14.7, 14.8, 14.28
Cases Cited: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175
[2009] HCA 27
Arthur Young v Tieco International [1995] SASC 5173
(1995) 182 LSJS 367
Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France SA [1992] 4 All ER 161
[1993] 1 WLR 509
Barclay Mowlem Construction Ltd v Dampier Authority (2006) 33 WAR 82
Source
Original judgment source is linked above.
Catchwords
14.7, 14.8, 14.28
Cases Cited: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175[2009] HCA 27
Arthur Young v Tieco International [1995] SASC 5173(1995) 182 LSJS 367
Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France SA [1992] 4 All ER 161[1993] 1 WLR 509
Barclay Mowlem Construction Ltd v Dampier Authority (2006) 33 WAR 82[2006] WASC 281
Barnes v Addy (1874) LR 9 Ch App 24422 WR 505
Baxter v Hamilton (2005) 15 Tas R 59[2005] TASSC 64
Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group [2008] FCA 594(2008) 246 ALR 361
Blundell v Macrocom Pty Ltd [2004] NSWSC 895(2004) 50 ACSR 549
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185[2014] HCA 36
Brunninghausen v Glavanics (1999) 46 NSWLR 538[1999] NSWCA 199
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304[2009] HCA 25
Chahwan v Euphoric Pty Ltd (2008) 227 FLR 43[2008] NSWCA 52
Cook v Deeks [1916] 1 AC 554
Correa v Whittingham (2013) 278 FLR 310[2013] NSWCA 263
Crawley v Short [2009] NSWCA 410
(2009) 262 ALR 654
Donis v Donis (2007) 19 VR 577
[1964] HCA 69
Giumelli v Giumelli (1999) 196 CLR 101
[1999] HCA 10
Gray v Bridgestone Aust Ltd (1986) 4 ACLC 330
Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd (No 2) [2011] FCA 567
(2006) 201 FLR 456
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
[2002] NSWCA 104
Macks v Viscariello (2017) 130 SASR 1
[2017] SASCFC 172
McMillan v Coolah Home Base [2020] NSWSC 935
Mills v Sheahan (2007) 99 SASR 357
[2015] NSWCA 262
Spencer v Commonwealth of Australia (2010) 241 CLR 118
[2010] HCA 28
Sydlow Pty Ltd (in Liquidation) v T G Kotselas Pty Ltd (1996) 65 FCR 234
(1988) 83 ALR 299
Vadori v AAV Plumbing [2010] NSWSC 274
Viscariello v Macks [2014] SASC 189
(2014) 103 ACSR 542
Westpac Banking Corporation v Bell Group (in liq) (No 3) (2012) 44 WAR 1
[2012] WASCA 157
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
Judgment (24 paragraphs)
[1]
Background
The underlying dispute between the parties and the events that have led to the current application have been canvassed in McMillan (No 1) and will not here be repeated. I adopt the same abbreviations as used in the earlier reasons. However, what is here relevant to note is the chronology of events since July 2020 and the ambit of the now proposed amendments to the pleading.
On 23 July 2020, as noted above, I struck out parts of the plaintiffs' then pleading. On 13 August 2020, a draft further amended statement of claim was sent to the solicitors for the Deed Administrators (see the affidavit affirmed on 3 September 2020 by the plaintiffs' solicitor, Mr Vogel, at [3]). On 20 August 2020, the solicitors for the Deed Administrators sent a letter refusing to consent to that further amended statement of claim and indicating their reasons for that position (see Mr Vogel's affidavit affirmed on 3 September 2020 at [4]).
On 2 September 2020, a revised draft of the further amended statement of claim (being the version referred to in the notice of motion filed on 3 September 2020) was sent to the solicitors for the Deed Administrators (see Mr Vogel's affidavit affirmed on 3 September 2020 at [5]); and then, on 3 September 2020, the plaintiffs filed a notice of motion seeking leave to file that amended pleading, supported by Mr Vogel's affidavit affirmed on 3 September 2020.
On 4 September 2020, the solicitors for the Deed Administrators sent a letter declining consent to the filing of that proposed further amended statement of claim and again indicating their reasons for that position (see affidavit of the Deed Administrators' solicitor, Mr Wilkinson, sworn on 9 September 2020 at [4]).
On 3 September 2020, the plaintiffs filed written submissions in support of their application to amend. The Deed Administrators filed their written submissions on 11 September 2020 and, on the same day, the plaintiffs filed supplementary submissions. Finally, on the morning that the notice of motion was to be heard, the plaintiffs filed submissions in reply, attaching to those submissions a further revised proposed further amended statement of claim (which is the version now the subject of the leave application) (the 14 September 2020 version).
[2]
Proposed pleading
Relevantly, the claim against the Deed Administrators as contained in the now proposed further amended statement of claim (commencing at [A11] of the proposed further amended statement of claim) is sought to be pleaded as follows.
From [A11]-[A20], under the heading "Relevant factual background", various allegations are made as to matters including: the identification of the defendants; the entry into "Allotment Contracts" by the plaintiffs with Coolah Home Base (the first defendant); the allegation that the Coolah Home Base "held each member's Allotments as equitable interests in the Land ('the Land Interests') in trust for each of the Plaintiffs"; the appointment of the Deed Administrators; and a telephone conference with a delegation of the plaintiffs on 11 September 2019 in which it is alleged that Mr Dean-Wilcox (one of the Deed Administrators) was informed "of the interests of the Plaintiffs in the land as particularised in paragraph 5".
Under the heading "Directors' Breaches of Fiduciary and Statutory Duties to CHB [Coolah Home Base] and the Plaintiffs", allegations are then made (as the heading suggests) of breach of duties by the directors (see from [A21]). Under that heading, there is an allegation (at [A33]) that the Deed Administrators, as voluntary administrators of Coolah Home Base, made a recommendation in the report to creditors of 18 November 2019 as to the Deed of Company Arrangement (the DOCA) that had been proposed; and then there are allegations as to the entry into the DOCA (at [A35]).
From [A43]-[A47], under the heading "The Administrators' sale at under value and gifting of undertaking", there are allegations that the Deed Administrators (again, when they were the joint and several administrators of Coolah Home Base) owed duties both to Coolah Home Base and to its members, as officers of the company, under ss 180 and 181 of the Corporations Act 2001 (Cth) (Corporations Act); and then there are also allegations of breaches of those duties, as a result of which it is alleged that the company and the plaintiffs have each suffered loss and damage.
Under the heading "The Administrators' Breaches of Officers' duties (ss180-181 CA [Corporations Act])", the plaintiffs allege further breaches of the statutory duties allegedly owed by the Deed Administrators (see at [A48]).
There is then an allegation of oppressive conduct on the part of the Deed Administrators (at [A49]), and of unconscionable conduct by them in breach of s 21 of sch 2 of the Competition and Consumer Law 2010 (Cth) (the Australian Consumer Law) and s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) (at [A50]); followed by allegations of breach of s 442C of the Corporations Act (at [A51]); and breach of a duty of care owed by the Deed Administrators to the plaintiffs (see at [A52]-[A54]).
[3]
Plaintiffs' application for leave to amend
The plaintiffs, in summary, say that their case against the Deed Administrators is as follows.
They say that what they acquired were two discrete property rights, allotments of land (being interests in land) as well as a share in the company (Coolah Home Base), and that Coolah Home Base held the members' allotments in the Coolah Home Base Retirement Village on trust for the shareholders.
They identify the misconduct of the directors as being that (after the plaintiffs bought and developed their sites, on land of which Coolah Home Base was the registered proprietor, and acquired shares in Coolah Home Base) the directors: sold themselves enough village sites and issued further shares in Coolah Home Base to themselves for a nominal consideration to attain majority shareholding and complete control of the company; then made the company insolvent by indebting the company to themselves; appointed voluntary administrators (who ultimately became the Deed Administrators); and entered into a deed of company arrangement to which was attached a contract for sale of Coolah Home Base's undertaking to Coolah Tourist Park, by which they transferred the company's assets and business undertaking to a new company they owned and controlled, thereby "stripping" the plaintiffs of their equitable interests in the land and "denuding" the plaintiffs' shares in Coolah Home Base of all value.
The plaintiffs contend that, by giving themselves advantages to the detriment of the company and its members, the directors breached their fiduciary duties to Coolah Home Base and to its members, and breached their statutory duties under ss 180-183 of the Corporations Act (citing Cook v Deeks [1916] 1 AC 554).
It is submitted that this conduct was also oppressive conduct by the office-bearers of Coolah Home Base (which, by then, included the Deed Administrators in their capacity as voluntary administrators) in breach of s 232 of the Corporations Act, and was unconscionable in equity and under s 21 of the Australian Consumer Law and under s 12CB of the ASIC Act because the office-bearers took unconscientious advantage of the disadvantaged position of the plaintiffs (they being aged pensioners in a retirement village who, they say, had no knowledge and gave no consent to the "perfidious scheme" to strip them of their assets so that the directors could then use their land and assets through the new corporate vehicle for a more profitable venture; namely, the redevelopment of the site for medium density housing using the plaintiffs' allotments and homes paid for, and built, by them).
[4]
Deed Administrators' submissions
The Deed Administrators emphasise that, since the order that was made on 23 July 2020 striking out the plaintiffs' amended statement of claim, the plaintiffs have had a number of attempts at repleading their case against the Deed Administrators. They say that the penultimate version of the proposed further amended statement of claim (which was annexed to Mr Vogel's affidavit sworn on 3 September 2020) suffered from the same or similar defects as the previous pleading that was struck out (see McMillan (No 1) at [112]-[153]), and that the causes of action contained in that (penultimate) version of the proposed further amended statement of claim were untenable and were pleaded in a way that was embarrassing and likely to cause irremediable prejudice if permitted to stand. The Deed Administrators argue that no opportunity should be granted to the plaintiffs to propound any further claim against the Deed Administrators and that the proceedings against them should be dismissed, with costs.
As to the ultimate version of the pleading that was propounded (and for which leave is now sought), the position of the Deed Administrators is as follows. For completeness, I will also summarise here, where relevant, the plaintiffs' response to the criticisms made by the Deed Administrators of the relevant parts of the pleading.
