Atkins v Interprac Financial Planning Pty Ltd and anor
[2007] VSC 445
•19 November 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL LIST
No. 2046 of 2007
| SHARYN MAREE ATKINS (As Trustee of the Sharyn Atkins Family Trust) | Plaintiff |
| and | |
| INTERPRAC FINANCIAL PLANNING PTY LTD (ACN 076 093 680) | First Defendant |
| and | |
| GARRY PETER CROLE | Second Defendant |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 November 2007 | |
DATE OF JUDGMENT: | 19 November 2007 | |
CASE MAY BE CITED AS: | Atkins v Interprac and Crole | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 445 | |
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Practice and procedure – Apportionable claim – Concurrent wrongdoers – Application by defendants to join alleged concurrent wrongdoers as parties – Whether arguable that proposed parties are concurrent wrongdoers – Appropriate form of orders to join concurrent wrongdoers – Wrongs Act 1958 (Vic) Part IVAA.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Monichino and Mr D. Currao | Tisher Liner & Co |
| For the Defendants | Mr M. Osborne | Moray & Agnew |
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HIS HONOUR:
Introduction
In this proceeding, the plaintiff sues the defendants for damages, including exemplary damages, on a number of grounds. All of the grounds relate to alleged false, misleading or negligent advice given by the defendants to the plaintiff in connection with certain investments made by the plaintiff on the recommendation of the defendants.
The defendants have applied to the Court for leave to join additional parties to the proceeding, in order that the defendants may take advantage of the proportionate liability regime established by Part IVAA of the Wrongs Act 1958 (Vic) (“the Act”).
Section 24AL(1) of the Act provides:
24AL Joining non-party concurrent wrongdoer in the action
(1)Subject to subsection (2), the court may give leave for any one or more persons who are concurrent wrongdoers in relation to an apportionable claim to be joined as defendants in a proceeding in relation to that claim.
Section 24AL(1) requires two things to be shown before the Court may give leave to join additional parties. First, that the proceeding is, in whole or part, “in relation to an apportionable claim”. For the purpose of this application, the plaintiff accepts that the proceeding relates to an apportionable claim. Second, that the proposed additional party is a “concurrent wrongdoer”.
Section 24AH defines a “concurrent wrongdoer” in the following terms:
24AH Who is a concurrent wrongdoer?
(1)A concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.
(2)For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.
A substantial portion of the claims made by the plaintiff against the defendants relate to investments by the plaintiff, on the recommendation of the defendants, in promissory notes issued by two companies, Ann Street Mezzanine Pty Ltd (“ASM”) and York Street Mezzanine Pty Ltd (“YSM”). Each of those companies is within the “Westpoint” group of companies, which has collapsed. The plaintiff has lost each of her investments in those companies.
The defendants wish to join ASM and YSM as concurrent wrongdoers. They also seek to join the directors of those companies (“the directors”), Westpoint Corporation Pty Ltd (“Westpoint”) and the sole director of Westpoint, Norman Carey. The defendants contend that if, which they deny, they are liable to the plaintiff for any amount, ASM, YSM, the directors, Westpoint and/or Carey are concurrent wrongdoers with them, because their acts or omissions also caused the plaintiff’s loss or damage.
The plaintiff accepts that the defendants have established an arguable case that ASM and YSM are concurrent wrongdoers in respect of two matters. Accordingly, the plaintiff does not oppose their joinder as parties to the proceeding in order to raise those two maters. However, the plaintiff opposes leave being granted to the defendants to plead other matters which the defendants contend make ASM and YSM concurrent wrongdoers.
Further, the plaintiff contends that none of the grounds advanced by the defendants in support of their contention that the directors, Westpoint or Carey are concurrent wrongdoers raises an arguable case. Accordingly, the plaintiff submits that leave should not be given to join them as parties to the proceeding.
The parties agree that, in order for the defendants to obtain leave to add a party for the purposes of contending that the added party is a concurrent wrongdoer, they must put forward a pleading which raises an arguable case that the party is a concurrent wrongdoer. It is common ground that, in order to enliven the Court’s jurisdiction to allow joinder of an alleged concurrent wrongdoer, the defendants need only plead a case which is “not hopeless”. [1]
[1]For example, see Boral Resources (Vic) Pty Ltd v Robak Engineering & Construction Pty Ltd [1999] 2 VR 507, [13].
The defendants seek leave to join ASM, YSM, the independent directors, Westpoint and Carey as third parties. They also seek to make amendments to their defence in order to raise the case that they are concurrent wrongdoers, so that the plaintiff has an opportunity to plead in respect of those allegations in a reply. A question arises as to whether this is the appropriate procedure. I will deal with this, and other procedural matters, at the conclusion of these reasons.
The defendants have put forward a proposed third party statement of claim against the persons they wish to join as third parties. I will consider each of the proposed claims separately and determine whether the defendants have raised an arguable case against the alleged concurrent wrongdoer.
First, the defendants wish to plead that each of ASM and YSM is a concurrent wrongdoer because it engaged in misleading or deceptive conduct by publishing a false, misleading and deceptive information memorandum in respect of promissory notes issued by them to the plaintiff. The defendants contend that they relied upon the information memoranda, were misled by them and, as a result, advised the plaintiff to invest in the promissory notes. The plaintiff concedes that these contentions are not hopeless, and accordingly does not oppose leave being given to join ASM and YSM in order to enable these contentions to be raised at trial.
Second, the defendants wish to plead that each of ASM and YSM is a concurrent wrongdoer because it breached its contractual obligation to pay the plaintiff in accordance with the terms of the promissory notes. Again, leave to join ASM and YSM to raise these issues is not opposed by the plaintiff.
Third, the defendants wish to plead that each of ASM and YSM is a concurrent wrongdoer because, in addition to the contracts between them and the plaintiff which are embodied in the promissory notes, there was a collateral contract under which they each promised the plaintiff that they would act in accordance with certain statements made in the relevant information memorandum concerning the maximum amount of money to be raised by the promissory note offering, the identity of the custodian of the funds once invested and the use to which the funds would be put.
It was submitted on behalf of the plaintiff that the collateral contract claims which the defendants seek to raise to establish that ASM and YSM are concurrent wrongdoers are hopeless. This submission is based upon the decision of the Court of Appeal in Western Australia in Emu Brewery Mezzanine Ltd (In Liq) v Australian Securities and Investments Commission.[2] In that case, the Court of Appeal considered an information memorandum issued by Emu Brewery, another company in the Westpoint group of companies. The relevant portions of the information memorandum were in identical terms to the terms of the information memoranda which are relevant to this case. The issue in the case was whether, in addition to the obligation to repay the amounts stated on the promissory notes, Emu Brewery undertook a separate obligation to the investors to repay those amounts. The Commission contended that, upon the proper construction of the information memorandum, there was a loan agreement under which Emu Brewery agreed to repay the amount invested in promissory notes to each investor, and that this obligation was additional to the obligation contained in the promissory notes.[3]
[2][2006] WASCA 105.
[3]Ibid, [10], [14].
It was held by majority (Buss and Pullin JJA, McClure JA dissenting) that the information memorandum did not contain a separate obligation to repay the amounts stated in the promissory notes, because the relevant statements in the information memorandum which were relied upon by the Commission were not promissory in character but were mere representations designed to induce potential investors to invest in promissory notes.[4]
[4]Ibid, [38] per Pullin JA, [89]-[92] per Buss JA.
Buss JA expressed his conclusion in the following way:
90In my opinion, the statements in the Information Memorandum relied on by the respondent were not intended, objectively, to have contractual force. Some of the statements are imprecise and lack detail, and others are merely explanatory or descriptive. The absence of precision and detail is more consistent with the statements as a whole being intended, objectively, to be representations. No doubt, the sole or dominant purpose of the statements was to induce potential investors to invest in the promissory note issue. However, even if the investors were induced to invest in reliance on the statements, that circumstance would not, in itself, be sufficient to support a conclusion that the statements were intended, objectively, to be promissory. In my opinion, the statements were not, either individually or collectively, the subject matter of an assurance. They conveyed representations, but did not constitute enforceable promises.
91As I have mentioned, a contract was formed between each investor and the appellant for the provision of credit accommodation on the terms set out in the completed and signed ‘Promissory Note Application Form’ (including the terms set out in the form of note on the reverse of the application form). The terms of the contract did not, however, include the statements in the Information Memorandum relied on by the respondent.
92In my opinion, the contract between the appellant and each investor did not include an implied undertaking to repay which was independent of the promise to pay contained in the notes. Although the appellant made a promise to each note to pay the amount of the note on the expiry date, the appellant did not undertake a separate or distinct contractual obligation to pay the same amount.[5]
[5]Ibid, [90]-[92].
There is some force in the submissions made on behalf of the plaintiff in reliance upon the Emu Brewery case. However, in my view, the case sought to be raised by the defendants is not hopeless. The ratio decidendi of the Emu Brewery case is that the information memorandum did not include an implied undertaking to repay which was independent of the promise contained in the promissory notes.[6] In this case, the defendants wish to contend that other promises are to be implied from the information memoranda issued by ASM and YSM in connection with the investments made by the plaintiff. As I have said, those promises relate to the maximum amount of money to be raised by the promissory note offering, the identify of the custodian of the funds once invested and the use to which the funds would be put. In my view, it cannot be said that the proposed pleading raises, in this regard, a hopeless case that ASM and YSM are concurrent wrongdoers. Accordingly, the defendants should have leave to include these contentions in their pleadings against ASM and YSM.
[6]Ibid, [92].
Fourth, the defendants wish to plead that the plaintiff relied upon the false, misleading and deceptive statements contained in the information memoranda and that, accordingly, ASM and YSM are each liable to her on that account. The plaintiff opposes this issue being raised, and relies upon an affidavit in which she deposes to investing in the promissory notes without first reading either of the information memoranda.
It was submitted on behalf of the plaintiff that, in the absence of any evidence to rebut this sworn evidence by the plaintiff, the Court should accept it and refuse leave to add this claim to the pleadings by the defendants against ASM and YSM. I do not accept this submission. Although the defendants cannot presently point to any evidence to challenge the plaintiffs affidavit in this regard, discovery may reveal otherwise and, in any event, the plaintiff must give evidence to prove her own case. She will no doubt be cross-examined, and that cross-examination may include a challenge to her oath in this regard. Further, the fact remains that ASM and YSM are to be joined as parties to the proceeding and the proceeding will involve a detailed consideration of the role of the information memoranda in bringing about the plaintiff’s investments in promissory notes pursuant to the application forms contained in those information memoranda. In all the circumstances, I will exercise my discretion to allow this matter to be pleaded by the defendants.
Fifth, the defendants wish to plead that each of ASM and YSM became a trustee of the funds invested by the plaintiff in the promissory notes, and that they breached that trust by paying the plaintiff’s funds to Westpoint and not, as stated in the information memoranda, paying those funds on first mortgage security to a special purpose development company which was set up to acquire and develop the property identified in the relevant information memorandum.
The plaintiff accepts that the proposed pleading that ASM and YSM became trustees is not hopeless. However, it was submitted on behalf of the plaintiff that leave should not be given to raise a claim that ASM and YSM breached that trust because the defendants have not given adequate particulars of the breaches alleged in their proposed pleading. I do not accept that this is so. The particulars which have been given refer to statements made by the liquidator of Westpoint in a report to creditors. In that report, the liquidator has stated:
Essentially, [Westpoint] acted as a central treasury and pooled the funds for each of the Development Companies and Mezzanine Companies into a central bank account.
