(2016) 336 ALR 209
Burland v Earle [1902] AC 83
Caason Investments Pty Ltd v Cao (2015) 236 FCR 322
[2015] FCAFC 94
Cameron v Qantas Airways Ltd [2010] NSWSC 899
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
[1964] HCA 69
Hastie Group Ltd (in liq) v Bourne
Singer v Beckett [2007] 2 BCLC 287
Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66
Source
Original judgment source is linked above.
Catchwords
(2016) 336 ALR 209
Burland v Earle [1902] AC 83
Caason Investments Pty Ltd v Cao (2015) 236 FCR 322[2015] FCAFC 94
Cameron v Qantas Airways Ltd [2010] NSWSC 899
Dey v Victorian Railways Commissioners (1949) 78 CLR 62[1964] HCA 69
Hastie Group Ltd (in liq) v BourneSinger v Beckett [2007] 2 BCLC 287
Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66
Judgment (4 paragraphs)
[1]
Background
The relevant background to the current application is as follows.
It is not disputed that the plaintiff is a 40% shareholder in the first defendant (QTQ Mechanical Services Pty Ltd) (QTQ). The second defendant is the majority shareholder in QTQ.
The statement of claim was filed on 21 May 2019. In the statement of claim the plaintiff deposes (at [4]) that he is an individual who was also the director and now is a 40% shareholder of QTQ, which was at all times incorporated pursuant to the Corporations Act. At [5], it is alleged that the plaintiff and second defendant were close and good family friends. The pleading then contains allegations as to the formation of QTQ (see [6]-[7]).
At [8]-[9], allegations are made in relation to the change of the appointment of directors and shareholders in QTQ (changes on or about 29 June 2016 and 3 April 2017). In particular, it is alleged that the plaintiff was unaware that a notice of appointment or cessation of a company officer had been lodged with the Australian Securities and Investments Commission (ASIC) on or about 3 April 2017 and it is alleged that the second defendant "arbitrarily and unfairly ceased the Plaintiff's Directorship of QTQ Mechanical Services Pty Ltd" at the time. At [9], it is alleged that the plaintiff did not know nor had he authorised cessation of his company directorship. It is not apparent that any relief is sought in relation to that allegation.
There then follow allegations that appear to be predicated on an assumption that the plaintiff has an entitlement to a 40% share of the profits of the company plus interest (see [9A]-[9I] and [10]-[11]). At [10]-[11], there is an allegation that the plaintiff's 40% share of profit entitlements has been misappropriated and stolen. There is also an allegation about failure to comply with the Corporations Act in relation to the 40% share profit entitlements (see [12]-[13]). At [14], there is an allegation as to the refusal by the second defendant to settle the dispute.
On 17 June 2019, the defendants sought further and better particulars of the statement of claim. It is submitted for the defendants, and I accept, that the request for further and better particulars was not on its face onerous or technical. In essence, particulars were sought, first, as to whether in relation to the allegations at [9A] through to [9H] of the statement of claim it was alleged by the plaintiff that he was entitled to the sum there specified from the first defendant, the second defendant, or alternatively from both defendants, and, if so, in each case, particulars as to the basis upon which the plaintiff asserted he was entitled to the amount claimed from the first or second defendant or both.
The second main topic on which particulars were sought was in relation to the allegation at [12] of the statement of claim that:
By not paying the Plaintiff his 40% share of profits entitlements, the Second Defendant has failed and breached his duty of care in executing his Ddirectorship and Secretary duties owing to the Plaintiff.
In that regard, what was sought by way of further and better particulars was for the plaintiff to identify the duties which it is alleged were owing by the second defendant to the plaintiff and to identify the duties which it is alleged were breached by the second defendant.
In evidence before me there is a succession of correspondence between the plaintiff and the solicitors for the defendants in which the plaintiff makes clear that he did not have copies of the company's documents, contracts with other developers and parties, taxation returns, papers and bank statements and therefore says that what he estimated in the statement of claim was to the best of his knowledge. The plaintiff sought provision of those documents in order to be able to provide the defendants with better particulars. It may be that the plaintiff (who is self-represented and for whom English is not his first language) understood the request for particulars to be a request for the basis on which the amount sought at [9A] of the statement of claim is particularised (i.e., the basis on which the amount had been quantified); rather than, as the letter requesting the particulars says, identification as to which one or both of the defendants it was alleged had the obligation to pay the particular sums in question.
I should note that my attention was drawn in the course of argument by Counsel for the defendants to the fact that allegations at [9A]-[9H] speak in speculative terms of estimated amounts using the word "about" and an estimated actual profit being "about" a certain value.
The position of the plaintiff is that he cannot provide particulars because he has not been able to obtain access to the company's financial documents and information. The position of the defendants is that the request for further and better particulars did not call for such information.
On 19 June 2019, the plaintiff was ordered by the Registrar to provide further and better particulars by 10 July 2019.
On 24 June 2019, the plaintiff sent the defendants a letter which, apart from making reference to the fact that the plaintiff required financial documents in order to provide the further and better particulars, set out what was referred to as a "Plan of Action". That "Plan of Action" involved a demand, in effect, that the defendants provide an offer of settlement to offer to pay the plaintiff's "outstanding entitlements, money owing, and interest before things inevitably getting [sic] messy and passed a point of no return", and basically set out a timeframe by which, if no offer of settlement had been made, notification would be made to various authorities (to ASIC by 27 June 2019; to the Engineers Australia by 2 July 2019; to the Australian Taxation Office by 4 July 2019; to the Australian Federal Police, the Department of Immigration and other government authorities by 9 July 2019) of various matters including allegations of fraud, dishonesty, misappropriation of funds, theft, tax evasion, illegal dealings with construction money and cheques, money laundering and other personal illegal dealings and activities. The letter stated:
My only purpose and intention is to get back what is legally mine, and not to harm your client with all these legal actions and government authorities' investigations and audits etc. If your client is so stubborn, harsh, unreasonable, aggressive, arrogant, and thinking that he has millions of dollars and with the assistance of accountants, lawyers and barristers that he will get away with stealing my money, then he is wrong. I will get my money back through all these legal processes, government authorities' investigations and audits.
At the end, your client not only will have to pay me back my money but he will also be subjected to government investigations, audits, criminally prosecuted and be fined and jailed for his tax evasion, illegal dealings and activities, and possibly money laundering activities etc.
Threats of that kind were repeated and the "Plan of Action", as it transpires, was put into place at least in respect of notification to ASIC and certain of the other entities that I have mentioned.
I should, for completeness, note that on 4 July 2019 the plaintiff wrote to the defendants stating that he had not been threatening the defendants but in fact he had been doing the opposite (doing them a favour by warning them and giving them every possible opportunity to resolve the dispute and to settle the matter before he took any action).
I note that the defendants do not make any submission to the effect that this amounts to an attempt to extort money from the defendants but they do submit that this is conduct that should be taken into account in the exercise of the discretion as to whether or not, if the statement of claim is struck out, there should be any form of liberty to re-plead the claim.
I should also note that at one stage the plaintiff was represented by legal advisers. On 21 August 2019, when the proceedings were listed for directions, Mr Joseph Dinh of Marcus Alyssandra lawyers appeared on behalf of the plaintiff. The proceeding was adjourned on that occasion to 11 September 2019 to enable the plaintiff's solicitor to obtain instructions and there is reference in correspondence to the fact that when the matter was before Registrar Walton the Registrar expressed a view as to deficiencies in the pleading.
On 21 August 2019, Registrar Walton vacated leave that had been granted on 12 August 2019 for the issue of subpoenas to, among others, the accountants for the first defendant (leave to issue a subpoena to the first defendant had already been refused by the Registrar on 5 August 2019).
Subsequently, Marcus Alyssandra Lawyers filed a notice of intention of ceasing to act on 4 September 2019 and, in response to that, the defendants, on 9 September 2019, notified Marcus Alyssandra Lawyers of their intention to seek to have the proceedings dismissed on the next occasion the matter was before the court.
On 11 September 2019, the proceedings were listed for directions and Mr Nguyen appeared self-represented (with a translator to accompany him). Directions were made for the filing and service of a motion regarding strike-out or dismissal on 18 September 2019 and the matter was stood over to 25 September 2019 and the present notice of motion was then duly filed with an affidavit in support.
[2]
Determination
The complaint by the defendants as to the deficiency in the pleading is well-founded. Insofar as the pleading can be understood, the defendants have identified the following claims apparently sought to be pursued by the plaintiff: a complaint referred to by the defendants in submissions as "The Putative Dividend Case" (that the plaintiff has not received any payment relating to his shareholding in QTQ since 22 September 2017); a complaint as to misappropriation or theft of profit entitlements; a complaint as to breach of directors' duties; and a complaint that the plaintiff was removed as director of QTQ on 3 April 2017 arbitrarily and unfairly without the plaintiff's knowledge or authority.
As to the putative dividend case, apart from the fact that it is said that it is speculative as to what profits have been received from the projects listed in the pleading, the defendants point to authorities in which a statement of claim may be struck out where there is no factual foundation for the allegations made (referring to Cameron v Qantas Airways Ltd [2010] NSWSC 899 at [18]-[20] and Ea v Diaconu [2019] NSWSC 795 (Ea v Diaconu) at [17]-[18]). In Ea v Diaconu, RA Hulme J said:
17. There must be sufficient particularity to enable any eventual trial to be conducted fairly to all parties. Vague allegations on significant matters may conceal claims which are merely speculative: Clarke v State of New South Wales (No 4) [2015] NSWSC 1054 at [39] (Garling J).
18. If allegations are made at such a level of generality that the defendant does not know in advance the case it has to meet, the pleading will be embarrassing. The appropriate remedy is to strike out rather than to order the provision of particulars, as it is not the function of particulars to take the place of the necessary averments in a pleading: McGuirk v University of NSW at [33]
The defendants note that the simple fact of a 40% shareholding in a company (here QTQ) does not entitle a shareholder to 40% of the gross profits which that company makes on particular projects.
It is noted that the plaintiff's entitlement as a shareholder is to any declared dividend payable in respect of his shares, and reference is here made to the discussion by Barrett JA (Bathurst CJ and Beazley P, as Her Excellency then was, agreeing) in Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689; [2014] NSWCA 326 from [73] onwards, where his Honour sets out the legal context in relation to the payment of dividends and the authorities in which it is recognised that, in the absence of a declaration as to a dividend, there is no right to a dividend. It is noted that there is no right under company law to a dividend. It is further noted that there is no allegation in the pleading of a shareholder's agreement or other provision of the company's constitution which might displace those well-known company principles.
It is also pointed out by the defendants that there is no apparent logic to the calculation of interest claimed in the statement of claim (as to why interest appears to be payable, from what date it is said to be due and payable or at what rate it has been calculated).
As to the allegation of misappropriation or theft of profit entitlements, the defendants say that this claim is embarrassing and bound to fail. The allegation is that the second defendant has been "using the Plaintiff's entitlements/40 percent share of profits payments and [QTQ's] (the first defendant) signed contracts income to form, maintenance and divest money" into various companies and real property.
Apart from the fact that this presupposes an entitlement to a 40% share of profits, the defendants say (and I accept) that it is not clear from the pleading whether it is alleged that the second defendant has misappropriated company funds in his own or a third party's benefit or, as I have said, company funds in other companies or real property. It is, as the defendants submit, a serious allegation to make if what is being alleged is an allegation of fraud in the defalcation of company funds. Such allegations must not be lightly made and must be properly pleaded and particularised (see Picone v Velos [2007] FCA 1183 at [95]; Sgro v Australian Associated Motor Insurers Ltd [2015] NSWCA 262; Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 2) [2019] NSWSC 1492). If the allegation is simply that there has been an investment of company funds in other companies or real properties then, of itself, it would disclose no cause of action. There is no, for example, allegation that there is a breach of directors' duties in relation to decisions made in relation to the investment of funds. Moreover, the defendants say that there will be an issue as to the ability of a shareholder to bring such a claim.
Insofar as there is an allegation of breach of duties owed by the director to the company, it is noted that that claim would require the court to be satisfied that the proceeding was in the best interests of the company and that there was a serious question to be tried.
As the defendants point out, for a shareholder to bring that claim it would be necessary for the shareholder to bring a derivative suit for which leave would need to be granted pursuant to s 237 of the Corporations Act. The court would, in that context, need to be satisfied of the matters listed in s 237(2): namely, that it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; that the applicant is acting in good faith; that it is in the in the best interests of the company that the applicant be granted leave; that there is a serious question to be tried; and that the applicant would need to have appropriate notice given of the intention to make such an application. It is said, and I accept, that none of those steps have here been addressed in the application that has been made or in the affidavit evidence in support thereof.
As to the breach of duty claims identified in the pleading, the defendants note that insofar as the claim presupposes that there is a duty of care owed to a shareholder, such a claim is legally untenable (referring to Re Continental Assurance Co of London plc (in liquidation); Singer v Beckett [2007] 2 BCLC 287 at 294; Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; (2016) 336 ALR 209 at [518]-[519] per Edelman J, sitting in the Federal Court of Australia as his Honour then was). Reference is also made to Burland v Earle [1902] AC 83 at 95 as to there being no duty to declare a dividend and to the explanation by Lockhart J in QBE Insurance Group Ltd v Australian Securities Commission (1992) 38 FCR 270 at 283 as to how a company can deal with profits by declaration of dividends by transferring the whole or part of the property to a capital reserve, or by retention of profits. It is noted that a mere failure to pay dividends, even when they are able to be paid, does not of itself constitute oppression (see In the matter of Hollen Australia Pty Ltd [2009] VSC 95 at [75]).
In this regard it should be noted that the pleading is not cast as an oppression suit by a minority shareholder and that there is no allegation by the plaintiff that there has been any oppression as a result of the failure by the directors to declare a dividend in circumstances where there are profits that would be able to be paid.
As I have already noted, it is also not clear what is sought to be drawn from the allegation that the plaintiff's removal as a director was without his knowledge or authority or was arbitrary or unfair, and I have been taken to evidence in the form of material that is annexed to the plaintiff's own statement of claim which suggests that the plaintiff was aware at the time that he was stepping down or ceasing to take a management role in relation to QTQ.
Mr Nguyen, as I have said, is self-represented and has made submissions in English but with the assistance of an interpreter. He has explained to me his version of the background to the dispute (or the story, as he puts it). He has emphasised that he has been unable to obtain the documents from the first defendant in relation to the projects the first defendant has entered into. He clearly holds a firm view that he is owed moneys pursuant to what he refers to as his 40% shareholding entitlements. It is not apparent whether he bases this on any agreement as such with the second defendant at the time of entry into the arrangement.
I am not in a position to, nor do I here, make any comments as to the merits of any dispute between the plaintiff and the first and second defendants; and particularly as between the plaintiff and the second defendant in relation to the arrangements entered into between them. However, the statement of claim as presently pleaded does not, in my opinion, disclose a tenable cause of action.
I am conscious of the high threshold before claims of any kind would be summarily dismissed without a hearing on the merits. In particular, I note the admonition by the High Court that a plaintiff should not be denied the right to prosecute a claim unless it is clearly demonstrated that there is no arguable cause of action (referring to General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 69 (Barwick CJ) and Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; [1949] HCA 1 (Dixon J)). It is well established that the plaintiff's case should be taken at its highest on a pleading application such as an application for leave to amend (S1 v The Trustees of Marist Brothers [2016] NSWSC 970 at [11]) or for summary dismissal.
At the very least, however, the statement of claim should be struck out because it does not properly articulate a tenable cause of action and, insofar as it makes claims of misappropriation and theft which, as I have said, are serious allegations, they need to be properly pleaded.
A pleading will be liable to be struck out if it is embarrassing (and leave to amend will not be granted in respect of a pleading of that kind - see Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 310; McGuirk v The University of New South Wales [2009] NSWSC 1424 at [18] (Johnson J); Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in Liq) [2015] FCA 1098 at [142]-[143] (Gleeson J); Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94 at [21] (Gilmour and Foster JJ); ACN 074 971 109 v The National Mutual Life Association of Australasia Ltd [2010] VSC 186 at [29] (Croft J); Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66; [2009] FCA 320 at [21] and [23] (Kenny J)). (See also Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26 (Lindgren J, Lockhart and Tamberlin JJ agreeing).) In HFPS Pty Limited (Trustee) v Tamaya Resources Limited (In Liq) (No 2) [2016] FCA 446, for example, Foster J said (at [56]) that it would be "a wrong exercise of the Court's discretion to allow an amendment for which there was no arguable basis in fact".
I was taken in the course of argument to the decision of Black J in Sheridan v Colin Biggers & Paisley [2019] NSWSC 528 in that regard. I have considered other authorities in such a context (see for example Hastie Group Ltd (in liq) v Bourne; Hastie Group Ltd (in liq) v Moore [2017] NSWSC 709).
I am in no doubt that the pleading in the present case must be struck out. Where I have had difficulty is in deciding whether the appropriate course at this stage is to dismiss the proceedings with liberty to the plaintiff to take such steps as he may properly be advised in the future in order to pursue any claim he may have (pursuant, for example, to ss 237 or 247A of the Corporations Act or for breach of any form of shareholders' or other agreement with the second defendant at the time QTQ was incorporated, or a claim as a minority shareholder for oppression under the Corporations Act), or whether the appropriate course is to give Mr Nguyen an opportunity to obtain legal advice in relation to any causes of action he may properly be able to bring, and stand the matter over in order to see whether or not a properly pleaded statement of claim can be put before the court by the plaintiff.
In that regard, Mr Nguyen tells me from the Bar table that the reason that his former solicitors no longer act for him is that he was not in a position to provide funds. He says that he cannot afford to pay legal fees.
I accept that there is no evidence before me in relation to that at this stage but Mr Nguyen is representing himself and there is the added difficulty that he does not speak English as a first language. In those circumstances, it seems to me, that it is in the interests of the administration of justice for me to refer the matter for pro bono assistance pursuant to r 7.36 of the UCPR in order to enable Mr Nguyen to understand the avenues that he may be able to take in order to obtain necessary information to satisfy himself as to whether or not he has a cause of action against one or both of the defendants and to obtain advice as to what that cause of action might be.
I note that mere satisfaction that a litigant cannot otherwise obtain legal assistance is not a sufficient reason to refer a litigant under this rule and that matters that are relevant to consider in this context are not only the person's means but also the nature of the proceedings, the likely availability and utility of legal assistance, and the complexity of the proceedings.
In this regard, the fact that Mr Nguyen clearly does not understand concepts of company law, which is evident from the pleadings as they presently stand, suggests to me that referral of the matter for legal advice for the limited purpose of Mr Nguyen obtaining advice as to any potential causes of action and as to the steps that he may properly take in relation to those causes of action would be in the interests of the proper administration of justice. It may, in my opinion, avoid unnecessary and futile litigious steps. I am conscious of the fact that the usefulness of such a process will depend on whether or not pro bono assistance can be obtained and that there is no guarantee as to that, and I am also conscious of the fact that the referral for pro bono assistance imposes an onerous obligation on members of the profession who volunteer their services in this regard.