[5]
Background to the pleaded claims against the Deed Administrators - [A11]-[A42]
The Deed Administrators complain that [A16] contains a "somewhat muddled" allegation that the plaintiffs had an equitable interest in various allotments of the land owned by Coolah Home Base which were held on trust for them by Coolah Home Base. The proposed pleading (as referred to earlier) is as follows:
A16. In the premises, CHB [Coolah Home Base] held each member's Allotments as equitable interests in the Land ("the Land Interests") in trust for each of the Plaintiffs
The Deed Administrators say that this pleading confuses the existence of an alleged equitable interest in the Coolah Land and the concept that the particular allotments were allegedly held on trust for the plaintiffs. Meanwhile, the plaintiffs say, in essence, that the allegation of an equitable interest in the land has now been ventilated more than once (both before Emmett AJA and before me), and is a matter for argument at trial.
As to the allegation at [A30] that the Deed Administrators (as voluntary administrators of the company) were officers of Coolah Home Base and owed statutory duties in that context, the Deed Administrators make no complaint. However, they maintain that the duties are owed to the company and not to the members generally, or any one or more of them. As to [A36]-[A39], in which it is alleged that the directors of Coolah Home Base breached certain fiduciary duties or statutory duties, it is similarly said that the directors owed their statutory duties to the company, not its members.
As to [A42], which contains an allegation that the sale of the Coolah Land (including the allotments said to be held on trust for the plaintiffs) constituted a breach of the directors' fiduciary duties "as trustee[s]", complaint is made that it is not clear how the directors are said to be trustees; nor is there any detail pleaded as to the content of the duty or duties breached.
[6]
Duties owed to members
As to the denial by the Deed Administrators that administrators owe any duties to members, the plaintiffs say that, while it is generally true that the administrators' duty is to the company and its creditors, there are exceptions and the present situation is one such exception. It is noted that a liquidator has a duty to exercise reasonable care and diligence in the discharge of his or her functions (citing Gray v Bridgestone Aust Ltd (1986) 4 ACLC 330; Sydlow Pty Ltd (in Liquidation) v T G Kotselas Pty Ltd (1996) 65 FCR 234; [1996] FCA 233), and that this is a duty owed to the creditors and shareholders of the entity the subject of the winding up (citing Mills v Sheahan (2007) 99 SASR 357; [2007] SASC 365 (Mills) at [15], per Debelle J). The plaintiffs say that the same must apply to external administrators.
The plaintiffs say that they have suffered economic loss due to the sale of Coolah Home Base's assets at an under-value, because there was no surplus to be distributed to them (as explained in the administrators' Report to Creditors dated 18 November 2019). It is noted that, in relation to pure economic loss, McHugh J in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 (at [80]) said that the vulnerability of the party alleged to have suffered pure economic loss is an important requirement.
The plaintiffs say that Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36 confirms the position that, in determining the existence or non-existence of a duty of care where pure economic loss is claimed, a general test is not open to be applied. Rather, it is said, the exercise involves a judicial evaluation of the various factors which may be relevant to each particular case to arrive at a principled decision. The plaintiffs say that the relevant factors which give rise to a duty of care in the present case are pleaded at [A52]. They say that damages claimed are not restricted to pure economic loss (noting that, at [A54], physical and psychological injury is also claimed). It is said that the stricter rules applicable to pure economic loss do not apply.
[7]
The claim of breach of fiduciary or statutory duty - [A43]-[A48]
The Deed Administrators say that the allegations at [A43] and [A44] of the proposed further amended statement of claim (that "the Administrators were under a duty to CHB and its members") then "springboard" into allegations that such duty was breached by the Deed Administrators' conduct in: obtaining a valuation of the Coolah Land on a vacant possession basis (see at [A45]); and recommending that the creditors approve Coolah Home Base's entry into the DOCA (see at [A33]-[A34]).
The Deed Administrators maintain that an allegation of such duties being owed in the terms pleaded in those paragraphs is untenable and not known to the law. They maintain that administrators do not owe duties to creditors or members but, rather, that administrators owe statutory and fiduciary duties to the company (referring to s 437B of the Corporations Act; and to Correa v Whittingham (2013) 278 FLR 310; [2013] NSWCA 263 at [148], per Gleeson JA, Barrett JA and Tobias AJA agreeing on that point; and Blundell v Macrocom Pty Ltd [2004] NSWSC 895; (2004) 50 ACSR 549 at [10], per Barrett J, as his Honour then was).
The Deed Administrators accept that a fiduciary relationship subsists between an administrator and the company in administration but they say that an administrator does not owe statutory or general law duties to individual creditors or members and, absent a statutory entitlement, a creditor has no personal right of action against an administrator for damages or compensation (citing Macks v Viscariello (2017) 130 SASR 1; [2017] SASCFC 172 (Macks) at [192], [210]-[213]; Hausmann v Smith [2006] NSWSC 682; (2006) 24 ACLC 688 (Hausmann) at [12]; and noting the conclusion expressed in McMillan (No 1) at [112]-[119], and in particular at [114]).
The Deed Administrators say that the imposition of a duty in favour of individual creditors or members may be seen as inconsistent with the statutory scheme created by Pt 5.3A of the Corporations Act (citing Viscariello v Macks [2014] SASC 189; (2014) 103 ACSR 542 at [94]-[95], approved on appeal in Macks at [202]-[203]). Reference is also made in this context to Seaman v Silvia [2018] FCA 97 (Seaman v Silvia) at [36], [39], per Derrington J, and to the conclusion there (at [35]-[42]) that administrators owe no statutory duties, fiduciary duties, or a common law duty of care to individual creditors or members.
[8]
The claim of breach of fiduciary or statutory duty - plaintiffs' response
Insofar as the Deed Administrators cite Macks as authority that the imposition of a duty in favour of individual creditors or members may be seen as inconsistent with the statutory scheme created by Pt 5.3A of the Corporations Act, the plaintiffs say that the present case is distinguishable from Macks because there is no conflict between the statutory duty to maximise the return to creditors and the duty of care to members (citing Mills at [112]-[117]). It is submitted that the selling of Coolah Home Base cheaply (as was the giving away of the profitable business) was detrimental to both creditors and members.
The plaintiffs say that the relevant question for consideration is not whether a duty of care would necessarily be established in the circumstances of the present case. Rather, they say that the relevant question is whether it can be said that the plaintiffs' claim discloses no reasonable cause of action such that a duty could be said, with certainty, not to exist.
Insofar as the Deed Administrators say that the plaintiffs have no standing to bring claims under ss 180 and 181 of the Corporations Act because those duties are owed only to the company and no application has been brought for leave to bring a derivative action, the plaintiffs say that this ignores the scheme of the Corporations Act, and in particular the statutory powers under items 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations), and s 1324(10) of the Corporations Act to award compensation to the plaintiffs for contraventions of such provisions. The plaintiffs submit that a derivative suit is only required to commence proceedings in the name of the company, whereas they seek relief in their own favour for the Deed Administrators' breach of duties under ss 180 and 181 of the Corporations Act. It is submitted that such a contravention would amount to oppression, referring by way of example to Vadori v AAV Plumbing [2010] NSWSC 274 at [43] where I considered in obiter that a member of the company there in question would have had an entitlement to an order for leave to commence a derivative suit against directors of the company for breach of their duties as directors arising out of the circumstances in which the business of the company had been improperly diverted and the company denuded of any residual goodwill in the business. There, however, no question as to such a claim in relation to conduct of administrators of the company arose.
[9]
The oppression claim - [A49]
Turning next to the oppression claim, the Deed Administrators note that the oppression remedy (in ss 232 and 233 of the Corporations Act) is directed to where the affairs of the company are being conducted contrary to the interests of the members as a whole, or oppressive to, unfairly prejudicial to or unfairly discriminatory against, a member or members (whether in that capacity or in any other capacity). It is submitted that, notwithstanding the broad definition of "affairs" of a body corporate in s 53 of the Corporations Act, an oppression suit is not one that applies to the conduct of a company's affairs while the company is the subject of administration under Pt 5.3A of the Corporations Act.
It is said that the word "company" in ss 232 and 233 of the Corporations Act is to be read as being a company not in external administration, in an analogous manner to the decisions in Chahwan v Euphoric (where it was held that the reference to "company" in ss 236 and 237 of the Corporations Act did not apply where the company was in liquidation), and Mighty River International v Hughes (No 2) [2018] WASC 368 (Mighty River) at [57]-[70], per Le Miere J (where it was held that the reference to "company" in Pt 2E of the Corporations Act does not apply to a company under a deed of company arrangement).
The Deed Administrators say that the nature of the oppression cause of action presupposes that the directors are in control of the company (and are conducting the affairs of the company in an oppressive manner), noting that, upon the appointment of administrators, the powers of the directors are suspended (see s 198G(1) of the Corporations Act).
Reference is made to Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 (Campbell v Backoffice Investments) at [180] where Gummow, Hayne and Heydon JJ and Kiefel J (as her Honour then was) observed that, upon the appointment of a provisional liquidator, any conduct of the company's affairs that was "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" Backoffice Investments, whether in its capacity as a member or in some other capacity, was brought to an end; and that, at or soon after the appointment of the provisional liquidator, the only affairs of the company being conducted were those undertaken by the liquidator with a view to realising the company's assets.
[10]
The oppression claim - plaintiffs' response
The plaintiffs say that no authority has been cited by the Deed Administrators for the proposition that "an oppression suit is not one that applies to the conduct of a company's affairs while the company [is] the subject of administration under Pt 5.3A of the Act", and that the authorities that have been cited by the Deed Administrators do not conflict with the plaintiffs' position that a voluntary administrator, as an officer of the company, can conduct the affairs of the company in an oppressive manner.
It is noted that in Re Associated Tool Industries Ltd (1963) 5 FLR 55, the phrase "the affairs of the company are being conducted" was held to be wide enough to cover oppression by anyone who is taking part in the conduct of the affairs of the company whether de facto or de jure (see at 65, per Joske J). The plaintiffs argue that voluntary administrators or deed administrators take part in the conduct of the affairs of the company in the same way as directors, and therefore are included in the scope of the oppression provisions of the Corporations Act.
