Pakefx Pty Ltd v Dickson

Defendant's strike out motion

I will deal first with the strike out application made by the defendants concerning the plaintiff's further amended statement of claim. The defendants move under UCPR r 14.28(1)(a) and (b), which provide: 14.28 Circumstances in which court may strike out pleadings (1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings…
The amended statement of claim is a carefully drawn and detailed pleading. It is not self-evidently defective, and it does not appear on its face to be a likely cause of unnecessary prejudice, expense or delay in the preparation of the defendants' evidence, or the conduct of the hearing.
The defendants have pleaded fully to the plaintiff's amended statement of claim, which in broad terms makes the same allegations as are to be found in the further amended statement of claim, and the application has been brought after the plaintiff has served its evidence in the proceedings. The defendants have not yet served their evidence.
The defendants have not put evidence before the court to establish any prejudice or embarrassment concerning their ability to plead to the allegations in the further amended statement of claim. On the contrary, it appears from the terms of the defence to the amended statement of claim that the defendants did not suffer any embarrassment in responding to the allegations made against them.
As counsel for the plaintiff pointed out, Practice Note SC 11 has been followed in the present case, and as the defendants have not served their evidence, the effect of par 4 is that the court has not yet made an order for disclosure of documents. He submitted that, given the advanced state of preparation of the matter for hearing, some allowance should be made in favour of the plaintiff in relation to possible marginal deficiencies in the pleading, because the plaintiff has not had the advantage of access to the defendants' documents for the purpose of refining its allegations.
Although UCPR r 14.28 authorises the court to strike out the whole or any part of the pleading at any stage of the proceedings, it is the modern practice that defendants are not encouraged to apply to strike out statements of claim at this late stage of the proceedings. Strike out applications may serve a purpose that is consistent with the operation of Div 1 of Pt 6 of the Civil Procedure Act 2005 (NSW), particularly s 56, if there is good cause to make the application, and it is brought before the defendant is required to file its defence, or at least early in the proceedings. If there is a defect in the way the statement of claim is pleaded that is sufficiently serious to justify a strike out application, it will usually be obvious at the time the statement of claim is served on the defendant. Defendants should exercise restraint in moving to strike out statements of claim. Although each case must depend upon its own facts, it will usually only be appropriate for the court to be asked to entertain a strike out application where the defect in the pleading is relatively obvious and easily explained. The willingness of the court to deal with intricate and obscure pleading points will ordinarily be proportional to the magnitude of the apparent benefit to the parties and the administration of justice, if such points are resolved by the court as a matter of pleading.
Restraint in making strike out applications is all the more necessary in cases such as the present where the application is not made until after the plaintiff has served all of its evidence. Although UCPR r 14.28(2) authorises the court to receive evidence on the hearing of an application for a strike out order, that provision does not generally invite the defendant to subject the statement of claim to a detailed analysis through the prism of an examination of the evidence filed by the plaintiff, to support submissions that seek to establish the inadequacy of aspects of the pleading by reference to the effect of the whole of the evidence. As a matter of case management it is not likely to be a useful or proper application of the court's time and resources to be required to determine the adequacy of a pleading, which itself is complex, having regard to the even more complex contents of the evidence. When this point in the preparation of the case is reached, it will ordinarily be preferable for the matter to go to trial.
There may, of course, be exceptional cases where, after the plaintiff's evidence is served, it emerges that considerable time and expense may be saved, if some arguably defective aspect of the pleading, which was initially allowed to pass without challenge in conformity with the modern approach whereby the taking of pleading points is discouraged, is struck out, perhaps even if the only consequence is that the allegation will be re-pleaded with greater clarity. However, the likelihood is that even in this circumstance the making of a strike out application will not commend itself to the court, unless the defect is clear, and the benefits are readily apparent.
It will be convenient to begin by addressing the structure of that part of the plaintiff's further amended statement of claim that pleads its misleading and deceptive conduct case, without addressing the substance of the individual representations. The plaintiff pleads: 1. On 30 November 2006 the first defendant made representations to the plaintiff called the "Pre-Contract Representations": pars 5 - 7. 2. The Implied Representations were made on the same date arising out of the substance of the Pre-Contract Representations: par 8. 3. As at July 2007, the consortium was comprised of 5 equal shares of 20%. 4. In March and July 2007 the first defendant made further representations to the plaintiff called the "Further Pre-Contract Representations": par 13. 5. Further implied representations, to the same effect as the Implied Representations, were made on the same date arising out of the substance of the Further Pre-Contract Representations, called the "Further Implied Representations": par 14. 6. On or about 23 July 2007, acting in reliance upon all of the representations, the plaintiff (a) paid $20,000, being its share of the deposit; (b) entered into a contract as one of the buyers to purchase Villa 33 for $2.76 million; and (c) bound itself to complete the contract: par 16. 7. The representations (considered globally) were inaccurate and misleading and deceptive or likely to mislead and deceive for certain identified reasons: par 18. 8. The first defendant knew that by entering into the contract it was eventually due for completion on its terms: par 23. 9. After contract but before completion it became apparent that there was no market interest in acquiring Villa 33 prior to completion of the contract (it being one of the Pre-Contract Representations that a sale of Villa 33 before completion of the contract would be possible): par 25. 10. In about September 2009 the plaintiff was notified that one of the consortium members (Kevin and Susan Miller jointly) had withdrawn as members of the consortium due to financial distress and would no longer be a party to the contract: par 27. 11. On 11 September 2009 the first defendant made representations to the plaintiff called the "Pre-Completion Representations", being new representations that tended to make completion of the contract attractive to the plaintiff: par 27. 12. In October and November 2009 the first defendant made additional representations to the plaintiff, called the "Further Pre-Completion Representations", being even further representations that tended to make completion of the contract attractive to the plaintiff: par 28. 13. Further implied representations, called the "Pre-Completion Implied Representations", arose out of the making of the Pre-Completion Representations and the Further Pre-Completion Representations: par 29. 14. Acting in reliance upon the representations made before the contract and the representations made afterwards and "at all events being bound to complete the [contract]", the plaintiff (a) agreed with the first defendant that the second defendant would be formed to complete the contract as trustee for a unit trust; that shares at a nominal value would be issued to the remaining four members of the consortium, who would also be issued units in the trust; and that the trustee would seek finance of $2.2 million to complete the contract; (b) the plaintiff would continue to be a member of the consortium; and (c) the plaintiff took no active steps to extricate itself from the consortium (e.g. by attempting to sell its interest): par 31. 15. In ongoing reliance on the representations made before the contract and the representations made afterwards and "at all events being bound to complete the [contract]" the plaintiff (a) paid a further $140,000 to the trustee for the allotment of units; (b) was forced to increase its interest in the consortium from 20% to 29.09% after two consortium members withdrew; and (c) was compelled to be a shareholder of the second defendant and unit holder in the trust: par 34. 16. On 30 March 2010 the first defendant made representations to the plaintiff, called the "Budget Representations", concerning ways in which the shortfall per unit holder could be reduced: par 35. 17. In further reliance on all of the representations, "and in any event being bound to complete [the contract]", the plaintiff (a) agreed to the second defendant borrowing $2.3 million on the security of its assets and undertakings, and gave a guarantee to the lender for $692,130 supported by a charge over its assets and undertaking; (b) acquiesced in the second defendant completing the contract; and (c) made a loan to the unit trust and incurred a liability for legal fees: par 36. 18. All of the representations were inaccurate and misleading and deceptive or likely to mislead or deceive for specified additional reasons: par 37.
For the sake of brevity I have paraphrased the allegations pleaded in the further amended statement of claim. I have omitted many allegations necessary to establish the entitlement to relief under the relevant statutes.
The most significant relevant feature of the structure of the further amended statement of claim that is considered above is that the plaintiff pleads that it entered into the contract in reliance upon the pre-contract representations; and then, after contract, further representations were made to it, upon which it also relied to take various steps notwithstanding that "in any event" the plaintiff was bound to complete the contract. I will return to this issue when I consider the defendants' submissions concerning the need for an order to strike out parts of the plaintiff's further amended statement of claim.
When the hearing began, the court did not have the benefit of an outline of the plaintiff's submissions in response to the defendants' comprehensive attack on the plaintiff's pleading. That situation reflected no fault on the plaintiff's part. It became necessary for the court to determine what the precise position of the parties was concerning what aspects of the pleading would be attacked, and what would be defended. During discussion between the court and counsel for the parties, each party refined their position.
The plaintiff advised the court that it would abandon pars 65 and 66 of the further amended statement of claim (part of the 'oppression' claim).
The defendants indicated that they would not pursue all of the attacks on the further amended statement of claim that are contained in their outline written submissions. The defendants confined their attack on the pleading to parts of par 7, parts of par 13, and the paragraphs in the further amended statement of claim that plead a cause of action based upon representations allegedly made to the plaintiff after it entered into the contract to purchase Villa 33.
As the defendants' claim that parts of pars 7 and 13 should be struck out depend upon equivalent arguments, it will be convenient to deal with both of those paragraphs together.
