Short & Anor. v. Crawley & Ors. [2003] NSWSC 609

2824/98 SHORT & ANOR. V. CRAWLEY & ORS. JUDGMENT 1 HODGSON J: On 16 April 2003, I made the following orders inter alia: 1. Grant leave to the Defendants to file a cross claim in the form of the document initialled by me and dated today but on the basis that the question of whether the cross claim is heard at the same time as the proceedings is reserved for further argument and that the Defendants bear the onus of establishing that the cross claim ought to be heard at the same time as the proceedings. 2. Grant leave to the Defendants to file an amended defence in the form of the document initialled by me and dated today but on the basis that the question of whether the issues raised by paragraphs 121, 122, 122A, 122B, 122C, 122D, 122E and 122F should be heard at the same time as the proceedings or at all is reserves for further argument and that the Defendants bear the onus of establishing that those issues ought to be heard at the same time as the proceedings. 3. Stand over to a date to be fixed by arrangement with my associate the hearing of: (a) the argument as to whether the cross claim should be heard with the proceedings or at all; and (b) any argument as to whether issues relating to damages or compensation or other relief in relation to the cross claim should be heard separately in any event; and (c) the argument as to whether the issues raised by paragraphs 121, 122, 122A, 122B, 122C, 122D, 122E and 122F of the Amended Defence should be heard with the proceedings or at all; and (d) any outstanding arguments in relation to reserved costs. 2 In relation to these orders, I made the following note: I note that the leave is being granted in pars.1 and 2 to enable the defendants to have their pleading on in time to minimise limitation problems and the leave is being granted without prejudice to any argument that the plaintiffs would be able to raise against the pleadings if the relevant pleadings had been brought by way of Statement of Claim in separate proceedings at this time. 3 I have now heard argument in relation to the specified paragraphs of the Amended Defence and the Cross-Claim. HISTORY 4 These proceedings were commenced in 1998. They involve inter alia an allegation of oppression arising out of events concerning a number of companies over the years since 1990 up to the commencement of the proceedings and beyond, against the background of a business relationship which commenced in 1982. 5 In August 1998, the matter was before the Registrar concerning the filing of a Defence and Cross-claim. On 27 August 1998, the Registrar gave a direction concerning the filing of a Defence, and the defendants advised there would be no Cross-claim. 6 I commenced case management in November 1998, after a Defence had been filed. There followed lengthy disputes about particulars, striking out paragraphs of the Statement of Claim, and discovery. I determined substantial questions concerning discovery in a judgment dated 2 September 1999; and I made orders for discovery by the defendants on 15 October 1999, and for discovery by the plaintiffs on 15 February 2000. 7 On 11 May 2000, I directed that affidavits or statements for the plaintiffs be provided by 20 July 2000. This was extended from time to time, and it was not until 27 February 2001 that I noted that the plaintiffs' evidence in chief was complete. 8 Disputes concerning the provision of particulars continued. They were in substance resolved on 1 May 2001, and on that date I extended the time for the defendants' affidavits or statements to three months from that date. I also directed that the defendants put on a Defence to the Amended Statement of Claim within three months. On 14 June 2001, I gave leave for the filing of the Amended Statement of Claim. 9 On 26 October 2001, I noted that the plaintiffs had not completed the supply of particulars and that they proposed to serve an expert's report. On 19 February 2002, I ruled that the plaintiffs had in various ways supplied sufficient particulars, but I required the plaintiffs to write a letter identifying the particulars relied on. Apparently this letter was mislaid in the office of the defendants' solicitors, and the defendants' solicitors apparently did not have the letter to work on until about three months later. 10 Further extensions were granted to the defendants for their affidavits. On 7 August 2002, there was for the first time since August 1998 mention of a proposed Cross-claim. There was then no discussion of the question of leave to put on such a Cross-claim, but on that day I made orders including the following: Time for the Defendants to file and serve their affidavit evidence (other than expert evidence), Amended Defence and any Cross-claim be extended to 30 September 2002. 11 On 9 October 2002, I made the following order: I extend the time for the defendants to file and serve their affidavit evidence (other than expert evidence), Amended Defence and any Cross-claim to 11 November 2002. 12 I did not thereafter grant any extension to the defendants, but on 18 February 2003 I made the following order: I direct that the defendants, on or before 5 March 2003, provide the plaintiffs with any proposed Amended Defence and any proposed Cross-claim. DEFENCE 13 In relation to all the challenged paragraphs, Mr Einfeld QC for the plaintiff submitted that they should not be permitted, by reason of delay. Subject to what I say about the Cross-claim, and the need for further discovery, and having regard to previous delays by the plaintiffs, I do not think this justifies rejection of the paragraphs. 