Jonker v Thomas International Limited Company Number 01568983

The nature of the proceedings 2 The pleaded action is to recover certain payments which the applicants claim they are entitled to receive from the respondent, Thomas International, under a deed. That deed, which will be referred to as the "Settlement Deed", had the effect of resolving certain proceedings which had previously been litigated in this Court. The first applicant, Mr Jonker, was a director of Assessment Centre Technologies Pty Ltd (ACT) which was a party to those proceedings and to the Settlement Deed. The other applicant, Mr Schutte, was a party in his own right. Pursuant to the terms of the Settlement Deed, Thomas International agreed to pay ACT a settlement sum which consisted of $AUD150,000 payable on 31 December 2015 and the sum of $AUD50,000 per month for 57 months with the first amount being payable on 31 January 2016. A number of monthly payments were made in the period from January 2016 until and including July 2016. However since 1 August 2016, Thomas International has made no further payments. It would appear that the cause for the cessation of the payments was the insolvency of ACT. On 22 June 2016 that company was placed into liquidation in South Africa, and is currently in the process of being wound up. 3 It is alleged, and it does not appear to be controversial, that on 10 May 2017, the liquidators of ACT entered into a deed which is referred to as a deed of cession (the Deed) with each of the applicants. Pursuant to the Deed, ACT ceded to them jointly and severely, the right, title, and interest to pursue and recover the monthly payments which were payable by Thomas International under the Settlement Deed. Written notice of that assignment or cession was given to Thomas International by the applicants on 6 June 2017. 4 As mentioned, Thomas International has refused and failed to pay any further monthly payments under the Settlement Deed. The applicants claim to be entitled to receive these payments and in these proceedings seek orders relating to the payment of those amounts to them. 5 By its defence, Thomas International contests the applicants' right to be paid the monthly payment amounts under the Settlement Deed. For present purposes, there are two substantive defences which are relevant to this application: (1) First, that by reason of the conduct of ACT, the obligation of Thomas International under the Settlement Deed to make the payments has terminated. (2) Second, that the liquidators were not authorised to convey the right to receive payments under the Settlement Deed to the applicants and, therefore, the purported assignment was ineffective. 6 In relation to the first matter, Thomas International pleads that it was a term of the Settlement Deed that its obligation to continue to pay the monthly amounts was subject to certain South African companies, (which included ACT) refraining, for the period from 3 December 2015 to 30 September 2020, from representing any association with, or sponsorship by, Thomas International and further, keeping the arrangement specified in clause 7 of the agreement strictly confidential. In paragraph 16 of the defence, it is alleged that in two respects ACT engaged in conduct by which representations were made by ACT to its customers, and this conduct triggered the operation of clause 8 such that the obligation of Thomas International to continue paying the monthly payments came to an end.

Is there a pleaded representation? 7 Although it had not been agitated prior to the hearing of the application, the applicants seek to strike out paragraph 16, 17 and 18 on the basis, inter alia, that they do not properly plead a defence in reliance on the terms of the Settlement Deed because no sufficient representations are pleaded. As can be seen, there is some merit in this contention. 8 The clauses of the settlement agreement on which the respondent relies are as follows: (7) TIL will pay Assessment Centre Technologies (Pty) Ltd (South Africa) a sum of AU$50,000 each month for 57 months with the first payment being made on 31 January 2016 and on the last day of each month hereafter with the last payment being made on 30 September 2020. (8) (7) above is subject to the South African companies agreeing to throughout the term of 5 years referred to in (7) above not representing any association with, or sponsorship by, Thomas International Limited and keeping the arrangement at (7) STRICTLY CONFIDENTIAL including not disclosing it to current or prospective customers of the South African companies or TIL. 9 There are difficulties with those paragraphs, not in the least that paragraph 7 does not refer to a period of five years. However, for present purposes such difficulties of construction are not in question. They are matters for trial. 10 The essential question is whether Thomas International has raised any efficacious plea which enables it to rely on those clauses. As the issue has crystallised, the focal question is whether there has been any adequate plea that ACT made a "representation of any association with or sponsorship by Thomas International Limited"? The obvious commercial interpretation of that clause would require that the representation would have to be made to a third party. Counsel for Thomas International Limited did not suggest otherwise. Indeed, a conclusory plea of the respondent is that a representation was made to ACT's customers or prospective customers. 