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Chan v Macarthur Minerals Ltd

[2017] QSC 13

Chan v Macarthur Minerals Ltd[2017] QSC 13

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Chan & Ors v Macarthur Minerals Ltd & Ors [2017] QSC 13

PARTIES:

SING CHUK CHARLES CHAN

(first plaintiff)

WAI LAP VICTOR CHAN

(second plaintiff)

WAI KAK KWOK

(third plaintiff)

v

MACARTHUR MINERALS LTD

(first defendant)

ALAN PHILLIPS

(second defendant)

JOE PHILLIPS

(third defendant)

FILE NO/S:

SC No 518 of 2016

DIVISION:

Trial Division

PROCEEDING:

Applications for strike out

DELIVERED ON:

1 March 2017

DELIVERED AT:

Brisbane

HEARING DATE:

31 August 2016

JUDGE:

Bond J

ORDER:

The order of the Court is that:

Paragraphs [40], [53], [61], [63], [64], [65], [66(c)], [67(b)], and [67(d)] to [67(g)] of the statement of claim be struck out, with leave to re-plead.

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – STRIKING OUT – GENERALLY – where the first and third plaintiffs became the owners and directors of a new company on the basis of representations by the first defendant that it would enter into an agreement with the new company – where it is alleged that the first defendant continued to represent that it would enter into the agreement despite having put the decision ‘on hold’ – where the plaintiffs allege a breach of s 52 of the Trade Practices Act 1974 (Cth) – where the defendants apply to strike out the statement of claim either wholly or partially – whether the evidence referred to in the particulars supports the pleaded allegation of misleading or deceptive conduct

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – STRIKING OUT – GENERALLY – where the first and third plaintiffs became the owners and directors of a new company on the basis of representations by the first defendant that it would enter into an agreement with the new company – where it is alleged that the first defendant continued to represent that it would enter into the agreement despite having put the decision ‘on hold’ – where the plaintiffs suffered loss – where the plaintiffs claim damages pursuant to s 82 of the Trade Practices Act 1974 (Cth) for breach of s 52 of that Act – where the defendants apply to strike out the statement of claim either wholly or partially – whether causation of loss was adequately pleaded in respect of the claim for damages for misleading and deceptive conduct

Corporations Act 2001 (Cth), s 588M(2)

Trade Practices Act 1974 (Cth), s 52, s 82

Chan v First Strategic Development Corporation Limited (in liq) [2015] QCA 28, cited

First Strategic Development Corporation Limited (in liq) v Chan [2014] QSC 60, cited

Graham & Linda Huddy Nominees Pty Ltd v Byrne [2016] QSC 221, cited

Henville v Walker (2001) 206 CLR 459, cited

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, cited

Lee v Abedian [2016] QSC 92 , cited

March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506, cited

Medlin v State Government Insurance Office (1995) 182 CLR 1 , cited

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, cited

COUNSEL:

G J Gibson QC, with D J Pyle, for the defendants/applicants

P A Hastie QC for the plaintiffs/respondents

SOLICITORS:

Shand Taylor for the first defendant/first applicant

Clayton Utz for the second and third defendants/second and third applicants

McBride Legal for the plaintiffs/respondents

Introduction

  1. By this proceeding, the plaintiffs seek to recover damages for misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth).  The defendants submit that the present version of the statement of claim should be struck out either wholly or partially.  They also contend that the proceeding should be dismissed.
  2. The delivery of written submissions before the hearing permitted the defendants in their oral argument to focus their criticism of the pleading into a number of critical points.  In this judgment I will deal the criticisms as so focussed.
  3. The defendants’ criticisms of the plaintiffs’ statement of claim fall within essentially two groups.  First, that the allegations of misleading and deceptive conduct are not properly pleaded.  Second, that some of the plaintiffs’ pleaded claims for damages cannot be supported for particular reasons.
  4. I will address each group of criticisms in turn.  However, it is necessary first to describe the broad thrust of the plaintiffs’ case.

The plaintiffs’ case

  1. The first defendant (Macarthur) is a company that undertakes exploration and development of iron ore projects.  The second defendant (Mr Alan Phillips) was a director of Macarthur.  The third defendant (Mr Joe Phillips) was an employee of Macarthur.  The second and third defendants are said to have been knowingly involved in Macarthur’s contravention of s 52.
  2. Macarthur held exploration rights over mining tenements in an area in Western Australia known as Lake Giles.  Adjoining the Lake Giles land were two mining tenements which were owned by a Mr Dalla-Costa (Area 317). 
  3. By conduct between about 5 September 2009 and 10 November 2009 Macarthur represented to the first and third plaintiffs that if they became the owners and directors of a new company, First Strategic Development Corporation Limited (First Strategic), and if First Strategic entered into an option agreement with Mr Dalla-Costa to purchase Area 317 from him, Macarthur would subsequently enter into either –
    1. an option agreement  to purchase Area 317 from First Strategic; or
    2. a share option agreement to purchase all the shares in First Strategic.
  4. On 25 November 2009 the first and third plaintiffs did become the shareholders and directors of First Strategic.  On or about 3 December 2009 First Strategic executed an agreement with Mr Dalla-Costa by which he granted First Strategic an option to acquire Area 317. 
  5. Thereafter First Strategic conducted drilling and exploration activities over Area 317, for which purpose and the first, second and third plaintiffs (as directors of First Strategic) permitted First Strategic to incur certain debts and the first plaintiff made payments to First Strategic to enable it to pay its creditors. The timing at which those debts permitted to be incurred and payments were made assumes some materiality in relation to the causation complaint, but I will return to that.
  6. Notwithstanding further conduct by Macarthur after November 2009 which repeated the effect of the representation referred to in [7] above, in April 2010 Macarthur made the internal decision to put on hold the process of negotiating the agreements which had been the subject of the representations it had made to the plaintiffs.
  7. However Macarthur did not inform the plaintiffs at that time that it had decided to regard its entry into either type of agreement as “on hold”.  Rather, in various other ways up to and including 11 July 2010, Macarthur is alleged to have continued to make the representation that it would enter into one or other form of agreement.  The plaintiffs’ case is that it was not until a phone call on 28 July 2010 that Macarthur conveyed that there was a problem.  Ultimately on 27 August 2010 Macarthur informed the first plaintiff that it would not enter into either type of agreement.
  8. On 17 November 2010, First Strategic resolved that it would be wound up and liquidators would be appointed.  The first plaintiff made various payments for legal services relating to the appointment and and then made various payments to the liquidators for their services.
  9. Ultimately on 29 August 2012 First Strategic and the liquidators commenced a proceeding (the Insolvent Trading Proceeding) seeking recovery of pecuniary sums from the present plaintiffs pursuant to s 588M(2) of the Corporations Act 2001 (Cth) on the basis that, as directors of First Strategic, they had contravened s 588G as First Strategic had incurred debts at a time when it was insolvent and there were reasonable grounds for suspecting its insolvency.  The plaintiffs defended the Insolvent Trading Proceeding on the grounds that First Strategic was not insolvent at the relevant times because the first plaintiff was willing and able to provide sufficient funds to First Stategic to enable it to meet its debts as and when they fell due.   The plaintiffs expended moneys in defending the Insolvent Trading Proceeding.
  10. On 4 April 2014 the first and third plaintiffs were held liable to compensate the liquidator of First Strategic, as a debt due to First Strategic, in the sum of $1,349,131.03 and the second plaintiff was held liable for the sum of $1,322,867.35: see First Strategic Development Corporation Limited (in liq) v Chan [2014] QSC 60 per McMurdo J.  The reason for the different amount of the judgment as against the second defendant was that he became a director a little later than the first and third defendants and was only held liable for the debts incurred after he became a director.[1] The plaintiffs were also ordered to pay the liquidators’ costs of the proceeding.
  11. The judgment was confirmed on appeal: see Chan v First Strategic Development Corporation Limited (in liq) [2015] QCA 28 (per Gotterson and Morrison JJA and Boddice J).
  12. The plaintiffs say they acted on the faith of the representations made to them.  If, once Macarthur’s intentions changed, they had been told that Macarthur regarded its entry into either form of agreement as on hold, then they would not have made the decisions they made and would not have suffered the losses they suffered. 
  13. Against that background I turn to consider the various criticisms advanced by the defendants.

The adequacy of the pleading of misleading and deceptive conduct

  1. It is a trite proposition that the fact that a representation about what a person will do in the future does not become true, does not mean that it was misleading when it was made.   Some further ingredient must be pleaded which gives rise to that conclusion. 
  2. In this proceeding the plaintiffs’ case rests essentially on the proposition that Macarthur’s representations as to what it would do conveyed an implied representation about its present intention, namely that its present intention was and continued to be that it would do what it said it would do.  Once, in April 2010, Macarthur had made a decision of a nature which meant that its intention must have changed to a state which was inconsistent with what had been represented, it became misleading and deceptive within the meaning of s 52 not to inform the plaintiffs of that fact.  And it was misleading and deceptive thereafter (and up to 28 July 2010) to engage in conduct that impliedly represented that its present intention was still that it would enter into either form of agreement, when in fact it was not.  
  3. Such a case would require a careful demonstration of the nature of the represented intention and a careful demonstration (by proof of the pleaded decision) of the true (and, ex hypothesi, uncommunicated) intention.  But, if it can be made good, it seems to me to be an arguable case of misleading and deceptive conduct.  And if it can be made good, and if the plaintiffs can demonstrate that they incurred loss in consequence of such conduct, then they have an arguable cause of action to recover damages. 
  4. The defendants do, however, contend that there is a flaw in the plea which alleges that in April 2010 Macarthur made a particular decision concerning the option agreements.   The plea is critical because it is the inconsistency between Macarthur’s uncommunicated true intention (as revealed by the pleaded decision) and what the plaintiffs say was represented to them concerning Macarthur’s intention which lies at the base of the case.  Absent that inconsistency there is no case.
  5. Paragraph 53 of the statement of claim provided as follows:
  1. In truth and in fact sometime in April 2010 [Macarthur] decided that [Macarthur] could or would not enter into an option agreement to purchase all the shares in First Strategic or to purchase Area 317 from First Strategic and had put the process for negotiating any such agreement on hold or alternatively had put the process for negotiating such agreements on hold.

