" "JUDGMENT No. 52) 871. CATCHWORODS MORTGAGES - sale by encumbrancee - claim for reconveyance by beneficiary of trust - trustee the encumbrancer - allegations of fraudulently misleading Registrar as to existence of power of sale - no specific allegations implicating purchasers from encumbrancee - claim against purchasers dismissed - claim for relief against encumbrancee allowed to proceed. Kadoo Pty. Ltd. & Anor. v. Tricontinental Corporation Limited & Ors. Qld G124 of 1987 PINCUS J. BRISBANE 18 SEPTEMBER 1987 IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G124 of 1987 GENERAL DIVISION ) BETWEEN: KADOO PTY. LTD. First Applicant AND: BARRANBALI PTY. LID. Second Applicant AND: TRICONTINENTAL CORPORATION LIMITED First Respondent AND: HARFERN PTY. LTD. Second Respondent AND: KALEGO PTY. LTD. Third Respondent AND: ROBERT GOLDSTEIN Fourth Respondent AND: FRANK GOLDSTEIN Fifth Respondent AND: IAN KENNETH D'ARCY Sixth Respondent AND: ROBERT HARDROSS RUDKIN Seventh Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 18 SEPTEMBER 1987 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application be dismissed as against the 2nd, 3rd, 4th and 5th respondents. 2. The applicants have leave to deliver an amended statement of claim against the lst respondent to be filed and served on or before 2 October 1987. 3. The applicants pay the costs of the application of the 2nd, 3rd, 4th and 5th respondents, to be taxed. NOTE: The costs of the application to strike out incurred by the lst respondent be taxed and paid by the applicants. The application for security for costs made by the lst respondent be dismissed, the director of the applicant, Mr. J.W. Quinn, a solicitor, having given an undertaking to the Court. Costs of the application for security be the lst respondent's costs in the proceedings. Settlement and entry of orders 1s dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G124 of 1987 GENERAL DIVISION ) BETWEEN: KADOO PTY. LTD. First Applicant AND: BARRANBALI PTY. LTD. Second Applicant AND: IRICONTINENTAL CORPORATION LIMITED First Respondent AND: HARFERN PTY. LTD. Second Respondent AND: KALEGO PTY. LTD. Third Respondent AND: ROBERT GOLDSTEIN Fourth Respondent AND: FRANK GOLDSTEIN Fifth Respondent AND: IAN KENNETH D''ARCY Sixth Respondent AND: ROBERT HARDROSS RUDKIN Seventh Respondent PINCUS J. 18 September 1987 EX TEMPORE REASONS TOR JUDGMENT This is an application made by the second, third, fourth, and fifth respondents to have an application struck out or stayed on the grounds that the statement of claim is embarrassing or insufficiently particularized, and on another ground unnecessary to mention. The case has also been argued by counsel for the first respondent, who supports the submission made by counsel for the second to fifth respondents, which 1s, in essence, that the statement of claim is defective and, as against the second to fifth respondents, the claim 1s vexatious. The application was one to which, until recently, there were seven respondents, the sixth and seventh being solicitors involved in the transactions I shall mention. As against them, it has been discontinued. The case concerns an encumbrancee's sale of property owned by a company called Visigoth Pty. Ltd. ("Visigoth"), which was not joined. The first applicant, Kadoo Pty. Ltd., says that 1t 1s a beneficiary under a trust of which Visigoth 1s. trustee, and it claims to sue in defence or vindication of the rights of the trust. It 1s plain and, tiundeed, not contested, that the proceedings are, in that respect, defective because of the absence of Visigoth from them. I refer to Vol.48 of the 4th edition of Halsbury, paragraph 933. The submission which 1s made on behalf of the applicants, however, is that the absence of Visigoth is not fatal to the proceedings, and I agree with that. It 1s, nevertheless, plainly a matter which has to be attended to and not, in this case at least, merely a formal matter. The pleading is a complex document and it is desirable to summarize its effect rather than set the relevant parts of it out at length. It says that the first respondent, Tricontinental Corporation Limited ("Tricontinental"), purporting to do so as encumbrancee, sold property for $416,000 which was the subject of a bill of encumbrance. The statement of claim sets up that the property was sold by a transfer lodged in the office of the Registrar of Titles on 18 June 1987 and registered oni19 June 1987. In their application, which was filed on 5 August 1987, the applicants claim, among other things, an order which is expressed to be one "terminating the effect of the transfer". Counsel for the applicants explained, however, that what was really intended was to ask for an order for reconveyance. The second and third respondents presently have the iegal title to the land. The fourth and fifth respondents are persons associated with them. The presence of the second and third respondents 1s required, it seems to me, if the claim for reconveyance 1s to proceed, but a serious question arises as to whether the case should be allowed to go ahead as against any of the second, third, fourth or fifth respondents. The statement of claim alleges that documents lodged with the Registrar of Titles to procure registration were factually incorrect and misled the Registrar fraudulently, in that they asserted that there was a default of Visigoth at a certain date when there was not. It seems to be common ground that the rights of the encumbrancee, Tricontinental, were governed not only by the bill of encumbrance but by a deed of settlement of certain Supreme Court proceedings which affected the rights of the encumbrancee to sell. The case of the applicants appears at first sight to be that under the bill of encumbrance as so varied there was no right to sell, although that is not clearly set out in the pleading. ! Paragraph 15 of the statement of claim alleges that the misleading documents caused the Registrar to register the transfer and that the first applicant, Kadoo Pty. Ltd., thereby lost its beneficial interest in the property, being one-third of the difference between the market value of the property and its price. It also, so the pleading says, lost its interest as optionee pursuant to a lease. Complaint was made of the lack of specification of the interest as lessee, and that complaint seems to me well founded, but 1t is not a major deficiency in the pleading. My initial reading of the pleading was that the applicants intended to allege that there was no power of sale at all and that the lack of specification of that matter was merely a slip. However, two circumstances have combined to cause me to abandon that view. The first 1s that Mr. Robb, for the applicants, has drawn my attention to an affidavit made by Mr. Cockerill which says that Mr. Cockerill does not wish to assert that a sale by Tricontinental of the land at market value was other than in accordance with the encumbrancee's rights pursuant to the bill of encumbrance and the deed. As I understand the submission of counsel for the applicants, it seems to be this: that two of the three beneficiaries under the deed in fact agreed to a sale of a certain sort, and the third one would have agreed, and counsel says 1t is going to be set up that these facts were 30; it seems to me if they were so, they should be pleaded. t The second circumstance which caused me to abandon the view I initially took as to the nature of the applicant's case is that the pleading goes on to complain of failure to sell to the second applicant Barranbali Pty. Ltd., which, of course, implies that there was a power of sale. It turns out, from discussion between myself and Mr. Robb, that, on the second leg, 1t is indeed the case for the applicants that there was a power of sale. The allegation on the first leg of the case, then, is that there was a transfer which could not have been registered - there being no power of sale ~- but for misrepresentations made to the Registrar. The misrepresentations were as to the relationship between the encumbrancee and the encumbrancer, Visigoth. Of course, 1t may occur that a purchaser from a mortgagee or encumbrancee 1s aware of the whole of the circumstances surrounding the sale, but there 1s no presumption that he 18 so aware, and it would seem to me absolutely contrary to the scheme of the Real Property Act 1861-1986 (Qld.) to allow speculative proceedings for reconveyance to be brought against purchasers from holders of securities, based upon the mere possibility that they were involved in the alleged misdeeds of the vendor. There are allegations of fraud here. And indeed, so far as concerns the first respondent, the argument which has been delivered by Mr. Robb makes it plain that the allegations of fraud are seriously pressed. They are so pressed, also, as against the second, third, fourth and fifth respondents, but it seems that Mr. Sofronoff for those respondents is right in saying that the case against the purchasers and those associated with them is speculative. I suggested to counsel for the applicants, in the course of his address, that that seemed to be so and, in effect, invited him to tell me if there were substantial facts (although not pleaded) upon which it was going to be sought to support the case of fraud against the second to fifth respondents. Counsel's responses have reinforced my impression that what Mr. Sofronoff says 1s right. An example of the sort of thing of which complaint was made on behalf of the second to fifth respondents is that it 1s sald in paragraph 13 of the statement of claim that the conduct of the second and third respondents was caused to be carried out by the fourth and fifth respondents, or alternatively the fourth and fifth respondents authorised some other person or persons to carry out the said conduct, further particulars of which cannot be given until after discovery in this action. As another example, it 15 said in paragraph 11 that neither the fourth respondent nor the fifth respondent believed that the default mentioned in the papers was continuing, or that there was any other default and this 1s all, of course, said to be fraudulent. There is in the fairly lengthy and elaborate pleading no hint that there is any concrete evidence of fraud against the purchasers, or those associated with then. Mr. Robb spoke of inferences that might be drawn from the circumstances, and the only particular circumstance he seemed to rely on was that' the contract of sale between the encumbrancee and the purchasers was settled and a date other than that prescribed by the contract, and indeed settled earlier. It ig said in the pleading, against the second to fifth respondents that their solicitor, who was once a party to the proceedings, knew the facts constituting the fraud and told them. There is, of course, again no indication 1n the pleading of when or by what means the information was passed to them, soas_ to implicate them in the alleged fraud. I cannot, I think, ignore the practical consideration that the principal purpose of joinder of the second to third respondents 1s to undo the sale to them. If that sale was at an under-value then, subject to the question of joinder of the encumbrancer, monetary relief may perhaps be obtained against the encumbrancee. When I raised that question with counsel for the applicants, he informed me that, for reasons he did not specify, the land was of some special value to the applicants, and I must accept that for present purposes. Nevertheless I am confronted with the fact that he has pleaded a shadowy case of fraud against the purchasers from the encumbrancee, who have become registered. He wants to bolster it, or hopes to do so, by discovery and perhaps interrogatories and I have, of course, been referred by the respondents' counsel to the authorities bearing upon the propriety of that course. , I do not act upon the view that it can never be right for one having a rather skeletal case of unlawful conduct, and in particular fraudulent conduct, to plead what is known and then rely upon discovery. There must come a point, however, at which the court would not allow such a case to go further, and despite the able argument advanced on behalf of the applicants, it seems to me clear enough that the point has been reached here. I do not think the matter should be allowed to proceed against the second to fifth respondents, and the application as against them will be struck out. I do not think the pleading demonstrates anything other than that it 1s hoped to make a case of fraud against them, if the facts fall that way, and the discussion on the facts which I have engaged in with counsel for the applicants, so far from 1spelling that impression, has reinforced it. In one sense, I suppose the argument 1s basically one about discovery - should applicants be allowed to go to discovery, and further pursue the case, on this sort of pleading; I do not think they should. There are other aspects of the pleading which could be mentioned, but 1t 1s perhaps superfluous to do so, because I propose to let the matter proceed against the first respondent on a fresh pleading. There will obviously have to be a new pleading because most of the respondents are now out of the matter, the case having been abandoned against the two solicitors and struck out as against the second to fifth respondents. I will, therefore, be brief. The second leg of the case, as presently pleaded, is a claim that the encumbrancee promised to sell the land in question to the second applicant, Barranbali Pty. Ltd. This aspect of the matter is put on two alternative bases. It is said, firstly, that Tricontinental misrepresented its intention: while saying it intended to sell to Barranbali Pty. Ltd., 1t was going ahead with the sale to the second to fifth respondents. Alternatively, a contract of sale between the applicants and Tricontinental is alleged, a contract which Tfricontinental breached by selling to the second and third respondents. As _ to the latter point, the argument was put that, since the contract of sale set up was merely moral, there was no cause of action by reason of s.59 of the Property Law Act 1974 (Q.) which corresponds to s.4 of the Statute of Frauds, 1677. It appears to me clear enough that this point does not avail the respondents. Such a contract is, of course, merely unenforceable and not void - Madison v. Alderson (1883) A.C. 467 at 488. As Collins M.R. pointed out in Fraser v. Pape (1904) 20 T.L.R. 798 at 799, s.4 of the Statute of Frauds of 1677 does not go to the merits but merely deals with evidence and the defendant has an option wnether or not to set the section up. The claim cannot be struck out on the ground of lack of plea of a writing. Criticism 1s also made of the contractual claim on the basis that 1¢ 1s not clear from the pleadings what it is that constitutes the offer by the applicants which 1s relied on. I agree that that is so, but again that is not a striking-out point, nor does it seem to me likely to cause any serious embarrassment to the respondents. A more substantial point, to which some reference has already been made, is that it is unclear what is the applicants' case as to the power of sale.' During the course of discussion, 10. counsel for the applicants handed to me proposed additional paragraphs 14(a), 14(b) and 16(a), which will be marked exhibit 1. But, having heard what he has to say, it is still not clear to me how the second leg of the case is made out, or how he matches it with the first leg. I find it difficult to see how a complaint can be made against the first respondent of the failure to sell to the second applicant for $416,000, which in the first branch of case is said to be an illegal price. It may be that the answer is, as counsel for the applicants has told me, that those involved, which he says were the other two beneficiaries under the trust, simply did not know enough about the value of the property. But if the second leg of the case depends upon there being a power of sale created by assent of beneficiaries, then that has to be Plainly pleaded; otherwise the pleading is incomprehensible. I do not, however, propose to deal with other aspects of the matter raised in the course of argument in criticism of the present pleading; 1t has to be repleaded in any event, because of the absence of nearly all the initial respondents. The orders I propose to make are that the application be dismissed as against the second, third, fourth and fifth respondents, and that the applicants have leave to deliver an amended statement of claim against the first respondent by filing and serving the same on or before the second day of October 1987. As to costs, it will be ordered that the applicants pay the costs of the second, third, fourth and fifth respondents, to be taxed. The costs of the hearing of the application to strike ll. out incurred by the first respondent will also be taxed and paid by the applicants. D cartify that nig ond 'as 10 cracadng for « pages are a true copy of the reascns Judgment herein of His Honour ' ' -, — 5 T Mr Jusi.ce Pincus - SLA Associate a t Dared [2 Sepleminey Iqs~,