45 … what they did was to further the company's interest, at least in the thinking of the time, and the case does not fall into either of the categories considered earlier."
25 The next complaint concerned the pleading of knowledge. The relevant paragraph before his Honour read (as it reads presently in the amended 33rd cross-claim):
"Circumstances were known to Guy Carpenter Australia that would have indicated to an honest and reasonable person that a fraud was being committed or attempted."
26 That allegation was followed by a series of particulars, which set out communications that, it was said, showed the circumstances alleged to have been known.
27 His Honour held that this was an inadequate pleading of knowledge. He said:
"50 First, the statement in 33 "circumstances were known to Guy Carpenter Australia that would have indicated to an honest and reasonable person that a fraud was being committed or attempted" seems to fall between the fourth and fifth class of Peter Gibson J's classification in Baden v Societe Generale . Further, the words "committed or attempted" are quite nebulous. None of the overt acts alleged against Guy Carpenter Australia occurred after 9 July 1998.
51 In my view the paragraphs insufficiently set out the material facts as to the vital element of knowledge said to be possessed by the second defendant."
28 His Honour then turned to the attack on what I have called the trading losses case. This is in substance the subsidiary point that I have identified in para [16(1)] above. It appears that his Honour was referred, as I was referred (among many other authorities), to Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310. His Honour did not find the pleading of this head of damage "helpful". However, he concluded that it should not be struck out. He said:
"55 I do not consider that this pleading is helpful. Equitable compensation differs from legal and equitable damages and looks not so much to the loss suffered as to what is required to restore the trust fund. It would be difficult to make that assessment from the facts pleaded.
56 I would not consider that I should strike out these paragraphs as it was probably sufficient merely to plead that equitable compensation is required to atone for the fiduciary breach with particulars."
29 The last complaint was based on the circumstance that the last particular of knowledge alleged against Guy Carpenter Australia referred to something that happened 6 weeks or more before the relevant decision was taken. This is in substance the subsidiary point that I have identified in para [16(2)] above. His Honour did not think that this point was "vital on a strike-out application". He concluded:
"62 I appreciate these arguments, but in my view they are not strong enough to lead to striking out."
30 His Honour then noted the submissions for NCRA that the complaints were "virtually all … as to particulars"; that the material facts were pleaded; and that lack of particularity was not fatal.
31 Young CJ in Eq appeared sympathetic to the last proposition, but said (para [65]) "that the defects in the pleadings go deeper than that. It is essential to plead the elements of the second limb in Barnes v Addy and this the pleading has not done." He then said in para [66] that "the pleading does not … set out the material facts as to the duty and breach of dealing: the failing goes further than a mere matter of particulars."
32 In substance, then, his Honour held that leave to amend should be refused, and the statement of claim should be struck out, for two reasons. The first was that the fiduciary duty, knowing and dishonest assistance in the breach of which was alleged against Guy Carpenter Australia, had not been properly pleaded. The second was that the case of knowledge, an essential ingredient in a claim for knowing and dishonest assistance, had not been properly pleaded.
33 I now turn to the attempted repleading of those elements in the documents propounded before me.
The pleading of breach of fiduciary duty
34 The revised draft amended 36th cross-claim alleges clearly and in the requisite detail the fiduciary duties that the directors are said to have owed. Thus, both the beneficiaries and the content of those duties are clearly set out. Indeed, Guy Carpenter did not submit otherwise.
35 The attack that was made was on the pleading of breach. That is alleged in para 53 (which is the paragraph already summarised in part in para [8] above). I set it out in full:
"In causing or permitting NCRA to enter into the GCRA transaction in the circumstances set out in paragraphs 36 to 52 inclusive hereof, the Cross-Defendants were acting in breach of their fiduciary duties to NCRA, pursuant to a dishonest and fraudulent design (" the dishonest and fraudulent design") which was to enable the 1998 half-yearly accounts and the USA GAAP 1998 half-yearly accounts to falsely overstate assets and understate loss, with the result that the 1998 half-yearly accounts issued on behalf of the New Cap Group falsely disclosed that, on a consolidated basis, the New Cap Group had:
(a) Net claims incurred of US$6.675million less than would otherwise have been reported;
(b) An Underwriting Result of US$5.675million less than would otherwise have been reported;
(c) an Accumulated Loss at the end of the period of US$5.675million less than would otherwise have been reported;
(d) additional retrocession recoveries receivable of US$5.675million;
(e) additional Net Assets of US$5.675million;
and the US GAAP 1998 half-yearly accounts falsely disclosed that on a consolidated basis the New Cap Group had additional Net Assets of US$6.5 million
in circumstances where:
(f) Leg One was not entered into until after 30 June 1998;
(g) the certain loss NCRA accrued under Leg Two was not accounted for; and
(h) the existence of Leg Two was deliberately concealed from the auditors and external actuaries .
