KTC v David

The history of the dispute

1. Given the complex history between these parties, I gratefully adopt as adequate for present purposes the summary of the ASOC set out in the submissions filed on behalf of Mr Bullock. Paragraphs [9] to [11] below reproduce that summary.
2. The claims arise out of the breakdown of what is said to have been a joint venture between: 1. KTC's ultimate owners, Charif Kazal and Tarek Kazal, who are referred to in the ASOC as "the Kazals", and; 2. Mr David, acting through his company, RAAL Limited ("RAAL").
3. In particular, it is alleged in the ASOC that: 1. In or about mid-2008, the Kazals and Mr David agreed to incorporate Emergent Capital Limited ("ECL") in the Cayman Islands as the vehicle through which their joint venture would be conducted, where: 1. the equity in ECL would be held as to 50 per cent by the Kazals through KTC and as to the balance by Mr David through RAAL; and 2. Mr David was to be chairman and chief executive officer of ECL; 1. By reason of the joint venture and Mr David's role in it, he, RAAL and/or ECL owed fiduciary duties to KTC; 2. In or about December 2008, ECL and Singh Investments Pry Limited ("SIL"), a company owned and controlled by Mr Singh, agreed to establish Global Renewables Limited ("GRL") for the purpose of acquiring the shares in Global Renewables Australia Pty Limited ("GRA"), the owner of the business trading as the Eastern Creek Waste Facility (the "Waste Facility"). This was in circumstances where the equity in GRL would be held as to 80 per cent by ECL and as to 20 per cent by SIL; 3. As at 28 January 2010, the directors of ECL were: 1. the Kazals, having one vote between them; 2. Mr David, having one vote; and 3. following his appointment to the board on 13 November 2009, Mr Nikolaos Mavromanolakis ("Mr Mavro"), who similarly held one vote; 1. On or about 28 January 2010, at a meeting of the directors of ECL, which is said to have been convened without notice to the Kazals, Mr David and Mr Mavro voted in favour of a resolution that ECL issue 49,900 shares to RAAL in consideration of the satisfaction of ECL's indebtedness to RAAL in the amount of US$49,500 (the "Resolution"); 2. The effect of the Resolution and the share issue that it authorised was: 1. to reduce KTC's shareholding in ECL from 50 per cent to 0.1 per cent; and 2. to increase RAAL's shareholding from 50 per cent to 99.9 per cent; 1. The passing of the Resolution and the issuing of additional shares to RAAL involved a breach by Mr David of the fiduciary obligations that he owed to KTC, such that RAAL held 24,950 of the additional shares on constructive trust for KTC as a knowing recipient of property obtained in consequence of a breach of fiduciary duty; 2. By failing to transfer the 24,950 shares the subject of the constructive trust to KTC, RAAL likewise engaged in a breach of fiduciary obligations; 3. On 29 March 2010, Mr David and Mr Mavro resolved to remove the Kazals as directors of ECL; 4. These developments prompted KTC, on 21 May 2010, to commence proceedings in the Grand Court of the Cayman Islands (the "Cayman Islands proceedings"). Those proceedings were not resolved until 23 November 2011 when, after ECL had been put into voluntary liquidation, the Court ordered the Liquidators of ECL to rectify its register of members so as to reflect that KTC and RAAL each held 50 shares in ECL, each such share having a value of US$1; 5. After the passing of the Resolution and whilst the Cayman Islands proceedings were pending, ECL (under the control of Mr David) and SIL took steps: 1. to equalise the respective shareholdings of ECL and SIL in GRL; and 2. to sell GRL to Ironbridge Capital Pty Ltd ("IBC") at an undervalue, notwithstanding that KTC had itself made what is alleged to have been a more attractive offer for GRL; 3. following the sale of GRL to IBC in December 2010, the shares in GRL were dealt with in a series of transactions that ultimately produced a significant profit for XALT, a company of which Mr Singh was and remains the sole shareholder and director; and 4. having regard to this result, Mr David and RAAL breached their fiduciary obligations in the pursuit of a dishonest and fraudulent design, the objective of which appears to have been to deprive the Kazals, through KTC, of the economic benefit of any ownership interest they might otherwise have had in the Waste Facility and to pass that benefit to Mr Singh.
