Plaintiff v Defendants

Plaintiff v Defendants - [2011] VSC 644 - VSC 2011 case summary — Zoe

[33]

14C(a) in fact during the Relevant Time, Samfa knew about the transactions which had been undertaken by the New DFO Partners using the assets of the Old DFO Partners because:

(i) Porz and Graeme Samuel had discussed those transactions in earlier years; and

Particulars

Samuel communicated with Porz in and after 2005 concerning the Original DFO Businesses including the borrowings and security arrangements which had been entered into by or on behalf of the Original DFO Partners in relation to the projects which were developed by the New DFO Partners, including the South Wharf Asset.

(ii) During the Relevant Time (but not before), Samuel was in effective control of Samfa.

Particulars

Samuel's de facto control of Samfa should be inferred from the following facts:

(a) Samfa was an entity created by Samuel and part of his family group.

(b) In discussions between Porz and Andrew Kroger, who was a director of Samfa from 13 April 2006 until 19 March 2011 and sole director from 20 October 2010, after the Acknowledgement Deed was entered into, it became apparent to Porz that Samuel was playing an active role in the management and affairs of Samfa at the Relevant Time.

Further particulars will be given following discovery by the plaintiff and the return of subpoenas which will be necessary for Hilane and Volt to seek to have issued in order to obtain production of all relevant documents concerning Samuel's involvement in and knowledge of the affairs of Samfa at all relevant times.

(b) Samfa was an entity created by Samuel and part of his family group and yet at no time, despite being aware of the transactions which had been undertaken by the New DFO Partners using the assets of the Old DFO Partners, had Samuel ever complained about Porz's conduct in that regard or taken any steps to remove Porz as a director of Samfa and thereby acquiesced in what had occurred and what Porz had done and so there was no proper basis in fact or in law for Samfa to complain about Hilane, Volt, Porz or De Rango's roles in respect of any of those matters.[29]

[35]

Paragraphs 14A to 14C in this form were handed up to the Court on the second day of the hearing, after senior counsel for the defendants was provided with the opportunity to re-plead this part consistently with the way in which the defence was articulated by him in oral argument. Of particular importance was the need to clarify that it was not part of the defence that Samfa knew about the putative borrowings and securities that had been entered into by, or on behalf of, the original DFO partners at the time that those transactions occurred. The defence, rather, is that Samfa knew about the transactions when the representations pleaded in paragraph 14A were made because Samuel was in effective control of the company at the time of the making of the representations and Samuel had known all along about the transactions and had acquiesced in what had occurred.
It is noteworthy that it was also not part of the defence that Samuel was in effective control of Samfa when the claimed breaches of fiduciary duties allegedly arose. The defence, rather, is that as Samfa was an entity created by Samuel and part of his family group, it was therefore inconsistent for him, when he was a shadow director, to be instructing the solicitors of Samfa to complain about the roles of Hilane, Volt and their directors in relation to the borrowing and security arrangements that were entered into with the new DFO partners with respect to the original partnership assets.[30]
The allegations, in my view, raise a fanciful defence that has no real prospects of success. For a representation to be actionable, it must be false and the misleading representation must have induced the entry into the contract sought to be avoided, in this case the Acknowledgment Deed. If Samfa had a claim for breach of fiduciary duty against Hilane, Volt and their directors, it was a claim that had arisen before Samuel became its effective owner. Consequently, Samuel's acquiescence to the borrowing and security arrangements as alleged would not defeat Samfa's claims against Hilane and Volt for breaches of fiduciary duties owed to Samfa at the time such borrowings and security arrangements were entered into. Consequently, neither the representations alleged in paragraph 14A nor the element of inducement based on the making of those representations as pleaded in paragraph 14B support in law or fact an actionable misrepresentation to set aside the Acknowledgement Deed. The same conclusion applies to paragraphs 14F to 14J of the defence and counterclaim.

[61]

The categories of equitable fraud are not closed and some cases have applied the principle in circumstances of a "common dealing". Here it is pleaded that the Acknowledgement Deed was a common dealing between Samfa, the defendants and Border, amongst others "all of whom were or were alleged to be liable to various financiers of the DFO Group who had made claims upon them following the collapse of DFO".[47] It is further alleged that on or about 7 October 2011 Samfa and Border entered into two settlement agreements pursuant to which they settled the claims previously made by Samfa against Border in this proceeding and also settled a third party claim brought by the principals and directors of Border against Samuel in another and separate Supreme Court proceeding.[48] The terms and conditions of settlement are alleged to have included that upon receipt by Samfa of monies from the surplus sales, Samfa would pay the principals and directors of Border and entities related to them, including Border a particular sum of money.[49] It is then pleaded as follows:
1. The alterations of the financial arrangements between the parties to the Acknowledgement Deed which were effected by the Samfa-Border Settlement occurred without the knowledge or consent of the defendants.[50]
2. The alterations of the financial arrangements between the parties to the Acknowledgement Deed which were affected by the Samfa-Border Settlement have removed the substratum of the Acknowledgement Deed and constitute an equitable fraud upon the defendants within the meaning of the fourth category identified in the Earl of Chesterfield v Janssen [1750] EngR 119; (1751) 2 Ves. Sen. 125 at 156. [51]
Accepting that allegation on its terms and that there is foundation in law for an equitable fraud claim, I nonetheless do not accept on the case as pleaded that the defendants can succeed on an equitable fraud claim and I am satisfied that the counterclaim has no real prospect of success.
First, it is pleaded that the consequence of the equitable fraud is that it is the Acknowledgement Deed, not the settlement, which is liable to be set aside as against the defendants in equity.[52] But the equitable fraud, as pleaded, does not relate to the entry into the Acknowledgement Deed but rather the settlement reached between Samfa and Border. The equitable fraud as pleaded is in the settlement dealings, not the transaction of the Acknowledgement Deed. Thus, if equity is to intervene, it would be to upset the settlements as bargains which the Court should not allow to stand.
Secondly, the binding nature of the Acknowledgement Deed insofar as it regulates Samfa's entitlement to the surplus proceeds vis-à-vis the other claimants, remains unaffected and enforceable by those claimants, which include Hilane and Volt. Accordingly the relief sought does not follow from the claim made.

At a glance

Court

Decision date

Before

Source

Judgment (113 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (3)