Bendigo Bank v Weaver
[2011] VCC 1410
•26 AUGUST 2011
| IN THE COUNTY COURT OF VICTORIA | Revised |
(Not) Restricted
AT MELBOURNE
CIVIL DIVISION
Case No. CI-11-00543 CI-11-00544 CI-11-00607 CI-11-00670 CI-11-00678 CI-11-00721
| BENDIGO AND ADELAIDE BANK LIMITED | Plaintiffs |
| & ANOR | |
| v | |
| KAREN WEAVER & ORS | Defendants |
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| JUDGE: | LACAVA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 20 JULY 2011 |
| DATE OF JUDGMENT: | 26 AUGUST 2011 |
| CASE MAY BE CITED AS: | BENDIGO BANK V WEAVER |
| MEDIUM NEUTRAL CITATION: | [2011] VCC 1410 |
REASONS FOR JUDGMENT
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Catchwords: Application to strike out proposed second amended defence and amended counterclaim-leave granted on basis proposed pleading does not disclose a cause of action and is embarrassing.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms. P Neskovcin | Turks Legal |
| For the Defendant | Mr. R Newlinds SC with Mr. | ERA Legal |
| P Newton | ||
| HIS HONOUR: |
1 On 17 June 2011 the plaintiffs in each of these six proceedings filed summonses seeking orders pursuant to Order 23.02 of the rules striking out the proposed second amended defence and amended counterclaim of the defendant in each proceeding. The plaintiff’s claim and, the proposed second amended defence and amended counterclaim, in each proceeding raise similar points.
2 In each proceeding Bendigo and Adelaide Bank Limited (ACN 068 049 178) is the first plaintiff and ABL Nominees Pty Ltd is the second plaintiff. In proceeding CI-11-00543 Bruno Luciani is the defendant/plaintiff by counterclaim. In proceeding CI-11-00544 Narelle Wendy Evans is the defendant/plaintiff by counterclaim. In proceeding CI-11-00607 Orkun Ankara is the defendant/plaintiff by counterclaim. In proceeding CI-11-00670 Rosemary Anne Hall is the defendant/plaintiff by counterclaim. In proceeding CI-11-00678 Andrew John Ireland is the defendant/plaintiff by counterclaim. In proceeding CI-11-00721 Karen Weaver is the defendant/plaintiff by counterclaim.
3 The parties have agreed that I should decide the application on the basis of the summons filed by the plaintiffs on 17 June 2011 in the Weaver proceeding and the hearing before me proceeded on that basis. The parties have agreed the orders I make in this judgment in the Weaver proceeding will also apply in the other five proceedings, that is the Luciani proceeding, the Evans proceeding, the Ankara proceeding, the Hall proceeding and the Ireland proceeding.
4 Each summons comes on for hearing in this way. On 3 May 2011 the defendants delivered a defence in each proceeding. The plaintiffs in each proceeding soon after issued a summons seeking orders to strike out those defences. On 30 May 2011 Judge Kennedy heard those strike out summonses. She ordered the defendants to file and serve an amended defence in each proceeding by 4.00pm on 14 June 2011 and, if this was not done, the defences as then filed be struck out. Her Honour further ordered the plaintiffs file and serve any summonses applying to strike out any amended defence and counterclaim be filed and served on or before 20 June 2011.
5 The defendant in each proceeding served and filed a proposed amended defence and counterclaim. In each proceeding the plaintiffs issued a summons on 17 June 2011 seeking to strike out each of those amended defences and counterclaims.
6 On 24 June 2011 each proceeding was listed for directions before Judge Kennedy. At that time each defendant indicated it proposed to file and serve a second amended defence and counterclaim. Her Honour ordered the plaintiffs summonses to strike out be heard on 20 July and ordered the defendants to serve a proposed second amended defence and amended counterclaim which, if not objected to by the plaintiffs would then be treated as the second amended defence and amended counterclaim for the purpose of deciding the plaintiff’s summonses dated 17 June 2011. In that way each proceeding came on before me as the Duty Judge on 20 July 2011.
7 The defendants delivered a second amended defence and amended counterclaim in each of the Luciani, Hall and Weaver proceedings. They delivered amended defences and amended counterclaims in each of the Ankara, Evans and Ireland proceedings. The pleading at the centre of the argument in each proceeding therefore is either a proposed second amended defence and amended counterclaim or a proposed amended defence and amended counterclaim. For simplicity I shall hereafter in this judgment refer to these documents collectively as “the proposed counterclaim”. Insofar as each summons seeks an order striking out the proposed counterclaim, I treat each as an application seeking an order that the defendant in each proceeding be refused leave to file the particular document relied upon, applying the same principles as if hearing and determining a strike out application under rule 23.02.
8 There is a short background to the proceeding and these applications the facts of which are common ground. The plaintiffs are suing to recover loan moneys alleged to be owed to them by the defendant in each proceeding. The defendant in each proceeding obtained a loan from the second plaintiff in order to invest in various Great Southern managed investment schemes.
9 The second plaintiff ABL Nominees Pty Ltd (‘ABL’) was the original lender. It was at all relevant times a subsidiary of the Adelaide Bank Limited and assigned its rights in relation to the respective loans to Adelaide Bank Limited. At some point Adelaide Bank Limited transferred its assets to Bendigo & Adelaide Bank Limited (‘the first plaintiff’) which is the ultimate assignee of each respective loan.
10 Great Southern is a group of companies each of which is now in liquidation. The holding company is a company called Great Southern Limited (‘GSL’). The Great Southern Group promoted various managed investment schemes. The relevant responsible entity is a company called Great Southern Managers Australia Limited (‘GSMAL’). There is another related company called Great Southern Finance Pty Ltd (‘GSF’). At all relevant times both GSMAL and GSF was a wholly owned subsidiary of GSL.
11 GSMAL issued product disclosure statements in relation to the managed investment schemes it was promoting. An investor could apply for an investment and could either fund that investment through his or her own funds by obtaining a loan from another lender or, by completing an application for term finance. The product disclosure statement, the application for investment and the application for term finance are each documents referred to in the pleadings in each proceeding.