4. In so far as Mr Bullock is concerned, it is alleged that, as the responsible G + T partner, Mr Bullock: 1. provided legal advice to Mr David and/or RAAL, to the effect it was lawful for Mr David and Mr Mavro to vote in favour of the Resolution and to remove the Kazals as directors of ECL, and 2. in so doing, knowingly assisted in: "(a) the breach of fiduciary duties referred to in paragraph 37 which David and/or ECL owed to KTC; (b) the breach of fiduciary duties referred to in paragraph 38 which RAAL owed to KTC; (c) the breach of fiduciary duties referred to in paragraph 39 which David owed to ECL; (d) the Fraudulent Design of RAAL; and, or alternatively; (e) the Fraudulent Design of David" "
5. It is then important to note the conclusion of Mr Justice Andrew J Jones QC in the Cayman Islands proceedings (In re Emergent Capital Limited (In liq); KTC v RAAL Ltd; Grand Court of the Cayman Islands - Financial Services Division; Mr Justice Andrew J Jones QC; unreported; 23 November 2011): "[49] In my judgment the evidence leads unequivocally to the conclusion that Mr. David was determined to protect his own position by eliminating the Kazal brothers' equity interest and assuming 99.99% [sic] ownership and control of ECL. The result is that he would effectively own the GRA group jointly with Mr. Singh. Mr. Mavro did not have the same personal motivation, but I think that he felt obliged to support Mr. David in circumstances where the Kazal brothers were unwilling to support the business financially. He must have understood that shifting AUD$54,000 from RAAL's shareholder loan account to the share capital account served no useful purpose from the company's point of view. In my judgment the action taken by the directors at the 28th January constituted a breach of their fiduciary duty because the only real purpose was to eliminate KTC's interest and pass ownership of ECL to RAAL. Conclusion [50] I therefore direct the Liquidators to rectify ECL's register of members to reflect that KTC and RAAL each own 50 shares of US$1 each."

The strike out motion

1. G+T and Mr Bullock moved on a notice of motion filed on 24 October 2018 which sought this relief: "The fourth and fifth defendant seeks the following orders: 1. The statement of claim filed on 25 July 2018 insofar as it is brought against the fourth and fifth defendants be struck out in whole or in part under Rule 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). 2. The proceedings brought by the plaintiff as against the fourth and fifth defendants be dismissed under Rule 13.4 of the UCPR. 3. The plaintiff pay the costs of the fourth and fifth defendants of this application on an indemnity basis. 4. The costs payable by the plaintiff to the fourth and fifth defendants on a gross sum basis and in an amount to be determined by the Court pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW). 5. Such other orders as the Court deems fit."
2. The notice of motion refers to a statement of claim filed on 25 July 2018. By the time the strike out motion came on for hearing before me, there had been considerable correspondence between the relevant parties concerning the adequacy of the pleading. At a directions hearing on 22 February 2019 I granted leave to KTC to file the ASOC on the basis of an understanding between the parties that the ASOC would become the subject of the strike out motion. This was because Mr Bullock did not accept that the ASOC cured the alleged deficiencies in the statement of claim. On the other hand, without conceding the validity of Mr Bullock's complaints about the statement of claim, KTC propounded the ASOC as the document which it would otherwise have sought leave to file if the original statement of claim against Mr Bullock were to be struck out. All parties therefore accepted that the most efficient way to resolve the pleading dispute was to focus attention on the ASOC.
3. UCPR rule 14.28 provides: "14.28 CIRCUMSTANCES IN WHICH COURT MAY STRIKE OUT PLEADINGS (1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the court. (2) The court may receive evidence on the hearing of an application for an order under subrule (1)."
4. UCPR rule 13.4 provides: "13.4 FRIVOLOUS AND VEXATIOUS PROCEEDINGS (1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings: (a) the proceedings are frivolous or vexatious, or (b) no reasonable cause of action is disclosed, or (c) the proceedings are an abuse of the process of the court, the court may order that the proceedings be dismissed generally or in relation to that claim. (2) The court may receive evidence on the hearing of an application for an order under subrule (1)."
5. In relation to the possible dismissal of the proceedings I respectfully adopt the analysis of the five bench New South Wales Court of Appeal in Shaw v State of NSW [2012] NSWCA 102 (per Barrett JA with whom Beazley, McColl and Macfarlan JJA and McClellan CJ at CL agreed): "30. I have said that the "triable quality" of the three matters just mentioned is in issue. There is no dispute that the central inquiry is that indicated by Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, General Steel Industries Inc v Commissioner for Railways [1964] HCA 69; (1964) 112 CLR 125 and, more recently, Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 where Gaudron, McHugh, Gummow and Hayne JJ said at [57]: "Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way." 31. That formulation has since been re-affirmed: see Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27; (2006) 226 CLR 256 at [46]; Spencer v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118 at [24]; and, while it was said in Batistatos that the General Steel formulation should not be given "canonical force", it is convenient, for present purposes, to refer to the criteria laid down by the case law I have mentioned as the "General Steel test". 32. The question is therefore whether the claims in question are so obviously untenable or groundless that there is "a high degree of certainty" that they will fail if allowed to go to trial; and whether this is one of the "clearest of cases" in which the court may accordingly intervene to prevent the claims being litigated. 33. It was submitted on behalf of the respondent that this test requires refinement in the light of provisions of the Civil Procedure Act 2005. The substance of the submission is that statutory directives about case management may sometimes require the court to put an end to a claim even though it is not found to be of the doomed or hopeless quality indicated by the General Steel test; and that the question of what I have termed "triable quality" may be affected accordingly. 34. I shall return to this submission. At this point, I proceed to consider whether the claims are of the doomed or hopeless quality indicated by the General Steel test."
6. No question arose in this case as to whether the introduction of s 56 of the Civil Procedure Act 2005 (NSW) (the "CPA") had a relevant effect on what would otherwise be the outcome of the application.

The law

1. The adequacy of the pleading against Mr Bullock must be measured by reference to these fundamental propositions in relation to the cause of action alleged: 1. Where there has been no actual receipt of property, a defendant will be liable to the object of a fiduciary obligation: 1. If the defendant knowingly procures or induces a breach of the fiduciary duty; or 2. If the defendant: 1. assists in; 2. a breach of fiduciary duty; 3. with knowledge that; 4. the breach was a dishonest and fraudulent design; Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 ("Farah") at [160]-[163] and [179]; Hasler v Singtel Optus Pty Limited [2014] NSWCA 266; (2014) 87 NSWLR 609 at [73]-[75], ("Hasler") [77]-[79], [106], [109]-[110], [122]-[125]. 1. Because equity looks to conscience, it must be the case that where it is alleged that the defendant procured or induced a breach of fiduciary duty, the defendant must have known that what the defendant was doing was to bring about such a breach: see the cases and examples given in Farrah at [161] and Hasler at [77]. 2. The "assistance" must be "facultative conduct or activity which is more than mere knowledge or notice of breach of duty": Re-Engine Pty Ltd (in liq) v Fergusson [2007] VSC 57; (2007) 209 FLR 1; 3. "Knowledge" must be at least one of four kinds (see Farah at [174] -[178]): 1. actual knowledge; 2. wilfully shutting one's eyes to the obvious; 3. wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; 4. knowledge of circumstances which would indicate the facts to an honest and reasonable man. The first three types of knowledge are sometimes referred to as "actual knowledge" and the last as "constructive knowledge". 1. Avoiding argument over what is fraud, the fiduciary's breach of duty must also be dishonest in the sense that it is a transgression of ordinary standards of honest behaviour: Hasler at [123] - [125]. 2. An allegation of knowledge of a dishonest and fraudulent design is a serious matter which must be fully pleaded and particularised and proven by reference to what is still referred to as the Briginshaw standard, now enacted in s 140 of the Evidence Act 1995 (NSW).

Consideration - two preliminary comments

1. Mr Rich SC submitted that the pleading against Mr Bullock did not disclose a reasonable cause of action and, because the ASOC was KTC's second attempt, it should be dismissed without leave to re-plead. Ms Loughnan QC strenuously disputed that the lengthy and detailed pleading did not disclose a cause of action against Mr Bullock who, she submitted, had clearly moved from being an independent adviser to an active participant in what KTC contended was a fraudulent and dishonest design. If that submission was not accepted, she submitted that KTC should be given an opportunity to re-plead having regard to the Court's conclusions.
2. The reasons which I now set out reflect the submissions made on behalf of Mr Bullock, which the Court accepts. However, before setting these out, I begin with two preliminary comments.
3. First, and intending no disrespect to the detail of Mr Loughnan QC's submissions by this summary, much of the burden of the argument advanced on behalf of KTC was that Mr Bullock's arguments asserted an unduly stringent and overly technical standard for the pleading. It was submitted that this was particularly unfair to KTC because Mr Bullock knew what had gone on with Mr David, whereas KTC did not.
4. Quite apart from the fact that the dispute between these parties has been going on for some years and has already been the subject of the Cayman Islands proceedings, the Court rejects KTC's general submission as a matter of principle. Although the old forms of action no longer "stand in the path of justice, clanking their medieval chains" (United Australia Limited v Barclays Bank Limited [1941] AC 1 at 29), compliance with UCPR Part 14 in relation to pleading, in particular the need to plead with precision the material facts relied upon to make out the specific causes of action asserted, must be insisted upon.
5. The Court resolutely rejects an approach to pleading which entails the indiscriminate recitation of large numbers of facts and detailed but insignificant particulars combined with rolled up conclusions, and which is then defended on the basis that at the end of the hearing at least one of the causes of action alleged can be expected to have been established. The "just, quick and cheap" overriding purpose set out in s 56 of the CPA is first and foremost satisfied by a clear and properly thought through pleading.
6. Second, it is helpful to recall that the basic claim sought to be advanced against Mr Bullock is as old as Barnes v Addy (1873-1874) LR 9 Ch App 244 ("Barnes") itself. The case which KTC wishes to bring, as was the case in Barnes, is an attempt to fix a solicitor with liability for the misconduct of his client. To understand my reasons for acceding to Mr Bullock's application, the relevant passage from the judgment of Lord Selborne LC in Barnes (at 253-254) should be borne in mind (emphasis added): "The case as to Mr. Duffield, when carefully examined, goes very little beyond that, and not at all, I think, beyond it in anything material to the alleged equity. In addition to the settlement for Mr. Addy, the proposed appointor, of the appointment of Mr.Barnes as a trustee, he also prepared a deed of indemnity to be executed by Barnes to Addy; and he admits that he was aware that, as a general rule, it was not a safe thing for a trustee to transfer a trust fund to a single new trustee, however regularly appointed, and therefore he advised his client against it. He says he advised against it from the beginning to the end, on that ground and that principle, not at all apprehending, and having no reason to apprehend, any dishonest purpose on the part of either Addy or Barnes, and he advised his client, if he did make a transfer, to have a deed of indemnity. I confess I cannot see how upon those grounds we could hold him a constructive trustee, and liable for a breach of trust, by either Barnes or Addy, unless we were prepared to go the length of saying that in every case in which, a doubtful transaction being contemplated between trustee and cestui que trust, a deed of indemnity is provided to make the trustee safe, the solicitor who prepares the deed is himself liable; because, in every such case, the same circumstances in principle must occur; namely, that it is apparent that the transaction may not be authorized by the terms of the trust, and that a Court of Equity may hold the trustee liable; and for that reason he takes an indemnity. It would be an alarming doctrine if we were to lay down, assuming honesty of purpose and the absence of fraud, that the solicitor is in such a case made a constructive trustee; and we are not going to be the first Judges to lay down that doctrine, it certainly not having been laid down by any of our predecessors. Now, ought or ought not Mr. Duffield, (for as to Mr. Preston there is really no question), from the circumstances of the case, to be held to have been aware that something wrong was intended? There is not a scintilla of evidence that he was aware of anything of the kind."

Consideration - the ASOC

1. The case against Mr Bullock is pleaded in paragraphs 121 to 127 of the ASOC. The critical conclusory allegation is paragraph 125: "125. By reason of the matters referred to in paragraph 124A A at all material times G+T and/or Bullock: (a) knew of; (b) wilfully shut their and/or his eyes to; (c) wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make in respect of; and, or alternatively; (d) knew of circumstances that an honest and reasonable person would have taken to have indicated facts constituting, any or all of the following: (i) the breach of fiduciary duties referred to in paragraphs 37 and 40 which David and/or ECL owed to KTC; (ii) the breach of fiduciary duties referred to in paragraphs 38 and 40A which RAAL owed to KTC; (iii) the breach of fiduciary duties referred to in paragraphs 39 and 40B which David owed to ECL (iv) the breach of fiduciary duties referred to in paragraphs 93(b) and 107A by David to KTC; (v) the breach of fiduciary duties referred to in paragraphs 93(c) and 101A by RAAL to KTC; (iv)(vi) the Fraudulent Design of RAAL; (v)(vii) the Fraudulent Design of David; and (vi)(vii) the Fraudulent Design of RAAL for Singh.
2. There are at least five difficulties with this paragraph.
3. First, the clause alleges any or all of the forms of knowledge in relation to any or all of the alleged breaches and fraudulent designs. Mr Hogan-Doran ventured a mathematical expression of how many permutations that raised. It is sufficient to say that it was an extraordinarily large number. That such multiplicity is inappropriate is even more the case when the seriousness of the allegation is taken into account. A pleading in this form is classically one which will cause "prejudice, embarrassment or delay in the proceedings". In reaching this conclusion I respectfully adopt what fell from French CJ, Gummow, Hayne and Kiefel JJ in Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 (emphasis added): "26. Contrary to ASIC's submissions in this Court, a case of fraud cannot properly be seen as a "fallback" claim to be made against the possibility that the party accused of engaging in misleading or deceptive conduct by publishing notices in relation to a financial product may seek to characterise them as statements of opinion, not fact. It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. A pleading of fraud will necessarily focus attention upon what it was that the person making the statement intended to convey by its making. And the pleading must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity. If an alternative case of misleading or deceptive conduct is to be advanced, it is necessary to identify that claim as separate from the allegation of fraud. And for the purposes of the misleading or deceptive claim the pleader must identify what it is alleged that the impugned statements conveyed to their intended audience. Of course there may be circumstances in which it is appropriate to plead alternative cases of misleading or deceptive conduct or alternative cases of fraud and misleading or deceptive conduct. But it is greatly to be doubted that it will ever be appropriate to pile, one on top of the other, as many alternative allegations as were made in this case. Doing so risks contravention of what, in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in Liquidation), Isaacs and Rich JJ said was "the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him" which requires that "pleadings should state with sufficient clearness the case of the party whose averments they are". 27. The task of the pleader is to allege the facts said to constitute a cause of action or causes of action supporting claims for relief. Sometimes that task may require facts or characterisations of facts to be pleaded in the alternative. It does not extend to planting a forest of forensic contingencies and waiting until final address or perhaps even an appeal hearing to map a path through it. In this case, there were hundreds, if not thousands, of alternative and cumulative combinations of allegations. As Keane CJ observed in his judgment in the Full Court: "The presentation of a range of alternative arguments is not apt to aid comprehension or coherence of analysis and exposition; indeed, this approach may distract attention from the central issues".
4. It is prejudicial to a defendant to have to work through the numerous combinations. A pleading of this kind may suggest that the pleader has failed to give proper attention to what he or she has a proper basis to expect will be able to be proven at the hearing and what facts will be relevant to each alleged breach of duty. In my respectful view, the obligation on a pleader under s 56 of the CPA in a case with multiple possible combinations arising from the same facts is only to plead those which fall on the right side of this question: if allegations A, B and C are those most likely to succeed but do not, how can less certain allegations D, E and F and following be responsibly pleaded?
5. Two short examples of the importance of avoiding the indiscriminate pleading of combinations will suffice.
6. First, each alleged breach of duty is quite fact specific. If KTC wishes to allege in respect of a particular breach of duty that Mr Bullock recklessly failed to make such inquiries as an honest and reasonable person would make in respect of the matters said to give rise to the breach, KTC must be in a position to provide proper particulars of the kind of inquiries it will be alleged Mr Bullock failed to make. Those inquiries may be different in relation to each alleged breach of fiduciary duty.
7. Second, a similar observation can be made if KTC wishes to allege that, in relation to a particular alleged breach, Mr Bullock "knew of circumstances that an honest and reasonable person would have taken to have indicated facts constituting" the alleged breach. Again, KTC would have to consider what particulars it could provide of those circumstances.
8. The second difficulty with paragraph 125 relates to paragraph 125(iii). This refers to breach of duties allegedly owed to ECL. ECL is not the plaintiff (in fact it has now been dissolved). KTC is not the proper party to assert a cause of action arising from that alleged breach.
9. Third, the division between paragraph 125(i) - (v) alleging breaches of fiduciary duty and paragraphs (vi) - (viii) referring to the defined "Fraudulent Designs", creates a division which is inconsistent with the principles set out in paragraph [19] above. In short, knowledge of the alleged breaches of fiduciary duty set out in paragraphs 125(i) - (v) would not result in liability in Mr Bullock unless those breaches were dishonest and fraudulent designs. Similarly, knowledge by Mr Bullock of the "Fraudulent Designs" referred to in paragraph 125(vi) - (viii) will not result in liability in Mr Bullock unless those fraudulent designs constituted breaches of fiduciary duties owed to KTC. As presently pleaded, there appears to be a disconnect between the alleged breaches of fiduciary duty and the allegation of dishonest and fraudulent design.
10. Fourth, to the extent it might be assumed in favour of KTC that one of the "Fraudulent Designs" consisted of one of the pleaded alleged breaches of fiduciary duty, the chronology of events makes it unrealistic to allege that Mr Bullock had any form of knowledge of the "Fraudulent Design" as pleaded.
11. To understand this point, it is necessary to appreciate that the particulars of the legal services provided by Mr Bullock to Mr David or RAAL make clear that those services are alleged to have been provided between 11 November 2009 and 13 April 2010. It follows that any matters which KTC says were known to Mr David as constituting a dishonest and fraudulent design must have been known to him in the period 11 November 2009 to 13 April 2010 or have been known to him during that period as intended to take place in the future. By way of example, and to make good the difficulty, the "Fraudulent Design of David" is pleaded in paragraph 109: "109. Further, by reason of the matters set out in 33 to 35 (inclusive) (in respect of the Share Issue) and paragraphs 41 to 43 (inclusive), 45 to 90 (inclusive) (in respect of RAAL's conduct subsequent to the Share Issue), David, in breach of his fiduciary duties in his capacity as director of RAAL, engaged in a dishonest and fraudulent design whereby he: (a) knew all circumstances in which the Resolution had been made; (b) organised the Share Issue to effectively eliminate KTC's interest in ECL and pass ownership of ECL to RAAL; (c) caused RAAL to obtain sole control and effective ownership of ECL for the purpose of benefitting itself by procuring the 99.9% of the proceeds of the sale of ECL's shareholding in GRL; (d) caused KTC to present the Winding-up Proceeding by reason of the Share Issue and caused RAAL to oppose it on the ground that the Share Issue was lawful and valid; (e) caused KTC and RAAL to present the Joint Petition by reason of the Share Issue and conducted its participation therein on the premise that the Share Issue was lawful and valid; (f) caused the Liquidators to be appointed to ECL by reason of the Share Issue and asserted that the liquidation of ECL should proceed as if the Share Issue was lawful and valid; (g) upon the Joint Petition proceeding as if commenced by writ in order to determine the dispute between ECL and RAAL regarding the Share Issue, proceeded to defend the Share Issue Proceeding to trial and judgment as if the Share Issue was lawful and valid; (h) entered into negotiations with KTC to buy out KTC's interest in ECL after the Share Issue without disclosing it to KTC; (i) caused ECL to execute the Second GRL Shareholders' Agreement in which it was agreed GRL would issue 60 shares to SIL for no consideration or consideration which was colourable or illusory, and did so accordingly thereby equalising SIL's shareholding in GRL with that of ECL; (j) caused ECL to execute the First Side Deed; (k) caused ECL to execute the Second Side Deed; (I) caused ECL to join with SIL to direct GRL to join in the GRL Consortium Bid; (m) caused ECL to join with SIL to direct GRL to select IBC as an equity provider for the GRL Consortium Bid; (n) caused ECL to join with SIL to determine to sell ECL's shareholding in GRL; (o) caused ECL to join with SIL to cause GRL to arrange for GRA to engage PwC to perform the PwC Valuation Retainer, knowing that PwC was also engaged to perform the IBC Retainer of PwC, the PwC Vendor Due Diligence Retainer and/or the ECL PwC Retainer. (p) caused ECL to join with SIL to cause GRL to accept and act on the PwC Valuation Report in the knowledge: (i) of the matters referred to in sub-paragraph (o); (ii) that PwC had not been provided with the books and records of GRL relevant to the trading of the Waste Facility; (q) caused RAAL to apply to permit IBC's acquisition of the equity in GRL and obtain orders that David be permitted to consider and conclude the sale of ECL's shareholding in GRL to either IBC or KTC; (r) at all material times, had determined that David would not conclude the sale of ECL's shareholding in GRL to KTC, notwithstanding that the KTC Offer was better than the IBC Offer; and (s) caused David to be permitted to conclude the sale of ECL's shareholding in GRL to IBC and, in so doing, caused the shareholding in GRA to be held 50% as to IBC and 50% as to XALT, (Fraudulent Design of David)."
12. In general terms, it can be accepted that the matters alleged in paragraph 109(a) - (c) took place or were known to Mr Bullock during the course of his retainer. However, the presentation of the "Winding-up Proceeding" referred to in paragraph 109(d) took place on 21 May 2010. Other events alleged in paragraph 109 took place months after Mr Bullock's involvement apparently ceased.
13. On the case as currently pleaded, it is unrealistic to suggest that Mr Bullock knew (in the relevant sense) of events that were to take place many months in the future. A pleading such as paragraph 109 demonstrates an unprincipled disengagement between the alleged breach of fiduciary duty and whether or not that breach of duty was a dishonest and fraudulent design. The pleading appears to confuse the alleged breach of fiduciary duty (which, for the sake of argument, it can be assumed meets the description of a dishonest and fraudulent design) and its consequences. If the case KTC wishes to make is that the corporate steps that were taken on Mr Bullock's advice to dilute KTC's interest in ECL and remove the Kazals as directors of ECL were a breach of a fiduciary duty owed to KTC by Mr David or RAAL, what follows (constituting the bulk of a pleading such as paragraph 109) may be consequences of that breach. However, it is difficult to see how they can be part of the dishonest and fraudulent design of which Mr Bullock could have had knowledge.
14. Fifth, paragraph 125 of the ASOC itself depends upon paragraph 124A - "by reason of the matters referred to in paragraph 124A".
