particulars. 12 At least this much can be said of the position which presently obtains. There are having been filed the first cross-claim, clearly the cross-defendants to that cross-claim are entitled to put on a substantive defence to that cross-claim and if that substantive defence [for example because it includes Trade Practices Act type claims], requires to be tethered to an affirmative pleading which repeats effectively the substance of matters set out in the defence, then the cross-defendants to the first cross-claim plainly have a like right to file such an affirmative pleading. 13 The principal submissions put by the bank at least include the following:

(a) [The 'amending the wrong pleading' point]. 14 That the appropriate course for the plaintiffs to take is to seek leave to further amend the statement of claim to reflect the causes of action now sought to be propounded in the second cross-claim. Reference is made by both parties to Vagg v ANZ Banking Group Pty Ltd (1992) 38 NSWLR 160. The plaintiffs rely on the passage at 165 which states: "In a general way however, it seems to be accepted that when a defendant brings a cross-claim against a plaintiff, the plaintiff might sometime properly brings a second cross-claim against the defendant; if the matter to be newly relied upon arise after the commencement of proceedings, this might sometimes be the only permissible course…; and if it arose before the commencement of proceedings, the better course will ordinarily be to amend the statement of claim…Of course, the use of the word 'ordinarily' means that there will be other cases where this is not appropriate". [the emphasis is that of the plaintiffs]

(b) [The res judicata /causation point] 15 The defendants first submit that the second cross claim seeks to recover two classes of loss: (1) the loss of the losses claimed in the principal claim

(2) the losses said to result from loss of the benefit of the Consulting and Restructuring Agreements if they are set aside [426.1] 16 The defendants then broadly submit as follows: That the claims sought to be raised by way of defence to the first cross-claim are the same as those relied upon in the second cross-claim; that the Bank's success in the first cross-claim will necessarily involve findings that it was the misconduct of Mr Maconochie which caused the bank to enter into the relevant agreements; that there would have been no agreements, and hence no loss to either party, if Mr Maconochie had not misled the Bank; that but for that alleged misleading conduct there would have been no agreements for the Maconochie interests to enter into; that those findings in the Bank's favour on the first cross-claim would necessarily constitute a res judicata or issue estoppel fatal to the success of the second cross-claim, regardless of which type of loss the plaintiffs seek to pursue in the second cross-claim. The assertion is that clearly the first class of loss would not be recoverable if the bank succeeded on the first cross-claim. The submission is that the second class of loss could never be recoverable under the second cross-claim because the misconduct alleged against the Bank in that pleading is said to have caused entry into the Restructuring and Consulting Agreements. The submission is that the misleading conduct by the Bank cannot cause the loss of the benefit of those agreements. The submission is that the Bank's conduct caused entry into (and hence the acquisition of the benefit of) those agreements. The submission is that if the agreements are set aside, what causes the loss is Mr Maconochie's misconduct as alleged in the first cross-claim.

(c) [Limitation questions] 17 The defendants raise a number of areas in respect of which it is submitted that the proposed causes of action sought to be litigated in the second cross-claim are necessarily statute barred. The proposition is that the plaintiffs by approaching the matter in seeking to propound the new cross-claim, are seeking to outflank the limitation problems to which they would be exposed if they sought to further amend the statement of claim. I note in this regard the following comment of the High Court in Wardley v Western Australia (1982) 175 CLR 514 at 533: "We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question." [per Mason CJ, Dawson, Gaudron and McHugh JJ]. 18 Toohey J at 559 referred to the difficulty and undesirability "of trying to determine a limitation point in interlocutory proceedings, unless the position is clear beyond peradventure."

(d) Matters of particulars and specificity of pleading 19 A number of submissions were addressed by the defendants to questions of particulars and specificity of pleading. In large measure these were addressed by the plaintiffs following the identification by the defendants of the suggested areas of deficiency, when the plaintiffs further adjusted in particular the form of second cross-claim proposed to be propounded. The defendants particularly stressed their objection to the suggested lack of significant particulars said to be required as part of the proposed Section 75B Trade Practices Act (and State analogues) claim.

