New South Wales Supreme Court CITATION : Chapmans Limited v Robert Walter Yandell t/as Yandells [1999] NSWSC 710 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 20139/98 HEARING DATE(S) : 7 July 1999 JUDGMENT DATE : 15 July 1999 Chapmans Limited PARTIES : (Plaintiff) Robert Walter Yandell (Defendant) JUDGMENT OF : Master Harrison Mr P See (Plaintiff) COUNSEL : Mr B Walker SC with Mr D R Pritchard (Defendant) Mr Glynn Chaffey (Plaintiff) SOLICITORS : Corrs Chambers Westgarth (Defendant) CATCHWORDS : Strike out paragraph of statement of claim; Directions ACTS CITED : Administrative Decisions (Judicial Review) Act 1997 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Air Services Australia v Zarb (NSWCA unreported, 26 August 1998);Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62, CASES CITED : Webster & Anor v Lampard (1993) 177 CLR 598 Contribution Fund of Australia v Hunt (1982) 44 ALR 365 Gibson v Parkes District Hospital (1991-92) 26 NSWLR 9 DECISION : See para 30 15 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON THURSDAY, 15 JULY 1999 20139/98 - CHAPMANS LIMITED v ROBERT WALTER YANDELL t/as YANDELLS JUDGMENT (Strike out paragraph of statement of claim; directions) 1 MASTER: By motion of motion filed 9 April 1999 the defendant seeks that pursuant to Pt 15 r 26 of the Supreme Court Rules, paragraph 7(ii) of the statement of claim dated 7 May 1998 be struck out. The plaintiff sought leave to seek an order that it be permitted to file an amended statement of claim. Such leave was not opposed and granted. The defendant relied on an affidavit of Damien Bruce Sturzaker sworn 7 April 1999 and the plaintiff relied on an affidavit of Donald Wayne Chaffey sworn 6 July 1999. 2 Briefly, the statement of claim pleads that the defendant was retained by the plaintiff as its solicitor for the period commencing December 1993. The plaintiff is a publicly listed company. In late 1992 the Australian Stock Exchange (ASX) had raised requisitions for which it required answers. On 3 December 1993 the requisitions had not been answered and the plaintiff although still listed on the stock exchange was given a suspended status. 3 From December 1993 to December 1994 the plaintiff retained the defendant to provide legal advice. In accordance with the defendant's advice, proceedings were commenced in the Federal Court of Australia. The plaintiff alleges that the defendant failed to advise of the ASX listing rule 3J15. This rule was not pleaded as part of the plaintiff's further amended statement of claim in the Federal Court. The proceedings were dismissed and the plaintiff was ordered to pay the defendant's costs. 4 The plaintiff appealed to the Full Court of the Federal Court. On 21 June 1996 the court dismissed the appeal but remitted the matter to the ASX for further consideration. The Full Federal Court found that the ASX failed to comply with its own listing rules when it purported to delist the plaintiff in November 1993. Since that time, the company has been relisted and the company shares have been requoted. The appeal was dismissed on the basis that the stock exchange listing rules did not constitute an enactment as defined in the Administrative Decisions (Judicial Review) Act 1997. 5 The plaintiff alleges that the solicitor, in failing to advise of listing rule 3J15 constituted breach of contract and negligence. The plaintiff has claimed the costs for running the case before the Federal Court and the costs involved in the appeal to the Full Court of the Federal Court. The defendant raises no objection to that claim for damages. However para 7(ii) gives particulars of damage as follows: "(ii) The Plaintiff has suffered consequential loss as a result of being unable to acquire business assets in Hong Kong during the period from the end of the hearing of the Proceedings at first instance up until the hearing of the Appeal." 6 The defendant submitted that this claim for damages is hopeless and should be struck out. Part 15 r 26 of the Supreme Court Rules provides: "(1) Where a pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the Court, the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleadings be struck out. (2) The Court may receive evidence on the hearing of an application for an order under subrule (1)." 7 In General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Barwick CJ, who heard the application alone, at p 29 stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 8 Barwick CJ referred to Dixon J's passage quoted at p 130: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 9 In a recent decision in Air Services Australia v Zarb (NSWCA unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62, General Steel andWebster & Anor v Lampard (1993) 177 CLR 598. 