FEDERAL COURT OF AUSTRALIA

Brosnan v Katke [2012] FCA 1249

THE COURT ORDERS THAT:

1.    The Statement of Claim filed in the proceeding on 9 August 2012 is struck out.

2.    The applicants have leave to file and serve within 28 days an amended statement of Claim which takes into account the amendments proposed by the applicants by the Amended Statement of Claim dated 18 September 2012, subject however to and in accordance with, the observations of the Court set out in the accompanying Reasons for Judgment on the questions in issue raised by the interlocutory application filed by the respondents.

3.    The costs of the interlocutory application are reserved.

4.    The parties are directed to put on short submissions of no more than four pages each as to the disposition of the reserved costs, within 14 days.

5.    The question of the disposition of the reserved costs of the interlocutory application shall be addressed on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

Background

1    This proceeding concerns an Interlocutory Application by which the respondents to the principal proceeding seek a range of orders in relation to the Statement of Claim of the applicants.

2    The Application recites 16 possible orders some of which are directed to striking out pleaded particulars of paragraphs of the Statement of Claim whilst other orders are directed to striking out those paragraphs in their entirety, in any event. Other orders seek the provision of particulars, or further particulars, of other paragraphs of the Statement of Claim.

3    The rational order of analysis of the merits of the Application is to first examine whether the primary paragraphs, said to reveal a failure to properly plead the contended contraventions, ought to be struck out. The challenge to the adequacy of the pleaded particulars, and whether reciting particular documents such as emails as “particulars” of pleaded representations, constitutes a “proper particular” of a pleaded material fact, can then be considered although there is a degree of overlap between the two.

4    In their challenge to the Statement of Claim the respondents have filed and rely upon a very substantial affidavit sworn by Mr McDonnell divided into two volumes consisting of 1,050 pages of which 1,046 are primary documents. These documents, in the main, of course, go to questions of primary fact none of which, obviously enough, will be resolved on this application. Some of them have been referred to in the context of whether certain emails can properly be characterised, in each particular case, as a “particular” of a pleaded representation. Others go to exchanges between the solicitors for the parties. In all, less than about 30 of the documents have been referred to in oral and written submissions.

5    The challenge to the adequacy of the Statement of Claim is fundamentally a matter to be determined on the face of the pleading although it has been necessary to examine some of the documents so far as the second limb of the challenge to the pleading is concerned.

6    The interlocutory Application was filed on 12 September 2012.

7    The Statement of Claim had been filed on 9 August 2012. A letter was then sent by the solicitors for the respondents to the solicitors for the applicants on 27 August 2012 seeking particulars of various paragraphs of the Statement of Claim and raising other matters. The letter enclosed a Notice to Produce 19 documents referred to in the pleading. The solicitors for the applicants responded on 29 August 2012. Other exchanges took place between the solicitors during early September and on 7 September 2012 the applicants formulated and sent to the respondents’ solicitors a proposed Amended Statement of Claim. Other relatively brief email exchanges occurred between the solicitors including exchanges on 11 September 2012. As mentioned, the interlocutory Application was then filed on 12 September 2012.

8    On 14 September 2012, the applicants’ solicitors sent a letter to the respondents’ solicitors saying that “a large proportion of the relief sought in the [strike-out] application has not been raised before”. They then addressed aspects of the orders recited in the Application. The respondents’ solicitors replied on 14 September 2012. On 18 September 2012, the applicants’ solicitors provided the respondents’ solicitors with a further proposed Amended Statement of Claim which is said to address the criticisms of the original and also the proposed First Amended Statement of Claim.

9    The present Application was heard at 2.15pm on 18 September 2012.

10    I mention this chronology for two reasons.

11    First, I propose to address the merits of the challenge to the pleading by reference to the proposed Amended Statement of Claim of 18 September 2012 which I will simply call the Amended Statement of Claim.

12    Second, the written submissions of the respondents (as applicants on the Interlocutory Application) set out developed contentions as to the contended inadequacy of the pleading. In the context of the controversy now agitated by this Application filed on 12 September 2012 the applicants in the principal proceeding (as respondents on the interlocutory Application) have put on submissions in response. In making a challenge to a pleading, the far better course (and the orthodox course in commercial litigation) when a respondent or defendant contends that a statement of claim fails to properly plead a cause of action or, for one reason or another, the pleading is susceptible of strike-out under any limb of rule 16.21(1) (and particularly rules 16.21(1)(c), (d) and (e) of the Federal Court Rules 2011) is to comprehensively put the opposing pleader on notice of not just conclusionary assertions about the pleading but a brief explanation of the contended problem with the pleading so as to give the pleader an opportunity to address and attempt to cure the problem or otherwise reject the contention, stand on the pleading and explain, inter-parties, why. That opportunity might go some substantial way to resolving concerns, or more likely, at least narrow the questions in issue.

13    This Application began, however, at a point on the continuum which failed to adequately exhaust what might have been a more comprehensive time saving inter-parties caucusing about the adequacy of the pleading.

General principles

14    Before examining the pleading in the context of the orders sought by the applicant respondents, these general observations can be made.

15    A statement of claim must, as briefly as the nature of the case permits, state the material facts on which the applicant relies that are necessary to give a respondent fair notice of the case to be made against that party at the trial of the action but not the evidence by which the material facts are to be proved: rule 16.02(1)(b) and (d). The pleading must identify the issues to be resolved at trial, make reference to any statute relied upon and identify the specific relief claimed: rule 16.02(1)(c), (e) and (f). A pleading must not be ambiguous or be likely to cause prejudice, embarrassment or delay in the proceeding or fail to disclose a reasonable cause of action or other case appropriate to the nature of the claim to be made at trial: rule 16.02(2)(c), (d) and (e). A pleading which offends against the rule is susceptible of strike-out: rule 16.21(1)(c), (d) and (e).

16    In considering whether a pleading fails in the relevant respects, the Court accepts at face value the facts asserted in the pleading.

17    An applicant must plead a fact if a failure to do so might take a respondent by surprise: rule 16.03(1)(b).

18    A party need not plead a fact if the burden of proof of that fact falls elsewhere: rule 16.03(2).

19    Reference in a statement of claim to a document or spoken words need only recite the effect of the document or words. However, if “the words are material to the pleading” the pleading must include the words: rule 16.04(1) and (2).

20    As to particulars, the applicant must state in the pleading or in a document filed and served with the pleading, the “necessary particulars of each claim pleaded by the party”: rule 16.41(1). The object of particulars is to limit the generality of the pleading. Particulars serve the purpose of telling the respondent the nature of the case the respondent has to meet at trial; preventing the respondent being taken by surprise at trial; and, enabling the respondent to gather evidence directed to answering the case to be made: rule 16.41(2).

21    Particulars do not operate to circumscribe, modify or alter the cause of action sued upon. The function of particulars is to limit the issues of fact to be investigated: Mummery v Irvings Pty Ltd (1956) 96 CLR 99 at 110 and 111; Katsilis v Broken Hill Pty Co Ltd (1977) 52 ALJR 189 at 201.

22    An applicant must plead the cause of action or case to be made at trial with sufficient particularity to serve these purposes.

23    The adequacy of the statement of claim is ultimately to be addressed by reference to whether the claim is pleaded at a level of particularity that is sufficient to define the issues and inform the respondent of the case it has to meet in the context of the particular allegations being made.

24    The statement of claim must plead all the material facts necessary to sustain each of the integers upon which the cause of action depends. A statement of claim that simply pleads a conclusion is embarrassing and cannot be permitted to stand.

25    As to sufficient particularity of knowledge, rule 16.43(1) provides that a party who pleads a “condition of mind” must state in the pleading particulars of the facts on which the party relies. A condition of mind means, among other things, “knowledge”: rule 16.43(3)(a). Moreover, rule 16.43(2) provides that if a party pleads that another party “ought” to have known something, the party so pleading “must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge” [emphasis added].

26    In Young Investments Group Pty Ltd v Mann [2012] FCAFC 107, the Full Court (Emmett, Bennett and McKerracher JJ) said this on the question of knowledge:

9.    It has long been the case, in various jurisdictions, that particulars are to be provided of facts and circumstances relied upon to support a plea that something ought to have been known (see Fox v H Wood (Harrow) Ltd [1963] 2 QB 601 at 604 and Smith v Littlemore (1996) 15 WAR 289 at 300). Knowledge itself has usually been treated differently. Knowledge of, or recklessness towards falsity, by way of example, may usually be pleaded as the material fact without particularisation (see Ritter v North Side Enterprises Pty Ltd (1975) 132 CLR 301 at 304). Allegations of fraud, or the involvement of persons in statutory breaches sufficiently analogous to allegations of fraud, on the other hand, have required the provision of quite specific particulars.

10.    The reason for not being required to particularise knowledge is not fully explained in the cases. It may be assumed that, on the one hand, there is the obvious difficulty of knowing what is inside another’s mind. On the other hand, there may be instances where the evidence to be relied upon to establish knowledge could be identified by particulars. That evidence might be an admission or a communication, written or oral, that could only give rise to the relevant state of mind. In appropriate cases, the provision of particulars has been ordered when sought.

11.    There are sound reasons for requiring knowledge to be particularised, at least in relation to the kind of allegations made in the Statement of Claim. Proving a director’s actual knowledge of the essential ingredients of a contractual or tortious breach or statutory contravention is a prerequisite to the director’s personal liability. For statutory breaches, it is well established that, in order to be an accessory or to be knowingly involved in a contravention, a person must have intentionally participated, having knowledge of the essential matters constituting the contravention (see Yorke v Lucas (1985) 158 CLR 661). That is not imputed or constructive knowledge but, rather, actual knowledge. It would not usually be sufficient to establish a statutory breach to show that a person said to be an accessory to such a breach wilfully shut his or her eyes to the obvious (see Giorgianni v R. (1985) 156 CLR 473). Actual knowledge of suspicious circumstances and failure to make enquiry may be different (see Pereira v Director of Public Prosecutions (1988) 63 ALJR 1 at 3). However, actual knowledge of suspicious circumstances is not pleaded in the Statement of Claim in the sense required for accessorial liability.

[emphasis added]

27    It will be necessary to return to the question of knowledge in the context of Yorke v Lucas (1985) 158 CLR 661 and s 75B of the Trade Practices Act 1974 (Cth), in the particular context of the matters pleaded in the Amended Statement of Claim and the point of distinction reflected in Hamilton v Whitehead (1988) 166 CLR 121, later in these reasons.

The Amended Statement of Claim of 18 September 2012

28    These are the pleaded matters.

29    The third respondent, Metagenics Inc. (“M Inc.”) is a company engaged in trade and commerce. So too is its wholly owned subsidiary, the second respondent, Metagenics Australia Pty Ltd (“M Aust”). The first respondent, Jeffrey Katke (“Katke”), was at the relevant time a Director of both companies. So too was the fourth respondent, Jeffrey Bland (“Bland”). Jerry Morey (“Morey”) who is not a respondent was the Chief Financial Officer (CFO) of M Inc.

30    The applicants were, up to and including 27 April 2005, shareholders in a company called Health World Limited (“HWL”). There are nine applicants: Michael Brosnan (“MB”), Leon Brosnan (“LB”), Mary Brosnan, Alan Gee (“Gee”), Alan B. Grant (“ABG”), Barbara Grant, Alan D. Grant (“ADG”), Michael Curley and Graeme Joiner.

31    From May 2004 until 27 April 2005 (12 months), the applicants and the respondents were engaged in negotiations for the purchase by M Aust of the HWL shares of all of the applicants. Those negotiations were conducted by Katke and Morey on behalf of M Inc. and M Aust: para 3(i). The applicants plead by para 3(ii) that the negotiations were conducted (substituting for ease of reference the names of the individuals) on behalf of all of the applicants by:

Michael Brosnan and Alan Gee or alternatively Michael Brosnan and/or Leon Brosnan and/or Alan Gee and/or Alan B. Grant.

32    During the course of negotiations Katke and Morey made six representations on behalf of M Inc. and M Aust to “Michael Brosnan and/or Leon Brosnan and/or Alan Gee and/or Alan B. Grant” on behalf of all of the applicants: para 4. In other words, the applicants plead that M Inc. and M Aust made, by Katke and Morey, six representations to all of the applicants by making the representations to the conjunction or alternatively the disjunction of individuals in the way described.

The 2005 representations

33    The first representation is this:

a.    [M Inc.] would be ready to proceed to an initial public offering (“IPO”) on a recognised US stock exchange during 2005…

34    As to that representation, 13 particulars are pleaded of it which might be thought to express matters directed to when the representation was made during the 12 month period; whether it was made by Katke or Morey; and how it was made (whether in writing, orally or a combination of both).

35    The first particular of the representation is that it was made by Katke to Gee by email on 28 September 2004. That email says:

I suggest that you, Mike [Curley], Michael [MB] and Leon [LB] might want to attend our December sales meeting in Seattle Washington. We will have a strategic planning session with Belgium, Australia and the US. I could also have our investment bank meet with you and explain the IPO process and timelines. We also could have a complete presentation of the complete science behind Kaprex and our other ExpresSyn discoveries. The sales meeting is currently scheduled for Dec. 13-16. We could meet on Sunday the 12th or Friday the 17th. I prefer the 12th but I will have to see what David Schechter’s (investment banker) availability is.

By the way the placebo controlled research on Kaprex was positive. We have a blockbuster on our hands! We are shooting for an IPO in March or April markets permitting.

36    That email was in response to Gee’s email of 22 September 2004 to Katke which said:

Following your visit Michael [MB] mentioned that Mike Curley & I should attend a meeting in Dec with the Belgium people & the investment bank, with a view to better understanding the science & the IPO.

Would you please let me know details of the meeting/s.

37    The second particular of the making of the representation is an email sent by Katke to MB, LB and Gee on 15 October 2004. It says:

Attached is our proposed structure for the acquisition of Health World by Metagenics. I think it meets your goals for valuation and also lets you participate in the upside of the IPO. It helps us because we can include your sales and profits in the IPO offering memorandum and it should help get a higher value if everything works as planned.

As always let’s talk if there are issues we have not adequately addressed.

38    The attachment says that Morey and Katke have worked out a “deal structure” by which the HWL shareholders (all the applicants) will get eight times an EBITDA (Earnings Before Interest Tax Depreciation and Amortization) valuation “as of 31 June, 2005” (after the close of the financial year) for the sale of their shares in HWL and the share acquisition agreement will enable M Inc. to include HWL revenue and profit in the offer document for an IPO. In the attachment, Katke proposes these elements, among others, of the “deal structure” for the acquisition. If the IPO occurs “before the June 31, 2005 year end” (or a nominated alternative) the acquisition price for the HWL shares will be paid according to a particular formula by particular dates; if the IPO occurs after the alternative date (being the receipt of a KPMG Audit Report for the year ending 30 June 2005) a different payment formula applies; a binding Share Acquisition Agreement is to be signed by 1 December 2004; the acquisition transaction is to close and settlement draw-downs to occur “as soon as possible following the [M Inc.] IPO” to fund settlement; the Acquisition Agreement is to expire 12 months from signing “in the event that no IPO occurs”; and, HWL operations are to “continue under the control of current management, using current salary structures, with mutually agreed operating budgets providing financial guidelines for unusual operating expenses, EBITDA and distributions to shareholders”.

39    The cash, and share components (being the issued shares in M Inc. as listed after the IPO), of the purchase price to be paid to each of the applicant’s shares, is set out on an attached schedule attached to Katke’s email to MB, LB and Gee of 15 October 2004.

40    The third particular is that the representation was made by Katke to MB, LB, Gee and Alan B. Grant by email on 3 November 2004. The email is addressed to Gee and copied to MB, LB and ABG. It addresses the “deal structure” and says:

After reviewing your proposal I would differ with you on you[r] statement that we are getting close. I would say that we are getting farther apart. Your proposal is too rich for us. I think that you are making a mistake in continuing to increase your price. At these values we are better off to go with the option agreement cash payments formula.

We are meeting with investors next week and have a new valuation strategy to achieve a pre-IPO valuation of $350 million. We will double that value with a licensing deal with a pharma company, for a total value of $700 million. We meet with Pfizer for licensing discussions on Wednesday. You think that your business is increasing in value day to day, but so is ours. Once we lock in our valuation with another investor the stock now generously valued at 1.5 times could go up to 3.5 times sales or greater. If we get strong interest in a licensing deal with Pfizer it goes up to 7 times sales.

Jerry is in Belgium this week. When he returns we will review your proposal and let you know what we can do. If it is not enough, we understand. We can go back to the option agreement, cash payment formula. We are not eager to give up more of Metagenic[‘s] shares anyway.

41    The fourth particular of the representation is that it was made (or something to that effect was said) in a telephone conversation between Morey and Gee on 11 November 2004.

42    The fifth particular is that the representation was made orally (by either Katke or Morey although no individual is identified) to MB, LB, Gee and ABG in a meeting on 17 November 2004 in San Clemente.

43    The sixth particular is that the representation was made in a written presentation entitled “The Initial Public Offering Process” prepared by Needham, at p 45 (which sets out an 11 week (plus) preliminary activity schedule to implement an IPO process). It was presented at the 17 November 2004 meeting in San Clemente with MB, LB, Gee and ABG.

44    The seventh particular of the making of the representation is an email sent by Morey to Gee on 1 December 2004. In that email, Morey emphasises a tax advantage (of benefit to Australian HWL shareholders) that has been able to be preserved in structuring the acquisition of the shares in the context of the proposed IPO by virtue of the preservation of the corporate status of the share transferring entity. The email has to be read in the context of an earlier email from Stelzner, Partner International Corporate Strategies, to Morey concerning structural arrangements.

45    The eighth particular of the making of the representation is an email sent by Morey to Gee on 2 December 2004.

46    The ninth particular is an email by Morey to MB, LB, Gee and ABG on 5 December 2004. The email attaches a spreadsheet by which Morey sets out an analysis of the cash payments (both initial cash payments and possible additional cash payments) to be paid to all of the applicants for the sale of their HWL shares. The spreadsheet enables each of the applicants to enter amounts in the “additional cash” column of the spreadsheet against their name. Those new cash amounts would be automatically deducted from the cash to be received by the particular applicant from the conversion of preferred A stock converted upon listing as a result of the IPO. The spreadsheet also is said to take into account an adjustment in the preferred B stock available to each of the applicants by transferring some of those shares to Bison Capital/GE (“Bison”) in consideration of Bison providing any one or more of the applicants with “additional cash at the funding date”.

47    The tenth and eleventh particulars are telephone conversations between Morey and Gee on 18 January 2005 and 1 February 2005.

48    The twelfth particular is an email sent by Morey to MB, LB, Gee and ABG on 17 March 2005. In this email Morey addresses the topic of the “Shareholders Agreement”. It needs to be read in the context of ABG’s email to Morey of 15 March 2005. The 17 March 2005 email says:

The preferred stock is going to have a separate document since it will get redeemed for cash at the IPO. I should be receiving it shortly and will forward it to you.

We have been working on the tax aspects from the seller’s and buyer’s points of view as well as future tax considerations of the combined entity. We are getting closer to figuring out the best tax structure.

49    The thirteenth particular of the making of the representation is an email sent by Morey to MB, LB, Gee and ABG on 4 April 2005.

50    The second representation is this:

b.    for the purposes of an IPO [M Inc.] could legitimately hold itself out as a specialty pharmaceutical company...

51    As to that representation, six particulars are pleaded of it.

52    The first particular of the making of the representation is that it was made orally by Katke to MB, LB, Gee and ABG at a meeting in Brisbane between 7 and 11 May 2004. The second particular is that it was made in Katke’s email to Gee on 28 September 2004 (see [27] of these reasons). The third particular is that it was made in a telephone conversation between Katke and Gee on 1 October 2004. The fourth particular is an oral representation by Katke and Morey to MB, LB, Gee and ABG in the meeting on 17 November 2004 in San Clemente. The fifth particular of the making of the representation is the written presentation prepared by Needham presented at the meeting on 17 November 2004. The sixth particular is a telephone conversation between Katke and Gee on 18 January 2005.

53    The third representation is this:

c.    the American division of [M Inc.] would have the following revenue:

54    The particular of the representation is that it is contained in an email together with an attached spreadsheet from Morey dated 11 September 2004 to MB, LB, Gee, ABG and also to Katke.

55    The fourth representation is this:

d.    the European division of [M Inc.] would have the following future revenues:

56    Again, the particular of the representation is that it is contained in an email together with an attached spreadsheet from Morey dated 11 September 2004 to MB, LB, Gee, ABG and also to Katke.

57    The fifth representation is this:

e.    the earnings before interest, tax, depreciation and amortization (“EBITDA”) for the American division of [M Inc.] and the European division of [M Inc.] would be as follows:

58    The same particular is given as that given for representations c. and d.

59    The sixth representation is this:

f.    impliedly that any shares taken in [M Inc.] by the applicants in exchange for the HWL shares would increase in value by reason of the matters pleaded in (a) – (e) herein such that the applicants would be better off as a consequence of selling the HWL shares to [M Aust].

60    These six representations are described as the 2005 representations.

61    The representation pleaded at para 4(f) is an implied representation. The representations at para 4(a) to (e) are express representations.