11 The conduct which is alleged to give rise to the making of the representations of association with or sponsorship by Thomas International is said to arise in paragraphs 16(a) and (b) in the first instance, and in subparagraph 16(c) in the second instance. Paragraph 16(d) provides that, by reason of the conduct referred to in those paragraphs, ACT represented to "customers or potential customers" that it had an association with or sponsorship from the respondent. 12 The difficulty with the two alleged instances of representation identified in paragraph 16 is that the conduct alleged of ACT was that it offered to or did provide what are identified as "Human Job Analysis" services (HJA Services) to customers. It is alleged that the HJA Services comprised an online job profile service which apparently consisted of a questionnaire which could be used to identify the behavioural requirements of a particular job so as to assist in the recruitment of suitable personnel. It is alleged that the HJA service was created by Thomas International and is exclusive to it, that the service can only be accessed via TI's online platform, and that only entities authorised by Thomas International are permitted to use or offer the HJA services. 13 The allegation in subparagraph 16(a) refers to a representation by ACT, after 3 December 2015, to clients or other potential clients that it was able to provide HJA services. The particulars provided refer to one email sent by a Ms Coetzee of ACT to a Miss De Oliveira of Tsogo Sun (Pty) Ltd (SA) on 20 January 2016 which indicated that ACT was able to offer HJA services to that company. A copy of the email was adduced in evidence although it provided little more information than that which was pleaded. 14 The difficulty with the pleading as presently framed is that there is no allegation that ACT's actual or potential customers were aware that the HJA services which were to be provided were services which could only be provided if ACT had a relationship or association with Thomas International. In the absence of knowledge by the actual or potential customers that the HJA services were only capable of being provided by ACT if it had an "association with or sponsorship by" Thomas International, the mere provision of those services could not possibly give rise to the alleged representation. That being so there is a lacuna in the pleading connecting the offer by ACT to provide HJA services to actual or potential customers to a representation to the customers that ACT had an association with or sponsorship by Thomas International. For this reason the pleading is inadequate to raise a defence under clauses 7 and 8 of the Settlement Deed. Even accepting the high level of certainty required by a court in striking out pleadings on the ground that "no reasonable defence is raised" (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125), the plea in paragraph 16 does not raise sufficient facts to ground a defence based on cl 8 of the Settlement Deed. 15 In the ordinary course one might expect that such a conclusion would lead to an order that the relevant parts of the paragraph be struck out. However, during the course of argument, Mr Eggins of Counsel for Thomas International asserted that had this issue been communicated previously he might have obtained instructions which would have allowed an amendment to be made to the defence to overcome this deficiency. It does not appear that this issue as to the veracity of paragraphs 16(a) and (b) was deliberately withheld so as to "ambush" the respondent. It merely appears that the issue was identified late in the preparation for oral argument; a not-infrequent occurrence in such matters. The lack of any intent to ambush Thomas International can also be inferred from the fact that if the point had been identified by Counsel for the applicants at an earlier point in time, he would have acted in accordance with the established etiquette between Barristers, and ensured that Mr Eggins, whose name appears on the pleading, was informed of it. That way, the omission might have been rectified without the need for a hearing. This well established aspect of professional courtesy as between barristers is entirely consistent with ss 37N and 37M of the Federal Court Act 1976 (Cth), in that it enables pleading issues to be resolved, if possible, without the need for a hearing and wasted costs. In the circumstances where the respondent was not informed of this ground of contention before the application was heard, rather than having its pleading struck out, it is appropriate that Thomas International be afforded an opportunity to make an amendment to the defence in this respect if it is able to do so. 16 The allegations in subparagraph 16(c) are also relied upon as giving rise to an alleged representation of association with or sponsorship by Thomas International. In doing so they also make allegations of misuse of Thomas International's proprietary software and, indeed, the misuse of credit of a third party. This aspect is dealt with below. However to the extent to which subparagraph 16(c) does not properly connect the provision of HJA services with the necessary relationship to Thomas International, the comments in relation to paragraphs 16(a) and (b) are applicable. For that reason, the allegations in this sub-paragraph disclose no reasonable ground of defence. Equally, in the circumstances of the present case, Thomas International should have the opportunity to amend subparagraph 16(c) to allege sufficient material facts which might give rise to a representation and provide a defence founded upon cl 8 of the Settlement Deed.

Allegations of a scandalous nature 17 The applicant submits that subparagraph 16(c) contains scandalous allegations which ought to be struck out. As mentioned, the allegations are to the effect that an employee, or other representative of ACT, misused the internet platform of Thomas International. It is alleged that such persons accessed the platform by utilising an account of another client of Thomas International without the knowledge or permission of that client. A slightly more serious allegation is that an employee or representative of ACT drew upon the credit standing to the account of that other client of Thomas International in order to utilise the internet platform. That is tantamount to an allegation of theft. It is alleged that there were 23 occasions on which Thomas International's internet platform was utilised in this manner. 18 Although the allegations are of a serious nature and amount to allegations of dishonesty, they do not appear to be "scandalous" in the sense contemplated by rule 16.21(1)(a) of the Federal Court Rules. Whilst being of a serious nature they are not irrelevant to the pleading. In the words of Yates J in C2C Investments Pty Ltd, Re C2C Investments Pty Ltd v Leigh (No 3) [2012] FCA 680 at [5], the allegations are not "so extraneous to the issues raised in the proceeding on which evidence could properly be brought forward", that they should be struck out as scandalous. Thomas International could, legitimately, call evidence of the matters pleaded in subparagraph 16(c) to establish the conduct of ACT by which it says the representations were made to the various clients or potential clients. That is, of course, assuming that Thomas International is able to make appropriate amendments to substantiate a plea based on cl 8 of the Settlement Deed. 19 In the circumstances, the allegations in subparagraph 16(c) do not amount to scandalous allegations which ought to be struck out.

Want of particularity 20 The applicants' main complaint is that Thomas International is unable to particularise the somewhat broad allegations contained in paragraph 16 as to the identity of the clients or potential clients to which ACT made the representations in question. They further assert that Thomas International is not able to identify the employees or other representatives of ACT who allegedly engaged in the conduct pleaded in subparagraph 16(c), that is gaining access to the web based platform of Thomas International via the utilisation of the account of another entity. In substance, the applicants assert that serious general allegations are made that conduct was engaged in by ACT by its employees or other agents, but Thomas International is unable to provide appropriate particulars of important aspects of those allegations. It asserts that is likely to cause prejudice, embarrassment, or delay in the proceedings or it is otherwise an abuse of process. It might, alternatively, have been alleged that the pleading did not comply with r 16.41(1) because the particulars provided were insufficient or inadequate and Thomas International could not provide additional particulars. In this respect, there appears to be a lacuna in the rules in that there is no express power to strike out a pleading which is insufficiently particularised. On the other hand, such a deficiency in a pleading would render it embarrassing and, hence, susceptible to being struck out under r.16.21. 21 Quite properly the solicitors for the applicant sought particulars of the generalised allegations in paragraph 16 of the defence. There is no need to set out the details of the particulars provided pursuant to that request, it suffices to observe that they were inadequate in many respects. In relation to the particulars requested of subparagraph 16(a) of the defence which made allegations of representations being made to actual or potential clients, Thomas International was only able to identify the one client being "Tsogo Sun (Pty) Ltd (SA)". It says that it is not able to provide further particulars until the completion of discovery and that is the reason for its cross-application. Necessarily, that is an acknowledgement that it does not know whether any further representation was made to any party. 22 In relation to the particulars sought of subparagraph 16(c), Thomas International was not able to identify the identity of the "employee or other representative of ACT" who engaged in the conduct alleged, other than to say it was a "former senior manager". Additionally, Thomas International is not able to provide particulars of the identity of the "other clients of ACT" to whom the alleged information was passed. They are merely described as "former clients" of ACT. 23 Whilst Thomas International has been able to provide details of the use which was made of its web based platform, in the sense of identifying what facilities were accessed and used, it is obviously not in a position to provide details of the entities to whom the representations were made. Equally it is not able to identify any particulars of the identity of the person or persons who engaged in the alleged conduct. That being so it is not able to give any real particulars of how the person who made use of its web based platform did so on behalf of the applicant. 24 The difficulty in relation to this matter is that by paragraph 16 Thomas International has asserted that in two respects ACT made representations to its clients, or at least potential clients, that it had an association with or a sponsorship from Thomas International. Whilst the particulars to subparagraph 16(a) identifies one entity (being Tsogo Sun (Pty) Ltd (SA) as someone to whom the representation was made, the allegation in the pleading of the material fact is much wider and no additional particulars can be given. 25 In the course of argument, Mr Eggins for Thomas International, in effect, submitted that the essential matters might be established at trial by an inference. There is no doubt that a party in the position of Thomas International might plead a defence such as the one based on clause 8 of the Settlement Deed without being able to particularise the persons to whom the representations were made, or the identity of the persons on behalf of ACT to whom they were made. That is because the matter may be established by the proof of facts which support an inference of the existence of that matter. However, if allegations of the nature advanced in this case are made and the party asserting the same is not able to provide particulars of the actual representations, the persons to whom the representations were made, or the identity of the persons making them, the Court may readily reach the conclusion that the allegations are no more than mere assertions which have been made without any foundation. If direct particulars of the allegations cannot be given, the party making the allegation ought to identify the facts which it intends to establish for the purposes of asking the Court to draw the necessary inferences. At the very least, on an application to strike out the pleading on the basis that it is likely to cause prejudice, embarrassment, or delay to the proceeding or is otherwise an abuse of process, the party relying upon the bald assertions of fact ought to identify the matters from which the facts will be inferred. They might be identified as particulars or in affidavit evidence. 26 The submissions advanced by Thomas International in an attempt to save paragraph 16 were somewhat curious in that it was asserted that the Court should only have regard to the allegations pleaded in the defence and the particulars which were subsequently provided. Counsel for Thomas International eschewed the ability of the Court to look beyond those matters and consider other evidence in order to ascertain whether a pleading is likely to cause prejudice, embarrassment, or delay to the proceeding, or is otherwise an abuse of the process. If that were so, in this case the position would be that important allegations are made in the defence in very bald terms and, in respect of which, Thomas International admits it is not able to provide particulars. That would only suggest that Thomas International has made allegations for which there is no basis. 27 It can be accepted that where the question is whether the pleading discloses a reasonable cause of action or defence, the Court need only consider the allegations in the pleading (Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91, 109; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129 and Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (2008) 252 ALR 41, [5]). That is because on an application of that nature, which concerns whether the pleading can succeed as a matter of law, the Court assumes the truth of the allegations made and draws all the necessary inferences in favour of the non-moving party. That approach does not apply where the question is whether the pleading is likely to cause prejudice, embarrassment or delay in the proceedings or might otherwise be an abuse of process. 28 On an application such as the present, it does not appear that the material which the court might consider is as limited as Counsel for Thomas International suggests. Where it is alleged that all that the party's pleading has done is to make allegations which are wholly without substance and unable to be particularised, it would be an odd thing if, on an application to strike out the pleading (or on the usual cross-application for discovery before particulars are provided), the non-moving party were unable to adduce evidence of the existence of a good cause of action or defence. In such situations the party defending the application to strike out (or seeking to obtain discovery prior to providing particulars) ought to adduce what evidence it can to indicate that it has or, perhaps, believes that it has, a good cause of action or defence as the case may be. The principles which apply where a discovery application is defended on the basis that the proceedings are of a fishing nature apply mutatis mutandis to a strike out application of the kind which is before the Court. In Trade Practices Commission v CC (New South Wales) Pty Ltd (1995) 58 FCR 426 the Commission was able to point to evidence which supported the existence of the claimed cause of action even though particulars of the allegations were not able to be provided at the time. For this reason the Court was satisfied that the allegations which could not be particularised were not speculative. In relation to the prohibition of using discovery for the purposes of "fishing", Lindgren J said : What is meant is that discovery must not be used for the purpose of ascertaining whether a case exists, as distinct from the purpose of compelling the production of documents where there is some evidence that a case exists. 29 The last part of that sentence is important in the present context. Where all that the Court has before it on an application to strike out (or on an application for discovery) is a bald allegation in the pleading which cannot be appropriately particularised and an absence of evidence that a case exists, the allegation is embarrassing and should not stand and no orders for discovery should be made in respect of it (see also the observations of Brennan J in WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175, 181). 