B & W Cabs Ltd, Blue & White Brisbane Ltd & Ors v Maloney, Herse, Intelisano, Lluka, Fry, Dwyer & Ors [1995] QSC 287

IN THE SUPREME COURT OF QUEENSLAND Writ No. 202 of 1991 Brisbane Before the Hon. Mr Justice Mackenzie [B & W CABS LTD & ORS v MALONEY & ORS] BETWEEN: B & W CABS LIMITED First Plaintiff AND: BLUE & WHITE BRISBANE LIMITED Second Plaintiff AND: IPSWICH ROAD SERVICE CENTRE PTY LTD Third Plaintiff AND: TAXI SERVICE LIMITED Fourth Plaintiff AND: PARADE SPARE PARTS PTY LIMITED Fifth Plaintiff AND: CARAID PTY LIMITED Sixth Plaintiff AND: JAMES MICHAEL MALONEY First Defendant AND: TREVOR REGINALD HERSE Second Defendant AND: FRANK INTELISANO Third Defendant AND: GURI LLUKA Fourth Defendant AND: JOHN FRY Fifth Defendant AND: KERRY NEIL DWYER Sixth Defendant AND: JULIO VILLAGOMEZ Seventh Defendant AND: -- 1 of 8 -- 2 ANTHONY DILUCCHIO Eighth Defendant AND: JOHN R MAYNARD Ninth Defendant AND: THE COMMONWEALTH BANK OF AUSTRALIA First Third Party AND: AUSTRALIA AND NEW ZEALAND BANKING CORPORATION Second Third Party AND: ANTHONY DI LUCCHIO Third Third Party REASONS FOR JUDGMENT - MACKENZIE J. Judgment Delivered 17/11/1995 CATCHWORDS: PRACTICE - Statement of Claim - Striking out - General Steel Industries Limited Inc. v Commissioner for Railways NSW - whether pleading is untenable - whether further and better particulars of Statement of Claim sufficient. Counsel: I. Perkins for applicant (third third party). I. Callinan Q.C. and M. Martin for respondents (first and second defendants). Solicitors: Blake Dawson Waldron for applicant. Baker Johnson for respondents. Date of Hearing: 9 November 1995 -- 2 of 8 -- 1 IN THE SUPREME COURT OF QUEENSLAND Brisbane Writ No. 202 of 1991 Before the Hon. Mr Justice Mackenzie [B&W Cabs Limited & Others] BETWEEN B & W CABS LIMITED First Plaintiff AND BLUE & WHITE BRISBANE LIMITED Second Plaintiff AND IPSWICH ROAD SERVICE CENTRE PAY LTD Third Plaintiff AND TAXI SERVICE LIMITED Fourth Plaintiff AND PARADE SPARE PARTS PAY LTD Fifth Plaintiff AND CARAID PAY LIMITED Sixth Plaintiff AND JAMES MICHAEL MALONEY First Defendant AND TREVOR REGINALD HERSE Second Defendant AND FRANK INTELISANO Third Defendant AND GURI LLUKA Fourth Defendant AND JOHN FRY Fifth Defendant -- 3 of 8 -- 2 AND KERRY NEIL DWYER Sixth Defendant AND JULIO VILLAGOMEZ AND ANTHONY DILUCCHIO Eighth Defendant AND JOHN R MAYNARD Ninth Defendant AND THE COMMONWEALTH BANK OF AUSTRALIA First Third Party AND AUSTRALIA AND NEW ZEALAND BANKING CORPORATION Second Third Party AND ANTHONY DI LUCCHIO Third Third Party JUDGMENT - MACKENZIE J Judgment Delivered 17 November 1995 The third third party has bought a summons to strike out the first and second defendants Statement of Claim against him. Alternatively further and better particulars are sought. The first and second defendants and the third third party were directors of the plaintiffs over extended periods which in some respects overlapped. The Statement of Claim against the first and second defendants pleads in each case that the particular defendant is liable for loss occasioned by the drawing of each and every one of numerous cheques converted by an employee during the period of the respective defendants' directorship. Some of the particulars of negligence and breach of duty alleged against them relate to the process of preparing and signing the cheques. However there are also more general allegations that the first defendant and second defendant were negligent or in breach of duty in failing to take any or -- 4 of 8 -- 3 any reasonable steps to verify that the plaintiffs' cheques were paid to the creditors of the plaintiff and failing to check that the payee named on the plaintiffs' cheques matched the payee on the cheque butts. Those are the two respects referred to in the Statement of Claim of the first and second defendants against the third third party and it is alleged that if the first and second defendants are found to be liable to the plaintiffs for the negligence alleged the first and second defendants claim that the third third party is equally liable on the same basis in relation to all of the cheques particularised in the amended Statement of Claim against the first and second defendants during the period the third third party was also a director of the plaintiffs. The amended summons seeks to strike out the Statement of Claim on the ground that it fails to disclose a reasonable cause of action against the third third party. Alternatively an application for further and better particulars sought supply of such particulars within fourteen days. Mr Perkins for the third third party stressed that unnecessary involvement in the action would be very costly and oppressive to the third third party. It was accepted that it must be very clear that the case alleged in the pleadings is untenable before striking out is justified (General Steel Industries Limited Inc v. Commissioner for Railways NSW (1964)112CLR125,129). It is also the case that the fact that an action is intricate does not disentitle the court to examine the cause of action alleged to grow out of it for the purpose of seeing whether the proceedings amount to an abuse of process or are vexatious (General Steel, 130). It was submitted that the case pleaded and the particulars showed that the third third party was alleged to be liable because he failed to verify that every cheque drawn was paid to a creditor of the companies and that he failed to check that the name on the cheques matched the payees on the cheque butts. The third third party had signed as cosignatory a small number of cheques during the period when he was a director. There is no basis for striking out the pleading to the extent that it alleges negligence in relation to cheques with which he was personally involved. It is not a case -- 5 of 8 -- 4 where the test in General Steel is met. If the allegation against the first and second defendants is that they are liable in respect of those cheques as well as those with which they were involved personally a pleading based on the third party notices in my view sustainable. With respect to the other allegation, it is not correct to paraphrase it as an allegation that merely because the third third party was a director of the plaintiff companies and that he failed to "verify that every cheque drawn while he and the respondents were directors was paid to a creditor of the plaintiffs" he was negligent, and then to argue that on that basis it cast an impossibly wide and unjustifiable duty on the third third party. The particular in the statement of claim makes an allegation of "failing to take any reasonable steps to verify that the plaintiffs' cheques were paid to creditors of the plaintiffs". The words "to take any reasonable steps" are important. As I understand it with the benefit of argument, the particular expresses the proposition, that, as a director, the third third party had a duty of care to oversee the affairs of the companies which, given the kind of companies they were, was not fulfilled by failure to take reasonable measures to satisfy himself that the financial affairs of the company were in order. Mr Perkins submitted that the mere fact that the applicant was a director cannot give rise to a duty to verify in minute detail the financial affairs of the company. He submitted that the liability of the director to the company was not strict liability for all its losses. Nor was it the onerous liability of a trustee or fiduciary. He cited Permanent Building Society v. Wieler (1994)14ACSR109,157 as authority for that proposition. He further submitted that the duty of a director is a legal and equitable obligation to act honestly and to take reasonable care to exercise a reasonable degree of skill and diligence. He relied for this proposition upon AWA v. Daniels (1992)7ACSR759,864-9, Permanent Building Society v. Wieler, 159, ASC v. Gallager(1993)10ACSR43,51 and re City Equitable Fire Insurance Co (1925)Ch407,428 in support of that proposition. He further submitted that the essence of the responsibility of directors was that they take steps to place themselves in a position to guide and monitor management of the -- 6 of 8 -- 5 company (AWA Limited v. Daniels, 864). He submitted that a director was entitled to delegate tasks that may properly be delegated and to rely on subordinates in responsible positions until there was a reason to distrust them. He submitted that they were not bound to examine entries in the companies books themselves, citing Davey v. Cory (1901)AC477,492 and re National Bank of Wales Ltd (1899)2Ch629,673. He further submitted that a director who signed a cheque that appeared to be drawn for a legitimate purpose was not responsible for seeing that the money was in fact required for that purpose. He must of necessity trust the officials of the company to perform properly and honestly the duties allocated to them (re City Equitable Fire Insurance Co, 452). He submitted that the applicant could not be liable as a director merely because of a failure to compare each cheque butt and cheque and to see that the payee of each cheque was a creditor of the company especially as he was the signatory of only a few cheques. Mr Callinan submitted that the modern developments with respect to duties of company directors created obligations which were more onerous than they had been in the past. He principally relied on the Court of Appeal of New South Wales decision in AWA Ltd v. Daniels (1995)16ACSR607, which he submitted expressed a more onerous view of those duties than had been expressed by Rogers J at first instance. I am satisfied that the Statement of Claim against the third third party is structured in terms of a breach of general duty of care by the company director and a specific breach in respect of individual cheques and that the pleading cannot be said to be untenable in the sense discussed in General Steel. The application for striking out therefore fails. That leaves the question of further and better particulars to be disposed of. The amended summons asked for answers to the applicant's request for further and better particulars of 26 September 1994 within fourteen days, in default of which the third party notice be struck out. Further and better particulars had been provided on 8 November 1994. They particularised the -- 7 of 8 -- 6 cheques in respect of which it was alleged that the third third party was equally liable with the first and second defendants respectively in the event that either of them was found liable. The facts matters and circumstances pertaining to each of the cheques by reason of which it was alleged that the third third party was equally liable were the same facts matters and circumstances particularised as the acts of negligence referred to. When the structure of the Statement of Claim against the third third party is analysed as it has been above, the particulars are in my opinion sufficient to inform the third third party of the case he must meet. The application for further and better particulars therefore fails. The order is the following: The summons is dismissed with costs to be taxed. -- 8 of 8 --