The Pfizer representations

62    By para 5 the applicants plead that between late 2004 and early 2005 Katke and Morey on behalf of M Inc. made six representations to “[MB] and/or [Gee] on behalf of all of the applicants”. The six representations are these:

a.    [M Inc.] was in discussions with a large pharmaceutical company, Pfizer which had expressed very strong and imminent interest in licensing an anti-inflammatory product produced by [M Inc.] known as Kaprex;

b.    the research on Kaprex indicated that it was an effective anti-inflammatory product;

c.    Kaprex worked just as effectively as an anti-inflammatory product already on the market called Vioxx which had been recalled due to cardiovascular side-effects;

d.    Pfizer’s consumer and drug arms were both looking at the Kaprex mechanism of action which was being reviewed by Pfizer’s scientific advisory board;

e.    a licensing deal with Pfizer with respect to Kaprex would provide substantial revenue to [M Inc.] over and above [the revenue] pleaded in paragraphs 4(c) and (d) herein [see [53] and [55] of these reasons];

f.    [M Inc.] had determined to slow the provision of information to Pfizer to give [M Inc.] time to strengthen its patent position before it entered into a licensing deal...

63    These six representations are called the Pfizer representations.

64    There are six particulars of the making of the Pfizer representations. The first is the email from Katke to Gee of 28 September 2004. The second is a telephone conversation between Katke and Gee on 1 October 2004. The third is a telephone conversation between Katke and MB on, in or about October 2004. The fourth is an email from Katke to Gee dated 24 December 2004. In that email, Katke says, among other things, this:

This will probably be the brightest of years in a history of bright years. Everything is progressing well. We have had our first meeting with our attorneys to begin the IPO process yesterday. The Pfizer discussions continue to advance. I will be in touch regarding the COO position.

65    The fifth particular of the making of the representation is a telephone conversation between Morey and Gee on 18 January 2005 and the sixth particular is a telephone conversation between Morey and Gee on 1 February 2005.

66    The representations at paras 4(a), (c), (d), (e) and (f) are representations as to future matters. The representation at para 4(b) is a representation as to a present or past fact. The representations at paras 5(a), (b), (c), (d) and (f) are representations as to a present or past fact and the representation at para 5(e) is a representation as to a future matter.

67    At para 11, the applicants plead that in so far as the 2005 representations and the matter pleaded at para 5(e) of the Pfizer representations concern future matters, the applicants rely upon s 51A of the Trade Practices Act 1974 (Cth).

68    At para 12, the applicants say that in late 2004 and early 2005 discussions as between M Inc. and Pfizer with respect to a possible licensing arrangement between the companies concerning M Inc.’s product Kaprex, “were put on hold because Pfizer had entered into a restructuring which resulted in a change of personnel and focus”. The applicants say that they cannot give further particulars of that fact until after disclosure except to say that MB and Gee were informed to that effect by Katke and Morey “for the first time in January 2007 at a face to face meeting”.

69    The applicants say that by reason of the true position concerning a licence or possible licence of the Kaprex product, the Pfizer representations were false when made.

Reliance upon the 2005 representations and the Pfizer representations

70    In reliance upon the 2005 representations and the Pfizer representations and induced by those representations, each of the applicants entered into a written share purchase/sale agreement dated 27 April 2005 described in the pleading as the “2005 agreement”. Four particulars are given of entry by all of the applicants into the 2005 agreement in reliance upon the 2005 representations and the Pfizer representations.

71    The first particular is that prior to entering into the 2005 agreement “the applicants had numerous informal meetings and conversations in which it was discussed whether they should enter into the 2005 agreement”. By particular two, the applicants say that in so far as any of the applicants were not party to the conversations or emails particularised in relation to the 2005 representations and the Pfizer representations, Michael Brosnan and/or Alan Gee or alternatively MB and/or LB and/or Gee and/or Alan B. Grant orally informed all of the applicants of those representations. By particular three, the applicants say that the discussions amongst themselves included consideration of those representations. By particular four, the applicants say that the 2005 representations and the Pfizer representations were “material to the applicants when considering whether or not to enter into the 2005 agreement”.

72    At para 8, the applicants set out the essential terms of the 2005 agreement which involved the applicants selling their shares in HWL to M Aust for $39,600,000 on the identified terms as to the payment of the consideration which involved a cash element; the transfer of preferred A stock and common stock in M Inc. at particular values; the issuing of common stock in M Inc. to Gee in a trustee capacity and to Graeme Joiner according to the terms of the agreement.

73    Other terms of the 2005 agreement are set out at para 8.

74    The agreement was completed although the pleading does not identify when that step occurred: para 9.

75    Apart from pleading that the Pfizer representations were false by reason of the true fact that in late 2004 and early 2005 discussions between M Inc. and Pfizer concerning a licensing transaction with respect to Kaprex had been postponed because of the Pfizer restructuring, the applicants say that M Inc. and M Aust failed to inform the applicants of the fact of the postponement of the licensing arrangements, prior to the applicants entering into the 2005 agreement: para 14.

The contended true position

76    The applicants plead at para 10 that:

a.    [M Inc.] was not ready to proceed to an IPO on a recognised US stock exchange in 2005;

b.    [M Inc.] remained unable to proceed to an IPO on a recognised US stock exchange up to and including July 2009;

c.    [M Inc.] could not ever legitimately hold itself out as a specialised pharmaceutical company;

d.    [M Inc.] did not ever have products which it sold or were in the process of being developed by which it could legitimately hold itself out as a specialty pharmaceutical company for the purposes of an IPO;

e.    [M Inc.] did not achieve the revenue figures pleaded in paras 4(c) and (d) [for the American division or the European division of the company];

f.    [M Inc.] has not entered into any licensing transaction with Pfizer or any other entity with respect to Kaprex.

The contravention

77    The applicants plead that in making the 2005 representations and the Pfizer representations and/or in failing to inform the applicants of the postponement of the licensing discussions with Pfizer, M Inc. and M Aust engaged in conduct that was misleading or deceptive for the purposes of s 52 of the Trade Practices Act, and in entering into the 2005 agreement in reliance upon the representations, all of the applicants acted to their detriment.

Katke “knowingly concerned”

78    Apart from these contended contraventions of s 52 by M Inc. and M Aust by conduct of Katke and Morey, the applicants contend, first, that Katke made the 2005 representations as set out in the particulars of those representations or Katke knew of the making of the 2005 representations because he was aware of them “as particularised”.

79    Second, they contend that Katke was in a position to know, and did know, whether the 2005 representations were true or false in so far as they were made by him or in so far as he was aware of them. The particulars of Katke’s knowledge are these: Katke was a Director of M Inc. and M Aust; Katke was the Chairman of the Board of Directors of M Inc.; Katke was the founder of the business conducted by M Inc.; and, Katke had an intimate knowledge of all aspects of the business conducted by M Inc.

80    Third, the applicants contend that Katke knew that M Inc. and M Aust had no reasonable basis for making the 2005 representations.

81    The particulars of that knowledge are said to be the matters pleaded at para 10. That is, Katke knew that M Inc. was not ready to proceed to an IPO on a recognised US stock exchange in 2005; Katke knew that M Inc. would be unable to do so up to and including July 2009; Katke knew that M Inc. could not legitimately hold itself out as a specialty pharmaceutical company as it did not have products which it sold or was developing which would justify such a description; Katke knew that M Inc. had not entered into any licensing transaction with Pfizer or any other company with respect to Kaprex; and, Katke knew that M Inc. would not generate the revenues described in paras 4(c) and (d) of the pleading for the US and European divisions of M Inc. (see [53] and [55] of these reasons.)

82    The applicants say that Katke knew that M Inc. and M Aust had no reasonable basis for the 2005 representations also for the reasons relating to Katke’s state of knowledge by reason of the factors set out at [79] of these reasons. Further, the lack of a reasonable basis is said to arise because by September 2004 and thereafter, the accounts for M Inc. were not to a standard that enabled an auditor to certify the accounts for the purposes of an initial public offering.

83    Fourth, the applicants say Katke made the Pfizer representations.

84    Fifth, they say Katke knew, because he was conducting the discussions with Pfizer, that at the time he made the Pfizer representations, the discussions with Pfizer as to a licensing arrangement concerning Kaprex had been postponed due to Pfizer’s restructuring plans.

85    Sixth, they say Katke was under an obligation to inform the applicants of his state of knowledge of the postponement of the licensing negotiations with Pfizer, prior to the applicants entering into the 2005 agreement. The applicants plead that this obligation follows because Katke was negotiating the 2005 agreement for M Inc. and M Aust; the licensing transaction with Pfizer would have been of substantial benefit to the applicants if they had entered into the 2005 agreement and Katke knew or ought to have known that the existence of a licensing transaction with Pfizer was material to the decision of the applicants to enter into the 2005 agreement.

86    By reason of these facts, the applicants say that Katke was knowingly concerned in the misleading and deceptive conduct of M Inc. and M Aust within the meaning of s 75B of the Trade Practices Act.

Remedies would have been available

87    The applicants further say that by reason of the contravention of s 52 by M Inc. and M Aust, the applicants would have been entitled to remedies under s 82 and s 87 of the Trade Practices Act against M Inc. and M Aust and against Katke as a person “involved in the contravention” as that phrase is amplified by s 75B of that Act and those remedies would have included: “a. rescission of the 2005 agreement; b. damages”.

Disputes arose and negotiations began

88    From about early 2007, the parties to the 2005 agreement fell into dispute concerning all of the matters described at [33] to [86]: para 20.

89    Between August and December 2007, the parties to the 2005 agreement exchanged submissions in relation to those matters of contention: para 21(a).

90    Between December 2007 and July 2009, the parties entered into negotiations to resolve that dispute. The negotiations on behalf of M Inc. and M Aust were conducted by Katke, Bland and Morey. The negotiations on behalf of the applicants were conducted by Michael Brosnan and Alan Gee or alternatively by MB and/or LB and/or Gee and/or Alan B. Grant.

91    On 10 February 2009, Katke on behalf of the respondents, provided Gee and Graeme Joiner on behalf of all of the applicants with a document entitled “North American Business Plan”.

The 2009 representations

92    By providing that document to the applicants, M Inc. and M Aust made 21 pleaded representations relating to the gross revenues and growth rates in revenue from M Inc.’s core business for the years 2008, 2009, 2010, 2011, 2012 and 2013, among a wide range of other matters. It is not necessary to set out in these reasons the content of each of the 21 pleaded representations. They are, however, quite specific by reference to the various amounts, percentages of growth, projected earnings before interest, tax, depreciation and amortisation, and other matters.

93    These 21 representations drawn from the North American Business Plan are described as the 2009 representations.

94    In about late 2008 and July 2009, a company called Alticor Inc. (“Alticor”) was considering a purchase of the shares in M Inc. The elements of the Alticor proposal are pleaded at para 25 and are said to be contained in Annexure A to a written agreement dated 31 July 2009 described as “Settlement Deed – Metagenics Group and Former HWL shareholders” and described in the pleading as the “2009 Settlement Deed”.

