SYDNEY, Nov. 20 -- The Federal Court of Australia issued the following judgment:
File number:
NSD 935 of 2023
Judgment of:
kennett j
Date of judgment:
19 November 2024
Catchwords:
PRACTICE AND PROCEDURE - application to strike out paragraphs of amended statement of claim (ASOC) - application for plaintiff to serve particulars of paragraphs of ASOC - where contraventions alleged in ASOC are pleaded in a "rolled up" way - where allegations in pleading cover periods outside the defined relevant period
Legislation:
Corporations Act 2001 (Cth) ss 180, 181, 182, 1317E, 1317G, 1317H, 1317J
Federal Court of Australia Act 1976 (Cth) s 37M
Federal Court Rules 2011 (Cth) r 16.45
Funeral Funds Act 1979 (NSW)
Cases cited:
Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52
Division:
General Division
Registry:
New South Wales
National Practice Area:
Commercial and Corporations
Sub-area:
Corporations and Corporate Insolvency
Number of paragraphs:
50
Date of last submission:
29 October 2024
Date of hearing:
23 October 2024
Counsel for the plaintiff:
D McLure SC with C Conde
Solicitor for the plaintiff:
Australian Government Solicitor
Counsel for the first defendant:
P K O'Higgins KC with A Campbell
Solicitor for the first defendant:
Small Myers Hughes Lawyers
Counsel for the second defendant:
M Carey (solicitor)
Solicitor for the second defendant:
James Conomos Lawyers Pty Ltd
Counsel for the third defendant
S Powell (solicitor)
Solicitor for the third defendant:
Robbins Watson Solicitors
Counsel for the fourth defendant:
J Draaisma (solicitor)
Solicitor for the fourth defendant:
Collaery Lawyers
Counsel for the fifth defendant:
The fifth defendant did not appear
ORDERS
NSD 935 of 2023
BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND:
RONALD JOSEPH PATTENDEN
First Defendant
JONATHAN GLEN LAW
Second Defendant
MICHAEL BRENDAN WILSON (and others named in the Schedule)
Third Defendant
order made by:
KENNETT J
DATE OF ORDER:
19 November 2024
THE COURT ORDERS THAT:
1.Paragraphs [58] to [64] and [93] of the amended statement of claim be struck out.
2.The plaintiff have leave to file a further amended statement of claim including pleadings in substitution for the paragraphs that have been struck out.
3.Any further amended statement of claim is to be filed by 7 February 2025.
4.By 7 February 2025 the plaintiff is to provide particulars, as specified in Annexure A to the first respondent's interlocutory application filed on 6 August 2024, of paragraphs [45(e)], [48(b)-(c)], [49] and [50] of the amended statement of claim.
5.The parties have liberty to apply, on three days' notice, to vary the dates in orders 3 and 4, and in doing so should specify whether they are content for such application to be dealt with on the papers.
6.There be no order as to the costs of the interlocutory application.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
KENNETT J:
1By its originating process filed on 30 August 2023 the plaintiff (ASIC) seeks declarations of contravention, pecuniary penalties and disqualification orders against each of the defendants. ASIC's case was articulated in a concise statement, also filed on 30 August 2023. However, pursuant to orders made by consent on 5 December 2023, ASIC filed a statement of claim on 6 December 2023. Defences were filed on 19, 20 and 21 March 2024.
2On 4 June 2024, by consent, leave was granted to file an amended statement of claim in the form annexed to an affidavit of ASIC's solicitor. The amended statement of claim (ASOC) was filed on 5 June 2024.
3On 6 August 2024 the first defendant (Mr Pattenden) filed an interlocutory application seeking orders that:
(a)16 paragraphs of the amended statement of claim be wholly or partly struck out;
(b)alternatively, particulars of six of those paragraphs; and
(c)additionally, particulars of ten other paragraphs or subparagraphs.
The case pleaded against Mr Pattenden
4Mr Pattenden was the founder of a business referred to as "The Aboriginal Community Benefit Fund" (ACBF) and a director of three entities that formed part of that business (the ACBF Entities): Aboriginal Community Benefit Fund No 2 Pty Ltd (ACBF 2), ACBF Funeral Plans Pty Ltd (ACBF Plans) and Community Funeral Plans Pty Ltd (ACBF Community).
