Leave to appeal
247 The decision of the primary judge was an interlocutory judgment. Accordingly, leave to appeal is required pursuant to s 24(1A) of the Federal Court of Australia Act 1976 (Cth).
248 At the commencement of the hearing, the learned presiding judge indicated that the Court would hear submissions from the parties in relation to the substantive appeal and address the question of leave in the course of delivering written reasons.
249 It is well established that there are two considerations governing the Court's discretion to grant leave to appeal in circumstances such as the present. These considerations were summarised by Stewart J in Coshott v Official Trustee in Bankruptcy, in the matter of the Bankrupt Estate of Michael Petrovic Lenin (deceased) [2019] FCA 913 at [28]-[30]:
The principles to be applied in determining an application for leave to appeal are stated in Bienstein v Bienstein [2003] HCA 7; 195 ALR 225 per McHugh, Kirby and Callinan JJ at [29] as follows:
An applicant for leave must establish that the decision in question is attended with sufficient doubt to warrant the grant of leave. The applicant must also show that substantial injustice will result from a refusal of leave to appeal.
Therefore, there are two considerations. First, whether in all the circumstances of the case, the decision is attended by sufficient doubt to warrant it being reconsidered by the Full Court; and second, whether substantial injustice would result if leave were refused supposing the decision to be wrong.
These two criteria, however, do not represent a "hard and fast rule" (Samsung Electronics Company Ltd v Apple Inc [2011] FCAFC 156; 217 FCR 238 at [29] per Dowsett, Foster and Yates JJ), but they nevertheless provide "general guidance which the Court should normally accept" (Rawson Finances Pty Ltd v Federal Commissioner of Taxation [2016] FCAFC 95; 103 ATR 630 at [39] per Robertson, Moshinsky and Bromwich JJ).
[Emphasis added]
250 These principles are derived from Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 844; 33 FCR 397 at 398 (Sheppard, Burchett and Heerey JJ) and have been cited with approval by the Full Court of this Court on many occasions: see, eg, Davidson v Official Receiver [2021] FCAFC 73 at [15] (Allsop CJ, Markovic and Anastassiou JJ); Advanced Holdings Pty Ltd v Commissioner of Taxation [2020] FCAFC 157; 281 FCR 149 at [35] (Steward J, with whom Allsop CJ and Bromwich J agreed).
251 KTC contended that the draft Notice of Appeal enumerates 16 reasonably arguable grounds of appeal, which itself demonstrates the orders of the primary judge are, at a minimum, attended by sufficient doubt to warrant being reconsidered by the Full Court. In this regard, KTC submitted that the pleading concerns novel questions of law that are incapable of being resolved on hypothetical facts, those facts themselves involving considerable complexity.
252 KTC further submitted that because the orders of the primary judge have the practical effect of finally determining their claims against G+T, there is a prima facie basis for granting leave to appeal. In particular, KTC referred to the observations of the High Court in Ex parte Bucknell [1936] HCA 67; 56 CLR 221, in which Latham CJ, Rich, Dixon, Evatt and McTiernan JJ said at 225-226:
It is apparent that many different considerations may be raised by cases in which leave only is needed and that all the grounds upon which applications may succeed cannot be stated in advance. It is possible, however, to say how certain types of cases should be dealt with. But any statement of the matters which would justify granting leave to appeal must be subject to one important qualification which applies to all cases. It is this. The court will examine each case and, unless the circumstances are exceptional, it will not grant leave if it forms a clear opinion adverse to the success of the proposed appeal.
There is one class of case which raises little difficulty. If the interlocutory order…has the practical effect of finally determining the rights of the parties, though it is interlocutory in form, a prima facie case exists for granting leave to appeal. For example, a judgment for either party on a demurrer might, in effect, be decisive of the whole litigation. Although such a judgment would often be interlocutory, it might be final in determining the issue between the parties, and, in such a case, leave would be granted almost as of course.
[Emphasis added]
253 KTC also referred to the following observations of the Full Court in Décor at 400:
… When the court comes to exercise its discretion on a particular application, an important distinction to be observed is that between the common interlocutory decision on a point of practice - concerning which the High Court has given (see Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 171) a strong warning that "a tight rein" should be kept on appeals - and an interlocutory decision determining a substantive right - where leave will more readily be granted…
[Emphasis added]
254 KTC also referred to a decision of the New South Wales Court of Appeal in which Bucknell had been cited with approval, being Aardwolf Industries LLC v Tayeh [2020] NSWCA 301 at [54] (Macfarlan JA), Bell P agreeing at [1], Leeming JA agreeing at [87]:
Although I have, for the reasons set out below, concluded that the primary judge did not err in refusing to grant the applicants leave to sue the liquidators, I consider that leave to appeal should be granted because whilst her Honour's judgment is interlocutory (as at least in theory a further application could be brought) it "has the practical effect of finally determining the rights of the parties" and this is a strong factor favouring a grant of leave to appeal (see Ex parte Bucknell (1936) 56 CLR 221 at 225-6; [1936] HCA 67)…
255 KTC relied on these authorities in support of the proposition that there would be a substantial injustice if leave were to be refused, supposing the decision to be wrong, because it would be dispositive of their claim (at least as between KTC and G+T).