Amending the wrong pleading; res judicata; causation issues 20 It seems common ground that the entry by the plaintiffs into the contract itself says nothing as to liability and does not impose upon the plaintiffs any form of liability. It seems common ground that it is only liability for any breach of the contract once it has been entered into, which is capable of giving rise to any loss for which the plaintiffs, if they be entitled to propound a second cross-claim, may claim in that second cross-claim. Mr Smith SC submits that properly construed the proposed second cross-claim does not assert a causal relationship between the alleged conduct of the defendants on the one hand and the plaintiffs entry into the subject contracts on the other hand. This submission involves the closest of examinations as to the structure and wording of the proposed second cross-claim which covers alleged wrongdoing of the defendants in a number of ways. In my view it is by no means apparent that the proposed second claim does not allege that the suggested conduct of the defendants had a sufficiently relevant nexus with the plaintiffs entry into the subject agreements, to overcome this submission of Mr Smith. 21 Nor am not persuaded that the plaintiffs are clearly shown to have no entitlement to seek to raise the matters in respect of which they seek to complain by the route of the second cross-claim. There is some authority for the proposition that it is appropriate for a plaintiff to seek to set up claims which turn upon and answer a defendants cross-claim in a further cross-claim: Renton Gibbs Ltd v Neville & Co [1900] 2 QB 181 at 185 per Collins LJ, at 187 per Romer LJ, Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202 at 222 - 223, per Menhennitt J. This is not however to say that the route chosen is necessarily the correct route. These are matters for determination in final address. 22 I am not persuaded that the submissions on the res judicata and/or causation points must succeed. The complexity of the subject pleadings and the difficulties of forecasting all permutations by way of the precise orders possibly open to be made on the first and/or second cross-claims, suggests that the court should be particularly cautious at this stage in the proceedings in accepting the defendants submissions as necessarily justifying the refusal of the leave sought. Here again this is a matter which can be agitated during final address and will be dealt with on its merits at that time if then agitated.

Limitation Questions 23 The defendants argue that the claims for relief in the plaintiff's second cross claim so far as they plead a cause of action under s 52 of the Trade Practices Act 1974 (Cth) or s 42(1) of the Fair Trading Act 1987 (NSW) or s11(1) of the Fair Trading Act 1985 (Vic) are statute barred because they have been pleaded outside of the limitation period. Section 82(2) of the TP Act creates a three year limitation period for claims for relief under that section. The other two mentioned Fair Trading Acts create the same limitation period. The claims under s87 of the Trade Practices Act is said to be barred by s87 (1CA) (b). The defendants assert the claims propounded in the second cross-claim are untenable because they are outside of the limitation period and that the Court should refuse leave to file the second cross-claim. 24 The plaintiffs assert that the second cross-claim is not out of time for two reasons. First, they assert that they are entitled to the benefit of s74 of the Limitation Act 1967 and s78(4) of the Supreme Court Act which, they assert, has the same effect as the first mentioned provision. Second, they argue that under the second cross claim the loss or damage does not occur until the first cross-claim is successful, and thus, far from being statute barred, the action has not accrued yet. 25 Under the common law, a cross claim was taken to have commenced from the time the claim was made. In this way, a cross claim contrasted to a set-off which dated from the time of the principal claim: McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 57 per Dixon J; Henriksens Rederi A/S v THZ Romilplex (The Brede) [1974] 2 QB 233 at 247 per Lord Denning MR. However, s 74 of the Limitation Act 1969 alters this position and reads as follows: Where, in an action (in this section called the principal action), a claim is made by way of set-off, counterclaim or cross action, the claim, for the purposes of this Act: (a) is a separate action; (b) is, as against a person against whom the claim is made, brought on the only or earlier of such of the following dates as are applicable:

(i) the date on which the person becomes a party to the principal action;

(ii) the date on which the person becomes a party to the claim. 26 The plaintiff's attempt to avail themselves of the benefit of s 74 encounters the difficulty that the section is expressed to operate 'for the purposes of this Act.' That difficulty appears to become insuperable in view of s 7(a) of the Limitation Act which provides that nothing in the Limitation Act:

applies in an action or arbitration for which a limitation period is fixed by or under an enactment other than this Act or by or under an Imperial enactment (not being an enactment or an Imperial enactment repealed or omitted by this Act); or ... 27 Section 14 of the Limitation Act defines an 'enactment' as including an enactment of the New South Wales Parliament, an enactment of any other state parliament or of the Commonwealth Parliament. Clearly, s7(a) would embrace the Trade Practices Act 1974, the Fair Trading Act 1987 (NSW) and the Fair Trading Act 1985 (Vic). However, the plaintiffs further submit that they are entitled to the same benefit by virtue of s 78 of the Supreme Court Act which reads: (1) Subject to subsection (3), the Court may grant to the defendant in any proceedings (in this section called the first proceedings) all such relief against any person as the Court might grant against that person if the person were a defendant in separate proceedings commenced by the defendant for that purpose.

(2) The relief which the Court may grant under this section shall include relief in respect of any equitable estate or right or other matter or equity or in respect of any legal estate, right or title claimed or asserted by the defendant.

(3) The Court may not, under this section, grant against a person not a plaintiff in the first proceedings relief not relating to or connected with the subject of the first proceedings.

(4) Subject to the rules, a person against whom relief is claimed under this section - (a) shall, if not a party to the first proceedings, become a party to the first proceedings; and

(b) shall have the same rights in respect of the person's defence against the claim as if the person were a defendant in separate proceedings commenced by the defendant for the purpose of the claim. 28 The defendants assert that section 78 is entirely irrelevant and has no application of questions of limitation. The section received some brief consideration by Gibbs J in Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 323 at 330 where it was said that '[t]he provisions of s 78 of the Supreme Court Act 1970 (NSW) are purely procedural. They permit a defendant in any proceeding to obtain relief against another person without having to institute separate proceedings for that purpose.' For myself, I have difficulty in appreciating how s 78 of the Supreme Court Act assists the plaintiff. However, to my mind the position is not, to adopt the words of Toohey J in Wardley, 'clear beyond peradventure.' 29 In the second place, the plaintiffs assert that the claim is not beyond time because, as the Second Cross Claim proceeds, it has not yet suffered loss. An action is not, of course, complete, until the plaintiff has suffered loss. Upon their submission, the plaintiff will only suffer loss if and when the first cross claim is successful. Relying upon the case of Wardley v Western Australia (supra), they say the loss pleaded has not yet occurred and thus time has not yet began to run. 30 In Wardley, the High Court considered when time began to run for the purposes of s 82(2) of the Trade Practices Act 1974 on an action in which the plaintiff claimed that it entered into a contract to indemnify a third party because of conduct of the defendant in breach of s 52 of that Act. It was held by the Court where a plaintiff, because of misleading and deceptive conduct, entered into a contract upon which loss was contingent upon another event, the action arose at the time of the occurrence of the contingency and not entry into the agreement: (at 533, per Mason CJ, Dawson, Gaudron McHugh JJ, at 538, per Brennan J, at 543 per Deane J, at 556 per Toohey J). 31 A question arises as to whether this case is entirely on all fours with the present case. In Wardley, the contingency upon which the plaintiffs loss arose had occurred. If the loss the plaintiffs claimed does not arise until the success of the first cross claim, it has not and there may be questions as to the ability of the plaintiff to plead a cause of action which has not yet arisen: Baldry v Jackson [1976] 2 NSWLR 415 at 419 per Samuels JA. However, again, the matter is not 'clear beyond peradventure.' Thus, it is not, to my mind, appropriate to refuse leave to the plaintiff to file the Second Cross Claim on the ground that it is clearly statute barred. 32 I am not persuaded that the limitation questions raised are of sufficient substance to deny the plaintiffs the entitlement to press the second cross-claim. To the extent that the defendants and the new proposed cross defendants to the proposed second cross-claim may have limitation defences then it seems to me that they can regularly be pleaded and dealt with during the course of the hearing in the usual way.

