QC Resource Investments Pty Ltd (In Liq) v Naicker

Background 1 These proceedings are concerned with an interlocutory application by the respondent in the principal proceeding, Mr Deiva Naicker, for orders striking out paras 2, 3 and 4 of the originating application and 16 paragraphs of the amended statement of claim of the applicants. The applicants are QC Resource Investments Pty Ltd (in liq) and Mr Michael Owen as liquidator of that company (both of whom I describe as "QCRI"). 2 From on or about 23 July 2012, Mr Naicker held the position of General Counsel and Company Secretary of QCRI pursuant to a contract of employment dated 8 June 2012. On or about 5 September 2013, Mr Naicker resigned from his position as Company Secretary. After that event, Mr Naicker continued in his role as General Counsel of QCRI until on or around 6 December 2013 when QCRI was placed in liquidation pursuant to a winding-up application filed on 18 November 2013: see [28] of these reasons. 3 By the originating application, QCRI seeks a declaration that Mr Naicker breached s 180(1) of the Corporations Act 2001 (Cth) (the "Act"); damages for breach of contract and/or negligence (para 2); damages or compensation pursuant to s 1317H of the Act (para 3); interest (para 4) and costs. 4 Section 180(1) of the Act is well known but because it is a statutory conception (notwithstanding its historical background) the integers of the section need to be kept in mind. It provides that a director or other officer (including the position of Company Secretary, relevantly here) of a corporation must "exercise their powers" and "discharge their duties" with the "degree of care and diligence" that a "reasonable person" would exercise if they were a director or officer of the corporation in the "corporation's circumstances"; and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. 5 Section 1317H provides, relevantly, that a court may order a person to "compensate" a corporation for "damage suffered by the corporation" if "the person" has contravened a (corporation) civil penalty provision in relation to the corporation and damage "resulted from the contravention". Section 180(1) is such a provision: s 1317E. 6 Thus, QCRI contends that Mr Naicker, as Company Secretary of QCRI, contravened s 180(1) of the Act and it claims "compensation" for "damage suffered" resulting from the contravention. 7 QCRI also claims damages for contended breaches of Mr Naicker's contract of employment and damages for contended acts of negligence by Mr Naicker causing QCRI loss. QCRI contends that Mr Naicker's contractual duty required him to "exercise due care, skill and diligence" in the performance of his "responsibilities" as General Counsel of QCRI and his duty at common law required him in the period from 23 July 2012 until 6 December 2013 by acting as General Counsel, to act with "due care, skill and diligence" in the performance of his responsibilities as General Counsel. 8 Before examining the amended statement of claim (the "ASOC") which seeks to plead material facts giving rise to causes of action which support the claim for the relief sought in the principal proceeding, the following essential "overarching" contentions of Mr Naicker in relation to the ASOC should be noted. 9 First, the respondent contends that the ASOC fails to plead "loss" and since loss is fundamental to a claim for damages for breach of contract or negligence or a claim for compensation under s 1317H, paras 2, 3 and 4 should, it is said, go and so should those paragraphs of the ASOC that fail to make good a pleading of a cause of action in which loss is a critical element. The particular difficulty emphasised by the respondent with the ASOC is that although the pleading asserts that QCRI incurred certain expenditures in circumstances which are said to be a result of pleaded conduct of Mr Naicker as an expression of Mr Naicker's failure to discharge his pleaded "responsibilities" thus breaching his obligation to discharge those responsibilities with the degree of "care and diligence" required of him (either by reason of the Act or the contract or as a matter of tort), QCRI does not "expressly plead" that these expenditures are the measure of the "loss suffered" by QCRI. 10 The respondent says that QCRI paid certain monies and in exchange it acquired a right or entitlement otherwise understood as a "benefit". It says that pleading the fact of the expenditures is not a pleading of "loss suffered" because QCRI received a corresponding benefit. In other words, the respondent says that QCRI got "something" for its money in exchange. Thus, paying the money, per se, and receiving a benefit is said to be a "zero sum transaction": neither positive nor negative; neither an advantage because QCRI got more for its money or a detriment because it got less of a benefit than it paid in money terms. The respondent says that if the contention is that QCRI got nothing for its money (no benefit) and therefore the payments were "wasted" or "entirely lost" to QCRI, that formulation of the loss needs to be pleaded. 11 QCRI says that "as a matter of substance" the notion that the payments were wasted or entirely lost is pleaded notwithstanding that the pleading does not expressly use words like "wasted" or "lost". QCRI says that the pleading cannot fairly be read in any other way and since the function of the pleading is to put the respondent on notice of the case he has to answer, the respondent would not be in any doubt at all, says QCRI, that QCRI contends for a particular duty as pleaded, breaches by particular conduct as pleaded, and loss suffered by reason of QCRI having made particular payments causally related to the breach in circumstances where QCRI could not have obtained any benefit from having made the payments and thus the payments were, in all the circumstances, "wasted" and "lost". 12 QCRI says that if there is any doubt about that matter (and it says that there can be no doubt about QCRI's contention concerning the relevant payments), the amended pleading could be further amended to insert a paragraph that expressly asserts that the payments made, as already pleaded, were lost or wasted and thus represent the measure of the loss suffered by reason of the contended breach of contract, breach of s 180(1) and the negligence of Mr Naicker. 13 QCRI says that although this notion of QCRI having obtained a corresponding benefit was raised in correspondence with it through the solicitors, no contention has been made prior to the morning of the application that the pleading is deficient because it does not plead, in terms, "loss". QCRI says that had that proposition been asserted in the correspondence, the pleading could so easily have been amended to expressly plead the expenditures, already pleaded, as the measure of the loss on the footing that those expenditures were wasted or lost to the company. 14 The second overarching contention of the respondent is that QCRI pleads that Mr Naicker failed to discharge an obligation to advise QCRI not to enter into particular agreements (as an incident of his duty to act, in discharging his responsibilities, with care and diligence), as a result of which monies were paid by QCRI. QCRI asserts that had Mr Naicker advised it not to enter into the pleaded transactions (as QCRI says he should have so advised), QCRI "would have followed" that advice. Thus, it would not have entered into the transactions and it would not have incurred the expenditures and lost the money represented by the payments. 