12 When the respective defendants (investors) completed an application for term finance, each acknowledged applying to GSF or ABL, at GSF's discretion, for term finance to acquire an interest in the relevant managed investment scheme. By completing and signing the application for term finance each defendant agreed to appointing GSF, and ABL where it was the lender, as their attorney, to execute a loan deed. In each instance the form of the loan deed is annexed to the application.
13 In accordance with the applications signed by each defendant, a loan deed was executed by GSF as attorney for each defendant, and by GSF as the lender's attorney. Subsequently, in 2009 the Great Southern group of companies went into liquidation. At about that time each defendant ceased making loan repayments. The plaintiffs issued the proceedings earlier this year to recover moneys loaned to each defendant which were used to fund that particular defendant’s participation in the managed investment scheme.
14 In summary form, the proposed defence and proposed counterclaim in each proceeding denies liability to the plaintiffs and pleads that the loan deeds are void and unenforceable. The strike out summonses therefore fix upon that which is pleaded in each proposed counterclaim.
15 In each proposed counterclaim the defendant seeks relief against the plaintiffs (defendants by proposed counterclaim) on three principal bases. Firstly, relief is sought under s.1022C of the Corporations Act 2001 (Cth). That section applies to product disclosure statements and the like. In summary form, by counterclaim the defendants each allege that GSMAL made representations that were misleading and deceptive. They also allege GSF and ABL knew about the representations and knew them to be misleading or deceptive entitling each of the defendants (plaintiffs by proposed counterclaim) to relief under s.1022C. The Ankara proceeding is slightly different in this regard. There, the defendant pleads GSMAL, GSF and the second plaintiff ABL made the representations.
16 Secondly, the defendant in each proceeding seeks relief against the second plaintiff ABL on the basis that the loan deed is unconscionable or, alternatively, ABL engaged in unconscionable conduct. The companies in the Great Southern Group, each of which I was told are in liquidation, are not named as defendants to the proposed counterclaim.
17 Thirdly, in each proposed counterclaim there is an allegation of breach of fiduciary duty or that ABL was knowingly involved in GSF's breach of fiduciary duty.
18 Central to the success of each proposed counterclaim are the representations alleged and whether those representations were made to the defendant in each proceeding. If so, the defendant in each proceeding must prove the representations pleaded were made with the knowledge and approval of ABL and that ABL also knew the representations were false.
19 Ms. Neskovcin who appeared on behalf of the plaintiffs in each proceeding submitted the proposed counterclaim in each proceeding fails to set out a proper cause of action against the plaintiffs. She submitted the proposed counterclaim in each proceeding is deficient because it does not plead a proper basis for alleging that ABL knew of the representations alleged or, if it did, that the representations alleged were false or misleading. So far as the pleading by proposed counterclaim which alleges breach of a fiduciary duty, the plaintiffs/defendants by proposed counterclaim submit as a matter of law, the defendants cannot allege the type of fiduciary duty pleaded.
20 The principles to be applied by a court on an application to strike out a pleading are not in dispute between the parties. They are set out in Williams, Civil Procedure Victoria at 23.01.35. In P&V Industries Pty Ltd v Porto [2006] VSC 131 Justice Hollingworth summarised the principles applicable at paragraphs 8 and 9 in the following way:
8.
Whether treated as an application to strike out the current paragraphs, or to amend the claim to add paragraph 13(p), there is no real dispute that the relevant test is essentially the same for the purposes of this case. The oft-quoted passage from Dixon J, as he then was, in Dey v Victorian Railways Commissioners[1] reminds us that a case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff from submitting its case for determination.
9. Barwick CJ in General Steel Industries set out the test as follows: [1] (1948) 78 CLR 62 at 92.
“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’.”[2]
[2] General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129.
21 In Peter Clarke as Trustee of the Clarke Family Trust & Ors v Great Southern
Finance (Receivers & Managers Appointed)(In Liquidation) & Ors [2010] VSC
473 Justice Croft ruled in relation to an application involving similar issues and arguments to that with which I am faced with here. At paragraph 11 His Honour set out the relevant principles under the heading “Strike out principles” as follows:
11. Rule 23.02 of the Rules provides: “Where an indorsement of claim on a writ or originating motion or
a pleading or any part of an indorsement of claim or pleading –
(a) does not disclose a cause of action or defence;
(b) is scandalous, frivolous or vexatious; or
(c) may prejudice, embarrass or delay the fair trial of the
proceeding; or
(d) is otherwise an abuse of the process of the Court
The Court may order that the whole or part of the indorsement or
pleading be struck out or amended.”
The power to strike out or compel amendment of a pleading is discretionary[3] but, as a rule, it is only when some substantial objection to the pleading complained of or where some real embarrassment is shown that the power will be exercised.[4]
[3] Golding v Wharton Saltworks (1876) 1 QBD 374; Knowles v Roberts (1888) 38 Ch D 263; Bulmer v Oakey Co-op Dairy Co Ltd [1908] St R Qd 216; Darcy v Connolly (1924) 26 WALR 93.
[4] Thornhill v Weeks (No. 2) [1913] 2 Ch 464.
12. Where there has been a failure to state all material facts, and not merely a failure to give sufficient particulars of material facts, the proper course is to strike out the offending pleading, with liberty to amend, rather than order particulars.[5]
[5] See Bruce v Odhams Press Ltd [1936] 1 KB 697; Rubenstein v Truth and Sportsman Ltd [1960] VR 473; and see Sent v Jetcorp of Australia Pty Ltd (1984) 2 FCR 210.
22 In deciding these applications I proceed on the basis the facts as pleaded by the defendant in each proposed counterclaim be assumed proven for the purposes of the argument. I also proceed on the basis that I must apply the same principles as applied by Justice Hollingworth and Justice Croft set out above.