[11]
The unconscionable conduct claim - [A50]
As to [A50] of the proposed further amended statement of claim, which alleges that the administrators engaged in unconscionable conduct in contravention of the Australian Consumer Law or the ASIC Act, the Deed Administrators complain as to the absence of detailed allegations as to why the conduct is said to be unconscionable, but in any event they say that this cause of action is unsustainable, on the basis that the alleged conduct was not in trade or commerce and hence this cause of action is doomed to fail.
The Deed Administrators say that the relationship between a voluntary administrator, the company, its creditors and its members is a statutory construct; and that the conduct of an administrator performing a statutory role is not conduct in trade or commerce that attracts the operation of the Australian Consumer Law or the ASIC Act (citing Macks at [215]-[235]; Baxter v Hamilton (2005) 15 Tas R 59; [2005] TASSC 64; du Boulay v Worrell [2009] QCA 63 at [47], per Keane JA, as his Honour then was; Seaman v Silvia at [45], per Derrington J).
[12]
The unconscionable conduct claim - plaintiffs' response
The plaintiffs say that the Deed Administrators' contention as to the unconscionable conduct claim (that such conduct is not in trade or commerce that attracts the operation of the relevant legislation) overlooks references in the pleaded allegations which contend relevantly that the Deed Administrators were involved in the directors' unconscionable conduct (i.e., the conduct pleaded inter alia at [A41]). The plaintiffs say that the directors' conduct was without doubt in trade or commerce engaging either the Australian Consumer Law or Div 2 of Pt 2 of the ASIC Act, "relating as it does to financial misconduct" by the Deed Administrators.
It is noted that s 236(1) of the Australian Consumer Law provides that damages for unconscionable conduct under s 21 of the Australian Consumer Law can be recovered "against any person involved in the contravention"; and reference is also made to comparable provisions of the ASIC Act.
That said, the plaintiffs revised the proposed further amended statement of claim in which [A63(b)] is amended to refer also to [A41], and [A50] also is revised to limit the case in this respect to involvement of the Deed Administrators in the conduct of the directors at [A41].
[13]
The s 442C claim - [A51]
The complaint about the claim that the Deed Administrators contravened s 442C(1)(b) of the Corporations Act is that it is pleaded in the broadest and most generalised terms (the allegation being simply that the Deed Administrators sold property which Coolah Home Base did not own, in breach of s 442C of the Corporations Act). The Deed Administrators say that, even if the allegation is that Coolah Home Base did not own the caravan park (or the parts of the land corresponding to the exclusive use permitted by the applicable shareholders of the various allotments), there is no pleading as to how the Deed Administrators are liable therefor.
The Deed Administrators point to what was said in relation to this kind of allegation in McMillan (No 1) at [126]-[127]:
126. The second direct allegation pleaded against the Deed Administrators is that of a breach of s 442C(1)(b) of the Corporations Act (at [12] of the amended statement of claim). Again, the broad allegation that there has been a breach "[b]y their involvement with the sale of property held in trust by [CHB]" is an inadequate pleading. The concept of "involvement" with the sale of the property is no more than a broad generalisation, without specifying the conduct of which complaint is made. The particulars to this allegation refer to a letter sent by the plaintiffs' solicitors (after the entry into the contract for sale and, indeed, after completion of the sale of the Coolah Land - although the plaintiffs say that it was before the transfer was registered), raising some form of constructive notice argument (as noted above).
127. As I have said, it is not an answer to point to particulars provided in the pleading. As I have had cause to say elsewhere (regrettably, more than once), particulars do not serve the same function as pleadings. The material facts on which the plaintiffs rely for the allegation that the Deed Administrators were trustees and/or owed fiduciary duties, what those duties were and how it is alleged they were breached need to be clearly pleaded, as do the material facts on which it is alleged that there was a breach of s 442C(1)(b) of the Corporations Act.
The Deed Administrators say that the above criticisms are not addressed in the proposed further amended statement of claim. They complain, in particular: that there is no allegation as to the alleged "non-ownership" by Coolah Home Base (it being accepted that Coolah Home Base was, in fact, the registered proprietor of the land); that, even if it be accepted that the pleading implicitly seeks to raise the alleged equitable interest in the land held by the shareholders of Coolah Home Base (referring to the allegation made in [A16]), that is insufficient to give rise to a claim under s 442C(1)(b) of the Corporations Act; and they say that nowhere in the pleading is there any allegation as to the Deed Administrators' knowledge of the members' alleged equitable interest.
[14]
The s 442C claim - plaintiffs' response
The plaintiffs say that their claim is simply that, although Coolah Home Base was the legal owner of the land sold, the plaintiffs owned their allotments in equity (see at [A51(a)]), and the Deed Administrators sold the whole of the land including those allotments (see [A51(b)]), and that this was contrary to s 442C(1)(b) of the Corporations Act which provides that:
442C When administrator may dispose of encumbered property
(1) The administrator of a company under administration or of a deed of company arrangement must not dispose of:
(a) property of the company that is subject to a security interest; or
(b) property (other than PPSA retention of title property) that is used or occupied by, or is in the possession of, the company but of which someone else is the owner or lessor.
The plaintiffs respond to the Deed Administrators' complaints as to this pleading as follows. First, as to the complaint that there is no allegation as to the alleged "non-ownership" by Coolah Home Base, the plaintiffs say that the plaintiffs owned their allotments in equity (see at A51]) and that these allotments, or the plaintiffs' equitable interest in them, were in the possession of the company when it sold the land. Second, as to the contention that an equitable interest is not sufficient to give rise to a claim under s 442C(1)(b) of the Corporations Act, the plaintiffs dispute this and refer to the definition of "property" in s 9 of the Corporations Act; third, as to the complaint that there is no allegation of the Deed Administrators' knowledge of the alleged interest, the plaintiffs say that knowledge of the alleged interest is clearly pleaded at [A58].
[15]
The breach of duty of care claim - [A52]-[A54]
Again, it is said that the Deed Administrators do not owe a duty of care to individual creditors or members in connection with the management of the company's business affairs, including the sale of its assets and the negotiating of a deed of company arrangement. It is noted that in Seaman v Silvia, Derrington J refused leave to re-plead a claim against an administrator alleging that a duty of care was owed to particular creditors or members.
In any event, the Deed Administrators say that the pleading of the breach of duty claim is defective. It is noted that [A52] does not plead the content of the duty, nor does it identify the risk of harm, both of which are deficient (referring to Raging Thunder Pty Ltd v Bank of Western Australia Ltd [2012] QSC 329 at [119], per Applegarth J; Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026 at [58]; Garzo v Liverpool/Campbelltown Christian School Limited [2011] NSWSC 292 (Garzo) at [59]-[61] and [63]-[64], per Garling J), particularly in a case concerning pure economic loss. Further, the pleading is said to be deficient in that there is no identification of what each individual plaintiff would have done but for the alleged wrongful conduct, and how that would have led to some different result so as to establish the causal connection between the alleged breach of duty and any loss (citing Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709 at [217]).
[16]
The breach of duty of care claim - plaintiffs' response
The plaintiffs say that, contrary to the Deed Administrators' submissions, the decision in Seaman v Silvia is distinguishable in important respects.
Reference is made to the relevant factors summarised by Brennan J, as his Honour then was, in The Council of the Shire of Sutherland v Heyman (1985) 157 CLR 424 at 487; [1985] HCA 41, namely that a postulated duty of care must be stated by reference to the kind of damage that the plaintiff has suffered, and by reference to the plaintiff or a class of which the plaintiff is a member.
The plaintiffs say that [A52] of the proposed further amended statement of claim clearly sets out the kind of damage the plaintiffs have suffered (particularly the loss of their homes) and the class of which the plaintiffs are members (namely, elderly pensioners with significant health issues). Moreover, they note that, as Derrington J said in Seaman v Silvia, in some cases the content of a duty of care will be apparent from the circumstances or allegations of breach. The plaintiffs maintain that the present case is surely one where the duty of care is apparent from the circumstances.
Insofar as the Deed Administrators say that a claim for pure economic loss raises the bar for duty of care, the plaintiffs reiterate that their claim is not limited to pure economic loss. It is said that the Deed Administrators' breach of their duty has resulted in extreme distress and consequent injuries.
The plaintiffs say that there is no need for identification of what each individual plaintiff would have done but for the alleged wrongful conduct and how that would have led to some different result so as to establish the causal connection between the alleged breach of duty and any loss", noting that the wrongful conduct included (at [A46]) that the Deed Administrators procured the sale of the land on which the plaintiffs lived, including their allotments. It is said that, in a similar case of sale of assets not owned by the company in administration (THC Holding Pty Ltd v CMA Recycling Pty Ltd [2014] NSWSC 1136 (THC Holding) at [196]), Stevenson J found it "most unlikely" that the company would have disposed of the property it held on trust "had the administrators not been appointed". It is submitted that, had the Deed Administrators not sold the land, the plaintiffs would not have lived the past nine months under threat of loss of their homes and eviction.
[17]
The knowing assistance claim - [A55]-[A60]
As to the allegation of knowing assistance in a breach of duty by the directors (the second limb of Barnes v Addy), the Deed Administrators say that there are a number of fatal difficulties with respect to this cause of action.
First, that directors do not owe their duties to individual members but rather to the company, and that no derivative claim is sought to be brought in the name of, or on behalf of, Coolah Home Base. Thus, it is said that the plaintiffs have no standing to bring a claim against the Deed Administrators that is "parasitic" on a claim that the directors breached their duties to Coolah Home Base since such a claim belongs only to the company itself.
Second, that this part of the pleading picks up the "confusing allegations" in [A16] and [A42] about the alleged imposition of a trust with respect to the Coolah Land. It is noted that [A42] contains an allegation that the sale of the land (including the allotments said to be held on trust for the plaintiffs) constituted a breach of the directors' fiduciary duty "as trustee". The Deed Administrators say that, even if the plaintiffs held an equitable interest in parts of the Coolah Land, it is not clear how the directors are said to be trustees; nor is there any pleading of the content of the duty or duties breached. It is said that the plaintiffs have elided the different concepts of an equitable interest in the Coolah Land and the existence of an alleged trust, which infects the pleaded allegations at [A57]-[A59].