256 In response, G+T characterised KTC's position as being, in effect, that if a claim is summarily dismissed as a result of an interlocutory decision, there is a prima facie basis for granting leave to appeal. G+T submitted that this submission is unsupported by recent authority and ought to be rejected to the extent it involves a departure or modification from the established principles in Décor.
257 I do not accept G+T's submission, as it is inconsistent with authorities in this Court and other intermediate appellate courts.
258 In Construction, Forestry, Maritime, Mining and Energy Union v One Key Workforce Pty Ltd [2020] FCAFC 27, the Full Court (McKerracher, Farrell and Markovic JJ) noted at [44]:
The principles governing an application for leave to appeal were not in dispute. An applicant for leave must demonstrate that the decision of the primary judge is attended by sufficient doubt to warrant its reconsideration by a Full Court and that substantial injustice would result if leave were refused, supposing the decision to be wrong: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 (Décor Corporation) at 398-399. Leave will more readily be granted in the case of an interlocutory decision that determines a substantive right: Décor Corporation at 400. In Ashby v Slipper (2014) 219 FCR 322 at [46] Mansfield and Gilmour JJ said:
In Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at [43], citing Ex parte Bucknell (1936) 56 CLR 221 at 225, French J, with whom the other members of the Court agreed, said that a "prima facie case exists for granting leave to appeal" if the judgment, although interlocutory, has the practical operation of finally determining the rights of the parties.
259 Similarly, in a decision handed down after the hearing, but of direct relevance, the Full Court said in Hastwell v Kott Gunning [2021] FCAFC 70 at [26] (McKerracher, Kerr and Charlesworth JJ):
We also accept the concession made by [the respondent] that consideration of whether the decision was attended by sufficient doubt so as to justify the grant of leave to appeal must be assessed in the context that the order effectively brought the proceeding to an end: Tyne v UBS AG [2016] FCA 241 per Edelman J (at [31]-[34]). In this regard, the observations of French J (with whom Beaumont and Finkelstein JJ agreed) in Johnson Tiles Pty v Esso Australia Pty Ltd [2000] FCA 1572; (2000) 104 FCR 564 (at [43]) are instructive:
… Interlocutory orders cover a spectrum from those concerned solely with the mechanics of case management and pre-trial preparation to those which may, for one reason or another, have a significant impact upon the scope and outcome of the proceedings. If the order, the subject of the application for leave to appeal, is concerned with the mechanics of the pre-trial process then the scales are likely to be weighted against the grant of leave. However if while interlocutory in legal effect it has the practical operation of finally determining the rights of the parties "a prima facie case exists for granting leave to appeal" - Ex parte Bucknell (1936) 56 CLR 221 at 225; Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 400; Minogue v Williams [2000] FCA 125 at [18]. If a proceeding is dismissed because it is frivolous or vexatious or because no reasonable cause of action is disclosed the decision is treated as interlocutory. However leave will usually be granted in such a case if there is any doubt about the decision at first instance - Little v Victoria [1998] 4 VR 596 at 598-600 and 601 (Callaway JA, Buchanan JA agreeing).
(see also Samsung Electronics at [31] and Re CSR Ltd [2002] FCAFC 34; (2010) 183 FCR 358 at [5])
260 G+T made two further submissions in relation to the grant of leave to appeal. First, G+T submitted that KTC has not demonstrated that the primary judge's reasons are attended by sufficient doubt to warrant being reconsidered by the Full Court. Notwithstanding KTC's generalised references to "novel questions" of law and "factual complexity and uncertainty", G+T contended that the primary judge's reasons turned on established principles concerning the test for accessorial liability and the requirement that allegations of fraud be adequately pleaded.
261 In this regard, G+T submitted that the core deficiencies with the pleading may be summarised as follows.
262 First, G+T submitted that KTC's pleading does not disclose a basis upon which it could be said that G+T had the requisite knowledge, in a legal sense, of the allegedly dishonest and fraudulent design of Mr David and/or RAAL. The allegation of knowledge rests on the proposition that G+T: (i) advised that the impugned transactions - being two share issues referred to below - were lawful; and (ii) knew the impugned transactions were for no consideration. However, G+T said there are no pleaded facts from which either of those matters could be inferred.
