VPlus Holdings Pty Ltd v Bank of Western Australia Ltd

Supreme Court of NSW|2012-10-24|Before: Stevenson J

Introduction 1These proceedings were commenced by Statement of Claim filed on 3 August 2012. 2The plaintiffs are shareholders in, a creditor of and security providers for a group of companies known as the "VPlus Group". The various members of the VPlus Group conducted specialist Asian supermarkets at Campsie, Liverpool, Marrickville and Erina. 3Through two of its members (VPlus Campsie Pty Ltd and Southern Pacific Import and Export Pty Ltd) the VPlus Group had banking facilities with the first defendant, Bank of Western Australia Limited ("the Bank"), secured by charges given by the VPlus Group. 4On 6 June 2012 the Bank appointed the second and third defendants as administrators of the VPlus Group pursuant to s 436C of the Corporations Act 2001 (Cth) ("the Act"). On 12 July 2012, at the second meeting of creditors, the second and third defendants were appointed liquidators of the VPlus Group. 5By Notice of Motion filed on 6 September 2012 the defendants seek an order that the proceedings be dismissed pursuant to Uniform Civil Procedure Rules ("UCPR") r 13.4(1)(b), or alternatively that the Statement of Claim be struck out pursuant to UCPR r 14.28(1)(a) or (b). 6Both orders are sought on the basis that the Statement of Claim does not disclose a reasonable cause of action. 7The defendants also seek an order that a Notice to Produce served by the plaintiffs on the Bank dated 17 August 2012 be set aside. 8By Notice of Motion filed 7 September 2012 the plaintiffs seek to join to the proceedings the members of the VPlus Group as plaintiffs.

The nature of the plaintiffs' claims 10I have been greatly assisted by the written submissions of Mr Scruby of counsel, who appeared with Mr Dean for the defendants. 11To a very large extent, what follows is drawn from those submissions. 12The relationship of the various plaintiffs to the VPlus Group is alleged to be as follows: -

The first to fourth plaintiffs are shareholders in the VPlus Group.
The fifth plaintiff is a creditor of one of the companies in the VPlus Group.
The sixth plaintiff, together with the third plaintiff, was the owner of a property ("the Condell Park Property") mortgaged to secure the banking facilities of the VPlus Group. That property has now been sold to pay down part of the VPlus Group's indebtedness under those facilities.
The second, third and sixth plaintiffs guaranteed the indebtedness under the VPlus Group's banking facilities with the Bank. 13The plaintiffs allege that the Bank was not entitled to appoint the second and third defendants as administrators of the VPlus Group and that, once appointed, the administrators caused the VPlus Group to cease trading. That, it is said, has resulted in the destruction of all of the value in the VPlus Group. Consequently, it is said, the value of shares in the VPlus Group, and of debts owed by the VPlus Group to creditors, has also been destroyed. 14The first to fourth plaintiffs claim an entitlement to recover the value of their shareholding. The fifth plaintiff claims an entitlement to recover the value of the debt it says is not now recoverable. 15The causes of action which are relied upon by the plaintiffs to recover this loss ("the Claims for Loss") are: - (i)s 423 of the Act; (ii)s 536 of the Act; (iii)negligence; (iv)s 447E of the Act; (v)s 233 of the Act; and (vi)conspiracy. 16In addition, the Statement of Claim alleges that the defendants contravened s 180, s 181 and s 184 of the Act. No compensation for such contraventions is sought in the relief claimed in the pleading. None is available under the Act, s 1317H of which would only permit awards of compensation to and at the suit of the VPlus Group. 17However, it is alleged in paragraph 194 of the pleading that the administrator's alleged contraventions of these sections caused loss. It is not apparent to what extent this allegation is intended to found a claim for compensation for the alleged contraventions of these sections. To the extent that a claim for compensation for contravention of these sections is made, then it is a Claim for Loss. 18In addition to the above claims: - (a)the plaintiffs seek declarations that various sections of the Act have been contravened; (b)the plaintiffs seek inquiries into the conduct of the defendants pursuant to s 423 and s 536 of the Act; (c)the second, third and sixth plaintiffs contend that, by reason of the same conduct referred to above, their liability to the Bank as guarantors and mortgagors of the indebtedness of the VPlus Group should be reduced; and (d)the third and sixth plaintiffs claim damages in trespass. It is alleged that an agent of the Bank visited and damaged the Condell Park Property in the course of enforcing its mortgage.

