Contracts - General contractual principles - Illegal and void contracts - Contracts contrary to public policy - Particular contracts - Contracts to compound crimes - Stifling of prosecution as term of contract - Whether moral or social duty to prosecute.

Kerridge v Simmonds [1906] HCA 66; (1906) 4 CLR 253, referred to.

Torts - Malicious procedure and false imprisonment - Malicious criminal and civil proceedings - Essentials of cause of action generally - Institution or continuance of proceedings by defendant - Defendant prosecutor or instigator of prosecution - What amounts to - Defendant not actual informant - Concocted story designed to bring about laying of complaint.

Davis v Gell [1924] HCA 56; (1924) 35 CLR 275, referred to.

Procedure - Supreme Court procedure - Tasmania - Practice under rules of court - Summary judgment - Requirement that statement of claim disclose a reasonable cause of action - Frivolous or vexatious claims - Good defence on the merits.

Procedure - Supreme Court procedure - Tasmania - Practice under rules of court - Pleadings - Striking out - Discretion.

JASON ANDREW WOODHAM v ROBERTS LIMITED (ACN 009 475 647)

1 The plaintiff sues the defendant for damages for breach of an agreement not to pursue theft allegations and for damages for malicious prosecution. The defendant wants the action summarily terminated, or failing that, an order striking out the statement of claim.

2 In summary, the allegations in the statement of claim are as follows:

• The defendant, Roberts Limited, which is a supplier of rural equipment and services, employed the plaintiff at its Campbell Town premises.

• Two managerial level employees of Roberts accused the plaintiff of stealing approximately 35 items from stock.

• The accusations were made either knowing them to be false, or without proper basis.

• The employees told the plaintiff that if he admitted that without authority he had given a pair of binoculars and a telescopic sight to a fellow employee and resigned his employment, no legal action would be taken. He was told that if he did not make the admission he would be dismissed and legal action commenced.

• The plaintiff then told his accusers that he had given the items to the employee.

• The accusers then, in breach of the agreement and maliciously and without reasonable and probable cause, requested the police to investigate and bring charges.

• Theft charges were brought in the Court of Petty Sessions, but the complaint was dismissed.

• As a result of the referral of the allegation to the police and the prosecution, the plaintiff suffered injury to his reputation and suffered loss and expense.

3 The defendant says that the breach of contract claim cannot possibly succeed because a contract to stifle a prosecution is void and unenforceable, it being contrary to public policy. The defendant says that the malicious prosecution claim cannot possibly succeed, as pleaded, because there are no allegations of fact which, if proven, would show that the defendant's conduct influenced the police in such a way that the defendant should be regarded as the real prosecutor. In the alternative, the defendant says that the statement of claim omits material facts and contains irrelevant material and so is defective and ought be struck out with liberty reserved to the plaintiff to re-plead.

4 The Supreme Court Rules 2000, r259, authorises the dismissal of an action with judgment accordingly where the pleading does not disclose a reasonable cause of action, or where the pleading shows that the claim is frivolous or vexatious. Rule 367 authorises the giving of summary judgment in favour of a defendant where the action is frivolous or vexatious or the defendant has a good defence on the merits. In addition, there is the inherent jurisdiction of the Court to stop cases which clearly have no prospect of success.

5 The phrases "reasonable cause of action" and "frivolous or vexatious" are explained in Pridmore v Magenta Nominees Pty Ltd [1999] FCA 152; (1999) 161 ALR 458, where Nicholson J said, at par[24]:

"A cause of action is every allegation of fact which the plaintiff must prove to establish the right to the relief claimed (Letang v Cooper [1964] EWCA Civ 5; [1965] 1 QB 232; Docarmo v Ford Excavations Pty Ltd [1984] HCA 17; (1984) 154 CLR 234). A 'reasonable cause of action' means a cause of action with some chance of success, when considering the allegations of fact contained in the challenged pleading alone. The terms 'vexatious' and 'frivolous' have been used interchangeably (The Atlantic Star [1974] AC 436 at 464-468). 'Frivolous' has been held to be apt to describe proceedings in which the Plaintiff's claim is so obviously untenable that it cannot possibly succeed (Burton v Shire of Barnsdale [1908] HCA 57; (1908) 7 CLR 76 at 92). 'Vexatious' has been held to be apt to describe an action which is a sham and which cannot possibly succeed (Wills v Earl Beauchamp (1856) 11 PD 59, 63)."

6 Summary dismissal is reserved for clear cases only; General Steel Industries Inc v Commissioners for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 per Barwick CJ, at 128 - 130. Where a question of law arises on an application for summary dismissal, it is only to be determined in favour of the applicant where it is clear that it should be so determined. The power to summarily put an end to a claim is "not to be used in cases ... where the pleading raises a debatable question of law"; Dey v Victorian Railway Commissioners (1948 - [1949] HCA 1; 1949) 78 CLR 62 per Dixon J (as he then was), at 91. Even weak cases are entitled to the time of the court; Lindon v Commonwealth of Australia (No 2) [1996] HCA 14; (1996) 136 ALR 251 per Kirby J at 255 - 256.

7 The plaintiff's case in contract is that the defendant breached its agreement with him not to report the theft allegations to the police. The defendant has filed a defence denying the existence of the agreement and asserting that, even if there was such an agreement, it would be "unenforceable as being against public policy".

8 Counsel for the defendant made the following submission:

"It is trite law that a contract which seeks to prohibit or restrain the disclosure of criminal conduct by another to the proper authorities is illegal, and hence void and unenforceable:

Callaughan v O'Sullivan [1925] VicLawRp 76; [1925] VLR 664 at 666-7.

Indeed it is a nice point whether that is a matter which, irrespective of the defence and independently of the parties, a Court is obliged to take notice of, and refuse to permit its processes to support or enforce a legal [sic] contract:

Cheshire and Fiifoot Law of Contract (9th ed 2008, Butterworths) at 906.

The contract pleaded in the Statement of Claim is clearly illegal and unenforceable. It is inconceivable that, at the trial of this action, the plaintiff could succeed in recovering damages for breach of an illegal and unenforceable contract. This aspect of the case is therefore hopeless, and hence the claim vexatious."

9 Counsel also referred to Goldsborough v Black (1926) 29 WALR 37, and Public Service Credit Union v Campion (1984) 75 FLR 131. In the former case a deed, which had been entered into in consideration of a prosecution for larceny against a defendant's son not being commenced, was held to be invalid. In the latter case, the plaintiff sued the defendant on a guarantee which he gave to secure repayment of his son's debt. The son was indebted partly because he had illegally obtained money from the plaintiff by misusing a credit card. The plaintiff had threatened to report the defendant's son to the police unless the defendant executed the guarantee. The guarantee was found to be void as it was an agreement to stifle a prosecution.

10 In Kerridge v Simmonds [1906] HCA 66; (1906) 4 CLR 253, it was held, following a review of the authorities, that it is not contrary to public policy to agree to stifle the prosecution of offences which relate purely to the infringement of private rights and do not relate to matters of public concern. There an agreement not to prosecute for oral slander was held to be valid and enforceable as no matter of public concern was involved. It was held that, if there is no social duty to report or prosecute a matter, an agreement to stifle prosecution is not void or unenforceable as being contrary to public policy. At 261 - 262 Barton J quoted, with approval and at length, from the judgment of Bowen LJ in Jones v Merionethshire Permanent Benefit Building Society (1892) 1 Ch 173 per Bowen LJ at 183, including the following passage: "The duty to prosecute, or not to prosecute, is a social and not a legal duty which depends on the circumstances of each case. It cannot be said that it is a moral duty to prosecute in all cases. The matter depends upon considerations which vary according to each case. But the person who has to act is bound morally to be influenced by no indirect motive. He is morally bound to bring a fair and honest mind to the consideration and to exercise his decision from a sense of duty to himself and others".

11 Counsel for the plaintiff submitted that the question of whether the application of public policy to the circumstances of this case will result in the alleged contract being void or unenforceable is an open question and, accordingly, should be left for the trial of the matter in the ordinary way, rather than disposed of summarily.

12 An example of how minds might differ on whether or not the stifling of a particular prosecution would contravene public policy appears in the following passage from the judgment of Wilcox, Gummow and von Doussa JJ in PT Garuda Indonesia Ltd v Grellman [1992] FCA 188; (1992) 107 ALR 199 at 216:

"Where embezzlement is involved, courts in England and Scotland have divided on the answer to this question; see professor Hudson's article 'Contractual Compromises of Criminal Liability' (1980) 43 MLR 532 at 535-7. In Jones v Merionethshire Permanent Benefit Building Society [1892] 1 Ch 173 at 184, Bowen LJ said: 'It is not possible to deny that embezzlement, like false pretences, is a crime committed against the public as well as against the individual, and, in deciding what steps should be taken to punish it, the person who has to deal with the case must, if he is to discharge his moral duty, conscientiously consider the public as well as himself.' In contrast, in Lamson Paragon Supply Co Ltd v MacPhail 1914 SC 73 at 77, Lord Salvesen said that an employer who, if compensated, does not prosecute, 'acts humanely; and is not acting wrongly, far less criminally. The crime that has been committed has injured the employer only, and there is no duty laid upon him in the public interest to give information to the police'. Lord Maxwell attributed this divergence of views to the different prosecution methods in England and Scotland: Hislop v Dickson Motors (Forres) Ltd (1978) SLT (Notes) 73 and 75."

13 Counsel for the plaintiff referred to Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215, where Kirby J said, at 248:

"Now, it was said long ago, and has been repeated often since, that public policy 'is a very unruly horse' (Richardson v Mellish [1824] EngR 715; (1824) 2 Bing 229 at 252 [130 ER 294 at 303]). Whereas it affords a measure of discretion to the courts to lend, or deny, their authority according to notions of the propriety, or otherwise, of enforcing a contract said to be affected by illegality or reprehensibility, the principle is scarcely conducive to certainty and consistency. Clearly, these are desirable objectives so far as the law of contract is concerned. Although some older authority suggests the classification of cases of public policy in closed categories to which courts will always deny relief, more recent decisions support a principle of greater flexibility. Thus, it has been said that public policy is not to be viewed as a 'blunt, inflexible instrument'. Nor is the concept static (Gray v Barr [1971] 2 QB 554 at 582; discussed Stowe, 'The "Unruly Horse" has Bolted: Tinsley v Milligan', (1994) 57 Modern Law Review 441 at 444)."

14 The question of whether the alleged contract is void or unenforceable as being contrary to public policy is to be answered depending upon whether in the circumstances there was a social or moral duty to report the allegation to police. It is a debatable question whether all thefts, regardless of the amount and circumstances, are matters of public concern so that there is a social duty to prosecute; Garuda v Grellman (supra). It is premature to determine the matter before the circumstances are investigated and exposed at trial. As Kirby J said in Lindon (supra) at 256: "If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts."

15 Whether the contract is void and unenforceable as being contrary to public policy is a question which ought to be determined at the trial. The breach of contract claim will not be summarily dismissed.

16 The plaintiff's allegations include an allegation that the defendant, through two of its employees, "maliciously and without reasonable and probable cause preferred, or caused to be preferred, a charge against the plaintiff as having stolen 18 items of property from the defendant contrary to s234, Criminal Code 1927" and include an allegation that the employees "knew ... that the allegations made against the Plaintiff were untrue".

17 Counsel for the defendant says, that even if this were proven, it would not be enough. He referred to the review of the authorities undertaken in Seabrook v Asher (2006) QCA 238, and the summation at par[17] where Holmes JA said: "But what the authorities establish is that the false information must have had had some real role in inducing the police officer to commence the prosecution; so much so that the informant must 'virtually' have driven the prosecution." According to counsel "the plaintiff must show that the facts were so peculiarly within the defendant's knowledge that it was virtually impossible for the professional prosecutor to exercise any independent discretion or judgment".

18 It was submitted on behalf of the defendant that this could not be such a case because, as acknowledged in the plaintiff's own particulars, the evidence of the theft was consistent with it having been committed by any one of at least seven other employees of the defendant. A prosecutorial discretion must also necessarily have existed because, as pleaded in the statement of claim, although the report was that approximately 35 stock items had been misappropriated, only 18 items were ultimately the subject of the charge. Eight of these were dropped during the course of the prosecution.

19 In Davis v Gell [1924] HCA 56; (1924) 35 CLR 275, Isaacs ACJ said, at 282 and 283, "the law ... regards the person in fact instrumental in prosecuting the accused as the real prosecutor" and "The question in all cases of this kind must be - Who was the prosecutor? And the answer must depend upon the whole circumstances of the case."

20 In Commonwealth Life Assurance Society Ltd v Brain [1935] HCA 30; (1935) 53 CLR 343 Dixon J (as he then was) said at 379: "But if the [prosecutorial] discretion is misled by false information, or is otherwise practised upon in order to procure the laying of the charge, those who thus brought about the prosecution are responsible."

21 The answer to the question of whether or not the police were misled in their prosecutorial discretion will depend upon the whole of the circumstances including what was said to the police by the employees; what material was given to the police by the employees; what, if any, relevant information was withheld and what other information may have been available to the police independently of that supplied by the employees.

22 The answer to the question of whether or not the defendant is liable for an intentional tort committed by its employees will depend upon whether the employees were motivated by private grievances or spite or whether, albeit misguidedly, they were motivated by a desire to assist their employer and were acting in a way reasonably incidental to the performance of their allotted duties; see Hayward v Georges Ltd [1966] VicRp 28; (1966) VR 202 at 211.

23 The possibility of findings that the employees were the real prosecutors and that they were motivated by a desire to assist their employer, cannot be conclusively excluded at this early stage. The claim for damages for malicious prosecution will not be summarily dismissed.

The application for an order striking out the pleadings

24 Next it was submitted that in the event that the claim is not summarily dismissed, the statement of claim should be struck out with liberty to re-plead.

25 The defendant relies upon r258, which authorises a judge to strike out " ... in any ... pleading any matter that (a) may be unnecessary or scandalous; or (b) may tend to prejudice or delay the fair trial of the proceeding". As was stated in respect of an equivalent rule in Meckiff v Simpson [1968] VicRp 7; [1968] VR 62 at 70: "The rule is one to ensure compliance with the rules of pleading and nothing else." Rule 227 requires that a pleading is to "contain only a statement of all the material facts". The material facts comprise "every allegation of fact which the plaintiff must prove to establish the right to the relief claimed; Pridmore v Magenta Nominees Pty Ltd (supra), at par[24]. If a pleading omits any one material fact it is bad and upon application must be struck out; Bruce v Odhams Press Ltd (1936) 1 K B 697 at 713. So far as other breaches of pleading rules are concerned, there is a discretion and the question is whether the defects are of substance or whether, notwithstanding the deficiencies the fundamental function of pleadings has been served; Queensland v Pioneer Concrete (Qld) Pty Ltd (1999) ATPR 41 - 691, at 42 - 828. "The function of pleadings is to state with sufficient clarity the case that must be met"; Banque Commerciale SA (In liquidation) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286.

26 The complaints about the contract plea are that material facts have been omitted; non-material facts and matters of evidence have been included and the damages claimed are too remote.

27 The contract plea is at pars1 - 13, 15 and 20 and is as follows:

"1 The Defendant carries on business in Tasmania as a retail supplier of rural merchandise and rural services.

(a) the Plaintiff was employed by the Defendant as an irrigation and firearms consultant at its Campbell Town premises;

(b) Colin Douglas Bell (Bell) was employed by the Defendant as its Rural Supplies Division General Manager;

(c) Allan Ronald Barr (Barr) was employed by the Defendant as its Rural Supplies Division Northern Operations Manager;

(d) Bell and Barr were acting as employees of the Defendant.

3 At meetings held at its Campbell Town premises on Thursday 9 and Friday 10 August 2007 (the first and second meetings) Bell and Barr alleged that the Plaintiff had stolen and/or misappropriated without authority approximately 35 stock items belonging to the Defendant.

5 At a meeting held at its former premises at 92-94 High Street, Campbell Town on Monday 13 August 2007 (the third meeting) Bell and Barr repeated the allegations made to the Plaintiff at the first and second meetings.

7 During the third meeting and following the denials by the Plaintiff, Bell told the Plaintiff that:

(i) to admit that he had given without authority a pair of binoculars and a telescopic sight (the items) to another employee of the Defendant, namely, Craig Davey; or

(ii) to continue to deny that he had given the items to Craig Davey.

(b) if he exercised the option referred to in paragraph 7(a)(i):

(i) he could resign his employment with the Defendant;

(iv) legal action of any description would not be taken in relation to the allegations of stealing and/or misappropriation;

(c) if he exercised the option referred to in paragraph 7(a)(ii) he would be immediately dismissed and legal action would be taken in relation to the allegations of stealing and/or misappropriation.

8 The Plaintiff maintained his denial that he had given the items to Craig Davey.

9 During the third meeting Bell repeated the proposal referred to in paragraph 7.

10 The Plaintiff maintained his denial that he had given the items to Craig Davey.

11 During the third meeting Bell stated for the third time the options referred to in paragraph 7.

12 The Plaintiff then told Bell and Barr that he had given the items to Craig Davey and that although he would resign he did not want to do so because he enjoyed his employment.

13 On Monday 13 August 2007, following the third meeting, Bell and Barr attended the police station at Campbell Town and made a complaint that the Defendant had stolen and/or misappropriated approximately 35 stock items belonging to the Defendant and requested Tasmania Police to investigate and lay charges.

15 In taking the action referred to in paragraph 14 [sic] hereof, Bell and Barr breached the agreement entered into with the Plaintiff.

(a) the breach of the agreement with the Plaintiff; or, further or alternatively,

(b) the malicious prosecution of the Plaintiff by the Defendant -

the Plaintiff has been injured in his reputation and has suffered loss and damage and been put to considerable inconvenience and expense.

(b) Legal costs incurred in successfully defending police charges.

(c) Wages loss incurred in successfully defending police charges.

(d) Travel expenses incurred in successfully defending police charges."

28 Firstly, counsel says that par2(d) of the statement of claim "is an inadequate plea of authority sufficient to bind the defendant". The allegation is that the defendant's employee Bell negotiated the arrangement with the plaintiff. In pars2(b) and (d) it is alleged that at all material times Bell was the defendant's Rural Supplies Division General Manager, and was acting in such capacity. Even if the plea is not sufficient to found a conclusion that Bell had the express authority of the defendant, the allegation, if made out, is sufficient to leave open a finding that Bell acted with the implied authority of the defendant. According to the plea he was at all times acting in a managerial capacity in connection with an internal staff matter. A finding that he had the authority to bind the defendant is available. Accordingly, the defendant's assertion that a material fact has been omitted has not been made out and so there is no entitlement to an order striking out the contract plea.

29 Secondly, counsel submitted that the plea in pars3 - 12 is defective because, rather than pleading the contract and the material terms, the plea simply recites a number of conversations going beyond those which might be said to constitute an offer and acceptance. There is no doubt that this is correct and the plea is defective. However, in my discretion, I will not strike it out. The unnecessary allegations do not cause confusion or ambiguity. The existence and content of the contract relied upon is disclosed with sufficient clarity to inform the defendant of the case which it must meet.

30 As regards the complaint that the damages claimed for breach of contract are too remote to be recoverable, counsel conceded that this was not a matter sufficient to justify an order striking out the statement of claim. The concession was, with respect, appropriate. There is no need to include in the plea an allegation that damage was suffered. In breach of contract cases the obligation of the defendant to pay damages is implied by law; Photo Production Limited v Securicor Transport Ltd [1980] UKHL 2; (1980) AC 827, at 849. Rule 227(4) provides that a pleading need not allege any matter of fact which the law presumes in favour of the party pleading. The extent of the loss claimed is a matter for particulars. Accordingly, the plaintiff does not need to plead actual damage, and if the damage claimed exceeds that which might be awarded, there is no breach of the rules of pleading.

31 Finally, the defendant relies on a ground put forward in the application to summarily dismiss the malicious prosecution claim to show that the plea of that cause of action is deficient. In particular, counsel submitted that sufficient facts to support a conclusion that the defendant was the real prosecutor have not been pleaded. On this issue the primary question is whether or not the employees misled the prosecutorial discretion. Have facts been pleaded, which if made out, would leave open the possibility of a conclusion that the employees did mislead the prosecution? I think so. There are allegations in the plea that the theft accusations were known by the employees to be false; were reported by them to the police and resulted in the bringing of the complaint in the Court of Petty Sessions. There is no need to plead every fact or circumstance which might emerge at the trial and which might cast light on the degree of influence which the employees had in the initiation of the prosecution. It follows that the plea will not be struck out.