PENTHOUSE PUBLICATIONS LTD v McWILLIAM

The defendants sought leave to appeal against Lusher AJ's orders. The application came before a court comprising Kirby P and Clarke and Meagher JJA. In the course of argument there was discussion concerning deficiencies in the statement of claim as it then stood. The court was inclined to think that none of the causes of action which counsel for the plaintiffs indicated the plaintiffs wished to pursue had been pleaded in the statement of claim. The President asked counsel for the plaintiffs why it was not appropriate for the court to give leave to appeal, list the appeal expeditiously and then expect the plaintiffs upon the hearing of the appeal to present their "very best statement of claim" on the clear understanding they would be out of court if not then able to show an arguable cause of action. Some discussion followed after which the court decided to do what the President had suggested. His final words before the making of the orders were that "When the appeal is returned we expect the Amended Statement of Claim to be in the possession of the respondents so that it can be placed before the court and it should be in such a form as sustains the cause of action, because

we will be expecting it to be dealt with there and then." Formal orders implementing the court's intention were then made. O.6 said:

"Note that the opponents" [the plaintiffs] will on the return of the appeal produce the Amended Statement of Claim which the opponents would intend to file pursuant to the leave which Lusher AJ contemplated."

The date of the granting of leave to appeal and the making of the ancillary orders was 8 October 1990.

When the appeal came on for hearing on 19 October 1990, the further amended statement of claim contemplated by 0.6 of 8 October 1990 was handed up to the court. It contained seventeen paragraphs which are reproduced in a schedule to these reasons. From para9 onwards it was in quite different form from its predecessor. In view of what took place when leave to appeal was granted, the court as presently constituted took the view that we must consider for ourselves the statement of claim in its latest form. In substance, the proceedings lost their character as an appeal and became proceedings by which the court must decide, upon the statement of claim in its latest form being judicially scrutinised for the first time, whether the defendants named in it were entitled to summary dismissal as on demurrer. From here on I will refer to this latest statement of claim simply as the statement of claim.

According to the plaintiffs, the respondents in the appeal, the statement of claim shows that their interest in the companies ADM Franchise, Australian Direct Mail and McWilliam Holdings was such that the things they alleged the defendants did, directed to harming those companies, particularly ADM Franchise, caused the value of their interests to be reduced; the defendants' alleged actions also caused the plaintiffs to become liable on guarantees as a consequence of those actions. (Statement of claim paral5(d).)

What seems to me to be the gist of the plaintiff's allegations against the defendants is as follows. ADM Franchise had a contract with the first defendant ("Penthouse Publications") to print and publish Australian and New Zealand editions of Penthouse magazine. At the end of August 1982, ADM Franchise was in course of preparing an edition of Australian Penthouse, pursuant to the contract. Penthouse Publications agreed with certain of its agents, the second, third, fourth and fifth defendants, and with an employee of ADM Franchise, the sixth defendant, to get from ADM Franchise all of the work in progress for the forthcoming issue of Australian Penthouse.

Penthouse Publications, with the other defendants, did this by serving a notice purporting to terminate the printing and publishing contract and purporting to be properly given under that contract although, according to the statement of claim, it was invalid, of no effect and given only for the purpose of getting the work in progress away from ADM Franchise. Upon service of the notice and in purported compliance with it, but in fact as part of what had been agreed upon between the defendants, the sixth defendant, ADM Franchise's employee, handed over all the materials and work in progress in ADM Franchise's possession to the fifth defendant, a process server, as agent for Penthouse Publications. In further pursuit of its object, Penthouse Publications then commenced winding up proceedings against ADM Franchise which resulted in first a provisional liquidator and then a liquidator being appointed to that company. The statement of claim alleges that these orders were obtained after presentation to the court of false or misleading materials which also omitted material facts. The various actions by Penthouse Publications, its agents, and the sixth defendant, allegedly reduced in value assets of the plaintiffs and made amounts lent by them to the three companies earlier mentioned irrecoverable. Paral6 of the statement of claim separately alleges that the defendants conspired to, and did in fact bring about a material alteration to a deed to which the plaintiffs were party after it had been executed by the plaintiffs. Little attention was paid to this paragraph in argument. In written submissions filed in this court on behalf of the plaintiffs, it

URJ PENTHOUSE PUBLICATIONS LTD v McWILLIAM (Priestley JA) 3

was asserted that they relied generally on the proposition that they had been harmed by the deliberate and unlawful actions of the defendants and in particular said the allegations in the statement of claim supported the following causes of action in tort:

(a) that established in Beaudesert Shire Council v Smith (1966) 120 CLR 145;

(b) conspiracy to harm the plaintiffs by unlawful means; and

(c) unlawful interference with the contractual relationships of the plaintiffs.

Reliance was also placed on a fourth matter which I will not set out, as it appears to me to have been only an aspect of each of the preceding 3.

As to the third of the causes of action listed, I was unable to see even on a broad interpretation of the statement of claim that the defendant's alleged wrongful actions interfered with any contractual relations of the plaintiffs identifiable or imaginable on the allegations in the statement of claim. I need say nothing more about this alleged cause of action.

The defendants submitted that Beaudesert was decided on the footing that an action on the case would lie where a defendant had done a positive act forbidden by law which inevitably caused damage to the defendant. In the present case, the alleged forbidden positive act is the concerted action which the first defendant had allegedly arranged between itself and the other defendants. The principal submission for the defendants was that the alleged concerted action did not amount to a positive act forbidden by law in the required sense.

Counsel for the defendants drew the court's attention to decisions of courts other than the High Court doubting the existence of the principle of law for which that case seems to stand. However, counsel contented himself with the formal submission that Beaudesert was wrongly decided, recognising that this court was bound by the law as stated in that case. Thus, his argument in this court was confined to that already noted, that what was alleged against the defendants in the statement of claim could not amount to the positive act forbidden by law which was a necessary ingredient of a cause of action based on Beaudesert.

I am not persuaded that this submission for the defendants is correct beyond reasonable argument. In Beaudesert, the court began its consideration of the relevant cause of action by saying that if Smith had an action against the Council, "liability must depend on the broad principle that the Council intentionally did some positive act forbidden by law which inevitably caused damage to Smith by preventing the continuing exercise of his rights as a licensee in the manner in which they had been enjoyed for some thirteen years." (at 152)

Having thus identified the question, the court considered a number of cases and then stated the answer as being that "by an action for damages upon the case, a person who suffers harm or loss as the inevitable consequence of the unlawful, intentional and positive acts of another is entitled to recover damages from that other." (at 156)

It is on these two passages that the defendants fasten in support of their submission that "unlawful" does not include merely tortious acts. Although the defendants may be right in this contention, it does not seem to me that they are so clearly right that the court should act on their view in deciding the present proceedings.

It seems to me to be significant that in the pages between the two cited passages, the cases discussed by the court, upon which they based the generalisation ultimately stated in the second passage cited, included at least some in which the "unlawful" act which was held to be a sufficient foundation for the action on the case was what in these days may be described as a tortious act

and no more: eg Whaley v Laing (1857) 2 H and N 476; 157 ER 196; Keeble v Hickeringill (1706) 11 East 574n; 103 ER 1127.

Further, the court in Beaudesert, after stating the legal proposition that appears in the second passage, went on to say

"Tt may be that a wider proposition could be justified, but the proposition we have stated covers this case..." (at 156)

In my opinion, on the basis of Beaudesert the plaintiffs have an arguable case on the broad interpretation I have given to the allegations of fact in the statement of claim.

Additionally, it seems arguable to me that one way in which the statement of claim may reasonably be understood (although it could be much more clearly expressed) is that the allegedly deliberately wrongful service of the notice under the contract and the commencement of winding up proceedings shortly afterwards were part of the same plan. If this is so, a stronger sense of the word "unlawfully" is available to the plaintiffs in that such allegations arguably include one of the commencement of proceedings by way of deliberate abuse of process.