(a)ACBF 2 was the trustee of a fund referred to as Fund 2, established in 1993, which was operated for the purpose of providing funeral benefits to nominated persons on the death of a fund member. This service was marketed to Indigenous Australians. Fund 2 was closed to new members in 2004.
(b)ACBF Plans operated a fund referred to as Fund 3 from January 2005 subject to plan rules, and from 2008 was registered as a contributory funeral benefit business under the Funeral Funds Act 1979 (NSW) (the NSW Act). It was also operated for the purpose of providing funeral benefits to nominated persons on the death of a fund member and marketed to Indigenous Australians.
(c)ACBF Community operated a fund referred to as Fund 4 from January 2005. It was also registered under the NSW Act from 2008. It was operated for the purpose of providing funeral benefits to nominated persons on the death of a fund member and marketed to non-Indigenous Australians.
5ASIC's case against Mr Pattenden proceeds, in short, as follows.
6Each of the ACBF Entities was required, under the relevant trust deed or plan rules, to maintain an insurance policy that underwrote the lives of the members of the relevant fund.
7Up to February 2022, each of the ACBF Entities chose to satisfy that requirement by insuring with Crown Insurance Services Limited (Crown). Crown had been established in 2002 to provide insurance to the ACBF business. It was registered in Vanuatu and until late 2018 conducted its business from there. Crown was owned by a company called Just Solutions Limited, which also owned the holding company of the ACBF business and which was in turn owned by Mr Pattenden. Mr Pattenden was a director of Crown.
8In March 2017 Mr Pattenden and one of the other defendants determined that the premiums charged by Crown from ACBF 2 should double with effect from August of that year. At least by this time they knew of a risk that, if premiums were to increase by that amount, ACBF 2 would become insolvent. ACBF 2 paid the increased premiums. Mr Pattenden, through Crown, benefited from this.
9During the "Relevant Period", which is defined as being from 4 September 2017 to 30 November 2018 (ASOC [4]), ACBF Plans and ACBF Community were vulnerable to unaffordable premium increases by Crown. There was a substantial risk that, if Crown increased its premiums as it had done for ACBF 2, they would be wound up in insolvency and their members would lose their funeral cover.
10Other directors of the ACBF Entities communicated with the Office of Fair Trading New South Wales (Fair Trading) about whether the arrangement with Crown was in the best interests of members and one of them kept Mr Pattenden informed of concerns raised by that office. MrPattenden did not consider changes to the insurance arrangements for the entities.
11On 30 November 2018, Mr Pattenden resigned as a director of the ACBF Entities following the execution of a share sale agreement. That agreement bound the new owner of the entities to continue to insure with Crown.
12On the basis of these allegations, ASIC pleads contraventions by Mr Pattenden as follows (at ASOC [58] - [64]).
Sections 180(1), 181(1) and 182(1)
58.Mr Pattenden knew or ought to have known of the risks and matters pleaded in paragraphs 39 to 50 above in relation to the ACBF Entities by the date of the premium increase on 4 September 2017 and continuing throughout the Relevant Period, and the matters set out in paragraphs 52 to 56 above in relation to the ACBF Entities by April 2018 and continuing throughout the Relevant Period.
59.A reasonable director or officer of a corporation in the ACBF Entities' circumstances and who occupied the offices held by Mr Pattenden and had the same responsibilities, and who had knowledge of the risks to the ACBF Entities and fund members referred to in paragraph 58 above, in acting with care and diligence when considering whether:
(a) to pay the increased premium to Crown on behalf of ACBF 2; or
(b) to continue to maintain the policies with Crown,
would have taken all necessary steps to:
(c)consider whether the Crown policies were in the interests of the ACBF Entities, both generally and at the time of the doubling of ACBF 2's premium;
(d)pursue alternatives to the insurance arrangements with Crown, including considering whether to:
(i)renegotiate the Crown insurance policies;
(ii) cancel the Crown insurance policies and transition to self-insurance (and whether and how to amend the trust deed and plan rules, as relevant, to allow for this);
(iii)find a cheaper external insurer;
(iv)increase reserves from which to pay Crown;
(v)notify members of the risks to the funds inherent in the arrangements with Crown;
(vi)for ACBF 2, wind up the trust and pay eligible members who were entitled to it a cancellation benefit; and
(vii) for ACBF Plans and ACBF Community, wind up the companies and pay the remaining funds to members.
60.At all times from 4 September 2017 (the date of the premium increase) and continuing throughout the Relevant Period, Mr Pattenden:
(a)failed to consider properly or at all the effect of the Crown arrangements on the financial position of any of the ACBF Entities;
(b) failed to consider properly or at all whether continuing the policies with Crown was in the best interests of any of the ACBF Entities and the fund members;
(c)failed to consider properly or at all whether there were alternative options available to any of the ACBF Entities, as pleaded in paragraph 59(d)(i) to (vii) above, that would have been in the best interests of them and the fund members;
(d) failed to pursue properly or at all any of the alternative options pleaded in paragraph 59(d)(i) to (vii) above;
(e) preferred his own, Mr Law's or Crown's interests in causing the ACBF Entities to maintain their respective Crown arrangements;
(f) preferred his own, Mr Law's or Crown's interests in causing or allowing ACBF 2 to accept or agree to pay the increased premium, payment of which occurred on 15 occasions during the Relevant Period; and
(g) failed to ensure properly or at all that ACBF 2, as trustee for Fund 2, took all necessary and reasonable steps to protect the Fund (contrary to cl 13.9 of the trust deed).
61. In the premises, Mr Pattenden, for each of the acts or omissions described in paragraph 60 above, including each time that ACBF 2 paid the increased premium:
(a) failed to discharge his duties to the ACBF Entities with the degree of care and diligence that a reasonable person would exercise, if they were a director or officer of a corporation in the ACBF Entities' circumstances, and occupied the offices held by Mr Pattenden and had the same responsibilities within the corporation; and
(b) as a result, breached s 180(1) of the Corporations Act.
62. Further or alternatively, by reason of the matters pleaded in paragraphs 39 to 50, 52 to 56 and 58 above, and Mr Pattenden's positions within the ACBF business and within Crown as set out in paragraph 14 above, Mr Pattenden:
(a) had a material personal interest in the Crown policies held by the ACBF Entities;
(b) caused the ACBF Entities to maintain the arrangements with Crown during the Relevant Period without taking any or all necessary steps to consider and pursue the matters in paragraph 59(d)(i) to (vii) above;
(c) caused ACBF 2 to pay an increase in premium of 100% without taking any or all necessary steps to consider and pursue the matters in paragraph 59(d)(i) to (vii) above;
(d) failed to take all necessary steps to manage the conflict of interest that arose between his duties to the ACBF Entities and his interest in Crown, or Mr Law's duties to the ACBF Entities and Mr Law's interest in Crown; and
(e) used his position as a director or officer of the ACBF Entities to:
(i) obtain an advantage for himself, Mr Law and/or Crown; and, or alternatively
(ii) cause a detriment to any of the ACBF Entities.
63.Mr Pattenden's conduct pleaded in paragraph 62 above:
(a) was not in good faith in the best interests of any of the ACBF Entities;
(b) was done for the improper purpose of Mr Pattenden gaining an advantage for himself, Mr Law and/or Crown; and
(c) resulted in Mr Pattenden:
(i) gaining an advantage for himself, Mr Law and/or Crown; and, or alternatively
(ii) causing detriment to any of the ACBF Entities.
64. In the premises, for each of the acts or omissions described in in paragraphs 62 and 63 above, including each time that ACBF 2 paid the increased premium during the Relevant Period, Mr Pattenden:
(a) failed to exercise his powers and discharge his duties in good faith in the best interests of any of the ACBF Entities and for a proper purpose, and as a result contravened s 181(1) of the Corporations Act; and
(b) used his position contrary to and in contravention of s 182(1) of the Corporations Act.
13The closing paragraphs of the ASOC, under the heading "relief", are as follows.
93. During the Relevant Period, the contraventions of ss 180(1), 181(1) and 182(1) of the Corporations Act by each of the defendants, as alleged by ASIC above:
(a) materially prejudiced the interests of ACBF Entities and their members;
(b) materially prejudiced the ability of the ACBF Entities to pay their creditors; and
(c) were serious.
94. ASIC seeks the relief set out in its Originating Process dated 30 August 2023.
Mr Pattenden's complaints concerning the pleading
14Mr Pattenden's complaints concern:
(a)the "rolled up" way in which the contraventions alleged in ASOC [58] - [64] are pleaded;
(b)asserted deficiencies in ASOC [93]; and
(c)allegations in certain paragraphs earlier in the pleading that cover periods outside the Relevant Period.
15The functions of a pleading are well understood and it is not necessary to add to the body of case law expounding the relevant principles. Pleadings are an instrument by which procedural fairness is secured and focus on the facts genuinely in issue is achieved. A statement of claim fails to perform its function if the defendant cannot identify the case that needs to be met and frame a defence that responds to it. It has often been noted that the need for clarity is particularly acute in a case where a regulator seeks punitive orders.
ASOC [58] to [64]
16The main contraventions alleged against Mr Pattenden are contraventions of ss 180(1), 181(1) and 182(1) of the Corporations Act 2001 (Cth) (Corporations Act). These provisions are as follows.
180 Care and diligence-civil obligation only
Care and diligence-directors and other officers
(1)A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
(a)were a director or officer of a corporation in the corporation's circumstances; and
(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
Note:This subsection is a civil penalty provision (see section1317E).
.
181 Good faith-civil obligations
Good faith-directors and other officers
(1)A director or other officer of a corporation must exercise their powers and discharge their duties:
(a)in good faith in the best interests of the corporation; and
(b)for a proper purpose.
Note 1:This subsection is a civil penalty provision (see section1317E).
Note 2:Section187 deals with the situation of directors of wholly-owned subsidiaries.
.
182 Use of position-civil obligations
Use of position-directors, other officers and employees
(1)A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a)gain an advantage for themselves or someone else; or
(b)cause detriment to the corporation.
Note:This subsection is a civil penalty provision (see section1317E).
.
17The obligations in ss 180 to 182 derive from the basic duties which directors have been understood for centuries to owe to companies. The "powers" and "duties" referred to in ss180 and 181 are the powers and duties that a director or other officer of a corporation has in that capacity. While these obligations are enforceable by way of declarations (under s1317E(1)) and pecuniary penalties (under s1317G) at the suit of ASIC (s1317J(1)), and thus have a public and objective character (see eg Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52 at [237]-[241] (Rares J), [449]-[451] (Thawley J)), contraventions can also be the subject of an application by "the corporation" for a "compensation order" under s1317J(2) (which may be made whether or not a declaration of contravention has been made). Such an order requires the contravener to compensate the corporation for damage suffered by it (s 1317H). The relevant obligations are thus owed in respect of, and in part to, a particular corporation.
18Where obligations alleged to have been contravened were owed in respect of, and to, specified entities, the defendant is in my view entitled to be told with clarity which acts or omissions in respect of which entity contravened the relevant obligation; and, in the case of s 180(1), what is said to have been the degree of care and diligence that would be exercised by a reasonable person who was a director or officer of that entity. It needs to be possible for the defendant to plead separately and distinctly to the allegations in relation to each entity, preferably without needing to dissect paragraphs of the statement of claim that the plaintiff has not seen fit to subdivide.
19The approach taken by ASOC [58] - [64] is therefore, in my view, not an appropriate one in the circumstances of this case. The following features highlight the problem.
(a)ASOC [59] refers to a reasonable person who occupied "the offices held" by Mr Pattenden and who had knowledge of "the risks to the ACBF Entities", and alleges that that person would have taken all necessary steps to (among other things) consider whether the Crown policies were "in the interests of the ACBF Entities". Those entities were not in identical positions and did not necessarily face the same risks.
(b)ASOC [60(a) - (c)] plead a failure to consider the financial position, the interests of and the options available to "any of the ACBF Entities". This gives rise to ambiguity as to whether or not ASIC's case depends on Mr Pattenden having failed in respect of all of the ACBF Entities. In principle at least, the facts as ultimately found may show that he failed properly to consider the interests of one or two of the entities and thus contravened s 180 in respect of those entities. The pleading should at least be clear as to whether, in those circumstances, ASIC still seeks declarations and penalties.
(c)ASOC [61] alleges that each of the acts or omissions pleaded at [60], including each time ACBF 2 paid the increased premium demanded by Crown, was a failure by Mr Pattenden to discharge his "duties to the ACBF Entities" with the requisite degree of care and diligence. Thus, prima facie, it is being alleged that the failure to properly consider the position of "any of the ACBF Entities" constitutes a contravention of s180(1) in relation to "the ACBF Entities" considered as a group. But s180 does not operate by reference to groups of entities. Meanwhile, allowing one of the entities (ACBF 2) to pay the increased premium to Crown is prima facie pleaded as a failure by Mr Pattenden to discharge his duties to all of the entities.
