Citation: Skalkos v Smiles and Ors [2006] NSWSC 192
Court: Supreme Court of New South Wales
Date: 27 March 2006
Judge(s): Johnson J
Background
The plaintiff commenced proceedings in 1995 against six defendants, including the first defendant, seeking damages arising from an alleged course of fraudulent conduct involving seven sets of representations. By the time of this application, the plaintiff had filed a Fourth Amended Statement of Claim (FASC), granted by leave in late 2004.
The first defendant had entered into a composition with his creditors under Part X of the Bankruptcy Act 1966 (Cth) on 1 May 1996. He subsequently brought a notice of motion seeking summary dismissal of the proceedings against him, arguing that the plaintiff's claims were provable debts under the Act and therefore extinguished by the composition.
The proceedings had been on foot for more than a decade by the time of this application, and no evidence was adduced at the hearing. The argument was conducted entirely by reference to the contents of the FASC.
Legal Issues
- Whether the plaintiff's claims against the first defendant constituted provable debts under s 82 of the Bankruptcy Act 1966 (Cth), such that the composition under Part X barred their maintenance.
- Whether, if the claims were provable debts, they nonetheless fell within the fraud exception in s 153(2)(b) of the Act, which preserves liability arising from fraud.
- What conduct qualifies as "fraud" for the purposes of s 153(2)(b), particularly whether it extends beyond common law deceit to include reckless indifference to the truth.
- Whether the FASC was sufficiently clear and particularised to survive a pleading challenge under Part 14.28 of the Uniform Civil Procedure Rules.
Decision
Johnson J applied the well-established principles governing summary dismissal, noting that the power must be exercised sparingly and only in the clearest of cases. The test is not whether the plaintiff would probably fail, but whether it is apparent the action must fail. The first defendant bore the burden of establishing there was no triable issue.
On the question of provable debts, the court found that the Coventry v Charter Pacific decision had altered the law in this area. However, having examined the allegations in the FASC, the court was not satisfied that all of the plaintiff's claims were clearly provable debts. At minimum, triable issues existed on that question which required resolution at a final hearing with the benefit of evidence.
On the fraud exception in s 153(2)(b), Johnson J held that "fraud" in that provision extends beyond straightforward common law deceit to include conduct involving reckless indifference to the truth, consistent with the formulations in Maxwell v Chittick and Re Bosun Pty Limited. The FASC alleged fraud of that broader type against the first defendant across seven sets of representations, and the first defendant had not demonstrated to the requisite standard that the claims fell outside s 153(2)(b).
On the alternative pleading challenge, the court was satisfied that the FASC, although extensive, identified the nature of the plaintiff's case with sufficient clarity to meet the intelligibility standard. Any deficiencies in particulars were appropriately addressed by amendment rather than strike-out. The court added observations about the age of the proceedings and the obligations imposed by the Civil Procedure Act 2005, including the duties under ss 56 and 59 to eliminate delay.
Orders Made
- The first defendant's notice of motion was dismissed with costs.
Key Takeaways
- The Supreme Court confirmed that summary dismissal requires a very high degree of certainty about ultimate failure, and the mere prospect that a plaintiff's case is weak or slim does not satisfy that threshold.
- Under s 153(2)(b) of the Bankruptcy Act 1966 (Cth), "fraud" is not confined to deliberate deceit in the strict common law sense. The court held it extends to reckless indifference to the truth, where the maker of a representation has no genuine belief in its accuracy.
- Where triable issues exist on whether claims constitute provable debts, and separately on whether the fraud exception applies, neither question is suitable for resolution on a summary dismissal application.
- Pleading deficiencies in particulars do not themselves justify strike-out, provided the claim sufficiently identifies a reasonable cause of action and gives the defendant adequate notice of what must be met.
- In refusing the motion, the court noted that the Civil Procedure Act 2005 obligations to reduce delay applied to all parties and would govern the further conduct of the decade-old proceedings.
Legislation and Cases Referenced
Legislation:
- Bankruptcy Act 1966 (Cth), ss 82, 153(2)(b), 238(2)(c), 240(1)
- Fair Trading Act 1987 (NSW)
- Trade Practices Act 1974 (Cth)
- Civil Procedure Act 2005 (NSW), ss 56, 59
- Uniform Civil Procedure Rules (NSW), Parts 13.4 and 14.28
Cases:
- Coventry v Charter Pacific Corporation Limited [2005] HCA 67
- Dey v Victorian Railway Commissioners (1949) 78 CLR 62
- General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125
- Webster v Lampard (1993) 177 CLR 598
- Agar v Hyde (2000) 201 CLR 552
- Wickstead v Browne (1992) 30 NSWLR 1
- Brimson v Rocla Concrete Pipes Limited (1982) 2 NSWLR 937
- Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1995-1997) 188 CLR 241
- Banque Commerciale SA In Liquidation v Ahkil Holdings Limited (1990) 169 CLR 279
- Preston v Star City Pty Limited [1999] NSWSC 1273
- Maxwell v Chittick (Court of Appeal (NSW), 23 August 1994, unreported)
- Chittick v Maxwell (1993) 118 ALR 728
- Re Bosun Pty Limited (In Liquidation) (2000) 34 ACSR 597
- SGB v The Queen (2005) HCA 80
- Aliferis v Kyriacou (2000) 1 VR 447
- Handberg v Smarter Way (Aust) Pty Limited (2002) 190 ALR 130
- Reid v Interarch Australia Pty Limited [2000] FCA 1328
- Australian Competition and Consumer Commission v Kritharas (2000) 105 FCR 444