In regard to the width of the word "unlawful" in the Beaudesert formula, the court was referred to various authorities which took a narrower view than the one Ihave said is arguable here. The position as it was in 1982 (and it does not appear to have materially changed since) was helpfully reviewed in Copyright Agency v Haines (1982) 1 NSWLR 182 by McLelland J (at 194). He himself took a view which would be adverse to the plaintiffs here, and which may well be correct. His opinion however was expressed after a full hearing on the merits, when he was bound to decide this point one way or the other. In the present case the question is whether this court is bound, at the pleading stage, to say only one answer to the question is reasonably open. The rules, at the intermediate appellate level of this court are not, for the reasons I have indicated, so clearly settled as to require, in my opinion, an affirmative answer.

Counsel for the defendants further submitted that the allegations against the defendants in the statement of claim did not show that what the defendants had allegedly done inevitably caused damage to the plaintiff. This submission was based on the passages in Beaudesert already cited. Once again however, when those passages are read against the authorities which the court used to arrive at the generalisation set out in the second passage, it does not seem to me that the force of the defendants' submission is so strong as to make it unreasonable to argue that "inevitable" does not have the restricted meaning attributed to it by the defendants.

In regard to the conspiracy cause of action, it was submitted for the defendants that an essential element was an intention on their part to harm the plaintiffs in their trade or perhaps in their commercial interests. It was then said that there is no assertion in the statement of claim of any such purpose or intention. However, in my opinion paral to para9 of the statement of claim can, given a liberal interpretation, be read in the way I earlier indicated. I am prepared to infer, once those paragraphs are read in that way, that the defendants must have known, in however general a way, that in bringing to an end what was, on the allegations in the statement of claim, a valuable commercial contract of ADM Franchise, that not only would the commercial interests of that company and those connected with it in business, Australian Direct Mail and McWilliam Holdings, be harmed, but also the more distant but quite real commercial interests of the plaintiffs dependent upon the activities of those companies.

URJ PENTHOUSE PUBLICATIONS LTD v McWILLIAM (Priestley JA) 5

As against this, the defendants relied on what was said by Dixon J in McKernin v Frazer (1931) 46 CLR 343 at 362:

"Tt appears now to be settled that, for a combination or acts done in furtherance of the combination to be actionable in such circumstances, the parties to the alleged conspiracy must have been impelled to combine, and to act in pursuance of the combination, by a desire to harm the plaintiff, and that this must have been the sole, the true, or the dominating, or main purpose of their conspiracy."

It seems to be part of the plaintiffs' case that they themselves, in a factual sense, were so identified with ADM Franchise, Australian Direct Mail and McWilliam Holdings and the business conducted by these companies both in operation and in interest in and ability to control their shareholders' funds, that as a matter of substance a desire to harm the companies' commercial interest must support a finding of a desire to harm them. Whether or not such a finding is eventually made will depend both on the evidence, and whether the view is eventually taken that form can be disregarded to the extent the plaintiffs require. I express no opinion on this beyond saying that it does not seem to me to be beyond reasonable argument. If such an interest is found as enables the plaintiffs to maintain their proceedings and they make good a cause of action, difficult questions will arise in regard to quantification of damages in order to prevent the exposure of the defendants to double liability. These difficulties were not expressly examined in argument in this court, and might be considerable. I do not think however that such difficulties are so clearly terminal to the plaintiffs' case that they would lead to summary dismissal.

My conclusion therefore is that the defendants are not entitled to an order having the effect of judgment in their favour in the proceedings.

In stating my opinion I have indicated that I have given a liberal construction to the plaintiff's statement of claim. This is because of the cumulative effect of a number of reasons. One is the statement of relevant rules in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125, now so well known as not to require restatement. Another is that pursuant to Ptl3 R5, which is the rule upon which the defendants rely here for the order they seek, it is open to the defendants to support their application with evidence. This has not been done, which means that the defendants have undertaken the burdensome task of showing the same thing, so far as I can see, as had to be shown in pre Judicature Act days under demurrer procedure; that is, that on the assumption that everything alleged in the statement of claim was true there was no possible cause of action arguable on the alleged facts; see for example Lubrano v Grollin and Co Proprietary Ltd (1919) 27 CLR 113, which also exemplifies the strict approach taken to construction of pleadings under the common law system. Under Judicature Act type pleading rules the approach to construction of pleadings is less strict. As Chitty J said in Republic of Peru v Peruvian Guano Company (1887) 36 Ch D 489, under the Judicature Act rules "the pleading will not be struck out unless it is demurrable and worse than demurrable" (at 496). From Chitty J's subsequent observations it seems clear, as is noted in The Supreme Court Practice 1991, (London 1990) Vol 1 p 326, that by "worse than demurrable" he meant beyond saving by legitimate amendment; see also Mutual Life and Citizens Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631 (PC).It seems to me that this difference in approach may properly be expressed by saying that under the present system a "demurring" party is in the position not only of having to accept the truth of all allegations in the statement of claim, but also the