The liquidator has described this pooling of funds as arising in the following manner:
the actual flow of funds within the Group worked as follows:
(i)the Mezzanine Companies raised money from the public. This was banked into an account held by these companies.
(ii)the funds were then transferred to [Westpoint]. This transaction was recorded as a loan by the Mezzanine Company to the appropriate Development Company with a corresponding loan from the Development Company to Westpoint …[7]
[7]Liquidators’ report to creditors, 24 November 2006 (emphasis added).
Accordingly, I will grant leave to the defendants to raise this issue in their pleadings.
Sixth, the defendants wish to plead that Westpoint knew that the payments made to it by ASM and YSM, which payments included the funds invested by the plaintiff, were payments made in breach of trust; and that Mr Carey, as sole director of Westpoint, was a knowing participant in that breach of trust. The plaintiff opposes leave being granted to raise these issues. It was submitted on behalf of the plaintiff that the particulars of knowledge and participation which are contained in the proposed pleading are hopelessly inadequate. I do not accept that this is so.
The particulars which have been given allege that Mr Carey was the sole director and the ultimate beneficial owner of Westpoint at all relevant times, was the controlling mind of the Westpoint group and, in that capacity, must have known of the content of the information memoranda and of the fact that the funds which were invested were not being dealt with in accordance with the statements made in the information memoranda. In my view, that is sufficient to raise an arguable case of knowing receipt of trust property in breach of trust and participation by Mr Carey in that breach. Accordingly, I will give leave to the defendants to join Westpoint and Mr Carey as parties to the proceeding and to make the breach of trust and related allegations in their pleadings.
Seventh, the defendants wish to plead that each of the directors of ASM and YSM owed a duty of care to the plaintiff and are liable as concurrent wrongdoers for a breach of that duty.
It was submitted on behalf of the defendants that it is at least arguable that the directors owed a duty of care to the plaintiff, and other investors in ASM and YSM promissory notes, to discharge their duties as directors in such a way as to take reasonable steps to protect the interests of investors. Counsel for the defendants frankly acknowledged that there is, in general, no duty of care owed by directors to the creditors of a company. This was settled by the High Court in Spies v R.[8] However, counsel for the defendants submitted that it was nevertheless arguable that directors of a special purpose custodial entity (such as ASM and YSM) owe a duty to investors who have advanced funds to that custodial entity. In this regard, particular reliance was placed upon a statement in each of the information memoranda, to the following effect:
As previously mentioned, [ASM/YSM] is a single purpose company specifically established for this offering. To ensure absolute compliance with the loan arrangements between [ASM/YSM] and that investor interests are always considered, [ASM/YSM] has a majority of independent directors …
The board of directors are:
[The directors are then named and a brief description of their qualification is given.]
[8](2000) 201 CLR 603, [94]-[96].
It was submitted on behalf of the defendants that the law as to the liability for economic loss is developing and has not yet reached the stage where there is a governing principle applicable to all cases. In this regard, reliance was placed upon the statement by Gaudron J in Perre v Apand[9] that:
The law as to the liability for economic loss is a ‘comparatively new and developing area of the law of negligence’ … it has not yet developed to a stage where there has been enunciated a governing principle applicable to all cases … perhaps it never will. Not surprisingly, given the present stage of development, different approaches have been advanced as to the way in which claims for which there is no legal precedent should be dealt with.[10]
[9](1999) 198 CLR 180.
[10]Ibid, 197 (emphasis added).
Counsel for the defendants submitted that there was no precedent which governs a case such as that which the defendants seek to plead against the directors. I do not accept that submission. In my view, the proposed pleading of a duty of care owed by the directors to the plaintiff raises a hopeless case on the present state of the law. There is a legal precedent which establishes this. The point was decided by the High Court in Spies v R, which was decided after Perre v Apand.
In Spies v R, Gaudron, McHugh, Gummow and Hayne JJ quoted with approval the following statement by Gummow J (as a member of the Federal Court) in Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler:[11]
It is clear that the duty to take into account the interests of creditors is merely a restriction on the right of shareholders to ratify breaches of the duty owed to the company. The restriction is similar to that found in cases involving fraud on the minority. Where a company is insolvent or nearing insolvency, the creditors are to be seen as having a direct interest in the company and that interest cannot be overridden by the shareholders. This restriction does not, in the absence of any conferral of such a right by statute, confer upon creditors any general law right against former directors of the company to recover losses suffered by those creditors … the result is that there is a duty of imperfect obligation owed to creditors, one which the creditors cannot enforce save to the extent that the company acts on its own motion or through a liquidator.[12]
[11](1994) 51 FCR 425, 444-445 (emphasis added).
[12](2000) 201 CLR 603, 636.
In Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd,[13] Redlich J made the following observations:
Since at least the decision of the House of Lords in Salomon v Salomon the separate legal identity of a corporation has remained unchallenged in Australia. It has continued to exist as a “new legal entity, a person in the eye of the law”. Shareholders have no liability for the company’s debts nor any proprietary interest in its assets. There is no general right to proceed beyond the company to its directors or shareholders when seeking a civil remedy. Creditors have no general law right against former directors for the recovery of losses suffered by those creditors. The High Court in Spies v R removed any doubt that it is contrary to principle to assert that directors owe an independent duty to, and enforceable by, the creditors by reason of their position as directors.[14]
[13](2003) 9 VR 171.
[14]Ibid, 219 (citations omitted), (emphasis added).
In these circumstances, I will refuse leave to join the directors as parties to the proceeding.
I turn to consider the appropriate procedural orders to give effect to these reasons. Section 24AL of the Act provides that the Court may give leave to join concurrent wrongdoers “as defendants”. “Defendant” is defined in s 24AE of the Act as including any person joined as a defendant “or other party” except a plaintiff. In Woods v De Gabriele & Ors[15] Hollingworth J rejected an argument that it was appropriate to join a concurrent wrongdoer as a third party. Her Honour joined the concurrent wrongdoer as a defendant. The principal reason for this was that the defendants made no claim against the concurrent wrongdoer which could be the subject of a third party notice.[16] However, in this case, the proposed third party statement of claim put forward by the defendants includes claims against the concurrent wrongdoers for declarations that they are concurrent wrongdoers in relation to apportionable claims made by the plaintiff against the defendants. Further, the plaintiff does not wish to make any claim against the added parties.
[15][2007] VSC 177.
[16]Ibid, [65].
In these circumstances, the most appropriate procedure is to order that the defendants plead their allegations of concurrent wrongdoing in an amended defence and counterclaim, with leave being given to join the added parties as defendants to that counterclaim. This will enable the plaintiff to plead its answer to these allegations in a reply and defence to counterclaim. It will also enable the added parties to defend the counterclaim if they so desire. In this regard, the indications are that a defence by the added parties is highly unlikely. No relief which will sound in a monetary order against them is sought by the defendants. The plaintiff has made it clear that she will not seek any relief against them. In these circumstances, it is unlikely that the added parties will wish to incur the costs of defending the claims against them for declarations. Of course, if the plaintiff does not join the added parties as defendants, it is likely that the plaintiff will be estopped from later making a direct claim against them or any of them.[17]
[17]Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.
A question arises as to whether it is necessary to make an order under s 471B of the Corporations Act 2001 (Cth) giving the defendants leave to proceed against ASM, YSM and Westpoint, each of which is in liquidation. This matter was considered by Hollingworth J in Woods v De Gabrielle.[18] Like Hollingworth J, I will make an order giving leave to proceed, in order to remove any doubt as to whether leave is necessary. The plaintiff did not oppose this course being adopted.
[18][2007] VSC 177, [66]-[69].
I will hear the parties as to the precise form of orders, and as to costs.
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