Scott & Anor v Scotis & Ors [2003] VSCA 121

Court of Appeal (Vic)|2003-08-21|Before: PHILLIPS, BUCHANAN and EAMES, JJ.A.

Courts - Practice and procedure - Proceeding by liquidator against former directors - Failure to state material facts or to furnish particulars - Interlocutory steps complete - Proceeding an abuse of process - Proceeding summarily dismissed - Appeal dismissed - S.C.R. Chapter I Rule 23.01.

I will ask Buchanan, J.A. to deliver the first judgement.

The first-named appellant is the liquidator of the second-named appellant, which I shall call "the company". The company was wound up on 15 April 1997 by an order of the Federal Court. The respondents were the directors of the company.

On 22 February 2000 the appellants brought proceedings in the County Court against the respondents. It was alleged in the statement of claim endorsed upon the writ that on or about 20 May 1993 the company received an amount of $68,040.89 representing part of the proceeds of the sale of a business by the company and another, and also received all or part of the deposit, an amount of $9,507. It was further alleged that between the date of payment and the winding up of the company, the respondents caused the company to pay the proceeds of the sale and "other amounts and assets standing to the credit of the company" to the respondents or others. The appellants pleaded that at the time of the payments caused to be made by the respondents the company was insolvent in that it had no assets apart from the proceeds of the sale of the business and faced a claim for damages by the purchasers of the business, and that the company did not owe any money to the respondents or, alternatively, owed them less than the amount of the payments. The appellants sought to recover the payments pursuant to various causes of action, alleging breach of duties owed by the respondents as directors and that the payments were voidable under the provisions of the Corporations Laws as insolvent and uncommercial transactions.

The statement of claim also alleged that the respondents failed to keep accounting records which recorded and explained the transactions entered into by the company and its financial position. It was not alleged that any particular loss was sustained as a consequence of the failure. The only loss or damage alleged was said to have been caused by breach of the respondents' duty to act in the best

On 2 May 2001 a judge of the County Court made orders for the interlocutory steps to be taken in the proceeding and set the proceeding down for trial on 10 December 2001. The orders included directions as to interrogatories, discovery and a request for particulars of the statement of claim. The respondents' affidavit of discovery disclosed that they held none of the documents which the order required them to discover. The appellants were unable to supply most of the particulars sought by the respondents. The appellants' response to requests for particulars of the amounts, dates of payment and identity of the recipients of the payments said to have been caused by the respondents was that the appellants "are unable to give those particulars until completion of the investigations by the first-named appellant". By the order made on 2 May 2001, the appellants were given leave to deliver interrogatories for the examination of the respondents on or before 25 July 2001. The appellants failed to deliver any interrogatories.

On 28 August the respondents issued a summons seeking judgment or a stay of proceedings pursuant to Rule 23.01, alternatively an order for the dismissal of proceedings pursuant to Rule 23.01, or alternatively an order striking out the statement of claim pursuant to Rule 23.02 or the inherent jurisdiction of the Court.

The summons was heard by a judge of the County Court who, on 19 September 2001, ordered that there be judgment for the respondents with costs. The judgment was expressed to have been made "pursuant to Order 23.01 sub-rule(1)". The judge's reasons consisted of the following terse statements:

"It seems to me there is no basis for this action proceeding on the statement of claim as currently drafted, nor is there to be any utility in further amending the statement of claim in the light of what Mr Irlicht has told me today. I would make one of the orders under Order 23 or under Order 24 for non-compliance with Her Honour Judge Harbison's order."

The basis of the appellants' case as it appears from the statement of claim is simple. The appellants contend that the respondents received or disposed of assets of the company for their own benefit. Their receipt or disposition of the assets either was not justified, or at least not wholly justified, as the satisfaction of any obligation owed by the company to the respondents or, if the payments did satisfy such an obligation, they were voidable as preferences or insolvent transactions.

Although simple, the claim remains obscure. Apart from the sum of $68,040.89, the assets said to have been misappropriated by the respondents are not described. The persons who received the money and assets are not identified. The disposition of assets was alleged to have occurred over a period of almost four years, but no date of any particular disposition had been supplied. The statement of claim contemplated the possibility that when payments or dispositions took place, the company may have been indebted to the respondents, but the appellants were unable to allege that any particular amount was owing.

The vagueness and generality of the allegations of material facts coupled with the want of any particulars of those facts meant that the respondents did not know the nature of the case they had to meet[1] or know what evidence to be prepared with.[2]

Counsel for the appellants contended that the judge acted precipitately in giving judgment for the respondents. Instead, it was said, he should have given the appellants the opportunity to re-plead the statement of claim. It was submitted that in the 15 weeks between the issue of the respondents' summons and the date fixed for trial the appellants might have been able to plug the holes in the statement of claim by seeking further discovery, issuing subpoenas to the estate agent, the solicitor and the accountants involved with the company and obtaining summonses and conducting examinations under the Corporations Law of the respondents, the solicitor, the estate agent and the accountant. The submission does not sit well with the inaction of the liquidator and his advisors since liquidation in 1997 and the commencement of the proceeding in 2000. It is also at odds with the attitude of the solicitor for the appellants who appeared before the judge. The solicitor frankly acknowledged that:

"At this stage we don't even have evidence that the $68,000, or whatever is the figure, was ever received by the company, let alone what happened to it. ... Whether there were any more moneys than the $68,000 in the company, we simply do not know. What happened to the $68,000, we do not know. We do know, of course, that by the time the company was wound up, the funds were not there. The proceedings don't give as much facts as they need to, that is conceded, but we can't give that which we don't have."

An opportunity to re-plead the statement of claim in terms was not sought.

Counsel for the appellants submitted that if the appellants at trial proved no more than that there were proceeds of the sale of the business in 1993 which had disappeared by 1997, it could be inferred that the respondents had wrongly dissipated the proceeds. I do not agree. Without proof of the manner in which the proceeds of sale were dealt with it is just as likely that the company spent the proceeds and received fair value or disbursed the proceeds to satisfy its liabilities.

Finally, it was contended that the respondents' application should have been refused because it was not made promptly, but only after the case was fixed for trial. The proceeding was fixed for trial some 10 weeks after it was commenced in an order which dealt with all the interlocutory steps to be taken in the proceeding. In that order directions were made for interrogatories and discovery, which the appellants presumably sought in order to remedy their ignorance as to the material facts. In their further and better particulars delivered on 22 August 2001, the appellants referred to the need to complete investigations. In my opinion, the nature of the defects in the statement of claim justified the respondents staying their hands for three months after the order regulating interrogatories, discovery and particulars, for only then did it become clear that the appellants were unable or unwilling to remedy the want of any identification of the critical facts upon which their case depended.

14 In my opinion, it was an abuse of the process of the court for the appellants to persist with this proceeding after the completion of the interlocutory steps without being able to identify the facts upon which the claim was based so that the respondents could know the case they had to meet.

The order of the court is, accordingly, that the appeal is dismissed.

[1] Aga Khan v. Times Publishing Co. [1924] 1 KB 675; R. v. Associated Northern Collieries [1910] HCA 61; (1910) 11 C.L.R. 738; Philliponi v. Leithead (1958) 76 W.N.(N.S.W.) 150.

[2] Lemon & Co. Pty Ltd v. Moran & Cato Pty Ltd [1921] VicLawRp 43; [1921] V.L.R. 240; Wilson v. Wilson (1951) 69 W.N.(N.S.W.) 358.

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