Cachia, Salv Laurence v Westpac Financial Services Ltd

[1998] FCA 427

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3723 of 1996

BETWEEN:	SALV LAURENCE CACHIA APPLICANT
AND:	WESTPAC FINANCE SERVICES LIMITED RESPONDENT

JUDGE:	LINDGREN J
DATE:	17 APRIL 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(motion to strike out and for summary dismissal)
(ex tempore)

INTRODUCTION
The respondent (“WFS”) moves by notice of motion filed on 14 February 1997 for orders striking out of the statement of claim filed 28 January 1997 and dismissing the proceeding.  The relevant ground stated in the notice of motion is that no reasonable cause of action is disclosed.

RULES AND BACKGROUND
Order 11 r 16 of the Federal Court Rules provides as follows:

“16  Where a pleading -

(a)discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b)has a tendency to cause prejudice, embarrassment or delay in the proceeding; or

(c)       is otherwise an abuse of the process of the Court,

the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out.”

Order 20 r 2 of the Rules provides as follows:

“2(1)  Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding -

(a)       no reasonable cause of action is disclosed;

(b)       the proceeding is frivolous or vexatious; or

(c)       the proceeding is an abuse of the process of the Court,

the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.

(2)  The Court may receive evidence on the hearing of an application for an order under sub-rule (1).”

The document which currently expresses the application is one which was also filed on 28 January 1997.  It is intituled “amended application” but should be intituled “further amended application”.  This matter was raised on the hearing of WFS’s motion.  The original application by which the proceeding was commenced was filed on 29 October 1996 and an amended application was filed on 16 December 1996. I have amended the title of the document with which I am concerned from “amended application” to “further amended application” and shall henceforth refer to it as such.

WFS’s ATTACK ON THE FURTHER AMENDED APPLICATION
I will address first, WFS’s attack on the further amended application.  Paragraphs (1) to (4) do not claim relief.  In this respect, they do not comply with O 4 r 1 (2) or r 3.  If I could, I would strike them out, as WFS requests.  A particular reason for doing so is that I have previously drawn Mr Cachia’s attention to the impropriety of including in his application paragraphs which, like pars (1) to (4), are merely statements of grievance or of fact (see my Reasons for Judgment dated 18 December 1996 at 2).  The only “relief” claimed in the further amended application is damages and exemplary damages.  Both are referred to in par (5).  The problem, however, is that the word, “pleading”, in O 11 r 16 does not include an application - see the definition of “pleading” in O 1 r 4. 

It may be that the Court has inherent power to strike out pars (1) to (4), but this was not argued on the hearing.  Of course, there is an important difference between an application and a pleading in the present respect: a striking out of an application in its entirety would seem to have the effect that the proceeding would cease to be on foot, a consequence which does not flow from the striking out of a pleading.

The further amended application states that it is an application under the Corporations Law and the Trade Practices Act 1974 and sets out numerous sections of both pieces of legislation. This is an attempt on Mr Cachia's part to comply with O 4 r 3 (b), which provides that an application must, if the relief sought depends on a provision of an Act, specify the Act and the provision. However, I accept the submission made on behalf of WFS that nearly all of the numerous provisions referred to by Mr Cachia do not fall within this rule and that the only ones which do are ss 260 (1) (a) and 1005 of the Corporations Law and s 82 of the Trade Practices Act 1974 (the further amended application makes the common error of referring to s 52 of that Act).

Because the word “pleading” in O 11 r 16 does not include an application, I will not strike out any part of the further amended application, notwithstanding the validity of the criticisms of it made by counsel for WFS.  I will, however, grant Mr Cachia leave to amend by filing a second further amended application specifying the three correct sections and claiming simply, “1 damages”, and “2 exemplary damages”.  This is not to be taken as indicating a view on my part that a claim for exemplary damages is or is not supported by the statement of claim, but it will suffice if he files a second further amended application in such a form for the limited purpose of having a form of application which complies with the Rules.

WFS’s ATTACK ON THE STATEMENT OF CLAIM
I turn now to the more substantial matter of the statement of claim.  This is a 19 page document. It comprises 18 paragraphs followed by 34 paragraphs of particulars.  Counsel for WFS made detailed submissions attacking the 18 paragraphs of the statement of claim. Mr Cachia responded by referring to the well known principle that a statement of claim should not be struck out except in a clear case. It is clear, however, from O 11 r 16 and O 20 r 2 set out earlier, that a respondent is entitled to insist upon the pleading of a reasonable cause of action in a non-embarrassing way.  The notion of “embarrassment”, in the present context, is a familiar one upon which I need not elaborate.

