Plaintiffs v Defendants

1 The first defendant, James Ronald Auswild (JRA) and his late father Ronald William Auswild (RWA)[1] were at all relevant times directors and officers of the Preston Motors Group comprising the plaintiffs and other companies.

2 The Preston Motors Group is a substantial group of companies with extensive assets. The group was established by Sir James Auswild and his brother RWA. The ultimate shareholders in the Preston Motors Group comprise the branches or family of each of the brothers. The pleadings refer to the JFA family or the immediate family and descendants of Sir James and the RWA family as the immediate family and descendants of the RWA family.

3 There has been a falling out between the families. Although they remain shareholders in the Preston Motors Group, the JFA family control more than 50% of the shareholding. They have commenced this substantial proceeding alleging that as directors in control of the Preston Motors Group, JRA and RWA in breach of statutory, legal and equitable duties obtained substantial benefits for themselves and the other defendants, essentially members of the RWA family to the detriment of the Preston Motors Group. It is alleged that the other defendants are liable essentially as knowing recipients.[2]

4 The plaintiffs seek leave to amend their statement of claim and have provided a proposed draft (PASoC). The defendants submit that the proposed draft is deficient particularly in relation to the allegations and particularisation of knowledge and dishonesty (as against both the primary wrongdoers and those that it is claims are liable on a derivative basis) and that accordingly leave should not be granted.

5 This is a huge family dispute that goes back decades and is best resolved out of court.

6 The PASoC is long, convoluted and in many respects inadequate. In view of the course I propose to take, I do not propose to grant the plaintiffs leave to file and serve the PASoC or consider in detail (or rule at this stage on) the adequacy of the PASoC. Rather, I propose to order limited discovery to enable the plaintiffs, if so advised, to deliver a further proposed draft for consideration. I also propose to order a mediation of this matter and the Oppression proceeding. The parties are seriously encouraged to resolve this proceeding.

7 Section C alleges that JRA dishonestly 'used' or 'authorised the use of' funds from Preston Motors Group (PMG) companies for private and domestic expenses or to fund companies unrelated to the PMG (improper payments).[3] The substance of the claim is that certain payments were made and accounted for on an improper basis, in that they were personal expenses but were treated as company expenses of PMG.

8 Section D alleges, in substance, that JRA 'used' or 'authorised the use of' company funds to make wage and salary payments (wage payments) to Auswild family members who were not entitled to those payments.[4] It is also alleged that JRA caused those payments.[5] It is further alleged that JRA received the wage payments.

9 Section E alleges that JRA 'used or authorised the use of' company funds to pay for transactions in respect of which there are now no records available to explain the payments.[6] It is also alleged that JRA caused those payments.[7] The plaintiffs refer to the fact that cheques were drawn over a 20 year period, but do not otherwise identify the payments in question.[8] It is alleged that the impugned payments appear as business expenses in the company's records,[9] however, it is also alleged that the payments were not incurred for the benefit of the PMG.[10] The particulars assert that there is (now) an absence of records.

10 Section F alleges in substance that JRA was involved in one of the PMG companies purchasing a house on his behalf when he had no entitlement to that benefit.[11] There are allegations of JRA causing or directing PMG companies to take steps in relation to the transaction.[12]

11 Section G alleges in substance that PMG money was used to purchase real estate units for the benefit of Ronald Raymond Auswild and JRA, to which they had no entitlement.[13] It is alleged that payments were made with the direction or authority of JRA,[14] or were caused by him.[15]

12 Section H alleges that JRA caused Auswild Securities to transfer the Sutton Farm to his mother Joan Auswild.[16] It is alleged that the transfer was for less than full value, and that Joan Auswild did not pay the nominated sale price.[17] It is also alleged that at the relevant time JRA knew that the transfer was for less than full value, and that Joan Auswild did not pay the consideration.[18]

13 Section I alleges that Ronald William Auswild and JRA resolved to approve the purchase of 22 apartments in Tweed Heads by Preston Motors Pty Ltd (the second plaintiff).[19] It is also alleged that JRA and Ronald William Auswild subsequently implemented that purchase.[20] It is alleged that the transaction was wrongful in that it was not for the benefit of Preston Motors Pty Ltd and the vendor was related to JRA and Ronald William Auswild.[21]

14 Section J alleges that Ronald William Auswild agreed to purchase 9 Seascape car parks from BG Webb, apparently at a significant undervalue.[22] It is alleged that either Preston Motors (Parts Sales) Pty Ltd or Preston Motors Pty Ltd paid the purchase price, but that the car parks were transferred into the name of Ronald William Auswild.[23] The plaintiffs allege that JRA directed or caused the impugned payments.[24]

15 Section K alleges in substance that either Preston Motors Pty Ltd or Finance & Guarantee Company Pty Ltd paid the purchase price in respect of certain real estate units.[25] It is alleged that the units were registered in the name of Joan Auswild in circumstances where she gave no consideration for that benefit.[26] The plaintiffs allege that JRA directed or caused the impugned payments.[27]

16 Section L alleges that Preston Motors Pty Ltd paid for certain real estate units that were registered in the name of Baronja.[28] It is alleged that Baronja did not pay for the units, or enter into any relevant loan agreement in relation to a payment made on its behalf, or alternatively, that if those things happened, there is no longer a record of them.[29] The plaintiffs allege that JRA directed or caused the impugned payments.[30]

17 Section M alleges that JRA or Ronald William Auswild directed or authorised various Preston Motor Group companies to enter into a Debt Management Agreement[31] that was for the benefit of Carlisle and other Webb/Auswild interests.[32] It is also alleged that Ronald William Auswild and JRA caused PMG companies to provide guarantees in respect of the obligations of the Webb/Auswild interests under the Debt Management Agreement.[33] The plaintiffs allege that the entry into the guarantees was not for the benefit of the PMG companies, and gave rise to conflict in the duties owed by JRA.[34] The plaintiffs also allege that JRA participated in the back-dating of documents effecting amendments to the articles of association of PMG companies.[35]

18 Section N alleges that JRA 'used, or authorised the use of' funds from PMG companies to provide a loan to Carlisle.[36] It is also alleged that JRA caused Finance & Guarantee to borrow to advance the loan, and for assets of the PMG group to be provided as security for those borrowings.[37] The allegation that JRA authorised the use of PMG property as security for the loan is partially particularised. It is alleged that JRA executed the Embassy motel mortgage.[38] It is further alleged that JRA authorised charges and liens over 'car stocks'.[39]

19 Section O alleges that JRA and Ronald William Auswild 'directed or authorised' Preston Motors to make loans to Telasava.[40]

20 Section P alleges that JRA and Ronald William Auswild caused Preston Motors to enter a deed by which it advanced monies to Rossfield.[41] It is alleged that JRA executed the deed. It is also alleged that JRA directed or authorised PMG companies to enter into mortgages to facilitate the Rossfield Loan.[42]

21 Section Q alleges that JRA dishonestly concealed from the plaintiffs the circumstances giving rise to the causes of action alleged in the balance of the proposed statement of claim.

22 In relation to the claims against the other defendants as knowing recipients, it is pleaded that they had the relevant knowledge (or wilfully abstained from enquiry) and are accordingly liable.

23 The first defendant submitted, by detailed reference to the PASoC that the document was deficient in two critical respects. First it was submitted that there is no clear particularised allegation of the conduct of JRA said to constitute the use of the Funds or authorising the use of Funds. Secondly, it was submitted that the allegations of knowledge of the improper payments and dishonesty are inadequate.

24 The defendants against whom derivative claims are made (defendants 2-6 and 9-10) adopted the criticisms of the first defendant and submitted further that the PASoC does not sufficiently allege and particularise the required knowledge of the particular recipient defendant.

25 The seventh and eighth defendants, as executors of the estate of the late RWA (and the other executors) submitted that the personal claim against them is inadequately pleaded and does not disclose a cause of action.

26 The plaintiffs submitted that the PASoC is adequately pleaded and particularised and certainly to the extent or degree necessary so as to provide an adequate foundation for discovery whereafter further amendments and particularisation will presumably be provided. They rely on a line of authority to the effect that as long as the pleading (particularly in relation to knowledge) discloses a sufficient foundation or basis of the claim, discovery should follow, particularly where the relevant documentation is in the hands of the defendants. This process allows a plaintiff to then augment or supplement the claim and provide the best particulars as required.[43] It does not shut a plaintiff out because the case is a little thin or not fully or perhaps even adequately particularised.

27 The Civil Procedure Act (CPA) has a significant effect on civil litigation in the State of Victoria. The limits of the CPA are far from settled.

28 Significantly and relevantly, the CPA, through various techniques and principles requires and encourages, first, that only those cases with real prospects of success be permitted to continue, and secondly, that those matters that do proceed are dealt with effectively and efficiently and in the most cost effective manner having regard to issues of proportionality.

29 Pursuant to ss 54, 55(1), 55(d), 55(e), 55(k) of the CPA the Court has very wide powers in relation to discovery. It is self-evidently no longer - if it ever was - necessary to await the close of pleadings. Clearly discovery or particular or limited discovery can be ordered before the resolution of any dispute regarding the adequacy of pleadings and particulars. This is what in my opinion is desirable in the circumstances of this case and I propose to do so after discussion with the parties.

30 It follows that it is not necessary to assess, at this stage, whether the pleading reaches the required level so as to require discovery. This assessment is best done after limited and targeted discovery. It follows that I am of the opinion that the PASoC provide a sufficient basis for limited discovery at this stage and whether or not it is adequate as a pleading, the line of authority referred to being of limited relevance in light of the wide powers of the Court having regard to the imperatives of the CPA and in particular in relation to discovery. I am of course mindful of the time and cost of discovery. However, I stress that discovery will be extremely targeted and limited in scope. I propose to discuss relevant categories, and indeed specific documents, with the parties.

31 Although there is some substance in the defendants' submissions, I consider that they have overacted and overstated the position. The PASoC is by no means a work of art. However, given the age of many of the transactions, the lack of books and records and the perhaps understandable lack of cooperation from the defendants, the claims are in many cases difficult to plead and particularise, particularly in relation to knowledge.

32 As I would not shut the plaintiffs out or stay or dismiss their claim in the event that I found the PASoC to be deficient, the justice of the case requires in all of the circumstances, limited discovery and thereafter an assessment of the best case that the plaintiffs are able to plead. Ordinarily had I found the PASoC defective, I would most certainly have given the plaintiffs another go. Why should they not have another go, without such assessment (which is not without some difficulty) but after limited discovery. This approach is desirable and has maximum utility.

33 Although the PASoC has some deficiencies which the plaintiffs will need to address[44] it does set out the foundation or basis of the claims. Any inadequacy must be assessed against the context of the case and the pleadings filed to date and in particular the defence of the first defendant.

34 Without ruling on the adequacy of the PASoC (despite its deficiencies) because, for the reasons given, there is no utility in doing so at this stage despite the able arguments of all counsel, there are a number of matters that suggest that the plaintiffs have gone some way to plead and particularise (beyond bare allegations) the necessary and relevant matters, and in particular knowledge. They do not simply rely on general inferences and in particular inferences that may flow simply from being a director. In many, but not all cases, they go further and detail more specific involvement and conduct that is not merely passive but is indeed capable of founding the necessary inferences of knowledge. This is all the more so in light of the structural and agreed framework or custom with which the Preston Motors Group operated. It is neither necessary nor desirable to say more.

35 In conclusion, I am not satisfied that the PASoC should go forward in its current form. However, I am satisfied that it contains a sufficient foundation so as to provide for a recast after limited discovery.

36 For the reasons given I propose simply to adjourn each summons sine die, and make further orders for limited discovery after discussion with counsel. I propose to reserve all costs.

[1] JRA and Barbara Joan Auswild, the third defendant, are executors of the estate of the late RWA. In such capacity they are seventh and eight defendant respectively.

[2] By proceeding 4710 of 2014, JFA family members have commenced an oppression type proceeding against RWA family members. The proceeding is on hold (the Oppression proceeding).

[12] PASC [92], [94], [95], [103].

[43] The relevant cases are Arab Monetary Fund v Hashim (No 2) [1990] 1 All ER 673 at 679 (Lord Hoffman); Taverners J Pty Ltd v Saxo Bank [2011] VSC 27; [24], [25], [27] (Croft J).

[44] Without being exhaustive, Annexure B is seriously and self-evidently deficient. Section E is also self-evidently defective and ordinarily should be struck out. The claims against the executors need to be considered further. Some inconsistencies need to be addressed as referred to in argument. Further there is some imprecise general and unfocused allegations, some of which were referred to in argument.