Plaintiffs v Defendants [2016] VSC 559 | Case summary

Supreme Court of Victoria|2016-10-11|Before: SIFRIS J

[2016] VSC 559 (First Revision: 14 October 2016)

PRACTICE & PROCEDURE - Pleadings - Application to amend statement of claim - Whether pleadings establish causes of action - Whether pleading of dishonesty sufficient to establish a cause of action - Particularity required when alleging dishonesty or fraud.

1 The First Defendant, James Ronald Auswild ('JRA') and his late father Ronald William Auswild ('RWA') were at all relevant times directors and officers of the Preston Motors Group ('PMG') comprising the Plaintiffs and other companies.

2 The PMG is a substantial group of companies with extensive assets. The group was established by Sir James Auswild ('JFA') and his brother RWA. The ultimate shareholders in the PMG comprise the branches or family of each of the brothers. The pleadings refer to the JFA family as 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 PMG, the JFA family control more than 50% of the shareholding. They have commenced this substantial proceeding alleging that as directors in control of the PMG, 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 PMG. It is alleged that the Other Defendants are liable essentially as knowing recipients.

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

5 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 claims are liable on a derivative basis) and that accordingly leave should not be granted.

6 A previous application for leave to amend was refused.[1] I did not rule on the adequacy of the then proposed amendments but instead ordered discovery. Discovery has now taken place and the Plaintiffs, by summons filed 10 June 2016, seek to amend their claim. Many claims have been recast and some abandoned. Further claims against the Sixth to Tenth Defendants have been withdrawn.

7 Section N of the Statement of Claim filed 29 August 2014 ('SOC') alleges that JRA 'used, or authorised the use of' funds from PMG companies to provide a loan to Carlisle Investments Pty Ltd ('Carlisle Loan'). 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. 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. It is further alleged that JRA authorised charges and liens over 'car stocks'.

8 Accordingly, this claim concerns alleged breaches of fiduciary and other equitable duties arising from the making of the Carlisle Loan[2]. The substance of this claim was originally pleaded at SOC [239]-[258] which alleged breaches of duty by JRA and RWA in relation to the Carlisle Loan. Paragraphs [51]-[70] of the PASOC now allege breaches of duty by JRA. Paragraphs [71]-[79] the PASOC allege an alternative claim (under the second limb of Barnes v Addy[3]) that JRA was an 'accessory' to breaches of fiduciary duties owed by RWA.

9 Section M alleges that JRA or RWA directed or authorised various PMG companies to enter into a Debt Management Agreement[4] that was for the benefit of Carlisle and other Webb/Auswild interests.[5] It is also alleged that RWA and JRA caused PMG companies to provide guarantees in respect of the obligations of the Webb/Auswild interests under the Debt Management Agreement.[6] 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.[7] The Plaintiffs also allege that JRA participated in the back-dating of documents effecting amendments to the articles of association of PMG companies.[8]

10 Accordingly, this claim concerns alleged breaches of fiduciary and other equitable duties by causing some of the Plaintiffs to enter into a Debt Management Agreement.[9] The substance of this claim was originally pleaded in SOC [221]-[238], which alleged breaches of duty by JRA and RWA in relation to the Debt Management Agreement. Paragraphs [80]-[98] of the PASOC now allege breaches of duty by JRA, although the scope of these allegations has now been narrowed. Paragraphs [99]-[107] of the PASOC allege an alternative claim that JRA was an 'accessory' to breaches of fiduciary duties owed by RWA.

11 Section O alleges that JRA and RWA 'directed or authorised' Preston Motors to make loans to Telasava.[10]

12 Section P alleges that JRA and RWA caused Preston Motors to enter a deed by which it advanced monies to Rossfield.[11] 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.[12]

13 Accordingly, these claims concern alleged breaches of fiduciary and other equitable duties by JRA in causing some of the Plaintiffs to enter into the Telasava Loan and the Rossfield Loan.[13] The substance of these claims was pleaded separately in the SOC at SOC [259]-[281] and SOC [282]-[303], alleging breaches of duty by JRA and RWA. Paragraphs [108]-(139] of the PASOC now allege breaches of duty by JRA in relation to both the Telasava Loan and the Rossfield Loan, but the scope of these allegations has now been narrowed. Paragraphs [140]-[148] of the PASOC allege an alternative claim that JRA was an 'accessory' to breaches of fiduciary duties owed by RWA.

14 Section I alleges that RWA and JRA resolved to approve the purchase of 22 apartments in Tweed Heads by Preston Motors Pty Ltd (the Second Plaintiff).[14] It is also alleged that JRA and RWA subsequently implemented that purchase.[15] 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 RWA.[16]

15 Section J alleges that RWA agreed to purchase 9 Seascape car parks from BG Webb, apparently at a significant undervalue.[17] 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 RWA.[18] The Plaintiffs allege that JRA directed or caused the impugned payments.[19]

16 Accordingly, this claim concerns alleged breaches of fiduciary and other equitable duties arising from the purchase of 22 apartments (and carparks) in Tweed Heads NSW.[20] The substance of this claim was previously pleaded in SOC [150]-[160], alleging breaches of duty by JRA and RWA. Paragraphs [149]-[167] of the PASOC now allege breaches of duty by JRA in relation to the Seascape Apartments. Paragraphs [168]-[176] of the PASOC allege an alternative claim that JRA was an 'accessory' to breaches of fiduciary duties owed by RWA.

17 Section H alleges that JRA caused Auswild Securities to transfer the Sutton Farm to his mother Joan Auswild.[21] It is alleged that the transfer was for less than full value, and that Joan Auswild did not pay the nominated sale price.[22] 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.[23]

18 Accordingly, this claim involves alleged breaches of fiduciary and equitable duties by JRA in relation to the transfer of an asset held by the Seventh Plaintiff to JRA's mother .[24] The substance of this claim was previously pleaded in SOC [135]-[149], alleging breaches of duty by JRA and RWA and that the First, Third and Fifth Defendants held the Sutton Farm as constructive trustees, and/or were liable as volunteers or knowing recipients. Paragraphs [177]-[195] of the PASOC now allege breaches of duty by JRA in relation to the transfer of Sutton Farm. Paragraph [195] of the PASOC alleges a claim against the First, Third and Fifth Defendants as volunteers holding their respective interests in the Sutton Farm for the Seventh Plaintiff.

