Abrook, R L v Peter R Bennett Investment Services Pty Ltd
[1997] FCA 754
•1 AUGUST 1997
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE - application to strike out statement of claim - claim of abuse of process - whether existence of other legal proceedings bring into operation the principle in Port Melbourne Authority v Anshun Proprietary Limited
PRACTICE AND PROCEDURE - application to strike out cross-claim - identification of parties - unincorporated association recognised by statute - whether such a body is a separate legal entity different to its members - identity of parties who owed duties and identity of parties to who duties are owed - competing rights of trustees and beneficiary to sue - application of rule in Foss v Harbottle
Friendly Societies Act 1913-1978 (Qld)
Family Security Friendly Society (Distributions of Moneys) Act 1991 (Qd)
Federal Court of Australia Act 1976 (Cth)
Wrongs Act 1936 (SA)
Dalpont and Chalmers: Equity and Trusts in Australia and New Zealand
Henderson v Henderson (1843) 3 Hare 100; 67 ER 313
Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589
Bryant v Commonwealth (1995) 57 FCR 287
Phillip Morris Incorporated v Adam P Brown Male Fashions Pty Ltd (1981)
148 CLR 457
Foss v Harbottle (1843) 167 ER 189
Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) (1982) 1 Ch 204
The Taff Valley Railway Company v the Amalgamated Society of Railway Servants
(1901) AC 426
Cotter v National Union of Seamen (1929) 2 Ch 58
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Osborne v Amalgamated Society of Railway Servants (1909) 1 Ch 163
Ramage v Waclaw (1988) 12 NSWLR 84
Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107
Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597
Albion Insurance Co Ltd v Government Insurance Office of New south Wales (1969) 121 CLR 342
Smith v Cock [1911] AC 317
Re: La Rosa Norgard v Rodpat Nominees Pty Ltd (1991) ATPR 41-139
R L ABROOK AND OTHER v PETER R BENNETT INVESTMENT SERVICES PTY LTD (ACN 003 352 707) AND OTHERS
No SG 2 of 1996
O’LOUGHLIN J
ADELAIDE
1 AUGUST 1997
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No SG 2 of 1996
)
GENERAL DIVISION )
BETWEEN:
R L ABROOK AND OTHERS
Applicants
AND:
PETER R BENNETT INVESTMENT SERVICES PTY LTD (ACN 003 352 707), BENWEST INVESTMENT SERVICES PTY LTD (ACN 002 742 627), RAMPUR HOLDINGS PTY LTD (ACN 002 724 718), JOHN ALFRED MICHAEL CONWAY, SUSAN ALICE DOE, QUEENSLAND TEACHERS CREDIT UNION LIMITED, LINFORD INVESTMENTS PTY LTD (ACN 010 129 147), SELECTED CAPITAL SECURITIES PTY LTD (ACN 006 634 500), JAMES ROBERT CLARKE, PETER RICHARD BENNETT, TONY BENNETT, LARRY WESTWOOD, WILLIAM JOHN CARSELDINE, TERRY PACKER, TED FRANCIS, BRUCE EWEN, JAMES NEWMAN, J DARYL MUNN AND WESLEY ROACH
Respondents
AND:
PETER R BENNETT INVESTMENT SERVICES PTY LTD & SELECTED CAPITAL SECURITIES PTY LTD
Cross Claimants
AND:
GREGORY PATTERSON, ZORAN RADOSEVIC, TREVOR JOHN SCHIERER, PATRICK PHILLIP FINNIMORE, BRUCE MYLES HATCHER, ALAN RICHARD TAYLOR, NEVILLE BRADLEY ALBURY (TRADING AS HORWATH & HORWATH)
First Cross Respondents
AND:
CHASE MANHATTEN BANK AUSTRALIA LIMITED
Second Cross Respondent
AND:
SIMMONDS CAIN PTY LTD
Third Cross Respondent
AND:
PATRICK FINAN
Fourth Cross Respondent
AND:
WILLIAM JOHN CARSELDINE
Fifth Cross Respondent
AND:
DEREK GORDON MONTGOMERY-CAMPBELL
Sixth Cross Respondent
AND:
MAXWELL LEONARD COOK
Seventh Cross Respondent
AND:
GLENYCE DEVELLE COOK
Eighth Cross Respondent
AND:
DESMOND BRUCE CONDON
Ninth Cross Respondent
AND:
ALAN WOODROW HEISER
Tenth Cross Respondent
AND:
BRUCE EDWARD FORDMAN, PRICE MORRELL WILLIAMS, JOHN DAVID CLARK, MARK ROCHFORD CUMMINGS, MARK JOHN FINE, MARTYN RICHARD AUTY, CHRISTOPHER JOHN ALP, EVEN DOUGLAS FARQUHAR, KIMBERLEY ANNE KOHAN, CARL JOHN ROOKE, ALAN HAROLD BOYS, RONALD GEORGE HOWARD, ANTHONY HAYES DOUGLAS-BROWN, ANTHONY HOWARD LEIBOWITZ, DESMOND FRANK CRAWLEY, RICHARD FREDERICK DEANE, DEAN BRIAN KROOK, AUSIN ROBERT MEERTEN TAYLOR, ANTHONY CHRISTOPHER MATTHEWS, RICHARD MANSELL HARDY, GEOFFREY WALTER SNOWBALL, RONALD ERNEST CRADDICK, BARRY GRAHAM HANSON, ANTHONY JAMES BEAVAN, MARTIN HAROLD BLOOM, PETER JOHN BOURKE, DAVID ARTHUR COWPER, JOHN DESMOND FLYNN, BERNARD SPENCER GILD, DAVID GRIMWADE GREEN, CLAUDE ARTHUR JUGMANS, MICHAEL PAUL KULIC, JOHN PETER SMITH, MICHAEL PAUL STIBBARD, LESLIE SZEKELY, TREVOR JOHN VELLA, ROBERT PAUL HOARDER, WILLIAM ROBERT SHORROCK, ANTHONY JOHN COMMISSO, DOMINIC ANTHONY COMMISSO, HENRY ROSS SMITH
Eleventh Cross Respondents
AND:
ALEX SHARPE
Twelfth Cross Respondent
AND:
BAIN GASTEEN SMITH
Thirteenth Cross Respondent
JUDGE: O’LOUGHLIN J
PLACE: ADELAIDE
DATED: 1 AUGUST 1997
MINUTES OF ORDER
THE COURT ORDERS:
That the notice of motion filed herein on behalf of Peter R Bennett Investments Services Pty Ltd and Selected Capital Securities Pty Ltd be dismissed with costs.
That the cross-claims filed herein against the first cross-respondents, the second cross-respondent and the thirteenth cross-respondent be struck out.