23 Recognising that the principles to be applied on this application place a high hurdle for her client to pass over, Ms Neskovcin nonetheless submitted the defendant’s proposed counterclaim as pleaded in each proceeding is untenable in that it does not disclose a cause of action against her clients or a defence to their claims. She further submits that as presently framed the proposed counterclaim may prejudice, embarrass or delay the fair trial of the proceeding. In those circumstances she submits the second amended defence and proposed counterclaim should be struck out in the Weaver proceeding and the like pleading in the other proceedings.
24 For the purposes of this application Ms Neskovcin and her instructors have prepared a helpful table which shows the issues pleaded in the proposed counterclaim and the wording and paragraph number in each proposed counterclaim. It also identifies the documents alleged in the proposed counterclaims that contain the representations said to be false and misleading which each defendant seeks to attribute to ABL.
25 Central to the allegations in the defences and proposed counterclaims are the product disclosure statements. Each defendant may have invested in a different managed investment scheme to other investors, but the representations made in the various product disclosure statements remained, for all relevant purposes, similar in content.
26 The defendant Karen Weaver invested in the 2008 Vineyards Managed Investment Scheme as did the defendants Evans, Hall and Ireland. Ireland also invested in the 2007 Vineyards Managed Investment Scheme. The defendants Ankara and Luciani invested in the 2008 Olives Managed Investment Scheme.
27 In order to understand the arguments it is necessary to summarise the proposed second amended defence and proposed amended counterclaim in the Weaver proceeding.
28 In the Weaver proceeding, the defendant/plaintiff by proposed amended counterclaim pleads, inter alia:
•
that GSMAL is the responsible entity for the 2008 Grape Income project and the issuer of the PDS that related to that project[6];
•
that GSF is for limited purposes the agent and attorney for ABL and for limited purposes the attorney of the defendant/plaintiff by counterclaim[7];
•
ABL is for limited purposes GSF’s agent and attorney and for limited purposes the attorney of the defendant/plaintiff by counterclaim[8];
•
Rhodes was a director of GSMAL, GSL and GSF[9] and a member of the executive committee of the Great Southern Group responsible for corporate strategy and the operational performance of the Great Southern Group[10];
•
Romeo was the finance manager of GSMAL and responsible for the operations of GSF in providing finance to investors and securitisation of its loan portfolio and an attorney and agent of ABL[11];
•
at all material times GSF and ABL knew of and approved the issue and distribution of the PDS, the Application for Investment, the Application for Term Finance, the Term Loan Deed and the Wine Grape Income Project Summary[12] (which I shall refer to collectively as ‘the project documents’)
[6] Counterclaim paragraphs 2 (f) and (h).
[7] Counterclaim paragraphs 3 (g) and (h)
[8] Counterclaim paragraphs 4 (f) and (g)
[9] Counterclaim paragraph 5(b)
[10] Counterclaim paragraph 5(c)
[11] Counterclaim paragraph 5(d)
[12] Counterclaim paragraph 8
29 The particulars subjoined to paragraph 8 seek to particularise how it is that ABL knew of, and approved, the issue and distribution of the project documents. This knowledge is pleaded as arising from numerous pleaded allegations. These allegations are important so far as this application is concerned. That is because, the same allegations in sub paragraphs (a) to (s) of paragraph 8 are later repeated in the pleading as particulars that ABL knew and approved of the 2008 Wine Grape Income Project Representations and also that ABL had knowledge that the defendant would rely on such representations and be induced by them to invest and for such purpose would borrow from ABL[13]. They are also pleaded as the particulars to support an unconscionable conduct claim[14] . The particulars pleaded are as follows;
[13] See particulars sub joined to paragraph 12
[14] See particulars sub joined to paragraphs 21 and 28(e)
a.
ABL was the, or a preferred financier of, GSMAL for the purpose of the PDS;
b.
GSF and ABL depended or relied on the PDS as part of its business of lending money to investors;
c.
Mr Rhodes was a director of GSMAL from 30 June 2005 and a director of GSF from 10 April 2001;
d.
Mr Rhodes was the General Manager of the Great Southern Group of companies and had responsibility for overseeing all facets of the Group’s operations, including financial, corporate and administrative functions;
e.
Mr Rhodes was a member of the executive committee of the Great Southern Group which was responsible for all areas of corporate strategy and the operational performance of the Great Southern Group (including GSF) which monitored the performance yields of the projects;
f.
Mr Romeo was at all material times, the Finance Manager of GSMAL and was also responsible for the operations and functions of GSF in providing finance facilities to investors and securitisation of its loan portfolio. Mr Romeo was at all material times also an attorney and/or agent of ABL and as such his knowledge of the affairs of GSMAL and GSF were at all material times the knowledge of ABL;
g.
GSF was established to act as a lender of monies to scheme members who wished to invest in schemes promoted by GSMAL;
h.
GSMAL relied upon funds advanced by, inter alia, GSF and ABL to investors to provide the capital for the Projects;
i. By agreement between GSF, ABL Custodian Services, ABL and other companies dated 25 June, 2004 (the Loan Sale Servicing Deed) :
i. GSF offered for sale rights under loan agreements in respect of loans provided by GSF to investors to finance investments in GSMAL managed Schemes;
ii. Clause 1.2 defined “Loan Agreement” to include: “in relation to a Loan (defined to mean any debt owing by a debtor to the seller under a Loan Agreement from time to time), the agreement that evidences the terms of, or any obligations under, the Loan which agreement is, in relation to an Interest Free Loan, contained in a Prospectus”;
iii. GSF warranted that there had been no fraud, dishonesty, misrepresentation, misleading or deceptive conduct or negligence on its part or to the best of its knowledge or belief in connection with the marketing, distribution or making of loans.
j.
The Application for Investment, the Application for Term Finance and the Term of Loan Deed included loan options, set out loan conditions, included a direct debit request and authority which the PDS requested to be signed and submitted with the investor’s application form;
k. Page 6 of the PDS contained the following statement: Finance Options
Finance is available to approved applicants from Great
Southern Finance Pty Ltd, a wholly owned subsidiary of
Great Southern Limited as well as from the preferred
Financier of GSMAL. Twelve month interest free financing
for the Application Fee is available, as is longer-term
Principal and interest finance.l. Page 71 of the PDS contained the following statement:
m. Page 73 of the PDS contained the following statement:
n. Page 80 of the PDS contained the following statement: 5. Finance (If Applicable) Please Complete:
I/we hereby apply to Great Southern Finance Pty Ltd or to aPreferred financier for GSMAC to borrow the amount of
o.
Clause 6 of the Application for Term Finance contained, amongst others, the following statements:
p. Section 7 of the Application for Term Finance contained the following statement: The applicants and guarantors are not required to sign the loan deed attached to this application (and other documents connected with, or related to, the loan deed) as the loan deed will be completed and signed by the lender (or the lender’s attorney) as attorney for the applicants and guarantors pursuant to Section 7 of this application.
q.
Clause 7 of the Application for Term Finance contained the following statement:
r. The Term of Loan Deed contained the following:
s. ABL was intending to take security by way of a charge over rights and interests of investors in the 2008 Wine Grape Income Project offered by GSMAL; t. The Loan Deed was purportedly signed by Mr Rhodes in his capacity as director and Neil Hackett in his capacity as secretary of GSF purportedly as the attorney for the defendant. u. The Loan Deed was purportedly signed by Mr Romeo and Graeme Perich as the duly appointed attorneys for ABL. 24.Paragraph 9 of the proposed counterclaim pleads what are described as “The 2008 Wine Grape Project Representations”.
25.As I said earlier, paragraph 12 relies on the same allegations pleaded in sub paragraphs (a) to (s) of paragraph 8 as particulars that ABL knew and approved of the 2008 Wine Grape Income Project Representations and also that ABL had knowledge that the defendant would rely on such representations and be induced by them to invest and for such purpose would borrow from ABL.[15]
[15] Counterclaim paragraph 12.
26.Ms Neskovcin objects to a number of the particulars pleaded as set out above. I need to address her complaints in order.
27.Objection is taken to what is pleaded in sub paragraphs 3 (g) and (h), namely that GSF is, for limited purposes, the agent and attorney for ABL and for limited purposes the attorney of the defendant/plaintiff by counterclaim. The objection taken is that no particulars are provided in support of these allegations and that the defendants are required to plead and provide proper particulars of the allegation that GSF was the attorney (or agent) of ABL and the scope of the alleged appointment or authority. As Ms. Neskovcin points out, the pleading is relevant to subsequent allegations made against ABL and that what the defendant is seeking to establish is that as ABL’s attorney, matters that were known by GSF ought to be imputed to ABL.
28.The same objection is taken to sub paragraphs 4 (f) and (g). The objection taken is that no particulars are provided in support of these allegations and that the defendants are required to plead and provide proper particulars of the allegation that ABL was the attorney (or agent) of GSF and the defendant. The defendant contends in written submissions that full particulars of the allegation are to be found in sub-paragraphs 8(o) to (q) and (u) of the pleading. I do not accept that submission. In my view that is not an answer to the contention advanced by the plaintiffs.
29.Also, complaint is made about sub paragraph 5 (d) which pleads Romeo was the finance manager of GSMAL and responsible for the operations of GSF in providing finance to investors and securitisation of its loan portfolio and an attorney and agent of ABL. Again, the objection is that no particulars are provided in support of these allegations. Ms Neskovcin makes the point that paragraph 5 does not plead whether or not Romeo and Rhodes were the only directors of the companies named therein which she submits is relevant. Further, she argues the defendant must plead particulars that go to the question of the scope of an alleged agent’s authority if the pleading seeks to imput the agent’s knowledge to the principal which, she submits and I agree, the defendant is attempting to do here.
30.In response the defendants rely upon clause 7 of the application for Term Finance. But this does not address the complaint. What the plaintiffs contend is that the pleading should specify the circumstances giving rise to the appointment of the plaintiff's attorney. Was the attorney appointed at large or was he appointed only for the purposes of executing loan deeds? The plaintiffs contend the answer to that question must be provided because it informs the scope of authority.
31.Much of the argument here centred around Ms. Neskovcin’s objections to what is pleaded in the particulars of paragraph 8. The particulars are said to support the pleading that ABL knew of, and approved, the issue and distribution of the project documents. It also needs to be kept in mind that the same particulars in sub paragraphs (a) to (s) of paragraph 8 are said to support the allegations made in paragraph 12 that ABL knew and approved of the 2008 Wine Grape Income Project Representations and also that ABL had knowledge that the defendant would rely on such representations and be induced by them to invest and for such purpose would borrow from ABL. The particulars are also used to support the claim based on unconscionable conduct.
32.The particulars allege that ABL’s knowledge and approval is to be inferred and imputed from the facts, matters and circumstances referred to in the particulars. But the particulars in sub-paragraphs (j) to (r) each relate to finance for the investment in the scheme and are not particulars in support of the matters alleged, namely ABL’s approval of the issue and distribution of the project documents. Sub-paragraphs (a), (b), (g) and (h) relate to GSF’s and ABL’s alleged roles as financiers. Sub-paragraphs (s) to (u) do not support the allegation of knowledge or approval of the ‘issue’ or ‘distribution’ of any documents. In summary, Ms Neskovcin submits the particulars pleaded do not show, and aren't capable of showing, either in isolation or in an accumulation, that ABL knew of, and approved of, the issue and distribution of the project documents.
33.In sub paragraphs 8 (c) (d) and (e) the defendant alleges Rhodes was a director of GSL (the parent company), GSMAL and GSF. What is alleged is that Rhodes was a director of those companies and he was the general manager of the Great Southern Group and a member of the executive committee. Ms. Neskovcin referred me to Ford’s Principles of Corporations Law at paragraph 16.220 where the learned author opines there is a distinction at law between the case where a director is a controller of two companies and where the director is only one of several directors of two companies. In the former each company will know what the other knows because each has the same directing mind and will. But where a director is a director of two companies, but not the directing mind and will of both because, for example, there are other directors, the knowledge that the director gains as a director of one company is not automatically imputed to the other company.
34.The authors of Ford’s Principles of Corporations Law at the passage referred to above cite Peter Clarke as Trustee of the Clarke Family Trust & Ors v Great
Southern Finance (Receivers & Managers Appointed)(In Liquidation) & Ors
(supra) as one of the authorities for the propositions there stated. In Clarke, after
analysing the authorities on point, Justice Croft said, inter alia, at paragraph 32:“On this basis I am of the opinion that the “mere” fact of common directorships, noting that the position was that the directorships were not entirely common as there were some directors who were directors of one company only, does not establish common knowledge, common control or common liability.”
35.The plaintiff’s point here is that sub paragraphs 8 (c) (d) and (e) do not in terms plead particulars from which the knowledge of Rhodes and the companies of which he may a director can be imputed to ABL. There is nothing pleaded which shows that Rhodes is the directing mind and will of GSL (the parent company), GSMAL or GSF. As Ms Neskovcin submits, even assuming there was some basis for doing so, the proposed counterclaims do not allege that the requisite knowledge was held by GSL or GSF or GSMAL or that the requisite approval of the matters alleged was given by GSF in order to infer or impute such knowledge or approval to ABL.[16] I accept that submission.
[16] See G Dal Pont, Law of Agency, (2nd ed), (2008), [22.49] on imputing to principal knowledge of the agent.
36.The plaintiff’s make a similar argument in relation to what is pleaded at sub paragraph 8 (f) which relates to ABL having imputed knowledge through Romeo. Ms Neskovcin objects to what she described in argument as the ‘broad assertion’ in the pleading that anything Romeo knew, by being the Finance Manager of GSMAL and responsible for the operations and functions of GSF in providing finance facilities to investors and securitisation of loans, is imputed to ABL because he may have been its agent or attorney for a limited purpose.
37.Ms Neskovcin referred to Professor Dal Pont’s book “Law of Agency” second edition at page 626 where the learned author says, inter alia:
“The law presumes that the knowledge of (or notice to) an agent is imputed to the principal. This knowledge is actual rather than constructive knowledge. The main justification for the presumption equates to that which informs the doctrine of ostensible authority, namely to protect third parties who bona fide deal with an agent”.
38.At page 629 under the heading “Limits on the operation of the presumption”, Professor Dal Pont continues:
“The presumption does not operate without exception. In fact, an Australian judge in the late 19th Century noted that it was erroneous to state categorically that ‘knowledge of the agent is the knowledge of the principal’, in that were this a blanket rule ‘it would work great hardship and injustice, for in all cases where the principle applies the person is admittedly ignorant in fact of that which the law assumes him to know”.
39.Ms Neskovcin also referred to Ford (supra) at paragraph 16.210 "Where the person (in this paragraph called X), with the information is not the directing mind and will, the company is, in general, fixed with X’s knowledge “ only where certain conditions are satisfied. She also referred to the judgment of Justice Hammerschlag in Angelina Spina v Permanent Custodians Ltd [2008] NSWSC 561 at paragraph 106, where His Honour also reviewed all of the authorities in saying, inter alia:
“106. The law may impute to a principal knowledge relating to the subject matter of the agency which the agent acquires while acting within the scope of his authority: Reynolds, Bowstead and Reynolds on Agency, 18th ed (2006) Sweet & Maxwell at [8-207]. Where the agent is authorised to commit the principal to a transaction, and the agent’s state of mind is relevant to that transaction, the principal will be bound by the agent’s knowledge: Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd [2001] NSWCA 20; (2001) 50 NSWLR 679 at 697 (reversed on other grounds: see Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) [2003] HCA 25; (2003) 214 CLR 514 at 548). There may be circumstances where facts received by an agent otherwise than as agent may nevertheless be imputed to the principal, such as where the principal had a duty to make further investigation, but where the principal had no such duty this will not be the case: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [127]; Bowstead and Reynolds at [8- 207]”.
40.This, Ms Neskovcin submitted demonstrates that there's no blanket rule about attribution of knowledge of an agent to the principal. Whether of not knowledge can be attributed to the principal depends on the surrounding circumstances. What is relevant is whether or not that knowledge was within the scope of the agent's appointment. Relevant to Romeo, he executed the loan deed as an attorney for ABL. The plaintiffs submit that is a very narrow scope of appointment and it is the scope of the appointment that needs to be pleaded so that if it is alleged the plaintiffs are imputed with Romeo’s knowledge it needs to be established whether that knowledge was acquired by him having acted within the scope of his agency or appointment. I agree, the relevant sub paragraph is not properly pleaded. Paragraphs 12 to 14 of the submissions in writing on behalf of the defendant attempt to address this problem in the context of what is raised by the plaintiffs concerning paragraphs 3 (g) and 3 (h) of the of the counterclaim. What is submitted in the written outline by counsel for the defendants does not answer the criticisms properly made in my view.
41.Turning to sub paragraphs 8 (g) and (h) Ms Neskovcin submitted neither paragraph is a particular that goes to support knowledge or approval by ABL of anything. I agree.
42.Sub paragraph 8 (i) refers to the Loan Sale Servicing Deed. Ms Neskovcin submits, and I agree, nothing about the parts of the deed that the defendant relies upon are capable of establishing knowledge of, or approval by, GSF of either the PDS or other matters, such that there is a proper basis for imputing knowledge and approval to or by ABL.
43.Sub paragraph 8 (j) refers to the application for investment, application for term finance, loan deed, and plead these documents "included a direct debit request and authority which the PDS requested to be signed and submitted with the investor's application form”. When one reads all of the project documents, as I have, one can see the various roles of the companies. ABL was at best that of the preferred lender. Sub paragraph 8 (j) in the terms pleaded cannot in my view serve as a particular that ABL approved the issue and distribution of the project documents. The pleading in my view attempts to paint ABL as a promoter of the project. On a proper and fair reading of the project documents as a whole that cannot be said to be the case in fact. I note His Honour Justice Croft was of a similar view in a similar but related proceeding in Clarke (supra) at paragraph 43.
44.Ms Neskovcin submitted sub-paragraphs 8 (o), (p) and (q) each in terms refer to the application for term finance but those parts of the application pleaded concern either consent to the disclosure of information being provided to either GSF or ABL or concern the appointment of GSF or ABL as attorneys. In no case, submits Ms Neskovcin, does the sub paragraph pleaded demonstrate that either GSF or ABL (through GSF) knew of and approved the PDS. That is especially so when the application pleaded was not part of the PDS. Again I agree with the submission of Ms. Neskovcin.
45.The plaintiffs submit sub-paragraph 8 (r) is also bad. As pleaded it does not demonstrate that either GSF or ABL (through GSF) knew of and approved the PDS. Again I agree with this submission.
46.Sub-paragraph 8 (s) refers to ABL taking security by way of charge over the rights and interests of investors in the project. As pleaded it does not demonstrate that either GSF or ABL (through GSF) knew of and approved the PDS. Again I agree with this submission.
47.Sub-paragraph 8 (t) concerns Rhodes signing the loan deed as attorney for the defendant. It has nothing to do with the plaintiff. As pleaded it does not demonstrate that either GSF or ABL (through GSF) knew of and approved the PDS. Again I agree with this submission.
48.Sub-paragraph 8 (u) concerns Romeo executing the loan deed as attorney for ABL. The paragraph suffers from the same vice as that attributable to sub- paragraph 8 (f). I need say no more about this.
49.In written submissions Mr Newlinds and Mr Newton addressed all of these criticisms of paragraph 8 and the sub paragraphs to it in paragraphs 16 and 17. I reject those submissions. The particulars subjoined to paragraph 8 do not address ABL’s knowledge and approval of the PDS much less making those matters “obvious”. The submissions show a clear reluctance by the defendant to come to grips with the criticisms made of the paragraph. This might also be said of other criticisms of the pleading.
50.Paragraph 9 of the defence and counterclaim in the Weaver proceeding sets out the representations alleged by the defendant in sub-paragraphs (a) to (h). The particulars assert the representations to be either express or implied in only a generalised way.
51.Rule 13.10(3)(a) of the County Court Civil Procedure Rules 2008 provides that every pleading shall contain particulars of any misrepresentation, fraud, breach of trust, wilful default or undue influence. The plaintiffs submit the particulars to paragraph 9 are bad for not complying with the rule. Ms Neskovcin argues that what is alleged in the particulars in the pleading is a global particularisation of the representations without specific attribution to any company or individual and without clearly stating which parts were oral, which parts were in writing and which representation or part thereof is to be implied.
52.Ms. Neskovcin submits that in the Weaver and Hall proceedings the particulars to paragraph 9 are deficient and are not particulars in support of the matters alleged. She argues it is not clear from the pleading how it is alleged that the oral representations by Rob Palandri were made by GSMAL. Further, the particulars do not comply with Rules 13.03 and 13.10 because they do not set out the purport and precise words of the alleged conversations.
53.Ms. Neskovcin submits that in the Ankara and Luciani proceedings, the oral representations are alleged to have been made ‘orally by persons promoting loans and investments in relation to the 2008 Olives Income Project (for and on behalf of the Great Southern Group) at a presentation at the Sofitel Hotel in Melbourne on or about 28 February 2008.’ The proposed amended counterclaims do not identify who made the oral representations or on what basis it is alleged that they were made ‘for and on behalf of the Great Southern Group.’ Again, it is also submitted the particulars do not comply with Rules 13.03 and 13.10(3)(a) because they do not set out the purport and precise words of the alleged conversations.
54.I agree with the complaint made about paragraph 9 of the proposed counterclaim. It does not comply with the rules. Mr. Newlinds submits the plaintiffs objection amounts to a request to see the evidence. I disagree. It is a request the defendant comply with the rules of the court.
55.As I have already pointed out above, paragraph 12 of the pleading relies upon the particulars in paragraph 8. To the extent that paragraph 8 falls, so then do paragraphs 12 and 21 and 28(e). Paragraph 12 alleges that at the time of the making of the 2008 Wine Grape Income Project Representations, ABL knew of and approved the representations. Even if the particulars in paragraph 8 were sufficient, they cannot stand as particulars of the representations. At paragraph 19 of their submissions counsel for the defendants address this argument. I do not agree the particulars in sub-paragraphs 8(a) to (s) support the allegations pleaded in paragraph 12 and nor do I accept any inference sought to be drawn is ‘obvious’. I reject the defendant’s submissions in this regard.
56.Paragraph 17 alleges ABL knew that the representations were misleading or deceptive. The particulars to support that assertion are all details about harvest yields from the 94/95 scheme and a report from Australian Agri Business Group in March 2005 and other transactions and things. Ms Neskovcin submits the particulars relied upon in the pleading do not show how it is alleged that the second plaintiff would have had knowledge of the matters particularised. That is not remedied by paragraph 8 which talks about things that predate, or things that are completely different to, the allegation of misrepresentation. I agree, the pleading is confusing in the extreme and does not set out in clear terms the case the plaintiffs must plead to in defence. The contentions of the plaintiffs in this regard were not addressed either in written submissions or in argument by the defendant.
57.The plaintiffs submit that insofar as the proposed counterclaim seeks orders against it under section 1022C of the Corporations Act the pleading is defective because the defendants do not allege that there is a ‘liable person’ within the meaning of subsections 1022B(3) or (5) and do not seek to recover loss or damage against that person under section 1022B(2) in order for the Court to be able to grant any relief under section 1022C.
58.I understood Mr Newlinds to concede the point taken. He advised me the defendants will have to apply to join GSMAL (in Liquidation), it being the relevant alleged ‘liable person’ after first obtaining the necessary leave either in the Federal Court or the Supreme Court[17].
