Chardonnay Investments Ltd v INXS Productions Pty Ltd

HIS HONOUR: By Notice of Motion filed on 13 April 2010 the plaintiff Chardonnay Investments Limited which is the custodian of the intellectual property of Michael Hutchence, a former member of the band INXS, seeks leave to amend the Statement of Claim by which it sues the first defendant INXS Productions Pty Limited and numerous other defendants for, inter alia, declarations to the effect that Chardonnay was and is a partner in the INXS partnership, an order that the partnership be wound up, and a taking of partnership accounts. As a result of correspondence between the parties, argument over the contents of the proposed amended pleading has been resolved, and the remaining argument is as to whether the amendments should be permitted only upon terms that certain of the current defendants and two defendants proposed to be added by the amendments should not remain or should not become defendants.

For the plaintiff Chardonnay, Mr Hallen of Senior Counsel has argued that in those circumstances the application should be treated, in substance, as one by the defendant for striking out of the pleadings against those defendants.

Although I am not sure that the analogy is entirely apposite – and it is not in the case of the proposed added 41st and 42nd defendants – I think there is sufficient utility in it that most of the considerations which would apply on such an application are relevant here. In particular, I approach the application on the basis that I will take the plaintiff's case at its highest, and I will assume that the plaintiff can prove at trial each of the allegations of material fact asserted in the proposed amended pleading.

To my mind, the question then really becomes a relatively narrow one: that is, does the proposed amended pleading disclose a viable cause of action against each of the relevant defendants – that is to say, the first, fourteenth, sixteenth, twenty-first, twenty-fifth, twenty-sixth, twenty-eighth, thirtieth, thirty-sixth and thirty-ninth defendants and the proposed forty-first and forty-second defendants INXS BC Pty Ltd and INXS AD Pty Ltd. It would not take much for present purposes for such a claim to be regarded as "viable" since, in the absence of any evidence, I would treat, as I have foreshadowed, the allegations of material fact as provable. So the real question is whether any cause of action capable of founding the relief sought is pleaded against those defendants.

In my opinion, the short answer is that it is not. It has been submitted that the pleading alleges, in respect of each of the relevant defendants, that a proper defendant – that is to say, one of the individuals or corporations who are said to be partners in the INXS partnership – controls the relevant defendant; but mere control of an entity does not found any cause of action or any liability to account against it.

It is then said that each of the relevant defendants was an entity through which it is pleaded that a partnership business or some of a partnership business was conducted. That pleading is said to appear from paragraphs 82 and 83 of the proposed amended pleading. Paragraph 82 alleges that in breach of the INXS partnership agreement the partners – either the corporate entities or the related individuals – have excluded Chardonnay from the conduct of the partnership. Particulars are then given of certain agreements to which the relevant defendants or some of them are said to be parties and from which Chardonnay is said to have been excluded. Similarly, paragraph 83 alleges that in breach of the INXS partnership agreement the corporate or individual partners have excluded Chardonnay from participating equally in the sharing of gross returns of the partnership and from the band. That is particularised as an allegation that Chardonnay has been denied a one-sixth or any share of the gross returns from various agreements, to at least some of which the relevant defendants are said to be parties, but neither of those paragraphs asserts anything against any relevant defendant.

Even the particulars assert no more than that there was an agreement to which one or more relevant defendants was a party. There is no allegation that a relevant defendant has received funds which it holds on trust for the partnership, or has received funds with knowledge of some breach of trust or breach of duty.

It is then said that it is pleaded that the plaintiff has contributed to payments to relevant defendants. This allegation appears in particulars to paragraphs 72, 74(e), and 80, in each case it being alleged that Chardonnay contributed $109,000 to the fourteenth defendant in respect of band expenses for one period, and US$103,000 to the sixteenth defendant in respect of losses from a tour cancelled by reason of the death of Mr Hutchence.

In the first case, those matters are asserted as particulars of the allegation that from 1 June 1993 and thereafter as requested Chardonnay contributed one-sixth of the expenses incurred in the conduct of the business of the band. In the second case, they are particulars of an assertion that by agreement between the band members there was a partnership created and called the INXS partnership. In the third case, they are pleaded as particulars of an assertion that there was an implied term of the INXS partnership agreement that each of the six partners, whether a band member or an entity nominated by the band member, would contribute one sixth of the expenses incurred in the conduct of the partnership.

There is no allegation that in some way the fourteenth defendant or the sixteenth defendant is liable to account for the amounts paid to it or received it in any other way or on any other basis that makes it answerable to the plaintiff for it.

The causes of action as currently pleaded can relevantly be seen from paragraphs 82 and following of the proposed amended Statement of Claim. The first, in paragraph 82, alleges breaches of the partnership agreement by the corporate partners or the associated individuals excluding Chardonnay from the conduct of the partnership. The relevant defendants are neither corporate partners nor associated individuals in the sense in which I am describing it.

Paragraph 83 alleges that in breach of the INXS partnership agreement the corporate partners or associated individuals excluded Chardonnay from participating equally in the sharing of gross returns of the partnership including from the business of the band. Again, that does not allege any breach or other accountability on the part of any relevant defendant.

Paragraph 84 then alleges that as a result of the defendants' breach of the partnership agreement Chardonnay has suffered loss and damage. The defendants referred to must be the defendants who are pleaded in paragraphs 82 and 83 to have committed the breaches. It must also be a reference to parties to the partnership agreement. It does not capture any of the relevant defendants.

Paragraphs 85 through to 88 plead that various fiduciary and other duties were owed by the partners and others to Chardonnay. Then, the remaining causes of action are to be found in paragraphs 89 and following. Paragraph 89 alleges that the partners of the INXS partnership other than Chardonnay have together excluded Chardonnay from involvement in the conduct of the partnership; paragraph 90 that the partners of the partnership other than Chardonnay have excluded it from participating equally in the sharing of gross returns; and paragraph 91 alleges that the conduct referred to in 89 and 90 is a breach of the duties owed by each of the partners of the partnership previously pleaded. None of that identifies any allegation against any relevant defendant which makes that defendant amenable to any remedy claimed in the proceedings. Paragraph 91(A) alleges that the same conduct was a breach of the duties owed by each of the partners to Chardonnay. Again, that does not implicate the relevant defendants.

Paragraphs 92 and 92(a) demonstrate that the pleader was well familiar with the concept of accessorial liability arising from assisting a breach of fiduciary duties. Even if the pleading fails to allege knowing assistance, it demonstrates that the concept of some form of accessorial liability was understood but no accessorial liability, even of the sort which I venture to think is inadequately pleaded there, has been pleaded against the relevant defendants.

Paragraph 93 pleads a cause of action against consultants or advisors to the band, and paragraph 94 then pleads loss and damage resulting from the previously asserted breaches. None of that, so far as I can see, begins to identify any cause of action against any relevant defendant.

It is said that the relevant defendants might be shown to be liable on a taking of accounts if it appears that they received income to which the partnership was entitled. That is so, at least if the receipt was in circumstances which made them liable to account, but it is not for the relevant defendants to deny that at the outset. If such a case is to be made the plaintiffs must plead it, and must assert a receipt of funds or income in circumstances that make a relevant defendant liable to account, or amenable to some other remedy for that receipt. None of that is in the pleading as it presently stands. The plaintiffs say that it is not there because the plaintiffs simply do not know and do not have the requisite information to make such an allegation. If that is so, the plaintiff does not know whether it has a cause of action against those defendants and it entirely puts the cart before the horse to insist that the relevant defendants put on a defence and go into evidence and then decide whether or not the case should continue against them.

The defendants are entitled to be joined only if the plaintiff articulates a cause of action against them, which at present it does not. As has been foreshadowed, it may well be that, as the case progresses, further information may become available and it may then emerge that there is a cause of action against one or more of the relevant defendants. In those circumstances, I would not intend by the outcome of this application to foreclose the possibility that one or more of them could then be joined, upon a sufficiently viable cause of action being demonstrated against it.

I turn then to the question of the third, fourth, fifth and sixth defendants, who are personal members of the band. The plaintiff claims a declaration that the partnership was instituted from time to time by various persons representing the six original band members. In one case at one time one of those individual members, Andrew Farriss, is said to have been a member of the partnership. At all other relevant times, a corporation nominated by the individual band member is said to have been a member of the partnership. The third, fourth, fifth and sixth defendants are band members who at no relevant time are themselves asserted to have been members of the partnership.

In paragraphs 82 and 83, in particular, it is alleged that the corporate partners, either by themselves or with the associated individual band member, engaged in breaches of the partnership agreement. The partnership agreement is pleaded as one pursuant to which from time to time, a band member could nominate an entity as that band member's nominee or representative in the partnership but, as currently framed, the pleading does not allege that at any relevant time the third, fourth, fifth or sixth defendant was a member of the partnership. It is conceivable that it might be alleged that the corporate entities were trustees of the interest in the partnership for the individual members. If so, there would remain a question as to whether it was necessary or appropriate to join the beneficiary as distinct from the trustee.

It might be that it is argued that, in the alternative to the corporate entities being the partners, the individual band members were. If so, that is not apparent from the pleading and would be inconsistent with the declarations presently sought, at least in the absence of a claim for alternative declaratory relief.

It might be that it is alleged that the individual band members have assisted the corporate partners to breach their contract, so as to constitute the tort of interference with contractual relations. If so, such an allegation should be distinctly pleaded, and does not appear at present.

It seems to me highly desirable that close attention be given to the present pleading, and careful thought as to how the case really is to be put, and that in the absence of a clearly discernible cause of action against the third, fourth, fifth and sixth defendants, the preferable course is to grant the leave to amend sought upon terms that the third, fourth, fifth, sixth and other relevant defendants cease to be defendants, but with leave to replead which would then afford an opportunity to the plaintiffs to decide exactly how it intends to put its case.

I grant leave to the plaintiff to further amend the Statement of Claim by filing an amended Statement of Claim in the form of the document annexed and marked A to the Notice of Motion filed 13 April 2010, subject to the deletion of the first, third, fourth, fifth, sixth, fourth, sixteenth, twenty-first, twenty-fifth, twenty-sixth, twenty-eighth, thirtieth, thirty-sixth and thirty-ninth defendants and subject also to the deletion of the proposed forty-first and the proposed forty-second defendant.

I order that the first, third, fourth, fifth, sixth, fourteenth, sixteenth, twenty-first, twenty-fifth, twenty-sixth, twenty-eighth, and thirty-ninth defendants cease to be parties to the proceedings.

That order is not intended to preclude any future application by the plaintiff for leave to amend by joining any of those parties in the event that an appropriate cause of action is pleaded.

I order that the plaintiff pay the defendants' costs of the motion.

I direct that an amended Statement of Claim incorporating the amendments allowed and otherwise reflecting these reasons be filed within fourteen days.