That the costs of and incidental to the order made in par 2 hereof be adjourned for further consideration.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No SG 2 of 1996
)
GENERAL DIVISION )
BETWEEN:
R L ABROOK AND OTHERS
Applicants
AND:
PETER R BENNETT INVESTMENT SERVICES PTY LTD (ACN 003 352 707), BENWEST INVESTMENT SERVICES PTY LTD (ACN 002 742 627), RAMPUR HOLDINGS PTY LTD (ACN 002 724 718), JOHN ALFRED MICHAEL CONWAY, SUSAN ALICE DOE, QUEENSLAND TEACHERS CREDIT UNION LIMITED, LINFORD INVESTMENTS PTY LTD (ACN 010 129 147), SELECTED CAPITAL SECURITIES PTY LTD (ACN 006 634 500), JAMES ROBERT CLARKE, PETER RICHARD BENNETT, TONY BENNETT, LARRY WESTWOOD, WILLIAM JOHN CARSELDINE, TERRY PACKER, TED FRANCIS, BRUCE EWEN, JAMES NEWMAN, J DARYL MUNN AND WESLEY ROACH
Respondents
AND:
PETER R BENNETT INVESTMENT SERVICES PTY LTD & SELECTED CAPITAL SECURITIES PTY LTD
Cross Claimants
AND:
GREGORY PATTERSON, ZORAN RADOSEVIC, TREVOR JOHN SCHIERER, PATRICK PHILLIP FINNIMORE, BRUCE MYLES HATCHER, ALAN RICHARD TAYLOR, NEVILLE BRADLEY ALBURY (TRADING AS HORWATH & HORWATH)
First Cross Respondents
AND:
CHASE MANHATTEN BANK AUSTRALIA LIMITED
Second Cross Respondent
AND:
SIMMONDS CAIN PTY LTD
Third Cross Respondent
AND:
PATRICK FINAN
Fourth Cross Respondent
AND:
WILLIAM JOHN CARSELDINE
Fifth Cross Respondent
AND:
DEREK GORDON MONTGOMERY-CAMPBELL
Sixth Cross Respondent
AND:
MAXWELL LEONARD COOK
Seventh Cross Respondent
AND:
GLENYCE DEVELLE COOK
Eighth Cross Respondent
AND:
DESMOND BRUCE CONDON
Ninth Cross Respondent
AND:
ALAN WOODROW HEISER
Tenth Cross Respondent
AND:
BRUCE EDWARD FORDMAN, PRICE MORRELL WILLIAMS, JOHN DAVID CLARK, MARK ROCHFORD CUMMINGS, MARK JOHN FINE, MARTYN RICHARD AUTY, CHRISTOPHER JOHN ALP, EVEN DOUGLAS FARQUHAR, KIMBERLEY ANNE KOHAN, CARL JOHN ROOKE, ALAN HAROLD BOYS, RONALD GEORGE HOWARD, ANTHONY HAYES DOUGLAS-BROWN, ANTHONY HOWARD LEIBOWITZ, DESMOND FRANK CRAWLEY, RICHARD FREDERICK DEANE, DEAN BRIAN KROOK, AUSIN ROBERT MEERTEN TAYLOR, ANTHONY CHRISTOPHER MATTHEWS, RICHARD MANSELL HARDY, GEOFFREY WALTER SNOWBALL, RONALD ERNEST CRADDICK, BARRY GRAHAM HANSON, ANTHONY JAMES BEAVAN, MARTIN HAROLD BLOOM, PETER JOHN BOURKE, DAVID ARTHUR COWPER, JOHN DESMOND FLYNN, BERNARD SPENCER GILD, DAVID GRIMWADE GREEN, CLAUDE ARTHUR JUGMANS, MICHAEL PAUL KULIC, JOHN PETER SMITH, MICHAEL PAUL STIBBARD, LESLIE SZEKELY, TREVOR JOHN VELLA, ROBERT PAUL HOARDER, WILLIAM ROBERT SHORROCK, ANTHONY JOHN COMMISSO, DOMINIC ANTHONY COMMISSO, HENRY ROSS SMITH
Eleventh Cross Respondents
AND:
ALEX SHARPE
Twelfth Cross Respondent
AND:
BAIN GASTEEN SMITH
Thirteenth Cross Respondent
JUDGE: O’LOUGHLIN J
PLACE: ADELAIDE
DATED: 1 AUGUST 1997
REASONS FOR JUDGMENT
Two notices of motion are presently before the Court. In the first, an order is sought that these proceedings be dismissed as an abuse of process; in the alternative an order is sought that the statement of claim be struck out. The affidavit of Timothy Matthew Materne, sworn 18 December 1996, was read in support of this motion. Mr Materne is an employee of Messrs Mouldens, the solicitors for Peter R Bennett Investment Services Pty Ltd (“Bennett Investment”) and Selected Capital Securities Pty Ltd (“Selected Capital”), two of the eighteen parties originally named as defendants when these proceedings were instituted in the Supreme Court of South Australia (“the Supreme Court”). They are the moving parties on the notice.
In the second notice of motion, the Court is asked by some - but not all - cross-respondents to strike out cross-claims that have been issued against them by Bennett Investment and Selected Capital. The orders sought in this notice were supported by two affidavits of John Rupert Smith sworn on 29 January and 4 February 1997. Mr Smith described himself as “the Chairman of the FSFS Recovery Fund”. That fund, and an explanation of its origin, is described later in these reasons.
The litigation and its history
Before dealing with either application, it is necessary to set out in some detail the complex history of these proceedings.
On 15 January 1991, the Family Security Friendly Society (“FSFS”), an unincorporated association carrying on business in Queensland pursuant to the provisions of the Friendly Societies Act 1913-1978 (Qld) (“the FS Act”) was placed under Administration. That occurred as a result of irregularities in the operation of its business. Those irregularities had been disclosed in a report to the Queensland Registrar of Friendly Societies (“the Registrar”) by Messrs Horwath and Horwath, the auditors for FSFS.
FSFS had begun its operations in September 1988. When it ceased business in early 1991 it had approximately 1700 members. During its short life it received (or should have received) investments in excess of $35m dollars. Approximately half that amount had been lost. In the two years preceding its collapse, FSFS had borrowed substantial sums of money throughout Australia from members of the public (“the investors”). Those investors had, in many cases, made their investments in FSFS as a result of recommendations from advisers who can for convenience be referred to as “the investment advisers”.
The financial collapse of FSFS led to a proliferation of legal proceedings. As was pithily stated in one of the affidavits that was read in the course of these proceedings:
“... it was ascertained that a substantial proportion of moneys lodged with FSFS for investment had been diverted elsewhere by those in control of FSFS and thus was no longer available to investors.”
Many of the investors who had lost moneys as a result of the collapse of FSFS were resident in South Australia. In due course of time, those investors and others from interstate, formed themselves into two groups. One group is represented by Messrs Fisher Jeffries and that group has become known as “the FSFS Recovery Fund”. There are approximately 560 investors in that group and Mr Smith is its appointed leader. The second group of about 120 investors is represented by Messrs Scales and Partners. To differentiate between the two groups of investors I will call them “the Fisher Jeffries group” and “the Scales group” respectively.
In June 1993 two separate actions were instituted in the Supreme Court by members of the Fisher Jeffries group. In the first of those, the plaintiffs were South Australian residents and the defendants were investment advisers who were either resident in or carried on business in South Australia. That action was cross-vested from the Supreme Court to the Federal Court of Australia (“the Federal Court”) by order dated 12 December 1995. But on 16 May 1996, by consent, it was transferred to the Magistrates’ Court in Adelaide. According to the affidavit of Mr Materne that action has been concluded and the proceedings have been discontinued against all parties. The terms under which the proceedings were discontinued have not, however, been disclosed. In the second of those proceedings (which are the proceedings currently before this Court) the plaintiffs were approximately 180 members of the Fisher Jeffries Group who resided in Victoria and New South Wales. The defendants were investment advisers who resided or carried on business in those states. The identities of the plaintiffs and the defendants therefore differed from those in the first mentioned action. This latter action was also cross-vested from the Supreme Court to the Federal Court by order dated 12 December 1995. In each of these two actions, investors had claimed that they had incurred losses as a result of investing in FSFS and that those losses were occasioned as a result of the negligent advice that a particular investment adviser had given to a particular investor. Those actions can be referred to respectively as the proceedings against “the SA investment advisers” and either the proceedings against “the interstate investment advisers” or alternatively “the current proceedings”.
Messrs Horwath and Horwath are, and were at all times material to these proceedings, a firm of chartered accountants carrying on the practice of their profession in the State of Queensland. Immediately prior to its financial collapse, they had been the auditors of FSFS. They were also associated with other chartered accountants who carried on the practice of their profession under the same name of “Horwath and Horwath” in other states and territories. Whether the relationship was one of partnership is not clear. However, for the purposes of these reasons it will be convenient to refer to the seven chartered accountants who then practised in partnership in Queensland as “Horwath Queensland” and to refer to all others as the “Horwath Interstate Accountants”.
Proceedings (“the Horwath Queensland proceedings”) were commenced in the Supreme Court in November 1993, when the Fisher Jeffries group instituted derivative proceedings against Horwath Queensland and William John East, the administrator of FSFS (“the administrator”). This action was cross-vested from the Supreme Court to the Federal Court by order dated 24 April 1995. The plaintiffs in those proceedings included the plaintiffs in the earlier two actions against the investment advisers. Those proceedings were based upon allegations that Horwath Queensland had been negligent in their duties as auditors; it was pleaded that their negligence had been the cause of the resultant losses suffered by FSFS. The administrator, Mr East, had been joined as an additional defendant because he had earlier declined to institute proceedings against Horwath Queensland in the name of FSFS. At a later stage however, the administrator changed positions and sought and obtained leave in this Court to be joined in the proceedings as an applicant. Messrs Fisher Jeffries thereafter acted for the administrator as well as for the investors in the prosecution of the Horwath Queensland proceedings.
The Fisher Jeffries group also instituted separate derivative proceedings (“the Chase proceedings”) in the Supreme Court in January 1995 against Chase Manhattan Bank Limited (“Chase”), the former banker for FSFS. The administrator was also initially named as a defendant. The statement of claim alleged (inter alia) that Chase had negligently negotiated cheques to the credit of third parties when those cheques had been forwarded to FSFS for investment by or on behalf of investors and that FSFS had suffered losses as a consequence thereof. This action was cross-vested from the Supreme Court to the Federal Court by order dated 3 May 1995. As was the case with the Horwath Queensland proceedings, Mr East eventually sought and obtained leave in this Court to be joined in those proceedings as an applicant. Messrs Fisher Jeffries thereafter acted for the administrator as well as the investors in the prosecution of the Chase proceedings.
The Horwath proceedings and the Chase proceedings, as originally instituted, were described by Mr Blue, counsel for the investors in the current proceedings, as “derivative proceedings” or “collective actions” in which damages of some millions of dollars were sought on behalf of FSFS. However, Mr Blue submitted that the earlier claims, that is those that had been brought by the individual investors were, in practical terms, overborne by the entry of the administrator as an applicant in each of the proceedings; the investors no longer had control. I agree. By virtue of the provisions of the FS Act and the Family Security Friendly Society (Distributions of Moneys) Act 1991 (Qd), and as a consequence of his being joined as an applicant in each action, the administrator thereafter conducted the Horwath Queensland proceedings and the Chase proceedings for the benefit of FSFS.
Independently of the various actions that had been instituted in the Supreme Court by the Fisher Jeffries group and to which reference has been made above, the Scales group commenced numerous actions in the Federal Court on behalf of individual or small groups of investors (“the Scales proceedings”). In those proceedings, individual investment advisers were named as the respective respondents. Some of the investment advisers who were named as respondents in the Scales proceedings were already respondents in either the proceedings against the SA investment advisers or in the current proceedings. However neither Bennett Investment nor Selected Capital had been named as a respondent in the Scales proceedings.
In most of the proceedings that have been identified to date, the respective respondents instituted a variety of cross-claims and in many cases there were further cross-claims flowing between cross-respondents. Thus, in addition to Horwath Queensland, Chase and the investment advisers, the following parties were joined in proceedings as cross-respondents: the Horwath interstate accountants, the professional indemnity insurers of Horwath and Horwath (“the Horwath Insurers”), the Queensland Registrar of Friendly Societies, the solicitors for FSFS, the accountants for FSFS as well as the former directors, secretary and trustees of FSFS. What has been summarised so far is not intended to be a complete summary of all litigation initiated as a result of the collapse of FSFS. For example, on 21 December 1995 the Fisher Jeffries group instituted separate proceedings in this Court against the Horwath interstate accountants. However, because of events that occurred in April 1996, and to which reference is made below, those proceedings were discontinued in May 1996 and need not be considered further. In other earlier proceedings in the Supreme Court of Queensland, the administrator, on behalf of FSFS, had taken action against Mr and Mrs Cook and their related entities. Mr Cook had been the driving force behind FSFS and it was alleged that he had siphoned funds from FSFS for his personal benefit. Those proceedings were settled in 1992 and the settlement resulted in an increase of the funds available for distribution to investors.
The order for a composite trial
On 23 May 1995 orders were made in this Court for a composite trial of the various actions that were then current in the Federal Court. Those actions were:
the Horwath Queensland proceedings
the Chase proceedings
a representative collection of six of the actions in the Scales proceedings.
At this stage, the actions of the Fisher Jeffries group against the SA investment advisers and the interstate investment advisers (ie the current proceedings) remained in the Supreme Court; they were not cross-vested until December 1995. On the other hand, as has already been mentioned, many of the investment advisers were before the Court as cross–respondents in the Scales proceedings. Although Bennett Investment and Selected Capital were not within that group of investment advisers, their solicitors, Messrs Mouldens, were the solicitors for the Bain group of companies. That group had been joined in the composite trial because of their role as investment advisers. The Bain group was represented throughout the composite trial and in the directions hearings preceding the commencement of the composite trial, mostly by counsel but if counsel was not required, by a solicitor in the employ of Messrs Moulden. Because of the presence and involvement of Messrs Mouldens as solicitors for the Bain group, it would seem to me to be appropriate to infer in these interlocutory proceedings that both Bennett Investment and Selected Capital knew or ought to have known the details and progress of the composite trial. I do so infer.
The hearing of the composite trial was divided into sections. Its first section was intended to be directed only to the issues relating to the alleged liability of Horwath Queensland. A program was worked out whereby other separate sections would follow in sequence but reserving to all parties the right to cross-examine and lead evidence in every section of the composite hearing.
The composite trial commenced in this Court on 14 August 1995 and, with interruptions, continued until it was finally settled on 27 April 1996. Settlement was concluded by the filing of Notices of Discontinuance. Although it has not been suggested that it has any bearing on the outcome of this dispute, I note that Mr Smith in par 20 of his affidavit of 29 January 1997 deposed that the actions commenced by the Fisher Jeffries group and by the Scales group had been “run and settled separately”. Hence all FSFS actions in this Court, save for the current proceedings, have been brought to a conclusion one way or another. The terms of settlement of the composite trial have not, at this stage, been publicly disclosed. But it has been disclosed that as a result of the settlement there will be sufficient funds from all sources to repay to all investors the amounts of their respective capital investments. As a consequence, Mr Blue has acknowledged that the quantification of the investors’ present claims will be limited to damages equal to the amount of the interest that they would have earned on their investment had FSFS honoured its contractual obligations. For this reason, it is no longer accurate to plead that the applicants have suffered a “loss of a substantial proportion of their investment...”: see sub-par 34.1 of the amended statement of claim filed on 8 November 1996. The applicants have acknowledged the need to make this and other minor amendments and leave is granted to amend the statement of claim in the terms sought by Mr Smith in par 42 of his affidavit of 4 February 1997 and Ex JRS8 thereto. It may be that other minor amendments will be needed. For example in par 52 of the amended Statement of Claim filed on 8 November 1996 there is a plea:
“Rosalind Dixon brings these proceedings on her own behalf and as representative of all persons other than those named as plaintiffs who were advised to invest in the Society by any one of the defendants and who invested in the Society in reliance on that advice.”
That plea seems to appear in isolation. Mr Swan drew attention to it but as the matter progressed, counsel agreed to limit submissions to the “strike-out” question upon the premise that if that application is successful and the further amended statement of claim is allowed to stand, the need for incidental amendments can then be addressed.
The appellants’ proposal for an informal stay
It is now necessary to recount in a little more detail the relationship between the present litigants and their advisers in the current proceedings.
By letter dated 23 September 1993, Messrs Fisher Jeffries wrote Messrs Mouldens informing them that their clients were considering bringing proceedings against Horwath Queensland and “other parties”. At that stage Fisher Jeffries were only acting for the investors; they did not commence to act for the administrator until about August 1995. They proposed an informal stay of the existing Supreme Court proceedings against the investment advisers until their clients decided whether or not to bring such further proceedings. They added that if such proceedings were issued they would propose a “further stay .... pending the outcome of such proceedings in the expectation of obtaining full recovery...”. Mr Materne, in par 17 of his affidavit, deposed that as a result of that letter (Ex TMM 1), an agreement was reached between the parties for an informal stay of the Supreme Court proceedings against the investment advisers. I take that to mean that there was to be an informal stay of both actions - that is, the action against the SA investment advisers and the action against the interstate investment advisers (ie the current proceedings). The investors denied that any agreement had been reached but that cannot be right. Subsequent events show that both parties acquiesced in allowing the prosecution of the proceedings to remain dormant for about two years.
Although the litigation against both sets of investment advisers was brought to a halt as a result of this agreement, that did not mean that the matters were thereafter ignored. In par 18 of his affidavit of 29 January 1997, Mr Smith explained that in the period from October 1993 to February 1996, the investors and FSFS were successful in negotiating settlements with four different groups of investment advisers. In addition, as late as November 1996, an agreement was reached to settle all outstanding actions against Benwest Pty Ltd, another investment adviser who had originally been one of the defendants in the current proceedings.
In September 1995, two years after the original proposal for an informal stay and a month or so after the commencement of the composite trial, there was a change in direction. Messrs Fisher Jeffries filed applications in the Supreme Court seeking orders that the proceedings against the SA investment advisers and current proceedings be transferred to the Federal Court pursuant to the provisions of the South Australian and Commonwealth cross-vesting legislation. By this stage, they were also acting as solicitors for the administrator in the composite trial. Ultimately those applications came on for hearing before Lander J on 12 December 1995. Bennett Investment and Selected Capital opposed the making of the orders sought and were represented on the hearing of the application by their present counsel, Mr Swan. The grounds of opposition advanced on their behalf are conveniently set out at pp 20-21 of the transcript of proceedings (see Ex TMM 6 to the affidavit of Mr Materne). Those grounds did not include a complaint that there had been a binding agreement between the parties for an informal stay pending the final determination of the proceedings then being heard in the composite trial.
On 12 December 1995, Lander J made orders cross-vesting the Supreme Court proceedings to this Court. Thereafter Messrs Fisher Jeffries wrote Messrs Mouldens on 28 December 1995 (Ex TMM 7 to the affidavit of Mr Materne) proposing that the trial of these two actions take place after judgment had been delivered in the composite trial. Messrs Fisher Jeffries wrote again on 29 January 1996 to Messrs Mouldens (Ex TMM 8 to the affidavit of Mr Materne) saying:
“... [We] are concerned to ensure that issues in the investment advisors’ proceedings which must necessarily be determined in the Horwath, Chase etc proceedings ought only to be decided once.
On the other hand, our clients’ position remains that they seek the final determination of the Horwath, Chase, etc proceedings before any trial of the investment advisors proceedings.” (emphasis added)
If Messrs Mouldens replied to either of those letters, their replies have not been placed before the Court.
Messrs Fisher Jeffries wrote on the same topic once more in their letter to Messrs Mouldens dated 2 February 1996 (Ex TMM 9 to the affidavit of Mr Materne). On this occasion they once again related the prosecution of these proceedings to a judgment in the composite trial by saying:
“On the other hand, our clients’ position remains that they seek the final determination of the Composite Trial before the substantive trial of the investment advisors’ proceedings.”
In this last mentioned letter Messrs Fisher Jeffries also gave notice that their clients intended to terminate the earlier arrangements for an informal stay of proceedings and called upon the respondents to file their defences. Messrs Mouldens replied to this letter by letter dated 9 February 1996 (Ex JRS4 to Mr Smith’s affidavit of 4 February 1997) advising that they did not agree to the course suggested and asking Messrs Fisher Jeffries to identify “common issues”.
In February 1996, there were discussions between counsel and solicitors about whether, and to what extent, agreement could be reached for the purposes of establishing a mechanism in the current proceedings by which re-litigation of common issues could be avoided. Of greater importance, were the discussions concerning the consequences that might flow on to the current proceedings in the event of a settlement in the composite trial. Mr Blue and Mr Swan were both involved in those discussions as counsel and they read onto the transcript, for the purposes only of the application for an order of dismissal of the current proceedings, a statement of agreed facts. It is not necessary to recite that statement; it is sufficient to note that the question of a settlement of the composite proceedings was addressed but that no agreement was reached between the parties as to the consequences (if any) that such a settlement would have upon the current proceedings. However, it is relevant to note that it was not suggested in the statement of agreed facts that it had been claimed on behalf of Bennett Investment or Selected Capital that the applicants were not entitled to settle the composite claim or that the applicants were contractually bound to prosecute the composite trial to judgment.
The order of 1 March 1996
The next matter of significance is the order of this Court that was made by consent in the current proceedings on 1 March 1996. By that order, the prosecution of the current proceedings was partially tied to the proceedings in the composite trial in that evidence in the composite trial on a “common issue” (as defined in the order) was, in the circumstances set out therein, to be admitted in the trial of the current proceedings.
The argument for Bennett Investment and Selected Capital
Bennett Investment and Selected Capital complain that they were misled by the Fisher Jeffries group, through its conduct in settling the proceedings in the composite trial. However, they fall short of alleging that there was any legally enforceable agreement which would have required the group to proceed to judgment in the composite trial. They claim that the history of the matter, including the manner in which the current proceedings has been prosecuted, has led them to believe that they would be entitled to await the outcome of the judgment in the composite trial. They argued that if the composite trial had been prosecuted to completion, investors represented by the Fisher Jeffries group might have succeeded in recovering not only their lost capital but also the interest on their capital investment. If that had happened, Mr Swan contended that none of the applicants in the current proceedings would have suffered any loss and none of the respondents in the current proceedings would have had any liability to any investor. The argument concluded with the complaint that by settling for less than their full entitlement the investors had unnecessarily and unfairly put all respondents in the current proceedings at risk. In short, Mr Swan’s proposition amounted to this: having regard to the way in which the matter had been conducted since the first proposal for an informal stay in September 1993, the investors were required to proceed to judgment in the composite trial before further prosecuting the current proceedings. As an adjunct to that argument, Mr Swan further submitted that by compromising their claims in the composite trial, the Fisher Jeffries group have erased the beneficial effects of the Court’s order of 1 March 1996. He submitted that if the current proceedings are to continue it will now be necessary to lead evidence afresh on all issues.
A curious feature about the history of the FSFS litigation is that the investors have not explained why the two actions against the SA investment advisers and the interstate investments advisers should have been the subject of an informal stay. It is true that it was put forward during the course of submissions that it was thought to be in everybody’s interests to prosecute the Horwath Queensland and Chase proceedings in the hope of a complete recovery. But that overlooked the existence and prosecution of sections of the Scales proceedings against some of the investment advisers. One would have thought that the existence of the Scales proceedings, and the determination of the investors for whom Messrs Scales and Partners were acting to prosecute their claims as part of the composite trial, would have warranted including all investment advisers before this Court in the composite trial. But it is even more curious that there is no material before the Court suggesting that any of the respondents in the two actions ever advanced such a proposition. It seems as if they were content to sit back in the hope that the investors would be so successful in the composite trial that they would be relieved of all liability. Even now, it has not been suggested that the investors’ fault was a failure to bring these two actions into the composite trial: the alleged fault on the part of the investors is that they somehow permitted the administrator to settle the composite trial for less than what might have been their total entitlement. Mr Swan in the course of his submissions pointed to the following matters:
the investors pursued a multiplicity of proceedings against various respondents to recover the same loss
there were extensive common issues, particularly as to loss and causation, within that multiplicity of proceedings
the conduct and management of FSFS was complicated and would require extensive evidence if the current proceedings are to continue
it was desirable that the subject of the financial collapse of FSFS and the resultant losses be litigated only once
the Fisher Jeffries group made a number of deliberate tactical decisions with a view to having common issues determined
those tactical decisions were made and, to an extent as evidenced by the order of 1 March 1996, were to be implemented in proceedings other than the current proceedings: ie in the composite trial
Bennett Investment and Selected Capital, as evidenced by the order of this Court of 1 March 1996 in the current proceedings, agreed to defer the litigation of the current proceedings until the determination of the issues in the composite trial.
The combination of these factors, according to the submission of Mr Swan, led to Bennett Investment and Selected Capital being induced, in the interests of more efficiently conducting litigation, to accept the risk of a resolution of issues without their actual involvement. Mr Swan further submitted that the Court was induced to make the procedural orders of 1 March in the interests of the efficient disposal of multiple proceedings and for the purpose of avoiding duplicitous litigation even though the respondents in the current proceedings would incur the risk of a determination of issues on the basis of evidence being called in other proceedings.
The detail of the order of 1 March 1996
In my opinion there is no substance in the complaints that have been made on behalf of Bennett Investment and Selected Capital. To substantiate that conclusion, it is necessary to examine, in more detail, the terms of the order of this Court that was made in the current proceedings on 1 March 1996.
The first matter to note is that on 1 March 1996 the respondents in the current proceedings had not yet filed their defences. Even so, it was ordered on that day that the filing of defences and the filing of cross-claims be adjourned to a date to be fixed. The terms of sub-par 3.1 of the order of 1 March 1996 must be set out in full for they hold the answer to the submissions that have been made by Mr Swan. Bearing in mind that defences were yet to be filed, that sub-par reads as follows:
“3.1 If the defence of any respondent shall raise an issue that:
3.1.1the loss of any applicant was caused by Chase, the Registrar, Bain Gasteen Smith or Simmonds Cain;
3.1.2the investor has not or will not suffer loss as a result of a claim the investor or the administrator has against Chase the Registrar, Bain Gasteen Smith or Simmonds Cain.
and such issue is also raised in the Composite Trial the evidence in the Composite Trial relevant to such issue (“Common Issue”) shall subject to any further directions of the trial judge be admitted in respect of the determination of the common issue but not be otherwise admitted in the trial of this action and no further evidence shall be admitted in relation to such issue without the leave of the trial judge.”
(Bain Gasteen Smith were the solicitors for FSFS and Simmonds Cain Pty Ltd were the Society’s accountants). There are three aspects of this sub-paragraph that must be emphasised. First, earlier proposals that had been advanced by Messrs Fisher Jeffries to the effect that the investment advisers should be bound by determinations in the composite trial had been rejected and did not find their way into the order. Secondly, the application of the evidence in the composite trial to the intended trial of the investment advisers was limited to the twin issues of causation and loss that were identified in sub-sub-pars 3.1.1 and 3.1.2. Thirdly the order makes no reference to Horwath Queensland, the Horwath interstate accountants or the Horwath insurers.
Thus the evidence in the composite trial so far adduced to 1 March 1996 (which evidence had been limited to the questions of liability of Horwath Queensland) could not be used against the interests of the respondents in the current proceedings if the current proceedings subsequently came to trial. It is true that sub-par 3.1 contemplated, within the limited circumstances of the order, evidence in the composite trial relative to Chase, the Registrar, Bain Gasteen Smith or Simmonds Cain being evidence in the trial of the current proceedings. However, no such evidence had been led in this respect and furthermore, sub-par 3.3 of the order of 1 March 1996 gave to each respondent in the current proceedings the right to appear during any part of the composite trial and to ask questions or adduce evidence concerning any common issue. At the stage of the settlement of the composite trial, the only evidence that had been led was evidence that could not be used against the respondents in the current proceedings in the prosecution of those proceedings. In short, if the proposals that were made by the Fisher Jeffries group from September 1993 up to and including the order of 1 March 1996 can be properly classified as inducements (as to which I need not express any opinion) there is no evidence presently before the Court pointing to how Bennett Investment or Selected Capital may have relied on them to their detriment. To this must be added the observation that there is no evidence that the Fisher Jeffries group were acting in a manner that was contrary to some earlier representation, nor were any submissions made to this effect. Finally, it is common ground that the possibility of a settlement of the composite trial was discussed in early February - a month or so before the order of 1 March 1996 and there is no evidence that Bennett Investment or Selected Capital questioned the decision of the administrator or the investors to settle. The absence of evidence of such a challenge can only be consistent with the fact that Bennett Investment and Selected Capital then knew and accepted that there was no reason that would prevent a settlement of the composite trial.
In support of his submissions that the current proceedings should now stand dismissed as an abuse of process, Mr Swan relied first, upon the provisions of s 22 of the Federal Court of Australia Act 1976 (Cth) (“the FCA Act”) and then upon a line of authority (“the Anshun principle”) that included such cases as Henderson v Henderson (1843) 3 Hare 100; 67 ER 313; Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 and Bryant v Commonwealth (1995) 57 FCR 287. Section 22 of the FCA Act provides as follows:
“22. The Court shall, in every matter before the Court, grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided.”
The objects of this provision are well known and highly desirable; no one could seriously argue against the propositions for which this section is authority. But can it be said that they apply to the facts of the current proceedings? By arrangements, which had included the participation of Bennett Investment and Selected Capital (see par 17 of the affidavit of Mr Materne) an agreement was reached between the parties that there would be an informal stay of the current proceedings. At the time of that agreement those proceedings were in the Supreme Court; their existence was unknown to the Federal Court. It is idle to speculate on what might have been the attitude of this Court - or a judge of this Court - if the existence of those proceedings had been made known. Perhaps there was some good cause (which has not yet been identified) justifying the continuing inaction in the prosecution of the Supreme Court proceedings. But it is not possible on the information presently before the Court to conclude that the investors - to the exoneration of the respondents - have conducted their litigation in such a way as to offend the principles contained in s 22. If indeed, there has been a breach of those principles it would seem that fault should be apportioned equally between the parties. Moreover, the suggestion that s 22 is applicable to these circumstances is met with the proposition articulated in Phillip Morrris Incorporated v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 that s 22 only applies where there is a “matter before the Court”. Until the cross-vesting order of 12 December 1995, the current proceedings were not a “matter” in this Court and could have not been the subject of its jurisdiction.
In Henderson v Henderson (1843) 67 ER 313, Wigram VC said:
“... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forth their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest ...”(at 319)
It will be observed that his Lordship advanced the principle as one that applied only where there had been an “adjudication”. The same may be said of the decisions in Anshun and Bryant. In each case the original litigation had proceeded to a final judgment. Mr Swan submitted that the application of the Anshun principle should not depend upon whether a final judgment had been entered; he claimed that the matter of importance was the actual factual background in each case. As he put it, what actually happened in the resolution or determination of the proceedings should determine whether the Anshun principle should be applied. No authority for this proposition was advanced and in the absence of binding authority to that effect, I would not be prepared to so extend the Anshun principle. I prefer the view expressed by Lindgren J in Re St Leon and Another, ex parte National Australia Bank Limited (1994) 54 FCR 371, that the principle cannot be applied unless there has been an earlier determination on the merits.
The attempt by Bennett Investment and Selected Capital to rely upon the Anshun principle is curious. Normally such cases arise as a consequence of the institution of proceedings by one party in circumstances where the respondent in those proceedings claims that the issues in them could have and should have been raised in other earlier proceedings. That never happened in this case until the filing of the notice of motion that is presently before the Court. It must be remembered that these proceedings were instituted by the Fisher Jeffries group in June 1993. Save for the administrator’s action against the Cooks and their companies in the Supreme Court of Queensland, they were the first set of proceedings to be instituted as a result of the collapse of FSFS. At the time of their institution it could not be said they were opening “the same subject of litigation ...”. There was not then any earlier litigation in existence. The Horwath and the Chase proceedings were commenced in the Supreme Court in November 1993 and January 1995 respectively and stayed there until they were cross-vested to this Court in April and May 1995. Why did Bennett Investment and Selected Capital not complain in the Supreme Court about multiplicity of proceedings? The answer to this question is because they were prepared to await the outcome of the other proceedings in the hope that it would absolve them from all liability. Their complaint that they were induced to accept the order of this Court of 1 March 1996 is a hollow complaint. They were alert to the possibility of a settlement of the composite trial; counsel had discussed such a possibility in early February but were unable to reach agreement. In any event, as has been established, nothing in the order of 1 March bound them to the evidence in the Horwath section of the trial and they were at liberty to participate thereafter in the balance of trial.
Their complaint is in reality one that is borne out of their disappointment that the Fisher Jeffries group settled for less than what might have been their maximum entitlement. The extent to which the Fisher Jeffries group (as distinct from the administrator) was involved in the settlement is not known. It may be that their involvement (such as it was) could be an issue to be ventilated in the trial of the current proceedings. It will be a matter for the respondents and their advisers to address that issue as a possible defence. It is not a matter for determination in these interlocutory proceedings. I reject any suggestion that Bennett Investment and Selected Capital or either of them have been prejudiced or suffered any hardship by the conduct of the administrator and the Fisher Jeffries group in settling the composite trial. It was submitted that it was a matter of hardship that they were being forced to litigate after a gap of several years, but that was a risk that they took when they agreed upon an informal stay. The composite trial might have proceeded to judgment and the terms of the judgment might have been such that the investors might have wished to revive these current proceedings. Mr Swan attempted to answer this proposition by saying that his client would have had the benefit of the findings and reasons in the judgment in the composite trial. That is true; but it is also true that none of those findings or reasons would have been binding on his clients in the event of the current proceedings proceeding to trial.
In analysing the current proceedings and comparing them with the composite trial, it becomes apparent that there are substantial differences. The most important of these is the absence of the administrator as an applicant in the current proceedings. This absence can be emphasised by noting that the composite trial might be classified as consisting of two categories: the first being the action of FSFS (through the administrator) against its auditors and banker and the second being the action by a group of investors (represented by Messrs Scales and Partners) against the investment advisers who had recommended to them that they invest their money with FSFS. Thus expressed, the composite trial becomes materially different from the current proceedings in that the current proceedings have been instituted by a different group of investors (being those represented by Messrs Fisher Jeffries) against a group of investment advisers, the membership of which includes some, but not all, of the respondents in the Scales investors proceeding.
There is yet another reason which militates against a finding in favour of a dismissal or a stay of these proceedings. On 17 December 1996, Bennett Investment and Selected Capital filed a cross-claim in the current proceedings against Messrs Bain Gasteen Smith, the former solicitors of FSFS. But neither the administrator nor the Fisher Jeffries group of investors had instituted proceedings against those solicitors in the composite trial. The solicitors had been brought into the composite trial by Horwath Queensland as cross-respondents. Hence the ongoing prosecution in the composite trial of an action against Bain Gasteen Smith was in the hands of Horwath Queensland as a cross-claimant and not in the hands of the Fisher Jeffries group. Perhaps it would have been unlikely, but there was always a possibility of Horwath Queensland discontinuing against Bain Gasteen Smith. In those circumstances it is difficult to comprehend how Bennett Investment and Selected Capital were induced by the Fisher Jeffries group into a state of belief that the Fisher Jeffries Group would prosecute the composite trial to a final determination as a precondition to taking further action in the current proceedings. Bennett Investment and Selected Capital would have known that it was beyond the power of the Fisher Jeffries group to make such an inducement.
Should I be wrong in the conclusions that I have thus far reached: and if the Anshun principle be extended to the facts of the current proceedings and the composite trial, I am of the opinion that there are “special circumstances” (using the language of Sir James Wigram in Henderson v Henderson) that would justify the Court in concluding that it should not make any order that would prevent the ongoing prosecution of the current proceedings. They are as follows:
there is no evidence of detriment, hardship or prejudice to Bennett Investment or Selected Capital
there is no evidence that the applicants in the current proceedings undertook not to settle the composite trial
there is evidence that Bennett Investment and Selected Capital knew of the possibility that the composite trial might be settled but there is no evidence that they complained about such a possibility
the composite trial included the claims of FSFS (by its administrator) against its auditors and banker - but the administrator is not a party in the current proceedings
neither Bennett Investment nor Selected Capital agreed to be bound by the judgment or reasons for judgment in the event that the composite trial proceeded to a final determination
In my opinion the notice of motion must be dismissed with costs.
The cross-claims
I turn now to the second notice of motion that is before the Court.
On 2 August 1996, Bennett Investments and Selected Capital filed in the current proceedings a cross-claim naming thirteen cross-respondents. The first cross-respondent comprise the seven partners of Horwath Queensland. The second cross-respondent is Chase, the third is Simmonds Cain Pty Ltd and the fourth to tenth cross-respondents are the former directors, trustees and secretary (“the directors”) of FSFS. The parties named as the eleventh cross-respondent are the Horwath Interstate Accountants and the twelfth cross-respondent is the representative party for the Horwath insurers. Mr Alex Marshall was at the time of the filing of the cross claim that representative but he has since been replaced by Mr David Jonathon Marshall. Finally, Messrs Bain Gasteen Smith are named as the thirteenth cross-respondent.
By notice of motion filed on 3 October 1996, Horwath Queensland, the Horwath Interstate Accountants, the Horwath Insurer, Chase and Bain Gasteen Smith sought orders that the cross claims against each of them be struck out. No such application has been made by Simmonds Cain Pty Ltd nor by the directors. On 4 July 1997, after argument on the notice of motion had concluded and after judgment had been reserved, as a result of agreement between the parties, the Court ordered that the cross claims against the Horwath Interstate Accountants and the Horwath insurer be dismissed with no order as to costs. As a result of what has been summarised above, the position has crystallised into an application on the part of Horwath Queensland, Chase and Bain Gasteen Smith that the respective cross claims against them be struck out.
Before turning to a consideration of the three disputed cross-claims it is desirable to say something about the defences that have been filed on behalf of Bennett Investment and Selected Capital; they have filed separate amended defences but they have raised the same issues. They have admitted that they owed a duty to each of the applicants as alleged in the amended statement of claim but they have denied any breach of any such duty. In denying any liability they have gone on to plead that “if the applicants, or any of them, have suffered loss or damage as alleged, or at all, such loss or damage was caused by the acts or omissions of one or more of ” the cross-respondents.
The case for striking out the cross-claims
The case for the three moving cross-respondents was presented by Mr Blue of counsel. Subsequent to the settlement of the composite trial there has been a change of solicitors and Messrs Fisher Jeffries, who were and still are the solicitors for the applicants, became the solicitors on record for the three cross-respondents who seek the strike-out order. The circumstances under which Mr Blue and Messrs Fisher Jeffries have come to represent Horwath Queensland, Chase and Bain Gasteen Smith have not been the subject of inquiry or complaint.
Mr Blue advanced two propositions, in support of his client’s application. First, he submitted that because the cross-claims by Bennett Investment and Selected Capital were claims for contribution, it was necessary for Bennett Investment and Selected Capital to prove that the investors, as the applicants in the current proceedings, have direct claims against each of Horwath Queensland, Chase and Bain Gasteen Smith. His second proposition, which was ancillary to the first, was that the cross-claims can only be pursued if Bennett Investment and Selected Capital are liable to the investors for the same loss as is Horwath Queensland, Chase and Bain Gasteen Smith. Mr Blue submitted that such loss as might be compensable by Bennett Investment and Selected Capital would be the loss of the applicants and that such a loss was different to that for which any one of the cross-respondents might be liable; any liability of the cross-respondents was to FSFS and not to the applicants. His first answer to these propositions was that Bennett Investment and Selected Capital must fail because the rule in Foss v Harbottle (1843) 167 ER 189 applies to an entity such as FSFS and its members. That rule, subject to some exceptions which do not apply here, is to this effect: where a wrong is done to a company, individual shareholders are not entitled to sue for their own loss suffered as a result, by reason of a diminution in the value of their investment in the company. The company is the proper plaintiff “to bring an action in respect of a wrong done to it, and consequently an individual member has no standing to bring proceedings complaining of a wrong done to the company”: Ford’s Principles of Company Law: par 11.240. Mr Blue also relied upon the remarks of the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) (1982) 1 Ch 204 at 224. That was also a case which denied shareholders the right to take action in respect of losses suffered by their company. As was pointed out (at 223) shareholders cannot recover personally an amount of damages in addition to the damages recoverable by the company.
The Structure of FSFS
Before proceeding to a consideration of the competing submissions in this matter, it is necessary to explain the structure of FSFS. It was an unincorporated body, but its activities and the activities of all other Friendly Societies in Queensland were, at all material times, governed by the provisions of the FS Act. In addition to the FS Act, special legislation, the Family Security Friendly Society (Distribution of Moneys) Act 1991 (Qd) (“the Distribution Act”) was passed shortly after the financial collapse of FSFS in an attempt to assist in the orderly winding up of the affairs of FSFS. The Distribution Act appointed an administrator to take control of the affairs of FSFS.
A Friendly Society is defined in s 2 of the FS Act as meaning a society that has been established to achieve one or more of the objects that are identified in the legislation. It must be a Society that uses voluntary contributions (including levies and donations) from its members for those objects. These objects include numerous charitable causes including the provision of medical benefits and other health care services. Provision is made for the appointment of a Registrar (s 4) and the registration of Friendly Societies (s 8) with the Registrar (s 11). An application for registration must be accompanied by a copy of the rules of the Society (s 9) which are “valid and binding on every member of the society” (s 12) as from registration.
Section 29 of the FS Act enables a society to hold land in the name of its trustees and s 30 provides that “all property belonging to a society ... shall vest in the trustees for the time being for the use and benefit of the society and the members ...”. The provisions for the appointment of trustees are contained in par 7 of Schedule II to the FS Act. It provides that there are to be not less that two nor more than five trustees. The trustees have the power to invest the funds of the society in one or more of the ways specified in par 8 of Schedule II. They also have the power to bring or defend legal proceedings (par 38, Schedule II) “concerning any property, right or claim of the society ...” but the trustees “shall sue and be sued, in their proper names without other description than the title of their office”.
Thus it is clear, notwithstanding its unincorporated status, that a Friendly Society, by the mechanism of its trustees, is permitted by statute to acquire and hold property. The trustees hold the legal estate in any such property but s 30 identifies the Society (which includes its members) as the beneficial owner of that property . However s 31 does not likewise identify Society members individually as beneficial owners. Its treatment of members is quite different. After requiring the trustees to pay members such benefits as may be their entitlement, the trustees are to stand possessed of any balance “upon trust for the society generally or its central body”.
The rules of FSFS, which were exhibited to the affidavit of Mr Smith dated 29 January 1997, commence with a statement that identifies the name of the Society as the “Family Security Friendly Society”. It is then claimed in rule 2 that:
“The society is an independent, autonomous, voluntary association…”
The rule in Foss v Harbottle
Mr Blue did not go so far as to suggest that the rules of FSFS, in combination with the statutory provisions to which reference has been made, gave a separate corporate existence to the society, but he did submit that it could be regarded commercially as an association with “a life of its own”. It would not, of course, be possible to regard a Friendly Society as a body corporate; the legislation has fallen short of giving it a separate corporate existence. In fact the statutory provisions that identify trustees and their role (including their role in holding property and participating in legal proceedings) equates more readily with the concept of a conventional trustee and beneficiaries.
Mr Swan, submitted that the starting point in relation to an unincorporated association is that the assets of the association are owned by the members from time to time and “if anything is left unexpended it is not income or profits, but savings, which the members may claim to have returned to them” (Watson v J &AG Johnson Ltd (1936) 55 CLR 63 at 67, Bacon v Pianta (1966) 114 CLR 634 at 638, Bacon v O’Dea (1989) 88 ALR 486 at 494). Mr Swan maintained that FSFS had no “legal personalty”. I disagree. In my opinion, having regard to the express provisions of the FS Act, it must be accepted that FSFS is to be regarded as some form of legal entity. Its status can be compared with that of the Trade Union in The Taff Valley Railway Company v The Amalgamated Society of Railway Servants (1901) AC 426. As to this Farwell J had said in the Court below:
“Now, although a corporation and an individual or individuals may be the only entity known to the common law who can sue or be sued, it is competent to the Legislature to give to an association of individuals which is neither a corporation nor a partnership nor an individual a capacity for owning property and acting by agents, and such capacity in the absence of express enactment to the contrary involves the necessary correlative of liability to the extent of such property for the acts and defaults of such agents. It is beside the mark to say of such an association that it is unknown to the common law. The Legislature has legalised it, and it must be dealt with by the Courts according to the intention of the Legislature”(at 429)
A few years later in Osborne v Amalgamated Society of Railway Servants (1909) 1 Ch 163 his Lordship repeated his earlier views. He said:
“A registered trade union is thus a statutory legal entity, anomalous in that, although consisting of a fluctuating body of individuals and not being incorporated, it can own property and act by agents”(at 191)
These passages were cited with approval by Lord Hanworth MR in Cotter v National Union of Seamen (1929) 2 Ch 58 at 103. His Lordship added that the Trade Union in that case was to be treated as a legal entity, capable of working through its agents and governed by the code which is contained in its registered rules.
Thus, the principle in Foss v Harbottle is not confined to incorporated companies, but it may in appropriate circumstances, apply to any association of persons (such as a Trade Union - Cotter’s case ) bound together by a common purpose and submitting themselves to collective management in circumstances whereby they can be described as a separate legal entity. It seems to me to be but a short step to apply these authorities to the circumstances of this case, so that the principles for which they are authority apply to FSFS and its members.
The rights of a trustee to sue
Independently of the rule in Foss v Harbottle, there is a further problem confronting the investment advisers in pursuing these cross-claims. It is clear from the legislative provisions to which reference has already been made that any right of action occurring as a result of losses suffered by FSFS “vests in the trustees for the time being.” If the auditors owed any contractual, fiduciary, statutory or other duty, it was a duty that was owed to FSFS as a whole - it was not one that was owed to an individual member or group of members. The same can be said of the Society’s banker and its solicitors. That being the case, the right to institute proceedings for any breach of any such duty is vested in the trustees. This is not an application of the rule in Foss v Harbottle: it is a recognition that a beneficiary of a trust is subservient to the rights and duties of a trustee. Absent any question of a failure on the part of trustees to perform their duty (by the institution of proceedings), the right to sue vests in the trustee to the exclusion of the beneficiary: Ramage v Waclaw (1988) 12 NSWLR 84: see also the remarks of Mason CJ and Wilson J in Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107 at 115. Although in dissent in that case, Deane J nevertheless recognised the rights and obligations of a trustee when he said:
“Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant” (at 147-148)
In Ramage v Waclaw, Powell J (at 90) referred to the judgment of Sir W M James LJ in Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at 609-610. Included in the passage quoted was this statement:
“Is it to be permitted that every one of the persons who has an interest in a thing assigned to a trustee ... should file a distinct bill in a distinct branch of this Court against the debtors to the estate? I had lately occasion to consider that question, and I came to the conclusion, very clearly, that a person interested in an estate or a trust fund could not sue a debtor to that trust fund, or sue for that trust fund, merely on the allegation that the trustee would not sue; but that if there was any difficulty of that kind, if the trustee would not take the proper steps to enforce the claim, the remedy of the cestui que trust was to file his bill against the trustee for the execution of the trust, or for the realisation of the trust fund, and then to obtain the proper order for using the trustee’s name, or for obtaining a receiver to use the trustee’s name, who would, on behalf of the whole estate, institute the proper action, or the proper suit in this Court. That view I still adhere to, and I say it would be monstrous to hold that wherever there is a fund payable to trustees for the purpose of distribution amongst a great number of persons, every one of those persons could file a separate bill in equity, merely on the allegation that the trustee would not sue.”(at 90)
Conclusion
In considering the facts surrounding this litigation it is not correct to assess them in a simple formula of A suing B and B replying, “I am not liable: it is C who is liable”. The fallacy in that proposition is that it assumes that A has a cause of action against C. If A represents the investors and B are the investment advisers, it is incorrect to assume that the investors have causes of action against the three cross-respondents (who for the purposes of the formula must be C). It is FSFS who has those causes of action. If FSFS is called D, then we have a situation where A is suing B and B is attempting to bring C into the proceedings in circumstances where C has no liability to B and no liability to A, but only a liability to D. Furthermore, nowhere is it pleaded in any of the cross-claims that C (the three cross-respondents) have any liability to B (the investment advisers). Moreover, it is not pleaded that the cross-respondents had any dealings with any of the investment advisers nor indeed with any of the investors. In each case the particular cross-respondent dealt with FSFS either as its auditors, or as its banker or as its solicitors.