truth of the ranges of meaning of the assertions of fact in the statement of claim which those assertions are reasonably capable of bearing.

A further reason for adopting this approach is the familiar feature of litigation that in a case of any complexity there is frequent amendment of the pleadings between their first filing and the eventual judgment; in the course of trial the knowledge of, and evidence capable of proving facts, available to opposing parties, both changes and grows, no matter how diligent prepleading preparation has been. To order final dismissal or summary judgment on a strict construction of pleadings is to shut out the party suffering the judgment from the possibilities inevitably inherent in the post pleading phase of litigation. This should only be permitted when it is plain to the court hearing the demurrer type application, that on no reasonable view of the attacked pleading is there any point in allowing the case to go to trial.

In my opinion the statement of claim in the present case alleges facts giving rise to arguable questions in unsettled areas of tort law.

The question argued in this court was whether the proceedings should, through lack of arguable substance, be summarily dismissed. In my opinion they should not.

During the argument on substance there was criticism of the form of the statement of claim. This criticism may support an application to strike out, on the basis that there are pleading defects in the statement of claim which the defendants are entitled to have cleared away before filing defences. It was recognised by the parties as inappropriate for this court, in the circumstances and on the argument presented, to deal with such an application. In formal terms, the order I propose is that the appeal be dismissed, without prejudice to any further proceedings to strike out the statement of claim, as distinct from dismissal proceedings. Such an order is intended not to preclude the defendants from pursuing matters of form in the statement of claim further if they so wish. If any such further proceeding were preceded by a request for particulars and any other interlocutory step available before the filing of defence, the court would find it easier to deal with, and the areas in which discretion may operate would be narrowed.

In my opinion the court's order should be: appeal dismissed, without prejudice to any further proceedings to strike out the statement of claim. Since, in my opinion, the appellants lost the argument in this court, but that argument was only directed to a statement of claim first served very shortly before the hearing began, the respondent plaintiffs should not have an unqualified order for their costs. I think the appropriate order would be that the costs of the appeal be the respondent/plaintiffs' costs in the proceedings.

The plaintiffs were, at all material times, directors and shareholders of a group of companies, totally owned by the plaintiffs and members of their families. The companies were engaged in the business of printing, publishing and promotion of sporting and business magazines and the provision of various goods and services. Some of these companies were carrying on business as trustees of family trusts, and the plaintiffs were prospective beneficiaries of those trusts. The companies concerned were:

(b) Australian Direct Mail Advertising and Addressing Co Pty Limited.

URJ PENTHOUSE PUBLICATIONS LTD v McWILLIAM (Priestley JA) 7

ADM Franchise Pty Limited (hereinafter called "ADM Franchise") was carrying on business as trustee for the Australian Penthouse Trust. Australian Penthouse Trust was a unit trust, with 50 per cent of the units held by each of two companies, Pontiac Promotions Pty Limited as trustee for the Peter Bruce McWilliam Family Trust, and ADM Franchise Pty Limited as trustee for the Bruce Scott McWilliam Family Trust. The plaintiffs had financial interest in each of these entities, either as shareholders in the companies or as potential beneficiaries in the trusts or persons having powers in relation to the allocation and distribution of the income of the said trusts. The plaintiffs were also interested in the said companies and trusts through their potential liability as guarantors in relation to various loans made to those companies and in relation to various leasing and supply agreements.

The first defendant was at all material times a duly incorporated company, liable to be sued in and by its said corporate style and title, and having its registered office at the office of Ferald Kreditor and Company, Chartered Accountants, Tudor House, Llanvanor Road, London, NW2, United Kingdom.

