Robson v Robson[2009] QSC 325

SUPREME COURT OF QUEENSLAND

1. In these three related proceedings, there is an application in each case to strike out parts of the Defence, which are substantially the same from one case to another. The cases are brought by Mr Gary Robson and companies controlled by him against his brother Mr Charles Robson or, in one case, also his sister-in-law.  The Robson brothers were in business together for more than a decade until they fell out in February 2000.  Two of these cases were commenced in that year and the third, in which Mr Gary Robson is the plaintiff and which I will call the “trust action”, was commenced in 2004.  On any view none of this litigation has progressed at all satisfactorily.  The trust action was at one time listed as a commercial cause and was set down for a trial in March 2008.  But that trial had to be adjourned when each side made substantial amendments to its pleading shortly prior to the hearing and the case was then removed from the Commercial List.  Since then, there have been several interlocutory hearings but no progress.

2. In the trust action, already I have struck out parts of the Defence on three occasions.^[1]  Now there is this fourth application challenging effectively the same matters which have reappeared in the current Defence.  And there are applications to strike out similar pleas in the two other cases. 

The trust action

3. The issues in this case have been summarised in my three previous judgments. Most recently I struck out paras 44 to 76 of the Defence filed on 23 February 2009.  I said that there was probably a case within those paragraphs which could be properly pleaded, but that it was still immersed within a large amount of the irrelevant, and it should not be for the plaintiff to have to dissect the good from the bad.^[2]

4. That order was made on 26 March 2009. On 2 June 2009, the defendants filed the Defence which is the subject of the present application.  In place of the previous paragraphs 44 to 76 there are paragraphs numbered 44 to 75.  But most of them are repetitions, word for word, of what I struck out in March.  In a handful of cases, there is some difference in wording or formatting.  But in no case is there any substantial difference.

5. The first of the paragraphs for which there have been some changes is paragraph 57.  The previous pleading was as follows:

“During the period whilst the management arrangements were in place, Gary developed and carried into effect a system of business to hide the profits of the Australian businesses MWA and MQE by a series of transactions by which those profits would not be derived by the Australian business but by foreign companies controlled by Gary and the repatriation of those profits to Australia by transactions in the guise of loans to Yalgold (‘the transfer pricing scheme’).”

Now para 57 pleads:

“During the period whilst the management arrangements were in place, Gary developed and carried into effect a system of business (‘the transfer pricing scheme’) to:-

1. artificially reduce the Australian income tax payable in respect of profits generated by the Australian businesses MWA and MQE; and

2. thereby defraud the Commonwealth of Australia;

3. by means of a series of transactions by which such profits:-

(i)would not, or would not appear to be derived by the said Australian businesses;

2. would, or would appear to be, derived by foreign companies controlled by Gary; and

3. were repatriated to Australia by transactions in the guise of loans to Yalgold.”

The difference is that in the current version, it is alleged that the income would not appear to be derived by Australian businesses, as an alternative to the allegation that the income would not be so derived.  However, in the context of this litigation, that amendment does not meet the flaws as I held them to be in the previous pleading.

6. The second change is that the previous paragraph 69 is now pleaded a little differently in the present paragraph 66. The previous pleading was as follows:

“any profits generated as a result of the purchase, repair or renovation, and hire or sale of mining equipment were transferred offshore to (and thereby artificially derived by) MQEI, or another company controlled by Gary”.

The present pleading is as follows:

“any profits generated as a result of the purchase, repair or renovation, and hire or sale of mining equipment were:-

1. transferred, or purportedly transferred, offshore to MQEI, or another company controlled by Gary; and

2. thereby artificially derived by MQEI or such other company”.

Thus a similar change has been made, to allow for the possibility that in fact the profits were “purportedly transferred offshore” as an alternative to their being actually “transferred”.  Again the difference is immaterial for present purposes.

7. The other changes are from the previous paragraphs 71 and 72 to the new paragraphs 69, 70 and 71. The previous paragraph 71 pleaded some eight transactions or types of transactions which were “sham transactions, not intended by any of the parties thereto to have legal effect”. The previous paragraph 72 pleaded that each of those transactions was:

“void, invalid and of no effect, by reason that they were entered into with the purpose and intention, on the part of Gary, to defraud the Commonwealth of Australia by avoiding Australian tax liabilities…”

In the current pleading, paragraph 69 sets out the same eight transactions or groups of transactions and defines them as “the impugned transactions”.  Paragraph 70 pleads that each of them was a sham transaction, not intended by any of the parties to have legal effect.  Paragraph 70(a) then goes on to plead something as to each of the eight transactions or groups of transactions, but simply repeats, transaction by transaction, the allegation that it was not intended to take effect according to its terms.  In that way the further pleading adds nothing.  Paragraph 70(b), which is new, is as follows:

“(b)each of such transactions was entered into solely as a means of repatriating into Australia profits which were:

(i)generated by the Australian businesses MWA and MQE; and

(ii)in accordance with the transfer pricing scheme, artificially contrived to be, or to appear as being, derived by foreign companies controlled by Garry [the plaintiff], rather than derived by the said Australian businesses.”

This appears to add nothing to the case already pleaded. 

8. Paragraph 71 alleges, as did the previous paragraph 72, that each of the transactions was “void, invalid and of no effect…” The only difference is that the new pleading uses the term “impugned transactions”. There is no difference in substance.

9. The result is that the defendants’ response to an order striking out some 33 paragraphs (and occupying 20 pages) of the previous pleading has been to repeat, word for word, all but four paragraphs, and otherwise to make inconsequential amendments.  There was no appeal from my previous judgment.  Nor was I asked to reconsider my reasoning in the hearing of the present application.  The outcome is that paragraphs 44 through 75 of the Defence filed on 2 June 2009 will be struck out.

10. It is necessary to make some further order to prevent the defendants from again simply re-pleading that which has been struck out. It will be ordered that the defendants may not amend their defence without first obtaining the leave of the court.

The debt actions

11. Hannover International Ltd sues for repayment of monies allegedly lent to Charles Robson by various advances in 1992-1994, together with some of the interest thereon.  Mine & Quarry Equipment International Ltd sues him for what is said to be the balance of the outstanding interest on the same loans. 

12. Hannover’s case is that there were eight advances in various amounts totalling $1,319,592, the first made on 5 November 1992 and the last made on an unspecified date in February 1994.  It pleads that there were repayments of $70,000 on 7 October 1993 and $5,600 on 13 October 1993.  The balance principal which is claimed is therefore $1,243,992.  It claims interest accruing on that sum from 10 March 2000.  The entitlement to interest prior to then is said to have been assigned to Mine & Quarry Equipment International Ltd.

13. The plaintiffs plead that there was a loan agreement made in or about 1992 with the defendant under which a company called Mine & Quarry Equipment South Pacific Limited (“MQESP”) agreed to make advances. It is alleged that it was this company that made the first four advances, in sums totalling $859,992. It is alleged that there was a further loan agreement, but this time between a company called Pacific Ventures Ltd (“Ventures”) and the defendant, under which Ventures agreed to provide a finance facility of $2,500,000. They plead that the other four advances, from 4 November 1993 to February 1994 and totalling $459,600, were “paid by MQESP on behalf of … Ventures”. 

14. It is alleged that in or about 1994, MQESP assigned the loans made by it to Ventures, and that notice of the assignment was given to the defendant. They plead that there was an agreement of 9 November 1995 between Ventures and the defendant which thereafter governed these loans and included a term that if interest were outstanding for more than seven days, the whole debt would be immediately due and payable without the need for any demand.

15. It is then alleged that Ventures assigned the principal debt to a company called Credit Facilities Limited by a deed dated 2 February 2000, that by a further deed, made eight days later, Credit Facilities assigned that debt to the plaintiff Hannover, and that the interest outstanding as at 3 February 2000, said to amount to $412,842.17, was assigned to Mine & Quarry Equipment International Ltd.  Notice of each assignment is alleged to have been given.

16. The defendant does not admit that there was a document in the form of a loan facility agreement between MQESP and the defendant made in or about 1992. He denies receiving from MQESP any of the eight advances which are alleged, whether pursuant to that loan facility agreement, or at all. He pleads that he did receive a sum of $70,000 on 8 October 1993, but denies that this was pursuant to the alleged MQESP loan facility agreement, and he says that this sum was paid out of his account on about 19 October 1993 “to a person or entity associated with Gary [Robson].”  Similarly he pleads that he received into his account a sum of $5,600 on 13 October 1993, but not pursuant to the alleged MQESP loan facility agreement, and that again this was paid out on or about 27 October 1993 to a person or entity associated with Gary Robson.  The apparent effect of those parts of his pleadings^[3] is that he denies that he was in any instance a borrower or that he received, on any basis, any of the $1,319,592 save for those two sums which he passed on.

17. A part of his pleadings which is now challenged is within para 3(c) of each Defence, as follows:

“(c)If there is such a document as the alleged MQESP Loan Facility Agreement, on the grounds set out in this Defence, [the defendant] says that it is void, invalid and of no legal effect, in that:–

1. it is a sham, which was not intended by the parties thereto to create legal relations between them;

2. it was entered into and executed, on the part of MQESP, for the purpose of defrauding the Commonwealth of Australia;

3. its execution by Charles was procured by fraud on the part of the [sic] MQESP;

[…]”

18. The defendant admits the existence and execution of the document which purports to be the loan facility agreement with Ventures dated 2 November 1993 but he denies that it was intended to have legal effect and in paragraph 5(c) of each Defence he makes the same allegations as to that document which he makes in relation to the MQESP document (as I have set out in the previous paragraph).  Again the plaintiff applies to strike out these pleas.

19. There are similar pleas within paragraphs 8(d)(i), 8(d)(ii) and 8(d)(iii) of each Defence. But they are in response to what had been paragraph 1H of the statement of claim, which was deleted by an amendment made on 20 July 2007.  So none of paragraph 8 should be there.

20. In paragraphs 9(c)(i), 9(c)(ii) and 9(c)(iii) of each Defence there is again a pleading in the same terms in relation to the alleged agreement of 9 November 1995 between Ventures and the defendant.

21. By paragraph 10 of each Defence, there is a further denial that any monies were advanced to him and an allegation that any advances which were purportedly made to him were in fact payments or advances to Mine & Quarry Equipment International Ltd or Yalgold Pty Ltd, and with the intention of defrauding the Commonwealth of Australia “as particularised hereunder”. That appears to be a reference to the other paragraphs which the plaintiff applies to strike out,^[4] although there is no application in relation to this paragraph 10.  Those other paragraphs are in the same terms as paragraphs 44 through 75 of the current Defence in the trust action.  The plaintiffs argue that these matters should not be pleaded here just as they are inappropriate in the trust action.  However, that does not follow.  The relevance of these matters, of course, must be considered in the context of the claims in these two proceedings.

22. The existence and operation of the scheme which is pleaded by the defendant is relevant to the plaintiffs’ claims in potentially two ways. The first is to explain the various loan agreements relied upon by the plaintiffs. The defendant says that they were shams, intended to disguise the scheme and the so-called repatriation of profits of the scheme to Australia. Secondly, the scheme might be used to explain the receipt by the defendant of one or more of the payments which are said to have been made as loans to him. Although, as I have mentioned, he denies receipt of all but two of these payments, in other paragraphs he suggests that there were such payments although not by way of true loans. For example, in paragraph 25K of each pleading, he alleges that profits generated by MQEI would be advanced by it or some other company “purportedly as a loan ... to Charles ...”.

23. The plaintiffs complain that these allegations are too general and extensive. They say that it is irrelevant for the defendant to plead the participation by companies other than the alleged lender or its successors or payments to anyone but the defendant. However, such other transactions could be properly raised in the proof of the scheme, and the existence and operation of the scheme more generally could be relevant as I have said. It would be unfair to confine the defendant to such elements of the scheme as involved a payment to him and by one of the companies pleaded in the plaintiffs’ case. It is this relevance of the existence and operation of the scheme in general which distinguishes the argument about the same pleadings in these debt actions from that in the trust action. In that case, the defendant must plead and prove that the alleged scheme has resulted in funds now being held by Yalgold. In the debt actions, it is relevant for the defendant to plead more generally the existence and operation of the scheme, and it is not necessary for him to show that any particular person or entity was the ultimate beneficiary of profits of the scheme. Rather, he would seek to prove the scheme and that its profits were received ultimately by someone other than himself. Accordingly, the wider case which is irrelevant to the trust action is relevant in these debt actions.

24. Much of the plaintiffs’ complaints are in relation to want of particulars. The defendant has said that he cannot provide further particulars. His case is that this scheme was devised and operated by his brother, without his knowing its details. That does not seems to me to be so unlikely that I would strike out the allegations for want of further particulars.

25. There are some respects in which the Defences can be fairly criticised. One is that the profits of the scheme on its so-called third manifestation, derived by Mine & Quarry Equipment International Ltd, are said to have included the sums which are sought in these two proceedings. The problem for the defendant is that that company was incorporated on 3 February 1994, and on the plaintiffs’ case all but the final advance ($29,600 in February 1994) was made prior to then. But the question is whether these particular flaws should result in some order for striking out parts of the Defence. For example to strike out the part which I have just mentioned (paragraph 25L of each pleading) would serve little purpose in reducing the scope of this litigation. It would remain relevant for the defendant to plead and prove, if he can, the existence and operation of the alleged scheme.

26. Pleadings serve essential functions in litigation of any complexity and the importance of precision in cases of alleged fraud is well established. But in some circumstances it becomes apparent that an insistence upon strict compliance with the rules of pleading will lead to undue delay and disproportionate cost in the ultimate resolution of the dispute.

27. In my conclusion the fair determination of this litigation is unlikely to be promoted by striking out all or part of the paragraphs which are challenged in the Defences in the debt actions. These three cases should proceed to trial without further delay. The plaintiffs will be able to know the case they must meet from compliance with directions I will make as to summaries of evidence, as well as from these pleadings despite their shortcomings.

Conclusion

28. The plaintiffs’ application in the trust action will be granted. The plaintiffs’ applications in the debt actions will be dismissed. Because these cases should be heard together, the practical consequence will be that at the concurrent trial of these three cases, it would be open to the defendants to pursue the more extensive factual inquiry which is not relevant to the trust action specifically. Nevertheless after this passage of time, the plaintiffs’ side could not suggest that the debt actions, commenced as they were in 2000, should be further deferred whilst there is a trial of the trust action.

29. I will hear the parties as to costs and as to other orders.