[2021] NSWSC 1239

Consolidated Capital & Funding Pty Ltd v Jakk Holdings Pty Ltd

See [28]

Catchwords

CIVIL PROCEDURE — Pleadings — Striking out — No reasonable cause of action or defence — Application by one of six defendants to strike out the claims advanced against her — Allegations made in the Plaintiff’s Amended Statement of Claim that the Second Defendant procured the Third Defendant’s alleged breaches of his fiduciary duties to the Plaintiff — Inferences relied upon in support of the claim against the Second Defendant — Held: the Plaintiff’s claim is not so obviously untenable or groundless that it will fail if the matter proceeds to trial — Application to strike out dismissed

Cases cited

Ancient Order of Foresters in Victoria Friendly Society v Lifeplan Australia Friendly Society Ltd(2018) 265 CLR 1
Armstrong Scalisi Holdings Pty Ltd v Abboud[2012] NSWSC 268
Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509
Barnes v Addy (1874) LR 9 Ch App 244
Farah Constructions Pty Ltd v Say-Dee Pty Ltd(2007) 230 CLR 89
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296;[2012] FCAFC 6
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609;[2014] NSWCA 266
JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors[2014] NSWSC 1252
King V Milpurrurru(1996) 66 FCR 474
Pittmore Pty Ltd v Chan; Chan v Tan(2020) 104 NSWLR 62
Re-Engine Pty Ltd (in liq) v Fergusson(2007) 209 FLR 1
Rexstraw v Johnson[2003] NSWCA 287
Simmons v New South Wales Trustee and Guardian (2014) 17 BPR 33,717;[2014] NSWCA 405
Webster v Lampard(1993) 177 CLR 598
Wickstead v Browne(1992) 30 NSWLR 1
Yorke v Lucas(1985) 158 CLR 661

Legislation cited

Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)

Judgment

[1]
By Notice of Motion, the Second Defendant, Katherine Khalil (“Katherine”) seeks an order that the claim against her be struck out pursuant to r 13.4(1)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) on the basis that no reasonable cause of action is disclosed against her in the Amended Statement of Claim (“ASTOCL”).
[2]
If unsuccessful in that application, Katherine seeks, as an alternative, an order for security for costs, but at the hearing of the Motion I indicated that I would not be prepared to deal with that application without an explanation for Katherine’s failure to comply with the order made by Registrar Walton on 30 March 2021, which was in the following terms:
[3]
Mr C W Robinson of Counsel appears for Katherine and Mr D Allen of Counsel appears for the Plaintiff (“Consolidated”).
[4]
The case advanced in the ASTOCL has some rather unusual aspects, but I shall endeavour to distil the case against Katherine and Jakk Holdings Pty Ltd (“Jakk”), a company of which Katherine has, at all relevant times, been the sole director and of which she is the sole shareholder, and also the case as against Faouzi (also known as Fred) Khalil (“Fred”), Katherine’s husband.
[5]
Consolidated claims that an amount of $763,511.60 was removed from its account at the behest of Fred for purposes that were unconnected with the business or interests of Consolidated and paid into the bank account of Jakk. It is alleged that Fred was an agent of Consolidated and had access to Consolidated’s bank account at the time of the withdrawal of the funds from Consolidated’s bank account into the account of Jakk. Consolidated claims that:
1. (1)
  the withdrawal of funds by Fred and payment to Jakk was a breach of fiduciary duties owed by him to Consolidated;
2. (2)
  the withdrawal and payment were matters the subject of agreement between Fred and Katherine (“the 2014 Agreement”);
3. (3)
  the fact that payment was being made into Jakk’s account was known to Katherine; and
4. (4)
  it should be inferred that Katherine procured or assisted Fred in his breach of duty owed to Consolidated. Although “assisted” is not used in the pleadings, both Mr Robinson and Mr Allen used or effectively referred to the term in their submissions.
[6]
A similar claim in relation to a different amount of money is made against other defendants but that claim is not in issue on this Motion.
[7]
Katherine has filed a defence to Consolidated’s claim in which, whilst denying liability, she, inter alia:
1. (1)
  in response to the allegation that the payment to Jakk was not by way of gift, was not for payment of a debt and that no consideration was given, says that she does not know and cannot admit the facts alleged (see paragraph 13 of her Defence);
2. (2)
  in response to the allegation that she became aware of the payment upon receipt by Jakk, pleads that she was aware of the receipt by Jakk (see paragraph 15 of her Defence); and
3. (3)
  asserts no positive case that Jakk was entitled to receive the $763,511.60 it did receive.
[8]
Rule 13.4 of the UCPR provides:
[9]
The principles applicable to an application to summarily dismiss claims or proceedings were not in dispute. In Simmons v New South Wales Trustee and Guardian (2014) 17 BPR 33,717; [2014] NSWCA 405 at [196]-[200] (“Simmons”), Gleeson JA (with whom Beazley P (as her Excellency then was) and Barrett JA agreed) relevantly summarised the principles thus:
[10]
Katherine’s contentions on the summary dismissal application can be distilled into three primary submissions:
1. (1)
  Firstly, the Amended Statement of Claim is improperly particularised, relies upon inferences to be drawn by the Court that Katherine entered into the 2014 Agreement and fails to disclose “a pleaded fact from which any reasonable inference might be drawn, that [Katherine] in her own right had “procured” anything from anyone”: see [12], [14]-[17] of the Second Defendant’s Opening Submissions (“DOS”).
2. (2)
  Secondly, the 2014 Agreement “can only be meaningful if [Katherine] is acting in her capacity as director of [Jakk]”: see [14] of the DOS.
3. (3)
  Thirdly:
[11]
The Court will be less inclined to summarily dismiss a claim or proceedings when the contest on the Motion for summary dismissal involves a question of fact rather than an issue of law: Webster v Lampard (1993) 177 CLR 598 at 602-3 per Mason CJ, Deane and Dawson JJ. As Kirby P (as his Honour then was) explained in Wickstead v Browne (1992) 30 NSWLR 1 (“Wickstead”) (at 5):
[12]
Katherine also contends that Consolidated’s evidence as filed (an affidavit of Mr Gino Cassiniti of 29 June 2021) does not fill any of the gaps said to be visible in the pleadings. Mr Allen has stated that his client intends, in due course, to seek orders for disclosure of the books and records of Jakk and in respect of communications between Katherine and Fred (see T13.10-23) thus pointing to the potential for additional facts to emerge that will support the inferences asserted.
[13]
In relation to Mr Robinson’s contention that the claim against Katherine can only be a claim against her in her capacity as a director, I do not think that because a person is acting as director of a company this necessarily precludes a claim against them personally: see, eg, King V Milpurrurru (1996) 66 FCR 474 at 487 per Lee J (in dissent) and 499-500 per Beazley J (as her Excellency then was); Rexstraw v Johnson [2003] NSWCA 287 at [79]-[82] per Tobias JA (with whom Sheller JA and Foster AJA agreed); and more recently and pertinently see Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62 at [162]-[170], particularly [169], per Leeming JA (with whom Bell P and Brereton JA agreed) (“Pittmore”).
[14]
Although the evidence served by Consolidated in respect of the purported agreement between Fred and Katherine in 2014, and the circumstances in which Katherine procured Fred’s breaches of his fiduciary duties by withdrawing funds and in making the payment to Jakk, is scant that does not, of itself, disclose a reason for the Court to summarily dismiss Consolidated’s claim against Katherine in the circumstances. As Handley and Cripps JJA said in Wickstead (at 11-2):
[15]
Mr Allen contended that Armstrong Scalisi Holdings Pty Ltd v Abboud [2012] NSWSC 268 (“Armstrong”) is in point and establishes that inferences can be drawn as to the involvement of a person from circumstantial evidence for the purposes of a claim pursuant to the second limb of Barnes v Addy (1874) LR 9 Ch App 244 (“Barnes v Addy”): see [20] of Armstrong. Armstrong was a case concerning knowing receipt, not procurement or assistance by a third party, as is the case here because Jakk received the money, not Katherine. Armstrong, however, at least arguably, supports Consolidated’s case in relation to the drawing of inferences.
[16]
The circumstantial matters relied on by Consolidated are:
1. (1)
  the fact that Jakk received $763,511.60 on 21 November 2014;
2. (2)