Matters of particulars and specificity of pleading 33 As earlier stated very many of the points sought to be taken by the defendants in relation to suggest defects in the giving of particulars and in the making clear of the nature of the case sought to be made by the second cross-claim against the cross defendants have now been remedied by subsequent forms of amendment to the form of second cross-claim proposed to be propounded. As Mr Smith conceded in paragraphs 21, 22 and 32 [written submissions of 20 June 2000], the allegations as to insufficient particulars of the relevant representations are no longer pressed [Cf transcript 22 June 2000 at page 45] And insofar as there remain, save as related to the Section 75B case, allegations of similar deficiencies, I am not persuaded that the plaintiffs ought be denied their entitlement to now amend their defence to the first cross-claim or to now file the second cross-claim. The section 75B case is dealt with below.

Joinder of the new cross defendants 34 During the course of the submissions a question arose as to whether if the plaintiffs agreed not to seek to join Messrs Moore and McKinnon as additional cross defendants to the proposed second cross claim, the NAB would concede that the actions of Messrs Moore and McKinnon as pleaded in the draft second cross claim and defence to the amended first cross claim ["the subject pleadings"] were carried out with the authority of the NAB [or, to the same intent, would concede that the NAB would not in its defence to the proposed second cross claim or in its reply to the defence to the amended first cross claim ["the NAB defence and reply"] assert that the actions of Messrs Moore and McKinnon as so pleaded were done without the authority of the NAB. 35 A letter from Messrs Freehill Hollingdale and Page to Messrs Withnell Hetherington sent by facsimile on 28 June 2000 was initially sent on a 'without prejudice' basis but was then, during the course of the hearing on 28 June, amended to become an open letter. The offer made in this letter was that if the plaintiffs agreed not to seek to join the new proposed cross defendants, the NAB would not, in the NAB defence and reply, assert that the actions of Messrs Moore and McKinnon as currently sought to be pleaded in the subject pleadings, were done without the authority of the NAB. The plaintiffs having taken instructions have indicated that they are not prepared to accept this offer. 36 The letter of offer and the plaintiffs decision not to accept the offer will no doubt be of relevance in terms of costs of the joinder of the new cross defendants in the event that the second cross-claimants fail to succeed in the case against those cross defendants in the above circumstances. 37 In my view bearing in mind the matter referred to in paragraph 7 above, the joinder of the proposed new cross-defendants, even at this late stage, should be permitted consistently with the policy which underpins section 63 of the Supreme Court Act.

