Land Enviro Corp Pty Limited v HTT Huntley Heritage Pty Limited

CATCHWORDS : Suit to set aside settlement agreements and consent order of dismissal of 2001 proceedings - effect and operation of estoppel - claim of "deceptive conduct" leading to settlement and consent order - assessment of damages flowing from "deceptive conduct" - prior determination of what claims are presently sustainable and can be heard with application to set aside consent order and what claims must await setting aside of order - extent and assessment of damages payable arising from "deceptive conduct" - desirability of factual findings

Land Enviro Corp Pty Limited (First Plaintiff) Sam Zdrilic (Second Plaintiff) PARTIES : Amy Zdrilic (Third Plaintiff) Huntley Heritage Pty Limited (First Defendant) Robert Michael Renshall (Second Defendant) Devubo Pty Limited (Fifth Defendant)

COUNSEL : M Sneddon (Applicants, 1st, 2nd & 5th Defendants) T Jucovic SC / SA Wells (Respondents, Plaintiffs)

SOLICITORS : Gillard, Consulting Lawyers (Applicants, 1st, 2nd & 5th Defendants) Tress Cox Lawyers (Respondents, Plaintiffs)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2005/2007 Land Enviro Corp Pty Ltd & 3 Ors v HTT Huntley Heritage Pty Limited & 6 Ors JUDGMENT 1 HIS HONOUR: By their Notice of Motion filed 13 May 2009 the first second and fifth defendants sought an order that the plaintiffs' Further Amended Statement of Claim filed 8 April 2009 be struck out under UCPR 2005 Rule 13.4 and Rule 14.28. At the hearing the first, second and fifth defendants (HTT Huntley Heritage Pty Limited, Robert Michael Renshall and Devubo Pty Ltd) sought an order to this effect and in the alternative that paragraphs 11A - 24 and 35(aa) should be struck out. This judgment should be read with the judgments of Barrett J of 10 March 2008 and 29 January 2009. The matter has a long history but I need rehearse but a small part.

a) In 2001 in proceedings 5396 of 2001 in this Court the first named plaintiff Land Enviro Corp Pty Ltd ("LEC") sued nine defendants who included Huntley Heritage Pty Limited ("HHT") and David Hickie. There was no determination on the merits. The matter was settled in 2004. There were two agreements, one titled "Heads of Agreement" dated 13 May 2004 and the other "Deed of Non-Dilution and Merger" dated 27 August 2004. Orders were made in this Court on 1 September 2004 as follows: "By consent, the Court orders that: 1. the proceedings be dismissed against the fourth defendant, seventh defendant, eighth defendant and ninth defendant; 2. there be no order as to costs." HHT was the fourth defendant, D Hickie the seventh, Anecon the eighth and M Ansell the ninth defendant.

b) In March 2007 LEC, Mr S Zdrilic and Mrs A Zdrilic as plaintiffs instituted proceedings against seven defendants including HTT, RM Renshall and Devubo Pty Ltd (first, second and fifth defendants) and D Hickie.

c) The first, second and fifth defendants contended that certain of the claims advanced in the 2007 proceedings could not be litigated while orders made in 2004 in the 2001 proceedings remain extant. 2 Barrett J in a judgment delivered on 10 March 2008 on appeal from the decision of an Associate Judge held that the claims for relief in the 2007 proceedings fell into these four groups:

1. Claims attacking agreements of 2004 by which the 2001 proceedings were supposedly settled and seeking to overturn the settlement. The claims in this group, in essence, sought to have set aside both the 2004 agreements and the consent orders made in the 2001 proceedings.

2. Claims for damages in respect of allegedly wrongful conduct on the part of several defendants in and about the supposed settlement of 2004 - in essence that it was procured by various representations that were misleading, deceptive, false or otherwise of a quality such as to warrant the setting aside of the agreements and consent orders by which the settlement was carried into effect. The alleged conduct was described as "deceptive conduct" even though the allegations were somewhat wider.

3. Mainly claims for an account of profits, equitable compensation and damages advanced by LEC against HHT alone subject to and conditional upon the Court granting the relief sought in the first group of claims.

