Plaintiff v Defendants

(1) Where the defendant has filed an appearance, the plaintiff may at any time apply to the Court for judgment against that defendant on the ground that the defendant has no defence to the whole or part of a claim included in the writ or statement of claim, or no defence except as to the amount of a claim.

(2) Paragraph (1) shall not apply to a claim for libel, slander, malicious prosecution, false imprisonment or seduction or to a claim based on an allegation of fraud.

(3) Where the writ or statement of claim includes a claim within paragraph (2), the plaintiff may apply for judgment in respect of any other claim and continue the proceeding for the first-mentioned claim.

3 What is said is that the claim in respect of which judgment is sought is "a claim based on an allegation of fraud" within the meaning of that expression in paragraph (2).

4 The claims of Visy Board are for damages. Against the firstnamed defendant, Stephen D'Souza, and the secondnamed defendant, Mario Murzello, it is alleged that they were employed by one or other of the plaintiffs in the shipping department of Visy Board.[1] As such, they owed to each of the plaintiffs a number of contractual duties including duties of fidelity, good faith, and a duty not to act dishonestly.[2]

5 Other contractual obligations are alleged in paragraphs 13 and 14 of the amended statement of claim. In para 15 it is alleged that they each owed fiduciary duties to each of the plaintiffs. These fiduciary duties are said to arise from the fact of their employment within the Visy Board organisation. I take these to be duties arising from equity.

6 The allegation of breach is found in para 18 of the amended statement of claim.

1. In breach of the duties referred to in paragraphs [sic] 12 and in breach of the fiduciary duties referred to in paragraph 15 and in breach of the terms referred to in paragraphs 13 and 14, in the period from October 2003 to 8 February 2006 in the case of D'Souza and in the period from September 2004 to 8 February 2006 in the case of Murzello, each of D'Souza and Murzello:

1. have dishonestly falsified and were party to the falsification of shipping documents relating to shipping transactions to which the plaintiffs or some of them were party; 2. have dishonestly interposed AML in transactions between the plaintiffs or some of them and shipping companies and other third parties in circumstances where: 1. there was no commercial advantage to the plaintiffs or any of them for such interposition; 2. AML in face provided no service to such plaintiff or to any of the plaintiffs; 3. AML in truth carried on no legitimate business;

1. have dishonestly caused and procured invoices in the name of AML to be paid by the plaintiffs, or some of them, in circumstances where AML: 1. in fact provided no service to the plaintiffs; 2. was "skimming" funds for and on behalf of D'Souza, Murzello, AML, Kapur and Govinda and each of them and making secret profits for such defendants by raising invoices in respect of shipping services: 1. for a higher amount than was properly payable for such service to the third party service provider; and 2. for a higher amount than was in fact paid by AML to such third party service provider for such service.

7 As a consequence of these breaches, the plaintiffs allege that they have suffered loss and damage totalling some $2 million.[3]

8 In the course of presenting the application, counsel for Visy Board said that the evidence showed that Mr D'Souza, and later he and Mr Murzello, were required to arrange shipping for the delivery of Visy Board product to its customers in various parts of Australia and overseas. For the purpose they would obtain a quotation from a shipping company which they would accept on behalf of Visy Board. They would then interpose a company in which they had an interest, Aero Marine Logistics Pty Ltd ("AML"), so that AML would provide Visy Board with a quotation for the same shipping but at a higher price. The shipping company's accepted quotation would not be processed as a Visy Board contract. Instead the AML quotation would be accepted by one or other of them on behalf of Visy Board and processed for payment by Visy Board.

9 When AML received payment of the higher price from Visy Board, it would then pay the shipping company its quoted price and retain the surplus. It is said that this was done without the knowledge or approval of Visy Board, and that it was in breach of their contractual and fiduciary duties.

10 Visy Board also sues the thirdnamed defendant, AML, and three other persons who are said to have dishonestly assisted Mr D'Souza and Mr Murzello in their breach, or who participated in their breach of their fiduciary duties, or were in receipt of the proceeds of the breach of fiduciary duties.

11 Accordingly it is said, that by reason of the two limbs of the rule in Barnes v Addy,[4] they were liable to make equitable compensation or to pay common law or equitable damages.

12 Visy Board also seeks orders that they hold the receipts from the breaches of the fiduciary duty under a resulting trust in favour of Visy Board. Orders are sought with a view to tracing these receipts into assets held by them.

13 The contention of the defendants is that these allegations are allegations of dishonesty and that they fall within the expression "allegation of fraud" in the rule. They say that the mere fact that there is no allegation, in terms, of fraud in the statement of claim is beside the point. The gist of the Visy Board case is that they were involved in a dishonest scheme to defraud Visy Board. They contend that the Court should look at the substance of the allegations made by Visy Board, and that the evident intent of the rule is that a defendant ought not to be at risk of a judgment without trial for conduct of this kind.

14 In Pico Holdings Inc v Voss,[5] Beach J, sitting in the Practice Court, considered the availability of the summary judgment procedure where the claim was one for misleading and deceptive conduct in the form of statements which caused the plaintiff to lend a substantial sum of money to a company which later went into liquidation. The allegation was that the defendant, Mr Voss, stated to the lender that certain assets of the borrower were unencumbered, whereas they were in fact subject to a debenture charge., Accordingly, the statement was false.

15 After summarising the pleading of the plaintiff, his Honour said this:

1. When one has regard to the paragraphs to which I have referred I consider that it is untenable to suggest that Pico's case is not a case based on fraud.
2. Pico's whole case against Voss is based on the fact that the representations made to it in respect of the Dominion Wines Shares were false, that it was deceived by the representations, that as a consequence of the representations it lent first the sum of US$1,000,000 to Dominion then the sum of US$1,200,000; and that as a consequence of such deceit it has now lost if not the whole, certainly a substantial portion of the moneys it lent.

His Honour therefore found that the plaintiff had no entitlement to seek summary judgment.

16 It would seem that his Honour's attention was not drawn to the decision of Sholl J some 40 years earlier in Ryan v Price.[6] In that case a mortgagee sued a mortgagor of land under her covenant to repay the loan. The circumstances were that the defendant had fraudulently granted the mortgage and borrowed the money under the name of another person. She had been convicted of forgery in relation to the transaction.

17 Upon a summons for final judgment under Order XIV of the old rules, the defendant contended that since forgery involved fraud, the claim of the plaintiff was in fact seeking to recover money which had been obtained by the fraud of the defendant. Under the old rules, summary judgment might be sought when the writ of summons was specially indorsed. By Order III Rule 4, a special indorsement was not permitted in an action which involved a claim by the plaintiff based on an allegation of fraud.

18 Sholl J rejected the defendants' submission on two bases. First, the fraud limitation was one imposed upon the type of indorsement which a plaintiff might make on the writ: this is therefore a matter of pleading. The use of the word "allegation" in the expression "a claim based on an allegation of fraud" shows that this is so. The plaintiff was relevantly permitted to specially indorse the writ provided its claim could be pleaded without an allegation of fraud. It was beside the point that there could arise at trial an issue of fraud.[7] Since the claim of the plaintiff for repayment of the loan did not require that fraud be alleged, the indorsement was good, and this gave the plaintiff the right to seek final judgment.

19 The second reason was that, if the question turned not on the form of the pleading but on the evidence which the plaintiff would necessarily have to produce in order to succeed in its claim, this too was not a case where the plaintiff would have to rely upon fraud.

20 It may be said that this decision can sit with the Pico case having regard to the change in the rules. Under the modern Rules of Court, there is no special indorsement on a writ. A writ must contain an indorsement, but this may take the form of the statement of claim.[8]

21 The present right to seek summary judgment is therefore not predicated on the form of the indorsement or whether it constitutes a statement of claim, it is sufficient that the proceeding be commenced by writ.[9] But Rule 22.02(2) picks up the claims which could not be included previously in a special indorsement other than breach of promise of marriage, and provides that these claims could not be the subject of summary judgment application.

22 Unlike the old Order XIV procedure, the insertion of a prohibited claim in the indorsement did not render the whole indorsement bad. Rule 22.02(3) permits the plaintiff to seek summary judgment in respect of any non-prohibited claims.

23 Nevertheless, the importation into rule 22.02 of the precise expression which was in the old rules is to my mind significant. The expression "claim based on an allegation of fraud" has been authoritatively construed to require an examination of the form of the pleading, for this must contain each of the allegations upon which the claim is based.[10] If fraud is an element of the claim, then it must be alleged and no summary judgment is available.

24 In these submissions counsel for the defendants put it that fraud necessarily involves dishonesty. So much may be accepted. It does not however follow that all dishonesty is fraud. In Ryan v Price, Sholl J appeared to be of the view that an allegation of forgery involved an allegation of fraud. If this were not so it would not have been necessary for his Honour to undertake an analysis of the meaning of the rules, which he did. Beach J too was of opinion that where the case of the plaintiff was that he was deceived by a false or misleading representation, this was sufficient to amount to deceit or fraud.

25 I mention in passing that while it is not necessary that I reach a concluded view on this, I would not like to be taken to be in total agreement with the conclusion of Beach J that a claim for misleading and deceptive conduct based on false representation is an allegation based on fraud within the meaning of the rule, or with his Honour's reasoning to reach that conclusion.

26 The third case to which I was referred was the decision of the English Court of Appeal in Newton Chemical Limited v Arsenis.[11] This was an employer's claim against a commission agent. It was alleged that the agent falsified orders so that he received commission to which he was not entitled. The defendant resisted summary judgment on the basis that the claim was one based on an allegation of fraud. The claims were pleaded in breach of contract, breach of fiduciary duty and negligence. Although the conduct of the defendant was undoubtedly dishonest, there was no allegation of the tort of deceit or fraud in the sense that this is used in Derry v Peek.[12] The Court of Appeal was of opinion that fraud in the rule meant Derry v Peek fraud, and not dishonest conduct.

27 This case is significant in that their Lordships adopted a very restricted meaning of fraud in the rule. This is more restrictive than that adopted in Pico's case and, it would seem, in Ryan v Price. It is significant too that, in that case, the question was approached by an examination of the pleadings and of the precise allegations made in them. In this regard, the Court of Appeal was at one with the approach adopted in Ryan v Price.

28 I too will approach the present application in the same way. The claims of Visy Board against Mr D'Souza and Mr Murzello do not include allegations of fraud. Like the claims in the Newton Chemical case, they allege breach of contract and breach of fiduciary duty only, albeit that these allegations are made against a background of dishonesty. It is not suggested that a failure to allege fraud exposes the statement of claim to being struck out for not making an essential allegation of fact.

29 The pleading against the other defendants is primarily one of assisting or participating in the breach by Mr D'Souza and Mr Murzello of their fiduciary duties. The classic statement of the second limb of the rule in Barnes v Addy is that they "assist with knowledge in a dishonest and fraudulent design on the part of the trustees".[13]

30 It would seem that it is for this reason that the breaches of fiduciary duty are characterised in paragraph 18 of the statement of claim as dishonest. The pleaders, however, draw back from alleging fraud as is mentioned in this classic statement. It is by no means certain that fraud in this sense would fall within the use of that term in Rule 22.02(2), but, in any event, it is not alleged and no complaint is made about this plea.

31 The case against AML, the fourthnamed defendant Narendra Kapur, and the fifthnamed defendant Pattathil Govinda under the first limb of the rule in Barnes v Addy is cautiously pleaded,[14] but it does not include an allegation of fraud.

32 The case against the sixthnamed defendant, Valerie D'Souza, is that she knowingly or wilfully and/or recklessly received the proceeds of the breach of fiduciary duty. Leaving to one side for the present whether such a plea is good, it too certainly does not contain an allegation of fraud.

33 I conclude from all of this that the claims of Visy Board as pleaded do not include an allegation of fraud so as to attract the prohibition contained in Rule 22.02(2). This preliminary objection must therefore fail.

[1] Amended statement of claim para 10, 11.

[3] Amended statement of claim para 19, 20.

[4] (1874) LR 9 Ch App 244.

[5] [2002] VSC 119.

[6] [1964] VicRp 88; [1964] VR 692.

[7] [1964] VicRp 88; [1964] VR 692 at 693-4.

[11] [1989] 1 WLR 1297.

[12] [1889] UKHL 1; (1889) 14 App Cas 337.

[13] (1874) LR 9 Ch App 244 at 252.

[14] Amended statement of claim para 22.