FEDERAL COURT OF AUSTRALIA

Henderson v McSharer [2013] FCA 414

THE COURT ORDERS THAT:

1.    Paragraphs 44 commencing with the word “Fraud” to the word “fraud” immediately before [44.1], as well as paragraphs 44.1 to 44.7 of the substituted statement of claim filed 22 April 2013 be struck out.

2.    Paragraphs 35, 42, 46 and 49 also be struck out, but with leave to replead in respect of those paragraphs.

3.    Leave be granted to amend the originating application filed 31 July 2012.

4.    The applicants’ interlocutory application filed 25 February 2013 be dismissed.

5.    The amended originating application and any amended substituted statement of claim be filed and served by 14 June 2013.

6.    A referral certificate be issued to the applicants pursuant to R 4.12(1) of the Federal Court Rules 2011 (Cth).

7.    The matter be listed for further directions on 21 June 2013 at 10:45am.

8.    The applicants pay the respondents’ costs of the respondents’ interlocutory application filed 19 February 2013 to be taxed, if not agreed.

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

REASONS FOR JUDGMENT

OVERVIEW

1    There are two interlocutory applications before the Court.

2    By interlocutory application filed 19 February 2013 the respondents applied to strike out a number of paragraphs of the applicants’ statement of claim dated 25 September 2012.

3    Prior to this strike out application being heard, the applicants filed a substituted statement of claim, with the leave of the Court, on 22 April 2013 (substituted statement of claim).

4    At the hearing of the strike out application on 26 April 2013 the respondents made written and oral submissions that sought to impugn a number of paragraphs of the substituted statement of claim.

5    For the reasons which follow, some paragraphs of the substituted statement of claim should be struck out, without leave to replead, and others should be struck out, but with the leave to replead.

6    The second interlocutory application was filed by the applicants on 25 February 2013. In it the applicants applied to have the proceeding referred back to mediation and for various other programming orders. The Court is of the view that the orders sought are not appropriate at this time. Accordingly, this application should be dismissed.

7    Finally, the Court considers that a referral certificate should be issued under R 4.12(1) of the Federal Court Rules 2011 (Cth) (Rules) for the possible benefit of the applicants, who are self-represented in this proceeding.

general principles of pleading

8    In [1] to [4] of the respondents’ written submissions, developed orally at the hearing, the respondents draw attention to the length of the statement of claim, some 85 pages.

9    The respondents also draw attention to R 16.02(1)(b) of the Rules, which requires a pleading to be “as brief as the nature of the case permits”.

10    There is little doubt that the statement of claim is lengthy. It is a matter of judgment, taking all factors into account, whether the pleading is as brief as the nature of the case permits.

11    It is relevant, in my view, in this case at least, to note that the applicants are presently self-represented.

12    It is also relevant to note that the applicants seek substantive relief that includes:

    A declaration that a written contract dated 24 August 2011 be declared null and void.

    That a collateral contract pleaded be declared null and void.

    That the Court deregister the third respondent as an incorporated body.

    That a loan agreement between the third respondent and another corporation be set aside.

    Damages for misleading and deceptive conduct, unjust enrichment, unconscionable conduct, breach of contract, fraud and conspiracy to defraud.

    Exemplary damages.

13    In my view, while lengthy, the pleading is, subject to what follows, sufficiently clear in its identification of the issues that the applicants want the Court to resolve, and so in accordance with R 16.02(1)(c), that it is not appropriate to strike the pleading out on the basis of its length.

pleas of evidence

14    The respondents also draw attention to R 16.02(1)(d), which requires a pleading to state the material facts on which a party relies that are necessary to give the opposing party fair notice of a case to be made against that party at trial, but not the evidence by which the material facts are to be proved.

15    The respondents complain that numerous paragraphs or subparagraphs of the substituted statement of claim state evidence, rather than material facts, in contravention of this Rule.

16    The first example provided by the respondents is [6.14] of the substituted statement of claim that is pleaded in a long paragraph containing some 15 subparagraphs and dealing with the topic of “The York Farm Land”. As I would apprehend it, the pleading concerning the York farm land is intended to provide context to their later pleaded financial dealings with the individual respondents and the circumstances in which the third respondent came to be formed or the parties came to gain some indirect or direct interests in it.

