Lawrenson Light Metal Die Casting Pty Ltd (in liq) v Cosmick Pty Ltd

REASONS FOR JUDGMENT 1 Beforethe Court is an amended notion of motion by which the fifth respondent Kalus Kenny Lawyers, a firm of solicitors, seeks dismissal of the proceeding against them under O 20 r 2 of the Federal Court Rules or alternatively, under O 11 r 6, an order that the statement of claim against them be struck out. The applicant produced a proposed amended statement of claim, and although formal leave had not been given to file that document it was agreed that argument on the motion should proceed on that version of the statement of claim. 2 The statement of claim, broadly speaking, alleges that a sale of the business of the applicant company, Lawrenson Light Metal Die Casting Pty Ltd (in liquidation) (Lawrenson) by a Controller, the second respondent Mr William Graham, to the third respondent Melbourne Gravity Pty Ltd (Gravity) was not at arms' length and was at an undervalue. Kalus Kenny are said to be liable under s 75B of the Trade Practices Act 1974 (Cth), as aiders and abettors of a contravention of the Act by the first respondent Cosmick Pty Ltd (Cosmick). 3 The statement of claim alleges a loan from Cosmick to Lawrenson and default by the latter, following which Mr Graham made the sale complained of. It is alleged that Mr Graham was the sole director of Cosmick and also a shareholder and director of Gravity, and that the fourth respondent, Mr Alexander McGregor, was also a shareholder and director of Gravity and was acting as an agent or servant for Cosmick and/or Mr Graham. 4 Paragraphs 23 and 24 allege failure by Mr Graham and Kalus Kenny to give Lawrenson a payout figure for the loan agreement. 5 Paragraph 25 alleges: "On Monday 8 November 1999, Kalus Kenny Lawyers acting as solicitors and agents for Cosmick an advertisement in the 'Financial Review' for the immediate sale of the plant, equipment and business owed by Lawrenson." Presumably the word "placed" was intended to be inserted after "Cosmick". 6 Paragraph 27 alleges "The Advertisement: (a) Was a small advertisement. (b) Did not give any details or description of the plant, its equipment, its location, its volume, its reputation and its business. (c) Did not give a contact phone number for inquiries. (d) Did not give sufficient time for offers to be made considering the complexity of this kind of acquisition and nature of business." 7 During the course of argument, a copy of the advertisement was produced. It measures approximately 10 x 15 cm and is in the following terms: "Cosmick Pty Ltd as the Controller of the assets of a Melbourne based Diecasting company offers for immediate sale the following: Plant and Equipment Other business assets Initial enquiries for the above assets should be made as follows: Attention: Mr Henry Kalus Kalus Kenny Commercial Lawyers Facsimile 9826 9909 The above matter is urgent. Offers for purchase of the above will close at 5.00pm on Friday 12th November 1999. All offers must be accompanied by a deposit of 10% payable by bank cheque." 8 Paragraph 28 alleges that on 16 November 1999 Mr McGregor made an offer to purchase Lawrenson's plant, equipment, inventory and business. 9 Paragraphs 29 and 30 allege that on 23 November 1999 Cosmick, as mortgagee in possession, entered into a contract to sell Lawrenson's plant, equipment, inventory and business to Gravity "being a company related to McGregor" and that the sale contract was signed by Mr Graham on behalf of Cosmick, and by Messrs Graham and McGregor on behalf of Gravity. 10 Paragraphs 31 and 32 allege that the contract price was $400,000 plus a maximum sum of $25,000 for inventory and that at all relevant times the market value was $1.2 - 1.5 million. 11 Paragraph 33 alleges that for the following reasons Cosmick has, contrary to s 51AA of the Trade Practices Act, engaged in unconscionable conduct: "(a) The terms and conditions of the Loan referred to in paragraphs [sic] 15 hereof. (b) The service of the Notice of Demand in circumstances referred to in paragraphs 17 and 18 hereof. (c) The service of the Notice of Possession in the circumstances referred to in paragraph 19 hereof. (d) The appointment of Graeme [sic] as a Controller of Lawrenson as pleaded in paragraph 20 hereof. (e) If only to [sic - presumably "Failure to"] provide Lawrenson with details of the payout figure for the Loan in the circumstances referred to in paragraphs 22, 23 and 24 hereof. (f) The placing of the Advertisement within 7 days of serving of the Notice of Possession. (g) The deficiencies in the Advertisement as pleaded in paragraph 27 hereof. (h) Accepting an offer by McGregor which was on terms less favourable than specified in the Advertisement. (i) Entering into the Sale Contract for a wholly inadequate consideration as alleged in paragraphs 31-32 hereof. " 12 It should be noted that only (e), (f) and (g) concern Kalus Kenny. Nothing further is alleged against Kalus Kenny in relation to (e). 13 Paragraphs 34 and 35 allege aiding and abetting by Mr Graham and Cosmick respectively, contrary to s 75B. 14 Paragraph 36 alleges that in placing the advertisement Kalus Kenny have, contrary to s 75B, aided and abetted the breach of the Act by Cosmick. There is then an allegation that Lawrenson has suffered loss and damage. 15 The relevant test is now contained in s 31A of the Federal Court of Australia Act 1976 (Cth). The Court must be satisfied that the applicant has "no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding". As I noted in Duncan v Lipscombe Child Care Services Incorporated [2006] FCA 458, this is a lower standard for strikeout applications than that previously laid down by the High Court's decisions in Dey v Victorian Railways Commissioners (1948) 78 CLR 62 and General Steel Industries Incorporated v Commissioner for Railways (New South Wales) (1964) 112 CLR 125. The previous test, which has been replaced by s 31A, required that the allegations be quite clearly so untenable that they cannot possibly succeed. 16 The only case pleaded against Kalus Kenny is that of accessorial involvement contrary to part of s 75B(1)(a). There is only a limited reliance on the various forms of accessorial liability provided by this section. It is not alleged that Kalus Kenny: