New South Wales

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Citation:

Banks v Alphatise Pty Limited [2014] NSWSC

1437

Hearing dates:

Friday 17 October 2014

Decision date:

17 October 2014

Jurisdiction:

Equity Division

Before:

Brereton J

Decision:

Leave to amend statement of claim granted.

Application to strike out refused.

Catchwords:

PROCEDURE - pleading - allegation of actual

knowledge - whether neceesary to plead or
particularise facts from which actual knowledge to
be inferred - held, not necessary
CORPORATIONS - misrepresentations as to future
matters - misleading and deceptive representations
- accessorial liability

Legislation Cited:

(UK) Rules of the Supreme Court 1883, 19 r 22

(Cth) Federal Court Rules 2011, 12
(NSW) Uniform Civil Procedure Rules (2005) r 13.4,
14.28, 15.4, 15.15

Cases Cited:

Addenbrooke Pty Ltd v Duncan (No 2) [2013] FCA

820
Burgess v Beethoven Electrical Equipment Ltd
[1942] 2 All ER 658
Davis v Halliday Financial Management Pty Ltd
[2014] NSWSC 1371
Giannerelli v R (1983) 154 CLR 212
In Fox v H Wood (Harrow) Ltd [1963] 2 QB 601
Lyons v Kern Konstructions (Townsville) Pty Ltd
(1983) 70 FLR 135
Yorke v Lucas (1985) 158 CLR 661

Category:

Interlocutory applications

Parties:

Matthew Banks (plaintiff)

Alphatise Pty Ltd (first defendant)

Paul Pearson (second defendant)

Representation:

Counsel:
J McLeod (plaintiff)
C N Bova w T E O'Brien (second defendant)
Solicitors:
Adams Wilson Lawyers (plaintiff)
King & Wood Mallesons (second defendant)

File Number(s):

2014/211332

JUDGMENT (EX TEMPORE)

1

HIS HONOUR: By notice of motion filed on 7 October 2014, the second defendant
Paul Pearson seeks an order pursuant to (NSW) Uniform Civil Procedure Rules
2005, r 13.4, that the proceedings as against him be dismissed, and
alternatively, an order pursuant to UCPR, r 14.28, that claims 4, 5, 6 and 7 of
the relief claimed in the statement of claim, in so far as they concern him, and
paragraphs 3, 37 and 39 of the statement of claim, be struck out.

In the substantive proceedings, the plainti Matthew Banks sues the rst
defendant Alphatise Pty Ltd and Mr Pearson for various forms of relief arising
out of an agreement between the rst defendant and the plainti which, in
short, it is alleged that the rst defendant did not perform. Alternatively, the
plaintiff alleges that a term of the agreement amounted to a representation as
to a future matter, and that that representation was misleading and deceptive
by reason that the rst defendant did not have reasonable grounds for making
the representation when it was made. The sole case against the second
defendant is that he was knowingly concerned in the making of the alleged
misrepresentation.

As originally pleaded, the statement of claim did not contain a distinct allegation
that the second defendant knew that the rst defendant did not have
reasonable grounds for making the alleged representation. As is very well
established, knowledge by an alleged accessory of each component of the
contravention is a material fact in the cause of action against the accessory,
and must be distinctly alleged; see, for example, Yorke v Lucas (1985) 158
CLR 661; Giannerelli v R (1983) 154 CLR 212; Addenbrooke Pty Ltd v Duncan
(No 2) [2013] FCA 820, [20].

The original pleading accordingly did not disclose a complete cause of action
against the second defendant, who was therefore entitled to have it struck
out. However, in the course of correspondence preceding the hearing of the
motion, the second defendant foreshadowed seeking amendments to the
statement of claim and, in particular, adding as paragraph 37(i) the following:

In the light of subparagraphs 37(a) - 37(h) above, at the time the 4.5 per cent
shareholding representation was made, Mr Pearson knew that Alphatise did
not have reasonable grounds for making it.

The preceding subparagraphs of paragraph 37 include allegations that Mr

Pearson was the founder of the Alphatise venture and its controlling mind, that
he was the sole director of the rst defendant during the relevant period, that
he executed the agreement on behalf of the rst defendant, and that he knew
what it contained and knew its effect.

The second defendant submits that the amendment does not cure the defect
because it amounts to a bare allegation of knowledge, and does not plead the
material facts from which it will be contended that an inference of knowledge
should be drawn. In that respect, Mr Bova for the second defendant invokes
the recent judgment of Kunc J in Davis v Halliday Financial Management Pty
Ltd [2014] NSWSC 1371, and in particular, the following passage:
[25] However, as was set out by the Full Court of the Federal Court in Young
Investments Group Pty Limited, the inquiry as to the whether an allegation
has been sufficiently made does not stop at the point of identifying that a
bare factual allegation of the kind the law requires to be made has been
pleaded. A further inquiry needs to be answered, namely "whether the cause
of action is pleaded at the level of particularity that is sufficient to define the
issues and inform the other party of the case that it has to meet, in the
context of the particular allegations." It is against that further inquiry that the
proposed amended statement of claim fails.
[26] There will be cases where the mere allegation of actual knowledge by a
defendant will be sufficient as a matter of pleading. The circumstances of
that case will make it obvious how it can be said that a defendant had actual
knowledge of something. This does not seem to me to be such a case.
[27] As I raised with counsel in the course of argument, actual knowledge can
be proven in a number of ways. There may be cases where it is done by
direct evidence, that somebody told the defendant of the particular matter
which was said to be the subject of the actual knowledge. In other cases,
which it seems to me this will be one, an allegation of actual knowledge will
be sought to be made out by inviting the Court to infer that there was such
knowledge from other objectively provable facts. The reason I say that this
case seems to be one of the latter is because of what is said in the solicitor's
affidavit. The solicitor's affidavit, in what seems to me still to be, with
respect, an inchoate way refers to facts from which the plaintiffs will
apparently urge the Court to infer that actual knowledge of the kind alleged
was possessed by the defendants.
[28] If the plaintiffs are to make out the allegation of accessorial liability, any
further pleading will need to do more than just allege that the relevant
defendants had actual knowledge of the matters alleged. In a case of this
kind the material facts which are required to be pleaded must extend to
pleading those facts by reason of which it will be alleged that the defendants
had the relevant actual knowledge. I do not regard that as a matter of mere
particulars. They will be material facts which will need to be proved in their
own right.
[29] It may be that whatever material facts the plaintiffs can properly allege
that find their way into a further version of the amended statement of claim
may still be insufficient to sustain the inference that the defendants had the
actual knowledge sought to be alleged against them. That will be a matter
which may have to be considered when leave is sought, as it will have to be,
to file any further proposed amended statement of claim.

With great respect, but for the reasons that I will now elaborate, I am unable to
agree that the facts from which it is contended that an inference of actual
knowledge should be drawn are material facts that must be pleaded in a
pleading.

The starting point is the judgment of the Court of Appeal of the United Kingdom in
Burgess v Beethoven Electrical Equipment Ltd [1942] 2 All ER 658, in which
the Court was constituted by Lord Greene MR and, MacKinnon and du Parcq
LJJ. In that case, the plainti applied for further particulars of a defence which
alleged that the plainti had a certain intention. The application was for
particulars of the paragraph:
... if the defendants propose at the trial in support of the allegation to rely on
or adduce any evidence in chief as to any specific fact or facts document or
documents or overt act or acts of the plaintiff.

The application was refused by a master, whose refusal was affirmed by a judge.
The ground of refusal was that under the rules, no such particulars could be
obtained. The relevant rule, then (UK) Rules of the Supreme Court 1883, 19 r
22, provided:
Wherever it is material to allege malice, fraudulent intention, knowledge or
other condition of the mind of any person, it shall be sufficient to allege the
same as the fact without setting out the circumstances from which the same
is to be inferred.

10 After observations by the Master of the Rolls to the eect that the rule meant
what it said, despite some diering views that had in the past been expressed
by other judges and in other works, his Lordship said that this was not only
because of the rule (at 659H):
It seems to me that where, in order to allege a complete cause of action, it is
necessary to allege malice, fraudulent intent, knowledge or other condition of
mind, it would not require a rule to say that the cause of action will be
adequately stated from the point of view of its not being demu rrable merely
by alleging what everyone would know must be alleged ...

11 His Lordship continued (at 660A):

It is to be observed that under r 4 of the order which is the general rule laying
down the requisites of a sufficient pleading, every pleading is to contain and
contain only a statement in summary form of the material facts on which the
party pleading relies for his claim or defence as the case may be, but not the
evidence by which they are to be proved. In a case where malice or some
other condition of mind forms an ingredient in the cause of action, the
material fact is the existence of that condition of mind, and to proceed to
alleged circumstances from which the existence of that condition of mind is to
be inferred appears to me to be pleading evidence and nothing more.

12 Similarly, it seems to me that to plead facts from which it is to be contended at

trial that an inference of actual knowledge is to be drawn, is to do nothing
more than plead evidence, not material facts.