Paragraph 7 alleges:
The defendants argue that the paragraph should be struck out except for sub-pars (e), (f), (m), (n), (p), (q) and (s). Dickson handed McPherson a brochure in respect of the Hamilton Island Yacht Club villas and made representations that: (a) Dickson was the design engineer for the ultra exclusive villa development on Hamilton Island; (b) Dickson was well acquainted with the owner of Hamilton Island, Bob Oatley, and with the developer, Iain Murray, through his sailing association; (c) Dickson had been involved in a number of property developments and had always done well, even when the developments had "not gone to plan"; (d) $250,000 had already been spent marketing the Yacht Club villas on Hamilton Island; (e) the marketing campaign lasted only one day because all 35 villas sold on the first day they were marketed for sale at prices ranging between $2.65 million and $2.85 million; (f) there was a waiting list with at least 12 people who were unhappy at having missed out on securing a villa; (g) Dickson had secured the opportunity to acquire a villa known as "Villa 33" ("Villa 33"); (h) Villa 33 was perfectly located, having been moved forward from its original location to provide better views; (i) Dickson already had four (4) investors, including himself, and was looking for a fifth; (j) an initial deposit of $10,000 (or $2,000 per investor) was due immediately; (k) an additional $100,000 deposit (or $20,000 per investor) was due in about 6 weeks when a contract for the sale of Villa 33 was exchanged; (l) the purchase price for Villa 33 would be $2.7 million; (m) given the demand for villas, Villa 33 had already increased significantly in value and the consortium would be able to sell it before settlement for a sizeable profit; (n) Dickson wanted to sell Villa 33 before settlement for about $3.5 million and make each of the investors more than $100,000 in profit; (o) the consortium would have 2 years from exchange of contracts to complete the sale of Villa 33; (p) rental income for Villa 33 would be "guaranteed" by Hamilton Island Enterprises Ltd, which acts as the letting and managing agent ("HIE"), at $1600 per night and 85% occupancy; (q) HIE would manage Villa 33 at a cost of about $300 per night so that it would be safe to say that Villa 33 would net about $1200 per night; (r) HIE had secured deals with international companies (including Microsoft and Apple) to hold their annual conferences on Hamilton Island; (s) rental income during 2 weeks of "race week" would be double the regular rental rate. ("Pre-Contract Representations") Particulars The Pre-Contract Representations were made orally in a conversation between Dickson and McPherson on 30 November 2006. Some of the Pre-Contract Representations are recorded in a contemporaneous note made by McPherson during the meeting. The re-location of Villa 33 was marked in the brochure given to McPherson by Dickson.
Paragraph 13 alleges: In March and July 2007, Dickson made the following further representations: (a) he was an "inside consultant" in respect of the Hamilton Island development; (b) the consortium's intention was to sell Villa 33 prior to completion but the consortium could hold onto Villa 33 if it could not get the right price; (c) the value of Villa 33 was still going up; (d) the consortium needed to move quickly to acquire Villa 33; (e) there were 15 prospective purchasers "on the waiting list" to buy Villa 33; (f) the Oatleys believed that Villa 33 was now worth over $3.5 million; (g) the consortium would have nearly two years to complete the purchase of Villa 33; (h) the holding costs would be "high but not outrageous"; (i) HIE was guaranteeing between 65% and 80% occupancy, and wanted the villas full year round; (j) rental income for Villa 33 would be $1,600 per night; (k) HIE's management fee would be 20% (or $320) per night; (l) Villa 33 would be break even or close to it on full finance if the consortium completed the purchase; (m) capital gains over a 10 year period in the Whitsundays had been "spectacular" and were "set to climb for another 5 years"; (n) the investment risk was "small" compared to the upside potential; (o) the consortium needed to sign a contract by 23 July 2007. (the "Further Pre-Contract Representations") PARTICULARS 1. The Further Pre-Contract Representations (to the extent they were made in March 2007) were made in a telephone conversation between McPherson and Dickson, which conversation is deposed to in paragraph 26 of McPherson's affidavit sworn on 9 May 2014. 2. The Further Pre-Contract Representations were made in an email from Dickson to McPherson (and others) dated 21 July 2007, save that the representations pleaded in paragraphs 132(de) and (no) were made in an email from Cole & Butler to Dickson which was provided to McPherson on 20 July 2007.
The defendants submit that sub-pars (d), (e), (g), (m) and (o) should be struck out. For separate reasons the defendants submit that sub-par (a) should also be struck out, and in consequence par 21 (a) as well as (i) should also be struck out.
Putting aside the attack on par 13(a) for the moment, the defendants make essentially the following submissions as to why the identified sub-paragraphs of pars 7 and 13 should be struck out. First, the defendants say, by reference to the allegations made in the balance of the further amended statement of claim, that there are no allegations that those representations were misleading or deceptive, and in some cases the representations were clearly true. The defendants support that submission by referring to the entirety of the evidence served by the plaintiff, and submitting that nothing in the plaintiff's evidence falsifies these allegations. The allegations are therefore irrelevant; the defendants then say that the allegations under attack are embarrassing by reason of the "rolled up" manner in which the plaintiff attempts to plead that the representations were misleading or deceptive in par 18. Paragraph 18 does not plead seriatim how each of the representations in pars 7 and 8 are misleading or deceptive. It addresses some of the individual representations directly, but otherwise treats them globally and makes assertions as to why they were inaccurate and misleading or deceptive on that basis. The defendants also complain that par 18(c) pleads that "none of the represented matters crystallised or came to pass as represented", which appears to mean that all of the representations were false, even though, as noted, many have not individually been pleaded to be false, and the plaintiff's evidence does not attempt to prove that many are false.
In effect, the defendants have singled out those representations in pars 7 and 13 that they recognise as being significant, and the subject of allegations that the representations were false or misleading and deceptive, and submitted that the remainder should be struck out. In short, the defendants submit that "the real complaint is the alleged representations about the value of Villa 33 and its future rental and occupation rates".
In response, the plaintiff acknowledges that some of the individual representations pleaded in pars 7 and 13 are not separately alleged to have been false and misleading or deceptive. However, the plaintiff relies upon the following observation by Hasluck J in Archer v Channel 7 Perth Pty Ltd [2002] WASC 160 at [39]: [39] The decided cases suggest that material will not be struck out merely because it is introductory: Speidel v Plato Films Ltd [1961] AC 1090 at 1104; Ron Hodgson (Trading) Pty Ltd v Belvedere Motors (Hurstville) Pty Ltd [1971] 1 NSWLR 472 at 477. An introductory allegation will not be struck out if it is material, not as an essential ingredient of the cause of action, but in the sense that evidence could be led at trial to support it: Gaston v United Newspapers Ltd (1915) 32 TLR 143 at 144; Millington v Loring (1880) 6 QBD 190 at 194, 196. I pointed out in earlier discussion that a court will strike out particulars on the grounds of irrelevance only in a clear case.
The plaintiff submits, in effect, that the representations under attack were made, and are relevant in so far as they qualify the circumstances in which the primary representations, which the plaintiff alleges were false and misleading or deceptive, were made. The plaintiff also submits that each of pars 7 and 13 plead, in a comprehensive way, the circumstances in which the first defendant made representations at different times to the plaintiff, in a way that gives proper context to the events. The allegations are not embarrassing, submits the plaintiff, because they are virtually identical to the equivalent paragraphs in the amended statement of claim, and the defendants have, in pars 8 and 14 respectively of their defence to that pleading, apparently experienced no difficulty or embarrassment in pleading a detailed response, in the nature of an alternative set of circumstances, to those pleaded by the plaintiff. Given the stage that the proceedings have reached, it is not conducive to the just, quick and cheap resolution of the real issues in the proceedings for the court to entertain the defendants' application that the challenged sub-paragraphs should be struck out.
I accept the plaintiff's submissions, and will decline to strike out the sub-paragraphs in pars 7 and 13 that have been attacked by the defendants.
The defendants have not demonstrated any good reason why the sub-paragraphs should be struck out. Their existence in the further amended statement of claim has not, and will not, cause any prejudice, embarrassment or delay in the proceedings. The fact that the sub-paragraphs may only provide context and background to the allegations of operative representations does not have the effect that the further amended statement of claim, taken as a whole, does not disclose a reasonable cause of action. While there is some basis for criticising the inclusion in pars 7 and 13, without distinction, of operative and background representations, in my view the criticism borders on quibbling, at least at this stage of the proceedings. If there are any latent difficulties in the pleading approach taken by the plaintiff, which become apparent, I see no reason why those difficulties cannot conveniently be dealt with at the trial.
The attack that the defendants have made on the pleading of par 13(a) is based upon the argument that it is "mischievous", because it is clear that the defendant was in fact the design engineer for the Hamilton Island development, and the precise difference between an inside and an outside consultant is unclear, so the plaintiff is not entitled to make a case that the defendant misrepresented that he was an inside consultant.
I do not accept this argument, primarily on the basis that, at this stage of the proceedings, it is of no moment. It is not appropriate that the court entertain quibbling arguments of this nature in the context of a strike out application brought after the close of the pleadings and the service of the plaintiff's evidence.
The final aspect of the defendants' remaining strike out application is their challenge to the whole of the plaintiff's case based upon representations that were made after the plaintiff entered into the contract to purchase Villa 33.
It will not be convenient to set out the whole of the parts of the further amended statement of claim in which the plaintiff's case based on post-contract representations is pleaded. The parts of the pleading that the defendants claim ought to be struck out are identified in par 69 of their outline written submissions.
The defendants rely upon the observation of Weinberg J in McKellar v Container Terminal Management Services Ltd [1999] FCA 1101; (1999) 165 ALR 409 at [26], where his Honour said: Material facts must be pleaded which show the required causal link between any alleged contravention of the Act, and any damage to the applicant. A deficient pleading, namely one that does not plead relevant material facts, cannot be saved by particulars. It is not sufficient simply to allege loss and damage as a result of alleged contraventions of the Act; it is necessary to identify a causal connection between the impugned conduct and such loss as is said to have been suffered…
The defendants' argument can be put simply. First, the plaintiff alleges that it entered into the contract in reliance upon representations, which it alleges were false and misleading or deceptive. Once the plaintiff entered into the contract, it was legally bound to complete it. Furthermore, in each case where the plaintiff alleges that it took further steps in reliance upon representations made after the contract, it alleges that it did so "at all events being bound to complete [the contract]". The defendant submits that the pleading does not make clear how, if the plaintiff was already bound to complete the contract, and intended to comply with its contractual obligation, the post-contract representations could have caused the plaintiff to act in a manner that caused it to suffer additional, or different damage, which it would not have suffered in any event.
In fairness to counsel for the plaintiff, whose response to the defendants' submissions was candid, the plaintiff did not put a submission that met this argument, as a matter of principle.
In my view it is always likely to be the case that, when a plaintiff is induced to enter into a valid contract on the basis of the misleading or deceptive conduct of the defendant, subsequent misleading and deceptive representations made by the defendant are unlikely to cause the plaintiff to suffer any additional or different damage, at least in so far as the damage is the consequence of the plaintiff completing the contract.
It does not follow that post-contract representations will never be capable, if relied upon by the plaintiff, of causing the plaintiff to suffer additional, or different, damage, than the plaintiff would have suffered if only the pre-contract representations had been made and relied upon. Whether a proper case can be pleaded based upon post-contract representations will depend precisely upon the facts of the case. However, this is an area where, in my view, it will be particularly important for the plaintiff to comply with the observations made by Weinberg J, and plead clearly the material facts that cause the plaintiff to suffer additional, or different, damage from its reliance upon post-contract representations, which it would not have suffered in any event by reason of its having entered into the contract in reliance upon pre-contract representations.