It is noted that in McMillan (No 1) (at [143]-[144]) there was criticism of the pleading for conflating the rights of members and the rights as beneficiaries of an alleged trust, as well as the inadequacy of the pleading with respect to the facts said to give rise to the trust claim. It is said that the same applies to the allegations in these paragraphs of the proposed further amended statement of claim.
Third, that a knowing assistance claim requires dishonest and improper design of the wrongdoers (in this case, the directors) (citing Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89; [2007] HCA 22 at [179], per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ; Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [78], [106], per Leeming JA, Barrett and Gleeson JJA agreeing); and that, where the third party merely participates in the breach of duty, it is necessary for the breach to amount to a "dishonest and fraudulent design" before equity will intervene to impose liability on the third party.
[18]
The knowing assistance claim - the plaintiffs' response
It is said that, in addition to their primary wrongdoings, the Deed Administrators knowingly assisted with the directors' breaches of fiduciary duty to the company and to its members (most obviously by diverting the company's assets and business to their "alter ego" - [A55]), the directors' breach of trust (by selling land held in trust for the members by Coolah Home Base - [A57]-[A58]), and breaches of statutory duties. It is said that the Deed Administrators were thus "involved in a contravention" of the Corporations Act for the purposes of s 79 of the Corporations Act or for the purposes of 236(1)(b) of the Australian Consumer Law.
The plaintiffs say that the possibility that the directors could have carried out their fraud without the Deed Administrators' assistance is of no consequence. They say that the Deed Administrators' involvement need not have a "but for" connection to the wrongdoing and, rather, that "facts connecting the accused with the commission of the relevant offence" is enough.
While the plaintiffs accept that a knowing assistance claim requires a dishonest and improper design of the wrongdoers, they say that knowledge of the dishonest and fraudulent design is not required to establish "involvement in a contravention" of the Corporations Act or the Australian Consumer Law. Rather, they say that all that is required is that "it can reasonably be said that the act or omission shown to be done or neglected to be done by the defendant does in truth implicate or involve him in the offence, whether it does show a practical connection between him and the offence" (citing Ashbury v Reid [1961] WAR 49 at 51).
The plaintiffs say that the facts show that the Deed Administrators had sufficient knowledge of the dishonest and improper design of the directors to engage the second limb of Barnes and Addy (referring to the allegations at [A55(e)-(m)] and [A58(a)-(c)]). They say that the facts pleaded at [A55]-[A59] establish knowing assistance based on the second limb of Barnes v Addy as summarised by Drummond AJA in Westpac Banking Corporation v Bell Group (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 at [2104]. They say that conscious wrongdoing is not necessary to establish the "dishonest and fraudulent design" element in cases of "knowing assistance" and therefore is of no consequence if the directors did not think what they did was wrong. The plaintiffs say that it is not necessary to prove any dishonesty on the part of the Deed Administrators either; all that is required is that they knew of the directors' dishonesty (within the first four categories of knowledge described in Baden).
[19]
Deed Administrators' opposition to any further opportunity to re-plead the claim against them
The Deed Administrators, as noted above, point to the fact that the plaintiffs have now had a number of opportunities to plead a case against the Deed Administrators (and that, in McMillan (No 1), I referred to a "final opportunity" for the plaintiffs properly to plead their claim - see at [154]).
It is submitted that there are two further discretionary reasons not to permit any further iteration of a pleading against the Deed Administrators. First (as noted in McMillan (No 1) at [63]), that this would continue to cause prejudice to creditors by reason of the depletion of the amount available in the deed fund if continuing costs are incurred by the Deed Administrators in the proceedings. Second, that the plaintiffs' claim will not be struck out in its entirety and their claim will proceed to hearing against the other defendants, including Coolah Home Base, its directors and Coolah Tourist Park (hence, as I understand this submission, the plaintiffs will not be left without a remedy).
[20]
Plaintiffs' reply submissions
In their reply submissions, the plaintiffs emphasise the overriding statutory purpose of the just, quick and cheap disposal of the real issues in dispute (see s 56 of the Civil Procedure Act). It is said that the Deed Administrators erroneously conflate procedural pleading objections with issues appropriate for trial, and that they overlook that they substantially lost on the r 13.4 of the UCPR summary dismissal action brought by the Deed Administrators' notice of motion filed on 11 June 2020. It is submitted that the Deed Administrators' submissions raise questions of fact and law appropriate to be decided at final hearing on the whole of the evidence alongside the plaintiffs' case against the directors' interests (such that the amendment sought should be granted under s 64 of the Civil Procedure Act and be heard with the case against the directors as already determined by Emmett AJA in their case in this matter).
The plaintiffs emphasise that the Deed Administrators have been served with the primary evidence of the plaintiffs' case many weeks ago and the plaintiffs say that the Deed Administrators have had full notice of the evidentiary case against them. It is submitted that this is another reason for adopting the overriding purpose as a critical consideration in relation to the power to grant leave to amend and to order the Deed Administrators to put on their evidence.
The plaintiffs contend that the pleading defects identified in McMillan (No 1) have all been remedied in their proposed further amended statement of claim. In that regard, they say as follows.
As to the criticisms made at [117]-[122] of McMillan (No 1), the plaintiffs say that the proposed further amended statement of claim no longer pleads that the Deed Administrators owed members fiduciary duties, nor that the Deed Administrators were trustees; instead, it pleads that the Deed Administrators knowingly assisted Coolah Home Base and the directors in breaches of statutory duties, fiduciary duties and trust (referring to [A55]-[A59]). It is said that Emmett AJA has already found during the directors' arguments about the pleadings that this case must go to trial, and that the directors have not appealed that decision.
As to the observation made at [124] of McMillan (No 1) that allegations of awareness or knowledge must be properly pleaded, the plaintiffs say that the alleged knowledge is now particularised at [A55] and [A58] of the proposed further amended statement of claim.
[21]
Determination
As I indicated at the outset, to the extent that the dispute as to whether leave should be granted for the filing of the proposed further amended statement of claim raises (yet again) pleading points or pleading defects the same or similar to those that have previously been aired between these very same parties, it is to be deplored as a waste of the Court's time and as involving unnecessary expense to the parties. In that category, I place the complaints now made as to the allegation at [A16] and [A42] and the complaints as to the pleading of knowledge and breach of s 442C of the Corporations Act. Imperfect as the draftsmanship involved in the present iteration of the proposed pleading may or may not be, it seems to me to be sufficiently clear what is here intended.
In that context, I repeat (as I have elsewhere) the observations of Lander J in Arthur Young v Tieco International [1995] SASC 5173; (1995) 182 LSJS 367 at [20]-[21] (approved by McDougall J in Ingot v Macquarie [2004] NSWSC 1136 at [46]):
20. Whether the material facts and whether sufficient particulars have been pleaded must depend upon the cause of action, the complexities of the case and the whole of the circumstances of the case. None of those matters can be considered in isolation any more than each of the paragraphs of the pleading can be considered in isolation.
21. When the Court considers a pleading it will not consider the pleading with the same degree of scrutiny which the courts are required to give to an Act of Parliament. With the complexities of modern litigation, a pleader can usually point to some deficiency in the opponent's pleadings. One can usually, if one approaches the matter with a critical eye, identify some failing in a pleading. But that is not the approach that in this age ought to be adopted. A court would not sit down in the manner of a nineteenth century pleader seeking to find an error capable of sending a party away to re-plead his claim or defence. Such a technical approach is inconsistent with modern litigation and inconsistent with the court's function which is to try to arrive at a just result. A successful result, if arrived at, after too great an expense may not be considered by even the successful party to be a just result. A court ought to approach a consideration of the adequacy of a pleading seeking to answer the ultimate question; does the pleading give fair notice of the case to be made against the other party at trial, thereby minimising the risk of injustice resulting from surprise.
[Emphasis added]
[22]
Costs
The plaintiffs point out that the present notice of motion arose as a result of the application by the Deed Administrators in which they sought: that the proceedings against them be summarily dismissed under r 13.4 of the UCPR as not founded upon any reasonably arguable cause of action; or, alternatively, that the amended statement of claim be struck out as a matter of form as against them, with no leave to re-plead. It is noted that the Deed Administrators did not achieve either of these orders, although they were partly successful on their strike-out application. It is submitted that the plaintiffs were substantially successful and, therefore, that it is appropriate that the costs of that application should be the plaintiffs' costs in the cause.
As to costs, I consider that costs should be costs in the cause on both the earlier motion and the motion here being determined. Both sides have had a measure of success and neither should be encouraged in persisting in interlocutory pleading stoushes. I consider that the plaintiffs bear a share of the responsibility for costs, having regard to the inadequacy of the previous iterations of the pleadings; and the Deed Administrators a share of responsibility for the costs having regard to the stance they have adopted (albeit with partial success) in continuing to press for an outright summary dismissal of the claim brought against them, even in light of the elucidation that has been proffered as to the nature of the claims sought to be made against them (such as the continuing complaint about the allegation as to the plaintiffs' equitable interest in the land), though I accept that it would be likely in the interests of creditors of the company as a whole not to have to bear the costs of a contested final hearing (which would have been the result of a wholly successful summary dismissal application or of the present opposition to the grant of leave for the filing of the proposed further amended statement of claim).
[23]
Orders
For these reasons, I make the following orders:
1. Give leave to the plaintiffs to file the proposed further amended statement of claim against the fifth and sixth defendants (with the exception of the paragraphs [A43] - [A48] and references thereto elsewhere in the pleading, but including those paragraphs referred to at [104] of these reasons) subject to the further re-pleading of the allegation at [A52] to address the deficiencies identified in these reasons.
2. Direct that the revised further amended statement of claim be filed and served within 7 days.
3. Costs of both the strike out motion determined on 23 July 2020 and the plaintiffs' notice of motion of 3 September 2020 be costs in the cause.