The Alticor representations

95    Between July 2008 and July 2009, M Inc. and M Aust made three representations, by Katke, to MB and/or Gee on behalf of all of the applicants. The representations were these:

a.    Alticor was selling $US3-4 billion worth of its product in China annually;

b.    if the shareholders in [M Inc.] agreed to the proposal by Alticor, [M Inc.] would be able to export its products to China by reason of the association with Alticor;

c.    the exporting of [M Inc.’s] products into China would substantially increase the profitability of [M Inc.] over and above that set out in the North American Business Plan…

96    These representations are described as the Alticor representations.

97    Five particulars of the Alticor representations are pleaded.

98    First, the representations are said to have been made orally in a meeting in San Clemente between MB and Gee for the applicants and Katke for M Inc. and M Aust on or about 28 July 2008.

99    Second, they are said to have been made in a telephone conversation between MB and Katke in July 2009.

100    Third, they are said to have been made in “numerous telephone conversations” between Katke and MB, and Katke and Gee from late July 2008 to October 2008.

101    Fourth, they are said to have been made orally in a meeting between Katke and MB at an Amway manufacturing facility in San Clemente on 28 October 2008.

102    Fifth, they are said to have been made in further conversations by telephone and in meetings in San Clemente between MB and Katke, and Gee and Katke during 2009.

The patent representations

103    Between late 2004 and July 2009, M Inc. and M Aust by Katke, Bland and Morey made two representations to the applicants by representing the relevant matters to MB and/or LB and/or Gee and/or ABG. The representations (at para 27) were these:

a.    expressly that [M Inc.] had a very strong patent position around its discoveries;

b.    impliedly that such patents significantly enhance the value of shares in [MB].

104    These representations are described as the patent representations.

105    Five particulars of the making of the patent representations are pleaded.

106    First, the representations were made orally in a meeting in Brisbane on or about 7 May 2004 at which MB, LB, Gee and ABG were present for the applicants and Katke was present for M Inc. and M Aust.

107    Second, the representations were made orally in a meeting in San Clemente on or about 16 November 2004 at which MB, LB, Gee and ABG were present for the applicants and Katke, Bland and Morey were present for M Inc. and M Aust.

108    Third, the representations were made in an email from Katke to Gee together with enclosures dated 9 February 2005.

109    Fourth, the representations were made regularly throughout 2007, 2008 and 2009 by Katke in telephone conversations with MB an Gee and in meetings in San Clemente with MB and Gee.

110    Fifth, the representations were contained in a proxy statement prepared for Metagenic’s shareholders dated 11 August 2009 in consideration of the purchase by Alticor. The proxy statement is said to have been provided to the applicants by M Inc.

Reliance – the 2009 Settlement Deed

111    In reliance upon the 2009 representations, the Alticor representations and the patent representations, and induced by those representations, the applicants entered into the 2009 Settlement Deed. The 2009 Settlement Deed is the document referred to in para 25 of the Amended Statement of Claim (see [94] of these reasons). The Settlement Deed is dated 31 July 2009. It is made between the former HWL shareholders, M Inc., M Aust, Katke and Bland. It recites that under the share acquisition agreement, M Aust which held 10% of the issued shares in HWL acquired the remaining 90% of the issued shares; each former HWL shareholder received, as consideration, a combination of cash and/or preferred A stock and/or common stock in particular combinations and, since completion of the share acquisition agreement, a dispute had arisen between the former HWL shareholders, M Inc., M Aust and directors or officers of those companies.

112    Recital C of the Deed describes the dispute in this way:

… The dispute relates to an allegation by the Former HWL Shareholders that [M Inc.], [M Aust] or their directors or officers made misrepresentations which induced the Former HWL Shareholders to agree to the terms of the Share Purchase Agreement. The Former HWL Shareholders have alleged, among other things, that:

(a)    the methods used by [M Inc.] to value [M Inc.] resulted in the value of [M Inc.] being overstated in relative comparison to the value of HWL; and

(b)    each Former HWL Shareholder has suffered loss because the overvaluation of [M Inc.] effectively reduced the amount of consideration provided to each Former HWL Shareholder under the Share Purchase Agreement.

The dispute summarised in this Recital C constitutes the dispute that is the subject of this deed (“Dispute”).

113    Recital D is in these terms:

Without admission of liability, the Former HWL Shareholders, [M Inc] and [M Aust] (and their respective directors and officers, including [Katke] and [Jeffrey Bland] have agreed to settle the Dispute on the terms set out in this deed.

114    The parties (described as the HWL Shareholders) that M Inc., M Aust and Katke had in mind as being in dispute with them concerning contended representations and with whom they resolved their dispute by entering into the 2009 Settlement Deed were, by Schedule 1, Michael Brosnan, Leon Brosnan, Mary Brosnan, Alan Gee, Alan Gee as trustee, Alan Bawden Grant, A B Grant as trustee, Barbara Lee Grant, Alan David Grant as trustee, Michael Curley and Graeme Joiner.

115    These parties are the present applicants.

116    Four particulars are given by the applicants of reliance upon the 2009 representations, the Alticor representations and the patent representations in entering into the 2009 Settlement Deed.

117    First, the applicants say that prior to entering into the 2009 Settlement Deed, the applicants had numerous informal meetings and conversations in which they discussed whether they should enter into the deed. Second, in so far as not all of the applicants received the North American Business Plan (containing the 2009 representations) directly from Katke or were not party to the conversations or emails particularised in relation to the Alticor representations or the patent representations, MB and/or Gee or alternatively MB and/or LB and/or Gee and/or ABG orally informed all of the other applicants of the 2009 representations, the Alticor representations and the patent representations. Third, the discussions referred to in the first particular included consideration of the 2009 representations, the Alticor representations and the patent representations. Fourth, each of those representations was material to the applicants when considering whether or not to enter into the 2009 Settlement Deed.

118    By operation of the 2009 Settlement Deed, the dispute pleaded at para 20 of the Amended Statement of Claim (described at [94] of these reasons) was settled, and M Inc. by the deed, agreed to provide “Additional Consideration” to the applicants as that term is defined in the deed. It is not necessary to recite the extensive definition of that term for present purposes.

119    The applicants contend that in so far as the 2009 representations and the Alticor representations were as to future matters, the applicants rely upon s 51A of the Trade Practices Act 1974 (Cth). The Alticor representations at para 26(b) and (c) are representations as to future matters. The Alticor representation at para 26(a) is a representation as to a present fact. The twenty-one 2009 representations are a mixture of representations as to present, past and future matters..

120    By para 32(a), the applicants contend that M Inc. has not achieved the financial forecasts reflected in the 21 representations drawn from the North American Business Plan. Nor has M Inc. achieved any of the other matters recited at para 23(h) to (u) of the Amended Statement of Claim which represent 14 of the 21 representations drawn from the North American Business Plan (32(b)). Nor has M Inc. exported any of its product into China (32(c)).

121    By para 33, the applicants plead that at the time of making the patent representations, an entity called Kirin Breweries had prior patents in Europe, Australia and Japan and pending patents in United States of America “covering most of the key aspects of [M Inc.’s] discoveries further particulars of which will be provided after disclosure”. By reason of that circumstance, the applicants plead at para 34 that the patent representations were false when made.

122    The applicants contend that M Inc. and M Aust by making the 2009 representations, the Alticor representations and the patent representations, engaged in misleading or deceptive conduct within the meaning of s 52 of the Trade Practices Act 1974 (Cth).

Katke “knowingly concerned”

123    The applicants contend that Katke made the 2009 representations, the Alticor representations and the patent representations. They contend that he was in a position to know and did know whether or not the representations were true or false.

124    The particulars of knowledge are the same particulars earlier pleaded namely that Katke was a director of M Inc. and M Aust; Chairman of M Inc.; founder of the business conducted by M Inc.; and a person who had an intimate knowledge of all aspects of the business conducted by M Inc. including whether or not M Inc. had patents which sufficiently protected the discoveries or inventions of M Inc.

125    Moreover, the applicants say that Katke knew that M Inc. and M Aust had no reasonable basis for making the 2009 representations and the Alticor representations. Four particulars are given of that matter.

126    First, all of the matters just described as to Katke’s capacity and knowledge are said to support the contention. Second, the growth rate for the business conducted by M Inc. from 2008 to 2009 was 2% as recorded on page 3 of the North American Business Plan and that growth rate did not justify the predicted growth rates in excess of 20% for 2010, 2011, 2012 and 2013 as represented on page 3 of the North American Business Plan. Third, as at the date of the 2009 Settlement Deed (31 July 2009), Katke had not been told anything by representatives of Alticor that would justify the making of the Alticor representations.

127    Having regard to these matters, the applicants contend that Katke was knowingly concerned in the misleading or deceptive conduct of M Inc. and M Aust in making the 2009 representations, the Alticor representations and the patent representations, within the meaning of s 75B of the Trade Practices Act 1974 (Cth).

Remedial claims arising out of the contended contraventions

128    The applicants plead that as a consequence of acting on the conduct in contravention of s 52 by M Inc. and M Aust, concerning the making of the 2009 representations, the Alticor representations and the patent representations resulting in the compromise reflected in the 2009 Settlement Deed, they have lost the opportunity to obtain the relief they say they would have received as against M Inc., M Aust and Katke (as pleaded at para 19 of the Amended Statement of Claim), namely, rescission of the 2005 share acquisition agreement and damages, pursuant to ss 87 and 82 of the Trade Practices Act 1974 (Cth) respectively, as against M Inc., M Aust and Katke.

129    The remedy they seek is re-conveyance to them of the HWL shares or, alternatively, the recovery of loss and damage suffered by them in the sum of $155,899,000, which presumably is the expression of the quantum of the relief the applicants say they would have obtained had they not lost the remedial rights they say they enjoyed under ss 82 and 87 by the induced compromise in reliance upon the contravening conduct. It might be however that the applicants contend that this is the contended amount of the discounted value of the lost opportunity.

130    A calculation of the contended loss and damage suffered is pleaded at para 38. It is not necessary to presently identify the detail of that calculation. It is based upon a multiple of the HWL 2012 EBITDA, cash transfers, the derivation of an equity interest, adjustments for cash received and adjustments for the estimated remaining value of units in particular unit trusts, all resulting in $155.9m. By para 39, the applicants plead that they are willing to repay M Inc. any consideration received by them from that company in respect of the 2005 Agreement and the 2009 Settlement Deed including the re-transfer or cancellation of any shares held by them in M Inc. less any payments made by HWL to or on behalf of M Inc. by way of dividend or otherwise.

The causes of action

131    The foundation on which these remedies are said to rest seems to be this.

132    The nine applicants seek an order under s 87 of the Trade Practices Act setting aside the 2009 Settlement Deed which effected the compromise of the claims of the applicants (together with all contended remedial rights under ss 87 and 82 of the Trade Practices Act) arising out of the respondents’ conduct which is said to have induced the applicants to enter into the written HWL share sale agreement of 27 April 2005.

133    That Deed having been set aside, the applicants seek an order under s 87 of the Trade Practices Act or s 243 of the Australian Consumer Law setting aside the share sale agreement of 27 April 2005 and an order under s 87 for re-conveyance to them of the HWL shares transferred under the share sale agreement.

134    Further or alternatively, the applicants seek an award of damages of $155.9million under s 82 of the Trade Practices Act.

135    As I read the Amended Statement of Claim taken together with the claims recited in the originating application, the applicants seek a remedy under s 87 in relation to the share sale agreement and re-conveyance of the HWL shares on the footing that such an order, so framed, properly addresses the topic of that which is “appropriate” so as to remedy (that is, further prevent, reduce or compensate for) “loss or damage” suffered by the applicants by conduct of M Inc. and M Aust in contravention of s 52 comprised by the making of the 2009 representations, the Alticor representations and the patent representations, having regard to the statutory context and purpose of s 52 and ss 87 and 82 of the Trade Practices Act.

136    The applicants say, in effect, that the case to be made at trial is that they were induced into selling the HWL shares by contravening conduct, and later induced into compromising their remedial rights concerning that conduct by further contravening conduct inducing the compromise and, but for the contravening conduct inducing the compromise, they would have had good remedial rights against the first three respondents which were lost to them (given up) under the 2009 Settlement Deed in reliance upon the contravening conduct inducing entry into the Deed. That loss (of good remedial rights or the opportunity to pursue them) is sought to be the subject of the proposed orders concerning the HWL shares under s 87 as an “appropriate remedy” for the loss said to be caused by the contended contraventions inducing entry into the 2009 Settlement Deed.

137    In the amended pleading, each applicant pleads that he or she acted upon the 2009 representations, the Alticor representations and the patent representations in entering into the 2009 Settlement Deed. They all also plead that they acted upon the 2005 representations and the Pfizer representations in transferring their HWL shares. The material fact pleaded in each circumstance is that each of the applicants directly acted to transfer shares and enter into the Settlement Deed, rather than a plea of indirect loss arising out of a third party’s reliance upon contravening conduct by the respondents.

138    It is necessary to examine these matters in some detail so as to identify the way in which the applicants have framed the elements of the causes of action upon which they rely as those matters dictate the material facts (and relevant particulars of material facts) required to be pleaded. The principal attack on the pleading is that the whole of paras 4, 5, 6, 16 (or, alternatively 16(a)), 17(a), 17(b), 18 and 19 of the Amended Statement of Claim be struck out as failing to disclose reasonable causes of action against the respondents (at least in respect of a number of the applicants) and otherwise, the paragraphs be struck out on the footing that, as framed, they are likely to cause prejudice, embarrassment and delay in the proceeding.

Katke – knowingly concerned in the contended contraventions

139    Sections 82 and 87 contemplate an award of damages or orders being made against a person who engages in contravening conduct or a person involved in the contravention in the sense in which that phrase is to be read by reason of s 75B. In this case, the applicants plead knowing concern on the part of Katke (s 75B(c)).

140    Yorke v Lucas (1985) 158 CLR 661 is authority for the (applied) proposition that in order to establish that Katke was knowingly concerned in the contraventions of s 52 by M Inc. or M Aust for the purposes of s 75B(c), proof of Katke’s intentional participation is an essential element of Katke’s liability, the “necessary intent being based upon knowledge of the essential elements of the contravention” (Yorke v Lucas at 670, Mason ACJ, Wilson, Deane and Dawson JJ). The knowledge must be actual rather than constructive or implied knowledge.

141    A person’s reckless disregard of particular matters or his or her election to walk through the contextual chronological events with eyes tightly closed, gives rise to other considerations.

142    Katke must be shown to have had knowledge of the essential matters which go to make up the contravention whether or not he knows that the known matters amount to a contravention. These defining elements of s 75B are well understood and have been applied many times.

143    Because the “derivation [of s 75B] is to be found in the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning” (at 669 of the joint judgment in Yorke v Lucas), it follows, that Katke is entitled to be provided with proper particulars of the facts, matters and circumstances of contended knowledge.

144    It is important to remember however that Yorke v Lucas is an example of representations made by a director at least “once removed”.

145    In that case, Lucas was the managing director of a proprietary company that bore his name. The company acted as the (real estate and business) agent for a vendor in the sale of the vendor’s business. The vendor engaged in misleading conduct by misrepresenting the average weekly turnover (and gross profit) of the business during a period preceding the sale. Yorke was induced by the conduct to buy the business.

146    The Lucas Company also contravened s 52 “unwittingly” (as found) by simply passing on (by Lucas) information given to the agent by the vendor. There was no appeal by the company (agent) from those findings although had there been, doubt was cast at 666 of the joint judgment as to whether those findings would have been sustained. The agent (and Lucas individually) were, in effect, mere intermediaries following instructions (as found).

147    Neither Lucas nor the company as agent were actors in framing the content of the representations.

148    Lucas could not be “knowingly concerned” in the agent’s unwitting contravention of s 52 because he was “insufficiently aware of the facts [untrue representations of turnover and gross profit authored by the vendor and the vendor’s managing director] to be ‘involved in the contravention’” (Hamilton v Whitehead (1988) 166 CLR 121 at 129, Mason CJ, Wilson and Toohey JJ).

149    Hamilton v Whitehead on the other hand is an example of a case where a company was said to have committed offences against the provisions of the Companies (Western Australia) Code (containing particular prohibitions upon the relevant conduct) by issuing or offering to issue a prescribed interest in a particular investment trust. The managing director of the company (Whitehead) was said to be knowingly concerned in the commission of the offences. Whitehead placed the advertisements offering the interests and dealt with those who responded to them. He was the Managing Director. His “mind was the mind of the company” (at 127).

150    At 128 their Honours observe:

Since [Whitehead] was the actor in the conduct constituting the offences and had knowledge of all the material circumstances, it must follow, according to the applicant, that [Whitehead] was “knowingly concerned” in the commission of the offences committed by the company... In our opinion, the submission is plainly right.

151    In Hamilton v Whitehead, Mason CJ, Wilson and Toohey JJ took the opportunity at 129 to observe that the authors of the joint judgment of the Court three years earlier in 1985 in Yorke v Lucas (comprised of Mason ACJ, Wilson, Deane and Dawson JJ) had “unnecessarily” adopted a proposition derived from the observations of Dixon J in Mallan v Lee (1949) 80 CLR 198 that it would be an inversion of the conceptions on which degrees of offending are founded to make the person actually committing forbidden acts “an accessory in the vicarious responsibility” for those acts. Mason CJ, Wilson and Deane JJ observe at 129 that the provisions of the Trade Practices Act like the Companies Code (in issue in Hamilton v Whitehead) were such that an alleged accessory was indeed a true accessory since the offence committed by the company was not a consequence of vicarious liability for the actions of its servants carried on, on its behalf, but rather the consequence of actions undertaken directly by the corporation, that is to say, “by a person who was the embodiment of the company” [emphasis added].

152    The present case, on the current pleading, is one in which it seems to be said that Katke was a direct actor in the events constituting the contraventions by M Inc. and M Aust much akin to Mr Whitehead’s role in Hamilton v Whitehead. Katke’s conduct is the corporation directly acting and he is said to be a true accessory in that conduct.

The interlocutory orders sought by this application

153    The respondents to the principal proceeding seek the following orders:

1.    By para 5 of the Application, paras 4, 5, 6, 16 (or alternatively 16(a)), 18 and 19 of the pleading be struck out.

2.    By para 7, paras 17(a) and 17(b) of the pleading be struck out.

3.    By para 1, the particulars given in paras 4(a)(i), (ii), (iii), (vi), (vii), (xii) and 4(b)(ii) of the pleading be struck out.

4.    By para 2, the particulars given in para 4(a)(vi) of the pleading be struck out.

5.    By para 2, alternatively to 4, particulars be given of the part (or parts) of each of the documents relied upon at para 4(a) to support the representation pleaded at para 4(a).

6.    By para 3, particulars be given of the person who made the representations particularised in paras 4(a)(v) and (vi) and to whom the representations were made.

7.    By para 4, the particulars given in paras 5(i) and (iv) of the pleading be struck out.

8.    By para 4, alternatively to 7, particulars be given of the part (or parts) of document relied upon to give rise to each of the representations in paras 5(a) to (f) of the pleading.

9.    By para 6, particulars be given of paras 17(b), (c), (e) and (f) of the pleading as sought on 27 August 2012.

10.    By para 8, particulars be given of which of the Pfizer representations at para 5(a) to (f) of the pleading are alleged to have been made on the occasions particularised in paras 5(ii) and (iii) of the pleading. This para of the application is no longer pressed.

11.    By para 9, particulars be given of para 23 of the pleading as sought on 22 August 2012.

12.    By para 10, the particulars given in para 27(v) of the pleading be struck out.

13.    By para 10, alternatively to 12, particulars be given of the part (or parts) of the document relied upon to give rise to the representations in paras 27(a) and (b) of the pleading.

14.    By para 11, the particulars given in para 26(vii) of the pleading be struck out. This paragraph is not set out in the pleading of 18 September 2012 in this way. It is now set out at para 28(ii) in the context of the particulars of para 28, although para 28(ii) is in different terms to para 26(vii).

15.    By para 11, alternatively to 14, particulars be given of the information provided to those applicants who were not participants directly. The particulars sought are the dates of each conversation or meeting; the persons present at each such conversation or meeting; and the substance and effect of what was said at each such meeting or conversation in respect of each statement pleaded at para 26(a), (b) and (c) of the Amended Statement of Claim which are similarly pleaded at para 26(a), (b) and (c) of the 18 September 2012 pleading.

16.    By para 12, the particulars in para 27(vii) be struck out. The particulars at para 27(vii) of the 7 September 2012 pleading in relation to the patent representations are not pleaded in that way in the pleading of 18 September 2012. Paragraph 28(ii) of the 18 September 2012 pleading addresses communications in relation to the 2009 representations, the Alticor representations and the patent representations in the context of inducing applicants who had not directly received documents or who had not directly been involved in conversations or received emails, to enter into the 2009 Settlement Deed. In effect, by para 12, the Application seeks an order that the particulars in para 27(ii) be struck out.

17.    By para 12, alternatively to 16, particulars be given of the information provided to those applicants who were not participants directly. The particulars sought are the dates of each conversation or meeting; the persons present at each such conversation or meeting; and the substance and effect of what was said at each such meeting or conversation in respect of each statement pleaded in paras 27(a) and (b) of the pleading (which continues to correspond with paras 27(a) and (b) of the 18 September 2012 pleading).

18.    By para 13, particulars be given of para 33 of the pleading of: (a) the identity of each prior patent that Kirin Breweries had in Europe, Australia or Japan; (b) the date of each such Kirin Breweries patent; (c) the identity of each pending patent by Kirin Breweries in the United States of America; (d) the identity of each of [M Inc.’s] discoveries referred to in para 33; (e) the identity of: (i) each key aspect of each such discovery which was covered; and (ii) each particular Kirin Breweries patent which is said to have covered it.

19.    By para 14, particulars be given as sought on 27 August 2012 of paras 36(b) and (c) of the pleading which is in substantially the same terms as paras 36(b) and (c) of the 18 September 2012 pleading although those paragraphs in the later pleading reflect amendments and the inclusion of particulars.

20.    By para 15, such further order as may be appropriate.

21.    By para 16, an order that the applicants in the principal proceeding pay the respondents’ costs of this application.

154    The criticism of para 4 of the 7 September 2012 pleading which is said to remain valid as a criticism of the 18 September 2012 pleading is that by para 4, the applicants plead that Katke and Morey made six representations to each of the nine applicants yet the particulars fail to make aspects of the pleading clear. Katke is said, by force of the particulars, to have expressly made representation 4(a) (the 2005 IPO representation) and 4(b) (the specialist pharmaceutical company representation) and to have impliedly represented “by reason of” the matters at (a) and (b); the revenue projections at (c) and (d); and the earnings projections at (e), that the M Inc. shares, taken by the applicants in exchange for the HWL shares, would increase in value and the applicants would be better off by selling their HWL shares to M Aust.

155    An implied representation may be found in a combination of words or statements made or conduct undertaken (actions or silence) by a person, and facts or documents provided by, for example, that person’s company to another person, which gives context and content to or otherwise explains what may have been conveyed by words, statements or conduct. All of the contextual circumstances must be considered. However, if an applicant asserts that a person made a representation having a particular effect as a matter of implication, by saying something, or saying that thing in the context of something that has occurred, or has otherwise been said or done, the foundation material facts as to those matters, from which the implied representation is distilled, ought to be pleaded.

156    So, in this case, it is not immediately clear from the pleading whether the implied representation at para 4(f) is said to arise because on 11 September 2004 Morey sent the applicants (and I will return to the issue of particular applicants) an email containing revenue and earnings projections; and, other emails were sent to the applicants on, for example, 28 September 2004, 15 October 2004 and 3 November 2004; and then, in that context, Katke made the representations at (a) and (b) out of which an implied further representation arises. There is also a chronological aspect to the conduct that ought to be made clear. When is the pleaded implied representation said to have arisen and what sequence of material factors give rise to the conclusion that the pleaded implied representation was made by M Inc. and M Aust by conduct of Katke (and Morey).

157    Those matters require greater primary precision.

158    The respondents (which description always means the respondents to the principal proceeding – the Katke interests) say that representation 4(a) (the 2005 IPO representation) is pleaded, by reason of the limitations in the particulars, as having been made to LB, Mary Brosnan, Gee and ABG but not to MB, BLG, ADG, Curley or Joiner. They say the representation at 4(b) (the specialist pharmaceutical representation) is pleaded (as particularised) as having been made to LB, Mary Brosnan, Gee and ABG but not to MB, BLG, ADG, Curley or Joiner. The representations of future revenue and earnings at paras 4(c), (d) and (e) are said to have been made to MB, LB, Gee and ABG but not to Mary Brosnan, BLG, ADG, Curley and Joiner, and since the representation at 4(f) relies upon the representations made at 4(a) to 4(e), that representation could not have been made to those persons to whom the representations at 4(a) to (e) were not made.

159    All of the propositions at [158] are based upon the 7 September 2012 pleading.

160    By the 18 September 2012 pleading, the applicants plead that the six representations made by Katke and Morey on behalf of M Inc. and M Aust (at various times and in particular ways) were made to a combination or disjunction of one or more of Michael Brosnan, Gee, Leon Brosnan, and Alan B Grant on behalf of all of the applicants. Those persons were, on behalf of all of the applicants, conducting negotiations with Katke and Morey on behalf of M Inc. and M Aust for the sale by all of the applicants of their shares in HWL to M Aust in the context of the sequence of commercial arrangements pleaded in the Amended Statement of Claim: paras 3 and 4.

161    Like the 7 September 2012 pleading, it remains true to say that the particulars of para 4(a) identify the making of the representation to some only of the applicants (although the first applicant is introduced into the field of persons to whom representations were made), namely, Michael Brosnan, Leon Brosnan, Alan Gee and Alan B Grant. The applicants contend that the representations were made to these persons both in their own right as HWL shareholders and in their capacity as persons engaged in negotiations for and on behalf of the remaining HWL applicant shareholders not directly participating in the negotiations for the sale of their HWL shares.

162    As to para 5 (the Pfizer representations), the respondents say that the six pleaded representations were not made to LB, Mary Brosnan, AB Grant, BL Grant, AD Grant, Curley and Joiner. They were only made, as particularised, to Michael Brosnan and Alan Gee. The six particulars pleaded in the 18 September 2012 document identify the same exchanges between Katke and Michael Brosnan and Katke and Alan Gee and also exchanges between Morey and Gee. Brosnan and Gee are said to be acting on their own behalf and on behalf of all of the applicant shareholders. The representations pleaded at paras 4 and 5 are said to have been made to all of the applicants when made to the nominated applicants by reason of the pleaded capacity. At para 6, the applicants plead that the negotiating applicants orally informed the non-participating applicants (in the particularised exchanges), of the 2005 representations and the Pfizer representations, and each of those representations were material to each applicant in entering into the 2005 share sale agreement.

163    Paragraphs 4 and 5 plead, by the 18 September 2012 pleading, representations made to each of the applicants as described.

164    The respondents contend, based on the 7 September 2012 pleading, that para 5 as pleaded is inconsistent with the particulars of the paragraph because Katke is said to have made each representation for and on behalf of M Inc. and M Aust whereas the particulars identify conduct by Morey (at paras 5(v) and 5(vi)). The 18 September 2012 pleading asserts six representations made by Katke and Morey and as to Morey, particulars 5(v) and 5(vi) identify two telephone conversations between Morey and Gee on 18 January 2005 and 1 February 2005.

165    More fundamentally, the respondents criticise paras 6, 16, 17(a) and 17(b), 18 and 19 of the 7 September 2012 pleading on the footing (which is said to remain a valid criticism of the 18 September 2012 pleading) that all of the applicants are said to have relied upon the 2005 representations and the Pfizer representations and to have acted upon them, in electing to enter into the 2005 share sale agreement, whereas the particulars make it clear that the representations at paras 4 and 5 were not made to all of the applicants. However, the 18 September 2012 pleading makes clear that first, each negotiating applicant was acting on their own behalf and, expressly, on behalf of each non-participating applicant shareholder, and second, the pleaded representations were communicated to each non-negotiating applicant shareholder who relied upon them in entering into the share sale agreement.

166    The 18 September 2012 pleading pleads express reliance upon an oral communication by the negotiating applicants to the non-negotiating applicants of the 2005 and Pfizer representations, and pleads representations made to all applicants by representations made to some of their number acting both in their own right and for those applicants not participating directly in the negotiations but who relied upon the characterisation of the statements made to the negotiating parties, in entering into the share sale agreement.

The Particulars

167    Paragraph 4(a) pleads a representation that M Inc. “would be ready to proceed to an initial public offering (IPO) on a recognised US stock exchange during 2005”, made by Katke and Morey on behalf of M Inc. and M Aust. Plainly enough, the respondents are entitled to particulars (or at least the best particulars the applicants can give) of when, how and to whom the representation was expressly made.

168    The first particular of it is Katke’s email to Gee of 28 September 2004 (see the text at [35]). That email does not contain a representation in the terms pleaded at para 4(a). It recites an excited expectation (see the emphatic use of the exclamation mark) about a listing in March or April 2005 markets permitting, that may be entirely consistent with a contended representation by Katke as pleaded but the email is not, on its face, the source of the representation.

169    Subject to what follows later, I would not strike out the email unless it were the only particular relied upon of the representation. The email, in the context of further particulars, may assist the respondents in giving them fair notice of at least what is contended against them by reference to the email. It may ultimately be simply evidence probative of a fact in issue in the broader controversy going to an aspect of what is said to have been represented rather than representation itself.

170    The second particular is Katke’s email of 15 October 2004 to Michael and Leon Brosnan and Alan Gee (see the text at [37] and the matters at [38] and [39]). Again, the email talks about the factors conducive to a successful IPO (the proposed structure for the acquisition of the HWL shares; valuation goals of the transferors). It attaches a “deal structure” worked out by Katke and Morey that contemplates a valuation at end June 2005 based on a multiple of earnings and all of the other matters described at [38]. It contemplates a range of consequences if the IPO goes ahead before or after particular events. It also contemplates the possibility that an IPO might not occur at all. The email and attachment may or may not be consistent with a representation as pleaded once the email is seen in the context of evidence of events that occurred before and after 15 October 2004. By itself however, it does not contain, in terms, the pleaded representation and the qualification that an IPO may not occur at all, might suggest a qualification upon an expectation (perhaps commonly held) rather than an affirmative representation that M Inc. “would be ready to proceed” to a US listing during 2005.

171    The email is likely to be probative of facts in issue in the broader controversy once framed but, by itself, it is not a particular of the pleaded representation. However, as a matter of discretion, identification of the document and the factors informing a listing then under consideration, ultimately simply gives the respondents fair notice of what is contended against them at least as to some of the factors attaching to the contended proposed listing.

172    The third particular is Katke’s email to MB, LB, Gee and Alan B Grant on 3 November 2004 (see [40]). The email does not contain a representation in the terms pleaded and should be struck out, as a particular.

173    The sixth particular given of the representation is p 45 of the presentation described at [43]. Page 45 of the presentation does not contain the pleaded representation and should be struck out, as a particular.

174    The seventh particular is Morey’s email to Gee of 1 December 2004.

175    Again, the email addresses the tax advantages that were able to be preserved in structuring the acquisition of the HWL shares for the purposes of the proposed IPO. The email does not contain the pleaded representation. As a matter of discretion, I would not strike out the reference to the email as it simply gives notice to the respondents of a discussion at one point of topics related to the contended representation.

176    Particular 12 is Morey’s email of 17 March 2005 to MB, LB, Gee and ABG. The email does not contain the pleaded representation and should be struck out, as a particular.

177    The observation earlier mentioned of what follows, is this.

178    It is true that one useful and efficient way of giving particulars of a material fact or contention is the identification of a letter or email that immediately tells the opponent of the method, date and parties to a particular exchange and the pleaded content of the fact by reference to the words or text of the exchange. Identifying other contextual letters and emails might aid the central purpose of giving fair notice of the field of inquiry to the other side and narrowing the field of inquiry. The emails at para 4(a)(i), (ii), (iii), (vi), (vii) and (xii) in some respects address the topic of the pleaded representation but do not give particulars of it such as, precisely when, the representation was made and how it was made. The documents may be consistent with a representation having been made and may well speak to such a representation but they are not the particulars of it. Some of the documents may assume the making of such a representation.