(d)The issue highlighted above in relation to ASOC [60] also arises in respect of ASOC [63(a)] (which alleges that Mr Pattenden's conduct was not "in the best interests of any of the ACBF Entities").
(e)ASOC [64] raises similar issues to [61]. Each of the acts or omissions pleaded in [62] and [63] (which include causing ACBF 2 to pay the increased premium) is apparently said to constitute a failure by Mr Pattenden to exercise his powers in the best interests of "any of the ACBF Entities".
20These paragraphs are at the heart of the case against Mr Pattenden. It is unsatisfactory, and at least arguably insufficient, for the specific issues noted above to be dealt with by way of particulars. Indeed, what is needed is not "particulars" in any ordinary sense but an indication of what ASIC's case is (and is not) at a more fundamental level. The allegations should be structured so as to articulate in a distinct fashion how the acts and omissions pleaded earlier in the statement of claim constituted a contravention of Mr Pattenden's duties in respect of each of the "ACBF Entities".
ASOC [93]
21Mr Pattenden identifies what are said to be three defects in ASOC [93]:
(a)failure to identify the alleged "material prejudice" to each entity's "interests" or "ability to pay creditors";
(b)failure to identify the "interests" referred to; and
(c)absence of material facts pleaded elsewhere to support or explain the prejudice to the "ability to pay creditors".
22ASOC [93] is also pleaded in a rolled up way and should be reformulated. The "interests of ACBF Entities" and the "ability of the ACBF Entities to pay their creditors" are in my view not useful concepts in a context where the obligations alleged to have been breached were owed in respect of specific companies. To the extent that the occasioning of "prejudice" is relevant (and it is potentially relevant at least to the assessment of penalties), that prejudice needs to be referable to particular contraventions of ss 180 - 182 and therefore to particular entities.
23Subparagraphs (a) and (b) of ASOC [93] also require more particularity than they currently contain. So far as ACBF 2 is concerned, the point may be thought to be obvious (in that, according to earlier paragraphs of the pleading, Mr Pattenden caused the company to pay significantly increased expenses when it had little or no ability to increase its income). However, the situation appears more nuanced in relation to ACBF Plans and ACBF Community. Given the nature of the allegations against Mr Pattenden and the consequences of those allegations being made out, he is entitled to a clear account of how ASIC says those breaches caused prejudice to the interests of the relevant entities. (It may be that ASIC's case in this respect is already encapsulated in the earlier paragraphs describing the effect of the Crown arrangements on the respective entities. If that is the position it should be made clear so that ASIC can in due course be held to its pleaded case.)
Allegations as to matters falling outside the Relevant Period
24This complaint affects parts of ASOC [29], [31], [32], [33] and [34]. These are said to be irrelevant allegations which, if allowed to be included in the pleading, will unnecessarily add to the costs of the proceeding.
25The Relevant Period, as identified in ASOC [4], is the period during which Mr Pattenden is alleged to have been in breach of his duties under ss 180 - 182 of the Corporations Act. This is reflected in ASOC [58], [60] and [62] where states of knowledge and acts or omissions are alleged to have existed or happened during the Relevant Period.
26Plainly enough, it does not follow that the matters alleged in the statement of claim must be limited to that period. States of knowledge may be based on earlier events and acts or omissions may take their character from events or states of affairs that came into existence at earlier times.
27The allegations that are the subject of complaint here are as follows.
(a)ASOC [29] alleges that the ACBF Entities did not have any formal system in place for notifying or managing conflicts of interest other than the requirements of their constituent documents. This is said to have been the case during the Relevant Period but also "from at least 1 January 2005".
(b)ASOC [31] alleges that Crown was registered in Vanuatu in April 2002 and, from that time until the end of the Relevant Period, operated its business in Vanuatu and was not subject to Australian regulatory requirements.
(c)ASOC [32] and [33] allege that the respective ACBF Entities maintained insurance policies with Crown from either June 2002 or January 2005 until 15 February 2022,
(d)ASOC [34] alleges that the ACBF Entities were the only entities insured by Crown from 1 June 2022 (ie, practically from the time Crown began its business) until 15 February 2022.