Claims under s75B of the Trade Practices Act 38 The second cross-claim proceeds against NAB, NMG, and Messrs Moore and McKinnon under s82 of the TP Act and its state analogues [s68 of the FT Act 1987 (NSW], as persons 'involved in a contravention' of s52 in so far as they aided, abetted, counselled and procured the contravention, induced the contravention, were directly or indirectly concerned with the contravention or conspired with others to effect the contravention. 39 Clearly enough, the second cross-claim seeks to pray in aid the effect of s75B of the TP Act [see also s61 FT Act 1987 (NSW), s31 of the FT Act 1985 (Vic)] which defines a person who, for the purposes of s 82 is 'involved in a contravention,' as a person who has (a) aided, abetted, counselled or procured the contravention; (b has induced, whether by threats or promises or otherwise, the contravention; (c) has been, in any way, directly knowingly concerned with others to effect the contravention (d) has conspired with others to effect the contravention. 40 This section received the consideration of the High Court in Yorke v Lucas (1985) 158 CLR 661 where the Court was unanimously of the view that it is necessary in order to make out liability under s82 through s 75B to show that the person had knowledge of the essential facts which go to make up the contravention, namely knowledge of the representation and its falsity: at 670 per Mason ACJ, Wilson, Deane and Dawson JJ, at 676 per Brennan J. The effect of that case was succinctly stated by Lehane J Chan Cuong SU T/A Ausviet Travel v Direct Flights International Pty Ltd (No 2) (1999) ATPR 41, 677 at 42, 666 where his Honour said - ...'[I]n the case of a contravention of s52, the mere making of representations on behalf of a corporation, without knowledge of their falsity could not constitute 'involvement' in misleading and deceptive conduct contravening s 52' 41 The defendants complain that the second cross-claim insufficiently particularises the claim against NAB, NMG and Messrs Moore and McKinnon under s75B and its analogues. The claim, they assert, is a particularly serious one and the pleading is said in no way to particularise the facts relied upon to show that Messrs Moore and McKinnon had knowledge of the representations and knowledge of their falsity. 42 Of course, the need to plead so precisely, matters of knowledge of the making of a representation and knowledge of its falsity, does not arise so starkly when a mere breach of s52 is pleaded. To plead the making of a representation is to plead knowledge of that representation by the representor and an intention to deceived is not necessary to make out liability under s52: Hornsby Building Information Centre Pty Ltd v Sydney Information Centre (1978) 140 CLR 216 at 231 per Stephen J. 43 Part 16, Order 1, Rule (1) of the Supreme Court Rules obliges a party to give 'the necessary' particulars of any claim, defence or other matter pleaded by him. The criterion of necessity gives flexibility as what particulars are required in an individual case. However, it is trite law that allegations of fraud are to be precisely pleaded and particularised with some specificity: Rajski v Bainton (1990) 22 NSWLR 125 at 135 per Mahoney JA, Part 16 Rule 2 Supreme Court Rules. To my mind, while there is no express pleading of fraud in this case, the pleadings relating to s75B are sufficiently analogous to require that quite specific particulars be provided by the plaintiffs. 44 Paragraph 21(c) of the second cross-claim repeats the words of s75B. Paragraph 21 is said to arise by reason of the matters pleaded in paragraphs 14, 16, 17, 18 and 18A and/or in paragraph 15.1 to 15.8 and/or in paragraphs 14 to 18A. However, only a few of those paragraphs deal with knowledge on the part of Messrs Moore and McKinnon. It will be necessary, albeit somewhat tedious, to examine, as shortly as possible, these paragraphs. What follows is an abbreviated examination of the pleadings in which accuracy has been scarified for brevity in an attempt to only consider matters essential to the issues the concern of this judgment. 45 To put the relevant matters shortly, paragraph 14.3 pleads in effect that each of NAB, NMG and Messrs Moore and McKinnon knew that the AUSMAQ service did not provide share products and a general superannuation 'service' [vide a superannuation facility that included rollovers]; that it needed to do so if it was to be accepted by dealers and financial planners; to be so accepted a time frame prior to mid 1997 would have to be determined to provide those services which would have to be conveyed to dealers and financial planners who would not otherwise use the system; that Market Holdings and the AUSMAQ Group did not have the funds to provide these services; that the relevant cross-claimants only dealt with the AUSMAQ Service and were only prepared to sell the AUSMAQ Service on the grounds that it would be fully exploited by the defendants and would in the short term have share products and a superannuation facility; that in entering into the various agreements with the defendants the plaintiffs would be unable to compete with NMG, NAB or the AUSMAQ Service for the period provided for in those agreements [up to fifteen years following completion] 46 Paragraph 14.4 in effect pleads that NAB, NMG and Messrs Moore and McKinnon knew, or ought to have known: that NAB and NMG did not intend to promptly exploit AUSMAQ throughout the world and would not have, inter alia in the short term, the capital or access to funds to provide share products and a general superannuation service and did not disclose these matters. Paragraph 14.4. is particularised in paragraph (2) which is important and set out in full reads: Mr Moore and Mr McKinnon had actual knowledge or ought to have had actual knowledge of the matters pleaded, which is to be inferred, or which each ought to have had by reason of the following: (a) The participation and conduct of Mr Moore and Mr McKinnon in the course of the negotiation and the acts, statements and omissions of each disclosed in the statements.