263 Second, G+T submitted that KTC's pleading does not disclose a basis upon which it could be said that there was a design which was dishonest and fraudulent. The central transaction impugned in the pleading is a resolution by the board of Emergent, of which there were three directors: Mr David; Charif and Tarek Kazal (the directors of KTC, who between them had one vote); and Mr Nikolaos Mavromanolakis. The resolution was passed by Mr David and Mr Mavromanolakis at a board meeting the Kazals had been notified of but did not attend. Crucially, the pleadings do not identify how the passing of the resolution - or the conduct of the parties in connection with it - was dishonest or fraudulent.
264 Third, G+T submitted that it was logically incoherent for KTC to plead that G+T acted with the requisite 'knowledge' of the fraud, for the reasons detailed in the Notice of Contention dated 25 November 2020. In particular, G+T submitted that the knowledge of Mr Bullock is derived only from the correctness or otherwise of his legal advice. At its highest, that pleading amounts to an allegation of negligence. It does not, without more, affix Mr Bullock with knowledge of a dishonest and fraudulent design.
265 In addition, G+T submitted that there would not be substantial injustice to KTC if leave to appeal were refused, even supposing the decision to be wrong, as KTC has already been offered successive opportunities to amend its pleadings. For example, in KTC v David (No 1) [2019] NSWSC 281 at [47], Kunc J indicated that KTC should "be given a final opportunity to plead [its] case if it comes to the view that it is able to do so." Similarly, in KTC v David (Pleadings) [2019] FCA 1566 at [52], the learned primary judge put KTC on notice that it would only be given "one more chance" to amend its pleading, adding "[t]his is the end of the line; there are no more stops after this one". It followed, according to G+T, that KTC would not suffer an injustice in circumstances where it has had many opportunities to re-plead its claim and has not availed itself of those opportunities.
266 During the course of the hearing, G+T made detailed submissions concerning the second limb of the test for leave to appeal, including by reference to a decision of the Full Court in Advanced Holdings. In Advanced Holdings, Steward J, then a member of this Court, wrote the principal judgment of the Court, with which Allsop CJ and Bromwich J agreed.
267 Expressed briefly, Advanced Holdings involved an application for leave to appeal from a summary dismissal of the applicant's challenge, made pursuant to s 39B of the Judiciary Act 1903 (Cth), to the validity of amended assessments and penalty assessments issued to it by the Commissioner of Taxation across various income tax years. The basis for the challenge was that the Commissioner had relied on documents which were allegedly seized illegally. This occurred in circumstances where a search warrant had been served and executed on the taxpayer's accountants but the disputed documents purportedly fell outside the scope of what the search warrant authorised.
268 After setting out some additional background matters that are not presently relevant, Steward J proceeded to consider whether substantial injustice would result if leave were refused, supposing the decision to be wrong. In that case, the applicant submitted that there would be a substantial injustice because if the Court determined that the assessments were invalid based on the illegally seized materials, the Commissioner would be unlikely to re-issue the assessments. The predicate of the applicant's submission was that the Commissioner might subsequently be persuaded to form the opinion that there had never been a fraud or tax evasion and, in any event, the Commissioner would then be out of time to issue amended assessments to the applicant for the years of income in dispute.
269 At [66], Steward J dealt with this submission, and the question of whether leave to appeal should be granted, as follows:
It is convenient to begin with the second test for leave. In my view, the possible opportunity to re-agitate the correctness of the Commissioner's opinion about the presence of fraud or evasion, and thus avoid the issue of the assessments, is optimistic conjecture and no more. Even if it be a species of possible injustice, due to its slim prospects, the identified injustice is not substantial. It is speculative.
270 His Honour went on to observe at [70]:
It follows from the foregoing that, in my view, the supposed substantial injustice was no more than conjecture or speculation. The Court was given no material upon which it could judge the prospects of the applicant persuading the Commissioner that there had been no fraud or evasion, assuming it would ever need to do so.
[Emphasis added]
271 By reference to Advanced Holdings, G+T submitted that KTC has been unable to demonstrate that the striking out of its pleading against G+T would result in any substantial injustice. This contention was particularised in the following ways.
272 First, G+T submitted that KTC had already exercised legal rights in respect of the same underlying conduct and thereby recovered a substantial part of its claim. G+T further submitted that the notion that there was any "incremental value" in pursuing the claim so alleged against G+T is merely a matter of conjecture, both due to the speculative nature of the claims sought to be advanced against G+T and because there was no evidence that KTC would be unable to recover damages from ancillary litigation.
273 G+T referred in particular to earlier proceedings before the Grand Court of the Cayman Islands, including a court-supervised process through which KTC received a significant distribution of money following the sale of GRL. In relation to this issue, I defer to the reasons of the learned White J of the New South Wales Supreme Court in KTC v Singh & Ors [2018] NSWSC 1510. His Honour described the circumstances relevant to this distribution at [15]-[17]:
…On 14 May 2010 KTC presented a winding-up petition of ECL in the Cayman Islands. On 4 October 2010 a judge of the Grand Court of the Cayman Islands, Mr Justice Jones, made an order to the effect that ECL's shareholding in GRL could be sold on terms that the net proceeds of sale be paid into court pending the outcome of KTC's winding-up petition.
KTC alleges that in or about December 2010 all of the shares in GRL were sold to Ironbridge Capital Pty Ltd ("IBC") for $25 million. By the time of the sale ECL held only 50 per cent of the shares in GRL. This was the result of an issue of shares in GRL to SIL made on or about 23 April 2010. KTC alleges that the share issue was for no consideration. For the reasons below, that contention is without substance.
Half of the proceeds of the sale of shares in GRL, representing ECL's share of the proceeds, were paid into court in the Cayman Islands. In his judgment of 23 November 2011 Jones J records that the net proceeds of sale paid into Court were about A$12 million. Jones J concluded that the issue of shares in ECL that diluted KTC's equity from 50 per cent to 0.01 per cent was invalid and the result of the directors of ECL breaching their fiduciary duty by issuing shares for the only purpose of eliminating KTC's interests and passing ownership of ECL to RAAL. His Honour directed the liquidators of ECL to rectify the register of members to reflect that KTC and RAAL each owned 50 per cent of the shares in KTC. I was told that KTC's 50 per cent share of the moneys paid into court in the Cayman Islands was remitted to it.
274 G+T's reliance on the decision of White J in KTC v Singh & Ors [2018] NSWSC 1510 was two-fold. First, to demonstrate that KTC had already recovered all, or at least a substantial part, of the loss allegedly flowing from the impugned transactions; and, second, that there was no risk that assets would be dissipated, leaving KTC unable to recover funds to which it claims an entitlement. In relation to the second of these matters, it is again relevant to refer to the reasons of White J in KTC v Singh & Ors [2018] NSWSC 1510. The application before his Honour was summarised at [1]-[2]:
This is a contested application for freezing orders brought by the applicant, KTC (a company incorporated in the Cayman Islands) against four respondents. KTC is the plaintiff in proceedings in this Court brought by way of statement of claim filed 25 July 2018 against five defendants. Two of these defendants are respondents to this application. The other respondents are the wife and an associated company of the second defendant, Mr David Singh.
KTC does not contend that there is an imminent risk of the respondents' dissipating assets with the intention of frustrating a judgment. No ex parte application was made for a freezing order. KTC submits that it should be inferred from the conduct of two of the respondents that, unless restrained, the respondents will dissipate assets so as to put them outside the reach of KTC should they become the judgment creditor.
275 His Honour went on to observe at [8]-[10]:
In many cases the risk of dissipation of assets to avoid a judgment will be evident from the plaintiff's strong prima facie case of the defendant's having fraudulently misappropriated assets or of serious dishonesty. As the Court held in Patterson v BTR Engineering (Aust) Ltd such evidence may establish that it can reasonably be inferred that the defendant is the sort of person who would, unless restrained, not preserve his or her assets intact so that they might be available to a judgment creditor (at 325-326).
KTC seeks to bring its case within that principle. But it does not say that it has a prima facie case that the respondents themselves engaged in fraudulent activity. Rather, it says that two of the respondents, who are defendants to its claim, participated with knowledge in a fraudulent design and breach of fiduciary duties allegedly owed by another defendant, a Mr David, to KTC.
The facts in relation to this claim are complex. For the reasons which follow I do not accept that KTC has shown that it has a prima facie case that the relevant defendants (that is, relevant to its present application for freezing orders) knowingly assisted in a fraudulent design of Mr David's or in a breach by him of fiduciary duties owed to KTC. The evidence does not establish a risk that assets will be dissipated. Accordingly, the claim for the grant of a freezing order fails in limine. In any event the freezing order would be refused on the grounds of KTC's delay in bringing the proceedings and the inadequacy of the proffered undertaking as to damages.
[Emphasis added]
276 Accordingly, G+T submitted that KTC has been unable to demonstrate, in any meaningful way, that there would be a substantial injustice to it if deprived of the opportunity to pursue its claim. G+T contended that as a result of other ancillary proceedings in the Grand Court of the Cayman Islands, KTC has been, or will be, fully compensated for any loss it has suffered. Put differently, G+T submitted that this proceeding involved an attempt at 'double-dipping' and it therefore follows that if leave to appeal were refused, no substantial injustice would result because KTC has already been compensated for its loss.
277 G+T also submitted that there can be no substantial injustice in a dispute of the present nature because KTC's central allegation against G+T involves an "existential impossibility". G+T expanded upon this contention as follows. Assuming the allegation is that G+T gave legal advice that the relevant transactions were lawful, that advice can only be so described if it based on an opinion which is honestly held. This is because if the advice was presented as 'legal advice', but constituted a view which was not in fact held, it would not in fact be legal advice at all. Rather, it would be an artifice, or a fraud.
278 In this respect, G+T continued to rely upon the apparent inconsistency between alleging that G+T had advised that the ELC Share Conduct was lawful, while simultaneously alleging that it was part of a dishonest and fraudulent scheme. For this reason also, G+T submitted that the claim was conjecture and merely speculative in the sense described in Advanced Holdings.
279 G+T emphasised that the onus is on KTC to demonstrate - and positively persuade the Court - that a substantial injustice would result if leave were refused, supposing the decision to be wrong. G+T added that leave to appeal is not available as of right, and that position is not altered simply because the effect of the summary dismissal was to determine KTC's rights as against (at least) G+T.
280 In reply, KTC submitted that there was no basis for the Court to reach a view that KTC had already been fully compensated for the loss suffered in connection with the ECL Share Conduct and GRL Share Conduct. By way of example, KTC directed attention to [70] of the FASOC, in which it is alleged that on or about 28 November 2013, Global Renewables Holdings Pty Ltd acquired all the shares in GRL, and thus the whole of the Waste Facility, for $120 million. It was KTC's submission that, but for the contravening conduct, it would have retained an interest in the waste facility and therefore that it has suffered loss which has not been compensated to date.
281 As to whether the claim against G+T involved an "existential impossibility", KTC submitted that there was no logical inconsistency in the pleaded knowledge of G+T at [75]-[76] of the FASOC. For ease of reference, I extract those paragraphs of the pleading in full:
75. By reason of Bullock's knowledge as set out in the preceding paragraph Bullock wilfully shut his eyes to the obvious conclusions that:
(a) the legal advice that it was lawful to make the ECL Share Issue was wrong;
(b) if the ECL Share Issue was made then it would constitute a dishonest breach of the fiduciary duties owed by each of David and RAAL to KTC as part of a dishonest and fraudulent design;
(c) the advice that it was lawful to make the GRL Share Issue was wrong;
(d) if the GRL Share Issue was made then it would constitute a dishonest breach of the fiduciary duties owed by David and RAAL to KTC as part of a dishonest and fraudulent design;
(e) further, if the GRL Share Issue was made then it would constitute a dishonest breach of the trust owed by RAAL to KTC as part of a dishonest and fraudulent design.
PARTICULARS
Bullock wilfully shut his eyes to the conclusions in sub-paragraphs (a) to (e) by reason that:
(i) at the relevant time Bullock was a highly experienced practitioner and the head of the G+T corporate advisory team and specialised in mergers and acquisitions, fundraisings and complex joint ventures;
(ii) RAAL and KTC were joint venturers in their investment in ECL, to the knowledge of Bullock;
(iii) Bullock was on notice by reason of the email received from Fionnuala O'Brien on 17 November 2009 that the G+T Legal Advice ought be given careful consideration as to whether it was lawful;
(iv) ECL's interest in GRL, and GRL itself, was very valuable, to the knowledge of Bullock, yet he neither obtained nor requested a valuation of GRL;
(v) the result of the ECL Share Issue and the GRL Share Issue, to the knowledge of Bullock, was to increase RAAL's interest in GRL from 40% to 50%, to increase SIL's interest in GRL from 20% to 50%, reduce KTC's interest in GRL from 40% to effectively nil, and reduce ECL's debts by less than 1%;
(vi) neither the advice that it was lawful to make the ECL Share Issue nor the advice to make the GRL Share Issue was advice that an experienced practitioner could reasonably have given;
(vi) the advice to make the ECL Share Issue did not include any qualification in respect of rights arising in KTC's favour in respect of oppression remedies;
76. Alternatively, Bullock had knowledge of circumstances which would have indicated to an honest and reasonable person that:
(a) the G+T Legal advice that it was lawful to make the ECL Share Issue was wrong;
(b) if the ECL Share Issue was made then it would constitute a dishonest breach of the fiduciary duties owed by each of David and RAAL to KTC as part of a dishonest and fraudulent design;
(c) the advice that it was lawful to make the GRL Share Issue was wrong;
(d) if the GRL Share Issue was made then it would constitute a dishonest breach of the fiduciary duties owed by David and RAAL to KTC as part of a dishonest and fraudulent design;
(e) further, if the GRL Share Issue was made then it would constitute a breach of the trust owed by RAAL to KTC as part of a dishonest and fraudulent design.
PARTICULARS
KTC refers to and repeats particulars under paragraph 75 above.
282 Senior counsel for KTC explained that, as pleaded, the act of knowing assistance is the provision of advice and drafting of legal documents, by which G+T facilitated the impugned transactions. KTC submitted that such conduct occurred in circumstances where G+T wilfully shut its eyes to the dishonest and fraudulent design that was thereby implemented or, alternatively, had knowledge of circumstances which would have indicated to an honest and reasonable person that the advice was wrong. According to KTC, that is a conventional pleading of knowing assistance and does not entail any logical non sequitur.
283 For reasons I will explain below, I am satisfied that the decision is attended by sufficient doubt to warrant being reconsidered and also that there would be substantial prejudice to KTC's interests if leave were refused, supposing the decision to be wrong. I reject G+T's submission that the interlocutory application turned on established principles or did not otherwise involve complex questions of fact incapable of being resolved at a pleading stage. I also reject G+T's submission that the supposed substantial injustice was no more than conjecture or speculation. I am not persuaded that the proceeding is merely an attempt by KTC to recover loss for which it has already been compensated nor I am satisfied that KTC's claim is premised on a "logical impossibility".
284 I segue slightly to note that the principal protagonists in this appeal - KTC and G+T - each made submissions generally in relation to the principles to be applied in determining whether to grant leave to file an amended pleading. Having regard to those principles, I am fortified in my view that leave to appeal should be granted.
285 KTC submitted that leave to file an amended pleading should only be refused in plain and obvious cases. In its written submissions, KTC referred in particular to the summary of principles in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd [1994] FCA 636; 217 ALR 226 at 236 (Beaumont J):
… Under the modern system of pleading, on an application to strike out a statement of claim as disclosing no cause of action, the question is whether "it would be open to the (applicants) upon the pleadings to prove facts at the trial which would constitute a cause of action": see Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631; [1971] ALR 235 at 237. The main general principles in strike out applications have been summarised as follows:
(1) A "reasonable cause of action" means one with some chance of success if regard be had only to the allegations in the pleadings relied upon by the claimant; in such a case, the claim cannot be struck out (Davey v Bentinck ([1893] 1 QB 185)).
(2) The mere fact that the case appears to be a weak one is not of itself sufficient to justify the striking out of the action (cf Wenlock v Moloney ([1965] 1 WLR 1238; [1965] 2 All ER 871)).
(3) Normally, the power to strike out should be exercised only in plain and obvious cases, where no reasonable amendment could cure the alleged defect (cf Hodson v Pare ([1899] 1 QB 455)).
(4) It goes without saying that if a substantial case is involved in the claim, the power to strike out cannot be exercised.
(5) Where a point of law has to be decided, and the judge is satisfied that this can be done by him appropriately, thereby avoiding the necessity of, and expense in going to trial, he is entitled to determine the point (cf Williams and Humbert Ltd v W & H Trade Marks ([1986] AC 368; [1986] 1 All ER 129)).
This decision has been cited with approval by the Full Court in Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; 104 FCR 564 at [50] (French J), Beaumont J agreeing at [1], Finkelstein J agreeing at [99].
286 KTC further submitted that contemporary case management principles are such that the Court should only refuse to grant leave to file an amended pleading if it would significantly impact upon the proper preparation of the case: see, eg, Barclay Mowlem Construction Ltd v Dampier Port Authority & Anor [2006] WASC 281; 33 WAR 82 at [6]-[8], cited with approval in Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 at [13] (Greenwood, McKerracher and Reeves JJ). KTC contended that the importance of not taking "an unduly technical or restrictive approach to pleadings" (Thomson at [13]) was particularly important in the present circumstances because:
(1) the relevant area of law is not settled, making it inappropriate to decide novel questions on hypothetical facts: see, eg, X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 740-741, cited with approval in Johnson Tiles at [50]; and
(2) relevant facts are peculiarly within the knowledge of the Respondents. Accordingly, KTC's cause of action should not be dismissed because of gaps in its case which might be resolved as a result of discovery, by requesting interrogatories or by adducing evidence from reluctant witnesses: see, eg, Granite Transformations Pty Ltd v Apex Distributions Pty Ltd [2018] FCA 725; 359 ALR 62 at [6] (O'Callaghan J).