10 Master Allen (as he then was) in Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at pp 373-374 said: "…It is not by any means rare in the history of the development of the common law that a high appellate court, in enunciating a novel development in the law, albeit one avowedly based on a miscellany of old cases, has chosen to use general words of imprecise limits in meaning to facilitate the arrival, in later cases, of the final form of the development without the need to overrule what earlier had been stated. That being so I am of opinion that a court at first instance should be particularly astute not to risk stifling that development of the law by summarily throwing out of court actions in respect of which there is a reasonable possibility that it will be found, in the development of the law, still embryonic, that a cause of action does lie. The risk of injustice to the plaintiff, which summary termination of his claim would entail, is real. One cannot predict, with firm assurance, what the future holds as the final formulation of the new development." 11 This passage was quoted with approval by Justice Badgery-Parker in Gibson v Parkes District Hospital (1991-92) 26 NSWLR 9 at p 35. 12 As previously stated, the defendant submitted that the plaintiff's case is so hopeless it should be struck out. Alternatively, the defendant submitted that the proceedings should be struck out because the plaintiff is unable to provide any proper particulars for the claim of consequential loss or damage. The defendant also submitted that the court should take into account the extraordinary size and unusual nature of the claim for consequential damages, and the considerable opportunity that has been afforded to the plaintiff to properly formulate its case. 13 Before I embark on a history of the supply of particulars it is appropriate that I should repeat what is perhaps trite law namely that the onus is on the plaintiff in the statement of claim to set out the facts upon which it relies so that the defendant can become aware of the precise allegations made against them and hence what it is that they have to meet. Material facts should be pleaded. 14 On 1 June 1998 the defendant's solicitors sought particulars in relation to para 7(ii). The plaintiff's solicitors replied: "The consequential losses suffered by the plaintiff relate to the lost opportunity for the plaintiff to complete the conditions subsequent to an Agreement reached regarding acquisition of a substantial property portfolio. The value of the portfolio to be acquired was to range from $20 million to $100 million, and upon completion of the Agreement, the plaintiff could earn amounts ranging from $1 million to $5 million per annum. This is calculated on a conservative basis where the property portfolio yielded a return of 4% per annum. We are instructed that the plaintiff estimates that the yield could reasonably be expected to be 7.5 to 10% per annum which would have increased the annual earnings to 10 million dollars per annum. The losses of annual income have occurred since mid 1994 and are continuing to date." 15 By letter dated 18 September 1998 the defendant asked for a copy of the agreement and asked: "How is it alleged that the negligence/breach of contract of the defendant caused the plaintiff to lose the opportunity to complete the conditions subsequent to the Agreement? What were the conditions subsequent? How is it alleged (by reference to the defendant's actions) the opportunity to complete the conditions subsequent was lost?" 16 By letter dated 22 January 1994 the plaintiff's solicitor provided copies of a letter from Austvest Holdings Pty Limited (Austvest) to the plaintiff, a letter dated 22 February 1994 from the plaintiff to Blossoms Pty Limited (Blossoms) and an agreement dated 28 March 1994. 17 The letter from Austvest stated: "We wish to confirm our recent discussions regarding our company's interest in taking a placement of shares in your company, subject to the following terms and conditions: 1. Maximum number of shares to be taken up by our company in a placement: Twenty million (20,000,000) ordinary shares at par, subject to Chapmans obtaining shareholders' approval for the placement. 2. Purpose: For the acquisition of real estate investments in China and Hong Kong to the value of approximately Ten million dollars (10,000,000). 3. That Chapmans retains its listing on the Australian Stock Exchange and within six (6) months of our company's investment in Chapmans, quotation of the shares will be restored on the Australian Stock Exchange. Please advise whether your Board will agree to proceed on the above basis and formalise such a proposal. If an agreement in principle is reached, please prepare the necessary draft agreement for our approval." 18 As I understand the plaintiff's case, it says that because its shares were not requoted and relisted on the ASX, Austvest did not take a placement of shares. However, the agreement stipulates that the plaintiff had six months after Austvest's investment to have its shares requoted and relisted on the ASX. It is my view this claim should have been pleaded. However, had it been pleaded in its current form, it could not be sustained. It is hopeless. 19 In the letter dated 22 February 1994 the plaintiff wrote to Blossoms. The plaintiff stated that if Blossoms submitted a property investment portfolio to the plaintiffs with an independent valuation ranging from $20 million to $100 million then the plaintiff would recommend to its shareholders that a payment of between $2 million and $2.5 million over and above the valuation would be made for the acquisition of the portfolio. The letter continued that if approval of the shareholders was not obtained then the transaction need not proceed unless some other arrangement acceptable to both parties could be agreed on. 20 The agreement was executed on 28 March 1994 (the agreement) and provided: "Recital Alexander Securities Limited, Blossoms, and the plaintiff agreed "that upon Blossoms providing a portfolio of investments, say to the value of $20 million, free of any encumbrance, Chapmans shall either acquire this "portfolio" by way of cash payment or by way of an issue of shares (Shares)"." 21 The general terms of the agreement were stated as: "Clause 1 In consideration of Blossoms purchasing the shares in Chapmans or being issued fully paid shares in Chapmans, Blossoms shall provide the Portfolio free of any encumbrances within a period of sixty days from the date of this Agreement. … Clause 4 In the event that Blossoms is unable to provide the Portfolio within Sixty (60) days from the date of this Agreement, the parties shall confer and agree either to extend this Agreement or terminate this Agreement. … Clause 6 It shall be the objective of the directors of Chapmans that Chapmans shares be re-quoted on the Australian Stock Exchange Limited and the directors shall use their best endeavours to achieve such re-quotation. … Clause 7 In the event that the shares are removed from the official list of the Australian Stock Exchange Limited, then this Agreement will be void ab initio ." 22 Under the agreement, there was an obligation upon Blossoms to provide a portfolio of investments to the value of $20 million to Chapmans, free from encumbrances within 60 days from the date of the agreement, ie., by 27 May 1994. If Blossoms did not provide the portfolio within 60 days, the parties were, according to the agreement, obliged to confer and either extend or terminate the agreement. Once the portfolio was provided, the directors of Chapmans were to use their best endeavours to have Chapmans shares requoted on the ASX. There is no evidence to suggest that Blossoms provided a portfolio and the plaintiff has conceded that Blossoms did not do so. However, it is not known whether the parties conferred and if they did what was the outcome of these negotiations. Although it is difficult to ascertain how the plaintiff lost an opportunity set out in the agreement when Blossoms failed to provide the portfolio, I am not satisfied that the plaintiff's claim is hopeless. 23 By letter dated 1 February 1999 the defendant's solicitor replied to the plaintiff's solicitor's letter of 22 January 1999 and said: "Your client's response to our request for further particulars does not provide the particulars sought. In particular, your client's response to paragraphs 8, 9 and 11 fails to establish any causal link between the alleged delay and the alleged damage. The alleged damage is also not sufficiently particularised. CCW reserve our client's rights to make application to the court in respect of these deficiencies." 24 By letter dated 1 March 1999 the defendant's solicitor forwarded a draft notice of motion to the plaintiff's solicitor. 25 By letter dated 19 March 1999 the plaintiff's solicitor wrote to the defendant's solicitor and said: "(i) The negligence and breach of contract of the defendant is in not advising the plaintiff of its rights pursuant to ASX Listing Rule 3J(15) and not pleading such rights in the plaintiff's favour. Had the plaintiff had the benefit of such pleading in the case at first instance a decision from the Federal Court or indeed a negotiated settlement with the ASX for re-quotation of our client's shares (which shares were requoted after the decision of the Full Court) would have been achieved to allow our client to comply with the conditions of the said Agreement and, in particular the time requirements; (ii) See clause 6 of the Agreement and in particular, the requirement to have the plaintiff's shares requoted by the ASX. (iii) As stated in (I) above." 26 This restatement of the claim for damages does not overcome the problem previously identified namely that in the Austvest agreement the plaintiff had 6 months from the investment to have quotation of shares relisted on the ASX. In the case of Blossoms, once the investment portfolio was provided by Blossoms (and it never was) the plaintiff had to use its best endeavours to achieve a requotation. The plaintiff was never obliged to achieve a quotation. 27 By letter dated 11 May 1999 the plaintiff's solicitor stated: "The negligence/breach of contract claimed by our client caused the delay in having the shares re-quoted and having the threat of the delisting of the company removed. This delay was a direct cause of the proposed transaction for the acquisition of the large Hong Kong/China property portfolio not proceeding. This has caused a financial loss to our client, which loss will be quantified by expert accounting and actuarial evidence in the eventual hearing of this matter." 28 It is not clear whether this is a further reference to the Blossoms agreement. However on 2 July 1999 the plaintiff's solicitor wrote to the defendant's solicitor and particularised a far more wide ranging claim for damages and also disclosed that there had been allegedly further discussions between the parties to the Blossoms agreement. It stated: "The plaintiff has suffered consequential losses in that its ability to transact commercial activities was restricted during the period when the defendant was retained as its solicitor and also subsequently until the appeal was determined by the full Federal Court. As a result of the defendant's negligence pleaded in the Statement of Claim, the plaintiff lost the opportunity to aquire (sic) interest in commercial property assets in Hong Kong and China and it lost the opportunity to be the vehicle for a reverse take over or back door ASX listing for Chinese property groups. The plaintiff company entered into an agreement with Blossoms Pty Limited dated 28 March, 1994. The agreement was extended by the parties from time to time in discussions between Mr Ganke (for Chapmans Limited) and Ms Tina Liu (for Blossoms Pty Limited) (and further see copy letter Chapmans Limited to Tina Liu dated 8 June, 1994) but was then terminated. The plaintiff was unable to progress the arrangement with Blossoms Pty Limited because it was unable to have its shares requoted on the ASX. If the defendant has not been negligent in the conduct of the proceedings, the plaintiff would have had an opportunity to have its shares requoted at an early time. If its shares had been requoted at an early time, then the plaintiff would have been in a position to take up the opportunities open which then existed, and it would have been able to conclude an arrangement with Blossoms Pty Limited or to conclude a similar arrangement with some other commercial property interests in China or elsewhere. We confirm that there is no allegation that Blossoms Pty Limited provided the portfolio of property interest. The allegation made by the plaintiff is that it has lost an opportunity to conclude the agreement with Blossoms Pty Limited or profit from some other similar arrangement. The plaintiff's case is that it has lost a valuable chance. For example, the negotiations with Blossoms stalled at the stage demonstrated in the written agreement. If the plaintiff's shares had been requoted or the threat of delisting removed at an early time then the plaintiff stood a real and substantial chance to conclude the agreement. The plaintiff intends to lead expert evidence at the hearing that:- (a) It was cheaper and quicker for chinese commercial property interest to utilise the plaintiff than to attempt conventual listing on the ASX through an initial public offering. (b) It was an appropriate vehicle to enter into profitable transactions, if its shares were requoted or the threat of delisting were removed in 1994 and 1995. (c) There were other chinese or other commercial property interests actively seeking such a vehicle in 1994 and 1995. …" 29 The defendant has agreed to replead para 7(ii) in accordance with its proposed amended statement of claim which was handed up to the court. It has also agreed to serve evidence relating to its claim for consequential damage and for damages, and loss of opportunity including expert evidence. It is my view that the proposed amended statement of claim does not adequately plead the plaintiff's claim for consequential loss and/or damages for loss of opportunity. The claim should be pleaded in such a way so as to put the defendant in a position so he knows the case he has to meet. He needs to be able to investigate the plaintiff's claim for damages so he is not caught by surprise at the trial, ie., he needs to investigate whether the Blossoms agreement could have been concluded and the like. In the exercise of my discretion, the plaintiff should be afforded a further opportunity to replead its statement of claim as outlined above. Additionally, the plaintiff is directed to file and serve affidavit and expert evidence it relies upon in relation to its claim for consequential loss and/or loss of opportunity within 3 months. It is my view that the appropriate order for costs is that costs be costs in the cause. 30 The orders I make are: (1) The defendant's notice of motion filed 9 April 1999 is dismissed. (2) The plaintiff is to file a further amended statement of claim on or before 29 July 1999. (3) The plaintiff is to file and serve affidavit and expert evidence it intends to rely upon in relation to its claim for consequential loss and/or loss of opportunity on or before 15 October 1999. (4) Costs be costs in the cause. ********** Last Modified: 07/15/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.