Particulars

In support of the allegation that [Macarthur] had made the decision in April 2010 that it would not enter into the share option agreement or agreement to purchase Area 317 from First Strategic and had put the process for negotiating such agreements on hold or alternatively had put the process for negotiating any such agreement on hold [the plaintiffs] rely upon:

  1. an email sent by Mr Alan Phillips on 27 August 2010 to [the first plaintiff] where has [sic] alleges that he for [Macarthur] made a statement to that effect in April 2010;
  1. emails sent by Mr Joe Phillips on 28 April 2010 to Maggie McGuinn of McGuinn Legal and by David Taplin to Maggie McGuinn, copied to Mr Joe Phillips (consistent with his own email and not contradicted by him) stating that the share option agreement was on hold.
  1. The paragraph should be read as though it was structured in this way:
  1. In truth and in fact sometime in April 2010 [Macarthur] decided that [Macarthur] –
  1. could or would not enter into an option agreement –
  1. to purchase all the shares in First Strategic; or
  1. to purchase Area 317 from First Strategic,

and had put the process for negotiating any such agreement on hold; or alternatively

  1. had put the process for negotiating such agreements on hold.
  1. The plaintiffs’ case is that the true position as to the intention of Macarthur is to be inferred from the particularised email exchanges.  The defendants’ criticism was that the emails identified by the particulars did not in fact arguably support the allegation in [53].  If that proposition is correct, then the paragraph would have to be recast. 
  2. The email in particular (a) was an email sent in reply to a request from the first plaintiff.  It is appropriate to quote the exchange in full:
    1. Email from the first plaintiff to Mr Alan Phillips on 27 August 2010:

Given the missing link of a firm commitment from [Macarthur] on buying the tenement of [Area 317] from [First Strategic] if [First Strategic] is to take up the option of buying the tenement from the tenement owner, [First Strategic] will not be able to raise funds for this project. Please be advised that [First Strategic] had to face the reality of cancelling and terminating this project.

[Macarthur] as a manager to the exploration program should also immediately convey the same message to all parties concerned of this decision.

Shareholders of [First Strategic] are considering disposing the company as an option to draw a conclusion to this project. Please let me know if any potential buyer is interested in taking up this offer before [First Strategic] deciding on other options.

  1. Email reply from Mr Alan Philips to the first plaintiff on 27 August 2010 (reformatted for clarity):

Charles thank you for your email! It is truly unfortunate it has come to this.

Macarthur advised you at our meeting in April in Brisbane this year between yourself, [the second plaintiff], John Tiogo and myself that under the circumstance Macarthur could not enter into an assignment of the option agreement.

The reasons given were

  1. Option period was too short with only 8 months remaining.
  1. It would be challenging to fulfil the expenditure obligations of $2.5 million and complete a resource report before expiry of the option period.
  1. The option exercise price was beyond Macarthur’s financial capability.
  1. The Acquisition would require shareholder approval which would not be easily obtained.
  1. [The third plaintiff’s] litigation created yet another problem as he was then and remains now a director of [First Strategic].

The only possible solution was for [First Strategic] to gain an extension to the option from the Vendor. This was discussed in Brisbane in July at a meeting between yourself, [the second plaintiff], John Tiogo and myself. I understood that this was achieved at our site visit in late July where yourself, [the second plaintiff], Doug Betts negotiated directly with the vendor. Macarthur was very surprised at the sudden and unexpected suspension of activities.

CHARLES. You are a highly successful international businessman held in great regard by your peers. As a director of [First Strategic] along with [the second plaintiff] and [the third plaintiff] you have a responsibility to pay the substantial overdue creditors. It would not be conceivable that you of all people would not do this. I respectfully suggest you give this matter your every consideration.

  1. As the pleading stands, the emails referred to in particular (a) do not support the pleaded allegation.  Mr Alan Phillips’ email refers to Macarthur as having advised that it could not enter into “an assignment of the option agreement”.  That language is not capable of being regarded as a reference to Macarthur having made any of the alternative types of decision pleaded at [53].  In the first place it refers to assignment of an existing option, not entering into an option agreement.  But, second, when one has regard to the sentence commencing “the only possible solution”, it seems clear that the grantor of the option is “the Vendor” and not the plaintiffs or First Strategic.  Senior Counsel for the defendants suggested that the reference must be interpreted as a reference to an assignment of the option agreement between the first and third plaintiffs and Mr Dalla-Costa.  As presently informed, that seems to me to be likely.  But the consideration which is relevant for present purposes is that the email does not, without more, support the pleaded allegation. 
  2. The plaintiffs contend that the foregoing is an overly literal interpretation of the email.  They contend that there is a context which makes it at least arguable that the email should be regarded as referable to both of the agreements pleaded at [53].  To my mind that contention reveals the flaw in the pleading.  If there is some context which demonstrates why it is that the email reference to Macarthur not entering into an assignment of the option agreement should be taken to be a reference to Macarthur not entering one or other of the forms of agreements pleaded, then that context would have to be pleaded.  Especially is that so when the case relies on inference.
  3. The emails in particular (b) are emails said to be internal to Macarthur.  They reveal a legal adviser requesting instructions concerning a “draft MMS Option Agreement” which had been marked up by Macarthur.  The request was sent from Ms Maggie McGuinn to Macarthur’s legal adviser Mr David Taplin and copied to Mr Joe Phillips.  The plaintiffs’ Senior Counsel informed me that Ms McGuinn was a legal adviser who was ultimately paid by First Strategic but who at the time of sending the email was acting for Macarthur. Mr Joe Phillips responded and then Mr Taplin responded.  It is appropriate to quote the body of the three communications in the order they were sent on 28 April 2010:
    1. email from Ms McGuinn of McGuinn Legal to Mr Taplin of Taplin & Associates, copied to Mr Joe Phillips:

David

On 28 January 2010, you sent me the draft MMS Option Agreement marked up with comments by MMS (see below).

When I spoke to you subsequently, you indicated that this was in fact for discussion with Joe Phillips and that you/he would get back to me. I have not heard from either of you since then and am writing to enquire where this is at.

Will you please let me know the current status?

  1. email from Mr Joe Phillips to Ms McGuinn:

Maggie

I will call you to discuss. Little complicated.

