Ingot Capital Investments and Others v Macquarie Equity Capital Markets and... [2002] NSWSC 853 | Case summary

(c) partners and employees of the Phillips Fox Firm acting as directors and other office holders of bodies corporate. 167A The conduct of Peck set forth in paragraphs 34, 161, 162, 162A, 164, 166, and 167 was engaged in by Peck as part of the ordinary course of the business of the partners of the Phillip Fox Firm set forth in paragraph 36 and with the authority of the partners of the Phillips Fox Firm. 171A By reason of the matters pleaded in paragraphs 36 and 167A, Phillips Fox is liable to each of the plaintiffs for the loss or damage suffered by each of them, set forth in paragraph 169, by reason of the contraventions of Peck set forth in paragraphs 168 and 169 and by reason of ss 10 and 12 of the Partnership Act 1892. 176A By reason of the matters pleaded in paragraphs 36 and 167A, Phillips Fox is liable to each of the plaintiffs for the loss or damage suffered by each of them, set forth in paragraph 176, by reason of the negligence of Peck, set forth in paragraph 174, and by reason of ss 10 and 12 of the Partnership Act 1892." 7 The Partnership Act 1892, s 10 was in the following terms: "(1) Subject to subsection (2), where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of the partner's co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act. (2) For the purposes of subsection (1), a partner who commits a wrongful act or omission as a director of a body corporate, within the meaning of the Corporations Act 2001 of the Commonwealth, is not to be taken to be acting in the ordinary course of the business of the firm or with the authority of the partner's co-partners only because of any one or more of the following: (a) the partner obtained the agreement or authority of the partner's co-partners, or some of them, to be appointed or to act as a director of the body corporate, (b) remuneration that the partner receives for acting as a director of the body corporate forms part of the income of the firm, (c) any co-partner is also a director of that or any other body corporate." 8 The fourteenth defendants resist the application on the basis, essentially, that the plaintiffs have merely pleaded the wording of s 10(1) and have "offended" against s 10(2). By that is meant that none of the particulars provided by the plaintiffs take the matter outside those circumstances which in accordance with s 10(2) will not constitute acting in the ordinary course of the business of a firm or with the authority of the co-partners. 9 My attention was drawn to the second reading speech on the Partnership Amendment Bill 1998 by which s 10(2) was introduced. It was pointed out that unless otherwise stated, when a firm gives consent to a partner to act as a director it does not ordinarily intend to grant the firm's authority for every act or omission of that partner as a director. So, the existence of an agreement allowing a partner to act as director does not of itself make a firm potentially liable for a commercial judgment exercised in the course of acting as a director. Similarly, merely because directors' fees form part of the firm's income should not have the consequence that the partner was acting in the ordinary course of the business of the firm. It was pointed out that the duties of a director are owed to the corporation, its shareholders and creditors by the director and not by the co-partners. The director must exercise judgment and decision-making solely not jointly with other persons. Hence, it was submitted, the relationship of the director to his or her partners in a professional firm plays no part in the role of a director. 10 It was submitted that an agreement authorising a partner to act as a director which takes the matter outside s 10(2) would need to be an extraordinary agreement to overcome the singularity of a director's duties in favour of the mutual duties of good faith owed by partners to each other. It was said that the inability to plead such an agreement was fatal to the plaintiffs' case against the fourteenth defendants. 11 I am not convinced that this is a correct analysis of the operation of s 10(2) or of the scope of a pleading taking the matter outside that provision. Section 10(2) provides that s 10(1) will not be enlivened if all that is established is one or more of the three elements set out therein. If any additional element is proved it is a matter for the court to weigh all the facts to determine whether or not the offending partner was acting in the ordinary course of the business of the firm or with the authority of his or her co-partners. 12 Secondly, the fact that a director owes duties to the company, its shareholders and creditors in which co-partners cannot participate, does not preclude such activity being carried out in the ordinary course of the business of a partnership or with the authority of co-partners. The partnership business may extend to one or more partners acting individually for and on behalf of the firm. In Walker v European Electronic Pty Ltd (in liq) (1990) 23 NSWLR 1 it was held that a member of a firm may be acting in the ordinary course of business of the firm when engaging in activities which that person alone amongst the members of the firm can undertake. 13 In my view, an agreement authorising a partner to act as a director need not be extraordinary. Nor need be the ordinary course of business of a partnership. They need not be established by written partnership agreement or written authorisation. They may be inferred from the course of conduct of the partners. The complaint that the facts in support of the allegations that Mr Peck engaged in conduct as a director in the ordinary course of the business of the partners of Phillips Fox and with the authority of his co-partners is a matter for particulars and evidence. For example, the fourteenth defendants' complaint that there is a failure in the pleading to specify the precise meetings of NCRH attended by Mr Peck, or the documents reviewed by him or the accounts signed by him is not a function of pleading but one of evidence. 14 The particulars of the pleading provided by the plaintiffs include allegations that Phillips Fox charged NCRH for the services performed by Mr Peck. The evidence to which I was taken support this contention. If established at trial, a matter outside the scope of s 10(2) exists. In my view s 10(2)(b) relates to directors' fees and the like. It applies when the director partner receives remuneration from the company. It does not apply to fees received by the partnership. It was submitted that in substance the two situations are identical s 10(2)(b) should be interpreted to encompass both situations. I reject that submission. The clear language of s 10(2)(b) confines the amounts in question to those which are received by the director partner as distinct from receipts by the partnership from the company. 15 My attention was drawn to evidence of the use by Mr Peck of Philips Fox letterhead in dealing with his directorial duties as distinct from his duties as a member of the Phillips Fox partnership. There is also evidence that a number of the partners of Phillips Fox act as directors of corporations. This material is suggestive of issues outside the scope of s 10(2). The former evidence goes beyond mere authorisation under s 10(2)(a) and is suggestive of representation of the Phillips Fox partnership. The latter evidence may go beyond mere appointment of co-partners as directors and suggest that a course of conduct, constituting the provision of partners to act as directors of bodies corporate, formed part of the ordinary course of the business of Phillips Fox. 16 The fourteenth defendants also argued that such of the plaintiffs' particulars as dealt with matters within the scope of s 10(2) were irrelevant. I disagree. Once matters beyond the scope of s 10(2) are raised, it is for the trial judge to weigh all the circumstances including those which fall within the ambit of s 10(2). That provision only operates if all that is shown is a matter or matters falling within the three sub-paragraphs. Once other matters emerge, the provision no longer applies and there is no embargo against considering the matters specified in the sub-section. 17 In my view the plaintiffs' pleading raises issues additional to those the subject of s 10(2) sufficient, in conjunction with s 10(2) matters, to enliven the operation of s 10(1). The evidence by which those facts may be established is within the knowledge of the fourteenth defendants. No one can know better than them the nature of their business and the nature of any authority given to Mr Peck. The pleading does not, contrary to their submissions, deny the requirement of procedural fairness by denying them the opportunity of understanding the case against them and being in a position to meet it. 18 The short answer to the fourteenth defendants' opposition to the motion is that this is not an application to strike out or dismiss but, rather, an application for leave to amend and the general rule is that leave should be given provided it can be done without causing injustice (Clough v Frog (1974) 48 ALJR 481 at 482, Cropper v Smith (1884) 26 Ch D 700 at 710-711). 19 However, the parties treated the application as an application to strike out the pleading against the fourteenth defendants. The power of the court, summarily, to terminate an action is to be used sparingly and only in a clear case where the court is satisfied that it has the requisite material before it to reach a definite and certain conclusion (General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-129). 20 At this stage of the proceedings I am unable to reach any definite and certain conclusion that it was or was not in the ordinary course of the business of Phillips Fox that they provided partners and employees to act as directors and other office holders of bodies corporate or that the conduct of Mr Peck was engaged in with the authority of his co-partners. 21 I am of the view that the pleading is sufficient. I would not have acceded to an application to strike out the pleading or dismiss the action. 22 I will hear the parties on the appropriate form of orders. I propose that the plaintiff have leave to file the Second Further Amended Summons, further amended in terms of the paragraphs set out in this judgment, as against the fourteenth defendants. I propose that the fourteenth defendants have leave to file an Amended Defence to the Second Further Amended Summons (to the extent that their Defence needs to be amended to meet the Second Further Amended Summons) by a specified date. I will hear the parties on costs. I would have thought that the plaintiffs should pay the costs of the fourteenth defendants in amending their Defence (to the extent that their defence needs to be amended to meet the Second Further Amended Summons).

Ingot Capital Investments and Others v Macquarie Equity Capital Markets and Others

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Judgment (9 paragraphs)

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Cases Cited (3)

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