MATTER : Great Southern Managers Australia Ltd (in liq) (Receiver and Manager Appointed)

BETWEEN : MICHAEL GEORGE SNELGROVE AND THE PERSONS DETAILED IN SCHEDULE A TO THE WRIT OF SUMMONS HEREIN

GREAT SOUTHERN MANAGERS AUSTRALIA LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED)

BETWEEN : ADAM PAUL RITCHIE AND THE PERSONS DETAILED IN SCHEDULE A TO THE WRIT OF SUMMONS HEREIN

GREAT SOUTHERN MANAGERS AUSTRALIA LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED)

Practice and procedure - Application to strike out parts of statement of claim - Adequacy of pleadings and particulars - Discovery before particulars - Waiver of conferral - Turns on own facts

Corporations Act 2001 (Cth), s 9, s 601EB, s 601FC(1)(b), s 601FC(1)(c), s 601FC(1)(d), s 601FD(1)(f)(i), s 601FD (1)(f)(iii), s 601MA(1), s 1325(1)

Rules of the Supreme Court 1971 (WA), O 20 r 13(1)(a), O 20 r 19(1)(b), O 20 r 19(1)(d), O 59 r 9(1), O 59 r 9(2)

Trade Practices Act 1974 (Cth), s 52

Second Named Third Defendant : Karp Steedman Ross-Adjie

Second Named Third Defendant : Karp Steedman Ross-Adjie

Associated Leisure Ltd (Phonographic Equipment Co Ltd) v Associated Newspapers Ltd [1970] 2 QB 450

Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82; [2006] WASC 281

Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256

Crafter v Singh (Unreported, WASC, Library No 8202, 12 April 1990)

Glew v Frank Jasper Pty Ltd [2010] WASCA 87

Gold Coast Council v Pioneer Concrete Pty Ltd (1998) 157 ALR 135

Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563

Leitch v Abbott (1886) 31 Ch D 374

Mijatovic v Legal Practitioners Complaints Committee [2008] WASCA 115; (2008) 37 WAR 149

Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255

White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169

Whyte v Ahrens (1884) 26 Ch D 717

Yap v Cheshire Holdings Pty Ltd [2007] WASCA 50

Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661

1 LE MIERE J: In each of these actions the second named third defendant, Mr Colvin, applies to strike out [33] and part of [43] of the statement of claim in so far as they apply to him.

2 Each of the plaintiffs in CIV 1648 of 2010 is, or was, a member of Great Southern 2006 Beef Cattle Project (the Scheme). Each of the plaintiffs in CIV 1647 of 2010 is, or was, a member of the Great Southern 2007 Beef Cattle Project (the 2007 Beef Scheme). Each scheme is a managed investment scheme registered under s 601EB of the Corporations Act 2001 (Cth) (the Act). The parties argued the present application on the basis that there are no material differences between the applications in CIV 1648 of 2010 and CIV 1647 of 2010 and the facts and circumstances of each application. In those circumstances I will refer to the facts and circumstances of CIV 1648 of 2010. The parties agree that the outcome of the application in CIV 1647 of 2010 should be the same as in CIV 1648 of 2010.

3 Each of the plaintiffs invested an amount of money in the Scheme and acquired a number of droves, or groups of cattle, by investment in the Scheme. Great Southern Managers Australia Ltd (GSMAL) was the responsible entity, as defined in s 9 of the Act, of the Scheme. GSMAL was also the responsible entity for other managed investment schemes including the 2007 Beef Scheme and a number of plantation projects. Each of the second defendants was a director of GSMAL and a director of Great Southern Ltd (GSL). Each of the third defendants, including Mr Colvin, were directors of GSMAL but not directors of GSL. Each of GSMAL and Great Southern Cattle Managers Pty Ltd (GSCM) was a wholly owned subsidiary of GSL. Great Southern Cattle Holdings Pty Ltd (GSCH) was a wholly owned subsidiary of GSMAL. GSL, GSMAL, GSCM and GSCH formed part of the Great Southern Group of Companies (the Great Southern Group).

4 Certain grazing land was owned or leased by GSCH (Grazing Land). Certain female cattle of breeding age (Breeding Cows) were owned or leased by GSMAL. Upon joining the Scheme the plaintiffs and other members of the Scheme (Scheme Members) were granted a lease (or sublease) by GSMAL with respect to one or more droves of four Breeding Cows under the Lease Management and Agistment Agreement Great Southern Beef Cattle Project (LMAA). The plaintiffs and other members of the Scheme were granted a licence by GSCH with respect to the Grazing Land for the agistment of their droves. The plaintiffs were entitled to the progeny of their Breeding Cows.

5 The Scheme property comprised the irrevocable right and power of the responsible entity to sell the progeny of each Scheme Member, to pool the proceeds in the Proceeds Fund and thereafter to apply the Proceeds Fund in accordance with the Constitution and the LMAA. The Scheme property also comprised the money from time to time in the Proceeds Fund and the Application Fund. Each Scheme Member's individual property included the Scheme Member's rights to occupy Scheme Grazing Land under the LMAA between the Scheme Member and GSMAL (the Scheme Member's LMAA), to possess the Scheme Member's Leased Cattle, and the progeny and remoter progeny of such progeny, of such Leased Cattle (the Scheme Member's Progeny), to own the Scheme Member's Progeny, subject to the obligation of the Scheme Member to permit the Responsible Entity to sell the Scheme Members' Progeny during or on termination of the Scheme and to pay the sale proceeds into the Proceeds Fund and to receive the Scheme Member's proportionate entitlement from the Proceeds Fund in accordance with the Constitution and the Scheme Member's LMAA.

6 The directors caused GSMAL by notice of meeting dated 23 October 2008 (the Notice of Meeting) to convene a meeting of Scheme Members on 1 December 2008 (the Meeting) to consider motions:

(1) to pass a special resolution (the First Resolution) requiring the approval of the Scheme Members to amend the Constitution to enable the responsible entity to propose an arrangement to Scheme Members which (if supported by the Second Resolution) would become binding on all Scheme Members; and

(2) if the First Resolution was passed, to pass a resolution (the Second Resolution) to approve an arrangement (the Arrangement) proposed by GSL, by which each Scheme Member would:

(a) agree with GSMAL to terminate the Scheme Member's LMAA;

(b) agree to sell the Scheme Member's Progeny to GSCM; and

(c) agree to assign to GSCM all entitlements of the Scheme Member to receive distributions from the Proceeds Fund;

in exchange for which GSL would issue to the Scheme Member fully paid shares in the capital of GSL (GSL Shares).

7 The directors also convened meetings of members of the other schemes to consider resolutions in relation to each of those schemes in materially identical terms that the First Resolution and the Second Resolution had on the Scheme.

8 The plaintiffs say that the Arrangement effected by the First and Second Resolutions was a component of a proposal to change the business operations of the Great Southern Group known as and referred to as Project Transform. The plaintiffs say that the Arrangement would be of significant benefit to GSL.

9 The plaintiffs say that there was significant uncertainty as to the Great Southern Group continuing as a going concern if Project Transform was not successfully implemented or sales of assets did not proceed in 2009. Further, they say that the auditors of Great Southern Group had qualified or indicated an intention to qualify their audit report by stating that there was significant uncertainty whether the Great Southern Group would be able to continue as a going concern as a result of a number of matters, including if Project Transform was not successfully implemented or sales of assets did not proceed in 2009. The plaintiffs say that the Great Southern Group was required to refinance $105 million in senior debt in October 2009. The ability of the Great Southern Group to operate within its financial covenants was dependent on generating sufficient operating cash flows through, amongst other things, asset sales.

10 The plaintiffs say that for the acquisition by the Great Southern Group of the beef cattle project assets (land and cattle) either all Scheme Members had to unanimously agree or the Constitution had to be modified to enable all Scheme Members to be bound by a special resolution of Scheme Members to implement the Arrangement. They further say that as unanimity of Scheme Members was extremely unlikely, the modification of the Constitution (Modification) was the only possible method by which the Arrangement could be successfully implemented. The plaintiffs say that the Meeting was convened with the material object of achieving for the Great Southern Group the benefits referred to earlier and thereby reducing the risk of the Great Southern Group being unable to continue as a going concern or to operate within its financial covenants.

11 The plaintiffs say a number of things about the lawfulness of the resolutions to be put to the meeting and about the Explanatory Memorandum provided to Scheme Members. It is not necessary to refer to those matters now.

12 The Meeting was adjourned on 1 December 2008 until 19 January 2009. The notice of adjourned meeting was accompanied by a Supplementary Explanatory Memorandum. The plaintiffs complain of matters in the Supplementary Explanatory Memorandum, which are not necessary to refer to now.

13 The plaintiffs say that if the Great Southern Group became unable to continue as a going concern Scheme Members would be likely to be financially better off if the Arrangement was not approved at the Meeting and the Scheme Members thereafter removed GSMAL as the responsible entity. The plaintiffs say it was not in the best interests of the members to approve the Arrangement.

14 In [33] of the statement of claim the plaintiffs say that prior to and during the adjourned meeting, the second and third defendants, including Mr Colvin, or some of them, offered financial inducements to, and thereby procured that, some Scheme Members changed their votes from being against to being in favour of the First Resolution and the Second Resolution and other Scheme Members cancelled their vote against the First Resolution and the Second Resolution.

15 The adjourned meeting was held on 19 January 2009. At the adjourned meeting the First Resolution and the Second Resolution were passed with the required majority in favour. At the adjourned meetings of members of the other schemes, the members of those schemes voted against the equivalent resolutions.

16 The plaintiffs say that the effective operation of the Scheme ended by the lodgement with ASIC of the Modification on 27 January 2009 and the issue of shares in GSL to Scheme Members on 4 February 2009.

17 In [40], [41] and [42] of the statement of claim the plaintiffs allege that GSMAL contravened a number of duties imposed by the Act. The plaintiffs allege that GSMAL contravened the duty imposed on it by s 601FC(1)(d) of the Act to treat all Scheme Members equally. The plaintiffs allege that GSMAL contravened the duty imposed on it by s 601FC(1)(c) of the Act to act in the best interests of the Scheme Members and to give priority to the interests of the Scheme Members over the interests of GSMAL if there was a conflict between those interests. The plaintiffs allege that GSMAL contravened the duty imposed on GSMAL by s 601FC(1)(b) to exercise the degree of care and diligence that a reasonable person would exercise if they were in GSMAL's position.

18 In [43] of the statement of claim the plaintiffs plead that each of the second and third defendants, including Mr Colvin, or alternatively each of the third defendants, including Mr Colvin, was involved in the contravention, alternatively each of the contraventions, of GSMAL by reason of having procured the contraventions by ordering the convening of the Meeting and the Adjourned Meeting and by proposing the First Resolution and the Second Resolution and by having been knowingly concerned in or party to the contraventions.

19 The plaintiffs allege that each of the second and third defendants contravened the duty imposed by s 601FD(1)(f)(i) of the Act by not taking all steps that a reasonable person would take if in their position to ensure that GSMAL complied with the Act and contravened the duty imposed by s 601FD(1)(f)(iii) by not taking all steps that a reasonable person would take if in their position to ensure that GSMAL complied with the Constitution. The plaintiffs allege that the second and third defendants contravened other duties imposed upon them by the Act.

20 The plaintiffs say that but for the alleged contraventions the First Resolution and the Second Resolution would not have been passed, each of the plaintiffs would have retained their Individual Scheme Member's Property, the Scheme would have continued in operation with GSMAL or another responsible entity holding the Scheme Property and the Additional Property subject to the Constitution and the Act and none of the plaintiffs would have received shares in GSL in exchange for their individual Scheme Member's Property and their interests in the Scheme.

21 The plaintiffs allege that by reason of those matters they have suffered loss and damage. The loss and damage is said to be the value of the Member's Assets of each plaintiff on the basis that the GSL Shares issued to Scheme Members were at, and all times after, the Adjourned Meeting worthless. That is said to be supported by the fact that GSL and the entire Great Southern Group went into administration on 16 May 2009 and into receivership on 18 May 2009. Alternatively, the plaintiffs say that the loss and damage they have suffered is the difference between the value of each Member's Asset and the value of GSL Shares received by each plaintiff. The plaintiffs claim to be entitled to recover their loss and damage from GSMAL pursuant to s 601MA(1) of the Act and from GSMAL, the second and third defendants pursuant to s 1325(1) of the Act.

22 As to [33] of the statement of claim GSMAL pleads that it admits that certain incentives were offered to some members of the Scheme to induce them to vote in favour of the First Resolution and the Second Resolution, denies that GSMAL offered any such incentives and otherwise does not admit any of the allegations contained in that paragraph. GSMAL denies [43] of the statement of claim.

23 In answer to [33] of the statement of claim the second defendants say that GSL and/or its subsidiary Great Southern Finance Pty Ltd (GSF), including in certain cases via the second defendants, offered and/or agreed to alter (in a manner favourable to the borrower) the terms of loans that GSF had made to certain Scheme Members in the event the Arrangement was implemented but deny that GSMAL and the third defendants or some of them offered financial inducements to certain Scheme Members in the event that the Arrangement was implemented. The second defendants denied each and every allegation pleaded as against them in [43].

24 In his defence Mr Colvin denied that he offered financial inducements to Scheme Members or any other person as alleged or at all and otherwise does not admit the allegations in [33]. Mr Colvin denied each and every allegation in [43].

25 On 7 July 2010 the plaintiffs provided further and better particulars of the statement of claim pursuant to a request of 15 June 2010. The particulars of [33] stated relevantly:

1. Each of the second defendants and third defendants, personally or by employees or other agents, offered financial inducements to Scheme Members.
2. The financial inducements included ... as outlined on page 74 of the Administrators' Report dated 9 November 2009.
3. GSMAL State Managers were instructed by or on behalf of the second defendants and the third defendants to lobby Scheme Members prior to the Adjourned Meeting who had voted against the First Resolution and the Second Resolution at the Meeting and were likely to vote against the First Resolution and the Second Resolution at the Adjourned Meeting. The GSMAL State Managers were instructed to:

3.1 offer incentives to those Scheme Members who had loan packages with the Great Southern Group, to be put in place after the vote was changed and Project Transform was implemented; and/or

3.2 offer incentives to financial advisors who are able to change votes of those scheme members whom they had introduced to the Great Southern Group and MIS.

1. Further particulars may be provided after discovery and/or interrogatories.

26 The plaintiffs gave the following relevant answers to the request for particulars at [43]:

The third defendants were knowingly concerned in the contraventions by GSMAL by ...

1. otherwise having directed, authorised or approved all other acts or omissions by GSMAL giving rise to the pleaded contraventions.

27 On 17 September 2010 the plaintiffs gave further answers to Mr Colvin's request for further and better particulars of [33] of the statement of claim as follows:

10.1.1 the first and second defendants admit in their defences that inducements were made;

10.1.2 the second defendants admit in their defences that they personally offered inducements;

10.1.3 the second defendants were, at all material times, co-directors of the first defendant with the second named third defendant;

10.1.4 in the period between 12 January 2009 and 19 January 2009, no further material disclosures were made to the Scheme Members;

10.1.5 the second named third defendant was, or ought to have been, aware that as at 13 January 2010 the number of votes by value was insufficient for either the First or Second Resolutions to pass at the Adjourned Meeting;

10.1.6 by the time of the Adjourned Meeting, sufficient Scheme Members had changed their votes for both the First and Second Resolution to Pass;

10.1.7 as at 16 December 2008, 69.8% of Scheme Members by value had voted in favour of the Resolutions;

10.1.8 as at 12 January 2009, 68.8% of the Scheme Members by value had voted in favour of the Resolutions;

10.1.9 by 19 January 2009, 77.3% of the Scheme Members by value voted in favour of the Resolutions;

10.1.10the inducements, the offering of which the first and second defendants admit, or some of them were offered to Scheme Members who had made significant investments in the Scheme utilising information concerning Scheme Members held by GSMAL which could not be lawfully disclosed by GSMAL or the directors of GSMAL to any of the Great Southern Group company to benefit any Great Southern Group company other than GSMAL;

10.1.11until discovery and interrogatories further particulars cannot be provided; and

10.1.12 further particulars will be provided after discovery and interrogatories.

28 In further answer to the request for particulars of [43] the plaintiffs repeated the further answers stated above.

29 The particulars refer to page 74 of the Administrators' Report dated 9 November 2009. In that report the administrators said that the GS group had sought to provide financial incentives to certain investors, by way of concessions on loans originated by GSF, in order to encourage those investors to vote in favour of Project Transform. The report further said that the administrators understood that the incentives were targeted towards investors that were suspected by GSL to have voted against or not replied to the proposal at a point in time. The administrators further said that the matters that follow from that area of review do not arise from dishonest actions but instead may result in breach of duty claims against the directors of GSL, GSMAL and GSF. The administrators further stated that it would be necessary to undertake a further review of the incentives transactions and obtain advice on them before expressing an opinion about any appropriate remedy.

Colvin's challenge to [33] and [43] of statement of claim

(a) paragraph 33 of the statement of claim, insofar as it pleads that Mr Colvin 'offered financial inducements to, and thereby procured that, some Scheme Members changed their votes from being against (by proxy) to being in favour of the First Resolution and the Second Resolution and other Scheme Members cancelled their vote against the First Resolution and the Second Resolution'; and

(b) paragraph 43 of the statement of claim, insofar as it pleads that Mr Colvin was involved in, knowingly concerned in or party to the alleged contraventions consisting of the offering of financial inducements as pleaded in [33] and repeated in [41.5] and [43] of the statement of claim

pursuant to Rules of the Supreme Court 1971 (WA) (RSC) O 20 r 19(1)(b) on the basis that they are scandalous or vexatious and/or alternatively pursuant to O 20 r 19(1)(d) on the basis that they otherwise are an abuse of process of the court.

31 Paragraph 33 of the statement of claim alleges that Mr Colvin offered financial inducements to, and thereby procured that, some Scheme Members changed their votes in favour of the First Resolution and Second Resolution. Mr Colvin says that that is an allegation of or akin to dishonesty or at any rate an allegation of professional impropriety or misconduct.

32 Paragraph 43 of the statement of claim pleads that Mr Colvin was involved in the contraventions of GSMAL pleaded in [40], [41] and [42] by reason of having procured the contraventions by ordering the convening of the Meeting and the Adjourned Meeting and by proposing the First Resolution and Second Resolution and further or alternatively by reason of having been knowingly concerned in or party to the contraventions. Mr Colvin complains of [43] of the statement of claim insofar as it pleads that he was involved in, knowingly concerned in or party to the alleged contraventions consisting of the offering of financial inducements as pleaded in [33] and repeated in [41.5] of the statement of claim. Mr Colvin says that that allegation is an allegation of or akin to fraud or dishonesty.

33 Mr Colvin says that the allegations against him of which he complains should not be pleaded unless there is clear and sufficient evidence to support them: Associated Leisure Ltd (Phonographic Equipment Co Ltd) v Associated Newspapers Ltd [1970] 2 QB 450, 456; Glew v Frank Jasper Pty Ltd [2010] WASCA 87 [24]. Mr Colvin says that the allegation should be pleaded clearly and with particularity: Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 [35] - [38], [135]; Mijatovic v Legal Practitioners Complaints Committee [2008] WASCA 115; (2008) 37 WAR 149 [229]; Yap v Cheshire Holdings Pty Ltd [2007] WASCA 50 [15]; Glew v Frank Jasper Pty Ltd [24]; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 573. Mr Colvin says that to plead such allegations without any or any sufficient basis is an abuse of the processes of the court: White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 241 - 242; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [9] - [15]; and such allegations, made without proper basis, are vexatious.

34 The plaintiffs have given particulars of the allegations. However, Mr Colvin says that the particulars are not proper or satisfactory particulars.

35 Mr Colvin refers to correspondence between the solicitors. In their letter of 26 August 2010 the plaintiffs' solicitors said:

We confirm that, at this stage, we do not have evidence that your client directly spoke to a Scheme Member to offer an inducement.

Mr Colvin says that there is no evidence that the plaintiffs had any evidence or basis to believe that Mr Colvin did so 'indirectly'. The plaintiffs' solicitor's letter also said:

We agree that if, following discovery and interrogatories, there is still no evidence that Mr Colvin was involved in offering inducements ..., the plea will be reviewed at that time.

Finally, in a letter of 8 September 2010 the plaintiffs' solicitors said:

Until discovery and interrogatories are complete, our clients will not and cannot know ... by whom [financial] inducements were offered and, in particular, whether any were offered directly or indirectly by [Mr Colvin] or whether [Mr Colvin] was knowingly concerned in or party to offering of all or any of the inducements.

Leave to bring application and waiver of conferral

36 Mr Colvin also seeks leave to bring the applications and an order that the requirement of full conferral under RSC O 59 r 9(1) be waived pursuant to O 59 r 9(2).

37 The writ was issued on 6 May 2010. The statement of claim was filed on 7 May 2010. Mr Colvin's solicitors initiated conferral by letter dated 1 July 2010. Correspondence between the plaintiff's solicitors and Mr Colvin's solicitors followed. In a letter of 2 September 2010 Mr Colvin's solicitors said that the plaintiff's solicitor's letter of 26 August 2010 contained concessions that they had no basis for the pleaded allegations in question against Mr Colvin, that the allegations are or are akin to dishonesty and should not have been made. By letter of 8 September 2010 the plaintiffs' solicitors said:

Should we continue to be accused of such improper professional conduct, we will report the accuser(s) to the LPCC for continuing to make such serious and baseless allegations against us after having been told clearly and in detail why those serious allegations are baseless.

38 There was further correspondence. By letter of 14 September 2010 Mr Colvin's solicitors said that:

In circumstances where you have threatened to refer the writer and counsel to the LPCC in relation to our attempts to confer with you, in accordance with O 59 r 9(1) RSC, about our clients foreshadowed applications to strike out those paragraphs of the statement of claim which allege that Mr Colvin offered financial inducements, and was involved in, knowingly concerned in or a party to financial inducements being offered, we do not intend corresponding with you further, including orally.

39 Mr Colvin's solicitors concede that there was not conferral, or sufficient conferral, to comply with O 59 r 9(1). Mr Colvin seeks leave to bring the application and waiver of the requirement of conferral.

40 The plaintiffs submitted that the representatives of Mr Colvin had refused to confer and had they articulated the analysis made in their written submissions in the course of conferral, the plaintiffs would have outlined their submissions during the course of the conferral and Mr Colvin would not have proceeded with this application. The plaintiffs say that waiver of conferral should be refused.

41 It is not appropriate for me to make any judgment concerning the allegations and counter allegations made by the solicitors in the course of written conferral. The parties had sufficiently disclosed to each other their positions, and submissions, in relation to this application before the hearing of the application commenced. Each party maintained its position. No further conferral would serve any useful purpose. In view of the written conferral that took place, the circumstances in which the conferral terminated and that no further conferral would have served any useful purpose I will waive the operation of O 59 r 9(1).

42 The application to strike out parts of the statement of claim is made out of time. However, it is not far out of time, the issues raised are complex and the action has not been unduly delayed by the late bringing of the application. I will give leave to bring the application.

43 The plaintiffs say that the allegation of breach by GSMAL of its statutory duty under s 601FC(1)(d) to treat members of a managed investment scheme holding interests of the same class equally and breach of s 601FC(1)(f)(i) by Mr Colvin of being involved in the first defendant's contravention are not allegations of fraud. The plaintiffs say that the duties alleged to have been breached are analogous to a trustee's duty to act impartially between the beneficiaries.

44 In their written submissions the plaintiffs say that the material facts supporting the allegations of breach of the duty of GSMAL to treat all members equally (s 601FC(1)(d)) and by Mr Colvin of knowing involvement in that breach are:

5.1 inducements were given (admitted by the first and second defendants - paras 43.1 and 33(a) of the defences respectively and Marsh Snelgrove Affidavit at pages 83 and 89);

5.2 the inducements were not offered to all scheme members (admitted by the first and second defendants supra and Marsh Snelgrove Affidavit supra);

5.3 inducements were offered by the second defendants (the allegation that the inducements were offered by the second defendants acting in different capacities is untenable because they were directors of the first defendant at the material times and therefore remained bound by ss 601FD(1) and bound to give priority to that duty by s 601FD(2));

5.4 at the time the second defendants offered the inducements they were co-directors of the first defendant with Mr Colvin; and

5.5 in the period between 30 November and 12 January 2009, there was a small increase in the percentage of people voting in favour of the First Resolution for the 2006 Cattle Scheme but no real change in the percentage of scheme members voting for the First Resolution for the 2007 Cattle Scheme (Marsh Snelgrove affidavit at pages 453 and 465-468) yet, in the 7 day period between 12 January 2009 and 19 January 2009 (the date of the vote), sufficient votes swung in favour of the First Resolution for it to pass for both schemes (Marsh Snelgrove Affidavit at pages 467 to 470).

1. During the period from 12 January 2009 to 19 January 2009 one can reasonably infer that there would have been significant verbal and written communication (particularly email) as Project Transform drew to its climax. As is common with email correspondence, a number of interested people would be expected to have been copied into communications. The progress of the voting should have been of material interest to Mr Colvin, GSL and the first defendant. In light of the above matters, an inference that Mr Colvin would have been (at least) a recipient of communications regarding the inducement programme (as a minimum) can be drawn at the pleading stage (even if this is an allegation of fraud), such that the plea may be maintained.
2. Further, while there are plaintiffs to whom inducements were offered, not all of the Scheme Members are plaintiffs. Therefore, there may be Scheme Members to whom inducements were offered but for whom Solomon Brothers do not act. This is therefore a paradigm case in which defendants know the detailed facts necessary to provide full particulars but the plaintiffs do not.

46 The plaintiffs further rely upon the proposition advanced in Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566 by Franklyn J (Walsh J agreeing) that when one party knows the facts and the other does not, an insufficiently particularised allegation may be made in the statement of claim and the plaintiff be permitted to obtain discovery of documents and answers to interrogatories before providing the necessary particulars.

47 Order 20 r 13(1)(a) provides that every pleading must contain the necessary particulars of any claim, including, without prejudice to the generality of the foregoing words, particulars of any misrepresentation, fraud, breach of trust, wilful default or undue influence on which the party pleading relies.

48 The adequacy of particulars provided must be determined having regard to the purpose of particulars. In Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82; [2006] WASC 281 Martin CJ stated 'the contemporary purposes of pleadings include the definition of the issues to be determined in the case and enabling assessment of whether they give rise to an arguable cause of action or defence as the case may be, and apprising the other parties to the proceedings of the case that they have to meet' [4].

49 A defendant is entitled to sufficient information about the case against him to ensure a fair trial and to guard against surprise. The degree of precision with which a case must be particularised will, in part, depend upon the nature of the case against the defendant.

50 In this case there is no express pleading of fraud. The relevant allegations are, first, that Mr Colvin offered financial inducements to, and thereby procured that, some Scheme Members changed their votes in favour of the First and Second Resolutions and, secondly, that Mr Colvin was knowingly concerned and party to contraventions by GSMAL of the duty imposed on GSMAL by s 601FC(1)(c) to act in the best interests of the Scheme Members and to give priority to the interests of the Scheme Members over the interests of GSMAL, if there was a conflict between those interests, by offering financial inducements to, and thereby procuring that, some Scheme Members change their votes in favour of the First and Second Resolutions. Those are serious allegations but they are not allegations of fraud. Nevertheless, Mr Colvin is entitled to sufficient information about the case against him to ensure a fair trial and to guard against surprise.

51 Fraud or misrepresentation must be distinctly alleged and distinctly proved. Such allegations should not be pleaded at all unless there is clear and sufficient evidence to support them: Associated Leisure Ltd (Phonographic Equipment Co Ltd) v Associated Newspapers Ltd [1970] 2 QB 450, 456. Similar principles have been held to apply to allegations of insider trading: Crafter v Singh (Unreported, WASC, Library No 8202, 12 April 1990) (Seaman J) and to allegations of conduct said to breach s 52 of the Trade Practices Act 1974 (Cth); Gold Coast Council v Pioneer Concrete Pty Ltd (1998) 157 ALR 135, 149 (Drummond J) and to allegations of professional impropriety or misconduct; Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 [38] (Ipp J).

52 Section 601FC(1)(d) provides that in exercising its powers and carrying out its duties, the responsible entity of a registered scheme must treat the members who hold interests of the same class equally and members who hold interests of different classes fairly. The duty imposed on a responsible entity by s 601FC(1)(d) is a fiduciary type duty. In [43] of the statement of claim the plaintiffs plead that Mr Colvin was involved in the contravention by having been knowingly concerned in or party to the contravention by GSMAL. In order to be knowingly concerned in a contravention a party must be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention: Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661, 670. For Mr Colvin to have been knowingly concerned in or party to the alleged contravention by GSMAL of s 601FC(1)(d) Mr Colvin must have known of the inducements offered to some Scheme Members and that not all Scheme Members were treated equally. That allegation against Mr Colvin must be pleaded clearly and with particularity.

53 In my view, the plaintiffs have not pleaded the necessary material facts or provided the necessary particulars. In their particulars of 7 July 2010 the plaintiffs say that the third defendants personally or by employees or other agents offered financial inducements to Scheme Members. That is elaborated upon by the further particulars that GSMAL State managers were instructed by or on behalf of the second defendants and the third defendants to lobby scheme members and were instructed to offer certain incentives to scheme members and/or financial advisors who are able to change votes of scheme members. The plaintiffs have not informed Mr Colvin of the identity of the employees or agents and in relation to the alleged agents the facts and circumstances which constituted them agents of Mr Colvin. Insofar as it is alleged that GSMAL State managers were instructed by or on behalf of Mr Colvin, no particulars are given of any instruction by Mr Colvin, it is not stated who gave the instructions on behalf of Mr Colvin or the facts and circumstances which constitute instructions having been given on behalf of Mr Colvin. Insofar as the plaintiffs' case is that somebody else offered the inducements and Mr Colvin is liable for that conduct then Mr Colvin is entitled to know who it is alleged offered the instructions and on what basis it is said that he is liable for that conduct. Insofar as the statement of claim pleads that Mr Colvin was knowingly concerned in or party to the contravention by GSMAL then the case against Mr Colvin requires the plaintiffs to establish that Mr Colvin had knowledge of the essential matters which make up the contravention: Yorke v Lucas. The present statement of claim and particulars supplied by the plaintiffs do not sufficiently inform Mr Colvin of the case against him in relation to those matters.