15 The respondent's criticism is that QCRI pleads a postulated counter-factual "conclusion" that QCRI would have acted on the advice (had it been given as contended it ought to have been given), without pleading the material facts that give rise to the conclusion or support a probative inference that QCRI would have acted on the advice had it been given (as QCRI says it should), and thus not suffered the loss of the payments made absent the advice. 16 QCRI says that the circumstance that it would have acted on the advice of Mr Naicker (in his role as General Counsel) had it been given, as QCRI contends it ought to have been given, is itself a "material fact". It says that the Court at trial will examine all of the contextual circumstances and determine on the balance of probabilities whether QCRI would or would not have acted on the advice QCRI contends Mr Naicker ought to have given in all the circumstances as a proper discharge of his responsibilities consistent with the pleaded duty. It says that the contended fact that QCRI would have acted on the postulated advice is itself a material fact and a perfectly proper pleading. 17 QCRI also says that the respondent understands this contention and thus understands and is fairly put on notice of the case it has to answer at trial that had advice been given (as QCRI contends it ought to have been given), QCRI would have acted on that advice and would not have entered into the pleaded agreements in question, giving rise to the expenditures wasted or lost to the company. QCRI says that the respondent has already pleaded to the contention and has already asserted that QCRI would not have acted on the advice QCRI contends Mr Naicker ought to have given, for the reasons Mr Naicker has already pleaded. 18 Nevertheless, the respondent says that foundation facts must be pleaded which, if made good, properly support the conclusion, or an inference as to the pleaded conclusion. 19 The third overarching contention concerns payments made by QCRI said to have been made when QCRI was insolvent. QCRI says that had the respondent, in discharge of the obligations of his role as General Counsel, consistent with his duty of care and diligence, advised QCRI not to incur obligations when it was in a position of insolvency, those obligations to third parties would not have been incurred and the assets of QCRI would not have been diminished by those obligations. 20 The fourth overarching contention concerns the contended circumstances in which obligations were incurred by QCRI to law firms in respect of services they provided which QCRI says ought not to have been incurred had Mr Naicker discharged the obligations of his office consistent with a duty of care and diligence. Again, the respondent says that QCRI obtained a benefit in the form of the provision of the professional services in respect of which it paid fees. QCRI says that these payments were wasted or lost because they represented financial obligations in relation to steps taken which were associated with the preservation of assets to be acquired by QCRI which were never acquired and thus QCRI never obtained any benefit from the payments.

The Federal Court Rules 2011 21 The relevant rules governing pleadings and an application to strike out a pleading, so far as they relate to a statement of claim, are these: 16.02 Content of pleadings - general (1) A pleading must: (a) be divided into consecutively numbered paragraphs, each, as far as practicable, dealing with a separate matter; and (b) be as brief as the nature of the case permits; and (c) identify the issues that the party wants the Court to resolve; and (d) state the material facts on which a party relies that are necessary to give the opposing party fair notice of the notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved; and (e) state the provisions of any statute relied on; and (f) state the specific relief sought or claimed. (2) A pleading must not: (a) contain any scandalous material; or (b) contain any frivolous or vexatious material; or (c) be evasive or ambiguous; or (d) be likely to cause prejudice, embarrassment or delay in the proceeding; or (e) fail to disclose a reasonable cause of action … or other case appropriate to the nature of the pleading; or (f) otherwise be an abuse of the process of the Court. (3) A pleading may raise a point of law. (4) A party is not entitled to seek any additional relief to the relief that is claimed in the originating application. (5) … 16.03 Pleading of facts (1) A party must plead a fact if: (a) … (b) failure to plead the fact may take another party by surprise. … 16.21 Application to strike out pleadings (1) A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading: (a) contains scandalous material; or (b) contains frivolous or vexatious material; or (c) is evasive or ambiguous; or (d) is likely to cause prejudice, embarrassment or delay in the proceeding; or (e) fails to disclose a reasonable cause of action … or other case appropriate to the nature of the pleading; or (f) is otherwise an abuse of the process of the Court. 22 It should also be noted that s 37P(2) of the Federal Court of Australia Act 1976 (Cth) provides that the Court or a judge may give directions about the practice and procedure to be followed in relation to any proceeding or any part of a proceeding before the Court and without limiting the generality of s 37P(2), s 37(3) sets out examples of directions which might be made. 23 The principles to be applied in relation to the role a pleading plays in a proceeding are well understood. However, it is useful to note the following observations of Lockhart J in Australian Competition and Consumer Commission v Golden West Network Pty Ltd (NG 847/1996), 19 August 1997, unreported, at p 8: The relevant principles concerning the functions of a statement of claim are well established and referred to in many cases. See for example Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR 41-522 per Burchett J at 42,679-42,680 and the cases there cited by his Honour. I agree with Burchett J that the primary function of a statement of claim: "is to tell the defending party what the claim is that he has to meet. That is a matter of elementary and natural justice; the claim cannot be answered until it is known." It is important that I say something about motions to strike out statements of claim in the conduct of modern litigation. Today, courts are playing an increasingly active role in case management. Motions to strike out pleadings are matters of practice and procedure. In its role of case management, courts devise various procedures to overcome deficiencies in pleadings other than by simply ordering that the offending paragraphs be stuck out. Sometimes it is appropriate to strike them out, sometimes not. On some occasions it is better for the court to direct the applicant, whose statement of claim is under challenge, to furnish particulars or to file and serve affidavits to show that there really are facts which can be proved and which, if proved, would support the general statements made in the statement of claim. This was the course which I took in Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 22 FCR 305, a practice which other judges adopt from time to time. This is not, of course, intended to be a substitute for a defective pleading in every case because, as is well known, pleadings must assert basic or constitutive facts, not the evidence by which they are to be proved. But case management is a sensible and flexible thing. It must not be unduly circumscribed. A case such as the present, where allegations are made of contraventions of Part IV of