[17] Defendant’s Supplementary Outline [19]
59. In those circumstances I do not have to decide the point made.
60.Under the heading ‘Unconscionable Conduct’ paragraph 21 of the proposed counterclaim pleads that the time of the making of the 2008 Wine Grape Income Project Representations, GSF and ABL:
a. knew and approved or ought to have known of the 2008 Wine Grape Income Project Representations and/or; b. knew or ought to have known that the 2008 Wine Grape Income Project Representations were misleading or deceptive or likely to mislead or deceive; and/or c. knew or ought to have known that the defendant would rely on the 2008 Wine Grape Income Project Representations and would be induced by them to invest in the 2008 Wine Grape Income Project and apply to borrow money from GSF or the second plaintiff. 61.The pleading at paragraph 21 (as with paragraph 12) gives the same particulars as are set out in paragraph 8. The plaintiffs make the same criticisms of paragraph 21 as are made of paragraphs 8 and 12.
62.In addition and as to paragraph 21(b), the plaintiff submits the particulars to paragraph 8 relate to alleged knowledge and approval of the distribution of the PDSs and other documents. They are not particulars of any person’s knowledge that the representations were misleading or deceptive. I agree. The only response to this by the respective defendants is that the particulars to paragraph 8 support the allegations there made and, I infer, support the allegations made in paragraphs 12 and 21. I disagree.
63.The plaintiffs submit paragraph 25 of the counterclaim suffers from the same vice as paragraph 9, namely, as pleaded there are no particulars of the allegation of knowledge, as required by Rule 13.10(3)(b). Again, the response is that the particulars to paragraph 8 support the allegations there made. Again I must disagree.
64.The plaintiffs attack paragraphs 27 and 34 of the counterclaim which assert Rhodes ‘knew or ought to have known’ the representations were misleading or deceptive or likely to mislead and deceive. The complaint is there are no particulars pleaded that justify the allegation pleaded. Again, the response is that the particulars to paragraph 8 support the allegations there made. Again I must disagree.
65.The plaintiffs further argue paragraphs 28 and 35 of the proposed counterclaim, which assert ABL ‘knew or ought to have known’ the representations were misleading or deceptive or likely to mislead and deceive, are inadequate. The particulars given refer to the particulars to paragraph 8. The particulars to paragraph 8 relate to alleged knowledge and approval of the issue of and distribution of the PDS and other documents and are not particulars of the alleged knowledge of ABL that the representations were misleading or deceptive. Again, the response is that the particulars to paragraph 8 support the allegations there made. Again I must disagree.
66.At paragraph 31 the proposed counterclaim proceeds under the heading “Breach of Fiduciary Duties”. At paragraph 33 (a) the proposed counterclaim pleads that ABL and GSF owed a fiduciary duty to the defendant to ‘act in good faith toward and for the benefit of the defendant/counterclaimant.’ It will be observed the fiduciary duty there alleged is of a kind that is pleaded as prospective in nature. The plaintiffs submit that Australian law does not recognise positive legal duties on a fiduciary to act in the interest of the person to whom the duty is owed. The Plaintiffs rely on Professor dal Ponts book on the Law of Agency (supra) at [10.6] to [10.8].
67.The plaintiffs also submit the pleading at paragraph 33 (a), insofar as it pleads a duty to act in good faith, was rejected in a similar proceeding involving the same managed investment scheme by His Honour Justice Einstein in the New South Wales Supreme Court, which was conceded by Counsel for the defendant/cross claimant in that proceeding.[18] Mr. Newlinds submits the fiduciary duty pleaded by the defendant here is different to that which was pleaded in the case before Justice Einstein. In my view there is some considerable doubt as to whether that is the case.
[18] Bendigo and Adelaide Bank Limited v Cairncross (unreported, New South Wales Supreme Court, 22 June
68.The plaintiffs make no attack on the way the fiduciary duty is pleaded in paragraphs 33 (b) and 33 (c). Paragraph 37 alleges breach of the fiduciary duties. But that assertion as pleaded relies upon what is pleaded in paragraphs 34 to 36. The plaintiffs submit what is pleaded in those paragraphs is not capable of constituting a breach of the duties alleged in paragraphs 33(b) and (c). The plaintiffs submit paragraphs 34 to 36 do not establish that GSF or ABL refrained from putting themselves in a position where their own personal interests conflicted with the interests of the defendants or put their own interests before the interests of the defendants. Again, in part, the response is that the particulars to paragraph 8 support the allegations there made. Again I must disagree.
69.In paragraph 39 the counterclaim asserts ABL knew or ought to have known of the breach of fiduciary duty by GSL to the defendant. Such knowledge is alleged to be inferred from allegations thereafter set out. Presumably, the defendants intend to allege that knowledge and approval is to be inferred and imputed to the second plaintiff through the knowledge and conduct of its attorney. Assuming there was some basis for doing so, the proposed amended counterclaims do not allege that the requisite knowledge was held by ABL’s attorney in order to infer or impute such knowledge or approval to ABL. In those circumstances the plaintiff again contends the pleading is defective. Again, the response is that the particulars to paragraph 8 support the allegations there made. Again I must disagree.
70.The defendants’ response to the arguments advanced on behalf of the plaintiffs was dismissive and generally unhelpful. Mr. Newlinds SC, who with Mr. Newton, appeared on behalf of the defendants, submitted that paragraph 8 of the counterclaim pleads nothing more than at the time of issue of the PDS, and the making of the representations, ABL knew that there was a PDS[19]. That submission is incorrect. The submission advanced ignores the words used in paragraph 8 which plead ABL “knew of and approved the issue and distribution of the” project documents.
[19] Transcript 41 line 5
71.Mr. Newlinds submitted the particulars pleaded in paragraph 8 are more than sufficient to enable an inference to be drawn that ABL had seen the PDS “and would have been happy with how it looks, would have been happy with the pictures of the grapes and would have been happy with the fact that it talked up the prospects of the project being a success”[20]. I do not agree. The specific arguments advanced cannot be answered blithely, nor can the matters of law argued by Ms Neskovcin on behalf of the plaintiffs be dismissed in such a general way.
