Wayne Colin Daff and Bette Dianne Whiting v Ken Johnston and Allan Bedford Trading As Ken Johnston Bedford and Company [1996] ACTSC 23 (4 April 1996)

SUPREME COURT OF THE ACT

WAYNE COLIN DAFF and BETTE DIANNE WHITING v. KEN JOHNSTON and ALLAN BEDFORD
trading as KEN JOHNSTON BEDFORD AND COMPANY
No. SC406 of 1992
Number of pages - 3
Practice and Procedure

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MASTER T CONNOLLY

CATCHWORDS

Practice and Procedure - Application to Strike out Statement of Claim - No Issue of Principle.

Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215

Prudential Assurance Co Ltd v Newman Industries (1982) Ch 204
Moorwood v Chemdata Pty Ltd (1995) ATPR 40-827
Scott v Beneficial Finance Corporation (1995) ATPR (Digest) 46-154.

HEARING

CANBERRA, 29 March 1996
4:4:1996

The Plaintiffs appeared in person

Counsel for the Defendant: Mr G Richardson SC

Instructing Solicitors: Minter Ellison

ORDER

THE COURT ORDERS THAT:

1. Paragraphs 5, 8, 11 and 14 of the amended statement of claim be
struck out.
2. The plaintiffs' Schedule of Particulars be struck out.
3. The plaintiffs pay the defendants' costs of this application.

THE COURT DIRECTS THAT:
The plaintiffs, within 28 days of the date of this decision, file a further Statement of Particulars, limited to their individual alleged losses, identifying such alleged losses.

DECISION

MASTER T CONNOLLY This matter came before me as a Notice of Motion to strike out the amended statement of claim, or in the alternative, to strike out certain portions of the statement of claim.

2. The action has a long history. The plaintiffs, who have largely been representing themselves, seek to bring an action against the defendants, a firm of solicitors, for damages arising from the purchase of a motel and associated businesses.

3. The business was purchased and was to be operated by a company, such company being owned by the two plaintiffs. In their statement of claim, the plaintiffs at paragraphs 5, 8, 11 and 14 plead in effect that the defendants' conduct caused this company, Kistler Holdings Pty Ltd, to lose value, and damages are claimed on the basis of a diminution of the plaintiffs' capital value in the company and the failure of the company to pay a dividend.

4. Counsel for the defendants has referred me to a range of authorities that make it clear that an individual plaintiff who admittedly may have not had their expectations of profit met, cannot in their own name claim damages for loss caused by diminution of share value or failure to pay a dividend.

5. It is an accepted principle that an individual can sue only on their individual losses. Thus, where a company suffers a loss, any action to recover that loss should be brought by the company. It is not open to a shareholder to sue for the company losses. This principle has been recognised by the High Court in Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215, approving the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries (1982) Ch 204 at 222-223 where Cumming-Bruce, Templeman and Brightman LJJ said in a joint judgment:

"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."

6. The principle has recently been twice restated in the Federal Court in Moorwood v Chemdata Pty Ltd (1995) ATPR 40-827 per Lockhart J; and Scott v Beneficial Finance Corporation (1995) ATPR (Digest) 46-154. In the latter case Burchett J explained the rationale for this rule by citing American Jurisprudence (2nd Ed, Vol.19, Para. 2,246):

"The fact that a stockholder suffers indirect harm, such as a
diminution in the value of his corporate shares resulting from the
impairment of corporate assets, due to a wrong done to the corporation
by a third party, does not give the stakeholder an individual right of
action since such an action would authorise multitudinous litigation
and ignore the corporate entity."

7. Accordingly, I order that paragraphs 5, 8, 11 and 14 of the amended statement of claim be struck out.

8. This has the consequence that an action remains against the defendants for the losses the plaintiffs as individuals have allegedly suffered as a result of the alleged conduct of the defendants.

9. As a result of earlier interlocutory proceedings the plaintiffs provided the defendants on 10 April 1995 with a Schedule of Particulars setting out alleged losses. This schedule seems to contain allegations of both individual losses allegedly of the individual plaintiffs and losses allegedly of Kistler Holdings Pty Ltd. As the latter loss is not recoverable at the suit of the plaintiffs, I make the order sought in the Notice of Motion to strike out the Schedule of Particulars, and I order that the plaintiffs have 28 days from the date of this decision to file a further Statement of Particulars, limited to their individual alleged losses, identifying such alleged losses.

10. I order that the plaintiffs pay the defendants' costs of this application.