Rgds

Joe

  1. Email from David Taplin of Taplin & Associates to Ms McGuinn of McGuinn Legal, copied to Mr Joe Phillips:

Hi Margaret.

This matter has been placed on hold for the moment following determination of some issues.

I will update you again when these issues have been determined, but no action is required for the time being.

Regards

David

  1. Although it is obvious enough that the email exchange arguably supports the proposition that the “draft MMS Option Agreement” to which the legal adviser referred had been placed on hold at some time on or prior to 28 April 2010, how it is that that connects up with –
    1. the “could not or would not” part of the pleaded case; or
    2. either of the two pleaded types of option agreements,

is entirely unclear. 

  1. Whether or not the emails can support some part of what is pleaded in [53] of the statement of claim turns on how the reference to the “draft MMS Option Agreement” is interpreted.  It is for the plaintiffs to explain what their case is concerning the reference, and to do so in a way which makes it clear how the email arguably supports the pleaded case.  The present problem is that the reference to the emails does not, without some further pleaded context, support the pleaded allegation.  And even if that is done, how are the emails relevant to the proposition that a decision was made that Macarthur could not or would not have done something?
  2. After the hearing of the application, the plaintiffs filed a further written submission which advised that they proposed to amend the particulars to [53] of the statement of claim:
    1. to make it clear that the true position was to be inferred from the evidence relied upon;
    2. to delete the words in subparagraph (a), “statement to that effect” and replace them with the words to the effect, “a negative statement about entering any agreement with First Strategic”;
    3. to make it clear that it is alleged that both types of option agreements were on hold;
    4. which would entitle the plaintiffs to rely upon evidence obtained by disclosure.
  3. No amendments were formulated so it is not possible to form a view whether the proposed amendments would address all the matters which I have identified as problems for the current form of the pleading. 
  4. The result of the foregoing is that [53] of the statement of claim should be struck out.
  5. Logically, the plaintiffs’ case cannot stand without a proper plea of a decision having been made which was of such a nature as to render misleading the subsequent representations concerning Macarthur’s intention. 
  6. However, I am not presently persuaded that an arguable plea cannot be formulated.  For that reason, it seems to me to be inappropriate to grant a more significant remedy to the defendants than striking out [53] of the statement of claim, with leave to replead.   
  7. I conclude that [53] of the statement of claim should be struck out, with leave to re-plead.  

The suggested defects in the plaintiffs’ pleaded claims for damages

  1. The relevant aspects of the substantive law may be briefly stated:
    1. A plaintiff is entitled pursuant to s 82 of the Trade Practices Act to recover loss or damage which the plaintiff has suffered “by” conduct which contravened s 52. 
    2. The plaintiff must show that the losses suffered are causally related to the contravening conduct.  In this regard, in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525, the joint judgment of Mason CJ, Dawson, Gaudron and McHugh JJ stated that s 82(1) should be understood as taking up the common law practical or common-sense concept of causation as discussed in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506. 
    3. Of course, the offending conduct need not be the sole cause of the plaintiff’s loss: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at [33] and [216].  It will suffice if the contravening conduct was a cause which materially contributed to the loss, despite the fact that there may have been other causes.
    4. The reference to ‘by’ in s 82 has been interpreted as including the common law’s approach in contract and tort to limiting damages by reference to concepts such as remoteness.[2]  As McHugh J stated in Henville v Walker (2001) 206 CLR 459 at [136] (Gummow J agreeing):

Given the long history of the common law's recognition of the concept of remoteness in assessing damages in contract and tort and its relationship with the issue of causation, it seems proper to read the term “by” in s 82 as including the concept of remoteness. By remoteness, I mean that the loss or damage was not reasonably foreseeable even in a general way by the contravener.

  1. As many of the defendants’ complaints concern the adequacy of the plaintiffs’ pleading of the causal link between the conduct which the plaintiffs impugn and the loss which they say they suffered, it is also appropriate to set out some general propositions concerning the requisite content of an adequate pleading of a causal link in such circumstances.
  2. As a general proposition, the defendants are entitled to have pleaded a direct and unambiguous identification of the material facts relied on to establish the causal link which the law requires and which, at least arguably establishes that link: Lee v Abedian [2016] QSC 92 at [81].
  3. In Graham & Linda Huddy Nominees Pty Ltd v Byrne [2016] QSC 221, Jackson J collected some further general statements of principle, to similar effect (emphasis added and footnotes omitted):

[26] However, there is no shortage of relevant case law [concerning the extent of pleading required to establish causal link between breaches of contract or negligence and loss]. In Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd, Chesterman J said:

In any cause of action in respect of which causation is an essential element it is necessary to plead the material facts which are said to give rise to the causal connection. In particular it is necessary to plead the facts which lead to a reasonable inference that the acts complained of (here the relevant non-disclosure) and the alleged later event (here the making of the dragline agreement) stand to each other in the relation of cause and effect.

[27] Another well-known judgment in this area is Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd, where French J said:

The material facts establishing the necessary causal link should be pleaded. In cases of contravention of s 52 said to be constituted by misrepresentation this will generally require more than appears in the opening words of par 50: ‘by reason of such conduct ...’.

Some guidance to the proper approach may be derived from the ordinary rule of pleading applicable in cases of fraud of which Lord Watson said in Dow Hager Lawrance v Lord Norreys (1890) 15 App Cas 210 at 221:

‘... The ordinary rule of pleading applicable to cases of fraud, ... was thus expressed by Earle Selborne in Wallingford v Mutual Society (1880) 5 App Cas 685 at 697: “General allegations, however strong may be the words in which they are stated, are insufficient to amount to an averment of fraud of which any court ought to take notice.” It is not a sufficient compliance with the rule to state facts and circumstances which merely imply that the defendant, or someone for whose action he is responsible, did commit a fraud of some kind. There must be a probable, if not necessary, connection between the fraud averred and the injurious consequences which the plaintiff attributes to it; and if that connection is not sufficiently apparent from the particulars stated, it cannot be supplied by general averments. Facts and circumstances must in that case be set forth, and in every genuine claim are capable of being stated, leading to a reasonable inference that the fraud and the injuries complained of stood to each other in the relation of cause and effect.’

A perusal of the relevant precedents in [Bullen, Leake & Jacob’s Precedents of Pleadings 12th ed, pp 702–7] supports the view that the approach enunciated by Lord Watson is equally applicable to actions for negligent misstatement.

  1. The plaintiffs claim to have suffered the following types of losses in consequence of defendants’ misleading and deceptive conduct:
    1. the amounts paid by the first plaintiff for legal services relating to the appointment of the liquidators and for the services of the liquidators;
    2. the expenses incurred by the plaintiffs in unsuccessfully defending the Insolvent Trading Proceeding;
    3. the amounts paid by the plaintiffs pursuant to the judgment of this Court in the Insolvent Trading Proceeding, both for the principal sum and for costs; and
    4. the amounts paid by the first plaintiff to First Strategic to enable it to meet debts incurred by it.
  2. It is appropriate to analyse the suggested defects in the pleading in relation to each category of loss.

The amounts paid by the first plaintiff for legal services relating to the appointment of the liquidators and for the services of the liquidators

  1. The current form of the statement of claim relevantly pleads:
    1. (at [59]) the assertion that in allowing First Strategic to incur certain specified obligations and debts the plaintiffs as directors of First Strategic “exposed themselves to being liable to First Strategic and any liquidator appointed to First Strategic for” those obligations and debts;
    2. (at [60]) on or about 17 November 2010 First Strategic resolved that it would be wound up and a liquidator appointed;
    3. (at [61]) in the period between on or about 15 November 2010 and 7 July 2011, the first plaintiff made payments totalling $147,190.37 for legal services relating to the appointment of the liquidator and to the liquidator for their services;
    4. (at [66(a)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts;
    5. (at [66(c)]) the further counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the first plaintiff would not have had to make the payments referred to at statement of claim [61]; and
    1. (at [67(f)]) that “as a consequence of the misleading and deceptive conduct … [the first plaintiff] suffered loss and damage as referred to in [statement of claim [61]]”.
  2. The defendants’ contention is that the pleading does not set out material facts which lead to a reasonable inference that –
    1. the misleading and deceptive conduct complained of (effectively the relevant non-disclosure of Macarthur’s true intention once the alleged April 2010 decision had been made); and
    2. the alleged later event (here the first plaintiff’s decision to pay legal expenses incurred in relation to the appointment of the liquidator to First Strategic, or for the services provided by the liquidator),

stand to each other in the relation of cause and effect.  The defendants say the cause of the loss was obviously the first plaintiff’s decision to incur the relevant expenses, not anything else. 

  1. For their part, the plaintiffs submitted that they had pleaded a classic “no transaction” case: no agreements would have been entered, payments made or debts incurred if Macarthur had advised the plaintiffs that it would not enter into an option agreement to purchase the shares or Area 317.  The plaintiffs submitted that the defendants’ proposition that there was no causal link between the impugned conduct and the plaintiffs’ decision was the kind of approach rejected by the High Court in Medlin v State Government Insurance Office (1995) 182 CLR 1 because it wrongly focussed on the intervening decision.  They relied on the highlighted parts of the following passage (at 6-7) from the judgment of the plurality (although expressed in relation to the law of negligence, the observations are just as relevant to causation under the Trade Practices Act):

For the purposes of the law of negligence, the question whether the requisite causal connexion exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities, as a matter of commonsense and experience (16). And that remains so in a case such as the present where the question of the existence of the requisite causal connexion is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage. In such a case, the "but for" test, while retaining an important role as a negative criterion which will commonly (but not always) exclude causation if not satisfied, is inadequate as a comprehensive positive test (17). If, in such a case, it can be seen that the necessary causal connexion would exist if the intervening act or decision be disregarded, the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has had the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision. It will be seen that, on the plaintiff's evidence, the present was such a case.

  1. I agree with the defendants’ complaints.  The plaintiffs’ argument seems to assume that in a “no transaction” case, all pecuniary losses which would not have been incurred but for the impugned conduct must be regarded as having been caused by the impugned conduct.  That is incorrect.  The argument ignores the earlier part of the passage quoted from Medlin.  In a case where the question of causation is complicated by an intervening act or decision of the plaintiff, reliance merely on “but for” causation is inadequate as a comprehensive positive test.  It is certainly inadequate on the facts of this case. 
  2. The appropriate course here is to require the plaintiffs to articulate the material facts which establish the causal link in the way required by the cases I have referred to at [39] and [40] above.  That will require the articulation of facts which as a matter of common sense and experience lead to a reasonable inference that the impugned conduct and the relevant category of loss stand in the relationship of cause and effect.  In this case, absent a pleading of facts which establish a reasonable inference that the impugned conduct was itself a direct or indirect contributing cause of the plaintiffs’ decision to appoint a liquidator and then to pay the expenses claimed under this heading, it is difficult to imagine how the requisite causal link could be established.
  3. The plaintiffs’ pleading does not articulate material facts which justify the reasonable inference that the impugned conduct was itself a direct or indirect contributing cause of the plaintiffs’ decision to appoint a liquidator and to incur the expenses.  If there is a way to do that[3], it has not yet been done.  The pleading of the two counterfactual propositions identified at [43](d)] and [43](e)] above are not sufficient and amount to little more than “but for” propositions.  I note too that there is merit in the defendants’ further criticism of the plea “would not have had to” in [66(c)].  What is intended to be encompassed by that proposition is entirely unclear. 
  4. The defendants argued that statement of claim [61] should be struck out, together with any claims to recover the expenditure referred to in that paragraph.  I agree.
  5. I note that the plaintiffs’ further written submissions filed after the hearing of the application advised of the plaintiffs’ intention to amend statement of claim [59] so that the allegation becomes a reference to the plaintiffs having "incurred a liability" to First Strategic (rather than simply having exposed themselves to being liable to First Strategic and any liquidator appointed to it).
  6. I do not think that the proposed amendment relevantly affects my conclusion in relation to this category of the plaintiffs’ claimed losses.