19 Section L alleges that Preston Motors Pty Ltd paid for certain real estate units that were registered in the name of Baronja.[25] 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.[26] The Plaintiffs allege that JRA directed or caused the impugned payments.[27]

20 Accordingly, this claim involves alleged breaches of fiduciary and other equitable duties by JRA in respect of the purchase, for the Second Defendant ('Baronja'), of units in the Hyde Park Regency, Elizabeth Street Sydney.[28] The substance of this claim was previously pleaded in SOC [205]-[220] alleging breaches of duty by JRA and RWA and that the Second Defendant held the Baronja Units on a resulting or constructive trust as it was a volunteer or knowing recipient. Paragraphs [196]-[212] of the PASOC now allege breaches of duty by JRA in relation to this purchase. Paragraphs [213]-[215] of the PASOC allege a knowing recipient claim against the Second Defendant.

21 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.[29] It is alleged that payments were made with the direction or authority of JRA,[30] or were caused by him.[31]

22 Accordingly, this claim concerns alleged breaches of duties by JRA by reason of his causing Plaintiff companies to purchase units for himself and the Fifth Defendant, his brother Raymond.[32] The substance of this claim was previously pleaded in SOC [110]-[134] alleging breaches of duty by JRA, and that JRA and the Fifth Defendants held the Beresford Units on a resulting or constructive trust, or as volunteers or knowing recipients. Paragraphs [216]-[232] of the PASOC now allege breaches of duty by JRA in relation to this purchase. Paragraphs [233] and [234] of the PASOC allege resulting trusts against JRA and the Fifth Defendants, and alternative claims[33] allege they are liable as volunteers, or that they are liable to make restitution, and that the First Defendant is liable to compensate in equity.

23 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.[34] It is also alleged that JRA caused those payments.[35] It is further alleged that JRA received the wage payments.

24 Accordingly, this claim involves alleged breaches of fiduciary and equitable duties by JRA by causing the relevant Plaintiff companies to pay 'wages' to the Third, Fourth and Fifth Defendants, where those persons were not entitled to such payments.[36] The substance of this claim was previously pleaded in SOC [61]-[79] alleging breaches of duty by JRA and RWA and alleging the Third, Fourth and Fifth Defendants were knowing recipients, were volunteers and unjustly enriched. Paragraphs [240]-[252] of the PASOC now allege breaches of duty by the First Defendant in relation to the 'wage' payments. Paragraphs [253]-[255] of the PASOC make claims against the Third, Fourth and Fifth Defendants as volunteers and in restitution. Paragraphs [257]-[265] of the PASOC allege an alternative claim that JRA was an 'accessory' to breaches of fiduciary duties owed by RWA and paragraphs [266]-[268] of the PASOC allege a knowing recipient claim against the Third and Fourth Defendants.

25 Section C alleges that JRA dishonestly 'used' or 'authorised the use of' funds from PMG companies for private and domestic expenses or to fund companies unrelated to the PMG (improper payments).[37] 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.

26 Accordingly, this claim involves alleged breaches of fiduciary and other equitable duties by JRA in his causing Plaintiff companies to pay for personal expenses of himself and his family.[38] The substance of this claim was previously pleaded in SOC [45]-[60] alleging a breach of duty by JRA and RWA. Paragraphs [269]-[279] of the PASOC have refined these claims to allege breaches of duties by JRA in relation to these payments.

27 There was no dispute as to the applicable principles.

28 The Plaintiffs seek to amend under Rule 36.01(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015 ('Rules'), which states:

36.01(1) For the purpose of-

(a) determining the real question in controversy between the parties to any proceeding; or

(b) correcting any defect or error in any proceeding; or

(c) avoiding multiplicity of proceedings -

the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.

29 The court must also have regard to the relevant provisions of the Civil Procedure Act 2010 in determining applications to amend.[39] The factors to be taken into account in determining such applications vary depending on the nature of amendments and the time at which the application is made. The guiding principle and primary question remains: "what do the interest of justice require?"[40]

30 The courts have identified factors relevant to amendment applications,[41] including:

(a) whether there will be substantial delay caused by the amendment;

(c) whether there is an irreparable element of unfair prejudice caused by the amendment;

(d) concerns of case management arising from the stage in the proceeding when the amendment is sought;

(e) whether the grant of the amendment will lessen public confidence in the judicial system; and

(f) whether there is a satisfactory explanation for seeking the amendment at the stage when it is sought.

31 Additionally, as to the merits of the amendment, an amendment will be allowed unless it is so obviously futile that it should be struck out from an original pleading.[42] As J Forrest J concluded in Matthews at [34]:

[34] Perhaps, given the terms of the Civil Procedure Act 2010, the test is best expressed in the words of s 63 of that Act: If the amendment has no reasonable prospect of success at trial then that would be a highly relevant factor in the exercise of the discretion to refuse the application.

32 This is the main area of controversy between the parties. The Plaintiffs contend that the pleading of dishonesty is adequate. The Defendants disagree and contend that further precision and identification of relevant facts - beyond general contextual factors - is required.

33 In Pharm-A-Care Laboratories Pty Ltd (ACN 003 468 219) v Commonwealth & Ors (No 3)[43], Flick J said in relation to pleading dishonesty:

[68] A pleading which alleges a particularly serious matter needs to be pleaded specifically. The example frequently given is that of fraud. Such an allegation must be pleaded precisely: Rajski v Bainton (1990) 22 NSWLR 125 ("Rajski") at 135 per Mahoney JA. The reasons for this are obvious - if a person is to be charged with doing or writing something which will involve serious consequences, the person is not to be condemned casually or by "inexact proofs, indefinite testimony, or indirect inferences": Rajski at 135 per Mahoney JA (citing Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362). And charges of this kind are not to be made unless the person who makes them, in a pleading or otherwise, is satisfied that there is expected to be available the evidence to prove them.

[69] The same approach in respect to the need for specificity in pleadings has been applied in the context of misfeasance: Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1. Pleading issues were there in issue when misfeasance had been alleged as against the Bank. Lord Hope of Craighead there expressed the principle generally as follows:

[51] On the other hand it is clear that as a general rule, the more serious the allegation of misconduct, the greater is the need for particulars to be given which explain the basis for the allegation. This is especially so where the allegation that is being made is of bad faith or dishonesty. The point is well established by authority in the case of fraud.

When addressing the question as to whether the claim had been properly particularised, His Lordship had earlier observed:

[48] The Bank makes much of the fact that the claimants have received numerous warnings of the need for particulars to be given of the facts relied on in support of their allegations and of the many opportunities that they have been given to amend their statement of claim. Your Lordships are invited to infer from the absence of particulars, and in the light of the available evidence, that the claimants are not able to make good their allegations and that on this ground alone Clarke J was right to order that the claim should be struck out. On the other hand the claimants say that the Bank is well aware of the case that they seek to bring and that the Bank's argument is calculated to place an insuperable obstacle in their path.

[49] In my judgment a balance must be struck between the need for fair notice to be given on the one hand and excessive demands for detail on the other. In British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd (1994) 72 BLR 26 at 33-34 Saville LJ said:

"The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularisation even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it."

[50] These observations were made under the old rules. But the same general approach to pleadings under the CPR was indicated by Lord Woolf MR in McPhilemy v Times Newspapers Ltd [1999] EWCA Civ 1464; [1999] 3 All ER 775 at 792J-793A:

"The need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party's witness statement, will make the detail of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise. This does not mean that pleadings are now superfluous. Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader. This is true both under the old rules and the new rules."

Lord Millett expressed the principle as follows:

[185] It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means "dishonestly" or "fraudulently", it may not be enough to say "wilfully" or "recklessly". Such language is equivocal. A similar requirement applies, in my opinion, in a case like the present, but the requirement is satisfied by the present pleadings. It is perfectly clear that the depositors are alleging an intentional tort.

[186] The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.

[70] Such is the degree of specificity required in the present proceeding in respect to the various allegations as to misfeasance.[44]

34 The general principles of pleading dishonesty were considered in Streeter and Others v Western Areas Exploration Pty Ltd (ACN 076 025 066)(No 2),[45] in which Murphy JA said:

[605] The general principles relating to a pleading of dishonesty were summarised by Millett LJ in Armitage v Nurse [1998] Ch 241 at 256-7 ; [1997] EWCA Civ 1279; [1997] 2 All ER 705 at 715-16 as follows:

Fraud must be distinctly alleged and as distinctly proved: Davy v Garrett (1877) 7 Ch D 473 at 489 per Thesiger LJ. It is not necessary to use the word "fraud" or "dishonesty" if the facts which make the conduct complained of fraudulent are pleaded; but, if the facts pleaded are consistent with innocence, then it is not open to the court to find fraud. As Buckley LJ said in Belmont Finance Corp Ltd v Williams Furniture Ltd [1979] Ch 250 at 268; [1979] 1 All ER 118 at 130-1: "An allegation of dishonesty must be pleaded clearly and with particularity. That is laid down by the rules and it is a well-recognised rule of practice. This does not import that the word 'fraud' or the word 'dishonesty' must be necessarily used ... The facts alleged may sufficiently demonstrate that dishonesty is allegedly involved, but where the facts are complicated this may not be so clear, and in such a case it is incumbent on the pleader to make it clear when dishonesty is alleged. If he uses language which is equivocal, rendering it doubtful whether he is in fact relying on the alleged dishonesty of the transaction, this will be fatal; the allegation of its dishonest nature will not have been pleaded with sufficient clarity".

See also Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 at [41].

[606] Furthermore, even if the word "fraud" is used in the pleading, it is insufficient if it is no more than a bald assertion, absent reasonable particularity of the circumstances which are said to constitute the fraud: Australian Metropolitan Life Assurance Company Ltd v Ure [1923] HCA 29; (1923) 33 CLR 199 at 219-20; 30 ALR 53.'[46]

[39] The applicant in written submissions dated 18 December 2011 says that it may reasonably be inferred that each and every one of the natural respondents, and the corporate respondents through the natural respondents, knew or ought to have known by virtue of their office "and each in their time" that the accounts were fraudulent; and so it is pleaded in [228]-[234] of the proposed statement of claim.

[40] Rule 16.42 of the Rules which apply to this proceeding provides as follows:

A party who pleads fraud, misrepresentation, unconscionable conduct, breach of trust, wilful default or undue influence must state in the pleading particulars of the facts on which the party relies.

[41] Rule 16.43 takes the matter a little further in relation to conditions of mind:

(1) A party who pleads a condition of mind must state in the pleading particulars of the facts on which the party relies.

(2) If a party pleads that another party ought to have known something, the party must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge.

(3) In this rule:

condition of mind, for a party, means:

(a) knowledge; and

(b) any disorder or disability of the party's mind; and

(c) any fraudulent intention of the party

[42] Therefore, where, as here, fraud and misrepresentation are pleaded against the relevant respondents, and it is said that by virtue of their office as a director or officer a particular respondent "knew or ought to have known something" then it is necessary for the "particulars of the facts and circumstances from which the other party ought to have acquired the knowledge" be set out.

[43] It appears that the applicant considers that to satisfy the Rules it is enough to allege that at material times particular respondents were directors and officers of a corporate respondent. In my view, in this case at least, to simply allege the holding of the office is an insufficient plea for the purposes of satisfying the requirements of rr 16.42 or 16.43. If an applicant pleads that because a particular respondent was a director or officer of the company and thereby had access to certain information, or was responsible for certain activities, or whatever facts are said to be relevant from which it may be inferred they knew or ought to have known something, then those facts should be fully pleaded. The other party will then know precisely why it is said they knew or ought to have known something. The general imputing of knowledge by virtue of simply holding an office is not sufficient to meet the requirements of rr 16.42 and 16.43 in relation to a pleading of the kind currently under consideration. In this the proposed pleading is deficient.

36 On appeal[48], Siopis, Gilmour and McKerracher JJ said:

[43] The substance of these complaints is that the primary judge failed to take into account the allegations in the pleading, in which the role of each of the individual respondents was pleaded, when considering the later composite allegations of fraud by each respondent. We reject these arguments for a number of reasons.

[44] First, the allegations of fraud did not refer back to the early part of the pleading. Accordingly, they did not set out or refer to the particulars required by rr 16.42 and 16.43 of the Federal Court Rules 2011 (Cth) (the Rules).

37 In Annesley Plant Hire Pty Ltd v Wilson,[49] Robson J said with respect to pleading knowledge:

[168] In Ristevski v Kyriacou & Zard Constructions Pty Ltd & Law Institute of Victoria the defendant, a solicitor, had been sued in negligence. She joined her insurer as a third party. The insurer denied liability on the ground that the solicitor had been acting dishonestly or fraudulently. The solicitor alleged that the insurer had not given sufficient particulars of the fraud or dishonesty and the defence should be struck out.

[169] Harper J said:

It may also very well be that a person who suspects fraud, and wishes to allege it, is unable to point to any more than mere speculation as a means of supporting the allegation. Hard as it may be for such a person to appreciate the fact, it is nevertheless inappropriate to allow such an allegation to go forward to trial if the person making the allegation does not have sufficient evidence to support it, then sooner the allegation is removed from the list of issues between the parties, the better. The Court should not be concerned with hunches, no matter how reluctant litigants might be to put their hunches aside. In such cases, the Court should act to save the subject of an allegation of fraud which cannot be substantiated "from the vexation of the continuance of useless and futile proceedings": General Steel Industries Inc v Commissioner for Railways (NSW).

Having acknowledged the force of that point, however, one must also bear in mind the nature of the allegation of fraud. Such an allegation will almost invariably only be made out if the appropriate inference can be drawn. An inference is a deduction from known facts. An allegation of fraud must therefore state the facts upon which the inference is sought to be drawn. Once that is done, then it is for the tribunal of fact to determine whether or not the inference is the only inference reasonably open (as it must be if it is to form an essential link in a chain of reasoning leading to a conviction on a criminal charge) or whether (in a civil case) the inference is more probable than not. But the process of reasoning itself cannot be the subject of pleading; all the pleading can do is to set out the facts upon which the inference might be drawn.

...

The first defendant says that all the material allegations of fact pleaded in the amended defence support an inference that the first defendant was, at worst, negligent. Alternatively, she argues that, put at their highest, those allegations are at least as consistent with negligence as they are with fraud. This being so, the ultimate tribunal of fact could not, after trial, find fraud because the requirement to prove fraud on the balance of probabilities would not be met.

I am not convinced by this argument. To the contrary, it seems to me that the material facts pleaded in the amended defence would if proved form an ample basis upon which an inference of fraud or other dishonesty might be proved. The amended defence includes allegations which, if made out at the trial, would establish a motive: a desire to retain as clients members of a group of companies, including the second defendant, which might put considerable work [her way]...

...

The third party might or might not be able to prove these allegations at the trial. The trial judge might or might not be prepared to find in them an inference that the first defendant acted fraudulently, or otherwise dishonestly. But the point is that, once proved, the pleaded facts would be capable of supporting the inference upon which the third party relies; and the proper inference to be drawn from the pleaded facts is one which ought not to be determined as a pre-trial pleading exercise, but rather should only be determined at the trial itself. The inference properly to be drawn must be seen against the whole of the evidence as given viva voce with the benefit of testing under cross-examination. Indeed the drawing of inferences is pre-eminently a matter for the ultimate tribunal of fact after hearing and seeing the witnesses who are called to give oral evidence. In a case such as this, it is the evidence given at trial which would almost certainly tip the scales one way or the other. Such evidence, in the main, cannot form part of the pleadings...

[170] From this case certain propositions can be established in respect of pleading knowledge. The allegation of knowledge will normally be established by inference drawn from established facts. The claim must plead facts from which the inference of knowledge might be drawn. If such facts are particularised it is up to the tribunal of fact to determine whether in the light of all the evidence the inference of knowledge should be drawn. If the facts particularised might not give rise to an inference of knowledge then the claim is merely speculation and should not be permitted to proceed. The process of reasoning from the facts to the inferences cannot be the subject of the pleading. All the pleading can do is set out the facts upon which the inference might be drawn. In my opinion, these principles should be applied in this case.

38 In Sheehan v Brett Young[50], Dixon J said:

[27] There is debate about whether a coherent and justifiable basis for this cause of action has been identified by the common law. It is unnecessary to enter into that debate. For the purposes of identifying the principles of law applicable in respect of the mental state of the tort, I agree with Gleeson J's analysis of the cases in respect of pleading this tort in Lock v Australian Securities and Investment Commission. Gleeson J summarised what a pleading of misfeasance in public office requires, stating -

Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld: Federal Commissioner of Taxation v Futuris Corporation. In Leinenga v Logan City Council, at [64], Mullins J said:

... the tort of misfeasance in public office is not easily established. It depends on the impugned act being committed by the public officer with the requisite state of mind both in committing the act and in holding the requisite intention to cause the loss or damage that is alleged to flow from the impugned act. It is a very serious allegation to be made against a person who holds public office. It cannot be made in a broad brush way. It requires particularity in setting out the facts that can, if proven, establish the cause of action.

See also Pharm-a-Care Laboratories Pty Ltd v Commonwealth (No 3).

As for fraud or dishonesty, the tort of misfeasance in public office must be distinctly alleged and sufficiently particularised, and it is not sufficiently particularised if the facts pleaded are consistent with innocence or honest incompetence: Three Rivers District Council v Governor and Company of the Bank of England (No 3) (Three Rivers); Danthanarayana v Commonwealth; Streeter v Western Areas Exploration Pty Ltd (No 2). It is not sufficient to allege unlawful conduct: it is necessary to plead the primary facts that will be relied upon to justify any inference of unlawfulness: Three Rivers at 292; NRMA Insurance v Flanagan.

39 In Lock v Australian Securities and Investments Commission[51], Gleeson J said:

As for fraud or dishonesty, the tort of misfeasance in public office must be distinctly alleged and sufficiently particularised, and it is not sufficiently particularised if the facts pleaded are consistent with innocence or honest incompetence: Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1 ("Three Rivers") at 291 to 292 (Lord Millett); Danthanarayana v Commonwealth [2014] FCA 552 at [97] (Foster J); Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291 at [605]. It is not sufficient to allege unlawful conduct: it is necessary to plead the primary facts that will be relied upon to justify any inference of unlawfulness: Three Rivers at 292; NRMA Insurance v Flanagan [1982] 1 NSWLR 585 at 603.[52]

40 Accordingly, in my opinion, if sufficient facts and circumstances are pleaded (with sufficient particularity) which if established by the evidence, might, or are capable of, supporting an inference of specific dishonest conduct, the pleading will be sufficient. It is not necessary to plead evidence or a path of reasoning. Of course the claim may fail if the facts are not made out, or other lesser remedies may be established, such as negligence. However, if the facts pleaded are only consistent with such lesser remedy, the pleading of dishonesty will not be sufficient. However, if the facts, circumstances and relevant context as pleaded might, if established by the evidence, rise to the level of dishonesty the pleading is sufficient whatever the result. In my view there is nothing in the authorities referred to that suggests otherwise.

41 The pleading in relation to each claim, not surprisingly, follows a similar format. It is as well to set out the pleading in relation to one of the claims in full. I will take the first claim, the Carlisle loan. The pleading is set out in full in Annexure A.

42 The claim has a logical progression and is structured in the following way -

(a) First, the transaction is identified ('the Transaction').[53]

(b) Secondly, the various breaches of duty, in this claim on the part of James Auswild, the First Defendant, are pleaded. The breaches that do not involve dishonesty are pleaded at paragraphs [59]-[67] ('the breaches of duty').

(c) Thirdly, paragraphs [68]-[69] plead 'knowing breaches' or dishonesty ('the dishonesty claim'). As pointed out, this claim, or these claims were the main subject of the attack by the Defendants. Part of the attack was the Plaintiffs more general pleading relating to directorships and day to day management by James Auswild and his father Ronald Auswild, and its relevance or connection to the actual suggested dishonest conduct, in this case the Carlisle Loan and its peculiar features.

(d) Fourthly, paragraph [70] pleads loss and James Auswild's liability to account ('the loss').

(e) Fifthly, paragraphs [71]-[76] plead the same breaches of duty and dishonesty claim as against Ronald Auswild and then paragraphs [77]-[78] plead James Auswild's knowing assistance in such breaches ('the knowing assistance claim').

43 As pointed out the main attack is in relation to the dishonesty claim. The other facts and matters constituting this claim, have in my view, been adequately pleaded and the Defendants, whilst not admitting this, did not seriously (as a matter of pleading) contend otherwise, in my view properly so.

44 The Defendants submitted that the claims of dishonesty have not been adequately pleaded. It was submitted, in essence, that the facts pleaded are too general and do not support any claim or inference of dishonesty. At most they are, it was submitted, consistent with the other pleaded breaches.

45 The Plaintiff disagreed and contended that the pleading was sufficient. It was submitted that the facts and matters pleaded (and sufficiently particularised), if established at trial, were capable of or might establish the requisite dishonesty.

46 In my opinion the dishonesty claims have been adequately pleaded.

47 There is no question that JRA knows the case he has to meet. Paragraphs [51]-[79] are sufficiently clear. Putting to one side the dishonesty claim, the other breaches of duty are clear and as pointed out, it was not submitted that from a pleading point of view these claims could not stand and were lacking in precision or particulars. Indeed the claim is relatively straightforward. Two of the Plaintiff companies borrowed funds, not for their own purposes, but to on lend to Carlisle. The Plaintiff companies encumbered their assets and paid interest and did not enter into any agreement with Carlisle. JRA was a director of Finance & Guarantee and Fintee, the relevant Plaintiff companies. More relevantly, he had a sufficient interest and knowledge of the affairs of Carlisle derived from his indirect shareholding, the family interest in Carlisle and his father being a director of Carlisle at the relevant time. From these matters, pleaded in paragraph [45] of the PASOC, and the nature of the investment, and the context generally, it is open to be inferred that JRA, who subsequently became a director of Carlisle was aware of the relevant matters. The detailed facts and matters set out in paragraphs [52] and [57] clearly support, as a matter of pleading, the suggested breaches of duty (conflicts breach, profits breach, best interest breach, improper purpose breach, and diligence breach).

48 The knowing breach or dishonesty claim is of course a further step. It is the knowledge attributed to JRA, of the factual and legal matters, as pleaded and set out above, that 'amounted to a transgression of the standards of honest behaviour'.

49 Accordingly, it is necessary to examine the pleaded factual basis on which it is suggested that JRA knew of such breaches or that it is reasonable to infer that he knew of the breaches. The enquiry is whether the pleaded facts, if established might be or are capable of supporting the dishonesty claim.

50 Particulars of the requisite knowledge, the usual foundation for a dishonesty claim of this kind, continue to cause difficulty for obvious reasons. First, one does not know what is in a person's mind or what that person knew. The state of mind of a person is almost always established by inference. Secondly, there is very rarely a 'smoking gun' admission type document. Consequently all facts and matters, historic and general, contextual and specific may be relevant to compelling the necessary inference.

51 The pleaded facts and particulars must however go beyond the general. In this case they do. They are both general and specific. Together and in context they - if established - permit the necessary inferences to be drawn.[54] It must be recalled that evidence need not be pleaded. Further the path of reasoning is not a matter to be pleaded. What then is pleaded?

52 The general allegation is that JRA was a director of the relevant Plaintiff companies and had sufficient knowledge of the financial affairs of Carlisle. He was involved in the day to day activities of the relevant Plaintiff companies over a long period of time and in particular over the entire duration of the transactions that are the subject of this claim. He also had full or sufficient knowledge of the details of the transactions including specifically the reasons and consequences of the transaction. At the very least this may be inferred from the financial position of Carlisle and the receipt by Carlisle of funds borrowed by the relevant Plaintiff companies. Holding, together with his family, an economic interest in Carlisle, it may be inferred (particularly from the size of the company and nature of the transaction) that he knew about the transaction particularly given the financial position of Carlisle and the favourable loan conditions, namely there being no requirement to pay interest or give security or enter into any agreement.

53 Accordingly it is entirely appropriate to infer from the pleaded facts and particulars that at the very least he knew of the substantial benefits to Carlisle and the detriment to the relevant Plaintiff companies. Consequently and as a logical corollary it may be inferred that from the nature of the transaction and as a seasoned director he knew that this 'one sided transaction' may give rise to the pleaded (non-dishonest) breaches.

54 Dishonesty is the next step. It is not however a giant leap. If established at trial the matters pleaded in paragraph [68] which refers back to numerous other paragraphs are sufficient to permit the drawing of the necessary inference of dishonesty. The facts pleaded are not consistent with innocence, honest incompetence or negligence. They go further. The critical issue in my opinion is that whatever his knowledge as a director of the relevant Plaintiff company, it is his specific knowledge (which may be inferred) of the relevant company on the other side of 'the transaction', that sufficiently establishes directly and by inference his knowledge and involvement on the PMG side.