Particular of falsity
(i) Leg One and Leg Two were, in substance, one transaction and accordingly AAS1001 required that they be accounted for according to their substance rather than their form. It was false, therefore, to account for Leg One in the 1998 half yearly accounts without also accounting for Leg Two.
(ii) Leg One and Leg Two were interdependent and therefore should have been accounted for together. It was false, therefore, to account for Leg One in the 1998 half yearly accounts without also accounting for Leg Two.
(iii) Because Leg Two was certain to result in a loss to the limit of its cover and because it was part of the same transaction as, or was interdependent with, Leg One, neither Section 1 of Leg One nor Leg Two involved any transfer of risk and hence neither were reinsurance contracts under which the proceeds of any claim which could be claimed as reinsurance proceeds.
(iv) Because Section 1 of Leg One did not involve any transfer of risk it was false to claim the proceeds under Section 1 of Leg One as an asset (that is, as reinsurance recoveries) when, in substance, those proceeds were an advance with an attached repayment obligation constituted by Leg Two.
(v) Because Leg One was entered into after 30 June 1998 it should not have been accounted for in the 30 June 1998 half yearly accounts."
36 That formulation is among the paragraphs referred to and repeated in the revised draft further amended 33rd cross-claim (see para 13). (It is also, in substance, repeated, with its particulars, in para 39 of that cross-claim.)
37 Mr Pembroke submitted that the paragraphs (prior to revision) did not make it clear how the breach of fiduciary duty was said to have occurred. He said that they combined, and confused, two separate entities and that they appeared to suggest in substance that the fiduciary duty was one owed to NCRH, and that the breach was a breach caused by NCRH and not by the directors.
38 Mr Finch submitted that, on a fair reading, the paragraphs did allege a breach of fiduciary duty by the directors of NCRA in that capacity, by their act in causing or permitting NCRA to enter into the first and second legs with the consequence that its accounts were artificially and fraudulently overstated. The consequence of this was that the accounts of NCRH, on consolidation, were likewise fraudulently overstated.
39 Guy Carpenter maintained its attack on the revised draft further amended 33rd cross-claim. It submitted that the "central allegation now made is that the directors of NCRA acted in breach of their duties so as to enable the consolidated financial statements published by NCRH to falsely state the financial position and performance of the Group" (supplementary written submissions dated 17 November 2004, para 5). However, it submitted, the cross-claim did not allege "that the directors of NCRH breached their duty in causing the Leg 1 contract to be entered into by NCRA and in resolving to give the Leg 1 contract the contentious accounting treatment … " (ibid, para 6).
40 Further, Guy Carpenter submitted, the central allegation of knowledge - para 40 - "which ought, whether by way of particulars or otherwise, [to] set out the material facts to enable the Guy Carpenter parties to identify and investigate precisely what they are supposed to have known" was afflicted by ambiguity because it referred "in each relevant particular to a non-legal description which does not identify any specified legal entity" (ibid, paras 10 to 12). It submitted that this technique "is deliberately evasive and is obviously intended to avoid facing up to the difficulties identified in argument", and that it should not be permitted (ibid, para 13; the complaint was repeated, in slightly different words, in paras 14 to 16).
41 It is convenient to deal with these points before I return to the central issue of the adequacy of the pleading of knowledge. The revised draft further amended 33rd cross-claim maintains the distinction between NCRA and NCRH. The fiduciary duty that is alleged against the directors is a fiduciary duty said to be owed to NCRA. The breach of that duty that is alleged against the directors is their causing or permitting NCRA to enter into the first and second legs, and to cause or permit it to undertake the accounting treatment of which complaint is made (including in this, the failure to bring to account at 30 June 1998 the allegedly certain outcome of the second leg). However, the dishonest and fraudulent design that is alleged is the false overstatement of the net assets of NCRH on consolidation. It is the equally false overstatement of the net assets of NCRA (the result of the directors' breach of fiduciary duty) that is said to achieve the dishonest and fraudulent design, on consolidation of the accounts of NCRH with its subsidiaries. I do not see any relevant confusion in this.
