JUDGMENT No «2.2. mal ectetoen NOT FOR DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 3099 of 1994 GENERAL DIVISION ) IN_THE MATIER OF: Australian Forest Managers Limited (In Liquidation) BETWEEN: ACN 003 359 411 AUSTRALIAN FOREST MANAGERS LIMITED (IN LIQUIDATION) ACN 003 359 411 Applicant ROGER VANET BRAMLEY First Respondent BRIAN ALEXANDER SMIBERT Second Respondent GRAHAM BRADSHAW HOUSTON Third Respondent JENNIFER MARGARET SMIBERT Fourth Respondent CORAM: LINDGREN J PLACE: SYDNEY DATE: 8 NOVEMBER 1994 21 NOV 1994 FEDERAL COURT U AUSTRALIA PRINCIPAL ' REGISTRY t/ INTRODUCTION On 8 November 1994 I made orders and gave brief reasons in relation to two motions brought by the respondents in these proceedings. On that date I indicated that I would publish my reasons in edited and slightly more elaborate form later. Theses are those reasons. By two notices of motion the respondents seek orders under Order 20 r. 2 or alternatively Order 11 r. 16 of the Federal Court Rules. One motion is brought by the first and third respondents and the other is brought by the second and fourth respondents. In summary the objective is to obtain either a dismissal or permanent stay of the proceedings on the one hand, or a striking out of certain paragraphs of the amended statement of claim on the other hand. In my view a case is not made out by the respondents for a dismissal or permanent stay but a case is made out for the striking out of certain paragraphs of the statement of claim. In summary, the application is one by a company in liquidation (I will, as the amended statement of claim does, refer to the company as "AFM") against the first three respondents who were its directors and controllers at the relevant time, and against the fourth respondent, to whom I will refer as "Mrs Smibert", who was at the relevant time the wife of the second respondent, to whom I will, where appropriate, refer as "Mr Smibert". The motions, insofar as they relate to striking out, seek a striking out of paragraphs 8(a), 9(b), 10, 11, 12 and 13 of the amended statement of claim filed 12 September 1994. Paragraph 8, that is the paragraph which precedes the first Paragraph sought to be struck out, pleads that Mr and Mrs Smibert and the third respondent owed to AFM the duties referred to in sub-sections 232 (2) and (4) of the Corporations Law ("the Law"). It 1s common ground that the reference to the second, third and fourth respondents in paragraph 8 should be a reference to the first, second and third respondents, they being the directors of the AFM at the relevant time. This is only in itself a minor error but it does indicate the source of difficulty which the respondents say they have in understanding precisely the causes of action which are relied upon, a difficulty which I have myself experienced. The fact is that there appear to be, as Mr Webb of counsel for the applicant, explained on the hearing, two distinct bases of the claim or claims made in the amended statement of claim. The first is claims made against the former directors, that is the first, second and third respondents, based upon alleged contravention by them of subsections 232(2) and (4) of the Law. The second is a cause of action against Mr and Mrs Smibert based upon their taking of an assignment of a certain debt which was owed to AFM, without consideration or adequacy of consideration passing from them to AFM. It seems to me that the amended statement of claim does not make it clear that these two distinct causes of action are relied upon and the respondents are generally correct in saying that the amended statement of claim is embarrassing in that respect. That brings me to the first part of the amended statement of claim to which the motions relate, namely paragraph ""8/a)". It pleads that at all material times prior to May 1991, AFM was insolvent. In my opinion that paragraph is appropriate to remain in the pleading as going, at least arguably, to the breaches of duty which are said to have occurred. As well, it may go to the cause of action against Mr and Mrs Smibert as recipients of benefit to which AFM was entitled and for which they furnished either no consideration or inadequacy of consideration. It is common ground that subparagraph 9(a) no longer has any role to play in the proceedings and I will grant liberty to the applicant to amend by omitting subparagraph 9(a). This brings me to subparagraph 9(b) which is the second part of the amended statement of claim which the respondents seek to have struck out. This subparagraph pleads an agreement between AFM and either Mr and Mrs Smibert or an entity controlled by them to assign to them or it the benefit of "the West Loan". That is a term which is not defined in the amended statement of claim. Mr Webb of counsel has been able to explain, by reference to various documents, what the West loan is. It is a loan by AFM to a Mr West apparently originally of $130,000. However, I think that the respondents are entitled to have a pleading which defines "the West Loan" and indicates the amount of the indebtedness, even if that has to be expressed in alternative terms, of Mr West to AFM at the time of the propounded assignment by AFM to Mr and Mrs Smibert or to "their" company of that loan. As well, particulars of the agreement for assignment should be given. It is true that it may be possible by searching through affidavit material and an exchange of correspondence to fill in the pleading but that is a process in which, in my view, the respondents and the Court ought not to be required to engage. That brings me to paragraph 10 by which it is pleaded that the first, second and third respondents (the directors) resolved to waive any requirement that Mr and Mrs Smibert or alternatively an entity controlled by "it" [sic], pay to AFM any consideration in respect of the assignment. What is intended to be pleaded is clearly that the first, second and third respondents as directors caused AFM not to insist upon payment of consideration. It is common ground that the word "it" should read "them". Paragraph 10 is confusing when read in conjunction with paragraph 11. It is not clear whether what is being pleaded relates to the breach of duty of directors and/or to paragraph 11's allegation that Mr and Mrs Smibert received the benefit of the assignment without consideration. It seems to me that the entire pleading needs to be re-cast so as to distinguish between the two fundamental causes of action, that is, a cause of action against the directors, the first, second and third respondents, for breach of various duties by them owed by them to AFM, and secondly and distinctly the cause of action against Mr and Mrs Smibert (the pleading should make clear the precise juristic nature of that cause of action) in respect of their receiving, in effect, property of AFM without consideration. I say nothing as to whether the taking of the assignment without the furnishing of any or adequate consideration is, without more, a good cause of action or part of a good cause of action. The receipt of company property, that is the indebtedness owed to AFM, without consideration, seems to be the only way in which a claim is put against Mr and Mrs Smibert. On the hearing, it was conceded that Mrs Smibert, not being a director, would not be liable unless the applicant could demonstrate that the assignment was to her and her husband as distinct from being to an entity controlled by them. The distinction would be clear if the two causes of action were pleaded separately. In relation to paragraph 11, the reference to the settling of the sale on 3 July 1991 is confusing in view of the general irrelevance of the contract of sale of land to the causes of action pleaded. I appreciate that it was on the settlement of the sale of land that the taking of the benefit from the assignment of the West Loan is alleged to have occurred, but, as I say, the mention of the settling of the sale of the land serves only to confuse, particularly while subparagraph 9 (a) remains in the pleading. Paragraph 11 is also embarrassing by not making it clear how the alleged net benefit of $54,815 arises. I was taken to evidence demonstrating how this is so and I will not repeat that evidence but in my view the way in which that particular amount has been arrived at by the applicant should be pleaded. In relation to paragraph 12, it seems to me that that paragraph is in general terms in order. It seems clear that what it is pleading is that the three directors breached the duties imposed upon them by sub-sections 232 (2) and (4) of the Law in favour of AFM by causing AFM to assign the debt, while not ensuring that AFM received any consideration or any adequate consideration. It may be, however, that those advising the applicant will see fit to amend paragraph 12 in a way which will make it conform to whatever other amendments may be made to the amended statement of claim. Paragraph 13 pleads that "as a result of the said breaches, AFM has suffered loss and damage". This relates exclusively to the cause of action against the directors. This must be so since it is they, not Mr and Mrs Smibert, who are alleged to have owed a duty to AFM. Paragraph 13 is unobjectionable, but particulars of the "loss and damage" should be given. Separately, the pleading should make it clear, if it be the case, that what is sought against Mr and Mrs Smibert is an accounting to AFM for the benefit received by them without consideration or to the extent of the inadequacy of consideration, as distinct from damages in respect of "loss and damage" suffered by AFM. CONCLUSION In the result, firstly, I order that paragraphs 9(b), 10 and 11 of the amended statement of claim be struck out. Secondly, I grant leave to the applicant to amend paragraph 8 by substituting the words "first, second and third" for the words "second, third and fourth" and to amend paragraph 9 by deleting sub paragraph (a). Thirdly, I grant leave to the applicant to amend the amended atatement of claim generally as it may be advised in the light of these reasons and otherwise. Fourthly, I order the applicant to pay the costs of the respective respondent-applicants of the two motions. Fifthly, I direct that the costs of the respondents on the two notices of motion shall include any costs relating to the seeking and consideration of particulars which costs may have been thrown away. Sixthly, I reserve to the respondents leave to argue on a future occasion that the liquidator of AFM personally should be ordered to pay their costs which the applicant has been ordered to pay. Seventhly, I order that any further amended statement of claim be filed and served by Tuesday 22 November. Eighthly, I direct that the proceedings be listed before a registrar on Friday, 25 November at 9.30 am for further directions. I certify that this and the preceding 8 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren. Associate: Pht Iovonves 17 November 1994 4 November 1994 Sydney 8 November 1994 Mr R J Webb of counsel instructed by Walsh & Blair appeared for the applicant, the respondent on the motions. Mr M Corrick of counsel instructed by W J Kell appeared for the respondents, the applicants on the motions.