  the fact that Katherine was the sole director of Jakk and, it is alleged, one of two controllers, the other being Fred;
3. (3)
  the fact that Katherine was aware of the receipt of the funds when received;
4. (4)
  the fact that Fred, who is alleged to have withdrawn the funds from Consolidated’s account without any proper basis, was (and is) her husband;
5. (5)
  the fact that Katherine does not assert knowledge of a legitimate basis for receipt of the funds; and
6. (6)
  the fact that she was ordered to file any evidence on which she relies by 28 July 2021 (i.e. the day after she filed the present Motion) and has filed no evidence: see Armstrong at [26]-[27].
[17]
Each of items [16(1)]-[16(4)] above are pleaded, item [16(5)] is relevant and available to be relied on, as is [16(6)].
[18]
In Simmons at [111]-[115], the Court of Appeal set out what is required to establish what is commonly called the second limb of Barnes v Addy (i.e. “knowing assistance”):
[19]
Thus, to succeed on a claim of knowing assistance pursuant to the second limb of Barnes v Addy here, Consolidated must establish that:
1. (1)
  Fred breached his fiduciary duties to Consolidated by removing the $763,511.60;
2. (2)
  the removal of those funds constituted a dishonest and fraudulent design;
3. (3)
  Katherine assisted Fred in that design; and
4. (4)
  Katherine had knowledge of that dishonest and fraudulent design. That knowledge can be actual knowledge, but also includes categories (ii), (iii) and (iv) referred to in [113] of Simmons.
[20]
It has been held that “assistance” in the context of “knowing assistance” must be “facilitative conduct or activity which is more than mere knowledge or notice of the breach of duty”: Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1 at 24 per Dodds-Streeton J. If Katherine merely knew of Fred’s breach of duty (on Consolidated’s case, but denied by Katherine and Jakk) that would clearly be insufficient, but the alleged facts are that the funds were paid into an account of Jakk for a purpose of Jakk and she was the sole director of Jakk. I think it is arguable, at the least, that those facts may constitute assistance. I do agree with Mr Robinson’s point that since knowing assistance requires knowledge of a dishonest and fraudulent design, that assertion should be pleaded and particularised: see Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 162 per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ. If Consolidated intends to pursue the knowing assistance claim (not presently pleaded) it should file a Further Amended Statement of Claim.
[21]
As I have already mentioned, Consolidated’s case is not confined to the second limb of Barnes v Addy. Consolidated pleads that Katherine procured Fred’s breach of his fiduciary duties. Mr Robinson contended that knowledge of receipt of funds by Jakk from Consolidated cannot possibly amount to procurement by her in the removal of funds by Fred.
[22]
Albeit similar, an action for procuring a breach of fiduciary duties is distinguishable from an action pursuant to the second limb of Barnes v Addy. In Pittmore, Leeming JA (with whom Bell P and Brereton JA agreed) expounded the following principles:
1. (1)
  Quite unlike the second limb of Barnes v Addy, in an action for procuring or inducing a breach of trust or fiduciary duty, it is not necessary to prove that the breach by the fiduciary amounted to a dishonest and fraudulent design: see [152] and [189], quoting, in [152], Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [245] and citing Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [77].
2. (2)
  At [161], his Honour said:
3. (3)
  Whether a third party is liable for procuring a breach of fiduciary duty rests upon satisfaction of two elements (at [186]):
4. (4)
  Akin to the second limb of Barnes v Addy, the first four categories of knowledge identified in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509 at 575-6 are sufficient to satisfy the knowledge requirement for procuring a breach of fiduciary duty: at [192].
5. (5)
  Knowledge sufficient to impose liability for procuring a breach of a fiduciary duty (at [195]):
[23]
In Yorke v Lucas (1985) 158 CLR 661 (“Yorke v Lucas”), the High Court considered the meaning of the words found in s 75B of the Trade Practices Act 1974 (Cth) (“TPA”), which included “procured”. Sections 75B and 82 of the TPA imposed liability upon third parties who were involved in a contravention of an identified provision of the TPA, including, by way of example, s 52. In their joint judgment, Mason ACJ (as his Honour then was), Wilson, Deane and Dawson JJ held that the words found in s 75B of the TPA (including “procured”) are to be given the same meaning as their criminal law counterparts: see 668-9.
[24]
Leeming JA’s judgment in Pittmore appears to support the proposition that the principles espoused in Yorke v Lucas should be extended to the cause of action of procuring a breach of fiduciary duty and it is sufficient for present purposes that it is arguable that that is so.
[25]
If Katherine, as a director of Jakk, and Fred decided together that Fred should, for the benefit of Jakk, obtain $763,511.60 from Consolidated’s account, that would potentially meet the description of “procurement”; i.e. setting out to see that something happens and taking appropriate steps to produce the outcome, namely, agreeing on a course of action by Fred and permitting the deposit of Consolidated’s funds into Jakk’s account. Whether or not “procurement” is established is very much context dependent: see, for example, JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors [2014] NSWSC 1252 at [289] per Black J and Pittmore itself at [186]-[201].
[26]
There is no positive evidence of procurement but Consolidated contends that the inference of procurement can be made. In paragraph 35 of the Amended Statement of Claim, Consolidated pleads that “it was agreed between, Faouzi and Katherine Khalil that Faouzi would take money from [Consolidated’s account] and give the money to Jakk” and in paragraph 36 that both Faouzi and Katherine knew that Jakk had no entitlement to the money. Those allegations are not the subject of any response in Katherine’s Defence to the Amended Statement of Claim and hence, constitute an admission: see r 14.26 of the UCPR.
[27]
Whilst Consolidated’s case may sit on the margins of “knowing assistance” and perhaps procurement, I am not persuaded to the requisite standard of a high degree of certainty that Consolidated’s claim is so obviously untenable or groundless that it will fail if the matter proceeds to trial.
[28]
Katherine’s Motion should, therefore, be dismissed insofar as it relates to the strike out, but leave should be given to Consolidated to file a Further Amended Statement of Claim within 14 days should it wish to pursue the knowing assistance claim. I will list the matter for directions in relation to the application for security for costs and propose to defer the issue of costs of Katherine’s Motion until that is dealt with.