CATCHWORDS PROCEDURE - pleadings - statement of claim - striking-out - embarrassment - abuse of process - whether appropriate in the circumstances. Consul Developments v DPC Estates Pty Ltd (1975) 132 CLR 373 JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 Poseidon Ltd & anor v Adelaide Petroleum NL (1994) 179 CLR 332 Winning Appliances v Dean Appliances (1995) 32 IPR 65 ALLAN JOHN POSSELT AND LYNETTE JANICE POSSELT v KENNETH JAMES WOLFENDEN and WAYNE PATRICK WARRICK and WILLIAM ARTHUR HEADLEY and THE PRUDENTIAL ASSURANCE COMPANY LIMITED and WILLIAM WORKMAN NO. WAG 136 OF 1995 JUSTICE R D NICHOLSON PERTH 3 JANUARY 1996 IN THE FEDERAL COURT OF AUSTRALIA ) LIMITED DISTRIBUTION WESTERN AUSTRALIA DISTRICT REGISTRY) GENERAL DIVISION ) NO. WAG 136 of 1995 B E T W E E N: ALLAN JOHN POSSELT AND LYNETTE JANICE POSSELT Applicants and KENNETH JAMES WOLFENDEN First Respondent and WAYNE PATRICK WARRICK Second Respondent and WILLIAM ARTHUR HEADLEY Third Respondent THE PRUDENTIAL ASSURANCE COMPANY LIMITED Fourth Respondent WILLIAM WORKMAN Fifth Respondent MINUTE OF ORDER JUDGE MAKING ORDER: JUSTICE R D NICHOLSON DATE OF ORDER: 3 JANUARY 1996 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Paragraphs 1 and 2 of the fourth respondent's motion dated 18 December 1995 be dismissed. 2. The fourth respondent pay the applicants' costs of an incidental to the hearing of paragraphs 1 and 2 of the fourth respondent's motion dated 18 December 1995. 3. The directions made on 15 December 1995 be maintained. 4. The fifth paragraph of the fourth respondent's motion dated 18 December 1995 be stood over for hearing at a date to be fixed upon application on behalf of the fourth respondent. 5. There be liberty to the fifth respondent to apply in respect of costs on the hearing of paragraphs 1 and 2 of the fourth respondent's motion dated 18 December 1995. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) LIMITED DISTRIBUTION WESTERN AUSTRALIA DISTRICT REGISTRY) GENERAL DIVISION ) NO. WAG 136 OF 1995 B E T W E E N: ALLAN JOHN POSSELT AND LYNETTE JANICE POSSELT Applicants and KENNETH JAMES WOLFENDEN First Respondent and WAYNE PATRICK WARRICK Second Respondent and WILLIAM ARTHUR HEADLEY Third Respondent THE PRUDENTIAL ASSURANCE COMPANY LIMITED Fourth Respondent WILLIAM WORKMAN Fifth Respondent CORAM: JUSTICE R D NICHOLSON DATE: 3 JANUARY 1995 PLACE: PERTH REASONS FOR JUDGMENT R D NICHOLSON J: The fourth respondent brings a strike-out application in relation to the statement of claim in this proceeding. It seeks that the statement of claim be struck-out as against it as vexatious, prejudicial, embarrassing or not disclosing any reasonable or probable cause of action and as an abuse of process of the Court. It seeks also that certain numbered paragraphs be struck-out as vexatious, embarrassing or likely to prejudice or delay. For the applicants it is accepted that three minor amendments should be made to the statement of claim in paragraphs 1, 8 and 14. Otherwise the applicants oppose the motion. The broad outline of the statement of claim is that the applicants are shareholders and directors of Lavar Pty Ltd, trading as Dala Transport ("Dala"). The first, second and third respondents were partners in an accounting firm ("the Accountants") who were retained by the "Retainer Agreement" and agreed to provide accounting and other financial advice to the applicants and Dala and so were engaged in trade or commerce. It is pleaded that it was an "Implied Term" of the Retainer Agreement that the Accountants would exercise all due care, skill and diligence in advising the applicants and in making the Representations. It is further pleaded that in 1990 the applicants started to expand Dala's business, purchased a 50 acre site ("the Site"), decided to effect improvements ("the Improvements") and sought advice under the Retainer Agreement from the Accountants in respect of the most effective arrangements for the applicants to fund the cost of the Improvements, taking into account the financial position of the applicants and Dala. The Accountants gave certain advice which involved the applicants entering into the "Prudential Policies" as part of a "Scheme". In addition to the advice, it is claimed the Accountants provided "Flow Charts" with calculations and that all these things constituted "Representations" by them. The Prudential Policies were issued by the fourth respondent. It is claimed that in giving advice in respect of the Scheme and the Prudential Policies the Accountants acted either as agents for the fourth respondent or on their own account. The applicants paid the premiums due on the Policies to the fourth respondents for the years 1990-92. However, in 1993 it is said the applicants were informed by the fourth respondent that the Policies were not performing sufficiently to allow the premiums for 1993 to be borrowed back by the applicants; this lack of performance was a result of adverse changes in the interest rate and in the financial markets; and the applicants could not recover the initial premiums of $20,000 each. As a result of the inability to borrow back the premiums, the applicants were forced to give up the Policies and to abandon the Scheme. In addition to the pleading of the Implied Term, it is also pleaded that the Accountants were acting under a "fiduciary duty or a duty in equity". By the making of the Representations it is claimed that the Accountants acted in breach of the Implied Term and negligently and in breach of the alleged equitable duties. So far as concerns the fourth respondent, it is pleaded that the Accountants were acting as agents of the fourth respondent, or alternatively on their own account, and that the fourth respondent, in making the Representations, engaged in misleading and deceptive conduct. The approach which the Court should take on a motion for striking-out is summarised in the CCH Australian High Court and Federal Court Practice, vol2, par24-480. The power is one which should be exercised sparingly; it is exercised where it is apparent, on the pleadings, that the case of the plaintiff is so clearly untenable it cannot possibly succeed; and the question is whether it is open to the applicant upon the pleadings to prove facts at the trial which would constitute a cause of action, not whether the facts pleaded were in themselves sufficient to give rise to a cause of action. In the latter respect see: Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 at 415 per Beaumont J. The mere fact that a case is weak or unlikely to succeed is not a ground for striking-out. The first contention raised on behalf of the fourth respondent is that the applicants have not shown in the statement of claim any interest or status sufficient to maintain a cause of action. I am unable to accept that submission. It is pleaded that the applicants purchased the Site; decided to effect the Improvements; sought advice under the Retainer Agreement; and entered into borrowing arrangements under the Prudential Policies and thus into the Scheme. As a substantial matter it is then contended for the fourth respondent that there can be no cause of action as against it in respect of the Implied Term in the Retainer Agreement because that agreement is one which is pleaded as having been made between the Accountants, the applicants and Dala. However, the pleading which the fourth respondent has to answer is that which is in par16(1) and which pleads that the Accountants when acting in breach of the Implied Term, negligently, in breach of equitable duties, acted "as agents for the fourth respondent". If the Accountants in making the Representations were acting as agents of the fourth respondent it would be arguable that the Retainer Agreement was entered into by the Accountants as agents of the fourth respondent so that a breach by the agent of the Implied Term is arguably a breach by the fourth respondent as principal. In my opinion, the claim of the applicants in this respect is not so clearly untenable that it could not possibly succeed. It is next contended for the fourth respondent that the statement of claim fails to plead the material facts giving rise to agency and thus constitutes a mixed plea of law and fact: see par2(d). In my opinion, the facts pleaded are the giving of accounting and financial advice by the Accountants to the applicants in respect of the Scheme and the Prudential Policies. I do not consider that the mode of pleading constitutes an embarrassment to the fourth respondent. It is then contended that the statement of claim relies upon an expression of fiduciary duty at large which cannot give rise to any relationship involving the fourth respondent. It is said that where the operative part of the relationship, as here, arises out of dealings between the Accountants and the applicants, a third party is liable only if there has been significant participation directly by the third party, or the third party has express knowledge of the breach of the fiduciary and takes a benefit: Cf Consul Developments Pty Ltd v DPC Estates (1975) 132 CLR 373; 377-8; 396-8; 405 et seq especially at 408; 409-410 and 412-3. Therefore it is said the facts pleaded against the fourth respondent are wholly inadequate to support such a proposition. The actions which the statement of claim alleges were taken by the fourth respondent involved the issue of the Prudential Policies, the provision of the Flow Charts through the fifth respondent and completion of the entry by the applicants into the Prudential Policies with the fourth respondent. On the pleadings it cannot be excluded that arguably such actions involved express knowledge by the fourth respondent of the use being made of the Prudential Policies and the Flow Charts by the Accountants so that the fourth respondent was involved in what is alleged to be a breach of fiduciary duty. In my opinion, the pre-requisites for a striking-out are not established. There is the further objection raised on behalf of the fourth respondent that no damages have been adequately identified and that the inference should arise that the applicants are unwilling or totally unable to give coherent particulars of damage which they have suffered. It is accepted that particulars of damage have not been given on behalf of the applicants but that the matter can be dealt with by way of particulars. For the fourth respondent it is contended that what is required to be pleaded are facts from which it can be seen that damage has apparently been suffered, not that it may be hypothesised that some damage may have been suffered: Cf Winning Appliances v Dean Appliances (1995) 32 IPR 65; JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237, 241-7, 248-9, 250‑1; Poseidon Ltd & anor v Adelaide Petroleum NL (1994) 179 CLR 332, 349, 351, 364. In my opinion, that test is satisfied. The pleading shows that the applicants were forced to give up the Prudential Policies and to abandon the Scheme. From the pleadings it follows that: they suffered damage; they could not borrow back the premiums for the Prudential Policies and thus their cashflow would be adversely affected; and they would not obtain the "significant savings" represented by the Flow Charts. No proper basis for striking out arises from the lack of particularisation of damages. I have read the detailed submissions in relation to lesser matters arising in relation to each of the paragraphs of the pleadings. In my opinion none of them give rise to establishing that a claim in respect of the fourth respondent is so clearly untenable that it cannot possibly succeed, nor that it amounts to an embarrassing pleading, nor that it is an abuse of process. While it is the case that the submissions for the fourth respondent highlight preferable ways in which the case against the fourth respondent could have been pleaded, I am satisfied that the case pleaded is such that it is capable of answer and that, where particulars are required, they would cure any short comings. Several of these specific matters attract comment: In par5 it is not the case that there is a failure to plead who purchased the Site or who decided to effect the Improvements - it is clearly pleaded that it was, in each case, the applicants. The reference to "guaranteed" in par7(f) is not so meaningless or uncertain in its context as to give rise to the necessity for striking-out. The plea in par11 that the Representations were untrue and false in certain respects is not so uncertain and confusing as to require striking-out. In par17, it is pleaded that "the Representations are in respect of future matters and the fourth respondent, acting through the Accountants or the fifth respondent, did not have reasonable grounds for making the Representations and, accordingly, pursuant to s51A of the [Trade Practices Act], the Representations are misleading". It is said for the fourth respondent that this pleading is embarrassing because of its disjunctive allegation that the fourth respondent was acting either through the Accountants or the fifth respondent. Further it is said that, in the absence of a clear and express plea that there was a representation made by the fourth respondent or by someone for whom it was responsible in law that the applicants would be able to pay their whole of life policy premiums for as long as they liked out of borrowings against annual earnings on the Prudential Policies, the allegation is unreasonable and vexatious in light of the fact that the Scheme worked for three years. I accept the submissions for the applicants that the fourth respondent will be able to plead concerning the status of the Accountants or the fifth respondent and that the other matters go to defence. In my opinion, the submissions for the fourth respondent raise many matters in terms of the present statement of claim which may concern the Court in the course of the proceeding. However, they fail to establish a case for striking-out on any of the grounds relied upon. Paragraphs 1 and 2 of the motion should therefore be dismissed. I certify that this and the preceding 6 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson. Associate: Date: APPEARANCES Counsel for the Applicant: Mr N Dillon Solicitors for the Applicant: Corrs Chambers Westgarth Counsel for the Fourth Respondent: Mr M J Stevenson Solicitors for the Fourth Respondent:Jackson McDonald Counsel for the Fifth Respondent: Mr J Farquharson Solicitors for the Fifth Respondent: Phillips Fox Date of Hearing: 20 December 1995 Date of Judgment: 3 January 1996