(b) The subsequent conduct of NAB and NMG, after completion of the Restructuring Agreement in conducting the affairs of the NMG Group and the AUSMAQ Service without taking any steps to exploit the AUSMAQ Service promptly throughout Australia, New Zealand and the world, and, in the short term, to make available the capital or access to funds to provide shares products and a general superannuation facility that included rollovers for the AUSMAQ Service.

(c) The subsequent facts and matters pleaded in paragraph 14.5(i) to (v) and (vii) to (xi) below. 47 The import of the matters in paragraph 14.5 referred to in (c) extracted above, are that the defendants did not exploit AUSMAQ promptly worldwide, did not provide in the short term funds and did not provide a share products or superannuation service, did not inform JMG, Market Holdings or Mr Maconochie that they did not intend and were not prepared to exploit promptly the AUSMAQ Service in the countries and areas specified or to provide such a share and superannuation service, entered into possession of the AUSMAQ Group, purported to implement and administer the Consulting Agreement, paid to JMG the substantial portion of a service fee due under the Consulting Agreement, acted as particularised in paragraphs 50 - 53 and 56 of the third amended statement of claim and failed to complain of any of the matters of non-disclosure the subject of the first cross-claim. 48 Paragraph 15.1 pleads that in or around 12 July 1996 to 13 September 1996 Messrs Moore and McKinnon, among others, conducted due diligence and other investigations for NAB and NMG to determine whether NAB and NMG would enter into a contractual agreement with the plaintiffs in relation to the AUSMAQ Service. Paragraph 15.4 pleads that, among others, Messrs Moore and McKinnon represented to the proposed cross-claimants that this due diligence would be comprehensive, thorough, conducted by persons with a high degree of skill and intended to and did achieve a comprehensive understanding of the AUSMAQ system and that the persons conducting the due diligence and other investigations would request and seek access to all information thought to be relevant or important in the conduct of the due diligence and make comprehensive inquiries in relation to the AUSMAQ Service. Certain particulars are given in relation to paragraph 15.4 some of which relate to communications between Mr Maconochie and Mr Moore and statements of Messrs McKinnon and Moore. 49 Paragraph 16 pleads that the 'cross defendants to the second cross-claim' [which ex facie is expressed to include Messrs Moore and McKinnon] knew by reason of the conduct of the cross-defendants pleaded in paragraphs 14 and 15, or in paragraphs 15.1 to 15.8, that the cross-claimants believed in the truth of the representations ie that the AUSMAQ System would be promptly exploited throughout the world and would be funded to enable it to have and would have a shares service and general superannuation facility and that due diligence would be comprehensive, thorough, &c.], that the plaintiffs would rely on that belief in determining whether to enter into the Restructuring Agreement, and, in the absence of the disclosure of the plaintiffs would likely enter those agreements. 50 Paragraph 18 pleads that, NAB, NMG and Messrs Moore and McKinnon represented to the relevant cross-claimants and failed to inform and refrained from informing them that the relevant defendants were not prepared to promptly exploit the AUSMAQ system throughout the world and would not have funding to provide the share products and a general superannuation facility and would not provide those services, that the business plans of the plaintiffs would not be implemented in accordance with the Agreement, that the defendants did not intend and would not perform their obligations under the Consulting Agreement in respect of which complaint is made in paragraphs 50 to 53 and 56 of the third amended statement of claim. Certain particulars are given, but none cast any light the subject now under consideration. 51 To my mind, these paragraphs in essence relevantly plead at least knowledge on the part of NAB, NMG and Messrs Moore and McKinnon of two things: first, that the relevant defendants had represented that the AUSMAQ System was to be promptly exploited throughout the world and that there would be provided the necessary capital and funding for the provision of and concomitantly there would, in fact be provided, share trading facilities and a general superannuation service and that this was false; and second, that the due diligence conduced by the defendants and Messrs Moore and McKinnon was represented to have been and was believed by the plaintiffs to be and relied on by the plaintiffs to be thorough, comprehensive &c., and that this was false. The facts relied on to make out this knowledge which involve Messrs Moore and McKinnon may be discerned as: first, their participation in the 'course of negotiations;' and second, their participation in the due diligence. 52 In my view, the necessary particulars necessary for the section 75B count have not been provided. It is, as Isaacs J said in R v Associated Northern Collieries (1910) 22 CLR 738 at 740, a fundamental principle ' ... that the opposite party always be fairly apprised of the nature of the case he is called on to meet [and] shall be placed in possession of its broad outlines and the constitutive facts which are said to raise his legal liability. He is to receive sufficient information to ensure a fair trial and to guard against what the law terms 'surprise' but he is not entitled to be told the mode by which the case is to be proved against him. 53 Guarding against such surprise is a purpose of particulars, as Gibbs J pointed out in Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 219. To my mind, the pleadings here do not sufficiently guard against surprise because they do not state with the specificity necessary, the facts from which the knowledge of the representations and their falsity on the part of Messrs Moore and McKinnon are to be found in or inferred from. To simply plead participation in a course of negotiation or a due diligence when those activities were large enterprises covering a considerable period of time and involving many communications is insufficient. Too large a field of possible surprise is left open. Furthermore, the pleadings are ambiguous on the question of whether the knowledge of Messrs Moore and McKinnon of the representations and their falsity is knowledge they gleaned from communications with the defendants, or is said to be knowledge acquired because they themselves made the representations on behalf of the defendants. This, and other cognate ambiguities, would be clarified if the material facts by which it is alleged knowledge of the representations and their falsity were pleaded. The importance of clarity when allegations such as these are made has already been emphasised. 54 It is true that the old practice was that a party who alleged a condition of mind as an ingredient to a cause of action could not be required to give particulars: Burgess v Beethoven Electric Equipment Ltd [1943] 1 KB 96 at 100 per Lord Greene MR, Lyons v Kern Konstructions Pty Ltd (1983) 70 FLR 135 at 146 per Fitzgerald J. Part 16, Order 3, Rule (1) provides that a party pleading any condition of mind shall give particulars of the facts on which he relies and while Order (2) provides that knowledge is not such a 'condition of mind,' to my mind, this is not to be interpreted as providing that particulars of mere knowledge may never be required to be given. The overriding question must be whether the particulars are 'necessary' within the meaning of Part 16, Order 1, Rule (1). When, as here, the effect of an allegation of knowledge comes very close to an allegation of fraudulent intention, particulars may, to my mind, often be necessary. The issue requires a close examination of the pleadings under consideration in specific proceedings.

Prejudice to the defendants 55 I have giving close consideration to the questions raised as to the type and degree of possible prejudice to the defendants should be court grant leave to file the proposed second cross-claim and should the court dismiss the notice of motion which in turn seeks to strike out sections of the proposed amended defence to the first cross-claim. On balance and subject to the s75B count and to one particular matter, it seems to me that the appropriate course is to grant leave to the plaintiffs to file the proposed second cross-claim and to dismiss the notice of motion seeking to strike out sections of the proposed amended defence to the first cross-claim. The outstanding matter to which I refer is the spectre which the defendants raise, of the plaintiffs being entitled to first call their case on the statement of claim, to await completion of the cases to be called by the defendants in defence and on the first cross-claim and then to announce and/or endeavour to suggest, that they have an entitlement to proceed then to call as a separate case, the case sought to be put in the second cross-claim. I have no doubt that this suggested problem ought to able to be dealt with by appropriate case management. 56 As to the s75B count the Court's ruling is that at present the leave to file the proposed second cross-claim does not extend to include this count. When and if proper particulars of the type specified above are furnished the matter may be revisited by application for leave to further amend the second cross-claim.

I certify that paragraphs 1 -56 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 30 June 2000

  Susan Piggott
  Associate

Last Modified: 06/13/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.