14 The first specific challenge by the plaintiffs is to par.121(d) and 122(ea) of the proposed Amended Defence. Each of these paragraphs is in the same form, and is as follows: (d) in respect of any payment made or benefit conferred by Marsico, J & J O'Brien or Trudale to or upon the first defendant (or, to the extent this is now alleged, to the fourth defendant) in consequence of any alleged breach of fiduciary duty the making of, or the intention to make, any such payment was first disclosed to the plaintiffs together with sufficient information in the circumstances to inform the plaintiffs fully of any advantage thereby conferred upon the first defendant and, so informed, the defendants consented (or ought in the circumstances to be taken to consent) to each payment. 15 Mr. Einfeld submitted that this paragraph was deficient in that it did not set out material facts and was untenably broad. He submitted that the fundamental function of pleading was not served, and that the generality of the pleading was too great for the plaintiffs to know what they had to meet. It was not the function of particulars to take the place of the necessary averments in a pleading: see Queensland v. Pioneer Concrete (Qld) Pty. Ltd. (1999) ATPR 41-691, Trade Practices Commission v. David Jones (Australia) Pty. Ltd. (1985) 7 FCR 109, Kirby v. Sanderson Motors Pty. Ltd. (2002) 54 NSWLR 135 at 142-3. He submitted that it would be necessary at least to plead as material facts each of the ways in which benefits were conferred, in respect of each whether it was the making or intention to make that was disclosed, whether this was done expressly or impliedly, to which of the plaintiffs, what information was given in this case, the basis on which the conclusion that the information was insufficient could be drawn, the circumstances relied on, and the advantage being referred to. 16 In my opinion, these submissions should be rejected. The substance of the plaintiffs' positive case is that they should not be bound in any way by Mr. Short's participation in the transactions alleged in the Statement of Claim because he did not sufficiently know or understand them. It is open to the defendants, under a denial of that allegation, to seek to prove what the plaintiffs did know and understand, subject to the general requirement of pleadings to avoid surprise. The challenged pleadings are no more than a positive assertion by the defendants of the same matters. In so far as it is necessary to overcome surprise, in my opinion they are sufficient in circumstances where all evidence is on, and they can be clarified by particulars. 17 The next challenge was to par.122C. That paragraph in substance alleged an estoppel by reason of the defendants acting to their detriment on the fact of representations from the plaintiffs arising from the plaintiffs' signing of financial documents from 1982 until May 1987. 18 Apart from pointing to delay, Mr. Einfeld submitted that it raised new issues, such as the investigation of what if any, qualifications or notifications of reservations Mr. Short made in relation to the signing of annual returns, and all matters in relation to the defendants' alleged reliance on the plaintiffs' representations and inducement of the defendants by such representations. He submitted that this would give rise to vast additional discovery. 19 In so far as this pleading relates to a period commencing in 1982 rather than 1990, I think it would widen the scope of the enquiry. In my opinion, the pleading should be limited to the period commencing 1990. Otherwise, in my opinion this challenge should also fail. The plaintiffs' case of oppression must take account of the circumstance that he has over the years as a director of various companies signed documents, and, as I have said before, he seeks to escape the usual consequences of that by alleging lack of knowledge and understanding, as well as undue influence. So far as the making of representations by the plaintiffs is concerned, in my view par.123 is no more than a positive statement of matters the defendants could rely on, subject to questions of surprise, in a simple denial of the plaintiffs' positive allegation of oppression. 20 As regards reliance and inducement, these are matters which in my opinion, subject to questions of surprise, could be led in a denial of the plaintiffs' positive claim of oppression. I do not think this pleading in that respect widens the scope of discovery, at least in the absence of any particular classes of documents being identified by the plaintiffs. As regards avoidance of surprise, in my opinion this again is overcome to a large extent by the circumstance that the defendants' evidence is complete, and by the circumstance that further particulars can be sought. 21 The next challenge is to pars.122A and 122B. These paragraphs in substance allege that in about April to June 1997, the plaintiffs withdrew securities previously provided in support of the business activities of the group of companies, and refused to provide further securities, so that thereafter the only securities were provided by the defendants, and in particular by the first defendant. The pleadings also allege that this was in breach of a contract binding the plaintiffs to provide security to support the business activities of the group. 