The second defendant was at all material times a solicitor of the Supreme Court of New South Wales and in that capacity acted as a partner or employee of Norton Smith and Co, a firm of solicitors having their office at 20 Martin Place, Sydney, in the State of New South Wales and practising as solicitors in that State. Alternatively, the second defendant acted for and on behalf of the said Norton Smith and Co, either as agent, contractor or consultant. At all material times, the second defendant was the agent of the first defendant.

The third defendants were partners in the said Norton Smith and Co and in that capacity were liable for the actions and transactions of the second defendant and for the actions and transactions of employees or partners in the said partnership who aided or abetted the actions and transactions of the first and second defendants.

The fourth defendant was at all material times an enquiry agent carrying on business at 44 Hunter Street, Sydney in the State of New South Wales.

The fifth defendant was at all material times a process server carrying on the activity at and from an address at 75 Wearden Road, Frenchs Forest in the State of New South Wales.

The sixth defendant was employed by ADM Franchise as the editor of the Australian edition of Penthouse.

In or about September, 1979, an agreement bearing the date 18 May, 1979 (hereinafter referred to as "the original agreement"), which had been prepared on behalf of the first defendant was executed in Sydney by Bob Guccione (hereinafter referred to as "Guccione"), as managing director of the first defendant and by the third plaintiff for and on behalf of ADM Franchise. Under the terms of this agreement, that company was to print and publish Australian and New Zealand editions of Penthouse magazine (hereinafter referred to as "Penthouse"). The said agreement was orally varied between the parties in or about 1980.

(1) On or about 14 June, 1980 in London, England, the second plaintiff for and on behalf of ADM Franchise and Guccione for and on behalf of the first defendant agreed that the terms of the agreement be varied by reducing the

licence fees to an amount equal to 7.5 per cent of net revenue plus 10 per cent of net advertising revenue, and that this adjustment would be effective from the commencement of the agreement.

(2) In or about October 1980, John Evens for and on behalf of the first defendant and the second plaintiff for and on behalf of ADM Franchise agreed that the adjusted basis for calculating license fees would be varied to 5 per cent of gross revenue plus 10 per cent of net advertising revenue.

(3) In or about December 1980, Geoffrey Robertson, for and on behalf of the first defendant, negotiated with the second plaintiff and other representatives of ADM Franchise and settled the terms which would be acceptable for a new formal agreement to incorporate the revised rates of licence fee that had been agreed and other matters.

From the date of execution of the original agreement until 1982, the Australian edition of Penthouse was published by ADM Franchise as trustee for Australian Penthouse Trust. ADM Franchise entered into a contract with another company in the McWilliam group, Australian Direct Mail Advertising and Addressing Co Pty Limited (hereinafter called "Australian Direct Mail") for the printing of the Australian edition of Penthouse. Australian Direct Mail leased certain printing equipment and plant from another company in the McWilliam group, McWilliam Holdings Pty Limited, as trustee of the McWilliam Family Trust. Australian Direct Mail also owned and operated substantial printing equipment and plant in its own right.

(1) The equipment was hired from McWilliam Holdings Pty Limited as trustee of the McWilliam Family Trust.

(b) Muller Martini 7 Station stitcher and 3-way trimmer.

In or about August, 1982 the defendants conspired to and did engage in certain conduct with the intention and with the inevitable consequence of causing damage to the plaintiffs and to the plaintiffs' contractual relations as set out above and to the plaintiffs' said business interest.

(1) On or about 2 August, 1982 the first defendant by its agent, John Evans, promised to the second plaintiff to further negotiate in relation to the licence fee payable by ADM Franchise to the first defendant but he never did nor ever attempted to.

(2) The second defendant without prior warning as agent for the first defendant arranged with the fourth defendant for the fifth defendant to serve a notice on ADM Franchise asserting, contrary to the true position, that notice had previously been given to that company, calling upon it to remedy certain breaches of the agreement and purporting to terminate the agreement.

(3) The purported termination was invalid and of no effect.

(4) The notice referred to in Particular (2) and served upon ADM Franchise called upon it to provide to the process server all books and information, letters, mailing lists, distribution lists, articles in preparation, completed articles, publication photographs and all documents referred to in CL14(b) of the agreement, by passing these documents to the fourth defendant, or any other person authorised by him in writing.

URJ PENTHOUSE PUBLICATIONS LTD v McWILLIAM (Priestley JA) 9

(5) On or about the same day, the sixth defendant, who was at that time employed by ADM Franchise, at its editorial office Riley Street, Sydney, without any authority from either ADM Franchise or any person entitled to act on behalf of that company, gave to the fifth defendant, for and on behalf of the first and second defendants, all the current art work and other materials and work in progress of the company, which were required for the printing of the forthcoming edition of Australian Penthouse. These items will be referred to collectively as "the work in progress". The second, third, fourth and fifth defendants unlawfully received the abovementioned property of ADM Franchise at times when they knew, or should have known, that they were not entitled to do so. As a consequence of the aforementioned unauthorised and unlawful transactions, ADM Franchise was unable to continue with the publication of the Australian edition of Penthouse.

(6) ADM Franchise commenced an action in the Supreme Court of New South Wales against the first, second and fourth defendants, claiming that the work in progress had been improperly removed and seeking orders that it be returned, and injunctions restraining further use.

(7) On 2 September, 1982, the first defendant sought by summons issued out of the Supreme Court of New South Wales orders that ADM Franchise be wound up, and that a liquidator or provisional liquidator be appointed. The documents filed with the Court were prepared by the second defendant and by one or more employees of the third defendants, including an employee named Stanley Lewis, acting in the course of their employment. The second and third defendants arranged for the petition to wind up the company to be served on Paul Wells, a solicitor who, at the time of such purported service, had ceased to act as solicitor for ADM Franchise. The documents contained statements of fact that were false or misleading and omitted material facts.

(a) The first and second defendants failed to disclose to the Courts or failed adequately so to disclose, that ADM Franchise and other companies of the McWilliam group were acting as trustees and that there were substantial assets held by those companies in the capacity of trustee, and that substantial profits were being made in the capacity of trustee.

(b) The first and second defendants falsely stated in papers filed with the Courts that the first defendant was owed an amount of $4,264,110.60 or a figure of that general magnitude, at a time when the amount owing was approximately $270,063, or some other amount substantially less than the amount claimed by the first and second defendants.

The said Statements of Fact referred to in Particular (7) were made at a time when the second defendant owed a duty of care to the plaintiffs to avoid making statements affecting them that were false, incomplete or misleading.

As a consequence of the defendants' said conduct:

(a) Gordon and Gotch Limited failed to pay to ADM Franchise a payment due for the October 1982 edition of Australian Penthouse which failure was a significant contributing cause of ADM Franchise being placed in provisional liquidation and subsequently in liquidation.

(b) A provisional liquidator was appointed to ADM Franchise on 6 September, 1982 and thereafter a liquidator was appointed.

(c) Australian Direct Mail was not able to carry out the printing of the issue of the Australian edition of Penthouse, that was then due to be published, or subsequent issues. As a result, Australian Direct Mail suffered losses and was

unable to pay its debts. Australian Direct Mail was put into receivership on the recommendation of the plaintiffs. One of Australian Direct Mail's biggest debts was due to AGC Advances Pty Limited ("AGC Advances"), a company incorporated in New South Wales. The Receiver entered into an arrangement with AGC Advances in relation to the proceeds of the sale of plant and equipment owned by Australian Direct Mail. Australian Direct Mail lost the benefit of printing the Australian edition of Penthouse and ADM Franchise lost the benefit of producing and publishing that edition. In consequence, the unit holders and prospective beneficiaries of the Australian Penthouse Trust lost the benefits they had hitherto received from the magazine being published by ADM Franchise, in the capacity of trustee of Australian Penthouse Trust. Furthermore, the plaintiffs suffered losses as guarantors when the receiver of Australian Direct Mail sold the plant and equipment.

(d) The assets of the plaintiffs and each of them have been reduced in value and loans made to the companies in the McWilliam Group have been lost or become lost or irrecoverable.

