Williams v Kazar [2004] ACTSC 104 (1 October 2004)

Last Updated: 29 October 2004

BARRY WILLIAMS v HENRY KAZAR

[2004] ACTSC 104 (1 October 2004)

PROCEDURE - pleading - defence - application to strike out matter as embarrassing

PROCEDURE - parties - claim in detinue against liquidator of company - whether capacity of liquidator should be pleaded - whether claim lies against liquidator or company

Supreme Court (Corporations) Rules 2003

Corporations Act 2001, s 417B

Supreme Court Act 1933, ss 25, 27, 33

Supreme Court Rules, O. 19, O. 23 r. 4, r 28, O. 25

No. SC 317 of 2004

Judge: Master Harper

Supreme Court of the ACT

Date: 1 October 2004

IN THE SUPREME COURT OF THE )

) No. SC 317 of 2004

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: BARRY WILLIAMS

Plaintiff

AND: HENRY KAZAR

Defendant

ORDER

Judge: Master Harper

Date: 1 October 2004

Place: Canberra

THE COURT ORDERS THAT:

1. The third, fourth and fifth sentences of paragraph 3 of the defence be struck out.

2. The words "but denies that the demand is reasonable or proper in the circumstances" be struck from the first sentence of paragraph 4 of the defence.

3. The second sentence of paragraph 4 of the defence be struck out.

4. The defendant's application made by notice of motion dated 16 September 2004 be dismissed.

5. The defendant have liberty to apply in relation to amendment of the defence and any other issues arising out of these reasons on two days notice.

1. These are competing interlocutory applications by the plaintiff and the defendant. The substantive action is a claim in detinue in respect of a certificate of title to a parcel of land in New South Wales. The defendant was appointed by this Court as liquidator of a company, Master Design Group Pty Limited, in March 2004, and came into possession of the documents in that capacity.

2. The plaintiff is the registered proprietor of the parcel of land and asserts in the statement of claim that he is the owner of the certificate of title. His claim is simply pleaded. He says that on or about 22 March 2004, the defendant, without his knowledge or consent, took possession of the documents; that despite demand, the defendant has refused to return the documents; and that by reason of the defendant's failure to return the documents, the plaintiff has suffered loss and damage and is continuing to do so.

3. The plaintiff has delivered a defence. The defendant moves the Court for orders that portions of the defence be struck out as frivolous, vexatious, disclosing no reasonable answer, or a combination thereof.

4. The defendant complains that he has been sued in his personal capacity. He seeks an order that the statement of claim be struck out as disclosing no cause of action against him in his personal capacity. In the alternative, he asks the Court to give the plaintiff leave to amend the statement of claim by substituting the company in liquidation for the individual.

5. It will be necessary for me to set out the portions of the defence to which the plaintiff takes objection:

3. The defendant denies paragraph 3 of the plaintiff's statement of claim. The defendant is the Official Liquidator of Master Design Group Pty Limited (In Liquidation) ACN 105 272 446 (the company) and says that the title deeds were located amongst company records which the defendant came into possession of following his appointment as liquidator of the company. The defendant has conducted inquiries to determine what interest the company has in the title deeds. Those inquiries suggest that the title deeds were provided as security for a loan that the company had some involvement in and that the company may be entitled, as mortgagee, to possession of the title deeds. The defendant says further that neither the plaintiff, nor the officers of the company, have assisted him with his inquiries, which has necessitated a public examination into the company that is before this honourable Court on 6 October 2004.

4. The defendant admits that the plaintiff has demanded that the defendant release the title deeds to the plaintiff but denies that the demand is reasonable or proper in the circumstances. The defendant's inquiries and the company records suggest that the defendant, in his capacity as official liquidator of the company, is entitled to retain possession of the title deeds. The defendant says further that his duties as official liquidator of the company prevent him from releasing the title deeds until the reason for their inclusion amongst company records is determined.

6. The defendant has sworn an affidavit which was read without objection as evidence in his application. He deposes that he was appointed official liquidator of Master Design Group Pty Limited on 22 March 2004. On or about 26 March, he attended the company's leased premises in London Circuit and took possession of the books and records of the company. He subsequently discovered among the books and records the title deeds in relation to the NSW property, a block at Bateman's Bay. He says that he has since been attempting to determine what interest the company has in the title deeds and the reason for their inclusion among company books and records. He says that he has had no assistance for the plaintiff or the officers of the company in this regard, and that the officers of the company have thus far failed to complete a report as to affairs. A public examination is to take place on 6 October 2004, and the plaintiff, though not a director or officer according to company records, is one of the persons to be examined. He says that one of the purposes of the examination is to determine the extent of involvement by the plaintiff in the company's affairs. He offers to return the documents as soon as he is satisfied that the company has no interest in them.

7. Counsel for the defendant tendered copies of correspondence between the solicitors for the parties to assist me in understanding the background to the matter, though not as evidence of the truth of any factual assertions in the letters. In the first of these letters, dated 20 April 2004, the plaintiff's solicitors stated that according to their instructions, the title deed documents were in the briefcase of Mr M J Williams, who, I was informed, is the plaintiff's son and a director of the company. The documents were said to be in his personal possession, and not, at any time, in the possession of the company. I have assumed for the purposes of the applications that the plaintiff and Mr M J Williams are likely to give evidence consistent with those instructions.

8. Also included in the correspondence is a letter from the defendant's solicitors which refers to the company having repaid a loan made by a trust to the plaintiff and Mr M J Williams in November 2003, the Bateman's Bay property having being security for the loan. The solicitors express the view that when the company paid out the loan to the trust, the company became entitled to step into the shoes of the trust as lender, and became entitled to the benefit of any securities. They assert that the liquidator is entitled to hold the title deeds as security for the loan. The defendant did not advert to these issues in his affidavit.

9. The requirements for a defence are set out in the rules, specifically in Orders 23 and 25. Order 23 rule 4 provides that a pleading must contain, and contain only, a statement in summary form of the material facts on which the party relies, though not the evidence by which they are to be proved. The plaintiff's application would involve my exercising the power conferred by Order 23 rule 28, which provides as follows:

The Court may, at any stage of the proceedings, order to be struck out or amended any matter in any indorsement or pleading which is unnecessary or scandalous, or may tend to prejudice, embarrass, or delay the fair trial of the action, and may in any such case, if it or he or she thinks fit, order the costs of the application to be paid as between solicitor and client.

10. Counsel for the defendant was not able to refer me to any authority for the proposition that an action of this kind was incapable of succeeding against a defendant named as an individual where the defendant came into possession of the items alleged to be detained in his capacity as liquidator of a company. The defendant's argument is not assisted by any of the rules in Order 19, which deals with parties, although rule 9 of that Order deals with actions by and against trustees, executors and administrators. The Supreme Court (Corporations) Rules 2003 do not assist, as they provide only for litigation under the Corporations Act 2001. Counsel for the defendant sought to make something of s 471B of the Act, which would prevent a person beginning a proceeding in a court against a company or in relation to property of a company being wound up by the court, except with the court's leave. It seems to me that the section can have no application to the present action, which is not against the company, and which will fail unless the plaintiff can establish that the documents are his property and not the property of the company.

11. It is not necessary for me to determine whether action could have been brought against the company itself (assuming a grant of leave) or against the named defendant in the stated capacity of liquidator of the company. The defendant's application can succeed only if I am satisfied that the action as brought must fail by reason of the fact that the defendant has been named as an individual and that he is in possession of the documents in his capacity as liquidator. In the absence of any rules of this Court or other legislative provision, and of any authority supporting the defendant's argument, I am not satisfied, and the defendant's application must be refused. This would not preclude the defendant from amending his defence so as to raise and rely on the argument as a defence to the plaintiff's claim. If he were to do so, the outcome would not, it seems to me, be so clear that either side could expect to succeed in a summary application, either that such a defence must succeed, or that it must fail.

12. I return to the plaintiff's application, which requires a detailed consideration of the contents of the paragraphs of the defence set out above. Dealing with paragraph 3, it seems to me that the last sentence of that paragraph cannot give rise to any defence to the plaintiff's claim, so that that sentence must be struck out.

13. The second last sentence could stand only if it asserted a fact inconsistent with the plaintiff's success. For example, an assertion that the title deeds were at all relevant times the property of the company as security for the loan mentioned would be permissible. It is not permissible in a pleading simply to suggest that a factual assertion may be true. If the defendant wishes to rely on facts which disentitle the plaintiff from succeeding, as opposed to simply denying the plaintiff's factual assertions, then the defendant must assert the facts on which he relies. The second-last sentence of paragraph 3 must also be struck out.

14. The second and third sentences of paragraph 3 are assertions of fact, and indeed facts with which the plaintiff probably does not argue. The third sentence really contributes nothing to the defence and I think must go. The second sentence may have a place in the pleadings. The sentence would be permissible as the foundation of an argument by the defendant that the action could not succeed against him as a named individual, a question to which I have referred earlier. It might also be relevant to orders about damages and costs: the defendant might wish to argue that any order made against him requiring the payment of money should be limited to the assets of the company and should not expose him to personal liability. Such an argument would require evidence of his status as liquidator of the company, and I can see an argument that the assertion should be contained in the defence.

15. As to paragraph 4, the second sentence must be struck out, because it "suggests" facts rather than asserting them.

16. The third sentence in paragraph 4 appears to raise a legal issue by way of defence, as to the competing legal duties of the possessor of another person's document and the liquidator of a company. I am not in a position to say that an argument related to this apparent conflict is untenable. I think that the sentence gives rise to an issue which may need to be resolved in the substantive action.

17. In the first sentence of paragraph 4, the defendant admits the demand but denies that the demand is reasonable or proper in the circumstances. The manner in which the sentence is drafted is embarrassing because it potentially gives rise to a false issue. The plaintiff has not asserted that the demand was reasonable or proper, and is not obliged to assert or prove that the demand was reasonable or proper. No onus lies on the plaintiff in this regard. It may be that the intention of the defendant was to assert that the demand was unreasonable or improper or both. Although an action in detinue is an ancient and time-honoured cause of action, I cannot be sure that a defendant may not be able to mount an equitable defence to a claim in detinue based on unconscionability, in circumstances which might depend on the relationship between the plaintiff and the defendant. The Supreme Court Act 1933 provides that law and equity are to be concurrently administered in the Court (s 25), and that defendants are entitled to rely on equitable defences in appropriate cases (s 27). Where there is a conflict between the rules of equity and the rules of the common law, the rules of equity are to prevail (s 33). It is conceivable that the defendant may be able to maintain an equitable defence based on the demand being unreasonable or improper or both. If the defendant wishes to do so, he cannot do it by denying that the demand is reasonable or proper, as though the plaintiff had asserted the proposition. He will need to do it by making a positive factual assertion, and he is likely to be required to provide particulars of such an assertion. It seems to me that I should strike out from the first sentence in paragraph 4 the words "but denies that the demand is reasonable or proper in the circumstances" but permit the defendant an opportunity to deliver an amended defence if so advised. I propose to grant liberty to apply in that regard.

18. As the plaintiff has generally succeeded in his application, and the defendant has failed in his, I am provisionally minded to order that the defendant pay the plaintiff's costs of the application. I am of the view that he should be indemnified against the liability for costs out of the assets of the company, though an order in those terms is probably not necessary. Liberty to apply will extend to that issue if an order is thought to be needed.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Associate:

Date: 17 September 2004

Counsel for the plaintiff: Mr R G Thomas

Solicitor for the plaintiff: S & T Lawyers

Counsel for the defendant: Mr I J Nicol

Solicitor for the defendant: Williams Love & Nicol

Date of hearing: 24 September 2004

Date of judgment: 1 October 2004