Nevertheless, having taken into account the stage of the proceedings at which the case is and the complexity of the matters, and having regard to the obvious deficiencies in the pleading to date, I consider that the appropriate way to proceed is for me to strike out the statement of claim, for me to refer the matter for pro bono assistance for a limited purpose, and to stand the matter over for a period of time in order to obtain the referral and bring the matter back then for directions, standing over the application for the proceedings to be dismissed.
I have in mind that if on the next occasion that the matter is before the court, after Mr Nguyen has had the opportunity to pursue the pro bono referral, if there is no course then proposed to be adopted by the plaintiff which would give me confidence that a properly pleaded cause of action will be able to be put before the court, I would be minded to dismiss the proceedings under r 13.4 of the UCPR at that stage.
As far as the costs of the present motion are concerned, I am of the view that costs of the notice of motion to date should be borne by the plaintiff in accordance with the general rule that costs follow the event. I note in that regard that the deficiencies in the pleading have already been pointed out by the registrar and at the time when Mr Nguyen did have the benefit of legal representation and Mr Nguyen has had the opportunity already to obtain advice in relation to the appropriate cause of action and steps to be taken in relation to pursue any such cause of action and that the defendants have been put to the expense of the present motion on which they have succeeded and that, but for the exercise of the discretion to refer the matter to pro bono referral, the whole proceeding would now have been dismissed.
I also note that it is a matter of concern that the proceedings appear to have been commenced against a background of threats that if an offer of settlement were not to be made then there would be very serious allegations made to a variety of authorities. I make no comment on whether or not there is a proper basis for the making of those allegations, but it is an inappropriate use of the court process to commence proceedings with a view to putting pressure on a defendant or defendants, and there are authorities that deal with when that conduct amounts to an abuse of process, and I have in mind the authorities that deal with it being an abuse of process to commence proceedings for a collateral or improper purpose (see, for example, UBS AG v Tyne [2018] HCA 45 at [1] and [72]; Dickson v Federal Commissioner of Australia Federal Police [2019] NSWSC 1293 at [103]).
I make no finding that these proceedings as commenced were an abuse of process but I must put on the record my concern that the correspondence suggests what could only reasonably be understood as threats being made to raise very serious allegations of the kind that have been made. I have already noted that Mr Nguyen does not accept that those were threats, but it is a matter of concern to me.
That said, that does not dissuade me from exercising a discretion to refer the matter to pro bono referral. It is clear that there is a contentious dispute between the plaintiff and the second defendant and, if the obtaining of legal advice can assist in the parties in coming to some form of resolution of the matter, then that will be in the interests of the just, quick and cheap resolution of the real issues in dispute. That is the reason that I have taken the course now taken.
[3]
Orders
For the above reasons, I make the following orders:
1. Strike out the statement of claim filed 21 May 2019.
2. Refer the plaintiff to the Registrar for referral for pro bono assistance for a limited purpose pursuant to r 7.36 of the Uniform Civil Procedure Rules 2005 (NSW).
3. Stand the balance of the notice of motion over for a period of time in order for the referral to take place.
4. Order that the costs of the defendant's notice of motion today be borne by the plaintiff on the ordinary basis.
[4]
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: 27 November 2019
8 NSWLR 689; [2014] NSWCA 326
Category: Procedural and other rulings
Parties: Dominic Doan Nguyen (formerly known as Anh Quan Nguyen) (First Plaintiff)
QTQ Mechanical Services Pty Ltd (First Defendant)
Quang Thanh Tran (Second Defendant)
Representation: Counsel:
D Nguyen (Applicant) (in person)
S Hartford Davis (Respondent)