15. Paragraph 124A also suffers from serious difficulties: "124A. Further or alternatively, at all material times G+T and/or Bullock: (a) procured the acts and transactions referred to in paragraphs 33 to 35 inclusive and 60 to 90 inclusive; and/or (b) participated in the acts and transactions referred to in paragraphs 33 to 35 inclusive 60 to 64 inclusive. PARTICULARS In so far as it is alleged that G+T and/or Bullock procured any act, it is alleged that it and /or he enabled, brought about, induced and/or caused such act to be done. As to the procuring by, or the participation of. G+T and/or Bullock of the acts and transactions in: (a) paragraphs 33 to 35 inclusive, KTC refers to and repeats the particulars under paragraphs 122 and 124; (b) paragraphs 60 to 64 inclusive, G+T and/or Bullock, in accordance with instructions from David, RAAL and/or GRL, prepared drafts of the Second GRL Shareholders' Agreement, First Side Deed and Second Side Deed. KTC otherwise refers to and repeats the particulars in sub-paragraph (ii) under paragraph 124; (c) paragraphs 65 to 90 inclusive, the G+T advice was causative of all of the acts and transactions referred to in paragraphs 33 to 35, 60 to 64 and 65 to 90 of the acts of transactions referred to in paragraphs 65 to 90 inclusive."
16. The first difficulty is the confusion caused by the use in paragraph 124A(a) of the word "procured". It might be thought from this that KTC was alleging that Mr Bullock had procured the breaches of trust included in the various paragraphs referred to in paragraph 124A(a). Ms Loughnan QC, quite properly, indicated that her clients' case was limited to one of knowing assistance rather than directly procuring a breach. That must be so because it is almost impossible to envisage how Mr Bullock could have directly procured a breach of fiduciary duty by Mr David or RAAL unless it was alleged that Mr Bullock knowingly gave false advice.
17. Second, a further problem with paragraph 124A becomes apparent when the attempt to limit the concept of procuring in the particulars is taken into account. This is most obvious in sub-paragraph (c) of the particulars which identifies that the matters cross-referred to were caused by Mr Bullock's advice. On a careful reading of the ASOC, only a handful of the matters cross-referred to in paragraph 124A involve the active participation of Mr Bullock. The rest are all matters which KTC apparently wishes to allege were caused by Mr Bullock's advice. As I already said (see paragraphs [37] and [38] above), many of those matters considerably postdate the period in which Mr Bullock is said to have provided legal services. There is no suggestion that he actively participated in them. It seems abundantly clear that most of the matters cross-referred to in paragraph 124A, because they postdate the time during which Mr Bullock provided the legal services, could not possibly support the pleading in paragraph 125 that "by reason of" those matters Mr Bullock knew (in the relevant sense) all of the matters alleged in paragraph 125.
18. Finally, it is necessary to consider paragraphs 121A and paragraph 122: "121A. At the time of the giving of the G+T Advice, in the course of providing the Legal Services to David/RAAL/GRL, Bullock and/or G+T gained knowledge of the matters referred to in paragraph 122. … 122. The Legal Services to David/RAAL/GRL included advice that: (a) David and Mavro in their capacity as directors of ECL could properly exercise their powers, and that it was lawful for them, to vote in favour of the Resolution; (b) RAAL had a right, and it was lawful for it, to receive the Share Issue; and (c) David and Mavro, in their capacity as directors of ECL, could properly exercise their powers, and that it was lawful for them, to vote in favour of a resolution that ECL remove Charif Kazal and Tarek Kazal as directors of ECL. (G+T Advice)."
19. It will be immediately apparent that the cross-reference to paragraph 122 in paragraph 121A makes little sense. KTC's written submissions said that this was an error and that the cross-reference should have included paragraphs 22-22E, 93, 124 and 124A of the ASOC. The inclusion of paragraph 124A demonstrates the danger of indiscriminate cross-referencing. For reasons which I have already given in relation to paragraph 124A (see paragraphs [37] and [38] above), it makes no sense to suggest that during the course of providing legal services Mr Bullock gained knowledge of many of the matters cross-referred to in paragraph 124A that took place well after his involvement appears to have ceased.
20. I should record that some of the matters cross-referred to in paragraph 121A (for example paragraph 22E and paragraph 93) involve allegations of legal conclusions such as Mr David owing a fiduciary duty to KTC. Mr Rich SC argued that such a pleading could not stand. The Court disagrees.
21. Where the person alleged to have had the relevant knowledge is a lawyer, an allegation of a legal conclusion as being known to that individual is not impermissible as a matter of pleading solely by reason of the fact that it involves a legal conclusion. The real issue at trial will be whether other facts alleged to have been known to that person are sufficient for the Court to infer that she or he also knew the matter which is a legal conclusion. For example, it is not a long bow to allege that if lawyer A knows that Mr B is a director of C Pty Ltd, lawyer A knows that Mr B owes fiduciary duties to C Pty Ltd in his capacity as a director of that company.
