Wainter Pty Ltd ACN 008 725 586 v Freehills

REASONS FOR JUDGMENT ON MOTION TO STRIKE OUT STATEMENT OF CLAIM IN WHOLE OR IN PART 1 These proceedings were commenced by way of application and statement of claim filed on 23 November 2007. A minute of proposed amended statement of claim was filed on 23 January 2008. The amended statement of claim, in terms of the minute, was filed on 11 March 2008. In the meantime the proposed amended statement of claim had become the subject of motions to strike it out in whole or in part. The parties filed written submissions on the motions which were supplemented by short oral argument on 11 March 2008. 2 While the outline of the applicant's case appears from the amended statement of claim it is embedded in embarrassing and at times most unreadably complex pleading. The statement of claim as it presently stands will be more of a hindrance than an assistance to the efficient conduct of these proceedings. It will be struck out and the applicant required to file a substituted pleading. 3 The applicant prayed in aid of its statement of claim an observation by Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281 where his Honour said (at [5] - [6]): In my view, the contemporary role of pleadings has to be viewed in the context of contemporary case management techniques and pre-trial directions. In this Court, those pre-trial directions will almost invariably include; firstly, a direction for the preparation of a trial bundle identifying the documents that are to be adduced in evidence in the course of the trial; secondly, the exchange well prior to trial of non-expert witness statements so that non-expert witnesses will customarily give their evidence-in-chief only by the adoption of that written statement; thirdly, the exchange of expert reports well in advance of trial and a direction that those experts confer prior to trial; fourthly, the exchange of chronologies; and fifthly, the exchange of written submissions. Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and apprising the parties to the proceedings of the case that has to be met. 4 The definition of issues generally does not occur as a result of the preparation of the trial bundle or the exchange of witness statements or expert reports. It may emerge from the exchange of written submissions but absent pleadings or a statement of facts and contentions or issues that is very late in the day. The invocation, by counsel for the applicant in this case of a "robust approach" does not avail to sustain a statement of claim which obscures rather than clarifies the issues in the case. An outline of the amended statement of claim 5 What follows is an outline of the broad content of the amended statement of claim which does not descend into its near fractal detail. The allegations are set out in a narrative form. They are only allegations. The summary does not involve any finding by the Court. 6 Wainter Pty Ltd (Wainter) sues Freehills, a firm of legal practitioners and one of its partners, David Woolfe. It also sues Peter Malone, a director of New Tel Ltd (New Tel) which carried on the business of providing telecommunications primarily in the way of mobile phone services. Wainter names, albeit not as a respondent, Paul Evans, who was a director of New Tel from 27 September 1996 to 16 August 2001. From 23 June 2000 he was a partner in Freehills. Another person named as a director of Wainter after 10 September 1996 is Barry Granville Waller (s/c 1-6). 7 Between September 2001 and January 2002 Wainter owned 35 million shares in Cable & Telecoms Ltd (C & T). It also had 20 million options to acquire shares in that company. Its shareholding represented 39.8% of issued C & T shares and about 55.7% of issued C & T options. On or about 11 April 2000 Wainter agreed to sell to C & T all of its shares in UDC Group Pty Ltd. This was constituted by a document dated 11 April 2000. It was later amended. The parties to it were Wainter, C & T, Barry Waller and Christine Margaret Waller (s/c 8 and 9). 8 Under the UDC sale agreement C & T was required to pay Wainter $4 million plus interest of which $1,500,000 was paid at settlement and a further sum of $437,500 on or about 25 January 2001, leaving a net balance owing by C & T to Wainter of $3,562,500. It was a term of the agreement that C & T would issue shares in itself to Wainter on the following alternative conditions: 1. 70 million shares if its market capitalisation reached $100 million on or before 30 September 2002. 2. 75 million shares if its market capitalisation reached $200 million by 30 September 2002. If the market capitalisation of C & T reached $250 million by 31 December 2001 then it would pay Wainter an additional sum of $11 million. The primary sum owing under the UDC Sale agreement, namely $3,562,500 was referred to in the amended statement of claim as "the Debt". The additional contingent elements of the consideration were designated "the Associated Rights" (s/c 10). 9 In November 2000 C & T agreed with a company called Total Television Australia Ltd (TTA) and Yes Television (Europe) Ltd (Yes TV) that TTA would have the right to use and exploit in Australia and New Zealand interactive television services, content and technologies developed and owned by Yes TV. Particulars of the agreement are provided by reference to six documents (s/c 13). As a result of the agreement TTA intended to provide interactive services in Australia and New Zealand using Video on Demand (VOD) technology developed by Yes TV and content it had developed or to which it had rights. (s/c 14) In February 2001 TTA made an agreement with Trans ACT Capital Communications Pty Ltd (Trans ACT) for distribution by TTA of services over a broadband communications network developed in Canberra by Trans ACT (s/c 15). Particulars of this agreement are given. It is also pleaded, although out of sequence that, after August 2001, C & T owned 8,000 shares in TTA comprising 80% of that company's total issued shares and that Yes TV owned 2,000 shares in TTA constituting 20% of its total share issue (s/c 11 and 12). 10 In or about September 2001 New Tel proposed to make a bid to acquire all of the issued shares in C & T (s/c 16). It engaged Freehills and Deloitte Touche Thomatsu (Deloittes) to undertake a due diligence investigation in connection with the preparation of a Bidder's Statement (s/c 17). A Due Diligence Committee (the Committee) was established comprising, inter alia, Mr Malone on behalf of New Tel, Mr Woolfe and Ms Alexander on behalf of Freehills and representatives of Deloittes and KPMG (s/c 18). Mr Woolfe was appointed as chairman (s/c 19). In his capacity as a partner of Freehills and as chairman of the Committee he attended various meetings of the Committee in October and November 2001 and had some 42 additional meetings and telephone conversations each of which is particularised (s/c 20). 11 Mr Woolfe reviewed an Information Memorandum about TTA and participated in the preparation of the final report of the Committee dated 28 November 2001 and in the preparation of questionnaires to be completed by representatives of New Tel. He reviewed completed questionnaires in October 2001, conducted interviews and participated in the preparation and review of records of interviews. He was involved in the preparation of the Bidder's Statement, approved its final version and gave legal advice about aspects of the proposed bid (s/c 20). 12 Wainter alleges that Mr Woolfe was aware, on or prior to 27 November 2001 of a number of matters of concern which he either did not follow up with inquiries or which he actively suppressed (s/c 21). These included the effect of the C & T acquisition on New Tel's business, on its cash reserves and the need to raise additional capital. He is also said to have been aware of concerns about the integration of New Tel's business with that which it had acquired from another company, WorldxChange Pty Ltd in May 2001. The implementation was proving difficult. These concerns were expressed, inter alia, by Mr Wright the chief engineer of New Tel and Mr Bailey, its chief financial officer. The statement of claim also says Mr Woolfe was aware of statements by Mr Malone about the amount of money it needed to roll out TTA's interactive business, some $30 million based on 60 key centres covering 20 million Australians and a timeframe of about five years to provide VOD services across Australia. Mr Malone reported in Mr Woolfe's presence that $5 million might be sufficient to complete the Trans ACT roll out and that New Tel might not proceed on the same business model as TTA. Inconsistencies are said to have been apparent between the concerns expressed by Messrs Wright and Bailey and statements made by Mr Amzalak, the vice president sales and marketing of New Tel and Mr Piercy, the company secretary (s/c 21). 13 Mr Woolfe is said to have been aware that comments in the Bidder's Statement to the effect that New Tel and C & T business assets were complementary were not borne out by the interview process and his reviews of the records of interview. He was aware that New Tel had suffered a loss of $51 million for the year ended 30 June 2001, that there was a net decrease in its cash of $40 million and that it was New Tel's intention to bundle the VOD services with New Tel's existing telephony products and services. Wainter claims that Mr Woolfe did not do anything to reconcile the inconsistencies and concerns or cause any inquiries to be made of New Tel or any other party (s/c 22). Moreover, it alleges, he actively suppressed the concerns expressed by Mr Wright (s/c 23). 14 New Tel experienced difficulties in raising capital between February and July 2001 (s/c 24). Mr Woolfe was aware, in about July 2001, of the difficulties which New Tel had and was experiencing in that respect (s/c 25). 15 On 26 November 2001 New Tel offered to purchase the C & T Debt from Wainter. The consideration offered was 2 million options to acquire shares issued in New Tel together with the sum of $1 (s/c 26). On 27 November 2001 Mr Waller, as a director of Wainter, took part in a telephone conversation or conversations with Mr Woolfe and Mr Malone. In the course of that conversation or conversations Mr Woolfe or Mr Malone told Mr Waller that if Wainter did not forego the Debt New Tel would not proceed with the bid. When Mr Waller asked why Wainter should consider foregoing the Debt, they said that the company would receive more than the value of the Debt through the extra value that the New Tel shares would acquire following its acquisition of C & T. Absent such agreement the takeover would not proceed and Wainter would have no New Tel shares. Wainter would be better off financially because of the greater value of the package resulting from the New Tel takeover of C & T. Mr Woolfe and/or Mr Malone allegedly told Mr Waller that they wanted an answer to the proposal as a matter of urgency (s/c 28). In a telephone call later on 27 November 2001 Mr Waller told Messrs Woolfe and Malone that based on what they said to him Wainter would accept the offer (s/c 29). 16 Wainter alleges that the statements made by Mr Woolfe and/or Mr Malone during the course of their telephone conversation(s) with Mr Waller were representations to the effect that Wainter would be better off financially if it accepted the offer and further, or alternatively, if New Tel acquired the issued shares in C & T (s/c 30). There is an alternative pleading that Mr Waller confirmed on 27 November 2001 that he had received the New Tel offer to Wainter (dated 26 November 2001), that he was authorised by Wainter to accept the offer, and that Wainter did accept the offer (s/c 32). 17 Although the statement of claim pleads in paragraph 32 that Mr Waller confirmed by telephone on 27 November 2001 that Wainter would accept the offer based upon forgiveness of the Debt, the fact is also pleaded: On 27 and 28 November 2001 the applicant accepted the offer. (s/c 35) 18 The statement of claim then moves to allege material matters not disclosed to Wainter prior to 27 November 2001. These comprised the various things previously pleaded (in paragraphs 21 to 25 of the statement of claim) and a list of some 15 other material circumstances existing at that time. It is said that virtually none of these matters were disclosed to Wainter by Freehills or Mr Woolfe or Mr Malone before 28 November 2001 and alternatively before 20 December 2001 (s/c 33 and 34). 19 Wainter alleges that had the pleaded telephone conversation and alternative telephone conversations not occurred or had there been disclosure of the various material circumstances pleaded, Wainter would not have accepted the offer (s/c 36). Had it not accepted the offer then: