Tox Free Solutions Limited v Kumarasamy

The amended statement of claim 4 In overview, Tox Free pleads that it carries on business specialising in waste solution and disposal services and from late 2013 carried out a project to implement enterprise resource planning software throughout its business. Conlon Management is pleaded to have held itself out as having expertise in the provision of contractor management and payroll management services. The statement of claim alleges that from about 4 December 2013 until about 10 July 2015, Mr Kailasam carried out duties and responsibilities as Tox Free's IT project manager in relation to the project. 5 Tox Free refers to a written supply agreement with Conlon Management entered into on or about 7 February 2014 which is said to have contained terms on which Conlon Management would provide to Tox Free the services of individuals to work on the project. These individuals are said to have been subsequently identified in separate documents which are described as schedules to that agreement. Material express terms of the supply agreement between Tox Free and Conlon Management that are pleaded include: that Conlon Management would provide the services of the individuals to Tox Free at its premises; that each of the individuals was an employee of Conlon Management but subject to the supervision, direction and control of Tox Free; and, importantly, that Tox Free would pay a rate, described as the Participating Rate, to Conlon Management for the services of each relevant individual. 6 It is then pleaded that by agreement of Mr Kailasam on behalf of Tox Free, and Conlon Management, 20 individuals were brought within the supply agreement and identified in the relevant schedules. Tox Free claims that the Participating Rate which was to be payable by it for each individual included, to the knowledge of Conlon Management, an amount which Mr Kailasam directed Conlon Management to pay to him or for his benefit. The amounts said to be directed to be paid to Mr Kailasam or for his benefit are referred to in the amended statement of claim as Kailasam's Margins. It is also alleged that from about 30 March 2014, the Participating Rates were increased for some or all of the 20 individuals for the purpose, known to Conlon Management, of increasing the amounts of Kailasam's Margins so as to pay higher amounts to him or for his benefit. 7 Tox Free alleges that it had no knowledge of and did not consent to authorise payment of any of Kailasam's Margins, and that at all material times Mr Kailasam knew that Tox Free did not know of or consent to those payments. It is therefore alleged that Mr Kailasam's conduct in directing Conlon Management to pay Kailasam's Margins was a dishonest and fraudulent scheme. 8 It is then pleaded that between 7 February 2014 and 7 July 2015, Conlon Management issued invoices to Tox Free pursuant to the supply agreement in relation to the services of the various individuals at the Participating Rates. Tox Free claims that of a total amount of those invoices of $5,029,900.39, some $2,655,057.40 was attributable to Kailasam's Margins and also that a smaller amount is attributable to a service charge which was charged on the amounts attributable to Kailasam's Margins. It is said that Conlon Management paid the total amount of Kailasam's Margins to Mr Kailasam or to certain entities at his direction. 9 The nub of the claim against Conlon Management rests on an allegation that at all material times, it ought reasonably to have suspected that Tox Free did not know of, consent to or authorise payment of Kailasam's Margins and that Mr Kailasam was using Conlon Management to give effect to a dishonest and fraudulent scheme. It is said that, in the premises, at all material times, Conlon Management owed Tox Free a duty of care to report the existence of Kailasam's Margins to somebody within the applicant (other than Mr Kailasam), and it is claimed that that duty was breached by a failure to report those matters, which has caused loss or damage. As I have said, there is also a claim in relation to misleading or deceptive conduct, but it is not necessary to describe that further for the purposes of these reasons.

Relevant provisions 10 Conlon Management seeks particulars of six paragraphs or subparagraphs of the pleading. The provisions of the Federal Court Rules 2011 (Cth) that are relevant to the application are as follows: 16.41 General (1) A party must state in a pleading, or in a document filed and served with the pleading, the necessary particulars of each claim, defence or other matter pleaded by the party. Note: See rule 16.45. (2) Nothing in rules 16.42 to 16.45 is intended to limit subrule (1). Note 1: The object of particulars is to limit the generality of the pleadings by: (a) informing an opposing party of the nature of the case the party has to meet; and (b) preventing an opposing party being taken by surprise at the trial; and (c) enabling the opposing party to collect whatever evidence is necessary and available. Note 2: The function of particulars is not to fill a gap in a pleading by providing the material facts that the pleading must contain. Note 3: A party does not plead to the opposite party's particulars. Note 4: Particulars should, if they are necessary, be contained in the pleading but they may be separately stated if sought by the opposite party or ordered by the Court. … 16.43 Conditions of mind (1) A party who pleads a condition of mind must state in the pleading particulars of the facts on which the party relies. (2) If a party pleads that another party ought to have known something, the party must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge. (3) In this rule: condition of mind, for a party, means: (a) knowledge; and (b) any disorder or disability of the party's mind; and (c) any fraudulent intention of the party. … 16.45 Application for order for particulars (1) If a pleading does not give a party fair notice of the case to be made against that party at trial and, as a result, the party may be prejudiced in the conduct of the party's case, the party may apply to the Court for an order that the party who filed the pleading serve on the party: (a) particulars of the claim, defence or other matter stated in the pleading; or (b) a statement of the nature of the case relied on; or (c) if there is a claim for damages - particulars of the damages claimed. (2) An application under subrule (1) may be made only if: (a) the particulars in the pleading are inadequate; and (b) the party seeking the order could not conduct the party's case without further particulars. (3) A respondent who applies to the Court for an order under subrule (1) before filing the respondent's defence must satisfy the Court that an order is necessary or desirable to enable the respondent to plead. Note: The intent of the pleading rules is that a party should include all material facts in its pleadings as initially filed so that there is no unfairness to another party by any lack of particularity. If the party has not done so, the Court may at trial refuse to allow the party to present a case that is outside the terms of their pleading. 11 In Australian Securities and Investments Commission v Kobelt [2014] FCA 737 at [8], White J explained the purpose of r 16.45 as follows: As can be seen, r 16.45 circumscribes the circumstances in which orders for the provision of particulars in advance of a defence will be required. It is, in effect, a discouragement of disputes concerning the adequacy of pleadings, particularly before any defence has been filed. Experience indicates that often interlocutory activity of this kind, with the associated incurring by the parties of costs, does not advance the progress of the matter. Nevertheless, there may be proper cases, as the rule itself acknowledges, in which an order for particulars before the filing of a defence may be appropriate. Those circumstances will arise in a case like the present only if the conditions in subrules (2) and (3) are satisfied.

Paragraph 18 of the statement of claim 12 The first request for particulars concerns paragraph 18 of the amended statement of claim, which states as follows: By the agreement of Kailasam on behalf of the applicant, and the second respondent, a total of 20 Individuals were thereafter brought within the terms of the Second Respondent's Supply Agreement and identified in Schedules prepared by the second respondent and agreed to by Kailasam on behalf of the applicant. 13 Conlon Management seeks what are defined as the 'usual particulars' of how Mr Kailasam agreed to each of the 20 individuals being brought within the terms of the pleaded supply agreement. The usual particulars are particulars commonly sought of communications or agreements, such as whether they are oral or in writing, an identification of the documents in question, and other details of communications such as when they took place and who took part in them. 14 Conlon Management submits that the paragraph merely pleads the legal conclusion that an agreement was reached without stating the material facts said to give rise to the agreement. It is said to be important to Conlon Management in pleading its defence to know whether the agreement is written or, if it is oral, between whom it is said to have been made, and when. 15 Particulars which have been annexed to paragraph 18 provide particulars of the 20 individuals whose services it appears are alleged to have been provided by Conlon Management to Tox Free. Counsel for Conlon Management pointed out that those particulars, which are contained in schedule 1 to the amended statement of claim, list against the name of each individual a recruitment agency. For some 11 of those individuals, the recruitment agency is Pendragon, which is the trading name of Conlon Management. However, in relation to nine of the individuals there are other recruitment agencies mentioned. Counsel for Conlon Management submitted that because nine of the individuals 'did not come from the second respondent', it does not know enough about them in order to be able to plead. 16 I do not consider that, in fact, in paragraph 18 Tox Free is pleading an agreement as a legal conclusion giving rise to enforceable rights on which Tox Free relies. While the terminology of 'agreement' is used, Tox Free is not suing on any such agreement. Instead, paragraph 18 is, in essence, a factual claim to the effect that the inclusion of the 20 named individuals under the umbrella of the supply agreement between Tox Free and Conlon Management was arranged between Mr Kailasam and Conlon Management. 17 There is no apparent reason why Conlon Management is not able to plead to that allegation at this stage. Conceivably there may be circumstances in which it is not apparent to a party such as Conlon Management whether it has indeed brought certain individuals within the terms of a supply agreement, and where further particularisation of the basis of the alleged inclusion may assist it to make a meaningful plea. However, circumstances of that nature have not been established in the present case. On the face of things, and in the absence of evidence to the contrary, it is likely that Conlon Management will know whether or not it did indeed supply, and certainly whether or not it charged and invoiced for the services of, each of the named individuals. 18 There is also no apparent reason why Conlon Management cannot say whether or not the inclusion of any individual in the supply agreement, if that inclusion did in fact occur, was arranged between it and Mr Kailasam. So I do not accept that it is necessary or desirable for particulars of paragraph 18 to be provided in order for Tox Free to plead to the allegation. 19 Depending on the content of that plea, and the extent to which issue is joined, it may well be that Conlon Management is entitled to further particulars of the communications which are said to comprise the 'agreement'. On the face of things, there appears to be a reasonable likelihood that some of those particulars will emerge from discoverable documents, such as email communications, which may be in the possession of Conlon Management. However, the requirement for such particulars and the timing for the fulfilment of any such requirement is a matter which should be determined after the issues are joined and pleadings are closed.

Paragraphs 19 and 20 of the statement of claim 20 The next two requests are for particulars of paragraphs 19 and 20 of the amended statement of claim. They state as follows: 19. The Participating Rate specified in the applicable Schedule prepared by the second respondent with respect to each of the 20 Individuals referred to in the preceding paragraph included, to the second respondent's knowledge, an amount which Kailasam directed the second respondent to pay to Kailasam or for Kailasam's benefit by paying that amount either directly to Kailasam or at his (Kailasam's) direction to RC Buminiaga Sararanana Sdn Bhd and/or Innovare Management Hong Kong Limited (such amounts being referred to herein as 'Kailasam's Margins'). 20. Further, on various occasions commencing on or about 30 March 2014, Kailasam directed the second respondent to increase the Participating Rate for all, alternatively some of the 20 Individuals for the purpose (to the second respondent's knowledge) of increasing the amounts of Kailasam's Margins and paying to Kailasam (or for Kailasam's benefit) higher amounts in respect of Kailasam's Margins as directed by Kailasam, and the second respondent thereafter prepared amended Schedules with respect to each of those Individuals to reflect the increased Participating Rate. 21 In relation to paragraph 19, Conlon Management seeks particulars of each fact, matter and circumstance relied upon to support the assertion that it knew that the Participating Rate specified in the schedule included an amount which Mr Kailasam directed Conlon Management to pay to him or for his benefit. It also seeks the usual particulars of the direction in question and particulars stating how payment made to companies which are named in paragraph 19 were for Mr Kailasam's benefit. 22 In relation to paragraph 20 there is, similarly to the previous requests, a request for particulars of the alleged knowledge and the usual particulars of the alleged direction. Counsel for Conlon Management submitted that it does not know when the alleged directions were said to have been made and that means that it is not able to plead usefully to the allegation. 23 Counsel for Conlon Management indicated that Kailasam's Margins are not specified in the schedule setting out the Participating Rates for the employees and while there was no evidence of that before me, senior counsel for Tox Free did not take issue with the correctness of the statement. So, Conlon Management submitted, particulars of its alleged knowledge of the matters surrounding those margins are necessary. 24 One of the bases of Tox Free's objections to the particulars sought in respect of both paragraphs 19 and 20 of the amended statement of claim is that they seek matters of evidence. I do not accept that is the case. It is conventional, and is indeed required by r 16.43, that particulars of conditions of mind, including knowledge, must be provided. And it is common in those circumstances for the particulars to be provided in the form of facts, matters and circumstances relied upon to support the assertion of a respondent's knowledge, given that at least at this stage of proceedings it is often, if not always, impossible for direct evidence of that knowledge to be obtained by an applicant. As for the usual particulars of the alleged directions, once again that is a conventional requirement where a party relies upon any communication or agreement. And while the specificity of the particulars of these matters that are sometimes provided may threaten to cross over the line between particulars and evidence, in the end they are simply statements of the detail of occasions of communication on which the party relies. In relation to the question as to how payments made to the two identified companies were for Mr Kailasam's benefit, once again it is conceivable that facts could be provided in support of that claim, for example an allegation might be made that Mr Kailasam is a shareholder of those companies. Such an allegation of fact would not be evidence. Evidence of that fact, such as a company search, would be a different thing. I therefore do not consider that this basis for Tox Free's objections to the particulars sought is correct. 25 However, once again, I am not satisfied that Conlon Management needs particulars of these matters before it is able to usefully plead its defence. Again, conceivably there would be circumstances where a party does not know whether or not it received directions from an individual to make certain payments to him or to other entities, but no such circumstances have been established in the present application. There is no basis for the court to conclude that the solicitors for Conlon Management are not able to make inquiries of relevant personnel as to whether they did indeed know of the matters alleged, let alone whether the directions were indeed made. In the absence of some particular circumstance established by evidence which indicates the contrary, it appears to me that these matters are likely to be within the knowledge of Conlon Management and are therefore matters to which it may usefully plead at present. 26 If it does emerge that there is an issue as to whether or not Mr Kailasam did make the alleged directions and on what occasions, it may be appropriate to order particulars at that point, but in my view, it is not appropriate to order those particulars now. It also appears entirely possible that the provision of particulars of those directions or of Conlon Management's knowledge of the alleged matters, will emerge from emails passing between Mr Kailasam and employees of Conlon Management. There is one email in evidence to Mr Kailasam from somebody named as payroll and accounts assistant for Conlon Management which refers to the inclusion of 'your margin'. On that basis it may be that if particulars are still necessary after close of pleadings, they should follow the provision of proper discovery. Whether that is so should be determined at that time. But I do not consider that it is either necessary or desirable for particulars requested at paragraphs 19 and 20 to be provided at this stage.

Paragraph 38 of the statement of claim 27 Conlon Management next presses for particulars of certain subparagraphs of the plea that it ought reasonably to have suspected that Tox Free did not know of, consent to or authorise payment of Kailasam's Margins, and further or alternatively, that Mr Kailasam was using Conlon Management to give effect to a dishonest and fraudulent scheme on Mr Kailasam's part to receive Kailasam's Margins. 28 Under that plea of material fact, at paragraph 38(b) of the amended statement of claim, there are seven allegations which are characterised in the amended statement of claim as particulars of the claim that Conlon Management should have suspected those things. They are alleged facts that are said to support the claim that Conlon Management ought reasonably to have suspected those things. The two of which particulars are sought are: (v) the size of Kailasam's Margins, which (as the second respondent knew) were multiples of the amounts actually being paid to the Individuals themselves; (vi) the lack of apparent commerciality in increasing Kailasam's Margins, particularly from on or about 30 March 2014 being only a short time after entry into the Second Respondent's Supply Agreement; Conlon Management seeks particulars of the 'multiples' of Kailasam's Margins, and also the usual particulars of the increase in the margins. 29 There was some controversy between the parties as to whether or not these allegations are properly characterised as particulars or as material facts. Counsel for Conlon Management indicated that her client would in any event wish to plead to them, a proposed course to which Tox Free's senior counsel did not object. However the key questions as framed by r 16.45 are whether or not Conlon Management can conduct its case without the further particulars sought, and whether or not an order for particulars is necessary or desirable to enable Conlon Management to plead. Debate over where these allegations fall in the taxonomy of material facts, particulars and evidence does not answer those questions. 30 In relation to the last of those questions, once again I am not persuaded that Conlon Management needs the particulars sought in order to be able usefully to plead to the allegations, if it wishes to do so. The essence of the claim that Kailasam's Margins were multiples of the amounts actually being paid to the individuals themselves is clear enough: it is said that the allegedly large size of Kailasam's Margins relative to the amounts actually being paid to the individuals whose services were being provided was one circumstance which should have led Conlon Management reasonably to have suspected the existence of a dishonest or fraudulent scheme. 31 The question of whether or not that allegation is made out will depend, among other things, on a comparison of the amounts that were being paid to the individuals themselves and the amounts that were being paid to Mr Kailasam at his direction, if indeed that is what has occurred as Tox Free alleges. Nothing has been put to the court to satisfy it that those matters are not already within the knowledge of Conlon Management, as they would appear to be. Once again, if the matter proves to be in issue after the pleadings have closed, any dispute over the details of the amounts may warrant the provision of particulars at an appropriate time. But I am not persuaded that now is that appropriate time. 32 In relation to the particulars sought of subparagraph (vi), again the essence of the allegation appears to me to be clear enough. It is that there was no commercial justification for the increases in Kailasam's Margins that are previously pleaded. In relation to the timing and quantum of those increases and how they came about, that refers back to, in essence, particulars of paragraph 20 and the possible desirability or need for such particulars at a later stage is a matter I have already addressed. 33 Overall, it seems to me that whether or not Conlon Management accepts that it should have suspected the alleged matters, and whether or not it accepts that the 'particulars' provided are matters which ought reasonably to have led to that suspicion, are all things to which it can respond now.

Paragraph 39 of the statement of claim 34 Finally, Conlon Management seeks particulars of paragraph 39 of the amended statement of claim. That paragraph states as follows: In the premises, at all material times the first [sic second] respondent owed the applicant a duty of care to report the existence of Kailasam's Margins to a person or persons of authority within the applicant (other than Kailasam). 35 Conlon Management seeks particulars of what is meant by the phrase 'in the premises'. It says that since this is the point at which Tox Free pleads the existence of the duty of care, it is important for Conlon Management to know the facts which are said to give rise to that duty. 36 The submissions on behalf of Conlon Management attacked the proposition that there was a duty of care on the basis of several matters, including case law to the effect that there is no duty on a person to prevent a third party from acting dishonestly, and also the proposition that the terms of the contract between Conlon Management and Tox Free would necessarily affect the existence and scope of the duty. The tenor of those attacks was that the pleaded duty does not arise. 37 But even if those submissions were to be accepted they would not, in my view, establish that Conlon Management faces any embarrassment in pleading to the allegation, in the absence of further particulars of what is meant by 'in the premises.' The amended statement of claim is not a long or complex document. It is plain that the alleged duty of care is based on the alleged circumstances which ought to have given rise to the reasonable suspicion pleaded in paragraph 38, in the context of the matters that are pleaded in the rest of the amended statement of claim as I have described them. 38 If, as counsel for Conlon Management submits, those things are not adequate to establish the existence of an arguable duty of care, that is a matter concerning whether or not the plea in paragraph 39 is reasonably maintainable, but is not something that is likely to be cured by more detailed cross-referencing to other parts of the statement of claim. I am not persuaded that particulars of the phrase 'in the premises' are necessary in order for Conlon Management to conduct its case.

Conclusion 39 For the reasons I have given that I will not make an order for particulars at present. With the exception of paragraph 39, it may be appropriate after close of pleadings or after discovery for Conlon Management to press for certain of the particulars that it seeks, if Tox Free does not provide them. But in my view the requests are presently premature. Conlon Management's application filed on 14 April 2020 for further and better particulars of the amended statement of claim will be dismissed. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jackson.