Australian Securities and Investments Commission v Ludgates Corporate and Investment Advisory Services Pty Ltd (No. 2)

[2005] FCA 828

FEDERAL COURT OF AUSTRALIA

ASIC v Ludgates Corporate & Investment Advisory Services Pty Ltd (No. 2)
[2005] FCA 828

ASIC v LUDGATES CORPORATE & INVESTMENT ADVISORY SERVICES PTY LTD (No. 2)

NSD 3037 OF 2003

GRAHAM J

14 JUNE 2005
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 3037 OF 2003

BETWEEN:

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
APPLICANT

AND:

LUDGATES CORPORATE & INVESTMENT ADVISORY SERVICES PTY LTD
FIRST RESPONDENT

BENJAMIN PAUL WHITEHOUSE
SECOND RESPONDENT

JENNIFER MARTINE SISSON
THIRD RESPONDENT

JUDGE:

GRAHAM J

DATE OF ORDER:

14 JUNE 2005

WHERE MADE:

BRISBANE

THE COURT ORDERS THAT:

1. Leave to amend the paragraphs of the statement of claim to which the Third Respondent has taken exception, namely those covered by paragraphs 40(iii)-(iv); 46(ii); 52(ii) and (iv)-(v); 58(ii)-(vi) and addition of 30 June 1999 oral recommendation; 70(ii)-(vi) and addition of 30 June 1999 oral recommendation; 76(iv)-(v); 82(iii)-(iv) addition of 2 June 1999 oral recommendation; 88 additional written recommendation added; 94(ii) and (iii); 100(iii); 106(i)-(ii); 112(ii)-(vi); 118(ii)-(iii); 124(ii)-(iii); 130(i)-(iii); 136(i)-(iii); 142(iii); 148(iv)-(vi); 154(iii); 160(vii)-(xii); 166(ii)-(iii); 173(ii)-(vi); 179(ii)-(iv); 187(ii)-(v); 194(ii)-(v); 201(v)-(vi); 213(v)-(vi); 220(ii)-(iii). of the “Third Version of Second Amended Statement of Claim” (Exhibit AA2) is refused.

2. The costs of the application to amend the statement of claim be the Third Respondent's costs in the proceedings.

   Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

   
   

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 3037 OF 2003

BETWEEN:

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
APPLICANT

AND:

LUDGATES CORPORATE & INVESTMENT ADVISORY SERVICES PTY LTD
FIRST RESPONDENT

BENJAMIN PAUL WHITEHOUSE
SECOND RESPONDENT

JENNIFER MARTINE SISSON
THIRD RESPONDENT

JUDGE:	GRAHAM J
DATE:	14 JUNE 2005
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. Earlier today I gave reasons for judgment in respect of a class of proposed amendments to the amended statement of claim filed 11 February 2004, which I have indicated I would allow on a certain basis, which I need not repeat now.

2. Exception has also been taken by counsel for the Third Respondent to a series of further proposed amendments which were originally identified as the mere provision of further particulars of contraventions of s 851 of the Corporations Law 2000 (Cth) which had been pleaded.  Section 851(1) relevantly provides:

   “A securities adviser who: 

   (a)makes a securities recommendation to a person who may reasonably be expected to rely on it; and

   (b)does not have a reasonable basis for making the recommendation to the person;

   contravenes this section.”

3. In the pleading as it presently stands, where particulars have already been provided of the conduct said to constitute a contravention, there follows a paragraph which suggests that a party to whom a securities recommendation was made acted in reliance on the relevant recommendation or recommendations and, generally speaking, invested money.

4. If the amendments were allowed it would allow evidence to be tendered of conduct which post-dated the investments by the parties to whom the securities recommendations were made.  An issue would then arise as to whether or not the securities recommendation, if there was any, was made to "a person who may reasonably be expected to rely on it."

5. Mr Stack, counsel for the Applicant, indicates that an offending securities recommendation may take the form of a recommendation to make an investment, or may take the form of a recommendation to retain an existing investment.  He says that you can have contraventions of s 851 without the prospect of a further cash outlay by way of investment.  Even if he is right in this regard, this case is one which has a long history.  The proceedings were commenced on 17 June 2003, and the current amended statement of claim contains 265 paragraphs over 84 pages.  I am informed that within the current statement of claim there are 30 allegations of contravention of the relevant section. 

6. It seems to me that if the amendments were allowed to enable particulars to be added of letters or conversations that post-dated the investment decisions pleaded, it would have the effect of expanding the case from one involving 30 contraventions, to one involving something closer to 60 contraventions.  It may be that that is not the precise number, but it is clear that there would be a very significant increase in the case which the Respondents would have to meet.

7. Counsel for the Third Respondent points out that this case was fixed for hearing before me today, when originally fixed, sometime in February 2005.  Notice of the proposed amendments to the amended statement of claim were in fact only provided about six days ago.  He describes the alterations as being “monumental alterations”, and he draws attention to the justice of the case if his client is now required to meet a case which is, in numerical terms, about twice the size of that which the Applicant originally intended to make.

8. It seems to me that there is considerable substance in the submission of the Third Respondent in relation to the proposed amendment.  I cannot see that it would be just for the applicant to be allowed to convert a case for 30 contraventions into one for something in the order of 60 contraventions at this late stage in the matter.  In the circumstances, in my opinion, in the interests of justice, the proposed amendments that counsel for the Third Respondent has taken exception to should not be allowed.

9. I will ask for the paragraphs to which exception has been taken which have been identified in paragraph 2 of Mr Porter's written submissions to be incorporated into my reasons for judgment namely:

   The paragraphs to which exception is taken are paragraphs 40(iii) through to 220(iii) as detailed in counsel for the third respondent's submissions on proposed amendments, paragraph 2.

   The relevant paragraphs are:  40(iii)-(iv); 46(ii); 52(ii) and (iv)-(v); 58(ii)-(vi) and addition of 30 June 1999 oral recommendation; 70(ii)-(vi) and addition of 30 June 1999 oral recommendation; 76(iv)-(v); 82(iii)-(iv) addition of 2 June 1999 oral recommendation; 88 additional written recommendation added; 94(ii) and (iii); 100(iii); 106(i)-(ii); 112(ii)-(vi); 118(ii)-(iii); 124(ii)-(iii); 130(i)-(iii); 136(i)-(iii); 142(iii); 148(iv)-(vi); 154(iii); 160(vii)-(xii); 166(ii)-(iii); 173(ii)-(vi); 179(ii)-(iv); 187(ii)-(v); 194(ii)-(v); 201(v)-(vi); 213(v)-(vi); 220(ii)-(iii).

I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham

Associate:

Dated:            14 June 2005

Counsel for the Applicant:	Mr D Stack
Solicitor for the Applicant:	Australian Securities and Investments Commission
The Second Respondent appeared in person
Counsel for the Third Respondent:	Mr B Porter
Solicitor for the Third Respondent	Clayton Utz
Date of Hearing:	14 June 2005
Date of Judgment:	14 June 2005