Commonwealth of Australia v Davis Samuel Pty Ltd [1999] ACTSC 136 (15 December 1999)

Last Updated: 12 May 2005

THE COMMONWEALTH OF AUSTRALIA v DAVIS SAMUEL PTY LTD (ACN 083 081 985) AND OTHERS [1999] ACTSC 136 (15 December 1999)

CATCHWORDS

PRACTICE AND PROCEDURE - pleading - whether facts alleged in Statement of Claim raise arguable case of breach of fiduciary duty by third defendant.

PRACTICE AND PROCEDURE - pleading - whether facts pleaded against fourteenth defendant sufficiently clear - whether sufficient compliance with Order 23 rule 15 of the Supreme Court rules.

PRACTICE AND PROCEDURE - pleading - whether claim against fourteenth defendant should be struck out as insufficiently clear - whether claim manifestly hopeless.

EQUITY - constructive trust - whether created as consequence of theft or embezzlement.

EQUITY - unjust enrichment - whether monies paid under mistake may be recovered from person other than initial recipient.

PRACTICE AND PROCEDURE - application for summary judgment for defendant - relevant principles - evidence given by defendant - significance of limited challenge in cross-examination - application refused.

Supreme Court Rules, O 23 r 6

Davy v Garrett (1878) 7 Ch D 473

Bruce v Odhams Press Ltd (1936) 1 KB 697

Coe v Commonwealth of Australia [1978] HCA 41; (1979) 24 ALR 118

Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 92 ALR 395

Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd (SC (Vic) No 9643/1992, 16 September 1994 unreported)

TPC v Pioneer Concrete (1994) 124 ALR 685

McGarrigle v Miller (1878) 1 SCR (NS) 5

Tooth and Ors v Davis and Kavanagh (1890) 7 WN 39

J Earl Hermann Ltd v Ferry (1915) 32 WN 31

Lyons and Anor v Kern Konstructions (Townsville) Pty Ltd and Anor (1983) 47 ALR 114

Burgess v Batehoeven Electric Equipment Ltd [1943] 1 KB 96 (CA)

Fox v H Wood (Harrow) Ltd (1963) 2 QB 601

Feeney v Rix [1968] 1 Ch 693

Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105

Rondel v Worsley [1967] UKHL 5; [1969] 1 AC 191

John v Rees (1970) Ch 345

ABC v Seymour (1977) 19 NSWLR 219

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

South Australia v Hindmarsh Town Corporation (unreported BC 9300344, 10 March 1993) per Bollan J

Pannick D, Advocates, Oxford University Press, New York, 1992

No. SC 75 of 1999

Coram: Crispin J

Supreme Court of the ACT

Date: 15 December 1999

IN THE SUPREME COURT OF THE )

) No. SC 75 of 1999

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: THE COMMONWEALTH OF AUSTRALIA

Plaintiff

AND: DAVIS SAMUEL PTY LTD

ACN 083 081 985 AND OTHERS

Defendant

ORDER

Judge Making Order: Crispin J

Where Made: Canberra

Date of Order: 15 December 1999

THE COURT ORDERS THAT:

1. The motion by the eleventh, twelfth, thirteenth, twenty-second and twenty-third defendants for orders striking out the allegations pleaded against them and/or for summary judgment be dismissed.

2. The parties have leave to bring in short minutes of orders granting leave for the Third Further Amended Statement of Claim and/or particulars to be amended in the manner referred to in the reasons for judgment.

1. This is a motion by the eleventh, twelfth, thirteenth, twenty-second and twenty-third defendants to strike out the claims against them in the Third Further Amended Statement of Claim. In the alternative these applicants seek summary judgment. The latter application was not foreshadowed in the Notice of Motion filed on 17 September 1999 but the matter proceeded on the understanding that they were seeking such relief.

2. The proceedings reflect an attempt by the plaintiff to recover funds of which it is said to have been deprived by the fraudulent acts of the second defendant, Mr Muir.

3. Mr Muir is currently facing criminal charges in relation to those acts and has been relieved of any obligation to file a defence at this stage.

4. It is alleged that on or about 8 October 1997 a consultancy agreement was concluded pursuant to which the third defendant, Callform Pty Ltd, was to provide accounting services to the plaintiff. Mr Muir was a director of the second defendant and he provided the consultancy services on its behalf. In the course of providing those services he obtained access to a Department of Finance and Administration computer program by the unauthorised use of a confidential access code and on 17 April 1998 transferred the sum of $6,000,000 ("the April funds") from the plaintiff's account with the Reserve Bank to a bank account in the name of the sixth defendant, CTC Resources NL. A further consultancy agreement was concluded on or about 25 August 1998 for the provision of financial and management accounting services by the third defendant to the plaintiff and Mr Muir again provided those services on its behalf. On 21 September 1998 he again obtained access to a Department of Finance and Administration computer program by the unauthorised use of an access code and transferred the sum of $2,725,000 ("the September funds") from the plaintiff's account to a bank account of the tenth defendant, Kamanga Holdings Pty Ltd, and the seventeenth defendant, Quancorp Pty Ltd, then trading as "Davis Samuel".

5. It is these funds which the plaintiff seeks to recover. However, it is alleged that both the April funds and the September funds were subsequently dispersed in various transactions. Consequently the plaintiff has now instituted proceedings claiming relief against twenty-nine defendants said to have been immediate or subsequent recipients of some portion of such funds or to have otherwise have been involved in such transactions.

6. The Statement of Claim alleges that the plaintiff permitted or made the transfer of the April funds and the September funds by mistake. It also alleges, inter alia, that Mr Muir acted without authority, acted fraudulently, wrongfully converted the plaintiff's right of action to the April and September funds, acted dishonestly in breach of his duties of confidence and fiduciary duties and, by his actions, became a constructive trustee of the April and September funds.

7. The eleventh, twelfth, thirteenth, twenty-second and twenty-third defendants are all said to have `participated' in the breach of fiduciary duty by Mr Muir and the third defendant in relation to the April funds and to have been unjustly enriched by receiving part of those funds. The eleventh, twelfth and thirteenth defendants are also alleged to have participated in the breach of fiduciary duty in relation to the September funds and to have been unjustly enriched by receiving part of those funds.

8. Notice has been given by the plaintiff of an intention to seek leave in order to further amend the Third Further Amended Statement of Claim and whilst leave to do so has not yet been granted Mr Collaery, who appeared for the applicants, approached the matter on the assumption that leave would be duly granted and the relevant portions of the pleading amended. In any event, it would normally be quite inappropriate to grant summary judgment to a defendant merely because of a curable defect in pleading.

9. The proposal to further amend the Statement of Claim reflected a concession made by Mr Slattery QC who appeared for the plaintiff to the effect that the plaintiff would not pursue any contention that at the relevant times the applicants had actual knowledge of any dishonest breach of fiduciary obligation by Mr Muir.

10. Mr Collaery attacked the Statement of Claim on a number of bases.

11. First, he contended that the allegations that Mr Muir and the third defendant were guilty of dishonest breaches of fiduciary duty could not be sustained because the Third Further Amended Statement of Claim does not allege facts capable of giving rise to the fiduciary duty said to have been so breached. Hence, the allegations that the applicants participated in such breaches cannot be sustained. Secondly, he submitted that, in any event, theft or embezzlement of funds could not, of itself, create a constructive trust. Thirdly, he contended that the pleadings are unclear and fail to comply with O 23 r 6 which, as he pointed out, requires a plaintiff to state in its pleading particulars of any misrepresentation, fraud or breach of trust alleged. Fourthly, he submitted that the scope of the remedies provided by the concepts of unjust enrichment or "money had it received" could not extend to the provision of a cause of action by the plaintiff against his client.

12. The rules of pleading are designed to ensure that a party is not placed in a position of not knowing what is alleged against it because the pleading is unintelligible, ambiguous, vague or too general. It has been said that a party is entitled ex debito justitiae to have the case against him presented in an intelligible form: Davy v Garrett (1878) 7 Ch D 473 at 486. Where the relevant portion of the pleading is to be vague, unclear or confusing and there is no reason to suppose that it could not be re-pleaded in a manner that would give the opposing party clear notice of the case it has to meet, an order should be made that the then relevant portion of the pleading should be struck out or, in an appropriate case, amended. A pleading which does not allege all the material facts on which the relevant party relies for the claim or defence may be struck out. See Bruce v Odhams Press Ltd (1936) 1 KB 697. Furthermore, when objectionable matter is so closely intertwined with other allegations that the pleading as a whole may tend to embarrass the fair trial of the proceeding the court may order that it be struck out in its entirety: see Coe v Commonwealth of Australia [1978] HCA 41; (1979) 24 ALR 118 at 132; Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 92 ALR 395. On the other hand, there will be cases in which the plaintiff is unable to plead the relevant claim with greater clarity or particularity and an order striking it out will effectively prevent it from being litigated. In cases of that kind it is important to bear in mind the limited nature of the exercise undertaken by a judge on an application of this kind. Burn J provided a succinct statement of relevant principles in Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd (SC (Vic) No 9643/1992, 16 September 1994 unreported):

"I am permitted to look at the terms of the pleading only. This includes requests for particulars and the particulars provided by the plaintiff in response to those requests. The power is, of course, subject to my overriding discretion to refuse to strike out an offending part, a discretion which has as its starting point the requirement that pleadings and particulars be sufficient to enable the defendants to know what it is they have to meet and the trial judge to conduct the trial which is fair to all parties. In so far as it is contended that a particular paragraph or paragraphs does not disclose causes of action I am not determining a demurrer. A plaintiff will be stopped from putting a claim forward only where, assuming the facts pleaded have been established, the claim is so manifestly hopeless that a trial would be a futility. In case of doubt I should refuse to exercise the power."

The Federal Court has also cautioned that "a court asked to strike out all or part of a pleading needs to be careful to ensure that giving effect to the application does not prevent a party from making a case which it is entitled to make. One has to err on the side of caution lest one be deprived of a case which in justice it ought to be able to bring": see TPC v Pioneer Concrete (1994) 124 ALR 685 per Sheppard J at 695.

13. In support of his contention that the facts alleged in the Statement of Claim did not support the allegation that Mr Muir and/or third defendants had been guilty of a breach of fiduciary obligation Mr Collaery adopted the submissions which had been made by Mr Sheils QC on this issue during the course of a motion by the fourteenth defendant for similar relief. I have already given judgment dismissing that motion (see ACTSC 133) and in doing so rejected this contention. For the reasons then given I adhere to the view that the plaintiff's case on this issue cannot be regarded as manifestly hopeless. On the contrary, I think that the case is at least arguable.

14. Similarly, the contention that no constructive trust could have arisen as a result of any breach of fiduciary obligation by Mr Muir was raised by Mr Sheils in his submissions on behalf of the fourteenth defendant and for the reasons given in my judgment dismissing that motion I adhere to the view that there is an arguable case that the April and September funds were impressed with constructive trusts.

15. In developing his argument that neither the Third Further Amended Statement of Claim nor the foreshadowed amendments plead the claims against his clients with the particularity required by O 23 r 6, Mr Collaery adverted to the allegations against each of his clients of "participating in the breach of fiduciary duty by Muir and Callform in that on various occasions in various transactions the defendants participated with others in dealing with the April or September funds". He submitted that this amounted to an allegation that each such defendant had been an "accessory" to the breach of fiduciary duty by Mr Muir. Yet no facts had been pleaded to support such a conclusion. He also submitted that no facts had been pleaded to support the implicit allegations that at the time of entering into the various transactions the defendants had had certain mental states.

16. Order 23 r 6 of the Supreme Court Rules is in the following terms:

"In all cases in which the party pleading relies on any misrepresentation, fraud, breach of trust, wilful default, or undue influence, and in all other cases in which particulars are necessary beyond such as are exemplified in the Forms referred to in rule 5, particulars (with dates and items if necessary) shall be stated in the pleading."

Provided that, "if the particulars are of debt, expenses, or damages, and exceed 3 folios, the fact must be so stated, with a reference to full particulars already delivered or to be delivered with the pleading."

17. The purpose of this rule is to "protect parties from having mines sprung upon them at trial . . ." per Manning J in McGarrigle v Miller (1878) 1 SCR (NS) 5 at 7: see also Tooth and Ors v Davis and Kavanagh (1890) 7 WN 39 and J Earl Hermann Ltd v Ferry (1915) 32 WN 31.

18. Mr Collaery relied particularly on the judgment of Fitzgerald J in Lyons and Anor v Kern Konstructions (Townsville) Pty Ltd and Anor (1983) 47 ALR 114. In that case it was alleged that the applicant had been induced to enter into a lease of a shopping centre by the respondent's representations that it would be fully tenanted when opened and that a walkway from a council car park would be constructed within a certain period. After adverting to the English cases of Burgess v Batehoeven Electric Equipment Ltd [1943] 1 KB 96 (CA); Fox v H Wood (Harrow) Ltd (1963) 2 QB 601; and Feeney v Rix [1968] 1 Ch 693 his Honour held that the applicants had been required by the rules to particularise the facts upon which they relied in support of their allegations that the respondents had no reasonable expectation that the shops would be so tenanted or that the walkway would be constructed within the period nominated. However, the applicants had not sought particulars but an order for the summary termination of the proceedings. That application had been brought prior to discovery and turned largely on the question of whether there was a sufficient case to justify an order for discovery or whether such an exercise would amount to nothing more than a "fishing expedition". In the present case the plaintiff has had the benefit of discovery and there has been a police investigation at least in relation to the actions of Mr Muir. It is amply clear on the authorities that a party alleging fraud or complicity in fraud must provide adequate particulars of the allegation and if he or she is unable or unwilling to do so the allegation should be struck out, though whether such a drastic step should be taken before discovery will depend upon the considerations discussed in Lyons and Anor v Kerns Konstructions (Townsville) Pty Ltd and Anor.

19. In the present case I do not understand the plaintiff to be alleging that the eleventh, twelfth, thirteenth, twenty-second and twenty-third defendants were complicit in the breach of fiduciary obligation by Mr Muir as Mr Collaery suggests. In Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 at 109 Griffith CJ said that it had been pointed out by Sir George Jessel in a well known case "that a man may at a certain stage be innocent, but that, if he knows that he has got the advantage of a fraud to which he was no party and says he will keep it, then he becomes himself a party to the fraud and is liable to the jurisdiction of the Court of Equity". It is, I think, in this sense that the plaintiff alleges that these defendants participated in the breach of fiduciary duty by Mr Muir and the third defendant.

20. As presently pleaded the claims against the applicants allege that they knew of "the said dishonest breaches of fiduciary duty". It has been suggested that particulars of knowledge are not required "in the first instance" though they may be ordered: Lyons and Anor v Kerns Konstructions (Towlnsville) Pty Ltd & Anor at 124. However, as I have mentioned, the plaintiff no longer intends pursuing that contention. The case upon which it now intends to rely is apparently that each such defendant had reason to enquire into the possibility that Mr Muir and the third defendant were guilty of dishonest breaches of fiduciary duty but failed to make such enquiries "as an honest and reason man would make", or that they "wilfully and recklessly" failed to make enquiries.

21. In some circumstances a party may be taken to have had notice of some fact even in the absence of actual knowledge and the plaintiff has supplied particulars of a range of facts and circumstances from which it contends the necessary inferences of notice may be drawn.

22. Mr Collaery submitted that those facts and circumstances offer no support for the plaintiff's contentions. He provided detailed submissions concerning the various transactions in which his clients were said to have had some involvement and the information said to have been available to them at the time. He also canvassed the relevant legal principles. Whilst I am grateful to Mr Collaery for the detail and quality of his submissions concerning the plaintiff's particulars I have concluded that it is unnecessary and would perhaps be undesirable for me to address those issues in detail at this stage of the proceedings. To do so might be seen to involve some prejudgment of relevant issues. Furthermore, Mr Muir is currently awaiting trial on charges relating to the initial transactions and I am anxious to avoid making any findings that might be seen to involve even tentative prejudgment of issues that may arise at his trial or that might give rise to potentially prejudicial publicity. Nonetheless I have carefully considered all of the submissions which Mr Collaery has made on behalf of his client. However, I have concluded that he has not been able to demonstrate that the proceedings are "so manifestly hopeless that a trial would be a futility". In my view the case which the plaintiff has pleaded and particularised might raise an arguable case against each of the relevant defendants. There may be a fine line between particulars of facts and evidence of those facts and in the present case any determination of what inferences might properly be drawn from the facts and circumstances which have been particularised should be deferred until there can be a full hearing on the merits.

23. Mr Collaery also submitted that the claims based upon the concept of unjust enrichment were not maintainable against the applicants. The contention that such a remedy may only be invoked in relation to immediate recipients of funds was dealt with in matter number ACTSC 133 and I adhere to the view therein expressed that the application of the concept is not so confined. He also submitted that there are defences to the claims based upon unjust enrichment. That may well be so, but the existence of viable defences offers no grounds for striking out a statement of claim.

24. In support of the application for summary judgment, the twelfth defendant, Mr McCann, gave evidence explaining his involvement in the various transactions and his perceptions and beliefs at relevant times. Mr Collaery submitted that in the light of this evidence and the limited nature of the cross-examination I should be satisfied that none of the claims against him were maintainable.

25. For present purposes it is unnecessary and perhaps undesirable for me to embark upon any attempt to determine the weight which should be given to different aspects of his evidence or to form any tentative conclusions as to the plausibility of his explanations. The account which he gave may ultimately prove to provide a complete answer to all of the allegations pleaded against him and perhaps the other defendants for whom Mr Collaery appears. However it is impossible to make any real judgment to that effect without knowing what other evidence might be led at the trial of the action. It is a melancholy truism that even the most persuasive witnesses may sometimes prove to have given false or unreliable evidence and it is almost always impossible to conclude that the evidence of a particular witness is so compelling that any hearing of the action would be futile. As Lord Pearce observed in Rondel v Worsley [1967] UKHL 5; [1969] 1 AC 191 at 275 sometimes "those who have apparently hopeless cases turn out after a full and fair hearing to be in the right". In the subsequent case of John v Rees (1970) Ch 345 at 402 Megarry J put the matter even more emphatically, pointing out that the "path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained . . .". Hence, as David Pannick has stated "judgments of right and wrong are to be made after the [adversary] process, not before it begins": see Pannick D, Advocates, Oxford University Press, New York, 1992 at 150.

26. It is also true that Mr Slattery did not cross-examine Mr McCann on every aspect of his evidence. However the rule in Browne v Dunn does not always require that those portions of the evidence which have not been specifically challenged in cross-examination be accepted. Much depends on the circumstances: see, for example, ABC v Seymour (1977) 19 NSWLR 219 per Glass JA at 224-225 and Mahoney JA at 235-237. The rule in Browne and Dunn is only a rule of fairness the application of which may vary according to the circumstances. In the present case Mr Slattery was entitled to take the view that he needed to cross-examine Mr McCann only to the extent necessary to secure his client's position in relation to the motion then pending even if he anticipated that a more extensive cross-examination might be undertaken at the trial of the actions.

27. It should be noted that O 17 r 1 of the Supreme Court rules provides that such an application may only be made within ten days after entering an appearance or at any later time by leave of the court. In the present case the ten day period in question has long since passed but there have been several substantial amendments to the Statement of Claim and as I have indicated a further amendment is now contemplated. Furthermore, counsel for the plaintiff did not contend that the application was untimely. In these circumstances, were it not for the view which I have taken as to the merits of the present application, I would have been inclined to grant leave for the application to be made.

28. However, a defendant who seeks summary judgment in his or her favour embarks upon a formidable task. In General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129-130 Barwick CJ said the following:

"It is sufficient for me to say that [the earlier] cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involved useless expense".

At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or "so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument"; "so to speak apparent at a glance".

As I have said, some of these expressions occur in cases in which the inherent jurisdiction was invoked and others in cases founded on statutory rules of court but although the material available to the court in either type of case may be different the need for exceptional caution in exercising the power whether it be inherent or under statutory rules is the same. Dixon J (as he then was) sums up a number of authorities in Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 where he says at p 91: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with our without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process". Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings (at 84), in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed."

It has been suggested that the burden on a defendant may be higher than that of a plaintiff seeking summary judgment in his or her favour: South Australia v Hindmarsh Town Corporation (unreported BC 9300344, 10 March 1993) per Bollan J.

29. In the present case I am satisfied that there is a real question to be determined in the case against each of the applicants and that this very heavy burden has not been discharged.

30. For these reasons the motion must be dismissed.

31. I am not insensitive to Mr McCann's evidence that the existence of these proceedings and the allegations pleaded against him have already damaged his business. Those inclined to draw adverse inferences against him should bear in mind that he has not been charged with committing any offence and there has not even been any civil judgment against him. In other circumstances I might have been able to offer him an expedited hearing of the claims against him but having regard to Mr Muir's situation that is not practicable at this stage.

32. I will hear counsel as to costs.

I certify that this and the thirty-two (32) preceding pages are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

Associate:

Date: 15 December 1999

Counsel for the plaintiff: Mr Slattery QC

Solicitors for the plaintiff: The Australian Government Solicitor

Counsel for the defendant: Mr B Collaery

Solicitors for the defendant: Bernard Collaery & Associates

Dates of hearing: 20, 22, October, 4 November 1999

Date of judgment: 15 December 1999