179    Other particulars have been given of the representation: Katke’s oral representation at the 17 November 2004 meeting in San Clemente, and the Morey particulars at (iv), (viii), (ix), (x), (xi) and (xiii). Since the Katke particulars at para 4(a)(i), (ii) and (iii) do not, on their face, reflect the making of the pleaded representation, the applicants ought to give further particulars of the making of the representation by Katke whether orally or in writing and when made. Particulars of who made the representations at para 4(a)(v) and (vi) need to be provided.

180    The representation at para 4(b) is that, for the purposes of an IPO, M Inc. could legitimately hold itself out as a specialty pharmaceutical company.

181    The respondents challenge the particular given at para 4(b)(ii), consisting of the email of 28 September 2004, on the footing that it does not contain the pleaded representation. Again, it is true to say that the email does not contain the pleaded representation. However, it extols the “blockbuster” quality of Kaprex based on the “scientific” and the “positive” results of “placebo controlled research” (which presumably means controlled blind trials). There are other particulars of this representation: orally by Katke at a meeting in May 2004; a telephone conversation with Katke on 1 October 2004; orally by Katke (and Morey) at the 17 November 2004 meeting; orally by Katke in a telephone conversation on 18 January 2005; and the written Needham presentation delivered on 17 November 2004. The 28 September 2004 email is not a “particular” of the making of the “pleaded representation” but I can see little point in striking out a schedulised reference in the paragraph to the email amongst the other particulars. The respondents say (as they do about the references at para 4(a)(i), (ii) and (iii)) that the reference by the applicants to emails that do not actually contain the clear representation, in terms, also casts doubt on the contended content of the oral communications said to contain, in terms, the pleaded representation.

182    There is some force in that contention.

183    However, proper particulars have been given of the making of the representation orally and the respondents know, from the pleading as particularised, the case they have to meet. I do not propose to strike out a single reference to one email amongst six particulars of the representation, the limitations about which, appear on the face of the email.

184    The first particular of para 5 (Katke and Morey making the six Pfizer representations between late 2004 and early 2005 on behalf of M Inc. and M Aust) is Katke’s email of 28 September 2004. The email (and all of the particulars) are pleaded in a way that suggests each particular is a particular of all of the six representations. The pleading does not isolate each representation and give particulars of it. The email of 28 September 2004 does not contain the sequence of quite specific pleaded representations set out at para 5.

185    The particular at para 5(iv) is Katke’s email of 24 December 2004 (see [64]). The email makes reference to the Pfizer discussions but no more than that. The email is not a particular of the six representations having been made in a document of 24 December 2004.

186    I am satisfied that the references to the email of 28 September 2004 and the email of 24 December 2004 ought to be struck out as particulars of the six representations because they simply do not represent a “particular” of the making of the six representations, as pleaded. Although it seems odd to strike out particulars of a paragraph of the pleading, it is appropriate to do so under the general powers of the Federal Court Rules 2011: Div 1.3, rule 1.32.

187    Paragraph 27 of the amended pleading pleads the making of an express representation by Katke, Bland and Morey that M Inc. “had a very strong patent position around its discoveries” and an implied representation by them that “such patents significantly enhanced the value of shares in [M Inc.]”.

188    Particular (v) of the representations identifies a Proxy Statement given to the applicants of August 2009 prepared for M Inc.’s shareholders in connection with the Alticor purchase. The respondents say that since the 2009 Settlement Deed was entered into in July 2009, representations in a document of August 2009 could not have informed the reliance decision-making of the applicants. Apart from the timing question, the pages of the document relied upon (pp 8, 9 and 50-55; pp 957-964 of “JAM-12”) do not contain the express representation, and it is difficult to identify parts of those pages that have the effect of the express or implied representation.

189    The applicants ought to provide particulars of the passages of the document said to contain the representations, in terms or in effect, and when the document in draft or otherwise was provided to the applicants.

190    At para 33, the applicants plead that at the time of making the patent representations, Kirin Breweries had prior dated patents in Europe, Australia and Japan and pending patents in America covering most of the key aspects of M Inc.’s discoveries. The applicants must have had a basis for pleading that fact. Particulars of it ought to be given by the applicants. It may be that further particulars can be provided after disclosure but, in the interim, particulars of the material fact as pleaded ought to be given.

191    Paragraph 17(b) focuses upon Katke’s knowledge of the truth or falsity of the 2005 representations when made which can only be addressing those of the 2005 representations directed to matters of present or past fact (especially because para 17(c) seems to address reasonable grounds for making other representations (as to future matters)). Only para 4(b) addresses a matter of present or past fact. Paragraph 17(b) does not plead that Katke knew the representation at para 4(b) to be false when made by him orally as particularised. Paragraph 17(b) does not assert that the representation was, in fact, false when made although para 10(c) pleads that M Inc. “could not ever legitimately hold itself out as a specialty pharmaceutical company”. Accepting that para 10(c) pleads that representation 4(b) could never have been true and that Katke made the representation as particularised, para 17(b) nevertheless fails to plead that Katke knew it to be false when made.

192    Katke is entitled to particulars of the basis on which it is said (at para 10(c), in effect,) that the representation at para 4(b) could never have been true and was not true when made by Katke.

193    The basis upon which Katke is said to have known the truth or falsity of the 2005 representations is the four factors set out at para 17(b)(i) to (iv). The particulars of para 17(b) go beyond simply asserting that Katke was a director of the companies. Katke was the maker of the representation. He is said to have been an actor in the events. He enjoyed a certain and particular history with M Inc.

194    As to para 17(c) the applicants plead that Katke knew that M Inc. and M Aust “had no reasonable basis for making the 2005 representations”. The applicants, by para 11, rely upon s 51A in casting an onus upon M Inc. and M Aust to “adduce evidence” of reasonable grounds for making the representations as to the future matters comprised in the 2005 representations. So far as it is said that Katke knew that each company did not have reasonable grounds for making each of the 2005 representations, Katke is entitled to particulars of the facts and circumstances of that knowledge on his individual part. Section 51A does not operate to require Katke, in answer to a s 75B(c) plea, to put on evidence that he had reasonable grounds for making the representations as to the future matters even though M Inc. and M Aust would be likely to do so in order to avoid the consequences otherwise arising under s 51A(2).

195    The particulars of Katke’s knowledge of no reasonable grounds available to M Inc. and M Aust for making the future representations are pleaded as the matters recited at para 10 of the pleadings; the matters at para 17(b); and, as at September 2004 and continuing thereafter, the accounts of M Inc. were not to a standard that enabled an auditor to certify the accounts for the purpose of an initial public offering.

196    Those particulars of knowledge are that Katke is said to have made representations 4(a) and (b), at least orally (that is, as a primary actor on behalf of the companies); Katke was aware of the 2005 representations 4(c), (d) and (e) because of his engagement over time with each company as director, chairman of M Inc., founder of M Inc., and someone with an intimate knowledge of all aspects of M Inc.’s business; and, by reason of that engagement, Katke knew that the state of the financial accounts as at September 2004 (and thereafter) would not enable certification by auditors for a public offering of shares.

197    The question then, is, having regard to that pleaded state of engagement and Katke’s intimate knowledge of M Inc.’s business affairs as founder, director and chairman, what particular factors in that matrix are relied upon as demonstrating that Katke knew each company had no reasonable basis for making each of the representations as to the future matters. Paragraph 17(c)(i) asserts reliance on the para 10 factors. The 2005 representations were made between May 2004 and 27 April 2005. As to para 4(a), the period is September 2004 to April 2005; as to para 4(b), the period is May 2004 to 18 January 2005; as to para 4(c), (d) and (e), the relevant date is 11 September 2004; and as to para 4(e), the period is May 2004 to 27 April 2005.

198    The para 10 factors informing, (as cross-pleaded at para 17(c)(i)), Katke’s state of knowledge are that M Inc. was not ready to undertake an IPO on a recognised US stock exchange in 2005 (10(a)); M Inc. remained unable to do so up to July 2009 (10(b)); M Inc. could never legitimately hold itself out as a specialty pharmaceutical company (10(c)); and M Inc. never had products, in fact, or under development, that provided a foundation for M Inc. holding itself out as a specialty pharmaceutical company for the purposes of an IPO.

199    The factors at 10(a) to 10(d) contemplate a state of affairs within M Inc. that is pleaded as subsisting at the time of the making of the 2005 representations and as the enduring position of M Inc.’s capacity to undertake an IPO or legitimately describe itself as a specialty pharmaceutical company for the purposes of an IPO or otherwise. Although aspects of those matters are forward-looking, beyond the date of the making of the pleaded representations, the forward-looking incapacity of M Inc. to be able to undertake an IPO or to ever be able to properly describe itself as a specialty pharmaceutical company, are proper matters going to whether reasonable grounds existed for the making of the representations at the particular time when they were made.

200    The factors at 10(e) and 10(f) are in a different category.

201    The notion that, as things turned out, M Inc. did not achieve the future revenue figures at paras 4(c) and (d) or that M Inc. did not enter into any licensing transaction with Pfizer (or anyone else) in relation to Kaprex does not form a basis for concluding that at the date of making the representations, Katke had no reasonable grounds for making them.

202    The end result is that the particulars at paras 17(c)(i) to (iii) but for the matters at para 10(e) and (f) as cross-referenced particulars of para 17(c) are proper particulars of the material fact pleaded at para 17(c).

203    By para 17(e) the applicants plead that Katke knew at the time when he made the Pfizer representations that in late 2004 and early 2005 discussions with Pfizer for the grant by M Inc. to Pfizer of a licence of Kaprex “had been put on hold”. The pleaded (particularised) basis for that knowledge is that Katke was conducting the discussions with Pfizer personally. The Pfizer representations are pleaded as having been made by Katke on 7 and 11 May 2004; 1 October 2004; 17 November 2004; and 18 January 2005. The negotiations with Pfizer are said to have been put on hold in the period “late 2004 and early 2005”. The contention is clear enough. The applicants say that they will not be able to give greater particulars until after disclosure. The particulars are sufficient for present purposes.

204    By para 36 the applicants plead that Katke was knowingly concerned in the contraventions of s 52 by M Inc. and M Aust concerning the 2009 representations, the Alticor representations and the patent representations. That is said to arise because Katke made the representations and knew whether or not each of the representations were true or false.

205    As to the 2009 representations (para 23), Katke gave the applicants the “North American Business Plan” (the “Plan’) containing 21 representations on 10 February 2009. Each of the representations concern projections of one kind or another: gross sales from M Inc.’s North American activities for the calendar year 2009; growth rate in revenue by gross amount and percentage for the calendar years 2009 to 2013 inclusive; EBITA earnings for each of those years; number of new “Medical Doctor” customers attracted by the North American Division of M Inc. for the same years and resultant gross increases in sales revenue; growth in patients (and resultant revenue growth) arising out of deploying “StopChronicDisease.com” for the years 2010 to 2013 inclusive.