287 In response, G+T submitted that the power to grant leave to amend a pleading is discretionary: see r 16.53 of the Federal Court Rules 2011 (Cth), discussed in Tamaya Resources Ltd (In Liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2; 332 ALR 199 at [122] (Gilmour, Perram and Beach JJ). Nonetheless, G+T acknowledged that the discretion is not at large. That is to say, it must be exercised having regard to the overarching purpose in 37M of the Federal Court Act, including the recognised interest in resolving a dispute expeditiously and promoting the efficient use of the Court's resources: Tamaya Resources at [123].
288 Further, G+T accepted that in exercising this discretion modern courts do not take an unduly technical or restrictive approach. However, that does not detract from the requirement that pleadings must serve their essential function. As the Full Court said in Thomson at [13]:
It is well-established that the main purposes of pleadings are to give notice to the other party of the case it has to meet, to avoid surprise to that party, to define the issues at trial, to thereby allow only relevant evidence to be admitted at trial and for the trial to be conducted efficiently within permissible bounds: see, eg Dare v Pulham (1982) 148 CLR 658 (at 664-665). However, it is also well-established that pleadings are not an end in themselves, instead they are a means to the ultimate attainment of justice between the parties to litigation: see Banque Commerciale S.A. (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279 (at 293) per Dawson J who cites Isaacs and Rich JJ in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 (at 517)...
[Emphasis added]
289 Consistent with these propositions, G+T submitted that the discretion to grant leave to amend a statement of claim should be exercised having regard to the need for the party opposing leave to properly understand the case put against it. G+T submitted that the necessity for proper notice is brought into sharp focus in a case such as the present given the central allegation is of knowing assistance in relation to a dishonest and fraudulent design.
290 In addition to the principles identified by the parties, I add the observations of the Full Court in Oztech Pty Ltd v Public Trustee of Queensland [2019] FCAFC 102; 269 FCR 349 at [28]-[32] (Middleton, Perram and Anastassiou JJ):
The question of whether a pleading adequately raises a claim or defence is not concerned with the expression of the pleading as a matter of style, or of phrasing, or the structure of the pleading. Neither is it concerned with the formality of the process by which the issues in the proceeding are identified; be it a statement of claim, statement of contentions, concise statement, points of claim or points of defence. The verbal formulation of the allegations of fact, or the contentions of law, need not conform to a particular style guide or to any pro forma template.
The sole objective of a pleading is to clearly identify matters in dispute and difference by and between the parties to the dispute. This objective necessarily involves expressing the factual basis of each claim or defence. It is necessary that the legal elements of each cause of action or defence are expressed by reference to allegations of fact required to establish each element. It is not necessary to plead the legal conclusions that follow from the facts, but it is often convenient to do so. These are trite propositions but nevertheless vital to ensuring that the pleading serves its purpose.
There should be no doubt about whether any particular cause of action is relied upon. At a minimum, the pleading should be pellucidly clear about the causes of action, or claims, relied upon by the applicant, including any claims made upon an alternative hypothesis. The explicit clarity with which a claim is expressed should ensure that there be no need for the opposite party to closely scrutinise the pleading in a process of textual construction to determine whether a particular fact is relied upon, or the purpose for which it is alleged, much less to decide whether a particular cause of action is raised. The same basic requirement applies to any defence raised in answer to a claim.
Clarity in pleading is by no means an unattainable objective, even in the most complex litigation. Often the elements of a cause of action require careful and precise identification to ensure that the relevant integer is properly characterised having regard to the context in which the claim arose. The pleading should always be a bespoke articulation of the dispute between the parties, even though the warp and the weft of its fabric may be the same as other claims based upon the same, or a similar, cause of action.
There are occasions when such definition can be difficult and may require reference to technical or scientific material, including cases where the material requires specialist explanation by reference to expert evidence to be given at trial. In some instances, the contended facts may be asserted based upon inferences to be distilled from a web of other facts. In other instances it may be necessary to define an implicit representation drawn from the contextual background against which express statements were made or from the failure to make an express statement contrary to the apparent common assumption of the parties. While the limits of text may in some cases impose linguistic limitations beyond a certain level, such linguistic limitations would not generally present any obstacle to expressing the substantive causes of action with sufficient clarity to ensure that the parties are able to reach a shared understanding of the issues in the dispute.
The above passages have been cited with approval by the Full Court of this Court in Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121; 396 ALR 27 at [153] (McKerracher and Colvin JJ) and, in my view, remain apposite in resolving a dispute regarding the adequacy of pleadings.