55 Of course the Plaintiffs may fail to establish their claim. Further, the Defendants may have an explanation for the transaction and its beneficial and correspondingly detrimental profile. However, this does not detract from the adequacy of the pleading. JRA knows the case he has to meet.

56 Accordingly the dishonesty claims as pleaded are not deficient and I propose to allow the claims to proceed.[55]

57 There are several other objections to the PASOC. They are dealt with below.

58 Although the nature of the transaction is different, the circumstances - both general and specific - as pleaded are (if established) capable of making out the claim.

59 Although the nature of the transaction is different, the circumstances - both general and specific - as pleaded are (if established) capable of making out the claim.

60 The Third and Fifth Defendants (and the Other Defendants) contend that their title to the Sutton Farm is indefeasible and no claim is available as against them. The Plaintiffs contend by reference to Victorian authority that the indefeasibility provisions do not assist the Defendants because they are volunteers.

61 This issue is not without difficulty and the authorities are not entirely clear. In my opinion it is not necessary to resolve the issue as I am satisfied that, at the very least, the claim for equitable compensation or the liability to account has sufficient prospects of success and should proceed.[56] I propose to allow the claim, as pleaded, to proceed. The indefeasibility point is a legal matter that will not require any further evidence and will not add to the length of the trial.

62 Although the nature of the transaction is different, the circumstances - both general and specific - as pleaded are (if established) capable of making out the claim.

63 Paragraphs [25] and [26] of the Other Defendants' Submissions contend that no resulting trust can arise on the assumption that PASOC pleads a loan from F&GP1 to Raymond Auswild. This is not correct. The PASOC [217] pleads the advance of funds for the specific purchase of the relevant shares. Accordingly, there is a sufficient basis for the resulting trust claim.

64 Both JRA's Submissions and the Other Defendants' Submissions contend that leave ought to be refused in relation to this claim. The PASOC alleges that:

(a) James Auswild and his father caused various of the Plaintiffs to pay "wages" to Barbara Auswild (the Third Defendant and James Auswild's sister), to Keith Kearns (the Fourth Defendant and James Auswild's uncle) and Raymond Auswild (James Auswild's brother and the Fifth Defendant)[57]; and

(b) those Defendants were not entitled to wages as they were not officers of and did no relevant work for the relevant Plaintiff companies[58] (including that the Fifth Defendant was at all times under an incapacity).[59]

65 The PASOC alleges that, in these circumstances, causing these payments to be made was contrary to the interests of the relevant Plaintiff companies, where JRA's duties to those companies were in conflict with his duties and interests to those Defendants. In causing these payments to be made, the PASOC alleges that JRA breached his fiduciary and other equitable duties.[60] It is also alleged that JRA knowingly breached these duties.[61]

66 The PASOC also alleges that, in the circumstances, JRA knowingly assisted in Ronald Auswild's fiduciary breaches.[62]

67 Further, the PASOC alleges that the third and fourth Defendants were 'knowing' recipients of the payments made in breach of trust.[63] The relevant Plaintiff companies claim against the recipients in an action for knowing receipt,[64] restitution,[65] or in their capacities as volunteers.[66]

68 JRA contends at [51] and the Other Defendants contend at [30]-[32] that the wages claim is embarrassing; asserting the pleading relies upon documents suggesting the relevant Defendants were entitled to wages. However, this is not correct. The Plaintiffs submitted that the claim is that JRA and his father breached their duties by paying sums 'styled' as wages, but which were, in fact, paid to persons who they knew were not working for the relevant Plaintiff.

69 The Other Defendants' Submissions at [28] contend further that the Defendants were innocent volunteers and that tracing will be unavailable. The Plaintiffs submitted that it will be an issue for the trial as to whether each of these Defendants were truly innocent and to what extent they were on notice or retain the misappropriated funds. In any event, equity can it was submitted still impose an obligation on an innocent volunteer to account in the circumstances.[67]

70 Although I have some concerns about this claim, the claims are adequately pleaded and will be permitted to proceed.

71 JRA submits leave ought be refused for this claim. The PASOC alleges that JRA caused Preston MotorsP2 and Parts SalesP4 to make numerous payments to third parties in respect of payments that, on their face, do not relate to the business of Preston MotorsP2 and Parts SalesP4, but which rather relate to expenses of a personal nature for his, or his family's benefit.[68]

72 The payments alleged are set out in Annexure D, which provides particulars of the date of payment, the cheque number recorded by the financial officer, the 'details' provided by JRA to the financial controller (as to describing what the expense was), the amount of each payment and the document ID which records both the instructions from James Auswild and the basis for inferring the expense was of a personal nature.

73 The PASOC alleges that, by causing of the personal expense payments to be made out of the funds of Preston MotorsP2 and Parts SalesP4, JRA was in breach of fiduciary and equitable duties owed to those companies.[69]

74 It is also alleged that JRA knowingly breached these duties.[70]

75 JRA contends at [53] and [55] that the particulars of the payment in Annexure D and the First Defendant's knowledge of them are inadequate. The Plaintiffs submit that this is not correct in light of the substantive particulars provided.

76 JRA contends further at [54] that the particulars do not identify his conduct. The Plaintiffs submitted that this is not correct in light of the particulars provided to PASOC [269]. For clarity they pointed out that no claim is made on the basis of any 'authorisation' of RWA, but only in respect of payments authorised by JRA, as set out in Annexure D.

77 Although I have some concerns about this claim, I am satisfied that this claim has been adequately pleaded.

78 In all of the circumstances and not without some hesitation and concern, I am satisfied that leave shall be granted to the Plaintiffs to amend their claim substantially in the form proposed. My hesitation and concern arises out of the nature, extent and age of the claim. It is best resolved by the parties.

51 Ronald Auswild and James AuswildD1 had interests in Carlisle as alleged in paragraph 45 above.

52.1 Carlisle had already incurred significant liabilities to General Motors Acceptance Corporation ("GMAC") and its related Australian corporate entity, General Motors Acceptance Corporation Australia "GMACA" - collectively, GMAC) and the Commonwealth Bank of Australia (CBA) and was in need of obtaining finance in order to meet its outstanding and ongoing liabilities.

As far as the Plaintiffs are able to say prior to completion of discovery, that Carlisle was indebted and in a position of financial need as alleged is to be inferred from the following:

A). as at 30 June 1990, the balance sheet of Carlisle recorded that:

a). Carlisle had a total share capital and reserves of $1,677,097;

b). its only other assets were debts owing to it by, and shares held in, related or subsidiary companies;

B). as to liabilities: at 30 June 1990, the balance sheet of Carlisle recorded that:

a). Carlisle had a liability to GMACA of $165,306,595;

b). Carlisle had liabilities owing to the CBA of $360,447 and contingent liabilities of approximately $31,000,000.

C). further, by a fixed and floating charge dated 13 January 1984, the Commonwealth Trading Bank of Australia (which, subsequently, by operation of section 8 the Commonwealth Banks Amendment Act 1984 (Cth) continued under the name Commonwealth Bank of Australia) (CBA), charged all Carlisle's undertaking, property and assets securing the liability for all money owed by Carlisle and the Debtor;

D). in the years 1988 to 1990, Carlisle had recorded successively declining net profits as follows:

a). $801.00 in the financial year ending 30 June 1990;

b). $73,414 in the financial year ending 30 June 1989; and

c). $204,144 in the financial year ending 30 June 1988.

53 In the financial year ending 30 June 1990 James AuswildD1 and Ronald Auswild caused or permitted FinteeP8 and or Finance & GuaranteeP1 to borrow the sum of at least $7,800,000 from GMAC (the GMAC Sums) in order for Finance & GuaranteeP1 to lend the sum of $8,328,447.72 to Carlisle (the Carlisle Loan).

A). So far as the Plaintiffs are able to say prior to completion of discovery, the borrowings of the GMAC Sums are to be inferred by reason of the following:

a). The books and records of Finance & GuaranteePl and FinteeP8 record that the following sums on the following dates were recorded as increasing liabilities to GMAC:

B). The Carlisle Loan is recorded in the balance sheet and working papers of Finance & GuaranteePl as at 30 June 1990, copies of which are available for inspection on prior arrangement.

C). Further, so far as the plaintiffs are able to say prior to completion of discovery, that James AuswildD1 caused or permitted the borrowing of the GMAC Sums and the making of the Carlisle Loan is to be inferred by reason of:

a). the fact he was involved in the day to day management and control of the Preston Motor Group companies as alleged in paragraph 40 above;

b). further, by reason of the obvious commercial significance of the Carlisle Loan transaction it is likely that the board of directors of Finance & GuaranteeP1 (James AuswildD1 and his father) were involved in the decision to effect the Carlisle Loan;

c). the matters alleged in paragraph 54.2.2 below.

54 James AuswildD1 and Ronald Auswild caused or permitted the Carlisle Loan to be made in circumstances where GMAC required:

54.1 FinteeP8 and or Finance & GuaranteeP1 to pay interest on the GMAC Sums on a commercial rate;

54.2 FinteeP8 and or Finance & GuaranteeP1 to procure Preston Motors Group companies to pledge assets as security for the GMAC Sums by:

54.2.1 encumbering motor vehicle floor stock held by Preston Motors Group companies in respect of advances from GMAC made on 2 April 1990 and 7 May 1990; and

54.2.2 securing the advance of the two payments on 6 and 12 June 1990 (totalling $4m) by mortgaging the Embassy Motel property in the A.C.T. (being two properties particularised as Blocks 9 and 13; Section 12; Division Deakin; Volumes 510 and 337 and Folios 39 and 94), which was then owned by Finance & GuaranteeP1.

A). As to paragraph 54.1 above, so far as the plaintiffs are able to say prior to completion of discovery, the requirement to pay interest at a commercial rate is inferred from:

a). the fact that the advance was made by GMAC, a third party commercial financier, pursuant to an existing facility made available to FinteeP8 and or Finance & GuaranteePl or the Preston Motors Group;

b). the matters alleged in paragraph (C)(b) of these particulars; and

c). the payments in fact made by FinteeP8 and or Finance & GuaranteePl alleged in paragraph 57 below;

B). As to paragraph 54.2.1 above, so far as the Plaintiffs are able to say prior to completion of discovery, the Plaintiffs refer to the books and records of FinteeP8 and Finance & GuaranteePl which record the encumbrance alleged.

a). James AuswildP1 and Ronald Auswild attended a meeting of the directors of Finance & GuaranteePl, on 30 April 1990 at which it was unanimously resolved to borrow $4 million from GMAC, on the security of a mortgage over the Embassy Motel property; and

b). On 6 June 1990 James AuswildP1 and Ronald Auswild (as directors) of Finance & GuaranteePl granted a mortgage over the Embassy Motel (executed by them as directors, together with Ted Dove, as secretary), whereby they caused Finance & GuaranteePl to borrow a principal sum of $2 million, and other monies thereby secured, from GMACA on written terms that included:

i). the principal sum of $2 million had to be repaid within one year;

ii). Finance & Guarantee was required to make monthly interest repayments at a "higher" rate of 19%.

D). Further, that James AuswildP1 and Ronald Auswild caused or permitted the making of the Carlisle Loan in the circumstances alleged arises by their actual involvement in the encumbering of assets alleged above and the plaintiffs otherwise refer to the matters set out in the particulars C to paragraph 53 above.

55 At the time the Carlisle Loan was made and at material times afterwards, James AuswildP1 did not cause Finance & GuaranteePl or FinteeP8 to request or require that Carlisle:

55.1 enter into any form of agreement whereby the liability of Carlisle to Finance & GuaranteePl would be recorded;

55.2 provide any security to Finance & GuaranteePl in return for the Carlisle Loan;

55.3 pay any interest to Finance & GuaranteePl in relation to the Carlisle Loan;

55.4 agree to indemnify Finance & GuaranteePl and or FinteeP8 in respect of the liability of Finance & GuaranteePl and FinteeP8 to repay the GMAC Sums;

55.5 pay reasonable commercial fees to any Preston Motors Group company whose assets had been pledged as security in order to obtain the GMAC Sums;

55.6 provide Finance & GuaranteePl or FinteeP8 with any equitable interest in any undertaking of Carlisle (such as any property development) which was, in effect, made possible or sustained by reason of the provision of the Carlisle Loan to Carlisle;

55.7 otherwise compensate, or give sufficient consideration to, Finance & GuaranteePl or to FinteeP8 in return for the fact that they had incurred liabilities to GMAC in borrowing the GMAC Sums and which were paid to Carlisle.

56 At the time of making the Carlisle Loan, and all material times afterwards, Carlisle did not provide, or agree to do, any of the things alleged in paragraphs 55.1 to 55.7 above.

57 In the period from 24 May 1991 to 30 June 2005, FinteeP8 and Finance & GuaranteePl serviced and repaid the loans (including as to interest) obtained from GMAC (in relation to the GMAC Sums).

As far as the plaintiffs are able to say prior to completion of discovery, the loans to GMAC were serviced as follows:

A). In the following financial years the following sums were paid to GMAC by Preston MotorsP2, Commonwealth MotorsP5 and Summit Motors Pty Ltd in reduction of the GMAC stock loan, which sums were recorded as loans to FinteeP8, which in turn credited these sums to its loan account 3601 with Finance & GuaranteePl:

a). in the financial year ending 30 June 1991, a total of $2,963,027 was paid;

b). in the financial year ending 30 June 1992, a total of $4,822,171 was paid.

B). From October 1994 to 30 June 2005, Finance & GuaranteeP1 made regular payments of $20,000 per month (being $180,000 for FY 1994 and $240,000 per annum thereafter) to GMAC as evidenced by cheque butts of Finance & GuaranteeP1 for the relevant period.

59 When causing or permitting the Carlisle Loan to be made:

59.1 James AuswildD1 was in the position of a fiduciary and owed duties to Finance & GuaranteePl and, or, FinteeP8 as alleged in paragraph 43.1.1 above; and

59.2 James Auswild'sD1 conduct in causing or permitting the borrowing of the GMAC Sums and the making of the Carlisle Loan in the circumstances alleged in paragraphs 51 and 53 above; alternatively in the circumstances alleged in paragraphs 54, 55 and 56 above, involved a conflict, or a real and sensible possibility of conflict, between the interests of James AuswildD1 on the one hand and the interests of, and duties owed by him to, Finance & GuaranteePl and FinteeP8 on the other.

A). James AuswildD1 had direct financial interests in Carlisle as alleged in paragraph 45, by reason of his shareholding in Chatswood.

B). James AuswildD1 had a further interest in Carlisle, and transactions affecting it, by reason of his father's interest in, and duties owed by him to, Carlisle as alleged in paragraph 45.

60 By reason of the matter alleged in paragraph 59 above James AuswildD1 breached the duty to avoid conflicts of interest owed by him to each of Finance & GuaranteePl and FinteeP8.

61 Further, when causing or permitting the borrowing of the GMAC Sums and the making of the Carlisle Loan in the circumstances alleged in paragraphs 53, 54, 55 and 56 above, James AuswildD1:

61.1 was in the position of a fiduciary owing duties to Finance & GuaranteePl and FinteeP8 as alleged in paragraph 43.1.2; and

61.2 caused or permitted benefits to flow to Carlisle and himself and his father.

So far as the plaintiffs can say prior to completion of discovery and expert reports being provided:

A). The benefits to Carlisle was the receipt of the Carlisle Loan, without entering into any agreement or, paying interest, or having to provide security or any fee or compensation to FinteeP8, or alternatively Finance & GuaranteePl.

B). The benefits to Carlisle were also benefits to its underlying owners, including James AuswildD1 and his father as alleged in paragraph 45 above.

62 By reason of the matters alleged in paragraph 61 above, James AuswildD1 breached the duty to not to use his fiduciary position to effect an advantage for himself or for third parties.

63 The borrowing of the GMAC Sums and making of the Carlisle Loan in the circumstances alleged in paragraphs 53, 54, 55 and 56 above were not in the best interests of FinteeP8 and or Finance & GuaranteePl.

64 By reason of the matters alleged in paragraph 63 above, James AuswildD1 breached his duty to act with good faith and for the best interests of each of Finance & GuaranteePl and FinteeP8.

65.1 James AuswildD1 had interests in Carlisle as alleged in paragraph 45 above;

65.2 Carlisle received benefits by the making of the Carlisle Loan as alleged in paragraph 61.2 above; and

65.3 Finance & GuaranteePl and FinteeP8, suffered detriment by the making of the Carlisle Loan as alleged in paragraphs 54, 56 and 57 above,

the making of the Carlisle Loan and the borrowing of the GMAC Sums was not for a proper purpose and resulted in an improper conferral of benefit to Carlisle and detriment being suffered by Finance & GuaranteePl and FinteeP8.

66 By reason of the matters alleged in paragraph 65 above, James AuswildD1 breached the duty, owed by him to each of by Finance & GuaranteePl and FinteeP8, to act for a proper purpose.

67.1 A reasonable person in James Auswild'sD1 position at the time of making the Carlisle Loan in the circumstances alleged in paragraphs 52 and 53 above, would have (but James AuswildD1 did not):

67.1.1 considered the relative benefits and risks to Finance & GuaranteePl and FinteeP8, prior to deciding whether to make the Carlisle Loan;

67.1.2 to the extent he was not already aware of the financial position of Carlisle, reviewed and considered all relevant financial records of Carlisle, including publically available information as to charges in place, and become aware of its financial position (as it is alleged in paragraph 52 above);

67.1.3 concluded there was no reasonable basis to conclude that Carlisle had the ability to repay the Carlisle Loan to FinteeP8 or Finance & GuaranteePl;

67.1.4 concluded that the Carlisle Loan should not be made in the manner alleged, and, or alternatively, particularly in the circumstances alleged in paragraphs 54 and 56 above, having regard to Carlisle's likely inability to repay the loan and the disadvantages to FinteeP8 or Finance & GuaranteePl;

67.1.5 further or alternatively, ensured that adequate protection from risk and compensation for making the Carlisle Loan (as set out in paragraphs 55.1 to 55.7) was provided to FinteeP8, and, or alternatively, Finance & GuaranteePl prior to making any advance of money to Carlisle;

67.1.6 further or alternatively, declined to cause or permit the making of the Carlisle Loan and the borrowing of the GMAC Sums and the encumbering of the Preston Motors Group assets as alleged.

67.2 By reason of the matters alleged in paragraph 67.1 above, by causing or permitting the borrowing of the GMAC Sums and the making of the Carlisle Loan in the circumstances alleged in paragraphs 52 to 56 above, James AuswildD1 breached the duty, owed by him to each of Finance & GuaranteePl and FinteeP8, to act with the degree of care, skill and diligence required of a person in his position.

Plaintiffs v Defendants

At a glance

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Decision date

Before

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Judgment (288 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (4)