The expenses incurred by the plaintiffs in unsuccessfully defending the Insolvent Trading Proceeding

  1. The current form of the statement of claim relevantly pleads:
    1. (at [59]) the assertion that in allowing First Strategic to incur certain specified obligations and debts the plaintiffs as directors of First Strategic “exposed themselves to being liable to First Strategic and any liquidator appointed to First Strategic for” those obligations and debts;
    2. (at [60]) on or about 17 November 2010 First Strategic resolved that it would be wound up and a liquidator appointed;
    3. (at [62]) on 29 August 2012 First Strategic and the liquidator of First Strategic issued the Insolvent Trading Proceeding;
    4. (at [63]) the plaintiffs –
      1. defended the proceedings on the grounds that the first plaintiff was willing and able to provide or cause to be provided sufficient amounts to enable First Strategic to meet all of its debts when due; and
      2. in defending the claim by the liquidators and the Insolvent Trading Proceeding, the first plaintiff expended $1,051,381.60 and the third plaintiff expended $615,805.00;
    5. (at [66(a)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts;
    6. (at [66(c)]) the further counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the first plaintiff would not have had to make the payments referred to at statement of claim [63]; and
    1. (at [67(f)] and [67(g)]) that “as a consequence of the misleading and deceptive conduct … [the first and third plaintiffs] suffered loss and damage as referred to in [statement of claim [63(b)]]”.
  2. The defendants argued that the pleading did not advance an arguable case that the amounts expended in unsuccessfully defending the liquidators’ claim could be regarded as having been caused by their alleged misleading and deceptive conduct.  The amounts were incurred because the plaintiffs made the decision to defend the case on a basis that the Court rejected.  The costs incurred were not incurred by the defendants’ conduct but were incurred because of the plaintiffs’ own flawed decision, not apparently caused by the defendants. 
  3. Further, the defendants argued that there are no pleaded facts which establish the foreseeability, even in a general way, of –
    1. the insolvency of First Strategic;
    2. the fact that the directors would permit it to incur costs whilst insolvency; or
    3. having done so, that the directors would nevertheless defend the proceeding.
  4. The plaintiffs’ argument was the same as that advanced in respect of the sums claimed under the previous heading.  They contend “[t]he decision by the plaintiffs to defend the claim occurred by reason of the situation in which they were placed by the misleading and deceptive conduct of the defendants.”
  5. The pleading is flawed for the same reasons as were identified under the previous heading, although, if anything, it is even more difficult to see how the impugned conduct and the decision to defend the case advanced by the liquidators (and therefore to incur its consequent expenses) could arguably stand in the relationship of cause and effect.  Again, if there is a way to plead facts which will justify a reasonable inference that the impugned conduct was itself a direct or indirect contributing cause of the plaintiffs’ decision to defend the liquidator’s claim,[4] it has not yet been done.  Again, the same problems with the pleaded counterfactual concerning the use of the language “would not have had to make” also exist.   It is unnecessary to express a view on the defendants’ argument regarding foreseeability until a proper plea of causation is advanced.
  6. The defendants argued that statement of claim [63] should be struck out, together with any claims to recover the expenditure referred to in that paragraph.  I agree.
  7. I note that the plaintiffs’ further written submission filed after the hearing of the application advised of the plaintiffs’ intention to amend statement of claim [59] so that the allegation becomes a reference to the plaintiffs having "incurred a liability" to First Strategic (rather than simply having exposed themselves to being liable to First Strategic and any liquidator appointed to it).
  8. I do not think that the proposed amendment relevantly affects my conclusion in relation to this category of the plaintiffs’ claimed losses.

The amounts paid by the plaintiffs pursuant to the judgment of this Court in the Insolvent Trading Proceeding, both for the principal sum and for costs

  1. The current form of the statement of claim relevantly pleads:
    1. (at [40]) that First Strategic became indebted to creditors for various amounts;
    2. (at [59]) the assertion that in allowing First Strategic to incur certain specified obligations and debts the plaintiffs as directors of First Strategic “exposed themselves to being liable to First Strategic and any liquidator appointed to First Strategic for” those obligations and debts;
    3. (at [60]) on or about 17 November 2010 First Strategic resolved that it would be wound up and a liquidator appointed;
    4. (at [62]) on 29 August 2012 First Strategic and the liquidator of First Strategic issued the Insolvent Trading Proceeding;
    5. (at [63]) the plaintiffs defended the proceedings on the grounds that the first plaintiff was willing and able to provide or cause to be provided sufficient amounts to enable First Strategic to meet all of its debts when due;
    6. (at [64](a)] and [65(a)]) on or about 4 April 2014 the Supreme Court of Queensland held that the first and third plaintiffs were personally liable for the debts of First Strategic in the amount of $1,349.131.03 and that the second plaintiff was personally liable for the debts of First Strategic in the amount of $1,322,867.35 and on 2 June 2014 the plaintiffs made payment to the liquidator and First Strategic in respect of those matters;
    7. (at [64(b)] and [65(b)]) on or about 4 April 2014 the Supreme Court of Queensland ordered the plaintiffs to pay to First Strategic and the liquidator the costs of the proceedings, for which they subsequently paid $700,000.00;
    8. (at [66(a)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts;
    9. (at [66(c)]) the further counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the first plaintiff would not have had to –
      1. (i)
        make $953,925.66 of the payments made for the principal sums required to be paid by the Supreme Court; and
      2. (ii)
        make the $700,000.00 payment for costs; and
    1. (at [67]) that “as a consequence of the misleading and deceptive conduct … [the plaintiffs] suffered loss and damage as referred to in [statement of claim [64] and [65]]”.
  2. I should observe that it is not clear from the face of statement of claim [67] exactly how much of the amounts referred to in statement of claim [64] and [65] are claimed as damages. Moreover, the counterfactual pleaded at [64(a)] is inaccurate because it reads as though there was a liability to creditors.  The Supreme Court did not find that any of the plaintiffs were personally liable for the debts of First Strategic.  Rather the finding of McMurdo J was that pursuant to s 588M(2) the liquidator should recover from each of the plaintiffs, as a debt due to First Strategic, the sum which is referred to in the pleading.[5]  The form of judgment required payment to be made to First Strategic.
  3. But quite apart from those flaws – which I regard as matters of detail which are easily fixed – the same problems exist as have been identified under the previous two headings.   Again:
    1. It is difficult to see how the impugned conduct and the decision to cause First Strategic to incur debts whilst insolvent could arguably stand in the relationship of cause and effect. 
    2. If there is a way to plead material facts which justify a reasonable inference that the impugned conduct was itself a direct or indirect contributing cause of the plaintiffs’ decision to cause First Strategic to incur debts whilst insolvent,[6] it has not yet been done.
    3. The same problems with the pleaded counterfactual concerning the use of the language “would not have had to make” also exist.
  4. The defendants argued that statement of claim [40], [64], and [65] should be struck out, together with any claims to recover the expenditure referred to in that paragraph.  I agree.
  5. I note that the plaintiffs’ further written submissions filed after the hearing of the application advised of the plaintiffs’ intention to amend statement of claim [59] so that the allegation becomes a reference to the plaintiffs having "incurred a liability" to First Strategic (rather than simply having exposed themselves to being liable to First Strategic and any liquidator appointed to it).  That amendment does not sufficiently address the problem because the pleading still omits the pleading of facts which justify a reasonable inference that the impugned conduct was itself a direct or indirect contributing cause of the plaintiffs’ decision to act in the way which led to the incurring of the liability. 

The amounts paid by the first plaintiff to First Strategic to enable it to meet debts incurred by it

  1. The current form of the statement of claim relevantly pleads:
    1. (at [31]) the assertion that in reliance upon the impugned conduct the first plaintiff made payment to First Strategic of $5,930.52 so it could make payment to its creditors as set out in a table identifying six amounts;
    2. (at [37]) the assertion that in reliance upon the impugned conduct the first plaintiff made payment to First Strategic of $31,777.87 so it could make payment to its creditors as set out in a table identifying seven amounts;
    3. (at [66(b)]) the counterfactual proposition that if Macarthur had told the plaintiffs in or about April 2010 that it would not enter into either form of option agreement or alternatively that it had put the process for negotiation on hold, the plaintiffs would not have caused First Strategic to incur debts and the first plaintiff would not have made the payments referred to at statement of claim [31];
    4. (at [67(a)]) that “as a consequence of the misleading and deceptive conduct … [the first plaintiff] suffered loss and damage in the amount of $5,930.52 as referred to in [statement of claim [31]]”; and
    5. (at [67(c)]) that “as a consequence of the misleading and deceptive conduct … [the first plaintiff] suffered loss and damage in the amount of $31,777.87 as referred to in [statement of claim [37]]”.
  2. The defendants do not seek to strike out the pleaded claim to recover for payments made by the first plaintiff to First Strategic after April 2010 for debts incurred by First Strategic after April 2010.  However the defendants contend that it is not open to the first plaintiff to recover for:
    1. payments made by him to First Strategic before April 2010, for debts incurred by First Strategic before April 2010; or
    2. payments made by him to First Strategic after April 2010, for debts incurred by First Strategic before April 2010.
  3. The complaint in relation to (a) must be upheld. Both the incurrence of the debt by the company and the payment made by the first plaintiff, precede the alleged misleading and deceptive conduct.  Indeed the plaintiffs concede as much because the plaintiffs’ further written submissions filed after the hearing of the application advised that the relevant claim will be deleted. 
  4. However, the plaintiffs still maintain the claim for some amounts paid by the first plaintiff in or after April 2010 in respect of debts which First Strategic incurred before April 2010.  It seems to me that the causal link is adequately pleaded by the counterfactual that the first plaintiff would not have made the payments concerned but for the impugned conduct. Given the relatively small amounts concerned and the nature of the subject decision, I do not think the problem which I have identified under previous headings arises.  The relevant inference of causation is an arguable one and not the subject of the same problem of the intervention of a subsequent decision which is at least prima facie unrelated to the impugned conduct.
  5. Subject to the plaintiffs making the foreshadowed further amendment to the table at statement of claim [31] and [37], I think there is an adequate articulation of the causal link as between the impugned conduct and the claim at statement of claim [67(a)] for the amounts referred to at statement of claim [31] and [37]. 
  6. The defendants separately contend that the non-payment of earlier incurred debts cannot have been caused by the relevant conduct complained of, as the fact that the first plaintiff (the sole financial supporter of First Strategic) would have refused to provide support for debts incurred at his instruction as a director of First Strategic, at a time when no misleading or deceptive conduct is alleged to have occurred, cannot have been foreseeable, even in a general way, to the defendants.  The correctness or otherwise of that proposition does not seem to me to be something which may safely be determined on a strike out application.