13 In Fox v H Wood (Harrow) Ltd [1963] 2 QB 601, the defendant in an action for
personal injuries raised contributory negligence against the plainti, alleging
that he had stepped into a hole in oorboards when he knew or ought to have
known of its presence. It was held that the plainti was entitled to particulars.
Diplock LJ, as he then was, with whom Danckwerts and Ormerod LJJ agreed,
said (at 604):
In my judgment, the master was right in ordering particulars of the facts and
circumstances from which the plaintiff ought to have known of the opening or
of the hole. Mr Allen has argued that an allegation that someone ought to
have known something, like an allegation that someone knew something, is
an allegation of a condition of mind, and that therefore, particulars of it ought
not be granted. It seems to me that that proposition is an erroneous one, an
allegation that a person ought to have known something has implicit in it not
only an allegation that he did not know something which is an allegation of a
state of mind, but also an allegation that facts and circumstances existed
from which he ought to have acquired, either by observance or by inference,
the knowledge of which he was deficient ...

14 Thus the conventional position is that while it was not necessary to plead facts
from which it would be contended that an inference should be drawn of actual
knowledge, it was necessary, if not to plead, at least to particularise, facts
from which constructive knowledge, as distinct from actual knowledge, would
be alleged.
15 In Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) 70 FLR 135, Fitzgerald
J, observed that under the then rules of the Federal Court - which are
substantially indistinguishable from the current rules of this Court - the
position had moved on. Order 12 of the (Cth) Federal Court Rules 2011
provided that a party pleading any condition of mind shall give particulars of
the facts on which he relies, but dened "condition of mind" as excluding, for
relevant purposes, "knowledge". However, the rule then provided that the
Court may order a party to le and serve particulars including, where he
alleges knowledge, particulars of the facts on which he relies. That
substantially mirrored the then provisions of the (NSW) Supreme Court Rules
1970, and is not relevantly distinguishable from current UCPR, r 15.4, read in
conjunction with r 15.15.
16 His Honour said (at 146):
These rules, like the modern English rules, involve the departure from the
previous practice under which no more was or could be required of the party
than that he allege a condition of mind which was an ingredient of the cause
of action as a fact in his pleading. Particulars were not required and could not
be ordered, Burgess v Beethoven . Now under the rules, particulars are
required in the first instance of any condition of mind alleged other than
knowledge, and particulars of knowledge may be ordered although only after
the defence is filed unless the Court is of an opinion that it is necessary or
desirable that the particulars be delivered in order to enable the respondent
to plead, or for some other special reason.

17 The reason for excluding actual knowledge from the requirement to plead or, in
the rst instance at least, particularly, the facts from which it will be inferred
is, in my view, obvious. Generally speaking, actual knowledge or the state of
the defendant's mind in that respect, is something that is primarily in the
knowledge of the defendant. A defendant does not need particulars to know
whether or not to admit actual knowledge. It might ultimately be proved by
documents elicited in the course of discovery, or by admissions in crossexamination. It might be inferred from other matters, but they are all matters
of evidence which inform the material fact of actual knowledge.
18 As I have said, to require one to plead facts from which actual knowledge is to
be inferred would be contrary to the fundamental principle that one does not
plead evidence, but only the material facts that constitute the cause of action.
19 In my view, therefore, the statement of claim, if it is amended to include the
allegation in paragraph 37(i), is not demurrable but suciently pleads a cause
of action against Mr Pearson.
20 That is not to say that the Court might not order particulars, pursuant to UCPR, r
15.15, of the facts from which an inference of actual knowledge was to be
drawn. The rule makes clear that such particulars can be ordered, and the
cases to which I have referred conrm as much, at least since the
amendments to the rules after Burgess v Beethoven, but - as Kunc J said (at
[26] set out above), there will be cases where the mere allegation of actual
knowledge will be sufficient. In my view, it will always be sucient as a matter
of pleading, and it will often be so as a matter of particulars, because the
defendant does not need particulars to admit or deny what was in his or her
own mind. In this case, what is alleged is that the rst defendant company did
not have reasonable grounds for making a representation. It is further alleged
that the second defendant Mr Pearson was the directing mind and will of the
company at the relevant time, and that it was through him that the company
acted. In those circumstances, it is not dicult to see how it is said that the
defendant had actual knowledge of whether or not the company had
reasonable grounds for making the representation.
21 I do not exclude the possibility that particulars of the allegation of knowledge
might be ordered, but, in any event, that should not be done until after a
defence has been led. The reason for that is that the defendant should be
able to answer an allegation of actual knowledge without requiring particulars,
because the defendant knows what was or is in his own mind.
22 On the question of costs, the rst statement of claim was demurrable, but the
defendants lost the argument on the second version.
23 The Court therefore orders that:

(1) The plainti have leave to amend the statement of claim by ling an
amended statement of claim in the form of annexure A to the adavit of
Ashley Miller sworn 16 October 2014 herein, subject to verification.
(2) There be no order as to costs, to the intent that each party bear its own
costs of the motion.
(3) The proceedings be adjourned to Monday 17 November 2014 at 9am before
the Registrar for directions.
**********
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Decision last updated: 10 December 2014