[20] Transcript 42 line 10
72.Mr. Newlinds, in answer to Ms. Neskovcin’s attack on sub-paragraph 8(f) submitted Romeo who signed the loan deed as attorney for ABL, because of the position he holds with the Great Southern companies, he knows what is happening financially within the Great Southern companies. Mr. Newlinds submitted this proceeding has got nothing to do with cases about individual director's knowledge and whether you need the whole of a board's knowledge to impute knowledge between related or non-related companies[21]. Mr. Newlinds conceded that once it is proved Romeo had the necessary knowledge, then if it be accepted that he is acting as agent or attorney then there becomes a question of whether the circumstances are such that there should have been disclosure. But this argument ignores the fact that the pleading presently advanced does not plead those necessary circumstances. That is one of the complaints made and which is presently unanswered.
[21] Transcript 46 line 21
73.At one point Mr. Newlinds described the arguments advanced by the plaintiffs in argument as ‘arid pleading points’.[22] He later sought to retract that description. The arguments advanced are hardly arid. They are in my view sound in law. I find the arguments have merit because they demonstrate that the defence and counterclaim do not in general terms comply with rule 13.10 (1) or 13.10(2). The proposed counterclaim does not contain the proper necessary particulars of facts and matters pleaded. It does not provide particulars necessary to enable the plaintiffs to plead a defence. It does not define the questions at trial and nor does it avoid surprise. This may be demonstrated from the way in which Mr. Newlinds was forced to respond, by telling me what he would say in an address at trial[23]. With respect, such a response does not address the problem caused by the pleading.
[22] Transcript 47 line 20.
[23] Transcript 48
74.Further, the pleading in paragraphs 8 and 12 is beset with problems which infect the whole document. In my opinion, the pleading does not disclose a cause of action and/or at the very least is embarrassing.
75.Without conceding the problems with paragraph 12 of the counterclaim Mr Newlinds submitted the pleading was drafted with brevity in mind. He submitted one needs to read the whole of the pleading and not just concentrate on particular paragraphs. I disagree. I have read the whole of the document several times and have reached the view it is beset with all of the problems submitted by Ms Neskovcin. There seemed to be an implied concession by Mr Newlinds that paragraph 12 might at least have some problems[24].
[24] Transcript 54
76.At paragraphs 9 and 10 of their written outline, Mr Newlinds and Mr Newton summarised why the plaintiff’s contentions should be dismissed. Those submissions also in a very general way make arguments which do not deal with the specific arguments advanced by the plaintiffs. I reject the defendants submissions.
77.In my opinion the plaintiffs have demonstrated that the proposed second amended defence and amended counterclaim in each proceeding does not disclose a cause of action against either plaintiff. Further, in each proceeding I am of the opinion the proposed counterclaim is embarrassing in that the plaintiffs cannot plead a defence to it because either there are no or insufficient particulars provided or, the particulars provided cannot stand as particulars of the proposition pleaded. Because of the way the pleading is constructed, relying as it does on the particulars to paragraph 8 to stand as particulars for other paragraphs, the whole of the pleading should not be allowed to stand. Accordingly, the defendant in each proceeding is refused leave to serve and file the proposed second amended defence and amended counterclaim dated June 2011.
78. I propose the following orders be made in each proceeding.
79.In proceeding CI-11-00721 in which Karen Weaver is the defendant/plaintiff by counterclaim the defendant/plaintiff by counterclaim is refused leave to file her proposed second amended defence and amended counterclaim. The defendant is ordered to pay the plaintiff’s costs of and incidental to the summons dated 17 June 2011 and the plaintiff’s costs thrown away by reason of the delivery of the amended defence and counterclaim and the proposed second amended defence and counterclaim.
80.In proceeding CI-11-00543 in which Bruno Luciani is the defendant/plaintiff by counterclaim, the defendant/plaintiff by counterclaim is refused leave to file his proposed second amended defence and amended counterclaim. The defendant is ordered to pay the plaintiff’s costs of and incidental to the summons dated 17 June 2011 and the plaintiff’s costs thrown away by reason of the delivery of the amended defence and counterclaim and the proposed second amended defence and counterclaim.
81.In proceeding CI-11-00670 in which Rosemary Anne Hall is the defendant/plaintiff by counterclaim, the defendant/plaintiff by counterclaim is refused leave to file her proposed second amended defence and amended counterclaim. The defendant is ordered to pay the plaintiff’s costs of and incidental to the summons dated 17 June 2011 and the plaintiff’s costs thrown away by reason of the delivery of the amended defence and counterclaim and the proposed second amended defence and counterclaim.
82.In proceeding CI-11-00544 in which Narelle Wendy Evans is the defendant/plaintiff by counterclaim, the defendant/plaintiff by counterclaim is refused leave to file her proposed amended defence and amended counterclaim. The defendant is ordered to pay the plaintiff’s costs of and incidental to the summons dated 17 June 2011 and the plaintiff’s costs thrown away by reason of the delivery of the proposed amended defence and counterclaim.
83.In proceeding CI-11-00607 in which Orkun Ankara is the defendant/plaintiff by counterclaim, the defendant/plaintiff by counterclaim is refused leave to file his proposed amended defence and amended counterclaim. The defendant is ordered to pay the plaintiff’s costs of and incidental to the summons dated 17 June 2011 and the plaintiff’s costs thrown away by reason of the delivery of the proposed amended defence and counterclaim.
84.In proceeding CI-11-00678 in which Andrew John Ireland is the defendant/plaintiff by counterclaim, the defendant/plaintiff by counterclaim is refused leave to file his proposed amended defence and amended counterclaim. The defendant is ordered to pay the plaintiff’s costs of and incidental to the summons dated 17 June 2011 and the plaintiff’s costs thrown away by reason of the delivery of the proposed amended defence and counterclaim.
85.I will hear counsel on the form of the orders proposed and on the question of
See Ford’s Principles of Corporations Law at [16.220] on knowledge through common directors.
2011) per Einstein J at [20].
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