SUNLEA ENTERPRISES PTY LTD AS TRUSTEE FOR DRUMMOND COVE UNIT TRUST -v- POLLOCK [No 2] [2015] WASC 102 (27 March 2015)

4 After the filing of the statement of claim, several of the defendants (including the first defendant) applied for security for costs. The application was heard in November 2013. On 24 March 2014, I made orders requiring the plaintiff to give security for the costs of the proceedings. The proceedings were stayed as a result of that order until the plaintiff provided security in September 2014.

5 The first defendant says that since September 2014 the parties have been conferring as to the next steps. The solicitors for the first defendant (who also acted for other defendants) conducted a detailed review of the pleaded case in preparation for filing defences, including an amended defence for the first defendant: see affidavit of Nigel Jerome Siegwart, dated 17 December 2014. Conferral on the application to strike out only began in November 2014. The summary judgment application was added, by an amendment to the chamber summons in February 2015.

6 The delay is substantial, even if the period between when the application for security was heard and security was given is excluded. The delay after security was ordered is also significant. There is no adequate explanation for the delay.

7 The first defendant changed legal representation in October 2013. In an affidavit filed in support of the strike out application, filed 17 December 2014, he says that his former lawyers did not advise him about whether he should apply to strike out parts of the statement of claim. Even if that is so, there must also have been detailed consideration of the statement of claim for the purposes of the security for costs application, where the issues included the strength and bona fides of the plaintiff's case.

8 Particularly for the summary judgment application, there is no explanation for why it was not made in 2013 before the parties incurred thousands of dollars in costs in the security application.

9 On consideration, I believe I should consider the merits of the applications. In this regard, I agree with the approach of Le Miere J in Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2013] WASC 248 [37], which accords with the basic principle that the purpose of the discretion is to enable the court to do justice between the parties in the particular circumstances of the case: see Gallo v Dawson [1990] HCA 30; (1990) 93 ALR 479, 480. This litigation will be substantial. It relates to events which occurred up to 10 years ago. There will be significant factual controversies to be resolved at trial. If the first defendant's application has merit, it is in the interests of both parties and efficient case management to give leave for the applications to be brought out of time.

10 I also take into account that the allegations challenged by the first defendant are that he participated in the fraudulent conduct of a trustee, and in a conspiracy. If those allegations are frivolous, or the first defendant has a good defence on the merits, it is in the interests of justice that the action against him be summarily terminated. If the allegations have not been adequately pleaded, so that the first defendant does not have proper notice of the case he is to meet, it is in the interests of justice that the pleadings be corrected before trial.

11 To the extent that the lateness of the application may have caused costs to be incurred unnecessarily, that may be met by appropriate costs orders.

12 Order 16 r 1(1) of the Rules of the Supreme Court provides that the court, if satisfied that the action is frivolous or vexatious, that the defendant has a good defence on the merits, or that the action should be disposed of summarily, may order that judgment be entered for the defendant.

13 The power to summarily terminate a proceeding must be exercised with great care, and only when it is clear that there is no real question to be tried: see Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 [24]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46]; Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]. One of the matters the court must take into account is the denial of the opportunity to take advantage of the usual interlocutory processes. I am conscious, in this case, that the plaintiff asserts that matters relevant to the prosecution of his claim are solely within the knowledge of the defendants, and discovery may be important to enable the plaintiff to give particulars of the matters alleged.

14 It is now necessary to consider the role of pleadings in the context of case management techniques, including the pre-trial exchange of witness statements: Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [8]. This approach does not deny the need for a statement of claim to state the material facts to support the claim for relief, and for the pleadings to define with clarity and precision the issues or questions which are in dispute between the parties and fall to be determined by the court requirements that were reaffirmed by the Court of Appeal in Nyoni v Patterson [2012] WASCA 171 [36] [38]. Pleadings ensure a basic requirement of procedural fairness, and, to do so, must state the case sufficiently clearly to allow the other party a fair opportunity to meet it: Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279, 286 287; Gould v Mount Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490, 517; Forrest v Australian Securities and Investments Commission [2012] HCA 39 [26]. What is needed to satisfy the requirement for a clear statement of the case will depend upon the nature of the allegation. An allegation that a party is liable as a knowing participant in a dishonest and fraudulent design of a trustee must be pleaded clearly and particularised: see, for example, Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [170]. The first defendant is also entitled to know the precise factual basis upon which it the plaintiff contends that he was party to an unlawful conspiracy: see Weston v Publishing and Broadcasting Ltd [2011] NSWSC 433.

15 The first defendant relies on O 20 r 19(1)(a), (b) and (c) and contends that the statement of claim:

1. reveals no reasonable cause of action against the first defendant;
2. is scandalous, frivolous or vexatious; or
3. may prejudice, embarrass or delay the fair trial of the action.

16 On an allegation that there is no reasonable cause of action, 'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable: Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157 [54]. The question is whether it would be open to the first defendant on the pleadings to prove facts at the trial which would constitute a cause of action: see Mutual Life & Citizens' Assurance Co Ltd v Evatt [1970] UKPCHCA 2; (1970) 122 CLR 628, 631.

17 A cause of action may be reasonable, in the sense that it is theoretically sustainable but, in context, be no more than frivolous or, having regard to the manner in which it is advanced or combined with other alleged causes or irrelevant material, the result may be to render the pleading vexatious: Opperman v The State of Western Australia [2011] WASC 25 [36] (Heenan J).

18 Pleadings may also be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action 'because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general': HartRoach v Public Trustee (Unreported, WASC, Library No 980044, 11 February 1998); DM Drainage and Constructions Pty Ltd v Karara Mining Ltd [2014] WASC 170 [34].

19 The first defendant asks for orders striking out those parts of pars 154, 155(a) and (c) and par 283(a) that apply to him.

20 The pleas in pars 154 and 155 are in this context.

21 The plaintiff is the trustee of the Drummond Cove Unit Trust.

22 The plaintiff claims relief for losses it suffered, and for losses suffered by the unit holders in the Drummond Cove Unit Trust, in a land development project near Geraldton. The plaintiff was not the original trustee of the Drummond Cove Unit Trust. Many of the relevant events occurred when Diamo Nominees Pty Ltd was trustee.

23 Diamo Nominees entered into Heads of Agreement for a joint venture with Dreamview Investments Pty Ltd (the ninth defendant) to carry out the land development project.

24 Dreamview Investments and Diamo Nominees were equal owners of Sandpiper Asset Pty Ltd.

25 The plaintiff pleads that Sandpiper held the project land in trust for the purposes of the project (the Land Trust); was a signatory to the Heads of Agreement for the joint venture; and was the Project Manager for the development project. The plaintiff pleads that there was no declaration of trust regarding the land, but that 'at all material times ... [the] parties acted on the basis that Sandpiper had received the transfer of the Land as if Sandpiper had executed a declaration of trust ...': par 43.

26 The plaintiff alleges against Sandpiper that it:

1. entered into financing agreements with two financiers (including Troika Capital Pty Ltd, the 14th defendant) secured by mortgages on the project land;
2. was in breach of the Land Trust when it used the project land as security;
3. made unauthorised payments to various persons from the money it borrowed.

27 The allegation that the use of the project land was a breach of trust relies upon the proper interpretation of the Heads of Agreement and a variation of that agreement: see par 114.

28 One of the challenged borrowings and payments is the subject of pars 148 to 155 of the statement of claim. This is one of several borrowings under what the plaintiff refers to as the Troika Facilities. The plaintiff pleads (in summary) that:

1. Sandpiper borrowed $3 million from Troika Capital which was secured over the project land by a mortgage (par 148).
2. The sixth and seventh defendants, who were both directors of Sandpiper and executed the loan documents for Sandpiper, were aware that the purpose of the borrowing was to provide that amount to Laserbase Pty Ltd, and were also aware that this was not a purpose authorised by the Heads of Agreement (pars 151 152).
3. By borrowing the $3 million, Sandpiper breached the Land Trust (par 153).
4. The payment to Laserbase was not required for developing or subdividing the land and was in breach of an implied term in the Heads of Agreement that Sandpiper, as Project Manager, would act in the best interests of the joint venture (par 150 read with par 40).
5. Sandpiper paid the amount of $3 million to the second defendant (Laserbase) by way of a cheque 'collected by' the first defendant (par 149).
6. The first defendant and Laserbase were aware of the breach of the Land Trust by Sandpiper by borrowing for an unauthorised purpose.

29 Paragraph 155 then pleads conclusions. Relevantly, it pleads that 'in these circumstances' the first defendant 'knowingly participated in and benefited from Sandpiper's breach of the Land Trust' (par 155(a)); and is liable to account to the plaintiff for the loss caused, or to account for any benefits which he obtained (par 155(c)).

30 At the hearing of this application, counsel for the plaintiff accepted that there was no pleaded basis for the allegation that the first defendant benefited from the breach of trust, and to that extent the plea cannot stand. The plaintiff, however, sought to maintain the plea as an allegation of knowing participation, that is, a plea under the second limb of Barnes v Addy (1874) LR 9 Ch App 244.

