Ashmere Cove Pty Ltd v Beekink
[2007] FCA 473
•30 March 2007
FEDERAL COURT OF AUSTRALIA
Ashmere Cove Pty Ltd v Beekink [2007] FCA 473
PRACTICE AND PROCEDURE - strike out motion – statement of claim – whether no reasonable cause of action disclosed – strike out motion dismissed – no point of principle
ASHMERE COVE PTY LTD, CG SUPER PTY LTD, CHORAL PTY LTD, PULLINGTON INVESTMENTS PTY LTD, GERALDINE GRAY IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES, MANTAL BREWING SERVICES PTY LTD, CATHERINE EMMA HUSK, MIKAYLA KIM DUNNE AND JENNIFER ANNE ALLEN, BLYTH NOMINEES PTY LTD, JOHN ANDREW MASLEN AND JOAN CARMEL MASLEN AND CREATION PTY LTD v PETER CORNELIUS BEEKINK, HERSH SOLOMON MAJTELES, GREGORY PHILLIP GAUNT, GIOVANNI MAURIZIO CARRELO (LIQUIDATOR) OF KNIGHTSBRIDGE MANAGED FUNDS LIMITED (In Liq) AND KNIGHTSBRIDGE MANAGED FUNDS LIMITED (In Liq)
WAD305 OF 2006FRENCH J
30 MARCH 2007
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD305 OF 2006
BETWEEN:
ASHMERE COVE PTY LTD
First ApplicantCG SUPER PTY LTD
Second ApplicantCHORAL PTY LTD
Third ApplicantPULLINGTON INVESTMENTS PTY LTD
Fourth ApplicantGERALDINE GRAY IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES
Fifth ApplicantMANTAL BREWING SERVICES PTY LTD
Sixth ApplicantCATHERINE EMMA HUSK
Seventh ApplicantMIKAYLA KIM DUNNE AND JENNIFER ANNE ALLEN
Eighth ApplicantBLYTH NOMINEES PTY LTD
Ninth ApplicantJOHN ANDREW MASLEN AND JOAN CARMEL MASLEN
Tenth ApplicantCREATION PTY LTD
Eleventh ApplicantAND:
PETER CORNELIUS BEEKINK
First RespondentHERSH SOLOMON MAJTELES
Second RespondentGREGORY PHILLIP GAUNT
Third RespondentGIOVANNI MAURIZIO CARRELO (LIQUIDATOR) OF KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQ)
Fourth RespondentKNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQ)
Fifth Respondent
JUDGE:
FRENCH J
DATE OF ORDER:
30 MARCH 2007
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The first to third respondents’ motion filed 20 November 2006 is dismissed.
2.The first to third respondents are to pay the first to fifth applicants’ costs of the motion so far as they relate to the preparation and filing of revised submissions in answer to the first to third respondents’ revised submissions.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD305 OF 2006
BETWEEN:
ASHMERE COVE PTY LTD
First ApplicantCG SUPER PTY LTD
Second ApplicantCHORAL PTY LTD
Third ApplicantPULLINGTON INVESTMENTS PTY LTD
Fourth ApplicantGERALDINE GRAY IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES
Fifth ApplicantMANTAL BREWING SERVICES PTY LTD
Sixth ApplicantCATHERINE EMMA HUSK
Seventh ApplicantMIKAYLA KIM DUNNE AND JENNIFER ANNE ALLEN
Eighth ApplicantBLYTH NOMINEES PTY LTD
Ninth ApplicantJOHN ANDREW MASLEN AND JOAN CARMEL MASLEN
Tenth ApplicantCREATION PTY LTD
Eleventh ApplicantAND:
PETER CORNELIUS BEEKINK
First RespondentHERSH SOLOMON MAJTELES
Second RespondentGREGORY PHILLIP GAUNT
Third RespondentGIOVANNI MAURIZIO CARRELO (LIQUIDATOR) OF KNIGHTSBRIDGE MANAGED FUNDS LIMITED (In Liq)
Fourth RespondentKNIGHTSBRIDGE MANAGED FUNDS LIMITED (In Liq)
Fifth Respondent
JUDGE:
FRENCH J
DATE:
30 MARCH 2007
PLACE:
PERTH
REASONS FOR JUDGMENT ON MOTION TO STRIKE OUT STATEMENT OF CLAIM
Introduction
These proceedings were instituted on 27 October 2006 against three former directors of Knightsbridge Managed Funds Limited (In Liq) (KMF) and against that company. The liquidator was also named as a respondent. The three directors are Peter Cornelius Beekink, Hersh Solomon Majteles and Gregory Phillip Gaunt (the directors). The proceedings against the liquidator have been discontinued. There are 11 applicants. Some are corporate and some are natural persons. They were investors in a scheme said to have been managed by KMF. The directors move to strike out a substituted statement of claim filed by the applicants in so far as it relates to the claims of the first to fifth applicants. For the reasons that follow, the motion will be dismissed.
The strike out motion
On 20 November 2006 the directors filed a motion seeking orders that the application be dismissed under O 20 r 2 of the Federal Court Rules on the grounds, inter alia, that no reasonable cause of action is disclosed. Alternatively, they sought an order that the statement of claim be struck out on the grounds that it disclosed no reasonable cause of action.
At a directions hearing on 30 January 2007 I ordered that the applicants file and serve an amended statement of claim on or before 20 February 2007 and that the directors file and serve revised submissions in relation to their strike out motion by 27 February 2007. Submissions in reply to the revised submissions were to be filed by 6 March 2007. The applicants were required to pay the directors’ costs thrown away by reason of the amendments.
A substituted statement of claim was filed on 20 February 2007 in accordance with the directions and revised submissions filed subsequently. The revised submissions seek only to strike out the statement of claim in relation to causes of action pleaded by the first to fifth applicants.
The case pleaded for the first to fifth applicants
According to the substituted statement of claim which was filed on 20 February 2007 KMF was, from 22 December 1999, the responsible entity for the Clifton Partners Finance Mortgage Scheme (the Scheme). This was a registered management scheme pursuant to Ch 5C of the former Corporations Law. The investment strategy of the Scheme is said to have involved the making of loans secured by mortgages over property and otherwise on terms and conditions specified by KMF from time to time. KMF adopted a Constitution for the Scheme pursuant to the provisions of Ch 5C of the Corporations Law.
KMF lodged a prospectus with ASIC on or about 22 December 1999 for the issue of securities by way of interests in the Scheme. It also lodged with ASIC a Compliance Plan pursuant to the provisions of Ch 5C.
KMF is also said to have appointed Knightsbridge Pty Ltd, formerly known as Clifton Partners Pty Ltd, as the custodian of the assets of the Scheme within the meaning of the Constitution and the Compliance Plan and to act as KMF’s agent in managing the Scheme, originating loans and ensuring compliance with the terms of any prospectus issued by KMF as well as complying with the lawful directions of KMF and ensuring compliance with the requirements of the Corporations Law. (It is referred to in the substituted statement of claim as Clifton Partners). The substituted statement of claim, outlines in [19], relevant elements of the Compliance Plan. It is not necessary to set all of those out here.
The duties of KMF are pleaded. It was required to operate the Scheme and perform the functions conferred on it by the Constitution and the Corporations Law. It was required to exercise a degree of care and diligence that a reasonable person would exercise if in KFM’s position. It was required to act in the best interests of members of the Scheme and to comply with the Compliance Plan. Reliance is placed on ss 601FB and 601FC of the Corporations Law.
Duties of the directors are also pleaded. These are the duties of care and diligence, to act in the best interests of the members of the Scheme and to take reasonable steps to ensure compliance with the Corporations Law and the Compliance Plan. Reliance is placed on s 601FD of the Corporations Law. The applicants also allege a common law duty to potential investors in the Scheme to exercise reasonable skill and care to ensure that they do not suffer economic loss.
The first to fifth applicants say that, as at 14 February 2000, they were each owed amounts totally $650,000 which had been part of a sum advanced to a company called Fieldmont Holdings Pty Ltd (Fieldmont) as part of an overall advance of $850,000. The remaining lender is not a party to these proceedings. The original loan is said to have been repayable on or about 30 November 2000 and to have been secured by a second registered mortgage over land owned by Fieldmont.
The applicants say that by a letter of 14 February 2000 to each of them, Clifton Partners recommended that the existing second registered mortgage be discharged and that Clifton Partners register a new second mortgage over the land in their favour and in favour of other proposed investors to secure an increased loan of $1.1 million in lieu of the existing amount of $850,000. The letter was written by Clifton Partners as an agent for KMF. It was an offer for subscription of securities of a corporation and, alternatively, an invitation to subscribe for securities of a corporation within the meaning of s 1018 of the Corporations Law (s/c 31). KMF is said to have failed to have lodged a prospectus in relation to these securities and in so doing to have contravened the requirements of s 1018 of the Corporations Law.
The first to fifth applicants allege six representations conveyed by Clifton Partners in its letter of 14 February 2000. These concerned the value of the land which was to be the basis of the security, the amount secured under the first registered mortgage in favour of the National Australia Bank Ltd (NAB), the “Loan to Valuation” ratio said to be 82.5% of the new second registered mortgage, the amount that would continue to be owed under the first registered mortgage and the absence of any reason to believe that it would be greater than $2.2 million. The various representations so made are said to have been false and the basis of that falsity is alleged in [34] to [39] inclusive.
Clifton Partners is said to have failed to inform the applicants that at the date of the offer Fieldmont intended to increase the amount owing under the first registered mortgage to $2.7 million effective from the end of February 2000. Clifton Partners is also said to have known that Fieldmont was, or had been, in default on its obligation to pay interest pursuant to the loan from NAB. It failed to inform the applicants of those matters. The applicants say that Clifton Partners engaged in conduct which was misleading or deceptive contrary to s 995(2) of the Corporations Law and that the first to fifth applicants are entitled to recover the amount of any loss or damage caused by that conduct.
The remaining applicants each plead misleading or deceptive conduct in respect of successive prospectuses issued on 11 February 2000, 13 March 2000, 11 May 2000 and 15 May 2000. It is not necessary for present purposes to set out those allegations.
The substituted statement of claim, additionally, and in the alternative, alleges breaches by the directors of the duties imposed upon them by s 601FD(1)(b), (c) and (f) of the Corporations Law. These breaches relate to their alleged failure to provide, or cause KMF to provide, any or any adequate training to staff members of Clifton Partners to ensure that they understood the requirements placed on them under the Corporations Law and the Compliance Plan in various respects. Each of the directors is also said to have failed to monitor or review, or to cause KMF to monitor or review, the compliance systems of Clifton Partners. It is said moreover that they failed to check, or failed to cause KMF to check, compliance by Clifton Partners with the Corporations Law and the Compliance Plan. They are said to have authorised Clifton Partners to originate loans and make offers for subscriptions or invitations to subscribe for interests in the Scheme without reference to them and to sign the various prospectuses without reference to them. Other breaches of s 601FD are alleged as well as particular breaches of that section by the first respondent, Mr Beekink. Each of the directors is also said to have been negligent in breach of their respective common law duties of care.
Relevantly to the first to fifth applicants, their loss and damage is pleaded in [143] to [151] of the substituted statement of claim. It is alleged that each of the original investors, who included the first to fifth applicants, discharged their existing second registered mortgage over the land and agreed to take an interest in the new registered mortgage securing a total sum of $1.1 million. They did so in reliance upon the six representations conveyed by the Clifton Partners’ letter of 14 February 2000 and as a result of the directors’ breaches of the duties imposed on them by s 601FD of the Corporations Law and as a result of their negligence. It is said that by reason of these matters the original investors were not repaid their respective outstanding advances towards the original loan.
At [151] the particulars of loss and damage in respect of each of the applicants are set out as follows:
(a)The amounts secured under the second registered mortgage and owing to the applicants were repayable on 5 November 2000.
(b)Fieldmont and Monteath failed to repay those amounts or any part thereof either on 5 November 2000 or at all, save that the first to fifth [applicants] received the following payments:
(i)the first applicant received $27,225;
(ii)the second applicant received $11,928.70;
(iii)the third applicant received $40,837;
(iv)the fourth applicant received $81,600; and
(v)the fifth applicant received $30,203.
(c)Further, after 5 November 2000 Fieldmont and Monteath each failed to pay any interest on the outstanding monies.
(d)On or about 12 April 2001 Monteath and Fieldmont were wound up in insolvency.
(e)The applicants have not received, and will not receive any dividend in the winding up of Monteath or Fieldmont, nor any other amount in satisfaction of any part of the amounts owing to them, except insofar as the first to fifth applicants have received partial compensation as referred to in sub-paragraph (g) below.
(f)The Land was sold by the first registered mortgagee, the National Australia Bank Ltd, in or about late 2001, and the total net proceeds of sale of the Land were insufficient to cover the total secured indebtedness to the National Australia Bank Ltd under the first registered mortgage. The applicants did not and will not receive any part of the net proceeds of the sales of the Land.
(g)In or about July 2006 the first to fifth applicants recovered total net compensation in the sum of $208,759.32 from the professional indemnity insurer for Murie & Edward, solicitors, with respect to loss and damage caused by Murie & Edward’s failure to register a second mortgage against another property, which amount the first to fifth applicants accept should go in reduction of their loss and damage as against the respondents herein.
(h)The applicants each suffered the loss of opportunity to invest their monies elsewhere and earn interest or other returns.
(i)The applicants will provide further particulars in due course.
The applicants claim compensation under various provisions of the Corporations Law as in force prior to 1 March 2000 and, alternatively, pursuant to the corresponding provisions of the Corporations Act 2001 (Cth). They also claim further, and in the alternative, damages and interest.
Whether the first to fifth applicants’ claims should be struck out
In their revised submissions the directors refer to [25] of the substituted statement of claim where it is pleaded that, as at 14 February 2000, the first to fifth applicants were owed a total of $650,000 under their then existing loans. The original loan was to be repayable on or about 30 November 2000 and was secured by a second registered mortgage. The first to fifth applicants’ complaint against the directors is said to be encapsulated at [29]. It is that in February 2000 the first to fifth applicants were persuaded to roll over their loan into a new facility and to discharge their existing security and take out fresh security.
The directors say that the losses claimed by the first to fifth applicants are a consequence of releasing their existing second mortgage over the land and taking a new second mortgage over it for $1.1 million in lieu of the existing total advance of $850,000. Their $650,000 would form part of the new $1.1 million loan.
The directors say that the first to fifth applicants’ claim depends on establishing that their position was worsened as a result of agreeing to the roll over proposal. That, it is said, would require them to establish that, had they retained the benefit of the original second mortgage security, it is likely that they would have recovered at least some of the moneys loaned. On the pleading, according to the directors, the first to fifth applicants would have made no recovery and their position has not been worsened by any conduct on the part of the directors.
The directors argue that, according to the substituted statement of claim, it was represented to the first to fifth applicants that the sum owing to NAB was $2.2 million in February 2000, whereas in truth the amount owing was $2.275 million. It is pleaded that as at February 2000 the true value of the land was $2,015,000. The pleaded claim at [34] is said to be to the effect that the value of the land was consistent from February 2000 to later in 2001.
The directors contend that on the pleaded case the first to fifth applicants would never have achieved a return of any of their loan moneys either by repayment on 30 November 2000 or as a result of a mortgagee sale because the value of the land was always inadequate to secure the priority of NAB.
In answer, the first to fifth applicants refer to [143] of the substituted statement of claim where they allege that they discharged their existing second registered mortgage securing $850,000 comprising the original investors’ advance of $650,000 and a further $200,000 advanced by the remaining mortgagee who is not a party to the proceedings, and agreed to take an interest in the new second registered mortgage securing a total of $1.1 million. It is said that they did this in reliance on the misleading or deceptive conduct, breaches of statutory duty and/or negligence of the respondents. In [144] they say that they were not repaid their respective outstanding advances towards the original loan. They note that the directors do not seek to strike out [143] and [144]. Proof of these allegations is said to be a matter of evidence.
The first to fifth applicants argue that it is apparent from the pleaded facts that the borrowers, namely Fieldmont and Monteath, required a loan of $1.1 million in lieu of the existing loan of $850,000 secured by the registered second mortgage. That appears to have been the purpose behind the letter of 14 February 2000. It is said to be open to each of the first to fifth applicants to contend that had they not been misled they would not have agreed to the discharge of their existing registered second mortgage without being repaid the respective amounts then owing to them. It is therefore open to them to contend that the reasonable inference is that but for the conduct complained of Fieldmont and/or Monteath would have borrowed the entire amount from new investors rather than just the sum of $274,000 actually raised from new investors and would have paid out the first to fifth applicants. If that is the case then the first to fifth applicants are indeed worse off than they would have been but for the impugned conduct. In the alternative they say it is at least open to the first to fifth applicants to propound a case that there was a prospect that the registered second mortgage would have been refinanced on that basis.
In my opinion, having regard to the contentions advanced on behalf of the first to fifth applicants it cannot be said that their case as pleaded is manifestly untenable. Nor can it be said that it has no reasonable prospect of success (see s 31A, Federal Court of Australia Act 1976 (Cth)). In my opinion it is not necessary to say anything further at this stage. The motion will be dismissed with costs.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate:
Dated: 30 March 2007
Counsel for the First to Fifth Applicants: Mr M Cuerden Solicitor for the First to Fifth First to Fifth Applicants: Dwyer Durack Lawyers Counsel for the First to Third Respondents: Mr I Freeman Solicitor for the First to Third Respondents: Lavan Legal Date of Written Submissions: 1 March 2007 and 7 March 2007 Date of Judgment: 30 March 2007
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