Young Investments Group Pty Ltd v Stripe Capital Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 201 of 2009

AUSTRALIAN STOCKBROKERS & ADVISORY SERVICES LTD (ACN 094 106 751)

JAMES JEFFREY MANN, MICHAEL CHARLES BOWDEN, ANTHONY CHRISTOPHER KENNY, TIMOTHY LEONARD WEIR, STEPHEN EDWARD WOOD, ROBERT PHILIP GRANT

ANGELA CLAIR HAYWARD, ANTIGONI LIKOUDIS, MARK EVANS MORRIS, ALEXANDER BURT

JUDGE: GILMOUR J DATE: 7 OCTOBER 2011 PLACE: PERTH

Background 1 By their further amended statement of claim the applicants seek to recover damages in respect of losses claimed to have been suffered by them as a result of their dealings with the second respondent, Todd King, over a period of approximately two years ending in or about mid 2008. It is alleged that the first respondent, Stripe Capital Pty Ltd (Stripe), through Mr King and as the authorised representative of the third respondent, Australian Stockbrokers & Advisory Services Ltd (in liquidation) (Asandas) provided financial services to each of the applicants. 2 The causes of action relied upon by the applicants are: (a) breach of contract; (b) breach of fiduciary duty; and (c) misleading and deceptive conduct in breach of s 1041H of the Corporations Act 2001 (Cth) (the Corporations Act). 3 Stripe is alleged to be liable for the loss and damage suffered by the applicants by reason of the alleged breach of contract, breach of fiduciary duties and breach of s 1041H of the Corporations Act. 4 Asandas is alleged to be directly liable for the loss and damage under these causes of action too but also to be liable for loss and damage claimed by the applicants against Stripe by operation of ss 917A(1), 917B and 917E of the Corporations Act. 5 Stripe's directors are alleged, it would seem, under s 79 of the Corporations Act, to have been involved in the contravention by Stripe of s 1041H of the Corporations Act and, under the second limb in Barnes v Addy (1874) LR 9 ChApp 244 to have been knowingly concerned in its alleged breach of fiduciary duty. 6 Likewise Asandas's directors are alleged to have been involved in the contravention by Asandas of s 1041H of the Corporations Act and to have been knowingly concerned in its alleged breach of duty. 7 That situation enures also in respect of the fifth respondents in respect of the alleged contravention by Asandas of s 1041H of the Corporations Act as well as being knowingly concerned in the alleged breach of duty by Stripe. 8 The Court, just over a year ago, struck out various paragraphs of the applicant's amended statement of claim: Young Investments Group Pty Ltd v Stripe Capital Pty Ltd [2010] FCA 996. Since then, the applicants have prepared and served a number of further proposed amendments to their pleading in an effort to address the Court's findings and the further objections of the respondents. 9 Asandas is now in liquidation with the result that the claims against it are presently stayed. 10 The parties have been unable to resolve their differences in so far as the claims against Stripe, fourth respondents Stripe Directors and the fifth respondents Asandas Directors are concerned. 11 Against that background, orders were then made by consent dated 5 September 2011, by which the applicants were granted leave to amend the statement of claim in terms of the minute of proposed further amended statement of claim dated 23 August 2011 but without prejudice to the right of Stripe, the Stripe Directors and the Asandas Directors to apply to have the amended pleading, or paragraphs of it, struck out. 12 The Stripe Directors and the Asandas Directors have applied to strike out the pleading as against them. Indeed they contend that as a necessary consequence the actions against them in their entirety ought be dismissed. Although written submissions were filed on behalf of both Stripe and the Stripe Directors, no submissions were in fact made that the pleading against Stripe ought be struck out.

Legal Principles 13 The legal principles to be applied on a strike out application such as this are conveniently set out in Young Investments Group at [11] and [12]. These are not in issue.

The Stripe Directors 14 As with earlier versions of the pleading, the substance of the complaints made by the Stripe Directors is that the pleading does not disclose a reasonable cause of action, is embarrassing and if allowed to stand will delay or otherwise prejudice a fair trial of the matter in so far as it relates to: (a) the Stripe Directors alleged involvement in misrepresentations to the applicants by Stripe that it would fulfil certain duties (Stripe Duties) (Misrepresentation Plea); (b) the Barnes v Addy claim against the Stripe Directors (Barnes v Addy Claim). 15 In relation to the Misrepresentation Plea, the applicants allege that the Stripe Duties, combined with the Stripe Directors knowledge of the representations made by Stripe concerning those duties, gave rise to a further duty on those directors to ensure that Stripe complied with those representations. 16 In relation to the Barnes v Addy Claim, the majority of the complaints arise out of the plea at para 36 of the further amended statement of claim. 17 I will deal with each of these claims in turn.

Misrepresentation plea - the relevant pleadings 18 I have set out below the paragraphs which are relevant to this plea in the further amended statement of claim. 15.5 The Rastus Agreement, Young Investments Agreement and Reid Park Agreement were subject to the implied term that in providing services under the said agreements Stripe would use all reasonable skill, care and diligence. . . . (b) In using all reasonable skill, care and diligence Stripe was subject to the following particular duties: (i) to only act on instructions; (ii) not to make any profit or commission without disclosing such and accounting for any benefit received; (iii) to ensure its employees and officers including Mr King acted, in relation to the provision of financial services, efficiently, honestly and fairly; (iv) to have in place arrangements for the management of conflicts of interests that may arise in relation to the activities undertaken by its employees and officers including Mr King in the provision of financial services; (v) to ensure its employees and officers including Mr King complied with the financial services laws; (vi) to have adequate resources (including financial, technological and human resources) to provide financial services and to carry out supervisory arrangements; (vii) to ensure its employees and officers including Mr King maintained sufficient competency to provide financial services; (viii) to have risk management systems; (together "Stripe Duties") 28.1 prior to the parties entering into the Rastus Agreement, Young Investments Agreement and Reid Park Agreement, Stripe represented that it would fulfil the Stripe Duties; Particulars (a) In or about July 2006, Stripe, through Mr King, contacted Mrs Young and stated: (i) he and a number of colleagues who were formally financial advisors working for Macquarie Equities Limited (the then financial services advisor engaged by Young Investments, Rastus, Reid Park and Mrs Young) had established Stripe as a full service financial services provider; (ii) Stripe was the authorised representative of ASANDAS a licensed financial services provider which was backed by E Trade Australia Limited a substantial financial services/stockbroking company; (iii) Stripe was authorised by ASANDAS to provide financial services and advice including in relation to dealing in securities; (iv) if Young Investments, Rastus, Reid Park and Mrs Young engaged Stripe, Stripe would provide financial services including financial product advice to those parties. (b) the Rastus Agreement, Young Investments Agreement and Reid Park Agreement each stated that: (i) Stripe was the authorised representative of ASANDAS; (ii) ASANDAS was the holder of Australian Financial Services License No 294097 (c) In written material provided in or about July 2006 by Stripe to Mrs Young for Rastus and in or about June 2007 for Young Investments and Reid Park Stripe stated Stripe was an authorised representative of ASANDAS and that ASANDAS was an Australian Financial Services Licensee (holding licence number 294097) including a document entitled "Financial Services Guide" which stated that ASANDAS was the holder of Australian Financial Services Licence No 294097, was authorised to provide financial services and Stripe was its authorised representative and was authorised to provide financial services. 28.6 Further and in the alternative: (b) in the premises, Stripe also represented that if at any time the said representation became untrue then Stripe would disclose to Rastus, Young Investments and Reid Park that change of circumstances. 29. Further, Ratsus, Young Investments and Reid Park plead as follows. 29.1 The Stripe Directors knew the matters pleaded in: (a) paragraph 28.1; and (b) paragraph 28.6(b) herein. 29.2 The Stripe Directors, given it was reasonably foreseeable that their failure to do so was likely to cause loss to Stripe's clients, had a duty in order to avoid loss to Stripe's clients to take reasonable care to cause Stripe to fulfil the representation that it would continue to fulfil the Stripe Duties as pleaded in paragraph 28.6(b) herein. 29.3 To fulfil the duty pleaded in paragraph 29.2 it was necessary for the Stripe Directors to: (a) have knowledge from time to time of the extent of the trading in securities being undertaken on the account of Stripe's clients by Stripe's brokers, including Mr King; (b) ensure a system was imposed on Stripe's brokers which resulted in the Stripe Directors having access to information concerning and being promptly informed of the extent of the trading in securities on the account of clients being undertaken by Stripe's brokers, including Mr King; (c) have prompt knowledge of any exceptional or extraordinary trading undertaken or being undertaken by Stripe's brokers, including Mr King. 29.4 The extent of the trading activity undertaken by Stripe acting through Mr King on the account of Young Investments, Rastus and Reid Park was exceptional and extraordinary in that: (a) in approximately 12 months, using investment funds of approximately $8,000,000, trading in securities was undertaken to the value of $123,269,784; TOTAL BUYS AND SELLS BUYS ONLY SELLS ONLY 2007 JUNE $444,719 $444,719 $0 JULY $9,309,384 $9,309,384 $0 AUGUST $1,602,789 $1,224,525 $378,264 SEPTEMBER $4,488,853 $2,023,406 $2,465,447 OCTOBER $4,485,053 $1,268,779 $3,216,274 NOVEMBER $6,102,756 $5,340,265 $762,491 DECEMBER $0 $0 $0 2008 JANUARY $1,967,584 $1,383,127 $584,457 FEBRUARY $44,907 $0 $44,907 MARCH $3,276,012 $2,424,944 $851,067 APRIL $1,178,873 $952,797 $226,076 MAY $26,069,541 $10,205,249 $15,864,292 JUNE $64,152,433 $29,141,837 $35,010,597 JULY $146,879 $67,074 $79,809 $123,269,784 $63,786,106 $59,483,678

(b) single trades were undertaken for which the consideration was greater than $50,000; (c) daily trading was undertaken in excess of a value of $500,000. 29.5 The magnitude of the trading undertaken by Stripe through Mr King as pleaded in the preceding subparagraph indicated the trading being undertaken was: (a) unauthorised; (b) inappropriate; (c) was for the purposes of earning commission rather than for a benefit for Rastus, Young Investments or Reid Park reasonably commensurate to the risks they were being exposed contrary to their interests, such as required identification and report to the Stripe Directors promptly as pleaded in paragraph 29.3 herein. 29.6 In the premises: (a) it is to be inferred the Stripe Directors were informed of and knew the trading activity undertaken by Stripe, through Mr King on account of Young Investments, Rastus and Reid Park and, accordingly, knew the matters pleaded in paragraph 29.5; (b) alternatively, if (which is not admitted) there was no system or adequate system implemented or maintained for reporting of trading as pleaded in paragraphs 29.3(a) to 29.3(c) then, given knowledge of the matters pleaded in paragraphs 29.1 to 29.3: (i) the Stripe Directors wilfully shut their eyes to the matters pleaded in paragraphs 29.4 and 29.5; (ii) alternatively, the Stripe Directors were wilful and reckless in failing in implementing or maintaining a system to identify the matters pleaded in paragraphs 29.4 and 29.5; (iii) alternatively, that knowledge would have made an honest and reasonable man undertake enquiries to identify the matters pleaded in paragraphs 29.4 and 29.5. 29.7 Possessed of the knowledge pleaded in paragraph 29.6, the Stripe Directors knew that the representation pleaded in paragraph 28.6(b) had in whole or in part become untrue and, accordingly, the said representation had become misleading or deceptive. 29.8 Notwithstanding the knowledge pleaded in the preceding subparagraph, the Stripe Directors failed to cause Stripe to disclose to Rastus, Young Investments or Reid Park the change of circumstances. 29.9 As a result of the Stripe Directors' conduct, Stripe, through Mr King, was able to engage in the conduct pleaded in paragraph 24 herein. 29.10 In the premises the Stripe Directors were involved in the contravention: (a) by aiding, abetting, counselling or procuring the contravention; (b) by their omission to give notice of the change of circumstances, directly or indirectly, being knowingly concerned in or a party to the contravention. 29.11 By reason of the Stripe Directors' conduct as pleaded in the preceding subparagraph, Rastus, Young Investments and or Reid Park have suffered loss and damage. 19 It may be seen from para 29 that it is alleged that the Stripe Directors were involved in alleged misrepresentations by Stripe that it would fulfil the so-called Stripe Duties. These duties reflect in part the statutory duties imposed on a financial services licensee under s 912A of the Corporations Act. However, Stripe was not the holder of such a licence. It is pleaded that it carried on business as a provider of financial services as the authorised representative of Asandas which held the relevant licence. Essentially, it is alleged at para 29 that: (a) the Stripe Directors knew Stripe had represented that it would fulfil the Stripe Duties; (b) as it was reasonably foreseeable that their failure to act would cause loss to Stripe clients, the Stripe Directors were under a duty to take reasonable care to cause Stripe to fulfil its representation that it - Stripe - would discharge those duties. Counsel for the applicants said that this alleged duty was in the nature of a tortious or contractual duty of care; (c) to fulfil their duty, the Stripe Directors had to do the things pleaded at para 29.3; namely: (i) have knowledge from time to time of the extent of the trading in securities being undertaken on the account of Stripe's clients by Stripe's brokers, including Mr King; (ii) to ensure proper systems were imposed on Stripe's brokers to enable them to access information about the extent of trading undertaken for Stripe clients by Stripe's brokers including Mr King; and (iii) to know promptly of any exceptional or extraordinary trading undertaken on behalf of Stripe's clients by Stripe's brokers, including Mr King;

Knowledge 20 The Stripe Directors submit that if the applicants allege knowledge as a basis for the accessorial liability, they must plead the basis upon which the Stripe Directors were aware of the essential facts or matters which must be proved to establish the contravention: Yorke v Lucas (1983) 49 ALR 672, 682; Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1985) 61 ALR 504, 506. They say that the applicants have not done this. 21 In fact the applicants do plead, in effect, actual knowledge, at para 29.6 although it is pleaded as knowledge which is to be inferred. It is convenient to repeat the allegation at 29.6(a) which is as follows: 29.6 In the premises: (a) it is to be inferred the Stripe Directors were informed of and knew the trading activity undertaken by Stripe, through Mr King on account of Young Investments, Rastus and Reid Park and, accordingly, knew the matters pleaded in paragraph 29.5. 22 The applicants do not now rely, for present purposes, on the words "were informed of and" in para 29 as well as in paras 33.6(a), 36.7(a) and 37.7(a). 23 It is necessary before involvement by virtue of s 79 of the Corporations Act in the contravention of s 1041H can be established, that there be relevant intent and knowledge of the essential facts of the contravention. 24 Yorke v Lucas informs the question of how the necessary knowledge may be established. That case concerned alleged involvement in misleading and deceptive conduct by virtue of s 75B of the then Trade Practices Act 1974 (Cth), an analogous provision substantially in the same terms as s 79 of the Corporations Act. The Full Court observed as follows: p 677 However, as was acknowledged in Glennan's case (at 614) it is not essential that actual knowledge of all the essential facts or matters which constitute an offence is necessary before a person may be convicted as an aider and abettor. Shutting one's eyes to the obvious, or deliberately failing to obtain knowledge by making reasonable inquiry in circumstances where the defendant suspects the existence of a fact which may be revealed upon inquiry, may render a person liable as an aider and abettor: Carter v Mace [1949] 2 All ER 714; Davies, Turner & Co Ltd v Brodie [1954] 3 All ER 283. Passive acquiescence may suffice where the aider or abettor has the capacity to control the principal offender and is present when the offence is committed, but fails to exercise that right although aware that the conduct of the principal offender must have involved a breach of the law . . . p 678 Mere failure to make an inquiry which, if made, would yield knowledge of an essential fact, is not in itself enough to constitute knowledge of the fact, for it is accepted that to act negligently does not make a person an aider and abettor (Callow v Tillstone (1900) 83 LT 411; see also Bowker v Premier Drug Co [1928] 1 KB 217). But the circumstances of a given case may be such as to reveal not merely a failure to make an inquiry, but a failure to make an inquiry which is of such a kind as to suggest that the defendant has deliberately abstained from acquiring knowledge because he suspected the existence of a fact which would have been ascertained on inquiry, or that the defendant has acted recklessly in the sense that he did not care whether the facts existed or not (Carter v Mace [1949] 2 All ER 714; cf Davies, Turner & Co Ltd v Brodie [1954] 3 All ER 283). pp 679-680 In that case, and in Provincial Motor Cab Co v Dunning [1909] 2 KB 599 and Gough v Rees (1929) 46 TLR 103, there was the relation of master and servant; but it seems to us that the reasoning is capable of general application, and in recent cases (Carter v Mace [1949] 2 All ER 714; Quality Dairies (York) Ltd v Pedley [1952] 1 KB 275, it has been carried to its logical conclusion. These authorities show that the special Act may be couched in such terms as to imply a duty to foresee and prevent the act or thing that is the offence. In such circumstances, any party, who could and should prevent the act or thing, but omits to do so, is a party to and participates in the offence. In our opinion, the latter qualification can have no application in the present case. We do not think that, by employing an interpretation provision such as s 75B which is of a kind well known to of (sic) the criminal law, it was intended by Parliament that a special and absolute duty should be imposed upon those concerned in the management of a corporation to take positive steps to prevent the corporation engaging in conduct of the type proscribed by s 52 where they have no knowledge, actual or constructive, of the essential facts necessary to constitute a contravention of the section. In our view, the imposition of a personal liability upon the management of a corporation with limited liability in those circumstances would involve a significant departure from the previous legislative provisions of which s 75B is a typical example and would require explicit language to effect such a change. No such language is to be found here. Instead, Parliament has chosen, as its dictionary, an interpretation provision, in the form of s 75B, which picks up the traditional legislative formula employed in the criminal law. That formula has always been interpreted to require actual or constructive knowledge of the essential facts said to constitute the offence before a person can be liable as an aider or abettor. 25 I understand the use of the phrase "constructive knowledge" in these passages to be referring to the circumstances described at p 677 as satisfying the requisite knowledge. Reliance was placed by the applicants upon the decision of the New Zealand Court of Appeal in R v Witika [1993] 2 NZLR 424 and in particular the discussion, at p 430 and following, concerning the trial judge's charge to the jury concerning duties, arising out of special relationships, to act affirmatively. Witika involved two accused: the mother of a deceased child and a man with whom the mother had a relationship. The charges included one of manslaughter by omitting to provide medical care for the child after she had been beaten. I do not consider this case to lend any assistance to the applicants. The legal principles articulated there are not in dispute but the case turned on its own facts and is not an analogue for the case pleaded against the Stripe Directors. 26 The applicants also cited R v Pittwood (1902) 19 TLR 37 in support of their pleading. There a gatekeeper of a railway crossing opened the gate to let a car through but forgot to shut it and went off to lunch. As a result a hay cart crossed the line while a train was approaching and was hit, causing a number of deaths. The gatekeeper was convicted of manslaughter. The applicants contend that its relevance in the present context is because of the rejection of the accused's argument that he could not be liable because he owed no duty of care to the deceased but only owed such a duty to his employer. Again I find this case to be of no assistance. 27 As Finkelstein J in Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 4-5 said correctly, in my respectful view: But where it is sought to make a person liable as an accessory to a contravention of s 52(1) based on s 75B it is necessary to establish that the person has intentionally participated in the contravention. To establish intentional participation it must be proved that the person has knowledge of the essential matters that make up a contravention of s 52(1): see generally Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307 Edwards v R (1992) 173 CLR 653; 107 ALR 190. In this regard "knowledge" means actual and not constructive knowledge. For example, it would not be sufficient merely to show that the person charged with accessorial liability had shut his eyes to the obvious if that is intended to be a substitute for actual knowledge: Giorganni v R (1985) 156 CLR 473; 58 ALR 641. Of course, where there is a combination of suspicious circumstances and a failure to make an inquiry it may be possible to infer knowledge of the relevant essential matters: Pereira v Director of Public Prosecutions (1988) 82 ALR 217; 63 ALJR 1 at 3. 28 The knowledge of the Stripe Directors is pleaded to arise by inference from what is earlier pleaded at para [29] namely that: (a) the Stripe Directors knew that Stripe had made representations it would fulfil the Stripe Duties; (b) the Stripe Directors had a duty to take reasonable care to cause Stripe to fulfil the representation that it would continue to fulfil the Stripe Duties; (c) the duty on the Stripe Directors required them to ensure that they knew the extent of trading undertaken by Stripe on behalf of the applicants; (d) the extent of the trading undertaken by Stripe on behalf of the applicants was exceptional and extraordinary; and (e) the magnitude of the trading undertaken by Stripe indicated the trading was unauthorised, inappropriate and not in the best interests of the applicants and should have required identification and report to the Stripe Directors. 29 In my view, even assuming the existence of such duties, although I very much doubt that they exist at law, as well as the correctness of the factual allegations pleaded, for present purposes, they are not capable of supporting the allegation of inferred actual knowledge in para 29.6(a). There is no plea that the Stripe Directors knew the extent of the trading or that it was exceptional and extraordinary. The allegation that the trading was unauthorised, inappropriate and not in the applicants best interests depends upon such prior knowledge. The alleged inference cannot be made out against a plea of a mere duty to know or even a breach of that duty. Neither of these constitutes actual knowledge of a contravention or proposed contravention and that the Stripe Directors associated themselves in some positive way therewith: Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201. 30 Moreover the pleaded inferrred knowledge of the essential facts of the contraventions is not the only rational inference available: Pereira v Director of Public Prosecutions (1988) 82 ALR 217 at 220. Indeed the assertions of negligent breach of a tortious or contractual duty by Stripe Directors to know the level of trading does not rise higher necessarily than what is pleaded, namely breach of such a duty. 31 Nor are there sufficient facts alleged to sustain the assertions made at para 29.6(b)(i) or (ii). By para 29.6(b)(i) the applicants allege that if (which they do not admit) Stripe did not have an adequate system for enabling the Stripe Directors to know and make enquiries about the trading on the accounts of Stripe's clients, then, given their (alleged) knowledge of the representations that Stripe had made about fulfilling the Stripe Duties, the Stripe Directors wilfully shut their eyes: (a) to the extent of trading undertaken by Mr King through Stripe on the applicants accounts, which was extraordinary and exceptional; and (b) to the fact that the magnitude of the trading indicated that it was unauthorised, inappropriate and for the purposes of earning commission rather than for the benefit of the applicants. 32 This plea, although reliant upon the accessorial provisions under s 79 of the Corporations Act, appears to adopt the language of the second category of the second limb of Barnes v Addy as postulated in Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce et de l'lndustrie en France SA (1992) 4 All ER 161. 33 The proposition advanced by this pleading, in effect, is that where (if it be the case - the applicants do not positively assert it to be so) the Stripe Directors breached the tortious or contractual duty pleaded in para 29.2 by failing to do those things pleaded at para 29.3 they thereby wilfully or deliberately shut their eyes to the exceptional and extraordinary trading activity undertaken by Stripe through Mr King on the applicants' account (para 29.4) and that the magnitude of the trading "indicated" that it was unauthorised, inappropriate and, in effect, for an improper purpose (para 29.5). 34 These alleged breaches of duty, assuming they are capable of being established, could not of themselves establish that the Stripe Directors wilfully shut their eyes to those matters pleaded such as to equate to actual knowledge: negligence, even recklessness is insufficient: Giorgianna v R (1985) 156 CLR 473 per Gibbs CJ at p 487; (per Mason J agreeing at p 495); per Wilson, Deane and Dawson JJ at 505, 507-508). As was observed in Yorke v Lucas at 677, actual knowledge is not necessary to establish aiding and abetting if, relevantly, a person deliberately fails to obtain knowledge by making reasonable inquiry in circumstances where the defendant suspects the existence of a fact which may be revealed on enquiry. That is not pleaded here. 35 The allegation at para 29.6(b)(iii) again appears to reflect the language of the fifth category of the second limb of Barnes v Addy identified in Baden. However, it is not a basis in law in this country for establishing accessorial liability: Giorgianni v R per Gibbs CJ at p 483.

Paragraph 29.7 36 As this plea depends upon paragraph 29.6 which I have found to be deficient this paragraph ought also be struck out.

Barnes v Addy Plea 37 The second category of allegations made against the Stripe Directors rely upon the second limb in Barnes v Addy namely that they knowingly assisted in the breach of fiduciary duties owed by Stripe to the applicants. 38 Paragraph 36 of the amended statement of claim is as follows: 36. Further Rastus, Young Investments and Reid Park plead as follows. 36.1 The conduct of Stripe pleaded in paragraph 34.3 was: (a) inappropriate conduct being in breach of the fiduciary duties pleaded in paragraph 34.2 herein; (b) alternatively, in furtherance of the dishonest and fraudulent design to effect the breaches of fiduciary duties pleaded in paragraph 34.2 herein. 36.2 The Stripe Directors knew the matters pleaded in paragraphs 34.1 and 34.2 herein. 36.3 The Stripe Directors, given it was reasonably foreseeable that their failure to do so was likely to cause loss to Stripe's clients, had a duty to take reasonable care to cause Stripe to comply with the fiduciary duties pleaded in paragraph 34.2 herein. 36.4 To fulfil the duties pleaded in paragraph 36.3 it was necessary for the Stripe Directors to: (a) have knowledge from time to time of the extent of the trading in securities being undertaken on the account of Stripe's clients by Stripe's brokers, including Mr King; (b) ensure a system was imposed on Stripe's brokers which resulted in the Stripe Directors having access to information concerning and being promptly informed of the extent of the trading in securities on the account of clients being undertaken by Stripe's brokers, including Mr King; (c) have prompt knowledge of any exceptional or extraordinary trading undertaken or being undertaken by Stripe's brokers, including Mr King. 36.5 The extent of the trading activity undertaken by Stripe acting through Mr King on the account of Young Investments, Rastus and Reid Park was exceptional and extraordinary in that: (a) in approximately 12 months, using investment funds of approximately $8,000,000, trading in securities was undertaken to the value OF $123,269,784; PARTICULARS 2007 TOTAL BUYS AND SELL BUYS ONLY SELLS ONLY JUNE $444,719 $444,719 $0 JULY $9,309,384 $9,309,384 $0 AUGUST $1,602,789 $1,224,525 $378,264 SEPTEMBER $4,488,853 $2,023,406 $2,465,447 OCTOBER $4,485,053 $1,268,779 $3,216,274 NOVEMBER $6,102,756 $5,340,265 $762,491 DECEMBER $0 $0 $0 2008 JANUARY $1,967,584 $1,383,127 $584,457 FEBRUARY $44,907 $0 $44,907 MARCH $3,276,012 $2,424,944 $851,067 APRIL $1,178,873 $952,797 $226,076 MAY $26,069,541 $10,205,249 $15,864,292 JUNE $64,152,433 $29,141,837 $35,010,597 JULY $146,879 $67,074 $79,809 $123,269,784 $63,786,106 $59,483,678

(b) single trades were undertaken for which the consideration was greater than $50,000; (c) daily trading was undertaken in excess of a value of $500,000. 36.6 The magnitude of the trading undertaken by Stripe through Mr King as pleaded in the preceding subparagraph indicated the trading being undertaken was: (a) unauthorised; (b) inappropriate; (c) was for the purposes of earning commission rather than for a benefit for Rastus, Young Investments or Reid Park reasonably commensurate to the risks they were being exposed contrary to their interests, such as required identification and report to the Stripe Directors. 36.7 In the premises: (a) it is to be inferred the Stripe Directors were informed of and knew the trading activity undertaken by Mr King on account of Young Investments, Rastus and Reid Park and, accordingly, knew the matters pleaded in paragraph 36.6; (b) alternatively, if (which is not admitted) there was no system or adequate system implemented or maintained for reporting of trading as pleaded in paragraphs 36.4(a) to 36.4(c) then, given knowledge of the matters pleaded in paragraph 36.2: (i) the Stripe Directors wilfully shut their eyes to the matters pleaded in paragraphs 36.5 and 36.6; (ii) alternatively, the Stripe Directors were wilful and reckless in failing in implementing or maintaining a system to identify the matters pleaded in paragraphs 36.5 and 36.6; (iii) alternatively, that knowledge would have made an honest and reasonable man undertake enquiries to identify the matters pleaded in paragraphs 36.5 and 36.6, with the result the Stripe Directors are fixed with knowledge of the matters pleaded in paragraph 36.6. 36.8 Possessed of the knowledge pleaded in paragraph 36.7, the Stripe Directors knew that Stripe was in breach of the fiduciary duties pleaded in paragraph 34.2. 36.9 Notwithstanding the knowledge pleaded in the preceding subparagraph, the Stripe Directors failed to cause Stripe to cease acting in breach of and or to then fulfil the said fiduciary duties. 36.10 As a result of the Stripe Directors' conduct, Stripe, through Mr King, was able to engage in the conduct pleaded in paragraph 24 herein. 36.11 In the premises the Stripe Directors were knowingly concerned the breach of said fiduciary duties. 36.12 By reason of the Stripe Directors' conduct as pleaded in the preceding subparagraph, Rastus, Young Investments and or Reid Park have suffered loss and damage. 39 The applicants, in order to succeed on this ground, must establish that the Stripe Directors came within at least one of the following four categories of knowledge, as expressed in Baden: (a) actual knowledge; (b) wilfully shutting one's eyes to the obvious; (c) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; or (d) knowledge of circumstances which would indicate the facts to an honest and reasonable man. 40 A fifth category identified in Baden, namely knowledge of circumstances which would put an honest and reasonable man on inquiry does not represent the law of Australia: Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 at [174] and [177]-[178]. 41 The applicants must also plead that, to the extent the Stripe Directors knowingly assisted other parties, that knowing assistance must have been rendered in respect of a dishonest and fraudulent design on the part of the fiduciary. The pleading in this regard is utterly circular. It is alleged at para 36.1(b), in the alternative, that the conduct of Stripe pleaded at para 34.3, which is there pleaded as several breaches of the fiduciary duties pleaded in para 34.2 was in furtherance of the dishonest and fraudulent design to effect the very same breaches of fiduciary duties pleaded in para 34.2. 42 Moreover, to the extent the Stripe Directors had knowledge that fiduciary duties were owed by Stripe to the applicants, it is not clear from the pleading how this is relevant in the context of the claims currently made. What the directors knew or did not know about the nature of the relationship between Stripe and the applicants is not relevant to the obligations the Stripe Directors owed as a matter of law. 43 The analysis undertaken above in the context of the Misrepresentation Plea concerning the allegations that the Stripe Directors wilfully shut their eyes, alternatively were wilful and reckless, is equally applicable, given the use of the same language, to these allegations involving the second limb of Barnes v Addy. Additionally, knowledge on the part of the Stripe Directors of those matters pleaded at para 36.2 encompassing the matters pleaded at paras 34.1 and 34.2 could not, even if established, support a plea that the Stripe Directors knew the facts pleaded at para 36.6 namely that the trading was unauthorised, inappropriate and, in effect, for an improper purpose. 44 Paragraphs 29 and 36 and all related paragraphs contend for what, in my opinion, are unarguable cases against the fourth respondents and ought be struck out.

The Asandas Directors 45 Again, as with earlier versions of the pleading, the substance of the complaints made by the Asandas Directors is that the pleading does not disclose a reasonable cause of action, is embarrassing and if it is allowed to stand it will delay or otherwise prejudice a fair trial of the matter in so far as it relates to: (a) the Asandas Directors alleged involvement in misrepresentations made to the applicants by Asandas that it would fulfil the so-called Asandas Duties pleaded at para 10.1 f the amended statement of claim namely of the duties set out in s 912A of the Corporations Act (Misrepresentation Plea); (b) the Barnes v Addy Claim against the Asandas Directors (Barnes v Addy Claim). 46 In relation to the Misrepresentation Plea, the applicants allege that the Asandas Duties, combined with the Asandas Directors knowledge of representations made by Asandas, gave rise to a further duty on those directors to ensure that Asandas complied with representations that Asandas had made to the applicants. 47 In relation to the Barnes v Addy Claim, the complaints essentially arise out of the plea at para 37 of the further amended statement of claim. 48 The pleadings against the Asandas Directors follow the structure of those made against the Stripe Directors. Whilst there are some differences, for example as between the Stripe Duties and the Asandas Duties, nothing turns on these. The Misrepresentation Plea, essentially contained in para 33 and the Barnes v Addy plea at para 37 are, for the same reasons, mutatis mutandis, in substance, as are set out above in relation to the Stripe Directors, untenable and ought be struck out together with all related paragraphs.

Disposition 49 I am satisfied that the claims made against the fourth and fifth respondents are unarguable and should be struck out. The applicants should not be granted leave to further amend. They have failed to bring in an arguable pleading as against those respondents over a period of almost two years, including the period of more than one year since their claims against those respondents were previously struck out as disclosing no reasonable cause of action. It is no answer for the applicants to argue that evidence to support such claims may emerge at trial. The claims are bad and the respondent directors ought not to have to meet the personal and financial cost of a trial. Although pressed by the Court at the hearing as to what amendments might or could be made to make good the relevant pleadings, counsel for the applicants was unable to say what they would or even might be. 50 The applicants are represented by very experienced counsel. I have no doubt, as I informed counsel that if he had material capable of curing the identified defects in the pleading that it would by now have been pleaded. 51 There will be orders that the application as against the fourth and fifth respondents be dismissed with costs including the costs of this application. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.