4. Mainly claims for an account of profits, equitable compensation and damages advanced by LEC against Hickie alone subject to and conditional upon the Court granting the relief sought in the first group of claims - setting aside of 2004 agreements and the consent orders. 3 Barrett J recorded that the claims in the third and fourth groups were in substance based on the proposition that LEC was a joint venture vehicle for a project to be undertaken by Mr Zdrilic, Mrs Zdrilic and Mr Hulley among others, involving the rehabilitation and development of certain mining land. The details are set out in paragraph 8 of the judgment of Barrett J on 10 March 2008. Barrett J explained that the general thesis on which the claims in the third and fourth groups is based is that Hulley and Hickie breached duties owed by them to LEC, that HTT was complicit in their breaches of duty and that LEC therefore had equitable claims against HTT and Hickie. These claims for relief are further detailed in paragraph 9 of the judgment of 10 March 2008. 4 It was conceded by the plaintiffs before Barrett J and me that the underlying facts pleaded in the Amended Statement of Claim of June 2007 in the 2007 proceedings concerning the claims in the third and fourth groups are the same underlying facts pleaded in the 2001 proceedings. The plaintiffs relied on those facts as also being relevant to the events of 2004 against the parties to the 2001 proceedings and against other parties who were not parties to the 2001 proceedings.

5 Barrett J held that, as regards the actions of Hulley and Hickie and the complicity of HTT in alleged breaches of duty by them, the case pleaded in the 2001 proceedings was in substance the same as that which in the 2007 proceedings is advanced by LEC against HTT and Hickie in the claims of the third and fourth groups. 6 Barrett J at [43] held that this Court has jurisdiction both to set aside the 2004 consent orders made in the 2001 proceedings and to award damages for any actionable wrongs by which the orders may have been procured and that claims directed towards both those ends may be progressed together in the one action where, as here, a single court has jurisdiction in both. 7 Barrett J at [48], in a related finding, held that claims in the second group directed towards obtaining an award of damages for alleged deceptive conduct in relation to the procuring of the 2004 settlement agreements and consent orders can properly be pursued in the same proceedings as claims to have the agreements and consent orders set aside. 8 Before Barrett J at [66] and before me the plaintiffs recognised that while the 2004 consent orders stand they cannot obtain the relief involved in the claims in the third and fourth groups. Those claims were advanced in the June 2007 amended Statement of Claim on a conditional basis, namely, "Subject to the Court granting the relief in paragraphs 1 to 5 above". 9 At [70] - [71] Barrett J held: "70 … The 2001 claims have been laid to rest by the 2004 orders. Those claims may be pursued again if the 2004 orders are set aside. But they may not be pursued again unless and until the 2004 orders are set aside. In particular, they cannot be pursued as new but equivalent or corresponding claims in the 2007 proceedings in the contingent way in which they are advanced. Only if the barrier, by way of estoppel, created by the 2004 orders is removed can the claims of the third and fourth groups in the 2007 proceedings be litigated. 71 … The claims in the first and second groups should proceed to trial without those in the third and fourth groups. Then, if the 2004 orders have been set aside so that the claims in the 2001 proceedings by LEC against HTT and Hickie are seen to be unadjudicated and extant, the 2001 proceedings may be prosecuted to a conclusion by LEC against HTT and Hickie. If, on the other hand, the 2004 orders are not set aside, they will remain as the prior adjudication of the matters now sought to be ventilated by way of the claims in the third and fourth groups." 10 Barrett J directed that the 2007 proceedings may continue as to the claims in the first and second groups, but the claims in the third and fourth groups should be struck out. He directed that agreed short minutes giving effect to his decision be filed. The plaintiffs prepared a Further Amended Statement of Claim and contended that the claims in groups 3 and 4 should be stayed pending the resolution of the claims in the first and second groups. Barrett J rejected that approach. The parties were unable to reach agreement. 11 Ultimately on 29 January 2009 Barrett J gave a short judgment which relevantly was as follows: "1 Because the parties have not agreed short minutes giving effect to the decision of 10 March 2008 and the directions made on 23 April 2008 have not resulted in the plaintiffs/ respondents proposing a revised pleading conforming to that decision, I make the following orders: 1. … 2. Order that the Statement of Claim filed on 16 March 2007 be struck out but with liberty to replead limited however to the claims identified in the reasons published on 10 March 2008 as the claims in the first group and the claims in the second group." [This should refer to the Amended Statement of Claim filed in June 2007" - that was the document the subject of argument before Barrett J.] 12 The plaintiff had propounded another version of the Amended Statement of Claim (described as the Stay version ) after the decision of Barrett J on 10 March 2008. Barrett J regarded this further version as not conforming to his decision. 13 On 8 April 2009 the plaintiffs delivered a further or third version of the Amended Statement of Claim. There were differences between the second version of the Amended Statement of Claim submitted to Barrett J after his decision of 10 March 2008 and the third version filed on 8 April 2009 in that paragraphs 16R, 16s and 16T and 18W, 18X and 18Y in both the June 2007 version and the second version of the Amended Statement of Claim had been struck out in the third (April 2009) version. However, the first second and fifth defendants contended that the third version of the Amended Statement of Claim entered forbidden territory. 14 In argument attention was focussed on the damages which were claimed under the second groups of claims. The plaintiffs submitted: "2. The claims in the second group as referred to in Judgment [of Barrett J] at [6], [33], [43] - [49], that is, the claims in the second group directed to obtaining an award of damages in relation to procuring the settlement agreements and consent orders, can properly be pursued in the same proceedings.

3. Paragraphs 35, 41A, 50 & 55 of the Further Amended Statement of Claim filed on 8 April 2009 plead damage for fraudulent misrepresentation, negligence, breaches of the Trade Practices Act and the Fair Trading Act claimed by the first plaintiff (which was a party to 2004 Consent Order and the Heads of Agreement dated 13 May 2004 and Deed of Non Dilution and Merger dated 27 August 2004) and Mr and Mrs Zrilic (the second and third Plaintiffs) against the First, Second and Fifth Defendants.

4. The damages claims were in the same form in the pleading considered by Barrett J in the Reasons for Judgment.

5. Particulars of damage are in par [35]. Paras (a) (b) (c) & (d) of the particulars are in the form considered in the Reasons for Judgment. Par (aa) has been inserted under the entitlement to replead.

6. The Further Amended Statement of Claim at page 3 in conformity with the judgment strikes out the claims in the third and fourth groups referred to in Reasons for Judgment (7) - (12).

12. His Honour's remarks on 29 January 2009 rejected the proposition that there could be a stay as distinct from a dismissal consistently with the Reasons for Judgment of 10 March 2008 at [67] - [69]. The plaintiffs did not take issue with the rejection of their submission that a stay was the appropriate form of order in relation to the claims in groups 3 and 4. The Further Amended Statement of Claim filed on 8 April 2009 strikes out those claims.

13. The remarks of 29 January 2009 were made in the context of resolving the appeal on which the applicants were only partially successful.

14. The parties made submissions on the form of the proposed new pleading but his Honour did not deal with these in terms or give reasons one way or another in respect of them except to the extent necessary to determine the outcome of the appeal. [Barrett J did state that the revised pleading (of the plaintiffs) did not conform with his decision of 10 March 2008.]

15. For instance, the Applicants on the Motion argued that pars 11A - 24 be struck out and argued against the insertion of particular 35(aa). Consistently with disposing of the Appeal, his Honour did not deal with these issues."

"(aa) Alternatively, in the event that this Honourable Court does not grant rescission of the Heads of Agreement dated 31 May 2004 and the Deed of Non-Dilution & Merger dated 27 August 2004, LEC lost the value of the causes of action against HTT and Hickie arising out of the facts pleaded in the Amended Statement of Claim filed on 11 December 2002 in Supreme Court Equity Division proceedings no. 5396 of 2001 as referred to in paragraphs 16A to 16Q and 18A to 18V herein which included, inter alia, a constructive trust over the Land, equitable compensation and an account of profits." 15 The plaintiffs explained that particular 35(aa) was framed on the assumption that the plaintiffs can set aside the consent orders "but that the documents themselves do not receive the remedy of rescission because one is entitled to get damages for what you have given away by entering into a release." The plaintiffs stated that particular 35(aa) was added to prevent any misunderstanding of their position. This postulates coverage of the situation where the consent orders are set aside but the two antecedent agreements are not. 16 In developing their arguments the plaintiffs submitted that "there cannot be a separation between the facts that underlay the facts giving rise to the settlement and the underlying causes of action which had a value and the claim for damages in these proceedings." Counsel gave as an example the allegation in paragraph 32(f) of the third version (that Mr and Mrs Zdrilic, the second and third plaintiffs, had to reduce their loan account with LEC, the first plaintiff by $5.5 million - that transaction could not be set aside.) 17 The plaintiffs submitted "Mr and Mrs Zdrilic's loan account depended upon the value of LEC … which ultimately depended upon the underlying value of the first plaintiff's cause of action against the relevant defendants in the 2001 proceedings" and "its ability to pay depended upon what its assets were and its assets included the value of its now released cause of action against the relevant defendants in these proceedings". 18 In their oral submissions the plaintiffs acknowledged that there were underlying facts which gave rise to equitable remedies and remedies under Corporations Law for damages which Barrett J held could not proceed in these proceedings and that the plaintiffs did not seek to proceed with such claims in these proceedings. 19 The plaintiffs pointed out that the relevant defendants in the 2007 proceedings were wider than the parties to the 2001 proceedings. They referred to Mr Renshaw becoming involved as a defendant in the 2007 proceedings. There is a claim against him for making either fraudulent or negligent misrepresentations that induced the plaintiffs to enter into the transaction. It was contended that the value of that cause of action will inevitably involve, assuming liability is established, a valuation of that cause of action. That goes to damages. 20 In dealing with the basis of the claim particularised in paragraph 35(aa) and the valuation which will have to be made as to the worth of the 2001 proceedings, the plaintiffs sought to draw an analogy to the cases in which clients have lost causes of action because limitation periods have expired and they sue their solicitors. In such cases, the courts deal generally with the issue of quantification of the client's loss of a cause of action against a third party. Was it of value or worthless? If of value, the facts that underlay the cause of action have to be proved so that the Court can value the loss. The plaintiffs cited Johnson v Perez (1988) 166 CLR 351, Nikolaou v Papasavas, Phillips & Co (1988) 166 CLR 394, Leitch & Ors v Reynolds (2005) NSWCA at [6] - [13] and [20] - [28], Mastronardi v Kennedy [2001] NSWCA 354 and Phillips v Bisby [1997] NSWCA 246, BC9700722 at pp 7 - 9. The defendants submitted that this analogy lacked validity. That is not a point to be determined at this stage. 21 In their written submissions in reply the defendants submitted: (a) the particular of damage in paragraph 35(aa) was in direct contravention of Barrett J's primary reasons for decision: see [70], [71], [73]. It was inserted after Barrett J's primary reasons for decision; and (b) that particular of damage was not in conformity with Barrett J's primary reasons for decision and his further reasons of 29 January 2009. As explained by counsel for the plaintiffs I do not regard the particular of damage in paragraph 35(aa) as being in direct contravention of Barrett J's primary reasons. It was designed to deal with one possible aspect of the claim for damages. Whether it will ever arise remains to be seen. 22 The defendants pointed out that a pleading must contain only a summary of the material facts on which the party relies. They submitted that the facts pleaded in the third version (Further Amended Statement of Claim filed April 2009) in paragraphs 11A - 24 (pp 8 - 38) under the heading "Huntley Mine Joint Venture Project" were material facts in respect of what Barrett J held to be the third group of claims. They contended that Barrett J had already held that each of the plaintiffs' claims in the third and fourth group must be struck out and cannot be maintained while the 2004 consent orders remain. 23 The defendants further submitted that the plaintiffs' contention that "in order to properly assess what the 2001 proceedings are worth, the Court will need to be appraised of and make findings in connection with the facts there pleaded" could not be sustained in view of the findings at [66] - [71] and [73] of the primary reasons of Barrett J. That Judge was not addressing in detail the matters to be considered in assessing the claims for damages on the various scenarios which could arise. 24 The defendants contended that the plaintiffs were seeking to re-argue the issue laid to rest by Barrett J and were not entitled to do so. 25 It was not in issue that the claims in the third and fourth groups had been struck out and could not be maintained while the consent orders stood. The operation of the estoppel created by the consent order of dismissal is a powerful factor. The plaintiffs contended that they were not seeking to use the facts alleged in paragraphs 11A - 24 of the third version in support of the third group of claims as they had been struck out, but that they were relevant to their damages claim and its assessment. The plaintiffs submitted that, on the issue of the assessment of the plaintiffs' damages claim, the Court will assess the value of LEC's claims in the proceedings and the extent of Mr and Mrs Zrdilic's loss. 26 The plaintiffs further submitted that paragraphs 11A - 16, 16K, 19 - 24 went to issues wider than the assessment of damage and were relevant to the relief sought in orders 1 - 5 (declarations of valid rescission of Heads of Agreement of 13 May 2004 and Deed of Non-Dilution and Merger of 27 August 2004 by LEC, an order declaring these agreements and consent orders of 1 September 2004 void, an order that the agreements and the consent order dismissing the proceedings be set aside pursuant to s 87(2) of the Trade Practices Act, and generally, damages including those pursuant to s 87(1)(a) and/or s 82 of the Trade Practices Act 1974 (Cth) and s 68 of the Fair Trading Act 1987 against the first, second, third, fifth and sixth defendants). 27 In my opinion paragraphs 11A, 12, 13, 13A - 13F, 14 - 16, 16A, 16B(a) and (c), 16K, 19, 19A, 20, 21, 21A - 21C, 22, 23 and 24 of the third version (April 2009) set out factual allegations which provide useful background material in that they assist the Court to understand what allegedly happened and the course of proceedings. I would not strike out these paragraphs. They will possibly be of assistance, if proven, in dealing with the relief claimed in orders 1 to 5 and the assessment of damages. 28 On the other hand, I would strike out these paragraphs:

16B(b), 16E, 16F, 16G, 16H, 16I, 16J, 16L, 16M, 16N, 16O, 16P, 18A, 18B, 18C, 18D, 18E, 18F, 18G, 18H, 18I, 18J, 18K, 18L, 18M, 18N, 18O, 18P, 18R, 18S, 18T, 18U and 18V. 29 These paragraphs relate to claims in the third and fourth groups. They do not appear to be capable of being of assistance in dealing with the orders sought in paragraphs 1 to 5 of the third version or the assessment of damages under claims in the second group. 30 I do not propose to strike out particular 35(aa) as it is reasonable for the plaintiffs to seek to cover a number of possibilities including that the court may set aside the consent order but not the antecedent agreements. 31 Barrett J dealt with the four groups of claims and decided which groups could not be brought while the consent order dismissing the proceedings remained. Much of the argument before me dealt with the assessment of damages if the "deceptive conduct" was proven. 32 In dealing with the proceedings to set aside the consent order and the antecedent agreements and the claim for damages, it is probable that the previous factual assertions and matters will be revisited. It should not be assumed that the evidence now available to establish the representations allegedly made and their alleged falsity or the deceptive conduct does not differ from that previously available. 33 No defence has been filed. The Court does not know whether it will suggest that the rights of third parties have intervened or that the consent order should not be set aside for various reasons even if the deceptive conduct is proved. It is assumed that the defendants will rely heavily on the estoppel created by the consent order. The defence may principally be a denial of the deceptive conduct alleged. 34 Depending on the financial position which emerges there may not be much to be gained by setting aside the consent order so that the real issue may become one of the damages recoverable, if any, by the plaintiffs against the defendants and each of them. 35 I have not acceded to the submission that the Court should strike out the whole of the Further Amended Statement of Claim (filed 8 April 2009) on the basis that it exceeds the leave to replead granted by Barrett J. That Judge envisaged that the plaintiff would replead and that the major issue was as to damages and their assessment. The correct formulation of principle is important. It is often easier to formulate and apply principle against a background of factual findings than in the abstract. In the present case it is not yet sufficiently known what will prove to be significant. This May 2007 action should progress without further delay. 36 I make these orders:

1. I strike out these paragraphs of the Further Amended Statement of Claim filed 8 April 2009: 16B(b), 16E, 16F, 16G, 16H, 16I, 16J, 16L, 16M, 16N, 16O, 16P, 18A, 18B, 18C, 18D, 18E, 18F, 18G, 18H, 18I, 18J, 18K, 18L, 18M, 18N, 18O, 18P, 18R, 18S, 18T, 18U and 18V.

2. On or before 31 August 2009 each of the first, second and fifth defendants is to file and serve its Defence to the Further Amended Statement of Claim and any cross claim.

3. Any reply to the Defence and any defence to cross claim are to be filed and served on or before 16 September 2009. 37 As to costs, my provisional view is that there should be no order as to the costs of the application before me but the parties are at liberty to argue costs if they so notify my Associate and each other in writing within ten days of delivery of this judgment.

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