Federal Court of Australia Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Issues Ruling) [2024] FCA 1016 File number: NSD 943 of 2022 Judgment of: STEWART J Date of judgment: 3 September 2024 Catchwords: PRACTICE AND PROCEDURE – ruling on whether certain issues are live between the parties on the pleadings and who bears responsibility to plead and/or prove them Legislation: Federal Court Rules 2011 (Cth) Cases cited: Deputy Commissioner of Taxation v Pratt Holdings Pty Ltd [2002] FCA 215; 49 ATR 178 Ralmana Pty Ltd v BGC Contracting Pty Ltd [2016] WASC 131 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 28 Date of hearing: 2 September 2024 Counsel for the Applicants / Cross-Respondents: M A Karam and Q M Noakhtar Solicitor for the Applicants / Cross-Respondents: Bartier Perry Lawyers Counsel for the Respondents / Cross-Claimants: T Cox KC and R Ross-Smith Solicitor for the Respondents / Cross-Claimants: DW Fox Tucker Lawyers ORDERS NSD 943 of 2022 BETWEEN: BRIDGING CAPITAL HOLDINGS PTY LTD First Applicant ARI BEN MOSES Second Applicant AND: SELF DIRECTED SUPER FUNDS PTY LTD First Respondent CHRISTOPHER STEVEN HARRIS Second Respondent AND BETWEEN: SELF DIRECTED SUPER FUNDS PTY LTD (and another named in the Schedule) First Cross-Claimant AND: BRIDGING CAPITAL HOLDINGS PTY LTD (and another named in the Schedule) First Cross-Respondent RULING made by: STEWART J DATE OF RULING: 3 SEPTEMBER 2024 THE COURT RULES THAT: 1. It is not open to the respondents to rely on cl 1.1 and cl 3 of Sch 3 to, and cl 28.6 of, the share sale agreement dated 11 March 2021 in answer to the applicants' claims. REASONS FOR JUDGMENT STEWART J: 1 The applicants claim on a share sale agreement dated 11 March 2021 (SSA) concluded between them as buyer (the first applicant, BCH) and buyer's guarantor (the second applicant, Mr Moses) and the respondents as sellers (SDSF and Mr Harris, respectively). The shares the subject of the SSA were all the shares in two companies, but for present purposes I shall refer to them together simply as Exelsuper. 2 On the first day of the trial, which has been listed for six days, an issue has arisen in relation to the respondent's entitlement to rely on certain points in answer to the applicants' claims without having pleaded those points. A ruling is required on whether the issues arising from those points of defence are alive in the case. In order to answer that question, it is necessary to identify the applicants' claims. 3 First, the applicants allege four representations made by Mr Harris which are said to have been misleading and deceptive contrary to well-known statutory prohibitions against such conduct. It is said that Mr Moses relied on the representations in deciding to conclude the SSA on his own behalf and on behalf of BCH. The applicants claim damages under the applicable statutory regimes. The damages are calculated as the difference between, on the one hand, what the applicants were repaid as value for the shares that had been transferred to them under the first of two tranches of share transfers provided for in the SSA and which they re-transferred to the respondents when the parties accepted that the SSA was at an end, and, on the other hand, what they had paid for the first tranche of shares plus some expenses and interest. The case is put on a "no transaction" basis, ie but for the representations complained of the applicants would not have concluded the SSA. 4 Secondly, the applicants allege breaches of warranties contained in the SSA. The basis for the breaches is said to be the failure by Mr Harris to disclose, prior to the SSA being concluded, issues in relation to Praemium, the supplier of separately managed account (SMA) technology. In particular, it is said that about nine months prior to the SSA being concluded, Praemium had expressed a desire to end or limit its relationship with Exelsuper. There was also a potential dispute between Exelsuper and Praemium with regard to the latter's intention to charge additional fees and to do so retrospectively. Praemium did in fact end the relationship with Exelsuper after the SSA. It is said that the Praemium issues were material and relevant and would have affected the applicants' assessment before agreeing to any purchase price on the terms of the SSA. 5 The applicants allege that the failure to disclose the Praemium issues amounted to a breach of cl 7.4.2 of the SSA which imposed an obligation on the sellers to immediately notify the buyer of any matter or thing which becomes known to them before "First Completion" which could have a "Material Adverse Effect" on the business or the value of the first tranche shares. It is then said that by reason of that breach, the respondents breached cl 28.1.1 of the SSA because the "Company Share Warranties" at cl 28 and Sch 1 were not true and accurate and were misleading or deceptive or likely to mislead or deceive. In brief, the warranties included that the sellers had disclosed all information known to them which would be material to a reasonable buyer. The breach of warranties claim also incorporates aspects of the representation claim on the basis that failing to fully and accurately disclose the relevant matters constitutes a breach of warranties. 6 The applicants specifically plead that "[f]or the purposes of clause 28.8 of the [SSA]", there has been "fraud, dishonesty or wilful concealment on the part of Mr Harris and SDSF or its agents or advisors" and that consequently "no limitation on the liability of SDSF and Mr Harris in respect of 'Warranties' applies pursuant to clause 28.8 of the [SSA]." The context of that pleading is that cl 28.2 provides that the liability of the Sellers under any claim made in respect of a warranty shall be reduced or excluded, as applicable, in accordance with Sch 3. Clause 28.8 then provides that any limitation on a Seller's liability in respect of the warranties does not apply to the extent that there has been fraud, dishonesty or wilful concealment on the part of the Seller or its agents or advisors. 7 Schedule 3 sets out the limitations of liability under the warranties. I will return to those. 8 The applicants plead that the respondents breached the SSA, including the warranties, as a consequence of which the applicants have suffered loss and damage and "are entitled to the relief set out in the Originating Application." The only relevant relief identified in the originating application is "[d]amages for breach of contract, being the [SSA]". In further particulars given by the applicants by letter dated 5 February 2024 (CB1/15/167), they set out a single calculation of damages for both the representations (ie, misleading and deceptive conduct) and breach of warranties cases. That is to say, a "no transaction" case is asserted. 9 In their defence to the breach of warranties claim, the respondents deny the breaches. They do not raise any special defence or make any positive averment other than to say that the information given by them was accurate. They also deny that there has been any fraud, dishonesty or wilful concealment on their part. 10 In opening written submissions, the respondents assert the following in relation to the breach of warranties claim: 45. Relevantly, there are seven relevant matters to be satisfied in respect of any Warranty Claim: 45.1. there had to be a breach of Warranty; 45.2. BCH had to give a notice to the Sellers within 20 business days of becoming aware of a claim or potential Claim for breach of Warranty with all relevant details, including the Warranty the subject of the Claim, and an estimate of the amount of the claim (clause 28.12); 45.3. each Warranty is given subject to and the Sellers have no liability in respect of any Claim arising in respect of anything done or not done under either any express provision of this agreement or after the date of this agreement at the request in writing of or with the prior written approval of the Buyer (clause 1.1 of Sch 3); 45.4. each Warranty is given subject to and the Sellers have no liability in respect of any Claim arising in respect of any fact, matter, event or circumstance to the extent Disclosed (clause 1.2 of Sch 3); Buyer agrees it is aware / deemed to have actual knowledge of all matters Disclosed, including in the data room (clause 28.3); 45.5. the Sellers are not liable in respect of a Warranty Claim where the Buyer or Exelsuper or Exelsuper Advice are entitled to make a claim under any insurance policy (clause 3 of Sch 3); 45.6. there is no liability unless losses caused by breaches of Warranty for which the Sellers are actually liable exceeds $50,000 (clause 28.6); 45.7. any liability is capped at the amount paid for the shares and is paid in reduction of the share price paid (clause 28.10, clause 28.7). 11 There is no issue between the parties in relation to what is identified in [45.1] and [45.4] of the respondents' submissions inasmuch as the applicants accept that those matters are adequately pleaded and put in issue. Also, the respondents in oral opening formally abandoned the matters set out in [45.2] and [45.7]. In respect of the other matters, the applicants say that they have not been pleaded, are required to have been pleaded and should not be allowed to be asserted or pursued in the absence of having been pleaded. The respondents, in contrast, say that those matters form part of the applicants' case and are required to be established by them with the result that there is no onus on the respondents to plead them. They say that the matters are alive without being pleaded. It is necessary to consider each matter in turn. 12 The matter identified in [45.3] refers to cl 1.1 of Sch 3. That clause provides that each of the warranties is given subject to, and the Sellers shall have no liability in respect of any claim if and to the extent that the claim arises in respect of, "[a]ny thing done, or not done, either under any express provision of this agreement, or after the date of this agreement at the request in writing of, or with the prior written approval of, the Buyer." More specifically, the respondents say that by the third variation to the SSA, which was concluded on or about 22 April 2021, the applicants agreed certain matters relating to the calculation of the price for the shares under the SSA (CB5/204/3460) such that no breach of warranty claim can be brought in relation to it. I shall refer to this as the "Buyer's approval issue". 13 The matter identified in [45.5] refers to cl 3 of Sch 3 which provides as follows: INSURANCE The Sellers shall not be liable in respect of a Warranty Claim where the Buyer or the Company or Advice is entitled to make a claim under any insurance policy, unless the Buyer first makes (or procures that the Company or Advice makes) a Claim against its insurers pursuant to that policy. The Sellers' liability in respect of any such Warranty Claim shall then be reduced by the amount recovered under such policy of insurance (less all reasonable costs, charges, expenses incurred by the Buyer in recovering that sum, and any increase in policy premium), or extinguished if the amount so recovered exceeds the aggregate amount of the Warranty Claim and all reasonable costs, charges, expenses incurred by the Buyer in recovering that sum, and any increase in policy premium. 14 The respondents assert that the applicants' breach of warranties claim must ultimately fail because the applicants have not pleaded or indicated any intention to prove that that clause does not limit the respondents' liability for any breach of the warranties. I shall refer to this as the "insurance issue". 15 The matter identified at [45.6] refers to cl 28.6 which provides as follows: No liability unless losses exceed warranty threshold The Sellers are not liable for breach of Warranty unless the losses caused by all breaches of Warranty for which the Sellers are liable exceed $50,000. In that case, the Sellers are liable for all of those losses. 16 The respondents assert that the applicants' breach of warranties claim must ultimately fail because they will not establish any entitlement to damages exceeding $50,000. I shall refer to this as the "$50,000 threshold issue". 17 It is just as well to identify some foundational requirements in relation to pleading as required by the Court's Rules (Federal Court Rules 2011 (Cth)). 18 First, a pleading must identify the issues that the party wants the Court to resolve and 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 (r 16.02(1)(c) and (d)). Also, a pleading must not be evasive or ambiguous or be likely to cause prejudice, embarrassment or delay in the proceeding (r 16.02(2)(c) and (d)). 19 Secondly, a party must plead a fact if failure to plead the fact may take another party by surprise (r 16.03(1)(b)). 20 Thirdly, a party need not state in a pleading that a condition precedent to the party's right of action has been satisfied, but a party who wants to deny that a condition precedent has been satisfied must expressly plead the denial (r 16.05). 21 Fourthly, in a pleading subsequent to a statement of claim, a party must expressly plead a matter of fact or point of law that if not expressly pleaded might take another party by surprise if later pleaded, or the party alleges makes another party's claim or defence is not maintainable (r 16.08(b) and (c)). 22 The respondents refer to Deputy Commissioner of Taxation v Pratt Holdings Pty Ltd [2002] FCA 215; 49 ATR 178 at [29] citing Bullen & Leake Jacob's Precedent of Pleadings (12th ed) at 42 as authority for the following proposition: A condition precedent is a condition, agreed between the parties or imposed by statute, the fulfilment of which is necessary before a party becomes entitled to sue. It is not of the essence of the cause of action, but it has been made essential to it; it is not a substantive or constituent element of a cause of action, but it has been, as it were, superimposed upon it as an additional formality which must be fulfilled so as to give rise to the entitlement to sue. 23 The respondents submit that the matters raised by them, which are identified above, are not in the nature of conditions precedent and for that reason they do not have to be pleaded by them, ie the respondents to the claim. I understand them also to say that those matters are part of "the essence of the cause of action" or "substantive or constituent elements" of it. It can be accepted that those matters are not conditions precedent. 24 The respondents also refer to Ralmana Pty Ltd v BGC Contracting Pty Ltd [2016] WASC 131 where it was held that a contractor claiming under a construction contract for delay costs was required to plead that it had satisfied the procedural requirements for such a claim, such as having applied for and been granted an extension of time from the employer's representative. That decision turned, as one would expect, on the terms of the particular contract in question and what the claim in question entailed and required. It offers no particular insight into what the necessary elements of the applicants' breach of warranties claim is. 25 None of the three contested matters, namely the Buyer's approval issue, the insurance issue or the $50,000 threshold issue are essential to the breach of warranties claim. Each is an answer, or possible answer, to the claim. The first two may require the pleading of facts in reply. Indeed, in respect of the Buyer's approval issue it would be necessary for the respondents to plead what approval they rely on so that the applicants were on proper notice. It cannot be incumbent on the applicants to allege and prove the negative in respect of every approval which the respondents might conceivably seek to assert as an answer to the claim. Similarly, in relation to the insurance issue, the respondents must plead what claims they say were claimable under insurance policies, including identifying the relevant claimants and insurance policies. The applicants cannot be expected to prove the negative, ie that there are no such possible claims. 26 In brief, the failure by the respondents to plead their reliance on the Buyer's approval and insurance issues is a failure to give fair notice to the applicants of the case that they have to meet; it takes them by surprise. It is also in effect an evasive course that causes embarrassment, and it is likely to cause delay in the trial because if those issues are allowed to be run the applicants will have to prepare evidence to meet them. Most pertinently, the respondents contend that the Buyer's approval and insurance issues that they raise have the result that the applicants' breach of warranties claims are not maintainable. The respondents thus have an obligation to plead the points of fact and law on which they rely in support of that position. 27 The $50,000 threshold issue is less significant, in particular because if the applicants fail to establish the liability of the respondents for more than $50,000 they would have effectively lost anyway – noting that their claim is about $2 million. Also, there is not much that might be said in response to reliance on that provision; it either applies because the liability is less than $50,000 or it does not. So, it may be that there would be no prejudice in an amendment to include reliance on it in the defence even at this late stage, but it is nevertheless a special or particular defence that must be pleaded; it is a limitation on liability and not an element of liability. It is not something that the applicants are required to plead or prove the negative of in order to have a maintainable claim. 28 In the result, I rule that, having failed to plead any such reliance, it is not open to the respondents to rely on cl 1.1 and cl 3 of Sch 3 to, and cl 28.6 of, the share sale agreement dated 11 March 2021 in answer to the applicants' claims. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate: Dated: 3 September 2024 SCHEDULE OF PARTIES NSD 943 of 2022 Cross-Claimants Second Cross-Claimant: CHRISTOPHER STEVEN HARRIS Cross-Respondents Second Cross-Respondent ARI BEN MOSES