In the present case it is to be noted that some events are pleaded as having occurred after the date of the contract, which may have been material to the actions of the parties. Before completion it became apparent that there was no market interest that would allow Villa 33 to be sold prior to completion for a profit, which is the subject of one of the alleged pre-contract representations (par 25). That suggests that the plaintiff became aware that one of the representations upon which it relied was false, before completion of the contract occurred. Further, members constituting one fifth of the consortium withdrew due to financial distress and would no longer be parties to the contract (par 26(a)). It also appears from par 34(b) that the plaintiff alleges that it was forced to increase its interest in the consortium from 20% to 29.09% because consortium members representing 2/5 of the consortium withdrew.
It may be that, upon the plaintiff gaining knowledge of these matters, it could have acted differently than increasing its share in the consortium and going ahead with the completion of the contract via the establishment of the unit trust of which the second defendant was trustee. This issue is at large because the plaintiff may have been obliged both legally and practically to complete in any event, because it was at risk of incurring a substantial loss by reason of the loss of its share of the deposit, and its liability to pay damages for breach of contract. However, there may have been alternative courses of action that may have led to the plaintiff suffering a lesser loss than it will now suffer.
In par 31(c) the plaintiff alleges, in a passing way, that it "took no active steps to extricate itself from the consortium (eg, by attempting to sell its interest)", but the plaintiff has not in any detailed or complete way pleaded what it would, and could have done differently from completing the contract (one way or the other) and how that alternative action would have saved it from the loss that it suffered, or reduced that loss.
The problem with the further amended statement of claim in its present form is that the pleading does not grapple with the necessity to be clear and precise as to how relying upon the post-contract representations caused it to suffer additional, or different, damage that it would not have suffered in any event. In a sense the pleading repeatedly fudges the issue by pleading in the one breath that the plaintiff took additional steps on the faith of the post-contract representations, when at the same time it was in any event bound to complete the contract.
I accept the defendants' argument that this approach to the pleading has a tendency to cause prejudice and embarrassment to the defendant. It is not possible to discern from the further amended statement of claim exactly how it is alleged by the plaintiff that, notwithstanding that it was bound to complete the contract in any event, additional conduct on its part in reliance upon post-contract representations caused it to suffer additional, or different, damage.
Even though the issue has been raised at a late stage in the proceedings, the next step is for the defendants to put on their evidence. A broad consideration of the further amended statement of claim suggests that the evidentiary burden of dealing with the post-contract representations will be relatively equivalent to that of dealing with the pre-contract representations. The just quick and cheap approach to the further management of this case is likely to be facilitated by requiring that the plaintiff remedy the defects in its post-contract representation case, if it can, or alternatively that its post-contract representation case be struck out.
It is important that the plaintiff grapple with this problem realistically. If the reality is that Mr McPherson will concede in cross examination that the plaintiff was bound to complete the contract, and could not have taken any course other than it did take, whether or not the post-contract representations were made, it will be in no parties' interest for the post-contract representation case to be pursued. If it be assumed that the plaintiff can establish that the post-contract representations were made to it, the plaintiff must identify the alternative courses of action in relation to changes in circumstances, given that it was contractually committed to complete the contract; it must assess the relative advantages and disadvantages of doing anything other than simply completing the contract; it must determine objectively what, if anything, it would have done other than what it actually did; it must quantify in money terms the difference between the consequences of alternative courses of action, and simply completing the contract; and then it must plead in a transparent way how reliance upon the post-contract representations entitle it to a different outcome in the proceedings to its claim based upon the pre-contract representations.
As I have already noted, the defendants have moved to strike out the plaintiff's post-contract representation claim after the plaintiff has put on all of its evidence in support of that claim. I have not been taken to that evidence, and I do not know whether the evidence will constrain how the plaintiff will be able to respond to a requirement that, if it wishes to maintain its post-contract representation claim, it will have to re-plead the claim in a proper way. However, at this late stage the plaintiff should be given an opportunity to re-plead, if it is able to do so. I have already invited the plaintiff to advise the court whether or not it wants to be given the opportunity to re-plead. In the interim I have decided that appropriate parts of the pleading of the post-contract claim should be struck out. I have not heard specific argument from counsel for the plaintiff as to whether the court should make the precise strike out order sought by the defendants in par 69 of their outline written submissions.
I will give the plaintiff the opportunity to re-plead its post-contract representation case, and make directions for it to serve any draft second further amended statement of claim on the defendants. The directions will provide an opportunity to the defendants to contest whether or not the plaintiff should be given leave to file the new pleading. Alternatively, if the plaintiff decides not to re-plead, I will give it an opportunity to make submissions as to which parts of the further amended statement of claim the court should strike out.

Defendants' motion seeking to restrain plaintiff's solicitor from acting

The second notice of motion filed by the defendants seeks an order restraining the plaintiff's solicitor from continuing to act for the plaintiff.
The evidence establishes that the principal of the incorporated legal practice that acts for the plaintiff, Mr Mark Ryckmans, has been a personal friend of Mr McPherson for about 10 years. While Mr Ryckmans is the solicitor on the record, an employed solicitor, Mr Louis Ryckmans, has the day-to-day carriage of the matter. As I have noted above, a draft statement of claim was served on the defendants' solicitors in November 2011. The defendants have filed their notice of motion to restrain the plaintiff's solicitor continuing to act for it almost 3 years after it became aware that the solicitor was acting for the plaintiff. Mr Ryckmans has given evidence that the fees charged by his firm to date to the plaintiff, excluding disbursements and counsel's fees, exceed $100,000.
Mr Dickson gave evidence that Mr Ryckmans' involvement in the transaction involving the purchase of Villa 33 began in October 2009, when Mr McPherson suggested that the remaining members of the consortium should change their lawyer. That was after the date when the plaintiff alleges Mr Dickson made the Pre-Completion Representations (par 27), and about the same time as the alleged Further Pre-Completion Representations were made (par 28). The particulars to par 28 allege that the Further Pre-Completion Representations were made in emails from Mr Dickson to Mr McPherson dated 1 and 9 November 2009, as well as orally at a meeting of members of the consortium on about 8 October 2009. The plaintiff has not alleged that Mr Ryckmans was a party to, or present when, those communications occurred.
Following October 2009 according to Mr Dickson, Mr Ryckmans provided his advice and services to the remaining members of the consortium, which led to the creation of the unit trust, and the purchase of Villa 33 being completed by the second defendant rather than by the consortium members personally. There is some evidence that the consortium engaged Mr Ryckmans' firm to set up the trust, trustee and shareholders agreement in relation to the purchase of Villa 33. A Queensland-based solicitor with local experience with Hamilton Island was retained to deal with the conveyancing aspects of the transaction.
In response to an objection from the plaintiff I rejected evidence in Mr Dickson's affidavit of Mr Ryckmans' involvement in negotiations between the Millers and the remaining consortium members in relation to their withdrawal from the consortium, on the ground that the effect of s 131 of the Evidence Act 1995 (NSW) was that the evidence could not be adduced. As I understand it, the plaintiff did not contest that Mr Ryckmans had some involvement with those negotiations. There was, however, no evidence that Mr Ryckmans' firm was formally retained to advise the remaining consortium members in relation to the withdrawal of the Millers. The absence of evidence that the issue fell strictly within Mr Ryckmans' retainer may be of little significance. More importantly, there is no evidence at all, whether in relation to the withdrawal of the Millers, or otherwise, that Mr Ryckmans' involvement in the transaction has led to the present proceedings caused him to learn anything about Mr Dickson having allegedly made representations to the plaintiff, or the plaintiff acting in reliance upon those representations for any particular purpose. It appears from par 36(b) of the further amended statement of claim that the contract for the purchase of Villa 33 was completed on 16 April 2010 (after, according to Mr Dickson, it was novated in favour of the second defendant on about 23 December 2009). It is not clear from the evidence when the plaintiff first retained Mr Ryckmans' firm to act for it on its claim against the defendants, although as has been noted above the draft statement of claim was delivered to the defendants' solicitors in November 2011.
The defendants have provided no evidence of any particular prior involvement of Mr Ryckmans in the transaction that would give rise to a positive concern that Mr Ryckmans may have gained any knowledge that could give the plaintiff any advantage in the proceedings, or which might be misused against the interests of the defendants. There has been no suggestion that whatever involvement Mr Ryckmans had in the withdrawal of the Millers from the consortium, was in any way connected with the basis of the dispute the subject of the present proceedings...
As I have mentioned, the plaintiff has served its evidence. That evidence does not include any affidavit of Mr Ryckmans.
The defendants relied upon the statement of principle made by Brereton J in the fifth bullet point in the following extract from his Honour's decision in Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 at [76]: [76] The foregoing authorities establish the following: • During the subsistence of a retainer, where the court's intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court's jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests [Prince Jefri]. • Once the retainer is at an end, however, the court's jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure) [Prince Jefri]. • After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court's intervention, such duty having come to an end with the retainer [Prince Jefri; Belan v Casey; Photocure; British American Tobacco; Asia Pacific Telecommunications; contra Spincode; McVeigh; Sent]. • However, the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt]. Prince Jefri does not address this jurisdiction at all. Belan v Casey and British American Tobacco are not to be read as supposing that Prince Jefri excludes it. Asia Pacific Telecommunications appears to acknowledge its continued existence. • The test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborow; Bowen v Stott; Asia Pacific Telecommunications]. • The jurisdiction is to be regarded as exceptional and is to be exercised with caution [Black v Taylor; Grimwade v Meagher; Bowen v Stott]. • Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause [Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott]. • The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief [Black v Taylor ; Bowen v Stott].
The plaintiff accepted that these principles are applicable. The Court of Appeal approved of Brereton J's formulation in Cooper v Winter [2013] NSWCA 261 at [1], [2] and [96] and Maxwell-Smith v S & E Hall Pty Ltd [2014] NSWCA 146; (2014) 308 ALR 149 at [1], [2] and [24].