22. Paragraphs 121 to 127 of the ASOC will therefore be struck out. Mr Rich SC submitted that leave to re-plead should not be granted, not least because the ASOC should be taken as KTC's best effort to meet the objections which had been raised on behalf of Mr Bullock. That submission is rejected. This is a legally and factually complex case. Having regard to the facts pleaded in the ASOC I am not satisfied to the requisite high standard that there is no possibility of there being a case to be made against Mr Bullock. I am satisfied that KTC should be given a final opportunity to plead that case if it comes to the view that it is able to do so. How long KTC will be given to re-plead this part of its case should, in my respectful opinion, be a matter for Perram J as part of the case management of these proceedings with the case already in his Honour's docket.
23. That being said, KTC and those representing it bear a serious onus. The case KTC wishes to allege is one of fraud against Mr Bullock. It must be properly pleaded and particularised, and KTC's legal representatives must be satisfied that they have a proper basis on their instructions to make the allegations.
24. Any further amended statement of claim will have to plead clearly the material facts with appropriate particulars as to: 1. How each fiduciary duty alleged to be owed to KTC by Mr David or RAAL arose; 2. What is the content of that duty; 3. How that duty is said to have been breached by Mr David or RAAL; 4. How Mr Bullock assisted in that breach; 5. How that breach is said not just to be a breach of duty but also has the character of a dishonest (as well as fraudulent) design; and 6. Which category of knowledge Mr Bullock is said to have had that the pleaded breach was a dishonest and fraudulent design (and as to particulars of this see, for example, paragraphs [31] and [32] above).
25. The question of what Mr Bullock is alleged to have known (in the relevant sense) that would have indicated that the breach was a dishonest and fraudulent design will require particular attention. This is the point which I took to lie at the heart of Mr Rich SC's submission that in the absence of an allegation that Mr Bullock knew his advice was wrong, the most that could be alleged against Mr Bullock is that he was negligent.
26. The point can be illustrated by this example. Assume a fiduciary seeks a solicitor's advice as to whether the fiduciary can undertake a particular transaction without breaching her duty. The transaction is, in the words of Lord Selborne LC (see paragraph [25] above), "admitting of doubt as to the view which a Court of Equity might take" of it. The natural and ordinary inference is that the fiduciary intends only to enter into the transaction if she is advised that it is lawful for her to do so. The fiduciary gives instructions to the solicitor about matters A, B and C. On the basis of those instructions, the solicitor advises that entry into the transaction will not be a breach of the fiduciary's duty. The transaction is done by the solicitor preparing the necessary paperwork. Later a court determines that the transaction was in breach of the fiduciary's duty.
27. The result of the court's finding is that there has been a fraud in the equitable sense. However, applying the very example given in Barnes (see the emphasised passage in paragraph [25] above), in this event the solicitor will have no accessorial liability for the fiduciary's breach. The breach of duty does not become a dishonest design because of the court's finding of breach of duty. The fact that the solicitor's advice was (unbeknownst to the solicitor) wrong or negligent would make no difference.
28. It is difficult to see how the conduct constituting the breach could be a dishonest design if the fiduciary came to the solicitor for advice as to whether the transaction was lawful (and presumably would not have been entered into if told that it was not lawful). In other words, how, without more, can what is ultimately found to be a breach of duty be a dishonest design if it was undertaken on the basis of legal advice that it could lawfully be done? To plead that the conduct constituting breach was a dishonest design would require the pleader to allege other facts which the solicitor knew (in the relevant sense) that bespeak dishonesty (for example, facts such as the intention of the new trustee in Barnes to steal the trust fund or the conduct of the employee in Hasler to supply warehouse services to Optus which he, on behalf of Optus, approved).

The transfer motion

1. While not by the consent of all parties, there was no substantial opposition to the transfer motion.
2. There are on foot in the Federal Court proceedings brought by Mr Singh and a related company against Charif Kazal and Adam Kazal ("C & A Kazal"). The proceedings are currently in the docket of Perram J.
3. The main allegation in those proceedings is that C & A Kazal made false representations to the public about Mr Singh arising from the events which also give rise to these proceedings. All parties recognised that the claims in those proceedings and the defences proposed to be filed by C & A Kazal will involve consideration of many of the same events as are in issue in these proceedings.
4. Most, if not all, of the events which inform these proceedings have already been considered in the Cayman Islands proceedings. A multiplicity of proceedings traversing the same facts is undesirable for a number of reasons including the expense to the parties, the possibility of inconsistent findings and using up the valuable public resource of access to the courts more than once.
5. For these reasons, there is a strong case for these proceedings to be cross-vested to the Federal Court to be managed by Perram J with the proceedings commenced by Mr Singh. Once all matters arising from the three motions which I have heard are resolved (including costs), I will make an order transferring these proceedings to the Sydney Registry of the Federal Court.

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. Decision last updated: 18 March 2019