Separate bases for attack on the damages case

  1. The defendants advanced an alternative attack on the damages case, the elements of which were as follows:
    1. The amount of the plaintiffs’ loss or damage is not represented by the amounts expended by them as alleged.
    2. Had Macarthur not engaged in the misleading or deceptive conduct alleged, the best outcome for the plaintiffs was that an agreement be entered into with Macarthur conferring on Macarthur the options identified.
    3. Therefore, the true measure of the plaintiffs’ loss or damage is a sum representing an assessment of the value of the chance that Macarthur would enter into the alleged agreement and that, if such an agreement were entered into, Macarthur would, in due course, exercise the option granted to it by the agreement.
    4. The statement of claim therefore quantifies the plaintiffs’ claim on a wholly erroneous basis.
  2. I reject this argument.  The compensation to which the plaintiffs are entitled if otherwise they make good their case is the money necessary to put them in the position in which they would have been if the contraventions had not occurred.  The plaintiffs’ case is that if the contraventions had not occurred, they would have been told that Macarthur had put the decision on hold, and the plaintiffs would then have decided not to proceed further.  There would have been no agreement entered into with Macarthur.  The proposition put in [71](b) above is misconceived.
  3. A further argument advanced by the defendants was that for some of the loss which was claimed by the plaintiffs, it was First Strategic and not the plaintiffs which was the proper plaintiff for the loss.  The argument was that it was First Strategic and not the plaintiffs which must have suffered loss in consequence of First Strategic having become indebted to creditors in consequence of having acted in reliance on the defendants’ misleading and deceptive conduct.  I think the answer to this contention is that the plaintiffs’ case must be assessed by reference to the case which they plead.  It is not helpful to that task to speculate on the nature of the case which might have been brought by someone else, but has not been.

Remedy

  1. I have determined that there has been an insufficient plea of the causal link between the impugned conduct and loss in respect of three out of the four categories of loss pleaded by the plaintiffs.  I have not, however, formed the view that the problem is something which is not capable of being addressed by amendment which pleads appropriate additional facts. 
  2. I think the better course is to strike out statement of claim [40], [61], [63], [64], [65], [66(c)], [67(b)], and [67(d)] to [67(g)] but with leave to replead.  There are other matters of detail which the further submissions advanced by the plaintiffs concede should be attended to in relation to a contemplated further amendment, but as leave to amend is not needed, it does not seem to me that any order is required.

Conclusion

  1. I order that [40], [53], [61], [63], [64], [65], [66(c)], [67(b)], and [67(d)] to [67(g)] of the statement of claim be struck out, with leave to re-plead.
  2. I will hear the parties as to costs.

Footnotes

[1] First Strategic Development Corporation Limited (in liq) v Chan [2014] QSC 60 at [96] to [98].

[2] See also Stryke Corporation Pty Limited v Miskovic [2007] NSWCA 72 at [63], but cf the statement in Marks v GIO Holdings Australia Ltd (1998) 196 CLR 494 at [34].

[3] I am unwilling presently to express a view that this could not be done.  If the pleading can be recast to remedy the flaws I have identified, I imagine it will require the plaintiffs to plead relevant material facts about the relevant decision maker(s); their decisions; and the consideration(s) which materially contributed to them in such a way as to justify the relevant reasonable inference of causality.

[4] On the question of whether the flaw can be redressed see footnote 3 above.

[5] First Strategic Development Corporation Limited (in liq) v Chan [2014] QSC 60 at [96].

[6] On the question of whether the flaw can be redressed see footnote 3 above.

Close

Editorial Notes

  • Published Case Name:

    Chan & Ors v Macarthur Minerals Ltd & Ors

  • Shortened Case Name:

    Chan v Macarthur Minerals Ltd

  • MNC:

    [2017] QSC 13

  • Court:

    QSC

  • Judge(s):

    Bond J

  • Date:

    01 Mar 2017

  • White Star Case:

    Yes

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2017] QSC 1301 Mar 2017Defendants' application to strike-out a number of paragraphs of the statement of claim (directed to causation) granted; paragraphs struck out with leave to re-plead: Bond J.
Primary Judgment[2019] QSC 14307 Jun 2019Application to strike out part of the third further amended statement of claim (as to causation) granted; proceeding summarily dismissed: Flanagan J.
Primary Judgment[2019] QSC 16802 Jul 2019Costs Judgment: Flanagan J.
Notice of Appeal FiledFile Number: Appeal 7121/1905 Jul 2019-
Appeal Determined (QCA)[2020] QCA 14330 Jun 2020Appeal dismissed: Philippides JA, Henry and Brown JJ.
Special Leave Refused (HCA)[2020] HCASL 23105 Nov 2020Special leave refused: Gordon and Edelman JJ.

Appeal Status

Appeal Determined - Special Leave Refused (HCA)
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