The defendants expressly disavowed any claim that the injunction that they seek is justified by the need to protect the defendants from misuse of any information that they provided confidentiality to Mr Ryckmans or his firm.
The defendants submitted that the knowledge and understanding of the plaintiff, both through Mr McPherson, and as imputed from the consortium's solicitors, will be a central issue for the court to determine at trial, and Mr Ryckmans will be a material and important witness on controversial issues of substance in the proceedings. This is a case, the defendants submitted in which the conduct of Mr Ryckmans will inevitably come under scrutiny. Further, Mr Ryckmans is in a position of inherent conflict between the interests of the firm, the plaintiff, the defendants, and his obligations to the court.
I reject the defendants' argument. In fact, I cannot see how it genuinely arises on the evidence. Nothing establishes that Mr Ryckmans had, or has, any relevant knowledge that might be imputed to the plaintiff. The defendants have not even identified that knowledge, let alone provided any evidence of it. It is completely obscure how any such knowledge will be an issue in the proceedings, let alone a central one. As I have said, the plaintiff has not served any affidavit evidence of Mr Ryckmans. In the circumstances, the defendants' claim that he will be a material and important witness is inconsistent with the facts as they now stand, and is a bare assertion. At present there is no substance in the claim that Mr Ryckmans' conduct will come under scrutiny. There is no inherent reason to suspect from the evidence given concerning Mr Ryckmans' involvement that there may be substance in the defendants' claim.
As a result of the rejection of part of the defendants' evidence, to which I have referred above, the defendants have abandoned the arguments that they sought to make based upon that evidence. However, I note that the defendants had intended to submit that there was an apparent inconsistency between the present position of the plaintiff, as represented by its solicitor, and the position taken in respect of the Millers and generally in 2009, so that the credit of Mr Ryckmans will be in issue; and further, that the defendant may have claims against Mr Ryckmans for negligence, and his firm might well be made subject of a pleaded claim by the defendant that it is a concurrent wrongdoer.
I have mentioned the submissions that the defendants intended to make, but have withdrawn, because I also cannot see in any event how those matters arise, or have substance. I do not see how the rejection of the evidence upon which the defendants wished to rely will have any material effect on the outcome of his notice of motion. The defendants' submissions give no content to the assertion that there is any inconsistency of position. The defendants have not commenced any claim against Mr Ryckmans' firm for negligence. The defendants have already filed their defence, but they have not raised any issue of concurrent liability.
The defendants have submitted that this case is analogous to that dealt with by Brereton J in Kallinicos. I disagree. In that case, as his honour said: [84] Accordingly, in my opinion, Mr Moloney will be a material witness on issues of substance which appear to be controversial and in respect of which questions of credibility and integrity (not necessarily his own) are likely to arise. [85] Moreover, there is a high degree of probability that Mr Moloney's evidence and/or conduct will come under scrutiny. It seems almost inevitable that Mr Kallinicos would query how being on notice of the interest and claims of Mr Kallinicos, Mr Moloney could accept instructions to distribute the entire balance of proceeds for the benefit of Mr Hunt. There may be a perfectly good explanation, but one can anticipate that it will be the subject of rigorous testing. [86] Thus, the propriety of Mr Moloney's conduct is likely to be examined in the proceedings, and his evidence is likely to be material. He will be in a position in which his client's interest, his own interest, and his obligation to the Court may well be in conflict. Mr Moloney will owe obligations of loyalty to his present client Mr Hunt, he will have an interest in presenting the facts in a manner which exonerates himself, and he will have a duty to the court to be frank. His evidence may crucially corroborate or refute Mr Hunt's version, and his own position and conduct may come under scrutiny. Yet Mr Moloney would not likely be called in Mr Hunt's case to prove that Mr Hunt had given false instructions. If he continues to act, loyalty to his client would be a disincentive to give evidence if those were the circumstances. Yet failure to give evidence would result in submissions being made that his evidence would not have assisted his own client's case.
Those findings were justified based upon the nature of the plaintiff's claim in that case, and appear to have been supported by evidence that was before the court. They were not mere assertions.
While, in this context, little useful guidance is likely to flow from an examination of other cases that have applied the principle upon which the determination of the present issue depends, I note that in Cleveland Investments Global Ltd v Evans [2010] NSWSC 567 Ward J (as her Honour then was) made an order restraining a solicitor from continuing to act for the defendant. Before the solicitor filed a notice of appearance for the defendant, he had acted for another party to the proceedings, being a cross defendant at the suit of the defendant. The defendant was the director of the cross defendant, who had been responsible for giving that party's instructions to the solicitor. The cross defendant was not in a position to know what information the defendant had given to the solicitor when retained by that company. The solicitor had declined to provide information to the cross defendant for the purpose of the proceedings, on the ground that he had no duty to inform it of the information he received from the defendant in his capacity as the director of the cross defendant. As her Honour noted, by reference to the observation by Bryson J (as his Honour then was) in D & J Constructions Pty Ltd v Head t/as Clayton Utz (1987) 9 NSWLR 118 at 123, cautious conduct is appropriate "because the spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance that justice is being done". The lawyer had actually changed sides as between parties for whom he acted in the proceedings.
I can readily understand how the circumstances in Kallinicos and Cleveland Investments caused their Honours to decide that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice required that the legal practitioner in those cases should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice. However, the circumstances of the present case present a very pale shadow of those that their Honours had to consider.
If content is to be given to the qualification that the jurisdiction is to be regarded as exceptional and is to be exercised with caution, and due weight should be given to the public interest in a litigant not being deprived of the lawyer of its choice without due cause, the defendants' application in this case should be rejected.
It must also be remembered that in Kallinicos at [92] - [93] Brereton J observed: [92] The inherent jurisdiction is discretionary. The cases emphasise that consideration is to be given to the prima facie right of a party to be represented by the lawyer of its choice, to the inconvenience, cost and disruption which might be occasioned by requiring a party to change lawyers, and to the "exceptional" nature of the jurisdiction… [93] However, the proceedings are at a relatively early stage. Although they have been on foot since 8 January 2003, a defence has not yet been filed; to date the parties have litigated procedural issues concerning pleadings and particulars. While an injunction restraining Mr Moloney from acting for the defendants would no doubt occasion some inconvenience, there is ample time for alternative representation to be obtained; the loss of Mr Moloney's knowledge of and familiarity with the matter to date would not be oppressive; and the proceedings are not so advanced that a requirement to obtain other representation would be unduly disruptive. [94] As to the question of delay, the most important material came from Mr Moloney's files, which were produced only in July 2005. Although the retainer issue about P&K was evident from an early date, its only consequence would have been to leave the fourth defendant unrepresented, and it did not have the same significance in terms of requiring a response in the interests of the administration of justice, as did the appearance of material which would make Mr Moloney a relevant and material witness.
I have not accepted that the defendants have made out their claim that Mr Ryckmans' firm should be restrained from continuing to act for the plaintiff, but if I am wrong in that conclusion, I would in any event, in the exercise of my discretion, decline to grant the relief sought, because the delay in seeking it has been entirely too great; Mr Ryckmans' firm has been allowed to act for the plaintiff to the point where all of its evidence has been served; and there would be an unwarranted waste of the legal fees paid to date by the plaintiff, and undue inconvenience, if at this late stage it was required to retain entirely new solicitors.
I will therefore make the following orders and directions: 1. Order that pars 65 and 66 of the further amended statement of claim be struck out 2. The defendants' notice of motion filed on 10 June 2014 for relief pursuant to UCPR r 14.28 is otherwise dismissed save in relation to the defendants' claim that the parts of the plaintiff's further amended statement of claim listed in par 69 of the defendants' outline of submissions dated 1 October 2014 (the parts listed in par 69 being the "contested allegations") should be struck out. 3. The court's ruling on the defendants' claim for relief pursuant to UCPR r 14.28 in respect of the contested allegations is reserved, pending completion of the steps the subject of the following orders. 4. Grant leave to the plaintiff to re-plead the contested allegations, and any related allegations in the further amended statement of claim, in accordance with the following orders and directions. 5. Direct the plaintiff to advise the defendant and the court by 4 PM on 22 October 2014 as to whether or not the plaintiff will re-plead the contested allegations, or any related allegations in the further amended statement of claim 6. Direct the plaintiff, if it does not wish to re-plead in accordance with the leave granted in order (4) to serve on the defendants and the court by 4 PM on 22 October 2014 any submissions that is wishes to make as to the orders that the court should make in the light of these reasons for judgement as to striking out parts of the further amended statement of claim. 7. Direct the defendants to serve on the plaintiff and the court by 4 PM on 27 October 2014 any submissions in response to submissions served by the plaintiff in accordance with order (6). 8. Direct the plaintiff, if it wishes to re-plead in accordance with the leave granted in order (4) to serve on the defendants and the court by 4 PM on 27 October 2014 a draft second further amended statement of claim. 9. Direct the defendants, if the plaintiff serves a draft second further amended statement of claim in accordance with order (8) to inform the plaintiff and the court in writing by 4 PM on 3 November 2014 whether it consents to the plaintiff filing the draft second further amended statement of claim, or whether it does not consent, and in the latter event explaining the defendants' reasons for not consenting. 10. Grant leave to the plaintiff to file the draft second further amended statement of claim by 10 November 2014 if the defendants consent to that course. 11. Direct the plaintiff, if the defendants do not consent to the plaintiff filing the draft second further amended statement of claim, to file and serve on the defendants by 4 PM on 10 November 2014 a notice of motion seeking leave to file the draft second further amended statement of claim, such notice of motion to be returnable before Robb J at a time determined by arrangement between the plaintiff and the defendants and the associate to Robb J. 12. Direct the parties to serve on each other and deliver to the court by 4 PM on 22 October 2014 any submissions they wish to make concerning the order that the court should make as to the costs of the defendants' notice of motion filed on 10 June 2014. 13. The defendants' notice of motion filed on 15 August 2014 for an order restraining the plaintiff's solicitor from continuing to act for the plaintiff in the proceedings is dismissed. 14. Order the defendants to pay the plaintiff's costs of the defendants' notice of motion filed on 15 August 2014 on the ordinary basis. 15. Order that any exhibits may be returned in accordance with the rules.

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