The Bank's claim for summary disposal 19The Bank's claim for relief under UCPR r 13.4(1)(b) or r 14.28(1)(a) or (b) is based on the proposition that no reasonable cause of action is disclosed in the Statement of Claim. 20In General Steel Industries Inc v Commissions for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 128-129, Barwick CJ said that: - "...the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion." 21The test has been variously expressed, including "so obviously untenable that it cannot possibly succeed" and "manifestly groundless": General Steel at 129 per Barwick CJ. See also Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91 per Dixon J; Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507 at 514; Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598 at 602-603; Cosmos E-C Commerce Pty Ltd v Bidwell & Associates Pty Ltd [2005] NSWCA 81 at [37]-[38]. 22Summary disposal is not limited to cases where argument is unnecessary to show the futility of the claim (or defence). It is not necessary to show that such futility is apparent at a glance. Argument, even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff (or defendant) is so clearly untenable that it cannot possibly succeed: General Steel at 130.

The Claims for Loss 23The Claims for Loss are: -

claims against the Bank and the administrators to recover loss under s 423 of the Act (see paragraphs 4, 5, 19 and 20 of the relief claimed and paragraphs 101-105, 196-200 of the pleading);
claims against the administrators to recover loss under s 536 of the Act (see paragraphs 21 and 22 of the relief claimed and paragraphs 201-205 of the pleading);
claims against the Bank and the administrators in negligence (see paragraphs 6 and 21 of the relief claimed and paragraphs 106-115, 207-220 of the pleading);
claims against the administrators to recover loss under s 447E of the Act (see paragraph 22 of the relief claimed and paragraphs 221-226 of the pleading);
claims against the administrators to recover loss under s 233 of the Act (see paragraph 23 of the relief claimed and paragraphs 227-231 of the pleading); and
claims against the Bank and the administrators for damages in conspiracy (see paragraph 24 of the relief claimed and paragraphs 232-243 of the pleading).
As indicated above, although no specific claim for compensation is made in the claims for relief, it may also be that claims for loss are made by reason of the alleged contraventions of s 180, s 181 and s 184 of the Act by the Bank and the administrators (see paragraphs 3 and 18 of the relief claimed and paragraphs 97-99 and 187-194 of the pleading). 24The loss claimed by the plaintiffs is particularised in paragraph 92 of the Statement of Claim in the following way: - (1)the destruction of substantially all the value of the VPlus supermarkets; (2)the destruction of substantially all of the equity in each of the VPlus Group of companies; (3)the plaintiffs are still in the process of determining the total quantum of their said loss, but have suffered principal loss of not less than $4,500,000; and (4)the plaintiffs reserve their right to provide further particulars of their said loss following production of documents by the defendants in these proceedings or as the Court may otherwise direct in these proceedings. 25All of the Claims for Loss either expressly refer to these particulars (see paragraphs 110, 115, 194, 210, 215, 220, 237, 243) or must be taken to adopt them on the basis that they refer only to "the Plaintiffs' loss" (see paragraphs 105(b), 200(b), 205(b), 224, 226, 231). 26This reveals a fundamental problem with the Statement of Claim. 27This is because the Claims for Loss made by the plaintiffs are purely reflective of the loss allegedly suffered by the VPlus Group. 28The relevant principle is that a shareholder of a company cannot recover damages merely because the company has suffered damage, and cannot recover damages that are merely a reflection of a loss suffered by the company. A shareholder may only recover damages for loss suffered personally that is separate and distinct from the loss of the company: Chen v Karandonis [2002] NSWCA 412 at [34]-[53] (per Beazley JA, with whom Heydon and Hodgson JJA agreed) and Ballard v Multiplex [2008] NSWSC 1019; (2008) 68 ACSR 208; per McDougall J at [32]-[41]. 29In Chen Beazley JA cited with approval the following observations of the Court of Appeal (Cumming-Bruce, Templeman and Brightman LJJ) in Prudential Assurance Co Ltd v Newman Industries Ltd (No. 2) [1982] 1 Ch 204 (at 222-223): - "But what [a shareholder] cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a 'loss' is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only 'loss' is through the company, in the diminution of the value of the net assets of the company, in which he has...[a]...shareholding. The [shareholder's] shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property." 30In Johnson v Gore Wood & Co [2002] 2 AC 1 Lord Millett, at 62, explained the rationale of this principle: - "If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved. Justice to the defendant requires the exclusion of one claim or the other; protection of the interests of the company's creditors requires that it is the company which is allowed to recover to the exclusion of the shareholder." 31The principle is not confined to shareholders claiming the loss of value of their shares. It extends to all other payments that the shareholder might have obtained from the company if it had not been deprived of its funds (Ballard at [35]), including the recovery of loans made to the company (Chen at [53]). 32The principle cannot be avoided by pleading a cause of action separate and distinct from the cause of action the company might have. The question is not whether the duties owed to the company and the shareholder are the same, but rather whether the loss claimed is truly reflective of the company's loss; that is a question of substance, not form: Thomas v D'Arcy [2005] 1 Qd R 666; (2005) 52 ACSR 609 at [18], [29]-[31], [37]; Ballard at [41]. 33The principle applies regardless of whether the company in question is in liquidation - and, indeed, regardless of whether it has been de-registered: see Ballard at [47]-[48]. 34The policy underlying the reflective loss rule (see [29] above) is as applicable in a liquidation as in the case of a solvent company. In a liquidation, a claim brought by a shareholder for a loss which in substance is the same as the company has suffered, will equally expose the company to double recovery, or allow the claimant shareholder to recover, to the exclusion or reduction of a claim brought by the liquidator in the interests of creditors or contributories as a whole. 35Mr Velik, who appeared for the plaintiffs, submitted that the reflective loss rule "is judicially more commonly known as the rule in Foss v Harbottle [(1843) 2 Hare 461; 67 ER 189] or the proper Plaintiff rule" and that, by reason of the decision of the Court of Appeal in Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 227 FLR 43, the rule in Foss v Harbottle had no application to companies in liquidation. 36Thus Mr Velik submitted: - "Accordingly ... the rule in Foss v Harbottle/proper Plaintiff rule/reflective loss rule has no application to any of the VPlus Group of Companies, each of which is, and has been at all relevant prior times, in a creditor's voluntary liquidation". 37In my opinion, this submission involves a misconception. 38The reflective loss rule is not to be equated with the rule in Foss v Harbottle. 39The rule in Foss v Harbottle is the "proper plaintiff" rule. That rule is summarised in Austin & Black's, Annotations to the Corporations Act, vol 1 at [2F.236] as follows: - "According to the proper plaintiff rule of the general law, established by Foss v Harbottle (1843) 2 Hare 461; 67 ER 189, the company is the proper plaintiff to take proceedings to enforce its rights or to seek relief in respect of any wrong done to it, and an individual member of the company has no standing to do so." 40The rule has been abolished by s 236(3) of the Act. Part 2F.1A of the Act establishes a statutory derivative action permitting an applicant to apply to the Court (under s 237) for leave to bring or intervene in proceedings in the company's name, and for the company's benefit, in particular, defined circumstances. 41So far as concerns the applicability of Part 2F.1A to a company in liquidation, Australian Corporation law - Principles & Practice, vol 1 states at [3.2A.0165]: - "An earlier conflict in the authorities as to whether Part 2F.1A is applicable to a company in liquidation has now been largely resolved, on the basis that it is not so applicable. In Chahwan v Euphoric Pty Ltd...the NSW Court of Appeal held that the context, as well as the extrinsic materials identifying the mischief which Part 2F.1A was intended to remedy, were indicative of an intention that the statutory derivative action was intended to apply only to a company as a going concern and not one under the control of a liquidator... Part 2F.1A does not abolish the court's inherent power to permit proceedings to be taken in a company's name where it is in liquidation...In Chahwan v Euphoric Pty Ltd...Tobias JA (with whom the other members of the court agreed) held that the matters relevant to the exercise of the court's inherent jurisdiction to permit such proceedings were: - (1) whether the proceedings to be pursued had a solid foundation and reasonable prospect of success; (2) the liquidator's attitude; (3) whether practical considerations supported the initiation of proceedings, paying particular attention to protecting the liquidator's financial position and the company's estate; and (4) the discretionary nature of the jurisdiction." (citations omitted) 42The reflective loss rule is quite distinct. It is not a "proper plaintiff" rule at all. It is the rule dealing with the entitlement of a shareholder or creditor to recover damage which is merely reflective of that suffered by the company: see Chen at [48] and [51]. 43The loss pleaded by the plaintiffs in the present case is an example of reflective loss. 44The first to fourth plaintiffs, who are shareholders in the VPlus Group, claim that they have suffered loss because the value of the companies in which they hold shares has been destroyed. The fifth plaintiff appears to contend that it has suffered loss for the same reason: the allegation appears to be that because the value of the company of which the fifth plaintiff claims to be a creditor has been destroyed, the fifth plaintiff will not recover its alleged debts in full. 45It follows, in my opinion, that the Claims for Loss are not reasonably arguable. 46The paragraphs for relief in respect of the Claims for Loss are in the following paragraphs in the Statement of Claim: - "5. An order for the First Defendant to pay the Plaintiffs' loss pursuant to section 423 of the Corporations Act 2001 (Cth).

Further and in the alternative, an Order for the First Defendant to pay the Plaintiffs' loss in negligence.
An order for the Second and Third Defendants to pay the Plaintiffs' loss pursuant to section 423 of the Corporations Act 2001 (Cth).
[sic] Further and in the alternative, an Order for the Second and Third Defendants to pay the Plaintiffs' loss pursuant to section 536 of the Corporations Act 2001 (Cth).
[sic] Further and in the alternative, an Order for the Second and Third Defendants to pay the Plaintiffs' loss in negligence.
Further and in the alternative, an Order for the Second and Third Defendants to pay the First to Fifth Plaintiffs' loss pursuant to section 447E of the Corporations Act 2001 (Cth).
Further and in the alternative, an Order for the Second and Third Defendants to pay the First to Fourth Plaintiffs' loss pursuant to section 223 of the Corporations Act 2001 (Cth).
Alternatively, an Order for the First, Second and Third Defendants to pay the Plaintiffs' loss in conspiracy." 47Each of those paragraphs should be struck out. 48I will receive submissions as to the consequences so far as concerns the body of the pleading.

Claims for declaratory relief 49The relief claimed in paragraphs 1, 2, 3 and 18 in the Statement of Claim are in the following terms: - "1. Declaration that the appointment by the First Defendant of the Second and Third Defendants as voluntary administrators of each of VPlus Supermarket (Campsie) Pty Ltd ACN 107 961 688, Southern Pacific Import and Export Pty Ltd ACN 083 397 184, VPlus Supermarket (Liverpool) Pty Ltd ACN 117 299 626, VPLus Superstores Pty Ltd ACN 003 846 973 and VPlus Supermarket (Gosford) ACN 114 505 234 breached the objects of Part 5.3A of the Corporations Act 2001. 2. Declaration that the appointment by the First Defendant of the Second and Third Defendants as voluntary administrators of each of VPlus Supermarket (Campsie) Pty Ltd ACN 107 961 688, Southern Pacific Import and Export Pty Ltd ACN 083 397 184, VPlus Supermarket (Liverpool) Pty Ltd ACN 117 299 626, VPLus Superstores Pty Ltd ACN 003 846 973 and VPlus Supermarket (Gosford) ACN 114 505 234 was an abuse of the provisions in Part 5.3A of the Corporations Act 2001 (Cth). 3. Declaration that the First Defendant breached section 180(1), 181(1) and 184(1) of the Corporations Act 2001(Cth). 18. Declaration that the Second and Third Defendants breached section 180(1), 181(1) and 184(1) of the Corporations Act 2001(Cth)." 50Broadly, the declarations sought are of two types: first, declarations that the appointment of the administrators "breached the objects of" and was "an abuse of" the provisions of Part 5.3A of the Act (paragraphs 1 and 2). Second, paragraphs 3 and 18 seek declarations that the defendants contravened s 180(1), s 181(1) and s 184(1) of the Act. 51These declarations are entirely lacking in utility. They do not ground any further relief. For that reason alone the paragraphs for relief should be struck out. 52But there is more.

Declarations concerning Part 5.3A of the Act (paragraphs 1 and 2 of the relief claimed and paragraphs 93-94 of the pleading) 53The plaintiffs claim declaratory relief for "breach of the objects" and "abuse of the provisions" of Part 5.3A of the Act. It is not appropriate that the Court make those declarations. These paragraphs are embarrassing within the meaning of UCPR r 14.28(1)(b).

Claims in relation to alleged breaches of s 180, s 181 and s 184 of the Act (paragraph 3 of the relief claimed, and paragraphs 97-99 of the pleading) 54The plaintiffs accept that they do not have standing to seek this declaratory relief. It is not pressed. It should be struck out.

Result 55The relief claimed in paragraphs 1, 2, 3 and 18 in the Statement of Claim should be dismissed. I will receive submissions as to the consequences so far as concerns the body of the pleading.

Claims for inquiries 56The relief claimed in paragraphs 4, 5, 19, 20, 21 and 20 [sic] in the Statement of Claim seek orders for inquires, pursuant to s 423 and s 536 of the Act, into the conduct of the defendants, and orders for the payment of compensation under those sections. 57The paragraphs for relief are in the following terms: - "4. The Court to enquire [sic] into matters relating to the [Bank] pleaded in paragraphs 75 to 95 inclusive of this Statement of Claim pursuant to section 423 of the Corporations Act 2001 (Cth). 5. An order for the [Bank] to pay the Plaintiffs' loss pursuant to section 423 of the Corporations Act 2001 (Cth). 19. The Court to enquire [sic] into matters relating to the Second and Third Defendants pleaded in paragraphs 75 to 95 inclusive paragraphs 180 to 181 inclusive and 183 to 185 inclusive of this Statement of Claim pursuant to section 423 of the Corporations Act 2001 (Cth). 20. An order for the Second and Third Defendants to pay the Plaintiffs' loss pursuant to section 423 of the Corporations Act 2001 (Cth). 21. The Court to enquire [sic] into matters relating to the Second and Third Defendants pleaded in paragraphs 75 to 95 inclusive, paragraphs 180 to 181 inclusive and 183 to 185 inclusive of this Statement of Claim pursuant to section 536 of the Corporations Act 2001 (Cth). 20. [sic] Further and in the alternative, an Order for the Second and Third Defendants to pay the Plaintiffs' loss pursuant to section 536 of the Corporations Act 2001 (Cth)." 58The only purpose of seeking orders for inquiries is to obtain the orders for compensation. That is, the inquiries are steps toward an order for compensation. However, for the reasons I have explained, the loss claimed by the plaintiffs is purely reflective loss. No such compensation is available. 59Further, neither section confers any freestanding right to compensation, in the absence of some identifiable cause of action: see in relation s 423, Austin and Ramsay, Ford's Principles of Corporations Law, vol 2 at [25.125]. 60These claims are not reasonably arguable. They should be struck out. I will receive submissions as to the consequences so far as concerns the body of the pleading.

Claims by the second, third and sixth plaintiffs against the Bank in respect of their guarantees and mortgages (paragraphs 7-16 of the relief claimed and paragraphs 116-164 of the pleading) 61The second, third and sixth plaintiffs guaranteed the indebtedness of the VPlus Group (through two of its members) to the Bank. It is not alleged that any monies have been paid to the Bank pursuant to the Guarantees. The third and sixth plaintiffs were the owners of the Condell Park Property, which was mortgaged to secure that indebtedness. The Condell Park Property has been sold, and the proceeds paid to the Bank. No complaint is made concerning the circumstances of the sale of the Condell Park Property. The third and sixth defendants do not claim to have suffered loss as a result of the sale. 62Paragraphs 116-164 of the pleading contend that the liability of these plaintiffs under their guarantees and mortgages should be reduced. Only declaratory relief is sought. 63These claims are put on two bases: first, the Bank owed these plaintiffs fiduciary duties (paragraphs 116-134); and second, that various entitlements arose "in equity" (paragraphs 135-157).

Guarantees 64The claims for breach of fiduciary duties (paragraphs 116-134) allege, in essence: - (a)that the Bank owed (unspecified) fiduciary duties to the relevant plaintiffs; (a)that the appointment of the administrators breached these duties; (b)that as a result of the appointment of the administrators the value of the VPlus Group declined; and (c)that therefore these plaintiffs are entitled to a reduction in their liabilities to the Bank under their guarantees. 65The pleading alleges the existence of a "fiduciary duty" (see paragraphs 128 and 129) without ascribing any content to that duty. The pleading appears, however, to assume that the alleged fiduciary duties are in nature of quasi-tortious or prescriptive duties. That is apparent from the fact that the same matters alleged to constitute a breach of a common law duty of care (see paragraph 108) are alleged to constitute a breach of the pleaded fiduciary duties (see paragraphs 131 and 132). 66However, fiduciary duties are proscriptive, not prescriptive, and are confined to not acting in position of conflict or possible conflict and not obtaining an unauthorised gain from the fiduciary relationship: see Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 at 113 per Gaudron and McHugh JJ. 67Based on the facts pleaded in the Statement of Claim, it is not, in any event, reasonably arguable that there is a fiduciary relationship between the Bank and the second, third and sixth plaintiffs. The relationship between a creditor that is secured in respect of a debt and a guarantor of that debt is not one of the established categories of fiduciary relationship. 68The categories of fiduciary relationship are not closed. But there is no pleading of facts here that could give rise to a new form of fiduciary duty. The allegation appears to be that the relationship arises merely because the Bank was a chargee of property that secured an indebtedness guaranteed by these plaintiffs (see paragraph 128 of the Statement of Claim). 69The critical feature of a fiduciary duty is that the fiduciary "undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal of practical sense": see Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 96-97; John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 at [87]. There is no allegation to that effect in the present case. The proposition that a chargee, merely by virtue of being a chargee, undertakes to act for or on behalf of a guarantor is not reasonably arguable. 70The relief claimed (either a reduction in the liability of the second, third, and sixth plaintiffs or an obligation to account to those plaintiffs) would not in any event flow from the alleged breaches of duty. 71In addition to claims for breach of fiduciary duty, the pleadings allege the existence of entitlements in "equity" that would entitle the plaintiffs to relief (paragraphs 135-157). So far as these paragraphs are concerned: - (a)The claims at paragraphs 135-142 are put on the same basis as the fiduciary duty claims described above, with the difference that the conduct of the Bank is said to give rise to an entitlement "in equity" to a reduction in liability under the guarantees. No equitable doctrine or remedy is specified which would afford the relief claimed, and none is apparent. It is not sufficient to allege an entitlement "in equity" without specifying the nature of that entitlement. (b)In so far as it is sought to rely on the allegation in paragraph 95 that the Bank's conduct was "unconscionable" and "in bad faith", such allegations do not articulate any distinct cause of action: see, for example, Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at [20], [23], [24]. (c)Paragraph 140 makes the bald allegation that the two entities through which the VPlus Group held facilities with the Bank are entitled in equity to rights of set-off. It is alleged that they are entitled to set-off against their indebtedness under those facilities the diminution in value of the assets of the VPlus Group alleged to have occurred as a result of the conduct of the defendants. The factual and legal basis for that asserted entitlement to set-off is not revealed. There is no identification of the offsetting claims that it is said the two VPlus entities have. Only such an identification would allow an assessment to be made of whether in truth such claims impeach the title of the Bank to claim the debts owing under the Facilities, such that set-off was available. In addition, any such identification would need to explain how the claimed right of set-off could exist in respect of loss caused to entities other than the two VPlus entities through whom the banking facilities were held. (d)The claims at paragraphs 143-157 assert an entitlement "in equity" to reduce the amounts owing under guarantees by reason of the Bank having charged fees to which it was not entitled or which were void as penalties. Again, the equitable basis of the alleged entitlement is not specified. Nor are the obligations said to have been breached by the Bank specified. These claims are embarrassing.

Mortgages 72The third and sixth plaintiffs make essentially the same claims in respect of their mortgages as are made by the second, third and sixth plaintiffs in respect of their guarantees. Those claims are not reasonably arguable for the same reasons as are set out above in relation to the claims in respect of the guarantees. That is, in summary: - (a)The pleadings of breach of fiduciary duty do not disclose any arguable fiduciary duty owed by the Bank to the third and sixth defendants as mortgagees; and would not in any event afford the plaintiffs the relief they seek. (b)No other basis on which relief "in equity" would be given is specified in the pleading or otherwise apparent. 73Further, the Statement of Claim pleads in paragraph 59(c) that these plaintiffs were obliged under a Forbearance Deed of 29 March 2012 to sell the Condell Park Property by 26 June 2012 and pay the net sale proceeds to the Bank. The pleading does not challenge the existence or enforceability of this obligation. It alleges, indeed, that these plaintiffs substantially complied with this obligation, at least so far as putting the property on the market and entering into a contract for sale was concerned (see paragraph 67, particulars (4) and (6)). The Statement of Claim pleads that the proceeds of sale were paid to the Bank on 27 July 2012 (see paragraphs 123 and 124). That is what the pleaded obligation under that deed required them to do. In circumstances where that obligation is not itself challenged, there is no basis for these plaintiffs to retrospectively reduce their liability under this mortgage to the Bank.

Contracts Review Act 1980 claims 74The relief claimed in paragraphs 15 and 16 and paragraphs 158-164 of the pleading raise claims of these plaintiffs under the Contracts Review Act. These claims, in essence, are that if the Bank raises by way of defence that the terms of the guarantees and mortgage prevent the second, third and sixth plaintiffs from pursuing their claims to have their liability under these instruments reduced, then the terms in question ought to be varied under the Contracts Review Act. These claims, therefore, would fall away if the claims in respect of the guarantees and mortgage fall away. They are, in any event, premature: they are matters that could only be properly pleaded in reply to the extent the Bank raised the terms in its defence.

Conclusion 75For these reasons the relief claimed in paragraphs 7 to 16 in the Statement of Claim, and paragraphs 116-164 of the pleading should be struck out.

Claims against the Bank by the third and sixth plaintiffs for trespass 76The relief claimed in paragraph 17 in the Statement of Claim is in the following terms: - "17. An order for the First Defendant to pay the Third and Sixth Plaintiffs' loss in tort for unauthorised entry and damage to property." 77The trespass is alleged to consist of an unlawful entry on to, and damage of, the Condell Park Property about ten days before it was sold. It is not claimed that this resulted in any reduction in the purchase price that had been agreed for the property. 78The pleading does not identify the factual basis upon which it is alleged that an agency relationship exists (see paragraph 171). Nor does it identify the factual basis upon which it is said that the acts of the alleged agent fell within the scope of the agency relationship, such that the Bank would be liable for them. 79The pleading is embarrassing and should be struck out. 80It follows that the relief claimed in paragraph 17 and paragraphs 165-174 of the pleading should be struck out.

Conclusion in relation to the Bank's claim for summary relief 81In the Statement of Claim various other claims (for example in negligence, and for conspiracy) are made against the defendants. Mr Scruby submitted that, were I to make the findings I have made (as set out above), it would not be necessary for me to deal with those further matters. 82In my opinion, the aspects of the Statement of Claim referred to above are "so obviously untenable that [they] cannot possibly succeed". They should be struck out. 83However, I do not propose to dismiss the proceedings at this stage. 84I will hear submissions as to if, and on what terms, the plaintiffs should be given leave to replead. 85What I say below concerning the plaintiffs' application to join, as plaintiffs, the members of the VPlus Group may have some bearing on that matter.

The Notice to Produce dated 17 August 2012 86Since service of the Notice to Produce, the plaintiffs have circulated a revised Notice which, to some extent, reduces its scope. 87Nonetheless, it should be set aside for three reasons. 88First, as a significant portion of the Statement of Claim is to be struck out, it is premature. 89Second, as the Bank submits, it is in truth a request for discovery and thus contrary to the requirement of UCPR r 21.10 that a "specific" document be referred to. 90Third, it is liable to subvert the intended operation of Practice Note SC Eq 11 which states, in paragraph 4, that discovery will only be ordered prior to service of evidence "in exceptional circumstances": see my observations in Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502 at [23]-[24].

The plaintiffs' application to join, as plaintiffs, the members of the VPlus Group 91By their Notice of Motion of 7 September 2012, the plaintiffs seek to join, as plaintiffs, the various members of the VPlus Group on three bases; first pursuant to UCPR r 6.24, second pursuant to s 511 of the Act, and third: - "By way of appeal of an omission of the Second and Third Defendants ... to consent to those companies being joined to these proceedings pursuant to section 1321 of the Corporations Act 2001". 92This application appears to bespeak some recognition by the plaintiffs that if the damage claimed in these proceedings be recoverable by anyone, it can only be recovered by the VPlus Companies themselves. 93But the plaintiffs have not sought the liquidators' consent to the joinder of the VPlus Group of companies as plaintiffs to these proceedings; nor have the plaintiffs requested that the liquidators cause the members of the VPlus Group of companies to bring proceedings seeking damages for the relief claimed in these proceedings. 94Mr Velik, who appeared for the plaintiffs, said that it was "obvious" that such consent would not be forthcoming. 95If the liquidators are not prepared to cause the VPlus Group of companies to bring such proceedings, it will be necessary for the plaintiffs to seek to invoke the inherent jurisdiction of the Court for leave to bring derivative proceedings on behalf of the VPlus Group of companies. 96That result cannot be achieved by simply seeking leave, in these proceedings, to join the VPlus Group of companies as plaintiffs. 97In my opinion, the Notice of Motion is misconceived and should be dismissed.

Conclusion 98I invite the parties to bring in short minutes to give effect to these reasons.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 October 2012

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