28Most of these propositions are of a kind that can be readily verified (or falsified) from documents that are either publicly available or available to the parties. To the extent that they are not, they are matters likely to be within Mr Pattenden's knowledge. I do not consider it likely that significant costs will be incurred, or significant time spent in the trial, as a result of the inclusion of these propositions in the pleading. Meanwhile, they are aspects of the context surrounding the events during the Relevant Period that are capable of founding inferences about the way Mr Pattenden managed the ACBF business and the extent of his attentiveness to the interests of particular ACBF Entities and the members of the funds that they managed.
Other allegedly irrelevant allegations
29Issue is also taken with ASOC [36], [37] and [57].
30ASOC [36] and [37] plead that, from the times when they began to insure with Crown until the end of the Relevant Period, each of the ACBF Entities paid more in premiums to Crown than it received from Crown to pay claims by fund members. This is hardly surprising if Crown was an insurance company being run for profit. However, the fact that Crown (in substance owned by Mr Pattenden) was making profits-quite substantial profits according to the particulars-from its dealings with the ACBF Entities (of which Mr Pattenden was a director) is at least arguably capable of being relevant to allegations concerning how Mr Pattenden approached his duties as a director of the ACBF Entities. ASIC should be allowed to develop that argument at the trial. These receipts and outgoings of the various companies will almost certainly be established (or not) from their financial records.
31ASOC [57] alleges Mr Pattenden's resignation as a director of the ACBF Entities on 30November 2018 (which I understand to be uncontroversial) and the share sale agreement by which, it is alleged, the entity that acquired the ACBF Entities was bound to continue insuring with Crown. This paragraph was included in the original statement of claim and Mr Pattenden pleaded to it by relying on the terms of the share sale agreement (and otherwise admitting the paragraph). He submits that, if this aspect of ASOC [57] is not struck out, the Court will need to consider the terms of the share sale agreement in circumstances where it is not relevant to the alleged contraventions.
32In my view, if it is shown that the terms on which Mr Pattenden agreed to dispose of his interests in the ACBF Entities and resign as a director included provisions to protect the interests of Crown, that is potentially capable of shedding light on how Mr Pattenden approached the performance of his duties as a director of the ACBF Entities. ASIC should have the opportunity to develop this argument at the trial.
Particulars
33Particulars to ASOC [58], [59] [60], [62], [63] and [93] are sought further or alternatively to the application to strike these paragraphs out.
34These paragraphs will be struck out and thus will need to be repleaded. Consideration of whether further or better particulars should be ordered should await the reformulation of these paragraphs.
35Mr Pattenden also seeks particulars (described in a schedule to his interlocutory application) of ASOC [40], [43], [45(e)], [48(b)-(c)], [49], [50], [51(e)], [54] and [55].
36Each of these paragraphs appeared in substantially identical terms in the original statement of claim. Mr Pattenden has pleaded to these paragraphs but, relevantly for present purposes, only by way of non-admission. This does not stand in the way of his application for the provision of particulars.
37The aspects of the ASOC in respect of which particulars are sought go to:
(a)what the third defendant (Mr Wilson) knew or ought to have known (ASOC [40]);
(b)the agreement reached by Mr Pattenden and others to increase the premium charged by Crown to ACBF 2 (ASOC [43]);
(c)the impact that the increased premium would have on ACBF 2's financial position (ASOC [45(e)]);
(d)the benefit flowing to Mr Pattenden from ACBF 2 continuing to pay Crown's premiums and his preference of other interests over those of ACBF 2 (ASOC [48(b)-(c)], [49]);
(e)ACBF Plans and ACBF Community being vulnerable to unaffordable premium increases (ASOC [50]);
(f)what the fourth and fifth defendants (Mr Jones and Mr Clayton) knew or ought to have known about financial benefits flowing to Mr Pattenden (ASOC [51(e)]);
(g)Mr Jones informing Mr Pattenden about Fair Trading's concerns (ASOC [54]); and
(h)Mr Jones and Mr Clayton giving consideration to whether certain steps should be taken by the ACBF business (ASOC [55]).
38Pursuant to r 16.45(2) of the Federal Court Rules 2011 (Cth), an application for an order that particulars be provided is to be made only if:
(a) the particulars in the pleading are inadequate; and
(b) the party seeking the order could not conduct the party's case without further particulars.