the Act (in particular ss 45 and47), raises special issues of market definition, anti-competitive behaviour, public benefit, public detriment and competition generally. Evidence of experts is generally given, including economists. Documents tendered often include reports of government bodies, official statistics and similar documents. Factual material in Part IV cases is usually of a more sophisticated nature than a typical commercial dispute between parties, and the line between fact, opinion and conclusion is sometimes blurred. These circumstances are relevant when considering whether the alleged offending paragraphs of the statement of claim state conclusions rather than facts. In my opinion, the pleading in its present form, in particular, paragraphs 25 and 26A do state conclusions; but they also state basic or constitutive facts. In some instances the two are inextricably mixed. [emphasis added] 24 Since 1997, the scope of case management has become even more significant and the Federal Court of Australia Act now contains ss 37M, 37N and 37P. For my part, the solution to a pleading which fails to plead material facts is not to require a party to swear affidavits about the facts but to ensure that, as a matter of pleading, the material facts are properly identified. Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Ltd (WAG 83/1991), 3 September 1991, unreported, French J, is an example of a case in which conclusions were pleaded which simply recited the integers of the statutory provisions said to have been contravened (in particular, s 47(1) taken together with s 47(3)(f), s 47(10) and s 47(13)(b) of the Trade Practices Act 1974 (Cth); and s 46 of that Act) without pleading the material facts which gave rise to those conclusions. Plainly enough, simply reciting the contravention in terms of the integers of the sections is fundamentally bad. That, however, is not the position in relation to the statement of claim, the subject of the present proceeding. As to material facts, French J said this: A material fact is one which is necessary to formulate a complete cause of action … Material facts must be pleaded with the degree of specificity necessary to define the issues and inform the parties in advance of the case they have to meet. There are certain levels of a generality in pleading which while they may bring in all facts necessary to establish a cause of action, are insufficient for that purpose. … Rothmans' counsel relied upon the decision of Fisher J in Trade Practices Commission v David Jones (Australia) Pty Ltd (1988) 7 FCR 109 in which his Honour struck out a statement of claim alleging contraventions of s 45 of the Act on the basis that it pleaded conclusions in terms of the section rather than the material facts underlying them. I do not accept that the pleading of something which can be described as a conclusion cannot also be a pleading of a material fact. The real issue in a case where such an objection is raised is whether the facts are pleaded at too great a level of generality. [emphasis added] 25 In Kernel, French J concluded that the applicant's pleading was at too great a level of generality because it failed to identify the material facts constituting the mechanism by which competition was substantially lessened in the relevant market. Since a substantial lessening of competition is a function of the effect of the relevant provision or conduct upon rivalry and the process of competition, it is obviously necessary to identify with some precision the relevant markets in which the effect is felt and the extent to which competition is lessened. That process is normally determined by applying a "without and without" test and material facts going to that question would need to be pleaded. 26 These competition cases are very particular examples of sophisticated cases raising sophisticated questions which require careful pleading and thus the identification of material facts consistent with the integers of the section but giving expression to those integers in a proper way so as to enable a respondent to understand the content of the case being advanced. 27 The question is always one of whether the pleading adequately identifies the case the respondent has to answer. The pleading of a conclusion may not be inconsistent with serving that purpose in a particular case.

The ASOC 28 Apart from the matters set out at [2] of these reasons, the ASOC pleads the following matters. 29 QCRI was incorporated on 8 June 2011 for the purpose of acquiring and developing coal assets: paras 6 and 7. 30 It was an implied term of Mr Naicker's contract of employment with QCRI that he would "exercise due care, skill and diligence" in the "performance of his responsibilities" as General Counsel of QCRI: the "contractual duty"; para 11. 31 As to the contended common law duties, from 23 July 2012 until 6 December 2013, Mr Naicker, by acting as General Counsel of QCRI, owed QCRI a duty at common law "to act with the due care, skill and diligence" in the performance of his "responsibilities" as General Counsel: the "professional duty"; para 12. 32 In the context of Mr Naicker's role as General Counsel, his contractual duty and his professional duty required that he "competently and diligently" (para 13): a. provide legal advice to QCRI on specific matters where instructed to do so from time to time; b. prepare and negotiate agreements to be entered into with third parties and advise QCRI in respect of QCRI's obligations as recorded within those agreements; c. advise QCRI in relation to disputes commenced on behalf of or against QCRI, and if applicable, engage external legal services to act for QCRI in respect of that litigation; d. understand the overall strategy and objectives of QCRI and identify and communicate the risks and legal issues involved in decisions made on behalf of QCRI to QCRI's director; e. advise QCRI of its obligations in respect of its employees and independent contractors and prepare and settle policies governing the conduct and/or entitlements of employees; f. manage the engagement of external lawyers and the instructions provided to external lawyers on a day-to-day basis, including monitoring and overseeing expenditure on external legal services; and g. provide legal advice to QCRI in relation to legal and regulatory matters, such as reporting obligations to shareholders/ASIC. 33 As to the statutory duty owed by Mr Naicker, QCRI says that from 23 July 2012 until 5 September 2013, Mr Naicker, by acting as an officer of QCRI, owed QCRI a duty under s 180(1) of the Act to exercise his powers and discharge his duties with a degree of care and diligence that a reasonable person fulfilling his role would exercise and discharge: the "statutory duty"; para 14. 34 Mr Naicker performed "all of the tasks", during the period 23 July 2012 until his resignation as Company Secretary on 5 September 2013, "in fulfilment of" his "responsibilities" as General Counsel and Company Secretary: para 14A. The "responsibilities" of Mr Naicker to which the statutory duty applied were those things pleaded at para 13: para 14B. 35 Using the abbreviations in the ASOC, from 23 July 2012 until 6 December 2013, SRA and Dysart were the owners of (or otherwise held an interest in) four Exploration Permits for Coal ("EPCs") under relevant legislation (the "EPC assets"). Before the commencement of Mr Naicker's employment at QCRI, QCRI had negotiated a price of $412 million for the purchase of the EPC assets from SRA and Dysart: $203 million and $209 million respectively. 