31 The allegation is that the first defendant knowingly participated in a fraudulent and dishonest design of Sandpiper as trustee: those words are not used, but the plaintiff alleges that the directors of Sandpiper knew the purpose of the borrowing and that it was not a purpose authorised by the Heads of Agreement, and that in borrowing for that purpose the directors engaged in the unlawful conspiracies pleaded later in the statement of claim.

32 I will accept, for the purposes of this application, that the allegations against the directors of Sandpiper are sufficient to sustain a plea that Sandpiper acted with a dishonest and fraudulent design in borrowing the money for the purpose of providing it to Laserbase. But there is no clear plea against the first defendant that would enable a finding that he participated, with knowledge, in that design.

33 The first defendant's participation in the breach of trust is alleged to be nothing more than that he 'collected' the cheque. The first defendant submits that, to support a finding of accessorial liability, his conduct must be causative of the breach of trust. As the breach is the borrowing, and the loan had already been entered into when he collected the cheque, his conduct cannot come within the second limb of Barnes v Addy.

34 Even were it done with knowledge of the breach, I doubt that conduct amounting to nothing more than collecting a cheque would be sufficient to constitute participation in the breach. In Re-Engine Pty Ltd (in liq) v Fergusson [2007] VSC 57; (2007) 209 FLR 1 [117], DoddsStreeton J said:

In addition to dishonesty, the accessorial limb of Barnes v Addy also requires assistance or participation by the stranger. Relevant case law offers little by way of comprehensive definition of 'assistance' or 'participation' in this context. The absence of an exhaustive definition, is perhaps, attributable to the diversity of forms assistance may assume, as 'there are of course as many ways to facilitate the commission of a primary breach as the human imagination can contrive.' It seems, however, that assistance or participation must be facilitative conduct or activity which is more than mere knowledge or notice of the breach of duty. The cases indicate that assistance may overlap with receipt and may involve, for example, the use of bank accounts simply as a conduit for funds, without beneficial receipt. There is now considerable support for the view that mere 'ministerial' receipt falls within the ambit of the second limb of Barnes v Addy..

35 Having regard to the need to act only in cases where there is no real question to be tried, despite my reservations, I am not satisfied I should strike out the plea on the basis that the first defendant's conduct could not amount to 'participation'.

36 I am, however, satisfied that the allegation that the first defendant was aware of the breach of trust, and that his awareness 'may be inferred from the unusual nature of the transaction', is insufficient.

37 The plaintiff relies on actual knowledge by the first defendant. It pleads that the first defendant was aware of the breach of the Land Trust. The plaintiff does not, however, plead material facts from which it could be inferred that the first defendant knew of the circumstances in which the land was acquired on behalf of the Drummond Cove Unit Trust, the transfer of the land to Sandpiper as registered proprietor, the making of the terms of the Heads of Agreement, the limit on the authorisation of Sandpiper to borrow, the terms of the Troika Facility, or the nature and operations of the joint venture. It does not plead any relationship between the first defendant and Laserbase, or Sandpiper or Troika Capital, outside this one event. The matters pleaded in par 148 and following are the first reference to the first defendant in the statement of claim. The plea of knowledge is simply the statement of a conclusion and, in the context of this statement of claim and the gravity of the allegations made in it, is insufficient.

38 For these reasons, the pleas against the first defendant in par 155(a) will be struck out, under O 20 r 19(1)(a) and (c) of the Rules of the Supreme Court. The pleas in pars 149, 154, and 155(c) all depend on par 155 (a), in the sense that they are material only if that allegation stands. Those paragraphs will be struck out to the extent they refer to the first defendant.

39 Paragraph 283 pleads a conspiracy that is alleged against several of the defendants, as well as others who are not parties. The plaintiff pleads in par 283 that, 'in the circumstances pleaded above, it may be inferred' that:

(a) there was an unlawful agreement formed in 2005 between the first defendant and eight others (including his father, Kevin Pollock) with the dominant, or with a substantial, purpose of obtaining for themselves, and companies associated with them, the substantial economic benefits in developing the land to the exclusion and economic detriment of the Drummond Cove Unit Trust;

(b) three others, including Troika Capital, subsequently joined and participated in that agreement from about the time when the Troika Facilities were first agreed and provided; and

(c) another person (not a party) subsequently joined in and participated in that agreement.

40 There are particulars to par 283. Again, it is pleaded that the formation of the agreement and the conspiracy 'can be inferred' from those matters. I assume those particulars also detail the acts in furtherance of the conspiracy on which the plaintiff relies.

41 The only particular that may be relevant to the first defendant, in light of the limited pleading against him, is that 'a substantial number of unauthorised payments were made in breach of the Land Trust to the knowledge of the directors of Sandpiper' and in breach of the directors' duties. The plaintiff pleads, in par 155, the knowing participation of the first defendant in one of those unauthorised payments.

42 Apart from the allegation that the first defendant collected the cheque for $3 million in 2006 which was paid to Laserbase (that is, one of the 'substantial number' of unauthorised payments), the only other allegation made directly against the first defendant is in par 275, where it is alleged that he is the son of Kevin Pollock.

43 If one trawls through the statement of claim for other potentially relevant claims, something that should not be required, there is a plea that in July 2007, Sandpiper paid $100,000 to Soiland Pty Ltd. The plaintiff alleges that payment was also made by Sandpiper in breach of an implied term in the Heads of Agreement: pars 156 to 160. The first defendant was a director of Soiland.

44 Counsel did not shy away from the plaintiff's reliance on the plea that the first defendant is the son of Kevin Pollock, and submitted that there was a web of companies related to the Pollock family which participated in and benefited from the various transactions pleaded against the defendants. The plaintiff pleads that Kevin Pollock did various things, including attending meetings of the joint venture, and recommending that Sandpiper should arrange finance facilities with Walthamstow and Troika to provide finance for the project. It pleads various matters against the first defendant's sister and brotherinlaw. Even if these matters disclose an unlawful purpose on the part of Kevin Pollock or other members of his family, the plaintiff has not pleaded in what way they may implicate the first defendant.

45 Counsel emphasised the plaintiff's position of disadvantage, where the material facts and documents may be primarily in the knowledge of others. But those considerations must be weighed against the requirement to plead with clarity the material facts on which the plaintiff relies in making very serious allegations against a particular individual.

46 In my opinion, the plea of conspiracy against the first defendant should be struck out.

47 First, it lacks necessary clarity. The claim in par 283 of a long and complex pleading that, 'in the circumstances pleaded above', it may be inferred that he was party to a conspiracy does not provide to the first defendant proper notice of the facts relied upon. The deficiency is more serious when the plaintiff relies on so many transactions, and the first defendant is alleged to have knowingly participated in only one of them the payment to Laserbase on 24 October 2006.

48 The particulars to par 283 are similarly not specific. Paragraphs (a), (b) and (c) of the particulars refer to 'the substantial number of unauthorised payments' and that 'a substantial number of these payments' were made in breach of various duties in each case 'as pleaded above'. Paragraphs (v) to (ix) detail matters in relation to which there is no pleaded connection with the first defendant.

49 On such a serious allegation, where a clear and precise pleading is required, the plea is also embarrassing in the sense described by Murray J in HartRoach. It does not give notice to the first defendant of the material facts on which the plaintiff bases its allegation that he formed a conspiracy in 2005. Rather, the conspiracy asserted is the only connection of the first defendant to many of the facts which are said to base the inference.

50 Second, it apparently relies substantially on the matters pleaded in par 155(a) which, for separate reasons, I have struck out.

51 Third, and crucially, even if one takes into account the allegations in par 155(a), on this plea the plaintiff could not lead evidence that would found the inference that the first defendant formed an unlawful agreement in 2005 and of the breadth alleged.

52 Fourth, the plea is vexatious in requiring the first defendant to answer a plethora of allegations about the conduct of various parties based on what is nothing more than an assertion that he formed the agreement.

53 The application to strike out the challenged paragraphs will be upheld.

54 The allegation of knowing participation, pleaded in par 155, will be struck out, but with leave to replead.

55 The defects in the conspiracy plea, however, are more fundamental. In my opinion, it should not be permitted to proceed further. The first defendant could not be found to be liable for the conspiracy asserted in par 283 on the material facts pleaded against him. The first defendant should have judgment entered for that part of the claim.

56 The first defendant did not file a separate affidavit once he amended his chamber summons to claim summary judgment under O 16.

57 The facts on which he relies are, however, set out in an affidavit filed in the strike out application, and dated 9 December 2014. The first defendant says, in effect, that he would often collect cheques at the direction of other family members. He does not recall the cheque which is the subject of the plea in par 155 but says he had no knowledge of the source or purpose of the funds.

58 The plaintiff has filed an affidavit, dated 10 March 2015, in which he sets out evidence to the effect that the first defendant became a director of Laserbase, although not until 2013. More significant is evidence that the first defendant was recorded at Troika Capital as the contact person at Sandpiper at the time that he collected the cheque.

59 It is undesirable to go further into the evidence at this stage, particularly when it raises issues regarding the credibility of the first defendant. I am not satisfied that the first defendant has shown a proper basis to wholly dispose of the action on a summary basis. While I will strike out the plea, the first defendant's application for summary judgment under O 16 will be dismissed.