A court is reluctant to strike out a claim summarily. It will do so only in the clearest of cases: see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 where Barwick CJ said:
“It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; ‘so obviously untenable that it cannot possibly succeed’; ‘manifestly groundless’; ‘so manifestly faulty that it does not admit of argument’; ‘discloses a case which the court is satisfied cannot succeed’; ‘under no possibility can there be a good cause of action’; ‘be manifest that to allow them’ (the pleadings) ‘to stand would involve useless expense’.
At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or ‘so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument’; ‘so to speak apparent at a glance’.”(at 129)
In these proceedings Mr Blue has been careful to avoid straying into areas where there is, or might be, the potential for a dispute on the facts. He has pitched his argument on uncontentious facts: the unincorporated status of FSFS and the statutory provisions that recognise its existence and establish the rights, duties and obligations of the trustees. The role of the investment advisers has been recognised as being one that was limited to the giving of advice to investors. There is no suggestion of any commercial or legal connection between those advisers and the cross-respondents. The nature of challenged conduct of the cross-respondents has not been the subject of dispute. In fact the only dispute - and this is a question of law - is whether that challenged conduct gives rise to a cause of action that is vested in the members of the society. For the reasons that I have set out, and based on the facts of this case, I am satisfied that no such rights have vested.
I feel bound to say that if the investors were to have continued their action against Horwath Queensland Chase or Bain Gasteen Smith they would have failed unless they were able to invoke the right to a derivative action because of a failure on the part of the administrator (or the trustees) to institute appropriate proceedings. Initially there was such a failure but later that was remedied when the administrator became a co-applicant in the Horwath proceedings and in the Chase proceedings.
I have come to this conclusion with some difficulty. During the course of submissions I made it clear to counsel that I had an initial view that justice and fair play would insist on all responsible parties being before the Court so that the Court, as the final arbiter, could apportion blame appropriately. In the final analysis, I have been persuaded by the submissions to the contrary. The investment advisers could have, if they wished, involved themselves in the composite trial. They could have applied to the Supreme Court to have their actions cross vested to the Federal Court and this Court could have then included them as part of the composite trial. If in making a strategic decision not to follow that course, they now find themselves disadvantaged, they have only themselves to blame.
For the reasons that I have given, I am of the opinion that there is sufficient material before the Court to strike down each of the three cross-claims and there should be orders to this effect accordingly. Normally, costs would follow the event but as there was full argument with respect to the cross-claims against the Horwath Interstate Accountants and the Horwath Insurers and as those cross-claims have since been dismissed by consent with no order as to costs, I will reserve any decision with respect to costs with liberty to the parties to submit written submissions on the subject. The cross-respondents are to file and serve their submissions within fourteen days and the cross-claimants within twenty eight days.
Contribution
In view of the decision that I have reached it is not necessary for me to address this subject. However, should the matter go further, I set out hereunder a brief statement of my views on this subject.
A useful statement on the law relating to the doctrine of contribution appears in Dalpont and Chalmers: Equity and Trusts in Australia and New Zealand at p 256:
“The doctrine of contribution is based upon on the principle of natural justice that, if several persons have a common obligation, they should as between themselves contribute proportionately in satisfaction of that obligation.”
Mr Swan’s arguments on this aspect of the case must, in my view, fail for the reasons that I have earlier set out. Insofar as he submitted that the claims against his clients, the investment advisers, were “inextricably linked” to the claims against the cross-respondents, I must disagree. Undoubtedly there is a common factual sub-stratum which probably will be quite extensive. But there are features that are fundamentally different. The alleged negligence of the auditors has no immediate or apparent connection with the alleged negligence of the investment advisers and the same can be said with respect to the impugned conduct of the banker and the solicitors. Mr Swan claimed that the cross-respondents were the direct cause of the investors’ loss and that it was the same loss that was at the heart of the actions against his clients. Because of my earlier application of the rule in Foss v Harbottle and because of my findings on the rights and obligations of a trustee, I must reject that submission.
The general doctrine of contribution was identified by Kitto J in Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342 at 350 as forming part of the common law. His Honour had earlier said that there is a principle applicable at law no less than in equity “that persons who are under co-ordinate liabilities to make good the one loss ... must share the burden pro rata”(at 350). In Smith v Cock [1911] AC 317, the Privy Council held that for a right of contribution to arise it is essential that the parties share an obligation which can be described as co-ordinate. The case involved trusts under different wills in favour of the same beneficiary and at 326 Lord Mersey, delivering the judgment of the Judicial Committee, said:
“Without attempting to give a comprehensive definition of the expression ‘equitable contribution’, it is clear that the present case does not fall within it. Before there can be any question of contribution there must be a common obligation upon those who are required to contribute. Here there is none” (at 326).
See also: Re: La Rosa Norgard v Rodpat Nominees Pty Ltd (1991) ATPR 41-139 where French J said, after quoting the above passage:
“In Meagher Gummow and Lehane Equity Doctrines and Remedies 2nd ed. at para. 1001 a number of relationships cognisable at law and equity which involve co-ordinate liabilities are identified including co-sureties, co-insurers under contracts of indemnity insurance, co-contractors, parties liable to the holder of a bill of exchange, joint tenants and tenants in common. Joint tortfeasors, as is pointed out, were long in a different position - Merryweather v Nixam (1799) 8 TR 186, 101 ER 1337, until the introduction of statutory rights of contribution.”(at 53,000)
The statutory rights affecting joint tortfeasors in South Australia (no other legislation was referred to) is found in the Wrongs Act 1936 (SA). The provision that is relevant to this issue is par 25 (1)(c). That provides:
“25(1) Where damage is suffered by any person as a result of
a tort (whether a crime or not)-(a) ...
(b) ...
(c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would at any time have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought:
(ca) ...
(d) ...”
Consistent with common law principles, it is made clear that contribution is dependent upon liability arising in respect of “the same damage”. Once more I am forced back to the rule in Foss v Harbottle and that relating to trustees, in holding that the cross-respondents cannot be regarded as tort-feasors who are or may be liable to the investors in respect of “the same damage” as that for which the investment advisers are or may be liable.
For these reasons I am of the opinion that the cross-claimants are not entitled to claim contribution against Horwath Queensland, Chase or Bain Gasteen Smith.
I certify that this and the preceding 38 pages are a true copy of the Reasons for Judgment of the Court.
Associate :
Dated :
Counsel for the applicants :Mr M.F. Blue and Ms L.G. Stein
Solicitors for the applicants :Fisher Jeffries
Counsel for the respondents :Mr N. J. Swan
Solicitors for the respondents :Mouldens
Date of hearing :6 and 7 February 1997
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