Pleading - Leave to amend - Objection to a prayer for relief - Equitable damages and equitable compensation

Chancery Amendment Act 1858 (UK) (Lord Cairns' Act)

1 MASTER BREDMEYER: This is an application by the plaintiff dated 6 February 2002 for leave to amend its writ of summons and to reamend its statement of claim in terms of a minute of 31 January 2002.

2 The defendant has two objections to the amendments in the proposed statement of claim. The first is that par 14 of the minute does not adequately plead loss or damage which is capable of giving rise to a claim for equitable damages or equitable compensation.

3 The prayers for relief in the minute are as follows:

"(a) liquidated damages pursuant to clause 9.4 of the Employment Agreement;

(b) further, or in the alternative to (b), damages;

(c) further, or in the alternative to (b) and (c), equitable damages or equitable compensation;

(d) ... an account of profits made by Arnold;

(e) interest ...

(f) costs ..."

4 The defendant's argument is that the plea of loss and damage found in par 14 is not sufficient to justify the prayer for equitable damages. Equitable damages are granted under s 25(10) of the Supreme Court Act 1937 (WA) which reads:

"(10) In all cases in which the Court entertains an application for an injunction against a breach of any covenant contract or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant or agreement, the Court may, if it thinks fit, award damages to the party injured, either in addition to or in substitution for such injunction or specific performance, and such damages may be assessed in such manner as the Court directs:

Provided that nothing in this subsection shall limit or affect the jurisdiction or powers which the Court has apart from this subsection."

That subsection is a copy of the Chancery Amendment Act 1858 (UK), commonly called Lord Cairns' Act. The proviso at the end of our subsection is not found in Lord Cairns' Act.

5 The defendant's argument is that unless the plaintiff pleads that it was entitled to an injunction or a decree for specific performance against the defendant, it cannot get equitable damages and hence that part of the prayer for relief should be struck out.

6 I consider that this argument is misconceived on a procedural basis. An application by a plaintiff for leave to amend a statement of claim can be refused if the proposed pleading is in a form which ought to be struck out; eg, for failure to disclose a reasonable cause of action or because the pleading is embarrassing, vexatious or an abuse of process, etcetera. The defendant's objection to the plea in par 14 of the minute is not an objection to a cause of action. It is an objection to one of the prayers of relief. As such, I do not consider that a suitable matter for a strike-out application or, in this case, for an objection to the plaintiff's application for leave to amend. The prayers for relief in a statement of claim are not as important as the material facts pleaded to establish a cause of action. Order 20 r 2(1) of the Rules of the Supreme Court provides that a statement of claim must state specifically the relief or remedy which the plaintiff claims, but the Court is not confined to that particular form of relief. On proof of the necessary facts, the Court has jurisdiction to grant any relief it thinks appropriate to the facts as proved: see Seaman 20.2.1. So, if the facts as proved at trial support a claim for equitable damages, the plaintiff will be entitled to get that relief. Conversely, if the facts as proved do not support that claim for relief, that relief will not be ordered. The defendant's objection to the "inadequate" pleading in par 14 is a matter which can, and I think should, be raised in brief argument at trial. It is not worth debating at this stage. It is not as if the plaintiff has pleaded some irrelevant, and hence embarrassing, facts in par 14, which pleads loss or damage, which the defendant wants to exclude and which, if excluded, will narrow the scope of discovery, interrogatories and shorten the trial.

7 Having said that this objection is wrongly taken at this stage, I do not consider that the defendant's objection applies, in any event, to equitable compensation. The two things - equitable damages and equitable compensation - are different. Wayne Martin, in "Principles of Equitable Compensation" which is ch 4 of Robyn Carroll, "Civil Remedies, Issues and Developments", points out at page 115 that the distinction in nomenclature is not always strictly observed, but nevertheless the distinction is a useful one. Section 25(10) of the Supreme Court Act and Lord Cairns' Act refer to "damages", and equitable damages is normally confined to equitable compensation under that section. However, the Court, in its inherent jurisdiction, and independently of that section, has power to award equitable compensation; eg, for breach of fiduciary duty: see McDermott, "Equitable Damages" (1994) 155 and Spry, "Equitable Remedies" 6th ed at 623 - 625. That jurisdiction does not depend on s 25(10), as the proviso to that section makes clear:

"Apart from the limited power to award damages in addition to or in substitution for equitable relief, conferred by the Supreme Court Act (1907), s 68 (following Lord Cairns' Act), which is of no present relevance, the court has an inherent power to grant relief by way of monetary compensation for breach of a fiduciary or other equitable obligation.

United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 816, per McLelland J

... the origin of the power is not in the Lord Cairns' Act, it is part of the long established power of a court of equity to award compensation for breach of a trust, and a manifestation of the court's power over a fiduciary.

Markwell Bros Pty Ltd v CPN Diesels Queensland Pty Ltd [1983] 2 Qd R 508 at 523, per Thomas J."

8 In a case of breach of fiduciary duty, equitable compensation will ordinarily be the appropriate remedy where an account of profits is not appropriate: McDermott, "Equitable Damages" at 155 and Spry, "Equitable Remedies", 6th ed, at 625.

9 The defendant's second objection is to the reference to a "third party" in par 5(b) of the minute and in par 12(b), and the particulars to par 12(b) and in par 13 on the basis that the defendant does not consider that the pleaded fact that any gain or benefit received by a third party, namely GGS, is material to the plaintiff's claim of breach of equitable duty by the defendant as pleaded in par 5(b).

10 The plea under challenge in these various paragraphs, in essence, is that Mr Arnold, after leaving the employ of the plaintiff, and contrary to a restraint of trade clause in his contract, and in breach of fiduciary duties to his former employer, took 21 former customers of the plaintiff for his personal gain or benefit, or for the gain of his new employer, GGS. This is a somewhat controversial plea but is one, I think, which is arguable or which, as the law may develop, may be arguable. Equitable remedies are very flexible and I consider it arguable that if Arnold's actions of poaching the plaintiff's former clients produced a profit for his new employer, that Arnold could be asked to disgorge that profit to the plaintiff. Whether Arnold, in that event, would get an indemnity or a contribution from his new employer, or whether he would like to join the new employer as a third party, is his concern.

11 I consider that the defendant's objections fail and that the plaintiff's application for leave should succeed subject to two minor matters. The defendant drew attention to the reference to a third party in par 5(b) which reads:

"(b) not to use his position as a fiduciary for personal gain or benefit, or for the benefit of a third party."

That is embarrassing and the plaintiff needs to identify the third party. I suspect it is the company GGS which is identified elsewhere in the pleading. That could be cured by a small amendment which I could make, if asked. The other small matter is an error in prayer for relief (b), which reads "(b) further, or in the alternative to (b), damages". The latter reference to "(b)" should be to "(a)".

12 I will hear the plaintiff on these minor matters and the parties on costs.