Re: WARDLEY AUSTRALIA LIMITED and WARDLEY AUSTRALIA SECURITIES LIMITED

And: STATE OF WESTERN AUSTRALIA and LAWRENCE ROBERT CONNELL

No. WA G19 of 1991

FED No. 406

Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

Spender(1), Gummow(1) and Lee(1) JJ.

CATCHWORDS

Practice and Procedure - whether portion of Statement of Claim should be struck out as embarrassing - allegation that a certain dispute was "reasonably settled" between the parties - expression capable of various meanings.

Trade Practices Act 1974

Bankruptcy Act 1966

Companies (Queensland) Code

HEARING

PERTH

#DATE 17:7:1991

Counsel and solicitors Mr E.M. Heenan QC and

for the first respondent: Mr R.E. Cock instructed by

the State Crown Solicitor

Counsel and solicitors Mr D.M.J. Bennett QC and for the second respondent: Mr M.J. Stevenson

instructed by Messrs Jackson McDonald

ORDER

The orders made by French J. on 15 February 1991 be varied so as to provide that para.47 of the Amended Statement of Claim be struck out, but with leave to the State of Western Australia to replead within such time as is fixed by a Judge of the Court upon application by the State of Western Australia.

Otherwise the appeal be dismissed.

The first respondent pay the costs of the appeal of the appellants and the second respondent.



NOTE: Settlement and entry of Orders is dealt with by Order 36 of the Federal Court Rules.

JUDGE1

The appellants appeal from that part of the judgment and orders pronounced by a Judge of this Court (French J.) on 15 February 1991, wherein his Honour declined to strike out paras. 40 - 48 of the Amended Statement of Claim filed 14 January 1991 in a proceeding in which, on 19 November 1990, there had been consolidated two applications filed on 24 October 1990. The nature of the principal proceeding is described in the Reasons for Judgment in appeal No. WA G17 of 1991. That and this appeal were heard consecutively.

2. The appellants appeal pursuant to leave granted by French J. Upon the hearing of the appeal, leave was given for the second respondent (also a party to the principal proceeding) to be joined, with leave to support the case of the appellants.

3. It is alleged in the Amended Statement of Claim that by reason of certain contraventions of s. 52 of the Trade Practices Act 1974 ("the Act") by parties including the first appellant ("Wardley") and the second appellant ("Wardley Securities"), the first respondent ("the State") has suffered loss and damage. Particulars are given that "the State has lost the sum of $22.5 million". The loss claimed is not simply a payment pursuant to the terms of the instrument of indemnity executed 26 October 1987 ("the Indemnity") whereby the State undertook to indemnify National Australia Bank Limited ("NAB") against certain losses sustained by default of Rothwells Limited ("Rothwells"). Rather than an allegation that Wardley and Wardley Securities, amongst others, are liable to recoup the State for payments by the State to NAB upon the Indemnity, there is pleaded a series of steps involving a call by NAB upon the State, allegedly pursuant to the Indemnity, a dispute between the State, NAB and the provisional liquidators of Rothwells, and the making of payments pursuant to the settlement of that dispute.

4. It is necessary to set out paras. 40 - 48 in full:
   
   

"40. From about 27 October 1987, Rothwells drew down $150 million pursuant to the facility granted by NAB to Rothwells in relation to which facility the Indemnity was given by the State ('NAB facility').



41. On or about 17 October 1988, Rothwells made a payment of $150 million to NAB, being the sum due pursuant to the NAB facility.



42. On or about 17 October 1988 and subsequently, Rothwells was insolvent.



43. On 3 November 1988, a petition for the winding up of Rothwells was presented to the Supreme Court of Queensland and Mr Robert Allan Tuckey and Ian Douglas Ferrier ("Provisional Liquidators") were appointed as provisional liquidators of Rothwells.



44. The Provisional Liquidators contended that Rothwells' payment of $150 million constituted a voidable preference and demanded payment to them of that sum by the NAB. The NAB and the State denied that Rothwells' payment constituted a voidable preference.



45. The NAB requested that pursuant to the Indemnity the State indemnify it in respect of the Provisional Liquidators' demand.



46. A dispute arose between the State and the NAB in relation to the indemnity in that while the State contended that the payment by Rothwells of $150 million discharged the Indemnity, NAB contended that the Indemnity was in full force and effect.



47. The dispute between the State and the NAB and the claim by the Provisional Liquidators against NAB were reasonably settled between them such that:



(a) on 30 May 1989 the State paid $33 million to Rothwells; and



(b) on 8 December 1989 NAB paid $10.5 million to the State.



48. An order that Rothwells be wound up was made by the Supreme Court of Queensland on 22 September 1989."

5. Before the primary Judge, the complaint on the strike out motion appears principally to have been that there was lacking in the Amended Statement of Claim any pleading of a sufficient causal link between the conduct of Wardley and Wardley Securities which contravened s. 52 of the Act, and the settling of the dispute with the net payment by the State of $22.5 million. His Honour did not accept that submission. He said:
   
   

"Whether the circumstances of the decision to settle are such as to enable the judgment to be made that the payment was caused by the conduct of the respondents will depend upon the facts of the case, which can only be ascertained when all the evidence is in. The concept of a 'reasonable' settlement is sufficient to lay the foundation for an argument that that settlement was a consequence of the conduct complained of. It may be that the respondents will be entitled in due course to particulars of the facts relied upon by the State to support the plea that the settlement was reasonable. But the primary attack on the amended statement of claim for failure to demonstrate a link between the impugned conduct and the claimed loss cannot succeed."

6. Upon the hearing of the appeal, the appellants, Wardley and Wardley Securities, took the position that the attack on the Amended Statement of Claim was not that it failed to disclose a cause of action, but that the paragraphs in question were embarrassing or likely to prejudice or delay the proceedings. It was said that there had been a failure to comply with the fundamental requirement that the Statement of Claim contain the material facts upon which the State relied; see Federal Court Rules O.11, r.2, O.12 r.1. Counsel for the second respondent supported those submissions for the appellants.

7. The appellants contended that as it stood, the Amended Statement of Claim did not indicate in various respects the material facts of the case it had to meet. These failings were summarised as follows:
   
   

(i) Does the State contend that the payment by Rothwells to the NAB on 17 October 1988 (pleaded in para. 41) was a preference which was void within the meaning of s. 122 of the Bankruptcy Act 1966 in its application to the liquidation of Rothwells under the Companies (Queensland) Code?

(ii) Does the State contend that after the payment by Rothwells to

NAB on 17 October 1988, the Indemnity remained in force?

(iii) Does the assertion in para. 47 that the dispute between the

State and NAB, and the claim against NAB by the provisional liquidators were "reasonably settled", rest upon considerations of legally enforceable obligations, commercial considerations, political matters or some other factors?

8. In response, counsel for the State said that it was not, nor was it pleaded to be, the case for the State that the payment by Rothwells to NAB of the $150 million pleaded in para. 41 was a voidable preference, or that the Indemnity remained in operation after that payment. The case for the State is put on the footing that it is enough that the provisional liquidators have contended (as pleaded in para. 44) that the payment by Rothwells of $150 million constituted a voidable preference, such that a genuine dispute arose as to whether there was an obligation on NAB to disgorge that sum. The case for the State is that but for the entry into the Indemnity (something which allegedly would not have occurred but for the conduct of Wardley and Wardley Securities, with others), the State would not have been in dispute with NAB and would not have been in a position where it effected a "reasonable settlement".

9. Accepting that this is the way in which the State puts its case, nevertheless, in our opinion, the allegation in para. 47 that the dispute between the State and the NAB and the claim by the provisional liquidators against the NAB were "reasonably settled between them" is embarrassing in the technical sense. The allegation of reasonable settlement is one of cardinal importance to the State's claim. It is susceptible of various meanings, some of which were discussed during argument on the appeal. It may be expected that when the State pleads the material facts which it contends made the settlement "reasonable", the pleading of those facts may give rise to issues to which much time will be devoted in evidence at the trial. The inadequacy of the pleading in para. 47 in its present form is not something to be left to an attempted cure by the provision of particulars.

10. In our view, the appeal should succeed to the extent that the orders made by French J. on 15 February 1991 should be varied by ordering that para. 47 of the Amended Statement of Claim should be struck out, but with leave to replead within such time as his Honour fixes upon application by the State. In that regard, it should be noted that we were told by counsel for the State that if the State were successful in its submissions in appeal No. WA G17 of 1991 as to the reinstatement of the claim arising from the Wardley Sunday Soundness Representation, the State would review the whole of the Amended Statement of Claim with a view to seeking from the primary Judge general leave to amend.

11. The first respondent should pay the costs of the appeal of the appellants and of the second respondent.