36 On 22 June 2011, QCRI entered into an agreement (the "SRA Term Sheet") for the purchase of SRA's interest in the EPC assets for $203 million. The effect of the SRA Term Sheet was that upon payment of a non-refundable deposit of $100,000, QCRI would have a seven day exclusivity period in which to finalise transaction documents requiring QCRI to commit to payment of $203 million to SRA. QCRI did not make a payment to SRA under the SRA Term Sheet: paras 18-21. 37 On 8 July 2011, QCRI entered into a Second SRA Term Sheet. The effect of that Term Sheet was that upon payment of $100,000 (non-refundable), QCRI would have approximately a two day period of exclusivity to finalise the transaction documents for the acquisition. QCRI made no payment to SRA under the Second Term Sheet: paras 22-25. 38 On 24 February 2012, QCRI entered into another agreement with SRA (the "First SRA HoA"). The effect of the terms of that agreement was that upon payment of a non-refundable sum of $490,000, QCRI would have a 14 day period of exclusivity within which to finalise the terms of a Business Sale Agreement ("BSA") for the acquisition of the SRA assets for $203 million. Between 23 February 2012 and 1 March 2012, QCRI paid SRA $490,056.00 in consideration of the exclusivity period: paras 26-29. 39 On 2 March 2012, QCRI entered into the First Dysart HoA. The effect of the terms of that agreement was that upon payment of a non-refundable sum of $510,000 to Dysart, QCRI would have a seven day period of exclusivity within which to finalise the terms of a BSA for the acquisition of the Dysart assets. On 2 March 2012, QCRI paid Dysart $510,000 in consideration of the exclusivity right: paras 30-33. 40 On 5 April 2012, QCRI entered into the Second SRA HoA. The effect of the terms of that agreement was that upon payment of $250,000, QCRI would have, at most, a one month period of exclusivity within which to finalise the terms of a BSA for the acquisition of the SRA assets for $203 million. On 18 May 2012 and 25 July 2012, QCRI paid $125,000 and $138,478.78 respectively to SRA in consideration of the exclusivity right: paras 34-37. 41 On 24 April 2012, QCRI entered into the Second Dysart HoA. The effect of the terms of that agreement was to provide, on payment of $250,000, QCRI with, at most, a one month period of exclusivity within which to finalise the terms of a BSA for the acquisition of the Dysart assets for $209 million. On 25 April 2012, QCRI paid Dysart $250,000 in consideration of the exclusivity right: paras 38-41. 42 In July 2012, QCRI and SRA entered into negotiations on the terms of an agreement to amend the Second SRA HoA. The effect of the terms of that agreement (the "Amendment Agreement") was that upon payment of $200,000 as a variation fee, QCRI would have a period of exclusivity within which to finalise the terms of a BSA for the acquisition of the SRA assets (at $203 million), until 31 August 2012: paras 42-44. On 30 July 2012, Mr Naicker received a draft of the Amendment Agreement. QCRI pleads that in conducting a review of that draft (a task described as the "First Review"), Mr Naicker, in breach of his contractual duty (paras 11 and 13) and his professional duty (paras 12 and 13) and his statutory duty (paras 14, 14A, 14B and 13), failed to do certain things as pleaded at para 46. 43 The "responsibilities" of Mr Naicker as Company Secretary and General Counsel in undertaking the First Review were those matters pleaded at para 13: particulars to para 45. As to the contended failings on the part of Mr Naicker in conducting the First Review, QCRI pleads at para 46 that Mr Naicker: a. did not review the Second SRA HoA which the draft SRA Amendment Agreement was seeking to amend; b. did not consider: i. the purchase price which QCRI had agreed to pay to acquire the EPC Assets; ii. the structure of the payments which QCRI was required to make to acquire the EPC Assets; or iii. whether QCRI was in a position to make those payments; c. failed to advise QCRI: i. of the impact of the amendments to the Second SRA HoA, since he had not reviewed that document; ii. of the rights being conferred upon QCRI in exchange for payment of the additional deposit in the amount of $50,000 to SRA and $50,000 to Dysart (which was a condition of the draft SRA Amendment Agreement); iii. that entry into a [BSA] with SRA was conditional on entry into a similar agreement with Dysart, such that acting during the period of exclusivity to agree to a BSA would be of no value if a similar arrangement could not be secured with Dysart; iv. that, when deciding whether to make any further deposit payment, the company ought consider whether it was in a position to make the payments required to purchase the EPC Assets; d. did not consider, and failed to advise QCRI that it ought consider, whether the further period of exclusivity to be conferred by the SRA Amendment Agreement was sufficient to permit QCRI to secure the funds required to purchase the EPC Assets, which would have required QCRI: i. to pay $103,000,000 (less any prior payments made) and enter into a BSA with SRA within the period of exclusivity, with the balance of the purchase price of $203,000,000 being paid in accordance with the terms of the BSA; and ii. to pay $50,000,000 (less any prior payments made) to Dysart to enter into a BSA with Dysart within the period of exclusivity which, irrespective of arrangements with Dysart, was a condition precedent to the contemplated BSA with SRA, with the balance of the purchase price of $209,610,000 being paid in accordance with the terms of the BSA entered into with Dysart. [emphasis added] 44 QCRI pleads, at para 46, particulars of those contentions. I will return to those particulars. 45 On 1 August 2012, Mr Naicker was instructed by Mr Graham Mulligan, the Managing Director of QCRI, to prepare a further draft of the SRA Amendment Agreement which continued to provide for an extension of the period of exclusivity within which to finalise the terms of the SRA transaction for the acquisition of the assets for $203 million until 31 August 2012: para 47. 46 Again, QCRI pleads that Mr Naicker, in discharging that task and conducting what is described as the Second Review of the SRA Amendment Agreement, engaged in breaches of his contractual duty and his professional duty and his statutory duty by doing the things (the omissions) pleaded at para 46, as particularised at para 46: para 47. 47 On 3 August 2012, Mr Mulligan executed the SRA Amendment Agreement: para 49. 48 At para 50, QCRI pleads that if Mr Naicker had "performed his responsibilities" in undertaking the First Review and the Second Review in accordance with his contractual duty, his professional duty and his statutory duty, he would have: a. considered the matters pleaded in paragraph 46 above; b. as a consequence of considering those matters, recognised that the further period of exclusivity to be conferred by the SRA Amendment Agreement was not sufficient to permit QCRI to secure the funds it required to enter into a BSA with either SRA or Dysart, or to purchase the EPC Assets; c. in the premises pleaded in the paragraphs 50(a) and (b) above, advised QCRI not to enter into the SRA Amendment Agreement. [emphasis added] 49 The "responsibilities" of Mr Naicker which he was required to perform for the purposes of para 50 are said to be those responsibilities identified in the particulars to paras 46 and 48. As to those matters, QCRI, at para 45, says that Mr Naicker undertook the First Review on or around 30 July 2012 as an incident of the performance of his "responsibilities" as Company Secretary and General Counsel and the "responsibilities" are those things pleaded at para 13. The particulars at para 46 say, for example, that the failure to review the Second SRA HoA which the draft SRA Amendment Agreement was seeking to amend, was a failure by Mr Naicker to "competently and diligently perform" the "responsibilities" pleaded at para 13(b) and (d). Moreover, those particulars at para 46 say that Mr Naicker's contractual duty and professional duty to "exercise due care, skill and diligence in the performance of his responsibilities" (paras 11 and 12) and his statutory duty of "care and diligence of a reasonable person" standing in the shoes of Mr Naicker (paras 14 and 14A) engage all of the "responsibilities" pleaded at para 13. The particulars to para 48 repeat the particulars to para 46. 50 In other words, the pleading asserts that Mr Naicker owed QCRI a duty. It finds expression as an implied term of his contract of employment as well as a duty arising at common law. It is pleaded as a duty to exercise due care, skill and diligence in doing something. That something is the performance of each of his responsibilities pleaded at para 13 as a person exercising the powers, functions or authorities (or responsibilities) of the position of General Counsel. As pleaded, his duty of due care, skill and diligence required him, as an expression of that duty, to "competently and diligently" perform the responsibilities pleaded at para 13. As pleaded, he was also required to discharge those responsibilities "competently and diligently" as an expression of the duty arising under s 180(1), according to the integers of that section, in this period by reason of his position as Company Secretary. 51 Paragraph 50 tells Mr Naicker that QCRI contends that if he had performed his responsibilities competently and diligently as an expression of the pleaded duty when undertaking each review, he would have engaged with the reviews by "considering", "recognising" and "addressing" those matters pleaded at para 50 (quoted above). 52 On 3 August 2012, QCRI paid $200,000 to SRA pursuant to the SRA Amendment Agreement. 53 It should be noted as this point that no paragraph of the ASOC discussed so far is challenged by Mr Naicker in his interlocutory application. No part of the formulation of the ASOC to this point is under attack. The first paragraph of the ASOC to be challenged is para 50B. By para 50B, QCRI says that if Mr Naicker had advised QCRI not to enter into the SRA Amendment Agreement (as QCRI pleads at para 50(c) that Mr Naicker ought to have so advised as a proper performance of his responsibilities consistent with his pleaded duty to QCRI), QCRI: … would have followed that advice and consequently would not have: a. entered into the SRA Amendment Agreement; or b. paid $200,000 to SRA pursuant to the terms of the SRA Amendment Agreement. 54 Paragraphs 46 to 48 plead the contended breach (the sequence of contended failures) in undertaking the First Review and Second Review. Paragraph 49 pleads the act of entry into the Amended Agreement on 3 August 2012. Paragraph 50 pleads the steps QCRI contends Mr Naicker ought to have taken consistent with his pleaded duty. Paragraph 50A pleads the payment and para 50B pleads that had Mr Naicker advised QCRI consistent with his contended duty, QCRI would have acted on the advice and would not have entered into the commitment and therefore would not have paid $200,000 to SRA. 55 Paragraph 51 pleads that, as a consequence of Mr Naicker's breach, the company paid $200,000 to SRA to obtain an extension of the exclusivity period: … for a period during which QCRI had no possibility, or alternatively no realistic possibility of, purchasing the EPC Assets; or completing any transaction which would result in QCRI owning or holding an interest in an asset of any value. [emphasis added] 56 That part of the pleading at para 51 seems to me to be a contention, read fairly, that a material fact asserted by QCRI is that the payment of $200,000 was wasted or lost because the right it acquired for the money it exchanged was, in truth, illusory, because there was no possibility, or no realistic possibility, of QCRI completing the transaction documents so as to purchase the EPC Assets or complete any transaction which would lead to QCRI owning the relevant assets or holding an interest of any value in the assets in question. 57 It is true that, in terms, the pleading does not assert as a material fact that the monies paid pursuant to the SRA Amendment Agreement were wasted or lost to the company and that the payment so wasted or lost is the true measure of the loss suffered by QCRI in relation to this aspect of the matter. However, it seems to me that Mr Naicker is put on notice that that is, in truth, the substance of the contention made by QCRI. However, leave will be granted to QCRI to amend the ASOC to expressly plead that contention which, in substance, is already made by the ASOC as it stands. Nevertheless, the ASOC ought to assert expressly, as the measure of the loss claimed, the payment made for the acquisition of the exclusivity right, as the case to be made by QCRI is that this payment was wasted or lost and that loss is the loss it claims in the proceeding so far as this aspect of the matter is concerned. 58 Paragraph 50B introduces the notion that QCRI would have followed the advice, had it been given (as QCRI contends it ought to have given by Mr Naicker). I am satisfied that that contention is itself in the nature of a material fact. Of course, the assertion is an assertion of a hypothesis rather than a fact. It is a contention that had certain things happened, certain other things would have happened. The hypothesis as to acceptance and adoption of Mr Naicker's advice is material to the causation of loss. In that sense, it is material and it becomes a question of whether QCRI would have followed the advice. It is, in truth, a counterfactual rather than an extant fact to be proved. The likelihood on the balance of probabilities of whether QCRI would have followed the advice is a question in issue and a matter about which a finding must be made. There may be a number of answers to the contention as a matter of pleading. At this point, the question is only whether there is an arguable basis for the contention as an element of the cause of action and pleaded in a way which puts the respondent on notice of the case to be made. 59 It may be said that Mr Naicker owed no duty to QCRI in respect of this transaction as pleaded. It may be said that the steps QCRI contends Mr Naicker ought to have taken in the performance of his contended responsibilities are not steps that he was required, as a matter of law, to take or ought to have taken. It may be said that had Mr Naicker given the advice QCRI contends he ought to have given, Mr Mulligan would not have accepted it or acted upon it. It may be said that the decision about whether to enter into the SRA Amendment Agreement was entirely a commercial decision for Mr Mulligan. It may be said that if it is demonstrated that the exclusivity period secured by the SRA Amendment Agreement provided no possibility or no realistic possibility of QCRI purchasing the EPC Assets, or completing a relevant transaction, that was a commercial risk that Mr Mulligan was willing to take as a matter of commercial decision-making. It may be said that Mr Naicker's role was confined to providing legal advice about the text, precision and certainty of the agreement and its enforceability in securing the period of exclusivity rather than any other matter. Nevertheless, the case as pleaded by QCRI is clear enough. Mr Naicker can be in no doubt about what is asserted against him. He is in a position to plead to that case and assert any fact, matter or circumstance which he contends is a basis for demonstrating that QCRI would not have relied upon his advice on the question in issue had he given it, as QCRI contends he ought to have done. 60 So far as this aspect of the matter is concerned, the pleading frames a basis for a cause of action notwithstanding that the elements of it may well be highly contested thus framing the controversy to be resolved at trial. In fact, at para 54 of the amended defence, Mr Naicker denies the allegations pleaded in para 50B and says that the terms of the SRA Amendment Agreement were satisfactory to Mr Mulligan; Mr Mulligan had already determined that the further period of exclusivity to be conferred by the SRA Amendment Agreement was sufficient; that the matters pleaded in para 46 of the ASOC were commercial matters for Mr Mulligan, not matters about which Mr Naicker had any knowledge, nor matters upon which Mr Naicker could have provided legal advice, and the contention is contrary to express instructions given to Mr Naicker by Mr Mulligan. Mr Naicker says that having regard to those circumstances, Mr Mulligan would not have followed the contended advice; would have executed the SRA Amendment Agreement; and would have chosen to pay the sum of $200,000 to SRA pursuant to the terms of the SRA Amendment Agreement. This pleading was in response to a form of para 50B which, at that point, did not plead that had such advice (as contended) been given by Mr Naicker, QCRI would have followed that advice. That pleading led to the introduction into para 50B of the words "would have followed that advice and consequently" followed by the assertion that was already pleaded that QCRI "would not have entered into the SRA Amendment Agreement or paid $200,000 to SRA pursuant to the SRA Amendment Agreement". To the extent that that assertion needs to be supported by the pleading of other material facts, paras 7 to 14B and 45 to 50A are all important, none of which are challenged by the respondent. 61 As to the material fact that QCRI would have followed the advice of Mr Naicker on this topic had it been given as QCRI contends it should have been given, the Court will determine, on the balance of probabilities on all the admitted evidence relevant to that question, whether QCRI would have followed the advice or not. The pleading of the material fact and the present state of the amended defence apart from any other matter that might be pleaded in response to leave being given to introduce those words and leave being given to expressly plead loss as earlier discussed, might enliven a particular field of discovery in relation to documents relevant to the question of whether QCRI would or would not have accepted the advice of its General Counsel had it been given. 62 The position I have adopted in relation to the particular example of the SRA Amendment Agreement also applies to the pleading of the other advice allegations. I do not propose to examine each of them individually. That position applies in relation to the pleading of the material facts that QCRI would have relied upon the advice of Mr Naicker had it been given and the contentions in relation to loss. Each of the paragraphs of the pleading which deal with the advice matters contain references to the contention that QCRI had "no possibility or alternatively no realistic possibility" of obtaining any relevant benefit. Nevertheless, the ASOC is to be amended to reflect an express pleading of loss as earlier described. 63 However, it is necessary to say something about paras 63 to 67 of the ASOC. From 3 September 2012 to 20 February 2013, QCRI made payments to either SRA or Dysart, or payments to them jointly, totalling $1,060,000. Those payments were made to reimburse either or both of them for costs incurred in "maintaining the EPC Assets". QCRI says that these payments were made in circumstances where Mr Naicker "was aware, or ought to have been aware" that the Amendment Agreements as pleaded had expired and there was no longer any formal written agreement extending the period of exclusivity, or alternatively, even if there was an "arrangement" to extend the periods of exclusivity, that arrangement was "of very little value" to QCRI for reasons outlined in the pleading commencing at para 42 (some of which are discussed above). QCRI also pleads that Mr Naicker was aware or ought to have been aware that QCRI's financial position meant that QCRI had "no possibility, or alternatively no realistic possibility, of purchasing the EPC Assets". In the particulars to that pleading, QCRI says that by reason of the matters pleaded at paras 68 and 69, it should be inferred that at or around the time that the payments were made (between 3 September 2012 and 20 February 2013), QCRI was insolvent. 64 As to the contention that Mr Naicker was aware or ought to have been aware that QCRI's financial position meant that it had no possibility, or alternatively no realistic possibility of purchasing the EPC Assets, QCRI relies upon facts pleaded and particulars given at paras 16, 17, 68, 69, 71 and 72. Paragraphs 16 and 17 plead the magnitude of the acquisition at $412 million. Paragraphs 68, 69, 71 and 72 plead that by 17 December 2012, QCRI had available funds of $56,459.61 and debts of $1.3 million; that Mr Naicker had a range of documents available to him (para 71); and that in the period from 17 December 2012 until 6 December 2013, the majority of the work undertaken by Mr Naicker comprised dealing and negotiating with creditors to avoid the commencement of winding up proceedings against QCRI. 65 QCRI also pleads that Mr Naicker was aware or ought to have been aware that the making of the payments was "not in the best interests of QCRI" and that QCRI should only be expending money in relation to the EPC Assets if there was "a reasonable likelihood of the company purchasing those assets, which was not the case": para 64(d) and (e). 66 At para 65, QCRI pleads that Mr Naicker, in breach of his contractual duty, his professional duty and his statutory duty, failed to advise QCRI of the matters pleaded at para 64(d) and 64(e): para 65(a). 67 At para 65(b), QCRI pleads, as a breach of duty, Mr Naicker's failure to advise it of the risks of continuing to make the payments in circumstances where QCRI was deriving no benefit from the payments and there was no legal obligation on the part of QCRI to make the payments. 68 At para 66, QCRI pleads that if Mr Naicker had performed his responsibilities in accordance with his contractual duty, his professional duty and his statutory duty, he would have advised QCRI not to make any of the payments until it had entered into an agreement which offered certainty regarding QCRI's rights to acquire the EPC Assets, and until QCRI was financially capable of completing the acquisition of the EPC Assets for the benefit of the shareholders. 69 Again, QCRI pleads that if Mr Naicker had so advised QCRI, it would have followed the advice and would not have made the payments. At para 67, it pleads that as a consequence of the breach, QCRI paid $1,060,000 to SRA and/or Dysart in circumstances where it had "no possibility, or alternatively no realistic possibility" of purchasing the EPC Assets or completing any transaction which could result in QCRI owning or holding an interest in any asset of any value. 