4. List the matter for directions on 13 October 2020 at 8.30am.
[24]
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: 30 September 2020
64] HCA 69
Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10
Gray v Bridgestone Aust Ltd (1986) 4 ACLC 330
Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd (No 2) [2011] FCA 567; (2011) 282 ALR 229
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266
Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709
Hausmann v Smith [2006] NSWSC 682; (2006) 24 ACLC 688
Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Hoxton Park Residents Action Group Inc v Liverpool City Council [2012] NSWSC 1026
In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 261
In the Matter of Pan Pharmaceuticals Limited (Administrators Appointed) [2003] FCA 855
In the Matters Beechworth Land Estates Pty Ltd (Admin apt) and Griffith Estates Pty Ltd (Admin Apt) [2014] NSWSC 1723
Ingot v Macquarie [2004] NSWSC 1136
Itex Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207; [2002] NSWCA 104
Macks v Viscariello (2017) 130 SASR 1; [2017] SASCFC 172
McMillan v Coolah Home Base [2020] NSWSC 935
Mills v Sheahan (2007) 99 SASR 357; [2007] SASC 365
Minister Administering the Crown Lands (Consolidation) Act and Western Lands Act v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201
Naumoski v Parbery (2002) 171 FLR 332
Page v McKensey [2004] NSWCA 437
Raging Thunder Pty Ltd v Bank of Western Australia Ltd [2012] QSC 329
Re Associated Tool Industries Ltd (1963) 5 FLR 55
Re Featherston Resources Ltd [2014] NSWSC 1139; (2014) 288 FLR 265
Re Pan Pharmaceuticals Ltd [2003] FCA 855
Seaman v Silvia [2018] FCA 97
Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262
Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28
Sydlow Pty Ltd (in Liquidation) v T G Kotselas Pty Ltd (1996) 65 FCR 234; [1996] FCA 233
THC Holding Pty Ltd v CMA Recycling Pty Ltd [2014] NSWSC 1136
Trade Practices Commission v Australia Meat Holdings Pty Ltd [1988] FCA 338; (1988) 83 ALR 299
Vadori v AAV Plumbing [2010] NSWSC 274
Viscariello v Macks [2014] SASC 189; (2014) 103 ACSR 542
Westpac Banking Corporation v Bell Group (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16
Zempilas v JN Taylor Holdings Ltd (in liq) (No 6) (1991) 5 ACSR 28
Category: Procedural and other rulings
Parties: Geoffrey Ian McMillan (First Plaintiff)
David Arthur Darch (Second Plaintiff)
Helen Dawn Waugh (Third Plaintiff)
Margaret Joy Vale (Fourth Plaintiff)
Jill Cook (Fifth Plaintiff)
Lee Marilyn Tait (Sixth Plaintiff)
Coolah Home Base Pty Ltd (First Defendant)
Coolah Tourist Park Pty Ltd (Second Defendant)
Janet Marilyn Kelly (Third Defendant)
Graeme George Booker (Fourth Defendant)
Cameron Hamish Gray (Fifth Defendant)
Ronald Dean-Willcocks (Sixth Defendant)
Home Base Solutions Pty Ltd (Seventh Defendant)
Representation: Counsel:
P King (Plaintiffs)
D Krochmalik (Fifth and Sixth Defendants)
No appearances by First to Fourth, and Seventh Defendant
Judgment
HER HONOUR: Before me for hearing on 14 September 2020 was yet another interlocutory application relating to pleading aspects of this matter.
In July this year, I heard an application, by notice of motion filed on 11 June 2020 by the fifth and sixth defendants to these proceedings (the Deed Administrators), seeking orders pursuant to r 13.4(1)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for the summary dismissal of the proceedings as against them or, in the alternative, pursuant to r 14.28(1)(a) of the UCPR for the amended statement of claim to be struck out as against them (with no leave to re-plead any claim against them) on the basis that the pleading disclosed no tenable cause of action against them. For the reasons I then published (see McMillan v Coolah Home Base [2020] NSWSC 935 (McMillan (No 1)), I concluded that the pleading as against the Deed Administrators should be struck out but that the plaintiffs should have an opportunity to rectify the deficiencies in their pleading against the Deed Administrators (albeit that I would not give leave to re-plead the claims that I considered to be untenable against the Deed Administrators in that capacity or in their capacity as the former voluntary administrators of the first defendant).
In accordance with the directions that I then made, the plaintiffs then served on the Deed Administrators a proposed further amended statement of claim dated 1 September 2020 and filed a notice of motion on 3 September 2020 seeking leave to file that pleading. Following further correspondence between the relevant parties' legal representatives, the plaintiffs proffered yet a further iteration of the proposed further amended statement of claim (see their submissions filed on 11 September 2020) which they now seek leave to file. The Deed Administrators oppose the grant of that leave, for reasons that I will set out shortly.
Suffice it at the outset to say that the proliferation of pleading disputes in this matter is to be deplored. There were pleading issues raised before Emmett AJA by the director defendants (the first to fourth and seventh defendants) before the matter came into the applications list before me. The Deed Administrators were not party to that application. As adverted to above (at [2]), the Deed Administrators brought their own (unsuccessful) application for the summary dismissal of the claims made against them before me.
I readily accept that it is necessary for there to be a proper pleading (and that the disputes between the parties must be determined on the issues as framed on the pleadings); that a defendant should not have to trawl through affidavits to discern the case against it; and that there is a relevant distinction between a pleading and particulars. I have applied those principles more than once. I also accept that there was a legitimate basis for the Deed Administrators once already to have sought the summary dismissal of the proceedings.
There are then allegations of knowing assistance by the Deed Administrators in breaches by the directors of the directors' fiduciary, equitable and statutory duties (at [A55]), and that the Deed Administrators had knowingly assisted in the sale of trust property (at [A57]-[A59]) (invoking the second limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244 at 251-252; 22 WR 505 (Barnes v Addy)), and finally there are allegations that the Deed Administrators were liable for knowing assistance in unlawful conduct (at [A60]), and for accessorial liability (at [A60A]-[A60B]).
Finally, compensation for loss is sought at [A61]-[A64].
As to the Deed Administrators, in their then capacity as voluntary administrators, it is said that they had primary liability as officers of Coolah Home Base for breaches of duties under ss 180-182 of the Corporations Act and for oppression under s 232 of the Corporations Act. It is contended that, as officers of the company (the plaintiffs here pointing to s 9 of the Corporations Act), the Deed Administrators owed statutory duties. It is further said that, depending on a close examination of the facts at trial on the whole of the evidence, the Deed Administrators also may have owed duties in equity and common law (similar to, but not the same as, the directors' duties).
Anticipating here one of the complaints made by the Deed Administrators as to the proposed pleading, the plaintiffs say that they can obtain relief without the need for derivative action because, as claimed in the proposed further amended statement of claim (in the prayers for relief at 12-14; and as alleged at [A62]-[A64]), they have suffered loss as a consequence of the contraventions of ss 180, 181, and 232 of the Corporations Act (and referring to items 2, 4(d), 90-20, and 90-15 of sch 2 of the Corporations Act (the Insolvency Practice Schedule (Corporations)), these being identified as the provisions which replaced and expanded the more limited (former) s 447E of the Corporations Act, which gave rights to creditors against external administrators).
It is submitted that the plaintiffs are entitled to claim compensation under s 1324(10) of the Corporations Act from the Deed Administrators for the alleged contraventions. Further, it is said that the Deed Administrators are liable in equity and tort for negligence for failing to conduct the administration with due care and diligence, resulting in injury and damage to the residents (to whom it is said they owed a duty of care due to the close relationship and their knowledge of the plaintiffs' vulnerability).
The complaint is further made that the Deed Administrators sold property which the company did not own (the plaintiffs' alleged equitable right to the allotments) in breach of s 442C of the Corporations Act; and that the Deed Administrators knowingly assisted the directors' breaches of statutory, trustee and fiduciary duties. The plaintiffs say that the Deed Administrators are jointly and severally liable with the directors to pay equitable compensation to the members, and finally that the Deed Administrators were persons "involved in" the directors' breaches of the Corporations Act, Australian Consumer Law, and ASIC Act as alleged.
The Deed Administrators say that the allegations in [A45]-[A48] stem from alleged breach of the duties owed by them as administrators under ss 180 and 181 of the Corporations Act, but that the plaintiffs have no standing to bring such a claim because these duties are owed only to the company (that is, Coolah Home Base).
It is noted that no application has been brought by the plaintiffs for leave to bring a derivative suit in the name of Coolah Home Base (whether under the statutory provisions in Pt 2F.1A of the Corporations Act or the court's inherent jurisdiction in the case of a company that is in liquidation (citing Chahwan v Euphoric Pty Ltd (2008) 227 FLR 43; [2008] NSWCA 52 (Chahwan v Euphoric)) or administration (citing Re Featherston Resources Ltd; [2014] NSWSC 1139; (2014) 288 FLR 265 at [31], per Brereton J, as his Honour then was; In the matters Beechworth Land Estates Pty Ltd (Admin apt) and Griffith Estates Pty Ltd (Admin Apt) [2014] NSWSC 1723 at [24], per Robb J). The Deed Administrators point to the fact that the absence of an application to bring a derivative suit was noted in McMillan (No 1) (see at [114]) and say that this has not been addressed by the plaintiffs in the current proposed pleading.
Further, the Deed Administrators say that such an application for leave would face substantial obstacles in that it would be necessary for the plaintiffs to demonstrate an arguable case and that the claim was in the best interests of the company (and to indemnify the company both for its own costs and against an adverse costs order as well as to provide security for that indemnity).
Thus, it is submitted that the causes of action against the Deed Administrators for breach of duty are untenable, and no leave should be granted to the plaintiffs to plead these claims. In any event, it is said that the proposed pleading of these claims (even if they were arguable) is embarrassing as the pleading does not allege any causal connection between the alleged breach of duty and any possible loss asserted by the plaintiffs. It is said that the pleading does not identify what would have occurred in the absence of: the alleged failure to obtain a valuation on an existing tenancy basis (rather than a vacant possession basis); and, a sale by private treaty (rather than by public auction) at an alleged under-value.