206    As to the Alticor representations (para 26), Katke between July 2008 and July 2009 orally represented that Alticor was selling $US3-4billion of its product to China (26(a)). Paragraphs 26(b) and (c) contain two represented postulates: first, if M Inc.’s shareholders agreed to Alticor’s proposal, M Inc. would be able to export its products to China and second, doing so would substantially increase M Inc.’s profitability beyond that projected in the Plan.

207    As to the patent representations (para 27) as already mentioned Katke, Bland and Morey represented between 7 May 2004 and July 2009 that M Inc.’s “patent position” around its “discoveries” was “very strong” and impliedly represented that this position significantly enhanced the value of M Inc.’s shares. Five particulars are given, three of which are concerned with a number of telephone conversations between Katke and some of the applicants, and meetings with Katke and some applicants and further meetings between Katke, Bland and Morey and some of the applicants.

208    As to all of the 2009 representations and paras 26(b) and (c) of the Alticor representations, the applicants rely upon s 51A in casting an onus on M Inc. and M Aust to adduce evidence of reasonable grounds for the making of the representations. The patent representations and para 26(a) as to Alticor’s existing sales to China are representations as to present facts. To the extent that it is said that Katke knew that neither company had reasonable grounds for making the 2009 representations and the paras 26(b) and (c) representations, Katke is entitled to particulars of the facts and circumstances of that knowledge on his own part.

209    Katke’s knowledge of the truth or falsity of the patent representations and the Alticor para 26(a) representation, when made, is said by the 18 September 2012 amended pleading to be based upon Katke’s role as maker and thus direct actor in making the representations, and his position as a director of each company, chairman of M Inc., founder of M Inc. (and its business) and a person with intimate knowledge of all aspects of M Inc.’s business.

210    Again, these particulars go well beyond a mere allegation that Katke was a director.

211    As to the particulars given already of Katke’s knowledge that neither company had reasonable grounds for making the 2009 representations and the two postulates in the Alticor representations (26(b) and (c)), when made, the applicants rely upon Katke’s direct role in making the representations; his position and historical engagement in each company and the affairs, particularly, of M Inc., and three other particulars. The first is that M Inc.’s “growth rate” for its business in the period 2008 to 2009 was 2% according to p 3 of the Plan yet Katke made projections of predicted growth rates of greater than 20% for each year from 2010 to 2013 (inclusive). Second, as to Alticor, by July 2009, Katke had not been told anything by Alticor that would justify the making of the Alitcor representations. The third particular is a cross-reference to the matters at para 32. At para 32, the applicants plead that, as events have transpired, M Inc. by September 2012 has not achieved the financial forecasts in the Plan; nor has it achieved any of the other matters projected in that Plan; nor has M Inc. exported any of its product into China.

212    The failure of a projection or prediction to come true is not evidence, or a proper particular, of no reasonable ground for making the projection or prediction, when made. The question (when appropriately raised and framed) remains one of whether at the time the representation as to the future matter was made, were there reasonable grounds before the corporation for making the representation and if it is said that Katke knew that there were no reasonable grounds before M Inc. and M Aust at the time he made the representations, Katke, so far as any s 75B claim is concerned, is entitled to particulars of that knowledge.

213    The particulars given at para 36(c) by a reference to para 36(b) and particulars (ii) and (iii) of para 36(c) are particulars of that matter.

214    As to the North American Business Plan, the respondents say that it is a 10 page document and since a large number of representations (21 in all) are drawn from it and were relied upon by each of the applicants in taking the relevant action, the applicants ought to identify, it is said, the specific provisions by page number and text giving rise to each allegation. The respondents say that although they can identify the text in question, the applicants ought to identify the precise text giving rise to each pleaded representation. Perhaps a simple solution is that a copy of the document could be marked with a highlighter cross-referenced to each sub-paragraph of para 23 and provided to the respondents.

215    By the pleading of 7 September 2012 the applicants plead at paras 26(vi) and 26(vii) and at 27(vi) and 27(vii), first, that Michael Brosnan and Alan Gee were acting at all times on their own behalf and on behalf of the other applicants in negotiating the terms of the 2009 Settlement Deed in the course of which the para 26 Alticor representations and the para 27 patent representations were made, and second, Brosnan and Gee told the remaining applicants not engaged directly in the negotiations, of the representations as pleaded and particularised at paras 26 and 27.

216    At para 28 of that pleading, the applicants plead that they (all of them) acted in reliance upon the 2009 representations, the Alticor representations and the patent representations in entering into the 2009 Settlement Deed.

217    In the 18 September 2012 pleading, paras 26(vi), 26(vii), 27(vi) and 27(vii) have been deleted and a new para 28 is introduced into the pleading.

218    Paragraph 28 of the 18 September 2012 pleading asserts that each of the applicants relied upon the twenty-one 2009 representations, the Alticor representations and the patent representations, and induced by them, they entered into the 2009 Settlement Deed.

219    As to the Plan, the document was given by Katke to Gee and Joiner on 10 February 2009.

220    The Alticor representations were made by Katke to Michael Brosnan (MB) and Gee on 28 July 2008; in telephone conversations with MB in July 2009; in “numerous telephone conversations” between Katke and MB, and Katke and Gee from late July 2008 to October 2008 (which cannot be further particularised); orally in a meeting between Katke and MB on 28 October 2008; and in meetings and telephone conversations between Katke and MB and Katke and Gee “during 2009” further particulars of which cannot be given.

221    The patent representations were made by Katke, Bland and Morey to one or more of MB, Leon Brosnan (LB), Gee and Alan B. Grant (ABG) between late 2004 and July 2009 and, as to greater particularity, the representations were made orally by Katke to MB, LB, Gee and ABG on or about 7 May 2004 at a meeting in Brisbane; orally on 16 November 2004 in a San Clemente meeting between MB, LB, Gee and ABG and Katke, Bland and Morey (although it is not said by whom); in an email from Katke to Gee of 9 February 2005; in the challenged Proxy Statement of August 2009 and “regularly, during 2007, 2008 and 2009 by Katke in telephone conversations with MB and Gee and also in San Clemente with MB and Gee.

222    Some of the representations therefore were made to Gee and Joiner by reason of the Plan. Others were made to Gee and MB (Alticor), and others were made to MB, LB, Gee and Grant (patents).

223    By para 28(i), the applicants say that before each of them decided to enter into the 2009 Settlement Deed, they had “numerous informal meetings and conversations” in which they discussed whether they should enter into the 2009 Settlement Deed. As to matters informing that decision, the applicants plead at para 28(ii) that as to those applicants who did not receive the Plan (document) directly from Katke (which is all of them but for Gee and Joiner), all of the other applicants were orally informed of the 21 representations contained in the documents by, it seems, Gee. Paragraph 28(ii) is rolled up in the sense that it addresses the re-communication of the three pleaded sets of representations and asserts a re-communication by one or more (and/or) of each of the persons to whom the representations were made (apart from Joiner) without attributing specifically a re-communication of particular matters by particular persons. Nevertheless, the applicants seem to be saying that Gee re-communicated the content (representations) of the Plan, and the others re-communicated the representations made specifically to them.

224    Thus, para 28(ii) pleads that to the extent any of the applicants were not parties to the methods pleaded by which the Alitcor representations and patent representations were made, MB and Gee re-communicated the Alticor representations and MB, LB, Gee and Grant re-communicated the patent representations.

225    Paragraph 28(ii) pleads that the 2009 representations, the Alticor representations and the patent representations as pleaded (and particularised) were re-communicated to each of the applicants in the para 28(i) meetings and conversations (which are unspecified).

226    The content of the re-communication is pleaded as the pleaded content of the representations as made to the nominated applicants. The nominated applicants are pleaded as the persons who re-communicated the pleaded representations made to them, and the date and forum of the re-communication is pleaded as 2009 leading up to the Settlement Deed of 31 July 2009, at the unparticularised meetings and in the unparticularised conversations.

227    It may be that each applicant came to his or her own decision to enter into the 2009 Settlement Deed at a particular meeting or over time, or perhaps, as a matter of evidence, all of the applicants came to a collective decision to enter into the 2009 Deed after hearing the content of each of the three sets of representations repeated to them by those to whom they were made, together with the benefit of discussions about what was communicated against the background of the proposed terms of the 2009 Settlement Deed. The pleaded case however is that the representations as made were re-communicated, in terms, to the others and the representations as made by M Inc. and M Aust as pleaded (and said to constitute the contravening conduct) were material to the decision made by each applicant to enter into the 2009 Settlement Deed.

228    Accordingly, the pleading reveals the case to be made at trial so far as the re-communication is concerned.

229    The respondents say that the applicants re-communicating the pleaded representations are re-communicating at an unidentified time (although presumably said to be in 2009) matters originally communicated to them on 10 February 2009 (the 21 representations); between 28 July 2008 and July 2009 (Alticor); and, more particularly, as to the patent representations between 7 May 2004 and 2009 including dates in 2004 and 2005 and representations made over a three year period in 2007, 2008 and 2009.

230    Yet, say the respondents, none of the applicants have particularised a single occasion when re-communication occurred nor have the applicants particularised any document effecting a re-communication of the representations.

231    I accept that there is little particularity of these matters.

232    The applicants are to provide particulars of the dates when meetings or discussions took place at which the representations were re-communicated. Particulars should be given of any documents relied upon in effecting a re-communication. I do not propose to order that particulars be given of all of the words spoken by the engaged applicants in re-communicating the representations made to them. The applicants relying upon the re-communicated representations in the terms as pleaded, stand or fall, like the applicants relying upon the pleaded representations as directly made to them, on whether, on the facts, the representations as pleaded are made out; if so, whether they engage contraventions of s 52 of the Trade Practices Act; and whether the contravening conduct was material to each applicant in acting as pleaded.

233    As already mentioned, the applicants filed a Statement of Claim in the proceeding on 9 August 2012. Two further amended pleadings have been formulated and served upon the respondents.

234    I propose to order that the Statement of Claim filed 9 August 2012 be struck out. I give leave to the applicants to file an amended statement of claim within 28 days which takes into account the amendments already proposed by the applicants and which gives effect to the observations in these reasons in relation to each topic the subject of the present application. The costs of the application will be reserved. Further, although I wish to hear the parties on the question, it seems to me appropriate that ultimately the proceeding be conducted at trial (subject to the resolution of a further foreshadowed application) on the basis of statements filed and served according to appropriate Directions Orders. I mention that matter because, independently of any question of particulars framing allegations of material facts which would be the foundation upon which oral evidence would ordinarily be called and heard for the first time, the respondents in the course of preparation will be provided with statements setting out all of the evidence on the questions in issue, in any event. As to the question of costs, the parties will be requested to put on short submissions as to the disposition of the costs on the interlocutory application.

Associate:

Dated:    9 November 2012