54 The allegations that Mr Colvin offered inducements and was knowingly concerned in or party to the contravention by GSMAL of s 601FC(1)(d) of the Act are not substantiated by the pleading of material facts. The case against Mr Colvin is not sufficiently pleaded or particularised. The plaintiffs wish to obtain discovery and inspection before further pleading or providing further particulars.

55 Permitting a party to obtain discovery and inspection prior to finalising his pleading, including pleading out an allegation of fraud, is well recognised. In Whyte v Ahrens (1884) 26 Ch D 717 Cotton LJ said:

The production of the books will enable the plaintiffs to define and state what it is they require the defendants to meet at the hearing, and they must do that before the hearing, in order to enable the defendants to meet it (722).

And in Leitch v Abbott (1886) 31 Ch D 374 Bowen LJ said:

It seems to me that the very fact that the pleader is unable to plead except in general terms, is in many cases the very reason why he should have discovery from the other party, so as to enable him to plead the fraud in detail. If at a particular stage of an action you are stopped by reason of your ignorance of some fact which is known only to the other party, that is the very reason why you should have discovery of that fact from him, and what difference does it make whether you are stopped at that trial or before (379).

And in Jingellic Minerals NL v Abigroup Ltd Franklyn J said:

There is authority for the proposition that when one party knows the facts and the other does not, an insufficiently particularised allegation may be made in the statement of claim and the plaintiff be permitted to obtain discovery of documents and answers to interrogatories before providing the necessary particulars ... (570).

56 This case is somewhat different from the authorities referred to by counsel in argument. It is not obvious that Mr Colvin knows the facts and the plaintiffs do not. The material relied upon by the plaintiffs to found the allegations against Mr Colvin is sparse.

57 The defences of GSMAL and the second defendants establish that some incentives were offered to some members of the scheme but not that Mr Colvin offered the incentives or was knowingly concerned or a party to them. GSMAL denies that it offered such incentives. The second defendants say that GSL and/or its subsidiary GSF offered incentives, including in certain cases via the second defendants. Mr Colvin was not a director of GSL or GSF.

58 Nevertheless, there may be some basis for the plaintiffs' allegations against Mr Colvin. The plaintiffs have evidence, or a basis for alleging, that GSMAL State managers were instructed to offer certain incentives to certain scheme members in relation to the vote. The second defendants, who are directors of GSMAL, admit that they participated in offering incentives, albeit they say they did so on behalf of GSL and/or GSF. It may be inferred that the outcome of the vote at the Adjourned Meeting was a matter of importance for GSMAL and therefore its directors, including Mr Colvin, would have taken an interest in the proxy votes received prior to the Adjourned Meeting and other matters relevant to the outcome of the resolutions to be put at the Adjourned Meeting. That is not sufficient for a finding to be made that Mr Colvin offered the alleged incentives or knowingly participated in the offering of the incentives. However, it is sufficient for the plaintiffs to be permitted to obtain discovery and inspection before giving the required particulars of their case that Mr Colvin offered the alleged incentives or was knowingly concerned in doing so.

59 Whilst it may be unusual for a court to permit discovery and inspection before the conclusion of pleadings or before the delivery of a statement of claim that properly states the material facts and particularises the case against a defendant, the question must be whether the interests of justice are satisfied by permitting such a course. I find that this is such a case. Incentives were offered to some scheme members. That was done by companies within the Great Southern Group and directors of those companies. However, it is not clear which companies and directors offered the incentives or participated in such conduct knowing that incentives were being offered to some members and all members were not being treated equally.

60 The appropriate course is to permit the plaintiffs to obtain discovery and inspection. The plaintiffs should then plead the material facts, and proper particulars of the relevant allegations against Mr Colvin. If they are not able to do so then [33] and the relevant part of [43] of the statement of claim should be struck out as against Mr Colvin.

61 The parts of the statement of claim challenged by Mr Colvin should not be struck out at this time. However, Mr Colvin will have leave to make a further application to strike out [33] and the relevant part of [43] insofar as they apply to him after the plaintiffs have had discovery and inspection and amended their statement of claim or given further particulars of [33] and [43] of the statement of claim or both. If, after discovery and inspection, the plaintiffs cannot or do not plead further material facts or give further particulars to support their allegations in [33] and [43] of the statement of claim against Mr Colvin then Mr Colvin may again apply to strike out those parts of the statement of claim insofar as they apply to him.

62 The costs of this application should be reserved pending the plaintiffs obtaining discovery and inspection and amending their statement of claim and particulars or failing to do so.