22 In substance, Mr. Einfeld submitted that these pleadings were bad because they failed to plead material facts, and should be disallowed because they raise new matters that would greatly widen the scope of discovery and the scope of the proceedings. He also submitted that they should be struck out because they were doomed to fail: the material documents concerning the circumstances in which the plaintiffs ceased to provide securities show that it could not be said that the plaintiffs withdrew securities or refused to securities. What happened was that, in circumstances where there was debate about the appropriate course to take when the existing financier of the group wanted to bring this relationship to an end, the defendants in substance, in determining the new provisions for finance that should be made, advised the plaintiffs that security from them was no longer required. 23 In my opinion, the fact that, from about April to June 1997, the plaintiffs no longer provided collateral security for the business operations of the group, and that thereafter the defendants were the sole source of this security, is a matter relevant to the plaintiffs' case alleging oppression, and also relevant to the scope of the relief that would be granted. Again, it is a matter that could, subject to questions of surprise, be raised under a denial of the plaintiffs' allegation of oppression. In my opinion, there is no additional area of discovery raised by those allegations, and no lack of clarity in them that is not overcome by the completion of the evidence and the ability to seek particulars. 24 A more substantial question is whether the allegation that the plaintiffs withdrew and refused to provide securities, and that certain matters were a consequence of this withdrawal and refusal, and the allegation of the existence of a contract and breach of that contract should be disallowed, because they are futile and could not possibly succeed. 25 In my opinion, whether or not an allegation of breach can be made out, an allegation that there was an agreement that each side provide security may be relevant to the question of oppression, and the question of what relief is granted, even if the evidence does not establish breach, but merely that, without breach, the plaintiffs no longer provided that security. In my opinion also, where the plaintiffs' case depends to a considerable extent on the nature of the relationship between the parties, and in particular between the first plaintiff and the first defendant, it must be open to the defendants to say that the relationship was such as to give rise to a contractual obligation. At present, I see no basis on which it can be said that this gives rise to a need for wider discovery, or expands the enquiry in any inappropriate way. 26 Turning to the question of withdrawal, refusal and breach, in my opinion there is force in Mr. Einfeld's submission based on the documents passing between the parties at the time. However, the documents do have to be viewed in the light of the overall relationship and circumstances that are part of the plaintiffs' case as well as the defendants' case; and in my view it is not impossible that the documents could be seen, in the light of those circumstances, as in substance indicating an unwillingness to provide ongoing security. Again, I do not think that this would call for any wider discovery, or substantially widen the scope of the proceedings. 27 Accordingly, the attack on those paragraphs also fails. 28 Finally, in relation to the Defence, there is a challenge to pars.122D and 122E. These paragraphs allege an offer of settlement, and refusal of that offer by the plaintiffs; and allege that the plaintiffs are thereby not entitled to relief. 29 Mr. Einfeld submitted that this pleading could not be permitted, in circumstances where the oppression was alleged to continue long after the date of that offer; and that the paragraph would greatly enlarge the scope of the case, in circumstances where discovery had been completed, in that it would require a complete assessment of the value of the company as at this particular date. 30 In my opinion, that submission is given some force by the allegation in par.122D that the offer was "on just terms and for full value". That poses an issue as to whether the offer was objectively just and objectively for full value. If that issue is seriously taken up, it could indeed lead to a complete investigation of the value of the enterprise at that time, which could be a matter enlarging the scope of the hearing. I have grave doubts about whether such an enquiry would in any event be relevant, and in my opinion it should in any event not be permitted to be raised at this late stage. 31 On the other hand, if all that is being alleged is that the offer was on reasonable terms, and that, having regard to the circumstances as they appeared and were understood at the time, the plaintiffs acted unreasonably in not accepting them, that would not raise the question of the objective justice of the offer or its relationship to what was objectively full value. It would simply be another matter to be considered in relation to the reasonableness and unreasonableness of the conduct of the parties continuing throughout the period. 32 Accordingly I would propose to strike out the words "on just terms and for full value", but to permit an allegation that the offer was a reasonable one and an allegation that the plaintiffs' refusal was unreasonable. CROSS-CLAIM 33 The Cross-claim relies on some of the allegations which I have considered in relation to the Defence, but importantly pars.6A-13 raise two further matters: first, an allegation that the withdrawal of the securities by the plaintiffs was a breach of fiduciary duty pursuant to which the plaintiffs made profits by using those securities for other enterprises; and second, that the defendants suffered damage and loss because they became the sole providers of securities for the ongoing businesses of the subject companies. 34 As I indicated in my discussion of the Defence, the allegation that the plaintiffs withdrew securities and/ or refused to provide securities and/or breached a contract to provide securities is doubtful, on the evidence. However, I permitted it to be pursued in relation to the Defence, since it seemed to me it might not be entirely hopeless and it did not widen the scope of the case. However, the allegation that the withdrawal was a breach of fiduciary duty, that the plaintiffs profited from this breach of fiduciary duty and that the defendants suffered damage, would very considerably widen the scope of the case, raise new issues, require further discovery, and involve considerable delay. There is a real question whether, in the light of the history which I have related, including the disavowal of a cross-claim back in August 1998, the attempt to raise these allegations, even if this had been done by way of separate proceedings, should be regarded as an abuse of process. I do not propose to make a final determination of that at this stage. However, in the circumstances it is clear to my mind that any further proceedings in relation to pars.6A-13, and the associated pars.15 and 16, of the Cross-claim, should be stayed until after final determination of all other issues in the proceedings. The outcome of the proceedings may be such as to indicate that to attempt to pursue those paragraphs would in any event be futile. If not, however, the Court will I think be in a better position at that stage to determine whether it was an abuse of process to seek to introduce these claims at this stage of these proceedings, whether by way of cross-claim or by way of separate proceedings. 35 Paragraph 14 of the Cross-claim is in a different category. Discussion at the hearing has made it clear that what it seeks to do is to found a claim by Mr. Crawley against Mr. Short for contribution on the basis of co-ordinate liability as directors in relation to any loss or damage suffered by Marsico and/or J & J O'Brien, for which relief is given in these proceedings. It seems to me clear that it would be appropriate to allow that claim to be made, and apart from the terms of par.(d) of par.14, I think the claim is appropriately pleaded. I think the appropriate course would be to strike out par.14(d), but to permit substitution of a paragraph which asserts to the effect that Mr. Crawley claims contribution from Mr. Short on the basis of co-ordinate liability in relation to any loss or damage suffered by Marsico and J & J O'Brien, in respect of which relief is given in the proceedings. 36 I should also mention that Mr. Einfeld, in arguing that the Cross-claim should be disallowed altogether, relied on a lack of explanation for the delay in seeking to put on a cross-claim. I have given consideration to that submission, but I think that is a matter that can be attended to if and when there is an attempt to revive the stayed paragraphs of the Cross-claim. COSTS 37 I have received written submissions in relation to costs of court appearances on 13 June, 7 August and 9 October 2002, and 18 February, 11 March and 16 April 2003. The defendants have been in default at the time of most of those appearances, but on the other hand it is likely that some of them would have been necessary in any event. On the whole, I think the appropriate order is that the costs of each of those appearances be plaintiffs' costs in the proceedings. 38 Turning to the costs of the hearing in relation to the pleadings, there has been some success on both sides, such as would suggest an order that the costs be costs in the proceedings. However, Mr. Einfeld has submitted that because the application was made necessary in any event by the defendants' delay, the defendants should pay the plaintiffs' costs. On the whole, my view is that the argument related more to issues other than delay, and that the appropriate order is that the costs of the determination be costs in the proceedings. ORDERS 39 The orders I propose are: 1. Leave granted to file the Further Amended Defence and Cross- claim, subject to the following orders. 2. Further proceedings on pars.6A-13 and 15 and 16 of the Cross-claim stayed until after final determination of all other issues in the case. 3. Paragraph 14(d) of the Cross-claim struck out, and liberty for the defendants to plead in lieu thereof "Crawley claims contribution from Short on the basis of co-ordinate liability in relation to any loss or damage suffered by Marsico and J & J O'Brien which is recovered in these proceedings". 4. In par.122C of the Further Amended Defence, "1990" be substituted for "1982" in par.(a). 5. In par.l22D of the Further Amended Defence, the words "on just terms and for full value" be deleted, and the defendants to have leave to amend pars.122D and 122E so as to allege that the defendants' offer was reasonable and the plaintiffs' refusal was unreasonable. 6. The costs of the hearing on 1 July 2003 to be costs in the proceedings. 7. The costs of the court appearances on 13 June, 7 August and 9 October 2002, and 18 February, 11 March and 16 April 2003 to be plaintiffs' costs in the proceedings. **********

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