70 Accordingly, the payments are said to have produced no benefit to QCRI and were thus wasted or lost to QCRI which, again, is a measure of the loss claimed in the proceeding in relation to this aspect of the case. 71 As to these matters, the source of the duty is said to be found in the formulation already described. The duty is a duty of due care and diligence in the discharge of the responsibilities pleaded at para 13 and the relevant responsibility is said to be the responsibility at para 13(d) to "understand the overall strategy and objectives of QCRI and identify and communicate the risks and legal issues involved in decisions made on behalf of QCRI to QCRI's director". 72 QCRI says that Mr Naicker failed to advise it of a "legal matter" that the company had no obligation to make the payments and failed to advise it that the company was deriving no benefit from making the payments. The contentions that Mr Naicker was aware or ought to have been aware that the payments were not in QCRI's best interests and that QCRI "should only" be expending money in relation to the EPC Assets if there were a reasonable likelihood of the company purchasing the assets (because otherwise the payments only benefitted SRA and Dysart and not the company and its shareholders), are said to be factors relevant to the responsibilities pleaded at para 13(d) which QCRI says Mr Naicker had to discharge "competently and diligently" at an expression of the pleaded duty. A question arises about whether the duty Mr Naicker owed to QCRI comprehended a duty to competently and diligently discharge a responsibility to understand the "overall strategy and obligations of QCRI" and "communicate risks" involved in decisions made on behalf of QCRI, to QCRI's Director (para 13(d)) apart from communicating "legal issues" (para 13(d)) involved in decisions made by QCRI, to QCRI's Director. These contentions as to the scope of the pleaded duty are presently in controversy. Nevertheless, the contention on the part of QCRI is clear enough, and whether the facts pleaded to support the contended duty can be made good is a matter for the trial of the controversy on the face of the pleadings. The pleading of a lack of benefit to QCRI in making the payments is the nub of the loss claim (apart from any issue about the scope of the duty). To the extent that no express pleading of loss is made by reason of the making of the payments, again, leave will be given to amend the ASOC to reflect the substance of the pleading as it presently stands. However, the other elements discussed above are properly raised as a matter of pleading. 73 The next issue concerns the pleading of a failure on the part of Mr Naicker to advise QCRI with respect to its solvency position. Some aspects of this have already been mentioned. QCRI pleads that from at least 17 December 2012, QCRI was insolvent within the meaning of s 95A of the Act. It pleads at para 71 that, from at least 17 December 2012, Mr Naicker was aware of certain facts and matters and by reason of the matters particularised at para 71(c), QCRI pleads that Mr Naicker "had reasonable grounds" or "ought to have been aware" of matters giving reasonable grounds for suspecting that QCRI was insolvent from at least 17 December 2012. Mr Naicker observes that items 5 to 10 of the particulars of para 71(c) are concerned with a list of emails either to or from Mr Naicker all of which are dated on or after 18 December 2012. Mr Naicker says that those matters could not be exchanges which could support reasonable grounds upon which Mr Naicker could have suspected that QCRI was insolvent from at least 17 December 2012. 74 QCRI says that the documents particularised at items 5 to 10 of para 71(c) are there for this reason. Paragraph 71(c) identifies a pleaded basis upon which Mr Naicker had reasonable grounds, or ought to have been aware of matters giving reasonable grounds, for suspecting that QCRI was insolvent at 17 December 2012 and the performance of his responsibilities, consistent with his contractual duty, his professional duty and his statutory duty (as pleaded), required him to advise QCRI on or about 17 December 2012 that the company ought not to incur any further debts after 17 December 2012 and that the company ought to be placed into voluntary administration: paras 74A and 76. QCRI then says that that was a "continuing obligation" and even though the documents particularised at para 71(c) at items 5 to 10 are dated throughout the period 18 December 2012 to 9 August 2013, Mr Naicker had a continuing obligation to advise Mr Mulligan in the terms pleaded in paras 74A and 76. Paragraph 71(c) is not entirely clear. It seems to suggest that all of the particulars go to establishing that Mr Naicker had reasonable grounds for believing (or ought to have been aware of matters giving reasonable grounds for believing) "from" at least 17 December 2012 (and thus as at 17 December 2012) that QCRI was insolvent. The documents at items 5 to 10 cannot support reasonable grounds as at 17 December 2012. They may support grounds for a reasonable suspicion or belief that QCRI was insolvent, looking back, to 17 December 2012 and, if so, they may go to the pleaded contention that Mr Naicker had a continuing obligation to advise Mr Mulligan of his suspicion about the solvency or otherwise of QCRI as at the date of each document informing or adding to that suspicion. That part of the pleading needs to be made clear. 75 At para 76A, QCRI pleads that had Mr Naicker advised it to the effect pleaded in para 76, QCRI would have followed that advice and Mr Mulligan would have placed QCRI into voluntary administration on or about 17 December 2012 and that being so, QCRI would not have incurred debts after "about 17 December 2012" and consequently would not have incurred the debts set out in Schedule 1 to the pleading which were incurred after that date. The schedule contains a list of 60 obligations incurred to third parties after 17 December 2012 which are said to amount to $1,456,464.28. 76 Even though obligations to third parties were incurred by QCRI after 17 December 2012, presumably QCRI obtained the benefit of the provision of goods or services supplied in respect of those obligations. For example, a debt was incurred to Balance Resources Pty Ltd and paid on 20 February 2013 in an amount of $46,020.56. QCRI says that that debt would not have been incurred had Mr Naicker given Mr Mulligan advice as to the insolvency of QCRI as at 17 December 2012. Presumably, the claim is that QCRI would not have incurred the obligation and would have retained the funds and thus its assets would not have been diminished by the payment. However, it did obtain, presumably, the benefit of the goods and services. The formulation of the pleading of the loss suffered by reason of the contended breach is not clear. That part of the pleading also needs to be made clear. 77 I propose to give leave to the applicants to amend the pleading in relation to the topic of the failure to advise QCRI with respect to its solvency position (that is, the matters at [74] of these reasons), and with a view to pleading clearly the contended loss caused by the contended breach (the pleading of loss/benefit issue). As the pleading stands, the pleading simply asserts the payment of monies after the relevant date of 17 December 2012 without identifying how those payments translate into a pleaded quantifiable loss derived from the breach of the pleaded duty. 78 The final topic is the contended failure by Mr Naicker to manage QCRI's expenditure on external legal services. QCRI pleads that in the period between August 2012 and December 2013, QCRI expended $180,781.10 on external legal services in relation to negotiations with SRA and Dysart concerning the purchase of the EPC Assets. Seven invoices are identified, all from Clayton Utz, dated from 30 July 2012 to 30 January 2013. QCRI pleads that Mr Naicker was aware or ought to have been aware that QCRI was also receiving legal services concerning the "establishment of infrastructure resources" from Herbert Smith Freehills ("HSF") at a total cost of $24,471.71, in respect of invoices from that firm dated from 9 November 2012 to 28 March 2013. 