In that regard, insofar as the allegation of breach of duty concerns the DOCA, the Deed Administrators say that it is significant that it is the creditors (and not the administrators, although the administrators are obliged to express an opinion on a proposed deed of company arrangement) who decide whether the company should enter into a deed of company arrangement (referring to s 439C of the Corporations Act; Patrick Stevedores Operations No 2 Proprietary Limited v Maritime Union of Australia (1998) 195 CLR 1; [1998] HCA 30 at [48]-[49]). It is submitted that this is fatal to any contention that could be made (if properly pleaded) that any loss was caused by the Deed Administrators' conduct. As to the submission by the Deed Administrators that the fact that the creditors (not the Deed Administrators) decided to enter into the DOCA makes it impossible that any loss was caused by the Deed Administrators' conduct, the plaintiffs say that the Deed Administrators encouraged and facilitated this "clearly unlawful act". The plaintiffs say that "but for" the Deed Administrators' facilitation, the diversion of the company's assets and undertaking would not have happened (although they maintain that it is not necessary to prove causality to the "but for" degree in the case of accessorial liability as pleaded at [A48(a)], citing Trade Practices Commission v Australia Meat Holdings Pty Ltd [1988] FCA 338; (1988) 83 ALR 299 at 357, per Wilcox J).
The plaintiffs say that a finding of breach of ss 180 and 181 of the Corporations Act by the Deed Administrators can also be remedied by orders for compensation under item 90-15 of the Insolvency Practice Schedule (Corporations), pointing to their prayer for relief [12]; s 1324 of the Corporations Act, pointing to their prayer for relief [13]; or equitable compensation pointing to their prayer for relief [14].
The plaintiffs say that, as officers of Coolah Home Base, the Deed Administrators recommended the DOCA and made Coolah Home Base a party to it. The plaintiffs say that the Deed Administrators should have refused to be a party to this, and should have reported the directors' breaches of their duties to Australian Securities and Investments Commission; and that their conduct has caused, or at least contributed to, the plaintiffs' loss.
Similarly, insofar as the Deed Administrators complain that the proposed further amended statement of claim (at [A45]-[A48]) does not allege any causal connection between the alleged contravention and any possible loss asserted by the plaintiffs, the plaintiffs say that this is not correct. They say that this part of the proposed further amended statement of claim concerns breaches of duty by the sale of the land at a fraction of its actual value, and the gifting of the business to the directors' new entity, which had the effect of stripping the company of all assets and its undertaking without adequate compensation to the company (and it is said that this occurred for the benefit of the directors, and not the company or the members). It is said that the Deed Administrators' breaches caused the losses and injury particularised at [A47] and [A62].
The Deed Administrators say that the same applies to an administration (referring to Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group [2008] FCA 594; (2008) 246 ALR 361 at [60], per Finkelstein J, as to the role of the administrator being little more than to take over the running of the company for a relatively short period in order to enable the creditors to decide the company's fate).
Similarly, insofar as Le Miere J noted (in Mighty River at [68]) that the procedure for obtaining member approval in Div 3 of Pt 2E of the Corporations Act assumes that the company is under the control of its members and directors, the Deed Administrators say that the same assumption applies to the conduct that is said to give rise to an oppression claim under Pt 2F.1 of the Corporations Act.
Accordingly, it is submitted that the conduct of the affairs of a company in the period when administrators are in office is not conduct that grounds the availability of the remedial orders under s 233 of the Corporations Act, and that this aspect of the claim is unmaintainable.
In any event, it is said that, given that the administration of Coolah Home Base has come to an end, even if relief were available under s 233 of the Corporations Act, the kinds of orders available under that provision may be made without the Deed Administrators remaining parties to the claim. It is noted that if the affairs of the company were conducted oppressively by the directors either before the commencement of the administration, or after control of the company has reverted to the directors, then an oppression suit may be brought against the company, its directors and majority shareholders (citing Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd (No 2) [2011] FCA 567; (2011) 282 ALR 229 at [54]); but that this does not mean that any claim is maintainable against the Deed Administrators personally.
The plaintiffs say that the causal connection between the Deed Administrators' wrongful conduct and the damage is self-evident, and in any event is conventionally pleaded at [A54].
The Deed Administrators note that a pleading of fraud or dishonesty is a very serious allegation and not something that should be done lightly and without detailed and precise pleadings. It is noted that the pleading must allege the acts involved and that they were done in a manner that involves fraud (citing Banque Commerciale SA (en liquidation) v Akhil Holdings Limited (1990) 169 CLR 279 at 285; [1990] HCA 11, per Mason CJ and Gaudron J; Minister Administering the Crown Lands (Consolidation) Act and Western Lands Act v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201 at 203-204, per Kirby P, as his Honour then was, Meagher and Handley JJA; Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262 at [55], per Beazley P, as Her Excellency then was, Meagher JA and McDougall J agreeing).
The Deed Administrators say that the proposed further amended statement of claim contains an insufficient pleading of a breach of duty of the requisite character (that is, one that is dishonest and fraudulent) to impose any liability on their part.
Fourth, that there is an insufficient pleading of knowledge on the part of the Deed Administrators. In this regard, it is said that there is no pleading of knowledge (within the first four Baden categories - see Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France SA [1992] 4 All ER 161 (Baden) at 235; [1993] 1 WLR 509, per Peter Gibson J) on the part of the Deed Administrators with respect to any alleged trust.
It is said that, as to knowledge of any alleged equitable interest in the Coolah Land, the allegation is limited to [A58], as to which: nothing specific is pleaded about what is said to have been raised in the telephone conference on 11 September 2019 sufficient to put the Deed Administrators on notice of any alleged interest in the Coolah Land; the terms of Coolah Home Base's Constitution and the allotment contracts provide no basis to infer knowledge (within the first four Baden categories); and the letter of 27 December 2019 (which, for the first time, did allege that the members held an equitable interest in the Coolah Land) was sent after the land was sold (referring to McMillan (No 1) at [126]).
Fifth, that there is an insufficient allegation of assistance on the part of the Deed Administrators. It is said that the only manner in which assistance is alleged is the Deed Administrators' recommendation (in their capacity as voluntary administrators) of the DOCA (see at [A57]). Again, it is noted that voluntary administrators are bound by statute to make a recommendation to creditors (see r 75-225(3)(b) of the Insolvency Practice Rules (Corporations) 2016 (Cth)). Further, it is said that, in the absence of the DOCA, the company would have been wound up and that would have achieved likely the same, or an even more, deleterious outcome for Coolah Home Base's members.
Sixth, complaint is made again that the pleading does not identify a causal connection between the alleged participation by the Deed Administrators in the breach of duty and any alleged loss on the part of the members of Coolah Home Base. It is said that this is all the more so in circumstances where the only allegation of assistance is the recommendation of the DOCA in circumstances where the resolution authorising Coolah Home Base to enter into a DOCA was passed by the creditors (and not by the Deed Administrators). It is noted that, once that resolution passed, the Deed Administrators were bound to prepare and execute the DOCA (citing ss 444A(3) and 444B(2), (5) of the Corporations Act).
It is noted that, in McMillan (No 1) (at [146]), I expressed the view that, if there was a Barnes v Addy claim, then there needed to be a proper pleading of the elements of that cause of action. It is said that, despite that, this cause of action has not been pleaded adequately, if at all, in the proposed further amended statement of claim.
The plaintiffs say that knowing assistance renders the Deed Administrators jointly and severally liable with the directors to pay equitable compensation to the plaintiffs.
As to the allegations of breach by the directors of their statutory and fiduciary duties, the plaintiffs invoke, by way of example, In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 261, where a director had diverted business and assets from one company of which he was a director to another company of which he was also a director (see at [15]), and say that, in the present case, the Deed Administrators procured and became party to the DOCA without having regard to the conflicting duties of the directors who were also parties and who unlawfully benefitted therefrom.
Reference is also made to THC Holding where Stevenson J, in dealing with a claim that voluntary administrators had knowingly assisted in a breach of fiduciary duty by selling scrap metal in circumstances where they knew that there was a dispute about the title to the goods, considered that the finding that the administrators "procured the breach of fiduciary duty" was "sufficient to attract accessorial liability and to impose on the administrators an obligation in equity to account for their conduct" (see at [198]).
In the present case, the plaintiffs say that, as well as procuring the sale of the land in circumstances where there was a dispute about its title, the Deed Administrators procured breaches of the directors' fiduciary duties to Coolah Home Base and its members by the diversion of assets and business to the "conflicted" directors' other business.
Accordingly, it is submitted that, if the plaintiffs' claim under the second limb of Barnes v Addy fails at trial, they would still have remedies against the Deed Administrators for their assistance in breaches of duty by the directors in equity and under s 79 of the Corporations Act and s 236(1)(b) of the Australian Consumer Law.
The plaintiffs concede that the proposed further amended statement of claim does not clearly claim such alternative relief (although they say prayers [12]-[14] could be invoked for this purpose). For clarity, the plaintiffs now seek leave to add the following further paragraphs to their pleading:
A60A Under CA s 79 the administrators were "involved in a contravention" of the CA ss 180, 181, 182, 232 (conduct described in pars A21-A41)
A60B Under ACL 236(1)(b) and ASIC Act section 12GBA the administrators were "involved in" the Directors' unconscionable conduct in contravention of s 21 ACL and ASIC Act Part 2.2 section 12CB (conduct described in pars A11-A41)
As to the criticism made at [126]-[127] of McMillan (No 1) in relation to the alleged breach of s 442C(1)(b) of the Corporations Act that the concept of "involvement" with the sale of the property is no more than a broad generalisation without specifying the conduct of which complaint is made, the plaintiffs say that the conduct is now identified in [A51] as being that the Deed Administrators "sold property which the company did not own" in breach of s 442C(1)(b) of the Corporations Act. The allegation is that the allotments were sold to members and held on trust by Coolah Home Base and that the Deed Administrators then sold the Coolah Land, including those allotments.
As to the criticism made at [128]-[129] of McMillan (No 1) of the alleged breach of s 420A of the Corporations Act by failure to ensure the Coolah Land was not sold for less than market value, the plaintiffs point to the removal of the reference to s 420A of the Corporations Act and to the proposed pleading in its place (at [A43]-[A46]) that selling the land and business without obtaining a market price was in breach of the Deed Administrators' duty as officers of Coolah Home Base under ss 180-181 of the Corporations Act to exercise their duties with care and diligence. Similarly, as to the criticism at [148] of McMillan (No 1), it is noted that the claim for breach of s 420A of the Corporations Act based on a failure to observe the provisions of the constitution of the company is no longer pressed.