39These expressions should be read, in the context of the overarching purpose referred to in s37M of the Federal Court of Australia Act 1976 (Cth) and the function of pleadings, as directing attention to whether the party seeking the particulars can fairly be expected to conduct the case without them. The language of r 16.45(2)(b) indicates that particulars should only be ordered where they are really necessary for the purpose of achieving a fair hearing. On the other hand, the nature of the proceeding and the allegations in the pleading may have a bearing on that question. Thus, it is also relevant for this purpose that Mr Pattenden faces serious allegations of contravention of the Corporations Act which expose him to potential pecuniary penalties.
40By way of a response to a request for particulars, ASIC has informed Mr Pattenden's solicitors that it does not rely on ASOC [40] to prove contraventions alleged against Mr Pattenden. Mr Pattenden clearly does not require particulars of this paragraph in order to be able to conduct his case.
41ASOC [54] can also be dealt with briefly. The ASOC includes particulars to this paragraph which refer to four specific written communications from Mr Jones to Mr Pattenden. These evidently comprise the occasions on which (and the extent to which) it is alleged that Mr Jones "kept Mr Pattenden informed" of the concerns of Fair Trading. ASIC has confirmed this in a response to Mr Pattenden's solicitors.
42ASOC [55] refers only to Mr Jones and Mr Clayton and does not appear to form the foundation for any contravention by Mr Pattenden. I am not presently persuaded that he needs particulars of this paragraph (other than those already provided) in order to conduct his case. The same is true of ASOC [51(e)].
43The particulars sought of ASOC [43] include whether the alleged agreement was in writing or oral; if written, the documents said to give rise to it; if oral, details of the relevant conversation; and the material terms of the agreement. ASIC has said in response to a request for these particulars that the relevant particulars have already been "set out in detail with reference to supporting documents provided to you", which is evidently a reference to the five documents listed as particulars of the paragraph in the ASOC. However, referring to these documents, without more, amounts to identifying evidence for the existence of the alleged agreement rather than specifying how ASIC says it was reached and what ASIC says were its relevant terms (or, if the agreement was written, where those terms are to be found). Mr Pattenden cannot be expected to conduct this aspect of his case without knowing these things.
44ASOC [45(e)], [48(b)-(c)] and [50] deal with matters that are central to the allegations that Mr Pattenden failed to comply with his duties under ss 180 - 182 of the Corporations Act. Adverse effects or potential effects on the ACBF Entities are alleged in very broad terms. Mr Pattenden cannot be expected to conduct his case without particulars of these allegations.
45ASIC's response so far has been that the details of these allegations will be made clear by the evidence. That, to my mind, is not a complete response. Fairness requires that Mr Pattenden have some formal notice of the points that ASIC is seeking to prove by its evidence as steps on the way to making out the allegations in the ASOC. ASIC's affidavit evidence in chief, and lists of the documents on which it proposes to rely, have been filed. It is now in a position to specify what its case against Mr Pattenden is. That specification should not be delayed to await the filing of responsive evidence from the defendants and evidence in reply, or left until opening submissions. Mr Pattenden should be permitted to know the nature of ASIC's case in detail before making decisions as to whether to file evidence.
46Indeed, the nature of the case is such that Mr Pattenden will only be put to an election as to whether to lead substantive evidence at the close of ASIC's case. The trial may need to be adjourned, for Mr Pattenden to consider his position, if his legal representatives have not had adequate notice before the trial of the case that ASIC is seeking to prove.
47Finally, ASOC [49] on its face makes allegations only against Mr Jones and Mr Clayton. However, while ASIC might therefore have answered the request for particulars by confirming that the paragraph is not relied on against Mr Pattenden, it has not done so. I have therefore proceeded on the understanding that the paragraph plays some role in the case against Mr Pattenden. On this basis, particulars should be provided.
Disposition
48ASOC [58] to [64] and [93] will be struck out and ASIC will have an opportunity to reformulate these paragraphs.
49ASIC will be ordered to provide particulars, as specified in the schedule to the interlocutory application, of [45(e)], [48(b)-(c)], [49] and [50].
50Mr Pattenden's interlocutory application has thus succeeded in some respects but failed in others. It is appropriate that there should be no order as to the costs of the interlocutory application.
I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kennett.
Associate:
Dated:19 November 2024
SCHEDULE OF PARTIES
NSD 935 of 2023
Defendants
Fourth Defendant
BRYN ELWYN JONES
Fifth Defendant
GEOFFREY PETER CLAY
Disclaimer: Curated by HT Syndication.