30 A similar approach was followed in Matthews v SPI Electricity Pty Ltd (No 12) [2014] VSC 131, [41], where Derham AsJ observed that no attempt had been made to adduce any evidence to establish that the plaintiff had any basis for knowing, or even suspecting, the matters in question (at [42]). Had such evidence been procured it would appear that the result would have been different. By comparison, in Egg and Egg Pulp Marketing Board v K H Korp [1963] VR 378, 381 the Court accepted that the allegations in the pleading were defined with sufficient precision to overcome the suggestion that the applicant was merely "fishing" for a case. Here, by contrast, Thomas International has not pleaded with sufficient particularity to overcome the conclusion that it is fishing for a case and nor has it sought to adduce any evidence which might suggest that it has a substantial defence based upon material from which inferences might be drawn. That is, it does not attempt to identify the facts from which the necessary inferences can be drawn. 31 Thomas International has made allegations in this matter that ACT made representations to various entities. It admits it is not able to identify those entities. It merely describes them as customers of ACT. It cannot identify the persons who made the representations or their connection with ACT such that it might be said that the representations were made on its behalf. Moreover, Thomas International has not sought to advance any basis whatsoever for knowing, or even suspecting, that there existed customers to whom representations were made by ACT. It is difficult to escape the conclusion that this is a "fishing expedition" by Thomas International. It does not presently know whether any representation was made to various entities but it seeks discovery for the purposes of ascertaining whether that allegation can be sustained. Importantly, it did not adduce any evidence to found a belief or suspicion that the representations were made to former customers. The pleading appears to be simply a foundation on which to obtain discovery to ascertain whether or not any case exists rather than a pleading based upon evidence supporting an established case. On the material which is before the Court the present appears to be a situation where Thomas International has made an allegation without any basis for it (which is plainly impermissible). This is not a case where the allegations made were ex facie soundly based on the best particulars which were available (see Murphy v Victoria (2014) 45 VR 119 at [35]).

Conclusion 32 It follows from the above that the allegations in paragraph 16 cannot, as they stand, be sustained. There is no nexus between the conduct alleged and the making of a representation which would be necessary to found a defence based on clauses 7 and 8 of the Settlement Deed. Further, the allegations that customers of ACT were the recipients of representations made by ACT is, on the material presently available, speculative, as is the allegation that the representations were made by persons who were agents of ACT. Necessarily, a pleading in this form will cause prejudice, embarrassment or a delay in the proceedings were the allegations to remain. 33 In the ordinary course an order would be made to strike out paragraph 16 (along with paragraphs 17, 18 and 34(a) which are reliant on paragraph 16) and to accord Thomas International the opportunity to re-plead. However, in the course of argument it appeared that amendments could be made to the defence which might overcome the identified deficiencies. Given that the legal representatives for Thomas International were not adequately informed of the arguments which were to be advanced on the strike out application, Thomas International ought to be given a reasonable opportunity to amend its defence. That conclusion is buttressed because the application was brought on in a slightly unusual way in that it was pursued quite late in the context of a Case Management Hearing and the actual arguments to be advanced were also provided quite late. Therefore, as a matter of discretion, the pleading ought not to be struck out at this stage. If, after the expiration of 14 days from the date of this order Thomas International is not able to adequately remediate the deficiencies in its pleading a different course may be adopted. 34 In the circumstances of this case where direct particulars of the allegations cannot be given and the respondent will seek to rely upon facts from which inferences will be said to arise, it is appropriate that any such facts be particularised in any amended defence.

Application for disclosure 35 Thomas International made an application for disclosure in relation to issues in paragraph 16 of the defence and the issues in paragraphs 9 and 10 of the reply. 36 For the reasons identified above it is inappropriate to make any order for discovery in relation to paragraph 16 of the defence which may be struck out. If, within the time specified in the orders hereto, the respondent is able to file and serve a sustainable defence in respect of the matters alleged in paragraph 16, it may renew its application for discovery of documents relating to those issues. 37 The applicants do not oppose the making of an order in relation to the discovery of documents covering the issues identified in paragraphs 9 and 10 of the reply. An order in those terms should be made. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.