42 Guy Carpenter submitted that (on the material facts pleaded by NCRA) it was apparent that it was NCRH that caused NCRA to enter into the first and second legs, and to undertake the relevant accounting treatment. That may be so; but it is not the case that NCRA seeks to make against the directors. It may also be, as Guy Carpenter submitted, that those of the directors who were also directors of NCRH breached their fiduciary duties to it. But that is not something in respect of which NCRA can complain; nor does it do so in these proceedings. I do not see in these complaints any basis for rejecting the application for leave to amend.
43 Nor do I see any substance in the criticisms of the terminology used in the allegations of knowledge in para 40. It is quite clear, when one reads the particulars, that the use of the various expressions of which complaint is made (New Cap Re, New Cap, NCR and the Board) is a use that reflects directly the particular expressions used in the documents that are particularised. Where no documents are particularised, or where on the face of things the particulars do not purport to quote from a document, orthodox expressions (for example, NCRH, the New Cap Group and NCRA) are used. The "technique" of which Guy Carpenter complains is no more evasive than the documents that are relied upon in the particulars; and many of those documents are Guy Carpenter documents.
44 I return to the main point. Consideration of this point, and of the parties' submissions on it, needs to recognise a number of factors. The first is that one of the functions of pleadings (using that word in its proper sense) is to enable the party against whom the pleading is propounded to understand the nature of the claim, or defence, that is propounded and to prepare to meet it. Thus, pleadings are part of the process whereby procedural fairness is afforded to litigants, although this of course is not the sole function of pleadings. The same function is served by the quasi pleadings utilised in the Commercial List.
45 The second point is that this application does not concern pleadings in the strict sense. The proceedings are brought in the Commercial List. They are governed by Practice Note 100. One of the principal purposes of the Commercial List is to facilitate the just, quick and cheap disposal of the proceedings. To that end, the parties' contentions are required, among other things, to avoid formality whilst, at the same time, identifying the material facts relied upon (and giving adequate particulars) and the legal grounds for relief. See paras 6(2), 7(2) (relating to plaintiff and defendant respectively) and 17 (applying the requirements of the Practice Note to cross-claims and defences to cross-claims under para 16).
46 The third point is that, particularly because of the second point, it is appropriate to approach this issue bearing in mind what Lander J said in Arthur Young & Anor v Tieco International & Ors (1995) 182 LSJS 367, 370 (bearing in mind that his Honour was speaking of a system of pleadings properly so called):
"Whether the material facts and whether sufficient particulars have been pleaded must depend upon the cause of action, the complexities of the case and the whole of the circumstances of the case. None of those matters can be considered in isolation any more than each of the paragraphs of the pleading can be considered in isolation.
When the Court considers a pleading it will not consider the pleading with the same degree of scrutiny which the courts are required to give to an Act of Parliament. With the complexities of modern litigation, a pleader can usually point to some deficiency in the opponent's pleadings. One can usually, if one approaches the matter with a critical eye, identify some failing in a pleading. But that is not the approach that in this age ought to be adopted. A court would not sit down in the manner of a nineteenth century pleader seeking to find an error capable of sending a party away to re-plead his claim or defence. Such a technical approach is inconsistent with modern litigation and inconsistent with the court's function which is to try to arrive at a just result. A successful result, if arrived at, after too great an expense may not be considered by even the successful party to be a just result. A court ought to approach a consideration of the adequacy of a pleading seeking to answer the ultimate question; does the pleading give fair notice of the case to be made against the other party at trial, thereby minimising the risk of injustice resulting from surprise".
47 Even taking into account the revisions to the proposed amendments, I have some sympathy with the proposition that the pleading of the breach of fiduciary duty in the paragraphs in question is less than clear. However, on analysis and on a fair reading, I think that they are to be construed in substance as Mr Finch submitted. That is so, particularly, when one considers them in context (including not only the particulars that are given, but also the preceding allegations of the material facts leading up to and including the making of the first and second legs).
48 When one looks at the relevant pleading context (and, for this purpose, it is convenient to consider para 53 of the revised draft amended 36th cross-claim), it is tolerably clear that the allegations that are being made include that: