FEDERAL COURT OF AUSTRALIA

Fonterra Brands (Australia) Pty Ltd v Viropoulos [2013] FCA 657

THE COURT ORDERS THAT:

1.    The solicitors for the first, second and seventh respondents proffer to the Court and to the applicant as soon as practicable a proposed form of undertaking and the applicant notify those solicitors of any change to that form of undertaking for which it contends.

2.    The determination of the applicant’s interlocutory application filed on 27 May 2013, including costs, be listed at 9.30 a.m. on 11 July 2013.

3.    Leave to amend in the form of the second proposed Amended Statement of Claim dated 7 February 2013 be refused in respect of the third, fourth, fifth and sixth respondents.

4.    The applicant have 28 days in which to serve a proposed amended pleading on the third, fourth, fifth and sixth respondents.

5.    The third, fourth, fifth and sixth respondents have 14 days thereafter to notify the applicant whether or not they consent to those proposed amendments in whole or in part and, if not, their grounds therefor.

6.    The applicant pay the costs of the third, fourth, fifth and sixth respondents of its interlocutory application filed on 10 May 2013.

7.    The proceedings be listed for directions at 9.30 a.m. on 11 September 2013.

THE COURT NOTES THAT: the question of the costs of the applicant’s Proposed Amended Statement of Claim filed on 14 December 2012 and the interlocutory applications relating thereto should be dealt with at the directions hearing on 11 September 2013, if not resolved sooner between the parties.

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

REASONS FOR JUDGMENT

1    Before the Court are four interlocutory applications. In chronological order, those applications are as follows. They fall into two groups. One is in relation to the pleadings and the other, the interlocutory application filed on 27 May 2013, seeks an order that Kemp Strang be restrained from acting or representing the first, second and seventh respondents in the proceeding and that they file a notice of ceasing to act. When argument commenced on that aspect of the matter, Mr White of counsel confirmed that he appeared for the purposes of that interlocutory application not only for the first, second and seventh respondents but also for the firm Kemp Strang.

2    The first, second and seventh respondents are Mr Nicholas Viropoulos, FCD Holdings Pty Ltd (FCD Holdings) and Nick’s Food Pty Ltd (Nick’s Foods) respectively.

3    At this point it is necessary to consider briefly the pleadings and the claims made in the substantive proceedings, and to identify the parties.

4    By the originating application, filed on 12 September 2011, Fonterra Brands (Australia) Pty Ltd (Fonterra) claims the primary amount of $1,205,971.71 from Nicholas Viropoulos and from FCD Holdings.

5    The pleadings allege that at all material times Nicholas Viropoulos was the sole director and secretary of, and the beneficial owner of the 100 issued shares in, Falcon GT Pty Ltd (now in liquidation) (Falcon GT). Also at all material times Nicholas Viropoulos was the controlling director of Falcon GT and the directing mind and will of Falcon GT.

6    As to the second respondent, FCD Holdings, at all material times Nicholas Viropoulos was the sole director of FCD Holdings having been appointed on 28 May 2009 and was its secretary. Also at all material times Nicholas Viropoulos was the controlling director of FCD Holdings and was its directing mind and will.

7    I will not recite all the factual matters that are relevant, but in short the pleading turns on Falcon GT, now in liquidation, having purchased dairy products from the applicant, Fonterra.

8    Falcon GT purchased dairy products from the applicant Fonterra in the period from September 2009 to January 2010, which products were received and accepted by Falcon GT. The total is alleged to be $1,255,971.71. It is then alleged that Falcon GT refused to pay Fonterra for the products so sold and delivered.

9    Relevant to the application to restrain Kemp Strang, the solicitors for the first, second and seventh respondents, from acting in the present proceedings, on 20 January 2010 Mr Grahame Hill was appointed voluntary administrator of Falcon GT. Ultimately Mr Hill was appointed liquidator on 5 May 2010 but resigned on 13 May 2011. Kemp Strang were the solicitors for Mr Hill in that liquidation.

The position of Kemp Strang

10    No issue arises as to the timing of the application by the solicitors for the applicant. It appears that the solicitors for the applicant, James Partners, were informed on or about 18 February 2013 that Kemp Strang had replaced the (former) solicitors for the first and second respondents, Mr Nicholas Viropoulos and FCD Holdings. The question of conflict appears to have been referred to in a telephone conversation between Mr Tom Mutavdzija of James Partners and Mr John Melios of Kemp Strang on 26 February 2013. A letter dated 13 March 2013 stated that the applicant maintained that Kemp Strang had a conflict by acting for the first respondent, Nicholas Viropoulos, and his associated entities in the current proceeding.

11    That letter stated that Kemp Strang had been retained to act on behalf of Mr Grahame Hill, voluntary administrator of Falcon GT. It will be recalled that Mr Nicholas Viropoulos was the sole director and secretary of and the beneficial owner of the 100 issued shares in Falcon GT and that at all material times he was the controlling director and the directing mind and will of Falcon GT. It will also be recalled that Mr Nicholas Viropoulos was the sole director and secretary of FCD Holdings and the controlling director and the directing mind and will of FCD Holdings, the second respondent.

12    After a number of reminders, an email was sent by Kemp Strang dated 8 May 2013 stating that the writer, Ms Sarina Roppolo, a partner of Kemp Strang, did not propose to cease to act or respond any further to this issue.

13    In an affidavit dated 25 June 2013 Ms Roppolo deposes that she is the solicitor on the record for the first, second and seventh respondents, that her former partner Mr Philip Parker and later Mr Scott Hedge were the relevant solicitors who had acted for Mr Grahame Hill in the Falcon GT matter and she did not work directly on any matters with Mr Parker or with Mr Hedge when he was at the firm and neither Mr Parker nor Mr Hedge spoke to her in respect of acting for Mr Grahame Hill following his appointment as voluntary liquidator of Falcon GT.

14    Ms Roppolo also swears that she has never had access to the email accounts of Mr Parker, Mr Hedge, Ms Jovevska or Mr Shaw being the staff that she is informed by Mr Parker worked on the Falcon GT matter. Further, Ms Roppolo says that she did not work directly on any matters with Ms Jovevska or Mr Shaw.

15    Ms Roppolo states that she is aware that three boxes of documents associated with the Falcon GT matter are currently in storage and that no physical documents in respect of the matter remain on the premises at Kemp Strang. She has not accessed the contents of the physical file in respect of that matter or reviewed any associated document either in its physical or electronic form. She states she is prepared to give an undertaking to the Court that she will not by any means attempt to access any of the electronic or physical files held by Kemp Strang in respect of the Falcon GT matter.

16    A further affidavit of Ms Roppolo dated 2 July 2013 was also read. It annexes an affidavit by Mr Parker explaining how far the public examinations had reached at the time Mr Hill ceased to be the liquidator. That is, that Kemp Strang did not conduct the examination of Mr Viropolous as it was conducted by others after Mr Hill was replaced as liquidator.

17    The applicant submitted that the facts were that Fonterra is a substantial creditor of Falcon GT in the amount of $1,205,971.71. Kemp Strang acted for Mr Hill, the liquidator of Falcon GT who was partly funded by the applicant Fonterra pursuant to a funding agreement which provided for Mr Hill, the liquidator, to engage Kemp Strang to conduct public examinations. The examinations of the affairs of Falcon GT involved examination of Mr Nicholas Viropoulos and asset sales agreements of October 2009 and January 2010 between Falcon GT and FCD Holdings, the second respondent, which the present applicant Fonterra alleges were Phoenix arrangements or asset stripping arrangements to deny payment to Fonterra by Falcon GT for milk products supplied between September 2009 and January 2010. Fonterra alleges misleading and deceptive conduct against, amongst others, Mr Viropoulos, FCD Holdings and Nick’s Food the seventh respondent, in relation to some matters the subject of the examinations.

18    Kemp Strang have an outstanding claim in the amount of $21,962.27 against Fonterra under the funding agreement.

19    The applicant is also concerned about certain confidential information given by the solicitors for Fonterra to the partner of Kemp Strang then acting for Mr Hill the liquidator.

20    Their discussions canvassed certain matters, including the proposed public examinations of Mr Viropolous and possible actions against Mr Viropolous, and the trade practices allegations against Fonterra, which are referred to in the affidavit of Mr Mutavdzija of 10 June 2013. Reference is made in submissions on behalf of the applicant to paragraph 2.6 of a supplementary report to creditors by Mr Hill dated 27 April 2010 where it is stated that Mr Hill had been told by Mr Viropoulos of a possible contravention of Part IV of the Trade Practices Act 1974 (Cth) on the part of Fonterra, and senior counsel for the applicant points to an unfiled draft defence in the present proceedings which deals with that matter. At that point, the applicant submits the liquidator and the solicitors for the liquidator and Fonterra were in the same camp.

21    The solicitors for Fonterra were copied in to an email from the liquidator to Kemp Strang dated 25 January 2011 which set out some of the main examination issues which the liquidator considered should be included. The solicitors for Fonterra were asked to add their comments as they saw fit.

22    By emailed letter dated 31 January 2011, Kemp Strang informed the solicitors for Fonterra that counsel had been briefed to conduct the public examination of Mr Viropoulos pursuant to the terms of the funding agreement and the observations to counsel were attached to the letter. Also attached were copies of the summons for the public examination against Mr Viropoulos and a number of orders for production.

23    On 17 February 2011, the solicitors for Fonterra wrote to Mr Hill raising in detail a number of matters relating to the independence of Mr Hill. The letter stated that at present Fonterra had lost confidence with respect to Mr Hill’s independence as liquidator of the company. Fonterra’s position was that Mr Hill be replaced forthwith as liquidator or alternatively that he seek a direction from the Court with respect to his “independence” in continuing to act as liquidator of Falcon GT. Kemp Strang responded on Mr Hill’s behalf by letter dated 28 February 2011. A second letter dated 4 March 2011 stated that Mr Hill proposed to convene a meeting of creditors to inform the creditors of the issue that had been raised. A third letter dated 18 March 2011 stated, in part: “Your client’s refusal to continue to fund our client’s investigations justify him in concluding that it is in the interests of creditors to resign”. In the result, a Mr Turner and a Mr Whittingham were ultimately appointed as liquidators of Falcon GT on 13 May 2011.

24    For these reasons Fonterra objects to Kemp Strang now acting for Mr Viropoulos, FCD Holdings and Nick’s Food where the subject matter in the examinations and in the proceeding is in respect of the same or related matters and where the interests of the liquidator for creditors, including Fonterra, is adverse to the interests of Mr Viropoulos, FCD Holdings and Nick’s Food.

25    In its submissions, the applicant refers to a number of authorities.

26    In Geelong School Supplies Pty Ltd v Dean (2006) 237 ALR 612; [2006] FCA 1404 Young J at [24] summarised the three possible grounds for restraining a solicitor from acting for a particular party to litigation as identified by Brooking JA in Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 at 521-524 [52]-[58]:

the danger of misuse of confidential information; a breach of a fiduciary duty of loyalty not to act against a client, or against a former client in the same matter or a closely related matter; and the inherent jurisdiction of the court to control the conduct of solicitors and counsel as officers of the court.

27    The first issue is whether Fonterra was or was in the position of a former client of Kemp Strang. To repeat, Fonterra was a substantial unsecured creditor of the company in liquidation, Falcon GT, of which Mr Hill was the liquidator and who retained Kemp Strang to conduct public examinations of, amongst others, Mr Nicholas Viropoulos a director of the company in liquidation, Falcon GT.

28    In my opinion, Fonterra is not and was not a client of Kemp Strang, the solicitors for the liquidator. They had an overlapping interest in examining the affairs of Falcon GT and the role in those affairs of entities and persons who were to be examined, including Mr Nicholas Viropoulos. It was I assume on that basis that Fonterra contributed to the funding of the public examination. I do not therefore see that the category of claim identified by Brooking JA as a breach of a fiduciary duty of loyalty not to act against a client, or against a former client, in the same matter or a closely related matter arises. In so saying I do not discount the authorities which refer to "informal or quasi-clients": see Re a firm of Solicitors [1992] 1 QB 959 at 959 at 970 per Parker LJ, but in the present case Fonterra always retained its own solicitors in the matter and those solicitors acted for Fonterra. Further, Kemp Strang is not acting against Mr Hill the liquidator. If Kemp Strang was so acting there would be a question of Fonterra’s interest in seeking a remedy. Also, as I have said, matters had not reached an advanced stage in terms of the public examination and therefore, had not reached the stage of the matters referred to by Byrne J in Village Roadshow Ltd v Blake Dawson Waldron [2003] VSC 505, to which senior counsel for the applicant took me, a case which involved a direct conflict between the interests of a current client and a former client.

29    As to the inherent jurisdiction of a court to control the conduct of solicitors and counsel as officers of the court, I accept for present purposes that the jurisdiction exists where necessary or appropriate, although it may be inaccurate to say that a statutory court such as this Court has an inherent jurisdiction. As explained by Mandie J in Grimwade v Meagher [1995] 1 VR 446 at 452 the Supreme Court of Victoria has:

… an inherent jurisdiction to ensure the due administration of justice and to protect the integrity of the judicial process and as part of that jurisdiction, in an appropriate case, to prevent a member of counsel appearing for a particular party in order that justice should not only be done but manifestly and undoubtedly be seen to be done. The objective test to be applied in the context of this case is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice required that counsel be so prevented from acting, at all times giving due weight to the public interest that a litigant should not be deprived of his or her choice of counsel without good cause.

The reference to ‘a member of counsel’ or ‘counsel’ should be read as including a reference to a solicitor as there is no material difference in principle in the present context.

30    However, apart from any specific issue as to confidential information and assuming Fonterra would have a sufficient interest to invoke the inherent jurisdiction, I am not persuaded to grant relief on this basis. I do not see that there is any disloyalty or any appearance of disloyalty as that word is used in the context of applications to restrain lawyers from acting.

31    Could it be said that Mr Viropoulos would otherwise gain some unfair advantage in retaining the solicitors for the former liquidator? As to the “getting to know you” factor referred to by Gillard J in Yunghanns and Ors v Elfic Ltd (formerly known as Elders Finance and Investment Co Ltd) (Unreported, Supreme Court of Victoria, Gillard J, 3 July 1998), I agree with Heerey J in Mintel International Group Limited v Mintel (Australia) Pty Ltd [2000] FCA 1410; (2000) 181 ALR 78 that these words should not be taken literally. I also agree with the observations of Steytler P in Ismail-Zai v State of Western Australia (2007) 34 WAR 379 where his Honour said;

[29] These comments were made in the context of a case where the former client had had a very close relationship with a firm of solicitors spanning some 30 years. The former client had initially worked as an employee solicitor for the firm for five years and, subsequently, the firm had acted for him in many commercial transactions. The firm consequently had "many opportunities to form opinions as to [the former client's] modus operandi in business and legal work" (at 13). The case was consequently unusual. If these so-called "getting to know you" factors, to the extent that they involve knowledge of the client rather than of anything imparted in confidence by the client concerning his or her affairs, can constitute confidential information (a proposition that seems to me, with respect, to be questionable: see Black [Black v Taylor [1993] 3 NZLR 403]at 412 per Richardson J), they will only rarely do so: Mintel International Group Ltd v Mintel (Australia) Pty Ltd [2000] FCA 1410; (2000) 181 ALR 78; and see Black at 406 per Cooke P, at 408, 412 per Richardson J. However, the misuse of information of that kind might be such as to undermine the due administration of justice.

I am not persuaded on the evidence on the present application that there is such information or such misuse of it.

32    In light of the evidence that none of the individuals at Kemp Strang are the same, in my view it comes back to the question of more specific confidential information.

33    As to this, in my view there is a basis for concluding that specific information was given to Kemp Strang in the course of the communications between the solicitors for Fonterra and Kemp Strang, then acting for Falcon GT, as to the documents to be summonsed from Mr Viropoulos and the questions to be asked of him. I would include issues of approach. I am not persuaded that there was any confidential information imparted in relation to the allegations in the draft defence against Fonterra of anticompetitive behaviour. The general issue was raised, but it does not seem to have been progressed to the point where Fonterra or its solicitors imparted confidential information, relevant to that claim, to Kemp Strang.

34    The relief sought is discretionary, and in these circumstances, it is appropriate to consider the undertaking proffered by Ms Roppolo.

35    As I have said, Ms Roppolo proffers an undertaking to the Court that she “will not by any means attempt to access any of the electronic or physical files held by Kemp Strang in respect of the Falcon GT matter”. In my view such an undertaking is, subject to refinement, sufficient in light of the other evidence given by Ms Roppolo as to her non-involvement in that matter previously. This should be adapted to include a requirement not to discuss the present matter with those previously acting for Mr Hill the liquidator and vice versa.

36    The evidence suggests that those with knowledge of the Falcon GT matter were Mr Philip Parker, Mr Blake Shaw, Mr Scott Hedge and Ms Silvana Jovevska. There may be others who, for example, worked with Mr Hedge when he took over carriage of the Falcon GT matter.

37    In my view a similar undertaking should be given by any other persons at Kemp Strang, including paralegals, who are or will be working on the present proceedings. That should be effected by Ms Roppolo.

38    As to the criticisms of the undertaking made on behalf of Fonterra in its written submissions, it is put at [22] of those submissions that the undertaking creates more problems rather than solving them.

39    It is said that failure to access the three boxes of documents associated with the Falcon GT matter may be contrary to the obligation of Kemp Strang to obtain documents to advance the clients’ interests and to make proper discovery and hence be contrary to the due administration of justice. Second, if Mr Hill or the current liquidators requested the boxes or their documents from the boxes those boxes would then have to be searched and examined. What would happen if use was then to be made of documents from the boxes?

40    In my opinion, these matters can be dealt with by suitable arrangements within Kemp Strang consistent with the proposed undertakings. For example, persons other than those acting in the present matter could make any searches which became necessary.

41    As to the form of the undertakings, I have referred the parties to the form of the first undertaking considered by Goldberg J in Photocure ASA v Queen’s University at Kingston [2002] FCA 905, particularly paragraphs 1 and 2, suitably adapted.

42    I direct that Kemp Strang proffer to the Court and to Fonterra as soon as practicable a proposed form of undertaking.

The pleadings so far as concern the third, fourth, fifth and sixth respondents

43    I turn now to the interlocutory applications concerning the pleadings, being the Second Proposed Amended Statement of Claim.

44    The areas of dispute concerned the pleadings against the third, fourth, fifth and sixth respondents. They contend that the second proposed Amended Statement of Claim fails to disclose a reasonable cause of action against them.

45    Senior counsel for the applicant accepted that the earlier versions of the pleadings are not pressed so far as concerns these respondents.

46    The other respondents, being the first, second and seventh respondents, do not resist the proposed amendments so far as concerns them.

47    The third and fourth respondents are, broadly, a firm of accountants and a director of that firm while the fifth and sixth respondents are, broadly, a firm of lawyers and a director of that firm.

48    The first allegation so far as it concerns the third and fourth respondents, at [12], is that the fourth respondent was retained by Mr Viropolous and his various entities, inter alia “to advise and do all acts, matters and things necessary for, or incidental to, affecting the Phoenix arrangement referred to in paragraph 21 below”. Despite some suggestion in submissions to the contrary, in my view, those allegations are statements about the retainer.

49    Similarly, the first pleading so far as concerns the fifth and sixth respondents, at [14] is that the sixth respondent was retained by Mr Viropoulos and his various entities “inter alia, to advise and do all acts, matters and things necessary for or incidental to effecting the Phoenix arrangement referred to in paragraph 21 below.” Again, I read these allegations as statements about the retainer.

50    Central to the question of the pleadings is the Phoenix arrangement as defined in [21] which takes the following form:

21.    In or approximately August to September 2009 meetings and discussions were held between Viropoulos, Bruzzano and Leonard wherein it was conceived, designed and decided that:

(i)     Falcon’s plant, equipment, goodwill, stock and debtors be sold to FCD;

(ii)     FCD (under the name First Choice Dairy), would trade using the same premises, plant and equipment and contact details as used by Falcon in servicing substantially the same customers in the same geographical area;

(iii)    Valuers & Auctioneers be engaged to value the plant and equipment of Falcon on a fair market value on continued use and forced liquidation sale bases;

(iv)    an alternative supplier of dairy products be sourced;

(v)    the creditors of Falcon, in particular Fonterra remain with Falcon save and except creditors for whom Viropoulos had given a personal guarantee;

(vi)    Falcon then be wound up;

(vii)    Nick’s Food be established to ultimately acquire or assume ownership of the Falcon business and its assets for no consideration and trade as First Choice Dairy.

51    At [30A] it is alleged that by reason of the conduct referred to in paragraphs 19-27 or 20-27 or 19-28/29 or 20-28/29 and the non-disclosure by Falcon GT to Fonterra of the Phoenix arrangement and its implementation, Falcon GT engaged in conduct which was misleading or deceptive or likely to mislead or deceive and which in fact misled or deceived Fonterra into believing it would be paid for the purchased products contrary to s 52 of the Trade Practices Act and/or s 42 of the Fair Trading Act 1987 (NSW).

52    A further set of allegations against Falcon GT is made in relation to representations pleaded in [31].

53    Allegations are made against Mr Viropoulos in [36]-[39]. A consequential claim is made against FCD Holdings at [40]-[41].

54    The claims against the third and fourth respondents resume at [42] and allege that the third respondent company, through Bruzzano, and Bruzzano with Viropoulos and Leonard conceived, advised on, designed, decided and effected the Phoenix arrangement and met with Leonard and Viropoulos in relation to the Phoenix arrangement; provided instructions to Leonard with respect to the two asset sale agreements; and referred Viropoulos to O’Mara’s valuers, referred Viropoulos to Hills Insolvency; and charged fees including $44,000 for professional services rendered to Falcon GT. In the premises it is said that these respondents aided and abetted, counselled and procured the contravention constituted by the conduct of Falcon GT referred to in paragraphs 20 to 29, 30A, 31, 34 and 35 and/or “has been in any way, directly or indirectly, knowingly concerned in or party to the contravention constituted by the conduct of Falcon GT referred to in paragraphs 20 to 29, 30A, 31, 34 and 35 above” within the meaning of s 75B(1)(a) and (c) of the Trade Practices Act and by reason of “the matters aforesaid” Fonterra has suffered loss and damage.

55    It is also alleged “in the premises”, that these respondents engaged in conduct which was contrary to s 42 of the Fair Trading Act. In each case it is alleged that by reason of the matters aforesaid Fonterra suffered loss and damage in that it has not been paid the sum of $1,255,971.71, less the sum of $50,000 received pursuant to a bank guarantee in 2010 and has lost the use of the said sum, and interest and costs.

56    The further allegations against the fifth and sixth respondents are in the same terms except at [47] it is alleged that the fifth respondent through Leonard and Leonard with Viropoulos and Bruzzano conceived, advised on, designed, decided and effected the Phoenix arrangement; met with Viropoulos and Bruzzano on a number of occasions in relation to the Phoenix arrangement; prepared the First Asset Sale Agreement and the Second Asset Sale Agreement; charged a fee of approximately $5000 for the two asset sale agreements; and charged a fee of $57,403.50 for the period 1 October 2009 to 30 December 2009 for advice in relation to matters relating to Falcon GT and FCD Holdings.

57    The relevant respondents submit that the pleading does not plead facts capable of justifying a finding that these respondents had actual knowledge of the essential matters constituting Falcon GT’s contravention of the Trade Practices Act. Merely parroting the verbal formulae employed in s 75B is not enough. Nowhere in the pleading is it alleged that these respondents had actual knowledge that Falcon GT would continue or was continuing to order and take delivery of the purchased products from the applicant during the purchasing period. Nor, it is submitted, is it alleged that these respondents knew that during the purchasing period the applicant would be or had been misled or induced to believe that Falcon GT would pay for those products. The alleged elements of the Phoenix arrangement do not include a plan or intention that Falcon GT would order and take delivery of the purchased products from the applicant during the purchasing period and the alleged elements of the Phoenix arrangement do not include conduct calculated to induce the applicant to supply products to Falcon GT after 3 September 2009 in the false belief that Falcon GT would pay for them.

58    As to the cause of action that these respondents personally engaged in misleading conduct in contravention of s 42 of the Fair Trading Act the respondents submitted that the applicant has not identified any conduct of these respondents as misleading or deceptive, beyond that already relied upon in connection with the s 75B claim. It was Falcon GT, not these respondents, which is pleaded to have engaged in most of that conduct. In so far as these respondents are alleged to have engaged in conduct at all, it is submitted there is no requisite causal connection between their conduct and the loss the applicant claims to have suffered.

59    The applicant submitted that the allegation that the purchased products would continue to be ordered and the applicant’s debt run up was but one element in the Phoenix arrangement. The applicant submitted that both Bruzzano and Leonard had knowledge of the Phoenix arrangement as described in [21] and by their conduct referred to in [42] and [47] respectively of the implementation of the Phoenix Arrangement. The requirement of knowledge that purchased products would continue to be ordered and the applicant’s debt run up was to be inferred.

60    As to Mr Bruzzano, the applicant submitted that the inference of knowledge came from acting as the accountant, the nature of the Phoenix arrangement, the matters referred to in [47] of the pleading and that Mr Bruzzano incorporated Nick’s Food, the seventh respondent.

61    These contentions relied in part on the supply of further and better particulars which in my opinion are not a substitute for the pleading of material facts. In my view also there is a difference between drawing inferences at the end of the day from proved facts, on the one hand, and drawing inferences from allegations in a pleading, on the other. In the latter case, it is more likely that the pleading will lack the requisite clarity.

62    As to Mr Leonard, the inference of knowledge came from his acting as solicitor, the Phoenix scheme and its conception and the decision referred to in [21], from [30A (iii)], the matters referred to in [47], the first asset sale agreement putting values on a liquidation value basis rather than a going concern basis, [22] and the account to Falcon GT but payable by FCD Holdings.

63    Again reference is made to the supply of particulars and I repeat my earlier observation about the role of particulars. This applies in particular to the apparent statement in the particulars that the whole point of the Phoenix arrangement was for Falcon GT to avoid paying creditors, including the applicant. I note that there is a reflection of that allegation in [30A(b)(iii)], to which I will return.

64    Reliance is also placed, in particular, on [21(v)] which alleges that the Phoenix arrangement involve the creditors of Falcon GT, in particular the applicant, remaining with Falcon GT.

65    As to s 42 of the Fair Trading Act, the applicant relied upon the same conduct. The applicant submitted that the involvement of these respondents was part of the misleading and deceptive conduct and, at the least, was part of the causation of the applicant's loss. Neither knowledge nor intention is required. Nor would involvement in the failure to disclose be required.

66    The applicant referred to CH Real Estate Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37 where the Court of Appeal was considering s 42 of the Fair Trading Act as it then stood. It may be accepted for present purposes that the section required no intent or negligence on the part of the person engaging in the prohibited conduct with the consequence, the Court held, at [104], that the fact that the individual may not have been aware of the existence of the statements in the relevant contract would not relieve him of liability: just as a corporation would be liable because it presented a contract to the purchaser containing statements which were in fact misleading or deceptive, so the individual would be liable under s 42 if he engaged in conduct of the same kind. These words, which I have italicised, were an important part of the reasoning of Basten JA, with whom Beazley JA, as her Honour then was, agreed.

67    In my view the deficiency in the pleading is illustrated by the applicant’s necessary resort in its submissions to first identifying and then stringing together a number of separate if not disparate integers in the pleading.

68    The overall defect in the pleading has been to proceed at too high a level of abstraction rather than to plead what it is that the relevant respondents allegedly did. This is then compounded, in my opinion, by too ready resort to the verbal formulae in the statutory provisions which the applicant invokes.

69    Rule 16.02(1)(d) of the Federal Court Rules 2011 requires that a pleading must “state the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved.”

70    A respondent should be able to see from the pleading a clear statement of what he is alleged to have done or failed to do and in the case of s 75B what he is alleged to have known: Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; 293 ALR 537 at [8]-[9] where the Court explained rule 16.43 about pleading knowledge, that is, a party who pleads knowledge must state in the pleading particulars of the facts on which the party relies.

71    In my opinion the defects in the proposed pleading begin with the generality of the words “wherein it was conceived, designed and decided that” in [21] combined with the use of the passive voice and compounded by the limited nature of the seven subparagraphs only some of which are later picked up in substantive paragraphs and where one apparent element of which is included only, and then in a rolled up way, in [30A] where it is said that the object of the Phoenix arrangement was to avoid paying the applicant Fonterra. That is not an allegation that forms part of the pleading of the Phoenix arrangement in [21]. Looking at [30A], in my view, subparagraph (a) is not an appropriately clear way of proceeding by reference to alternatives with internal alternatives, and in addition, too much is left to inference, for example, why Falcon GT signing an application for a commercial trade account, as alleged in [19], is an alternative to what is alleged in [20] as to the retention of a firm of valuers and auctioneers to value the plant and equipment.

72    More importantly those paragraphs relate largely to what Falcon GT is alleged to have done, but at least because of the limited terms of the Phoenix arrangement pleaded in [21] it is not in my view alleged or sufficiently clearly alleged that the relevant respondents knew that the object of the Phoenix arrangement was for Falcon GT to avoid paying the applicant or that Falcon GT would continue or was continuing to purchase the dairy products from the applicant which founds the claim of $1,255,971.71 or that the applicant had been misled or deceived into believing that Falcon GT would pay for those dairy products. I reject the submission that the defects are cured by [21(v)], which concerns only creditors, and I do not accept, which I understood to be the applicant’s submission, that a Phoenix scheme is, in effect, a term of art, or that the use of that term fills a gap in the material facts alleged. Neither do I accept that gaps in the pleading may be filled by resort to other authority dealing with the facts of different cases.

73    There is also, in my opinion, insufficient clarity stemming from the terms in which the Phoenix arrangement is identified in [21] where it appears that Falcon GT was to be replaced by FCD Holdings; an alternative supplier (that is other than the applicant Fonterra) be sourced; and other paragraphs of the pleading which involved Falcon GT purchasing and taking delivery of the dairy products from Fonterra but neglecting or refusing to pay the applicant for them. I would add that [42] and [47] respectively do not provide a cure for these defects in terms of pleading. I do not accept the applicant’s submission that this is to be explained as a timing issue. I also note that the pleaded arrangement in [21] does not include or seem to include the facts alleged in [23], [24] and [25].

74    The relevant respondents are entitled to ask what it is, as a matter of primary fact Mr Bruzzano is alleged to have done and known: Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; 293 ALR 537 at [11]. The relevant respondents are also entitled to ask what it is, as a matter of primary fact Mr Leonard is alleged to have done and known. The same questions may be asked about the companies. In each case the pleading should provide a clear answer which it presently does not.

75    Material allegations against these respondents are missing, and the pleading provides no clear answer to the questions that I have articulated.

76    In these circumstances, in my view, the relevant respondents’ complaint as to a failure to plead causation does not require separate consideration. The complaint seems to me to be linked to the limited nature of the facts as pleaded against them as to the acts in which they were involved. For example, paragraph 44 of the pleading does not allege that Fonterra was misled by the placing of the purchase orders after September 2009.

77    The result is that I refuse the interlocutory application seeking leave to amend in relation to this pleading so far as it concerns the third to sixth respondents. Contrary to the submissions of the third to sixth respondents, in my view, the applicant should have a further opportunity, which I indicate would be in the nature of a final opportunity, to plead a case against these respondents, and to that end should have 28 days in which to serve a proposed amended pleading, and the third to sixth respondents should have 14 days thereafter to state whether or not they consent to those proposed amendments, and if not, the grounds therefor.

78    In the circumstances where the applicant no longer propounds, as against the third to sixth respondents, the earlier versions of the pleadings, I do not presently see that it is necessary to deal with those earlier claims. If it is necessary to do so, I will do so on the next occasion. The relevant paragraphs of the earlier pleading which senior counsel for the applicant disavows are 11 to 14 and 42 to 51.

79    The applicant should pay the third, fourth, fifth and sixth respondents’ costs of the interlocutory application filed on 10 May 2013 relating to the second proposed Amended Statement of Claim, dated 7 February 2013.

Associate:

Dated:    8 JULY 2013