291 In my view, the quality of a pleading must surely be judged by its clarity. If it is clearly expressed, the analytical foundations of the claim, or defence, may be scrutinised. If upon scrutiny, the claim, or defence, is revealed to be founded upon a factual assumption for which there is no arguable basis, or a path of reasoning which is founded upon a misunderstanding of legal principles, the pleading will have served its proper purpose. A clear pleading shall also have served the interests of justice by stating clearly the nature and legal characterisation of the controversy between the parties, thereby allowing for the efficient disposition of the controversy.
292 A deficient pleading, on the other hand, is one which is, in critical respects, loose or opaque; often expressed in the passive voice. Such pleadings may elide inconvenient facts, or make generalised allegations or denials about critical elements such as knowledge, subjective or imputed, and may also lack a demonstrable and precise articulation of the necessary elements of the cause, or causes, of action relied upon. Those pleadings are 'embarrassing' in the legal sense (see r 16.02(2)(d) of the Rules) and should not be tolerated, not for their inelegance but for their potential to impede the efficient administration of justice for reasons that have been stated many times. As Abraham J explained in Australian Competition and Consumer Commission v NQCranes Pty Ltd [2021] FCA 1270 at [9]:
A pleading is embarrassing where it is unintelligible, ambiguous, vague or too general, such that the opposite party does not know what is alleged against him or her: Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803; (2019) 209 IR 263 (Eastern Colour) at [18], citing Meckiff v Simpson [1968] VR 62 at 70. A pleading may be considered to be embarrassing if it suffers from narrative, prolixity or irrelevancies to the extent it is not a pleading to which the other party can reasonably be expected to plead to: Fuller v Toms [2012] FCA 27; (2012) 247 FCR 440 at [80], [83]. It has been said that a pleading is embarrassing if it "is susceptible to various meanings, or contains inconsistent allegations or in which alternatives are confusingly intermixed or in which irrelevant allegations are made tending to increase expense": Bartlett v Swan Television and Radio Broadcasters Pty Ltd [1995] ATPR 41-434 at [25]; Faruqi v Latham [2018] FCA 1328 at [94]. Although facts or characterisations of facts can be pleaded in the alternative, a pleading should not "[plant] a forest of forensic contingencies" which are only pulled together in final submissions: Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 at 503.
293 In my view, the pleaders for KTC have aspired to clarity, and to a degree, achieved it. They are subject to the limitations of text; that is to say, the limits to which inferences of fact, legal principle and/or wrongdoing may be expressed in writing, where those conclusions are distilled from a multiplicity of concurrent objective facts and, often, disputed events.
294 In cases such as the present, whether there has been wrongdoing sufficient to found a cause of action depends upon an assessment of conduct considered within its full context, which may extend back many years. Indeed, in such cases, however skilful the pleader, and however comprehensive and candid the pleading may be, there may remain legitimate disagreement about whether the pleading expresses an adequate factual foundation for the legal characterisation of the relevant conduct. Such disagreement concerning the pleaded characterisation of the conduct in question is more likely when the legal characterisation involves an element of moral turpitude such as fraud or dishonesty, and where that element may only be established by inferences drawn from multiple events and circumstances, particularly where the relevant inference concerns the subjective state of mind of the putative wrongdoer.
295 There are limits to the ability to express the combination or combinations of facts, conduct and relevant contextual circumstances which found the legal characterisation of the conduct, for example, the knowing assistance of a wrongdoer in a 'dishonest and fraudulent design'. The complexity of the relationship between the relevant actors, the scope, and time frame over which the relevant context extends, add to the difficulty of encapsulation and characterisation, especially when the conduct in question is to be assessed having regard to the actual, or imputed, knowledge of the putative wrongdoer.
296 In my view, such disagreement should be resolved by the trier of fact at the trial of the proceeding. At a trial, the motivations of the relevant actors may be 'teased out' through the adversarial contest. This process includes the important opportunity to test by cross examination the knowledge and motivations of the relevant actors. In that context, it is conceivable that evidence given at the trial may vindicate the putative wrongdoer, or vice versa.
297 Needless to say, a party to a proceeding should not be subject to a trial on allegations that are untenable or are founded upon an identifiable misconception. As I have said above, the measure of a good pleading is clarity, for that allows such misconceptions to be identified. A trial is not an opportunity for one party to search for a claim, or defence, in running. But there must be a balance between the interests of a respondent not to be vexed by a misconceived or speculative claim, and the opportunity afforded by the adversarial mode of trial to explore and test evidence at trial.
298 In my view, keeping that balance in mind, and having regard to the fact that the interlocutory application has the effect of finally determining KTC's rights as against G+T, I would grant leave to appeal. I therefore turn to consider the substantive grounds raised by the Notice of Appeal.