(e) The plaintiffs suffered loss as potential beneficiaries of the McWilliam Family Trust and as guarantors when the trust, being deprived of revenue that could reasonably have been expected, when McWilliam Holdings Pty Limited became unable to meet lease payments.

(f) The plaintiffs also suffered loss in their capacity as persons interest in Australian Direct Mail when the value of shares, loans and superannuation entitlements was destroyed in consequence of the actions of the defendants.

The defendants further conspired and so conducted themselves in that a deed dated 29 October, 1982 between the first defendant and a number of covenantors including the plaintiffs was after execution by the plaintiffs and without their authority altered by the inclusion of a clause providing that the covenantors should not be entitled to exercise any right against the first defendant in respect of or in any way arising out of the termination of the licence agreement on 30 August, 1982.

As a result of the said alteration, the efforts of the plaintiffs to mitigate the damages suffered by them from the purported termination of the agreement were frustrated and the losses suffered by them were thereby increased.

In relation to the sixth defendant, the plaintiffs claim exemplary damages and aggravated compensatory damages.

(1) The six defendant was an employee of ADM Franchise, holding the senior position of Editor of the Australian Edition of Penthouse, in which capacity he had a responsibility to the plaintiffs as directors and managers of that company to inform them of matters requiring their personal attention that came to his notice in the course of his employment.

(2) The sixth defendant, knowing that legal process had been issued against ADM Franchise which the plaintiffs needed to see and were reasonably entitled to see failed to bring that process to the notice of the plaintiffs and took steps to prevent the shareholders and directors becoming aware of that process, and what was being done in purported pursuance of that process by closing down the company's office and granting to the staff of that office a day's leave for which there was neither justification nor entitlement. (3) The sixth defendant knowingly took from the companies of the McWilliam group property which, to his

URJ PENTHOUSE PUBLICATIONS LTD v McWILLIAM (Waddell AJA) 11

knowledge, neither he nor any of the defendants was entitled, and also facilitated the taking of such property by other persons without reasonable claim of right. 19. The plaintiffs claim: (a) Damages. (b) Interest. (c) Costs.

Meagher JA I have read the judgment of Priestley JA in draft and agree with it.

I should like to reiterate that the result which his Honour reached has been reached on the basis that the causes of action based on conspiracy and on the Beaudesert principle are arguable, not that a result in the plaintiffs' favour would necessarily be reached even if the plaintiffs prove each allegation in the amended Statement of Claim. I might add that even this conclusion is based on giving to the plaintiffs a particularly charitable interpretation of their pleading.

As far as the cause of action based on conspiracy is concerned, a further problem emerges. Para13 of the amended Statement of Claim is, relevantly, in the following form: "In or about August 1982 the defendants conspired to and did engage in certain conduct with the intention... of causing damage to the plaintiffs...".

That, as a matter of English, is an allegation that the defendants' sole purpose was to injure the plaintiffs. As the law now stands an agreement whose sole, or perhaps dominant, purpose is to injure the plaintiffs where the conduct agreed on is not unlawful constitutes the tort of conspiracy. Therefore, on a summary dismissal application, where the Court is confined to a consideration of the language of the pleading, the allegation cannot be struck out. However, we were informed by Counsel for the plaintiffs that the case which the plaintiffs wished to make was not that the desire to injure was the sole, or even the dominant, intention of the defendants. This might mean that insofar as the plaintiffs are alleging that the defendants agreed to indulge in certain conduct, and did so indulge, which conduct was not itself unlawful, the pleading might be struck out as vexatious, notwithstanding that it cannot be summarily dismissed.

Waddell AJA I agree with Priestley JA and the orders he proposes. I also agreewith the observations of Meagher JA.

ORDERS:

1. Appeal dismissed, without prejudice to any further proceedings to strike out the Statement of Claim.
2. Costs of the appeal to be the respondents' costs in the proceedings.

Counsel for the Appellant - A. EMMETT QC / J. SEXTON Counsel for the Respondent - P. LANIGAN

Solicitors for the appellant - NORTON SMITH and CO Solicitors for the Respondent - WATSON DAVEY