As to the criticism made at [130]-[139] of McMillan (No 1), the plaintiffs note that the complaints about the Deed Administrators' conduct of the administration are no longer pressed, except for the sale of the land and business at an under-value (see at [A43]-[A46]).
As to the observations at [141]-[142], [146]-[147] of McMillan (No 1) in relation to the claim of knowing assistance and accessorial liability of the Deed Administrators for the conduct of others of the defendants, the plaintiffs say that the proposed further amended statement of claim now properly pleads that the Deed Administrators knowingly assisted with the directors' breaches of fiduciary duty to the company and members (namely, diverting the company's assets and business to their "alter ego" - see at [A55]), and breach of trust (namely, selling land held on trust for the members by Coolah Home Base - see at [A57]-[58]).
As to the criticism at [144] of McMillan (No 1) as to the insufficiency of the pleading of the material facts said to give rise to the trust or the subject of the trust, the plaintiffs say that the facts are now pleaded at [A11]-[A16]; that while it is yet to be seen what equitable remedy will be imposed, the plaintiffs propose that a trust should be imposed, taking into account Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 and what was said by Nettle JA, as his Honour then was, in Donis v Donis (2007) 19 VR 577; [2007] VSCA 89 at [34].
As to the criticism at [144] of McMillan (No 1) as to how it is said that the Deed Administrators owed duties to the individual members, as opposed to the company itself (a criticism repeated here by the Deed Administrators), the plaintiffs maintain that the Deed Administrators owed duties to the individual members because they were officers of the company (see at [A48]), and at common law (see at [A52]). It is said that whether these duties rise to the level of fiduciary duties will depend upon a close examination of the circumstances in any particular case (citing Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 71-72; [1984] HCA 64, per Gibbs CJ; Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199; and Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654).
Finally, as to the criticism at [153] of McMillan (No 1) in relation to the claim for compensation for knowing involvement in the directors' unconscionable and fraudulent conduct, it is said that this is now clearly pleaded at [A55].
The plaintiffs say that the Deed Administrators' critique of the proposed further amended statement of claim suffers from the following fundamental problems.
First, that the Deed Administrators' submissions address issues of fact which are appropriate for trial determination (pointing to their assertion that the plaintiffs merely had a right of occupation; whereas it is said that it is a contestable fact for trial whether the plaintiffs were owners in equity of their allotments and cabins in the retirement village).
Second, insofar as the Deed Administrators assert that the claims against them are untenable, the plaintiffs say that the test as to whether a party should be prevented from having a cause of action determined on its merits (referring to Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28 at [24]-[25], per French CJ and Gummow J; O'Brien v Bank of Western Australia [2013] NSWCA 71 at [3], per Macfarlan JA) is not here met. It appears to be recognised by the plaintiffs that the causes of action sought to be pursued may involve setting new precedents (such as those pleaded under item 90-15 of the Insolvency Practice Schedule (Corporations), or under ss 232, 233 and 1324(1) of the Corporations Act against the Deed Administrators in the proposed further amended statement of claim), but it is said that they are not fanciful claims. Further, it is said that the Deed Administrators' very criticisms make clear that they clearly understand the claim put against them (and cannot contend that they do not have fair notice of the plaintiffs' case). It is submitted that there is no reason of form or as a matter of procedural fairness to deny the plaintiffs a trial on the proposed further amended statement of claim. Finally, insofar as the complaint by the Deed Administrators as to the plaintiffs' case being untenable relates to matters previously considered (such as the interest in land issue), the plaintiffs say that the only point remaining to the Deed Administrators is one of form and that (except on one aspect in relation to s 442A of the Corporations Act - see below) they do not raise that complaint.
As to that one complaint about the form of the pleading (in relation to the alleged breach of s 442A of the Corporations Act), the plaintiffs say that the short answer is that the pleading accords with the requirements of rr 14.7 and 14.8 of the UCPR by pleading the material facts in summary form, and that if the Deed Administrators want further and better particulars they can request them and they will be supplied (I interpose to observe that this is a promise to which I would expect them, having made it in the course of submissions, faithfully to adhere if called upon to do so).
In this regard, the plaintiffs maintain that their case is "as plain as a pikestaff", namely that the Deed Administrators sold the plaintiffs' equitable interest in the land of Coolah Home Base on which the plaintiffs resided, and of which Coolah Home Base was the registered proprietor, to Coolah Tourist Park whilst they were acting as external administrators without the authority or consent of the plaintiffs. It is contended that no clearer breach of s 442A of the Corporations Act can be imagined; that it is exactly what the section is concerned with; and that the plaintiffs have been adversely affected by reason of the contravention and hence are entitled to claim compensation under items 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations), and/or s 1324(10) of the Corporations Act, or both.
Third, as a general response to the legal issues raised by the various contentions of the Deed Administrators, the plaintiffs submit that these are questions which should now go for trial upon the whole of the evidence.
With that said, where there is substance in the complaints that have here been made is as to the allegations that the Deed Administrators (in their capacity as voluntary administrators) owed duties to the members of the company as such, and as to the allegations of oppressive conduct and the like.
It is well recognised that an administrator owes a fiduciary duty to the company (see Macks at [188]), but this fiduciary duty (except in perhaps a most unusual case) does not apply to specific creditors (and is unlikely to apply to creditors generally), and by extension is not owed to members (Macks at [188]-[193]). Similarly, other duties that an administrator owes to the company such as a duty of care, diligence, and good faith (as an officer of the company) are generally recognised as not being owed to shareholders or creditors (Hausmann at [12] per Barrett J, as his Honour then was, quoted with approval by the Court in Macks at [207]). More specifically, and of specific relevance to the proposed pleading, the statutory duties under ss 180 and 181 are owed to the company, not individual members.
In my opinion, on the law as stated in those authorities and elsewhere, it is not tenable to contend (as pleaded at [A43]-[A44]) that the Deed Administrators (as voluntary administrators of Coolah Home Base) owed statutory duties to the members of the company. It follows that the allegations of breach of those statutory duties are not able to be maintained. The corresponding allegations of breach of those duties owed to the company cannot be maintained by members of the company (other than with leave, as a derivative suit, and no such leave is here sought). That conclusion does not, however, apply to causes of action brought by members of the company for knowing assistance in a breach of directors' duty, since those are not causes of action of the company itself.
For that reason, I would not give leave for [A43]-[A48] to be pleaded. However, it does not follow that the complaints as to accessorial liability for, or knowing involvement in, a breach of duty by the directors cannot be maintained against the Deed Administrators.
As to the claim for oppressive conduct at [A49] (and similarly the claim for unconscionable conduct (at [A50])), I consider that the authorities tend against there being such a claim. While the appointment of an administrator may constitute oppression against members when done for invalid or illegitimate purposes (see Dr Leo Shanahan v Jatese Pty Ltd [2018] NSWSC 1088), the authorities do not support the proposition that a claim for oppression against members by the administrator is available, especially insofar as it turns on conduct by the administrator in the course of the administration of the company.
While ss 232 and 233 of the Corporations Act have been broadly drafted, it seems that their operation should be read down given that the orders available are directed towards the company still being "a going concern" (see s 233 of the Corporations Act). Similarly, derivative suits brought under Pt 2F.1A of the Corporations Act have been regarded as being intended to be available where the company is still "a going concern", as opposed to being wound up (see Chahwan v Euphoric at [124]-[125], albeit concerning a company in liquidation rather than administration, and Campbell v Backoffice Investments, involving a provisional liquidator). Further, in Campbell v Backoffice Investments, the High Court noted that, although the Corporations Act specifically allows for an action to be brought against oppressive conduct that has ceased to occur, it is nonetheless relevant whether or not the conduct is ongoing as it bears on what, if any, order can be made under Pt 2F.1 of the Corporations Act, especially where by that time the company is "an empty shell" without any business or assets (see at [179], [182]).
I do not see a relevant distinction on this issue as between a claim where the company is one that is in liquidation and a claim where the company is in administration. Hence the authorities referred to above are in my opinion instructive in considering the present applications. I note also that, while there appears to be no definitive authority on the point, the courts have tended to treat "the standards of conduct expected" and the duties of a liquidator as being generally applicable also to administrators (see, for example, Hausmann [12]-[14], per Barrett J, as his Honour then was; Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456 (Honest Remark) at [63], per Brereton J, as his Honour then was; Re Pan Pharmaceuticals Limited (Administrators Appointed) [2003] FCA 855 (Re Pan Pharmaceuticals Ltd) at [52], per Allsop J, as his Honour then was).
This interpretation of the ambit of oppression proceedings is supported by reading the provisions in ss 232 and 233 of the Corporations Act in the context of the provisions of the Act relating to external administration, namely the restrictions on the commencement or continuation of proceedings once a company is under administration (especially that it is the administrator who ordinarily is vested with the power to decide whether the company should take or continue action unless the court gives leave otherwise - see s 440D of the Corporations Act; and Zempilas v JN Taylor Holdings Ltd (in liq) (No 6) (1991) 5 ACSR 28), and the limitations placed on the rights of members once a company is in administration (see s 437F of the Corporations Act). Further, generally speaking, a court will only rarely interfere with the exercise of an administrator's or liquidator's statutory powers, especially where the administrator's or liquidator's decision is one of commercial judgement (see Hausmann at [14], per Barrett J as his Honour then was; Naumoski v Parbery (2002) 171 FLR 332 at [13]; and Re Pan Pharmaceuticals Ltd at [51], per Allsop J as his Honour then was).