79 By para 78A, QCRI pleads that having regard to paras 13(f), 14A and 14B, Mr Naicker "caused or permitted" QCRI to incur the debts to the two law firms so identified. As to the particulars of that material fact, QCRI says that it is to be inferred that Mr Naicker "caused" or "permitted" QCRI to incur the debts to those law firms because it was part of the responsibilities (paras 13(f), 14A and 14B) of Mr Naicker as Company Secretary and General Counsel to "manage the engagement of external lawyers, including the expenditure on external legal services". 80 QCRI pleads at para 79 that Mr Naicker "caused or permitted" QCRI to incur these debts in circumstances where it had no possibility, or alternatively no realistic possibility, of purchasing the EPC Assets from SRA and Dysart. QCRI pleads that Mr Naicker's conduct constituted a failure to competently or diligently perform the responsibilities pleaded in paras 13(d), (f) and (g) (para 80(a)) and such conduct was a breach of his pleaded contractual duty, professional duty and/or statutory duty (para 80(b)). QCRI pleads that if Mr Naicker had performed his responsibilities in paras 13(d), (f) and (g) in accordance with his contractual duty, professional duty and statutory duty, he would not have caused or permitted QCRI to incur the debts payable to the two law firms: para 81. 81 The essential allegation as to loss then seems to be that QCRI obtained no benefit from making the payments and acquiring the legal services because it had no possibility, or no realistic possibility, of acquiring the EPC Assets from SRA and Dysart and therefore money expended on procuring legal services in relation to QCRI's negotiations with SRA and Dysart for the purchase of the EPC Assets was wasted or lost. 82 It is not clear when the services were provided although the invoices are dated from 30 July 2012 to 30 October 2012 from Clayton Utz with three invoices from HSF dated 9 November 2012; another invoice from Clayton Utz in November 2012; three invoices from HSF in December 2012; one Clayton Utz invoice in December 2012; one invoice from Clayton Utz dated 30 January 2013; and eight invoices from HSF dated 4 February 2013 to 28 March 2013. 83 Mr Naicker challenges these paragraphs of the ASOC on the footing that nothing in paras 77 to 81 identify a basis in fact for an allegation that Mr Naicker caused or permitted the obligations to the law firms to be incurred because there is nothing pleaded as to Mr Naicker's "involvement in or knowledge of" the fees having been incurred. Mr Naicker asks how could he possibly be made liable for a so-called loss suffered by reason of the making of the payments in circumstances where he was not involved in, or had no knowledge of, the fees having been incurred. For example, it may be that persons within QCRI engaged one or other of the law firms to undertake work with no involvement whatsoever from Mr Naicker. 84 The basis for the obligation falling upon Mr Naicker is said to be found in the scope of his responsibility pleaded at para 13(f) to the effect that Mr Naicker was responsible, at all material times, for the management of the engagement of external lawyers and the provision of instructions to those lawyers on a day-to-day basis including monitoring and overseeing expenditure on external legal services. 85 QCRI says that it is certainly not its case on this aspect of the matter that Mr Naicker breached his duties to QCRI if legal fees were incurred as a result of "someone else" retaining the lawyers "without the respondent's knowledge". QCRI's case is that having regard to Mr Naicker's position as General Counsel and the pleaded responsibility he was required to discharge, it is "unlikely" that legal fees were incurred without his knowledge or involvement. QCRI says that an inference is open from the fact of Mr Naicker's position, his responsibilities as pleaded and the fact of the incurring of legal fees from law firms in circumstances where Mr Naicker is the General Counsel, that he was "involved" or, alternatively, that he did have "knowledge" of the engagement of the law firms on the various retainers. 86 If the foundation facts relied upon support an inference as contended, the inference is at least open as a matter of law. Whether an inference is ultimately drawn is informed by all of the evidence. The present question is whether the foundation facts pleaded as material facts are capable of supporting an inference that Mr Naicker was involved in or knew of the engagement of the lawyers in the circumstances as pleaded. It may be that an examination of each of the invoices will show that particular invoices were directed to persons within QCRI other than Mr Naicker and that persons other than Mr Naicker were responsible for engaging the particular firm on the particular transactional matter. 87 I am satisfied that the General Counsel of a company called upon to discharge a responsibility of managing the engagement of external lawyers and instructions provided to external lawyers on a day-to-days basis, including monitoring and overseeing expenditure on external legal services, as the pleaded responsibility of Mr Naicker, would, in the ordinary course, have either an involvement in the appointment of the law firm in the particular retainer or knowledge of the appointment of the law firm. Those circumstances give rise to an inference as to involvement or knowledge although, of course, the question of whether an inference ought to be drawn from those foundation facts in the context of all the evidence is a matter for determination in the resolution of the controversy. If the question is whether those circumstances are capable of giving rise to an inference, I am satisfied that those facts are capable of supporting an inference. Of course, once the question is put in issue and evidence is before the Court that the relevant individual had no knowledge or involvement in causing or permitting the relevant obligations to arise, that may be a complete answer to the question of whether an inference is drawn. Ultimately, this is a question for fact-finding not a pleading question. Once the pleading of the material facts is capable of supporting an inference, the pleading is competent. 88 However, QCRI received the benefit of the services and the pleading needs to address a proper pleading of the formulation of the loss. 89 Accordingly, the applicants will be given leave to amend the pleading to take account of the observations and conclusions reflected in these reasons on the various topics. I do not propose to strike out paragraphs of the statement of claim. I will make a direction under s 37P of the Federal Court of Australia Act directing the applicants to file and serve an amended statement of claim which addresses the observations and conclusions in these reasons. The amended interlocutory application is to be dismissed having regard to the order under s 39P. The costs of and incidental to the amended interlocutory application are to be reserved for later determination. I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.