17    In that context, the various subparagraphs of [6] dealing with the York farm land are reasonably narrative. They have much to do with the fact that at some time prior to the applicants meeting the individual respondents, they had themselves obtained an extractive industries license in respect of the York farm land. In that regard, in the course of narrating material facts, [6.14] pleads that:

Prior to 18 May 2010, DVC had provided Traffic Engineering drawings to Bonthorpe with regard to upgrading the entrance to the York farm from the Main Road, being the Great Southern Highway in Gilgering in the Shire of York.

18    In my view, one could spend quite some time debating whether or not that paragraph is a case of the stating of evidence rather than a material fact. In my judgment, [6.14] is part of the narrative that sets the context that is arguably relevant to the substantive causes of action which the applicants seek to press at the trial of this proceeding.

19    In those circumstances, I am not satisfied that [6.14] offends the Rules.

20    As to some 29 additional examples of where the respondents say evidence has been stated rather than material facts, suffice it to say that I have considered each of the examples given and by and large I am satisfied that none of those paragraphs should be struck out on the ground contended for.

21    In some cases, the impugned paragraph is expressed as a particular of a material fact, as for example in the second example offered by the respondents at [11.3].

22    I would, therefore, decline to strike out the paragraphs mentioned in [6] of the respondents’ written submissions on the ground contended for.

pleas of law

23    The respondents complain that statute and common law are also quoted verbatim instead of their provisions merely being referred to, citing some 10 paragraphs or subparagraphs of the pleading.

24    While that may be so, it is appropriate to note that by R 16.02(1)(e) a pleading must state the provisions of any statute relied on and by R 16.02(3) a pleading may raise a point of law.

25    In the circumstances, the objection may be considered reasonably pedantic, particularly in circumstances where the pleader is a self-represented party.

26    I would not strike out any of the impugned paragraphs on this basis.

Submissions

27    The respondents also complain that “submissions” are made in some paragraphs as opposed to pleading material facts, and in this regard cite some 35 paragraphs or subparagraphs of the pleading.

28    The first example provided on behalf of the respondents is [5.2], which contains some four subparagraphs. Some of the subparagraphs plead that resolutions of meetings of shareholders of the third respondent or a director of the third respondent are unlawful and that the wording of the resolution is ambiguous and does not state that the director “be appointed”.

29    In my view, a proper construction of the pleading is called for. While on one view questions of law might be said to be stated (for example in [5.2.1]), the issue of law that is being raised on behalf of the applicants is clear. It is not so much that a submission is being made but that, by the way the subparagraph is worded, the plea being made might be said to have some characteristics of a submission.

30    Another example offered by the respondents is [19.1] where it is pleaded:

The First Respondent exercised undue influence to pressure the Applicants to sign the Stock Purchase Agreement, causing the Applicants to suffer substantial loss and damage.

31    A number of particulars are then provided.

32    In my view there is nothing objectionable about the undue influence plea made. The particulars on the face of it are particulars, not merely evidence.

33    I have had regard to the other impugned paragraphs and subparagraphs and generally consider that they fall into similar categories.

34    Despite the way some of the impugned paragraphs are worded, the applicants have usefully stated the issues of law that they wish to press at trial, thus making the case to be answered by the respondents that much clearer, in conformity with the Rules.

35    I would, therefore, not strike out any of the impugned paragraphs on the basis contended for.

alleged collateral contract in [21]-[24]

36    Due to their length it is unnecessary to set out the impugned paragraphs. By [20] the applicants plead entry into the collateral contract based on misleading and deceptive conduct. They then state in what, in effect, is a heading, that “the offer and the acceptance which formed part of the collateral contract” and the “promise of consideration by the respondents”. Paragraphs [21] to [24] then follow. By [21], it is stated that the first respondent promised consideration, which is then pleaded out in some 12 subparagraphs.

37    Paragraph [21.13] then pleads that the second respondent promised consideration and that is pleaded out in some five subparagraphs. That paragraph is then followed by one dealing with “promise of consideration by the applicants”. Paragraph [22] pleads out how the applicants were promised consideration in some 12 subparagraphs. Paragraph [23] then pleads what are called “further agreements reached between the applicants and the first respondent and the second respondent with regard to the establishment of the proposed new company”.

38    At that point [24] is then pleaded under the heading “the collateral contract”. It is pleaded in essence that a collateral contract exists between the applicants and the respondents pursuant to:

    The offers of the first respondent as pleaded in [21] which were accepted by the applicants.

    The offers of the second respondent as pleaded in [21] which were accepted by the applicants.

    The offers of the first applicant as pleaded in [22] which were accepted by the respondents.

    The offers of the second applicant as pleaded in [22] which were accepted by the applicants (this reference to “the applicants” is probably meant to refer to “the respondents”).

    The further agreements pleaded in [23] and reached with the consent of the individual parties.

    Further oral agreements reached at the “Childers Meeting” as pleaded in [23].

    “Stock Purchase Agreement Version 3”.

39    By [24.2] the applicants plead that pursuant to the representations made to them, they “in their vulnerable financial position” were induced into entering into a stock purchase agreement with the respondents.

40    By [24.3] the applicants plead that the terms of the stock purchase agreement provided that livestock belonging to their partnership were to be sold to the third respondent for $60,000.

41    By [24.4] the applicants plead that the sheep were valued at approximately $600,000.

42    The respondents submit that the terms of the alleged oral collateral contract in [21]-[24] must generally be consistent with the rights and obligations of the parties in the stock purchase agreement dated 24 August 2011, in accordance with the principle stated in Hoyt’s Proprietory Ltd v Spencer (1919) 27 CLR 133 (Hoyt’s). They say this does not appear to be the case as the third respondent under that agreement has the “unfettered right” to deal with the sheep, whereas the alleged collateral contract advances the third respondent’s right to deal with the sheep only subject to certain conditions.

43    In my view, at this point of the proceeding, the outcome of the application of the principle in Hoyt’s is uncertain. It may be open to argument that the collateral agreement merely regulates the contractual right granted under the stock purchase agreement and is not inconsistent with it. It is too early in the proceeding to make a definitive ruling in relation to the contention put on behalf of the respondents. It is a matter that should go to trial.

44    Accordingly, [21] to [24] should not be struck out on the ground contended for.

issues with alleged misleading or deceptive conduct in [46]

45    The respondents say the same issues are present with the alleged misleading or deceptive conduct claim in [46] as they advanced in earlier submissions dated 1 March 2013.

46    In the 1 March 2013 submissions the respondents submitted that the applicants had not pleaded any facts indicating that the respondents’ alleged misleading or deceptive conduct was done “in trade or commerce”.

47    The respondents also say that the specific statutory provision or principle of common law relied upon in [46] is not identified.

48    It is clear that in relation to the misleading or deceptive conduct claims generally in this and other paragraphs of the pleading, a number of defects are disclosed. It would be appropriate for the applicants to plead the particular statutory provision upon which they are relying in respect of which they allege the respondents or one or other of the respondents has acted in contravention.

49    If the relevant statutory provision is dependent upon a person having engaged in conduct “in trade or commerce”, then it will also be important for the applicants to plead that fact, especially given that in some instances, as referred to below, the respondents take the view that, even if the conduct complained of is proved, it was not conduct “in trade or commerce” at material times.

50    I would, therefore, in the circumstances uphold the challenge to [46] but grant leave to the applicants to replead that paragraph so that it is clear under what statutory provision or provisions the claim is advanced.

issues with alleged undue influence claim at [19]

51    The respondents say similar objections arise in relation to the alleged undue influence claim at [19] as submitted on 1 March 2013, namely:

(1)    Whether the relationship between the parties is one where the law presumes undue influence is exercised? This does not appear to be the case as the applicants have only referred to the first respondent as a “business consultant”. The applicants have also alleged that the first respondent is not a qualified lawyer;

(2)    Whether the relationship between the parties is akin to a relationship where the law presumes undue influence is exercised? Insufficient facts have been pleaded to be able to assess this;

(3)    Whether there was actual undue influence and whether the will of the applicants was overborne? This does not appear to be the case as the applicants plead that they were “persuaded” by the first respondent to do certain things. The applicants were therefore able to consider the matters for themselves, evaluate them and then make a judgment as opposed to their will being overborne: see [19.1.2] and [19.1.3].

52    The respondents also contend that a number of events which are alleged as constituting undue influence only occurred after 24 August 2011, being the date of the stock purchase agreement (see [19.2], [19.3], [19.4], [19.5], [19.6] and [19.7]).

53    In my view while, as a matter of law, the various issues raised by the respondents may be relevant as submissions at trial, the pleading as it stands sufficiently raises the material facts and points of law that the applicants wish to agitate at trial and may be pleaded to by the respondents.

54    Paragraph [19.1] of the substituted statement of claim expressly pleads that the first respondent exercised undue influence “to pressure” the applicants to sign the stock purchase agreement. When the word “persuaded” is subsequently used, it is by way of a particular that supports the primary pleading in [19.1].

55    Thus, in my view, the particular form of language used in subparagraphs like [19.1.3] should not be seen to diminish the primary plea in [19.1].

56    Whether or not the relationship between the relevant parties at material times is sufficient as a matter of law either to presume a relationship of undue influence or otherwise to enable the applicants to seek relief on the basis that there was such a relationship which was abused, is in my view a matter for trial.

57    Similarly, if, as a matter of fact, some of the particulars relied upon are in relation to facts or events which post-dated the material date at which the stock purchase agreement was entered into, then that too would be a matter for trial.

58    In those circumstances I would not strike out [19] on the grounds contended for.

issues with alleged unconscionable conduct claimed in [35] and [48]

59    The respondents submit that the claim for unconscionable conduct in [35] is defective as it is does not sufficiently identify whether the alleged conduct complained of occurred “in trade or commerce”.

60    I have commented above that there would appear to be in a number of settings a need for the applicants to have regard to the components of the statutory causes of action in relation to their various claims and to assert, if it is the case, that the conduct complained of was “in trade or commerce”. That paragraph should be struck out with leave to amend the substituted statement of claim.

61    The respondents further contend that the claim for unconscionable conduct in equity in [47] is defective as it does not plead with sufficient clarity the alleged “disability” which the applicants allegedly suffered from.

62    The respondents further submit that unconscionable conduct in equity only applies to the situation where a party has taken advantage of a disability suffered by another to get the party suffering from a disability to enter into a contract.

63    The respondents say, therefore, it is also questionable whether the conduct alleged in [47.5], [47.6], [47.8], [47.9], [47.10], [47.11] and [47.12] can constitute unconscionable conduct as they are not actions which led the applicants into entering a contract.

64    While the respondents’ submissions refer to [47] of the substituted statement of claim, I understand that they in fact relate to [48], which deals with unconscionable conduct.

65    I am satisfied that the unconscionable conduct pleas in [48.1]-[48.4] are sufficiently clear in identifying the issue of law that the applicants wish to agitate at trial for the respondents to plead to.

66    As to the submission that it is questionable whether the conduct pleaded in [48.5]-[48.6] and [48.8]-[48.12] can constitute unconscionable conduct as they are not actions which led to the applicants entering into a contract, that may be arguable at trial but is not a ground which should lead to the striking out of those paragraphs at this point.

67    Rather, those subparagraphs may well be intended to identify the particular disadvantage that the applicants say they suffered at the hands of the individual respondents.

68    I would, therefore, not strike out [48] on the basis contended for.

issues regarding unjust enrichment claim in [49]

69    While the respondents refer to [48] in their written submissions, the unjust enrichment claim is in fact pleaded in [49].

70    By [49.1], the applicants plead that:

By the actions and conduct of the First and Second Respondent, the Respondents have obtained unjust enrichment from the Applicants, causing the Applicants to suffer loss and damage.

71    One particular provided in [49.1.1] is that the third respondents obtained unjust enrichment by having obtained sheep worth $600,000 at a cost of $60,000, causing the applicants to suffer loss and damage.

72    Further particulars refer to the first and second respondents having acted unconscionably to deprive the applicants of their only income producing asset, being the sheep, and further that the first respondent knowingly and with intent manufactured an atmosphere of crisis to persuade the applicants to agree to the terms of the collateral contract, causing the applicants to suffer loss and damage.

73    To establish a claim to restitution for unjust enrichment, an applicant must establish:

(1)    That a benefit was obtained by the respondent;

(2)    That the benefit was obtained by the respondent at the applicant’s expense and not at the expense of some other person; and

(3)    That there would be “injustice” (according to recognised circumstances developed in the cases) if the respondent were to receive (or retain) the benefit.

74    In [49.1.1], the first and second elements are pleaded by the applicants.

75    However, the respondents submit that the third element has not been pleaded. They say the unjust enrichment claim is misconceived as the fact that a party has received some benefit at the expense of another does not automatically mean that the party receiving the benefit has been unjustly enriched. Rather, the benefit must be received by the party under certain circumstances recognised by the law. Those circumstances have not been identified.

76    The circumstances in which “injustice” may be established include:

    Mistake: Australian and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662;

    Compulsion: Bryson v Bryant (1992) 29 NSWLR 188 at 223 (Sheller JA);

    Other “vitiating” factors (such as illegality: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379 (Mason CJ, Deane, Toohey, Gaudron, McHugh JJ));

    Total failure of consideration: Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 375 (Deane and Dawson JJ);

    Failure of condition: Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516;

    Partial failure of consideration in certain circumstances (in relation to a severable payment, if the failure relates to the whole of the agreed return for the payment; under certain statutes; or in relation to a payment the agreed return for which has failed merely partially); and

    Acceptance of benefit: Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221.

77    I agree with the respondents’ submission that the applicants have not specifically pleaded what the “injustice” would be if the third respondent was to retain the sheep valued at $600,000, having paid only $60,000 for them. In this respect [49] is defective.

78    However, it may be that there are relevant facts which provide a basis for pleading the required “injustice”, either already within the substituted statement of claim or not yet pleaded at all. As such, at this point I am not prepared to permanently strike out the applicants’ unjust enrichment claim.

79    I would, however, uphold the objection to [49] but grant leave to the applicants to replead the paragraph.

claim in [42]

80    In [42] of the substituted statement of claim the applicants plead under the heading: “arrest: respondents false complaint to police leading to the arrest of the applicants”.

81    The claim appears to be one based on misleading or deceptive conduct, but again does not plead that the relevant conduct complained of was “in trade or commerce”.

82    Reasonably, the respondents submit that if this is pleaded then it must be expressly pleaded because otherwise it would appear the conduct complained of is not in trade or commerce.

83    It is not necessary to determine whether the complaint made to police in the context of other matters pleaded could be construed as falling within trade or commerce. Such an issue, if the matter is expressly raised by the pleading, may be left to trial.

84    However, the respondents also say that the claim is in essence for alleged personal trauma and embarrassment and there is no cause of action at law in that regard.

85    It is not necessary to determine that point on a strike out application.

86    I would, therefore, strike out [42] with leave to replead.

issue whether the respondents have standing to bring alleged claims relating to the internal management of the third respondent when they are not shareholders

87    The respondents submit that the pleas in [4], [5], [28], [29] and [44.8]-[44.16] cannot be maintained because the applicants are not shareholders or directors of the company and not able to enforce the constitution of the company.

88    In my view, that is not an issue that should be resolved on a strike out application.

89    Having regard to the overall circumstances pleaded in the substituted statement of claim it is at least arguable that, while not shareholders or directors of the company, the applicants may have a sufficient interest to seek relief in respect of these paragraphs as pleaded.

90    I would, therefore, not strike out the impugned paragraphs on this ground.

issue whether the respondents have standing to bring claims under crimes act 1900 (nsw) and fraud under [44.1]-[44.7] and [45]

91    The applicants here appear to seek relief in respect of “fraud” having regard to the terms of the Crimes Act 1900 (NSW).

92    On the face of it, there is no conduct pleaded at all which has any connection to the jurisdiction of New South Wales. Even if the provisions of the Crimes Act 1900 (NSW) were actionable in a civil proceeding by individuals such as these applicants, there is no basis upon which the New South Wales Act may be considered to apply in the circumstances of this case.

93    I would strike out [44.1] to [44.7] and [45].

conclusion on strike out applications

94    In all these circumstances the main body of the substituted statement of claim need not be struck out and may be pleaded to, although certain paragraphs should be.

95    Leave to replead some paragraphs will be appropriate for the applicants to make refinements along the lines of the objections or amendments identified in these reasons.

96    It would also be appropriate when the applicants file an amended substituted statement of claim in accordance with the orders made, that they file an amended originating application that includes within it all the claims and remedies that they now have sought in the amended substituted statement of claim.

97    The respondents are entitled to their costs on their strike out application.

referral certificate

98    In all the circumstances of this case I also consider it to be appropriate to issue a referral certificate under R 4.12(1) of the Rules for the benefit of the applications who are currently self-represented.

applicants’ interlocutory application

99    Finally, with respect to the applicants’ interlocutory application filed 25 February 2013, I am not satisfied that the orders sought are the most conducive to the efficient resolution of the proceeding and as such I would dismiss the application. Instead, I would order that the applicants file and serve their amended originating application and amended substituted statement of claim, and then order a further directions hearing with a view to programming the proceeding to a fixed trial date.

Associate:

Dated:    6 May 2013