Instead of an oppression suit, the principal remedies against potential misconduct of an administrator derive from the Insolvency Practice Schedule (Corporations), which allows a person with a "financial interest" in the external administration of a company to apply for the review of the external administration of a company (see Div 90 of the Insolvency Practice Schedule (Corporations) - this regime essentially replacing the former regime under s 447E of the Corporations Act, now repealed). The regime provided by Div 90 of the Insolvency Practice Schedule (Corporations) differs from the former regime in several key respects. Austin and Black note that the current regime is more broadly defined, stating (at [IPSC.90]):
… the statutory jurisdiction under former s 447E was more narrowly confined that the new provisions, since that section applied where there is an act or omission or proposed act or omission by the administrator of a company under administration or of a deed of company arrangement that is, or would be prejudicial to the interests of some or all of the companies, creditors or members: GIS Electrical Pty Ltd v Melsom [2001] WASC 314; BC200107258; Re Pan Pharmaceuticals Ltd (admins apptd) (2003) 47 ACSR 139; [2003] FCA 855; BC200304622 at [48]ff; Honest Remark Pty Ltd v Allstate Exploration NL (2006) 234 ALR 765; 201 FLR 456; [2006] NSWSC 735; BC200605562.
No such prejudicial conduct is required for a person with standing to apply to the court for review of the conduct of an external administration under the Insolvency Practice Schedule (Corporations). The breadth of this regime is apparent also from item 5-20 of the Insolvency Practice Schedule (Corporations) which defines an "external administrator of a company" as being an administrator of the company, an administrator under a deed of company arrangement, a liquidator or a provisional liquidator of the company. The Explanatory Memorandum to the Insolvency Law Reform Bill 2015 (Cth) (which introduced the Insolvency Practice Schedule (Corporations) and repealed s 477E of the Corporations Act) highlights that the key objectives of the Insolvency Practice Schedule (Corporations) are (at 116):
• to regulate the external administration of companies consistently, unless there is a clear reason to treat a matter that arises in relation to a particular kind of external administration differently; and
• to regulate the external administration of companies to give greater control to creditors.
Notably also, the standing requirements differ from the former regime: Div 90 specifies a person with a "financial interest" in the external administration of a company may apply for review. A person with a "financial interest" is defined as being: the company, a creditor of the company, an external administrator of the company, or, in a members' voluntary winding up, then a member of the company (see item 5-30 of the Insolvency Practice Schedule (Corporations)). This provision excludes members from taking such a suit in most cases, which adds weight to the interpretation considered above concerning whether there is a tenable cause of action for members to take an oppression suit against an administrator under ss 232 and 233 of the Corporations Act. The comments of Brereton J, as his Honour then was, in Honest Remark are equally applicable here, albeit that in that context his Honour was considering an application for the appointment of a special purposes administrator to review the administration conducted by the administrators. In that case, his Honour said (at [100]):
100. … If there is a case for an inquiry, or a review of the Administrators' decision, it should be undertaken pursuant to one of the provisions of the Corporations Act which were intended to provide for review of administrators' decisions and conduct, and not by a mechanism which was never intended to serve that function. Courts have emphasised the importance of claiming the appropriate remedy and invoking the appropriate proceeding in cases that involve supervision of liquidators and administrators (Belvista Pty Ltd v Murphy at 630 (McLelland J); Re Charnley Davies Ltd (No 2) at 784 (Millet J)).
[Emphasis added]
To my mind, similar considerations apply to any action for unconscionable conduct against the Deed Administrators. I note also the consideration given to an action for misleading or deceptive conduct under the Australian Consumer Law against an administrator in Macks where the Full Federal Court considered that the conduct of an administrator's statutory functions, powers and duties could not be said to fall within the definition of "trade and commerce" (see [233]-[235] of Macks). At [234], the Full Court endorsed the primary judge's conclusion that:
234. Of course the voluntary administrator may in the course of exercising his or her statutory duties dispose of the assets of the company in the course of trade or commerce. The prosecution, and compromise, of a chose in action of the company under administration may also involve conduct in trade or commerce. However, the conduct of an administrator in exercising his or her statutory functions, powers and duties relating to the creditors, contributories and directors of the company under Part 5.3A does not constitute conduct in trade or commerce.
While I accept that the present action is not one for misleading or deceptive conduct under s 18 of the Australian Consumer Law, similar issues may very well arise in connection with the claim of unconscionable conduct under s 21 of the Australian Consumer Law and s 12CB of the ASIC Act, which provisions also specify that the relevant conduct must be "in trade or commerce".
However, I also accept that the precise legal questions at issue here have not been definitively considered and, in circumstances where the argument will it seems be largely if not wholly a legal argument as to whether the claim is tenable at all (since the disputes as to factual matters that underlie the proposed oppression and unconscionable conduct claims will arise on other of the claims in the proceedings in any event), the relevant question appears to me to be as to whether leave should be granted for the filing of the pleading in effect to permit such claims to be argued at a final hearing.
In the oft-cited Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon Risk Services), the High Court said (at [14]):
14. There is a distinction between the discretion of a court to allow a party to amend its pleading on that party's motion and the requirement to make all such amendments as may be necessary to determine the real questions in controversy. That requirement engages with the authority conferred on the court to make amendments of its own motion. The point was made in 1887 by the Full Court of the Supreme Court of Victoria in Dwyer v O'Mullen in relation to O XXVIII r 1 of the 1875 Rules. Higinbotham CJ said of the last clause of the rule that it:
"makes an amendment mandatory. The judge is under the obligation of making an amendment, but only for a certain purpose and in certain cases - for the purpose of determining the real question in controversy between the parties - that being expressed in many cases to be the question which the parties had agitated between themselves, and had come to trial upon".
At [95], their Honours went on to say:
95. An important aspect of the approach taken by the plurality in JL Holdings was that it proceeded upon an assumption that a party should be permitted to amend to raise an arguable issue subject to the payment of costs occasioned by the amendment. So stated it suggests that a party has something approaching a right to an amendment. That is not the case. The "right" spoken of in Cropper v Smith needs to be understood in the context of that case and the Rule, which required amendment to permit the determination of a matter already in issue. It is more accurate to say that parties have the right to invoke the jurisdiction and the powers of the court in order to seek a resolution of their dispute. Subject to any rights to amend without leave given to the parties by the rules of court, the question of further amendment of a party's claim is dependent upon the exercise of the court's discretionary power.
The exercise of the discretion to grant or refuse leave must be in accordance with s 64(2) of the Civil Procedure Act and must adhere to the "dictates of justice" (ss 56, 57 and 58 of the Civil Procedure Act). Those matters will generally require consideration of the nature and degree of any prejudice that may be suffered by the grant or refusal of the application (see Itex Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207; [2002] NSWCA 104).
Where a claim is patently doomed to failure, it would not be appropriate (particularly having regard to the case management objectives mandated under ss 56-59 of the Civil Procedure Act) to grant leave to amend to include such claims. Where, however, a claim is faintly (although perhaps no more than faintly) arguable, the question arises as to whether amendment to the pleading should be permitted in order to raise that claim, having regard (among other relevant matters) to the concerns raised in Aon Risk Services. In the present case, a significant factor is the prospect of the further cost or expense that will be occasioned to the Deed Administrators as a result of the expansion of the claims sought to be pursued against the Deed Administrators. Where, however, the administration has effectively come to an end (control of the company having reverted to its directors - see McMillan v Coolah Home Base (No 2) [2020] NSWSC 1243 at [12]ff) and the factual substratum to those claims will be pursued in any event (and particularly where the proceedings as against the Deed Administrators would not be struck out in whole), there is an argument that the additional cost of defending the proposed oppression or unconscionable conduct claims should not weigh heavily in the balance.
Balancing the factors referred to above, I consider that the claim for oppressive conduct (and similarly for unconscionable conduct) should be permitted to be raised against the Deed Administrators (even though I see much force in the Deed Administrators' argument that those claims are not available to members of the company as a matter of law). I do so because of the caution expressed in cases such as General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 (and the authorities to which the plaintiffs here refer) as to the merits of a claim being permitted to be heard, rather than dismissing the claim summarily. I therefore will permit, with no little hesitation, the allegations at [A49] and [A50] to be pleaded against the Deed Administrators.
As to the complaint in relation to [A51], I consider it is sufficiently pleaded for the Deed Administrators to understand the case here sought to be brought against them.
As to the claim based on alleged breach of a duty of care owed to members of the company, I am not prepared to rule out the possibility of a cause of action of that kind being able to be maintained (albeit with amendment to remove references to those parts of the pleading that I will not permit to be filed). However, I accept the force of the complaint as to the pleading of this claim.
I consider that the proposed claim at [A52] should be amended to make clear the content of the duty alleged and the risk of harm relied on in relation to the alleged duty of care (in accordance with the authorities referred to above, particularly Garzo). Further, the pleading should identify what each individual plaintiff would have done but for the alleged wrongful conduct and how it is contended that that would have led to some different result so as to establish the causal connection between the alleged breach of duty and any loss. In this connection, leave to re-plead will be conditional on proper amendment to the proposed pleading in that regard.
As to the allegations of knowing involvement in breach of the duties owed by the directors and accessorial liability therefor, again I am not prepared to rule out the possibility of a cause of action of that kind being able to be maintained (albeit with amendment to remove references to those parts of the pleading that I do not here permit to be filed). It follows that the claim for compensation may be maintained.
Nevertheless, the statutory mandate for the just, quick and cheap resolution of the real issues in dispute (see s 56 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act)) is not served by a string of successive pleading disputes. There comes a point where, imperfect or otherwise as the pleading may be, it is in the interests of the proper administration of justice that the matter simply proceed and be dealt with on its merits (assuming the defendant is fairly put on notice of the case against it). I note in that regard (although I accept that the objections here made largely do not fall within this description, insofar as they raise questions of law as to the tenability of the relevant causes of action) the observations of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Authority (2006) 33 WAR 82; [2006] WASC 281 at [9] that:
9. … It is my view, that many of the objections which have been taken are pedantic and pettifogging in nature. In many cases, elucidating and resolving the objection would consume an amount of time and resources, which is entirely disproportionate to the benefit to be derived from that process in terms of the identification of the true issues which have to be met in that case.
It is also relevant to note that what is before me now is not a summary dismissal or strike out application - it is an application for leave to file a further amended statement of claim; though, in that context, it is a pertinent question to consider whether the proposed amendment gives rise to a tenable cause of action since leave will not ordinarily be given to plead a claim that would be liable be struck out. Indeed, Mason P in Page v McKensey [2004] NSWCA 437 emphasised that the court will not permit an amendment that is doomed to fail (at [92]).
Having made those observations, I turn now to the application for leave at hand.