It may be, as counsel for WFS said in his written submissions, that there is no substitute for dealing with the 18 paragraphs of the statement of claim one by one.  However, I do not propose to follow that course. 

It is important to remember, first, that the claim is one for damages and exemplary damages. 

Second, it is important to understand that the relief claimed falls into three classes:

(a)damages for contravention of Part 7.11 or 7.12 of the Corporations Law (the claim under s 1005 of the Corporations Law);

(b)damages for contravention of s 52 of the Trade Practices Act 1974 (the claim under s 82 of that Act); and

(c)damages for “oppression” (the claim under s 260 of the Corporations Law).

Third, it will help if I indicate in broad terms the essential facts which apparently give rise to Mr Cachia's sense of grievance.   The following account is not based on evidence (no evidence was led by either party on the hearing of the motion): it is based on the pleading. I make no findings of fact.

Apparently, Mr Cachia owned 57,397.21 units in the Westpac Real Property Growth Trust (“WRPG Trust”) of which WFS was the manager.  Apparently he acquired the units prior to the introduction of capital gains tax on 20 September 1985, so that, if he sold them, the capital gain on sale would not be subject to that form of impost.  The WRPG Trust was a “growth trust”, that is, a “no-income trust”, a trust which did not distribute income to its members. 

WFS recommended to the members of the WRPG Trust that they approve of a proposal which would have the effect of merging the WRPG Trust with another trust called the Westpac Property Trust (“WP Trust”).  At a meeting on 5 March 1992, the members voted for the proposal.  Mr Cachia, who attended the meeting, voted against it. 

The proposal involved inserting into the deed establishing the WRPG Trust a clause 56. Clause 56 is set out in particular 6 of the statement of claim.  In summary, its effect was to deem the unit holders to have requested redemption of their respective units in the WRPG Trust, and to have agreed to accept, in full satisfaction of the amount payable to them on redemption of their unit holdings, units in the WP Trust to a value equal to the value of their holdings in the WRPG Trust.  According to the statement of claim, WFS said that the “merger” was effective and that trading in units in the WP Trust commenced from 28 May 1992.  Mr Cachia’s claim seems to be that WFS misled his fellow unit holders into approving of the proposal and that he is worse off financially by holding units in the WP Trust than he was when he held his pre-capital gains tax units in the WPG Trust. 

Yet in the further amended statement of claim, Mr Cachia contends that “no real merger of the two said trusts eventuated”. The pleading does not explain on what basis he makes this allegation. Since his claim seems to be for damages arising from the fact that he has lost his pre-capital gains tax holding in the WRPG Trust, to say that the merger did not result is destructive of his case. Mr Cachia does not seek a declaration that the merger was ineffective and his claim for damages depends upon it having been effective.  The pleading is clearly embarrassing in the present respect.

Mr Cachia makes his complaints against WFS under various legal categories.  In my opinion they are not properly pleaded and I will say more about this below.  However, at this stage it seems appropriate to highlight one problem which seems to affect all of them. This is that Mr Cachia himself was not misled by anything that WFS said to the unit holders - he attended the meeting and voted against the proposal. For all I know, he may have tried to persuade the other unit holders to join him in voting against the proposal. No doubt he would have had the opportunity to do so.  He was outvoted. So far as I know, he has not brought proceedings against the other unit holders whose voting in favour of the proposal must have displeased him and was the immediate cause of the “merger”. 

Mr Cachia’s complaint cannot be that he was misled.  In one way or another, it seems to be that in misleading his fellow unit holders to vote for the proposal, WFS breached a duty which it owed to him.  To prove such a case, quite apart from the question whether such a cause of action exists, suggests great difficulty.  I presume that Mr Cachia intends to call as witnesses former fellow unit holders to give evidence that if they had been told all that Mr Cachia proves WFS should have told them, they would not have voted for the proposal, with the result that it would not have been adopted, with the result that Mr Cachia would have retained his pre-capital gains tax unit-holding in the WRPG Trust.

I turn now to the individual paragraphs of the statement of claim.  Like counsel for WFS, I will spend some little time on paragraph (1), but unlike him I do not propose to address the succeeding 17 paragraphs. 

Paragraph (1) complains that WFS, by a letter dated 3 February 1992 and by means of “an information memorandum and notice of meeting/Prospectus” accompanying the letter, recommended proposals to members of the WRPG Trust relating to the merger of that Trust with the WP Trust and the listing of the combined trust on the Stock Exchange.  It is complained that WFS advised the members of the “benefits”, and did not advise them of the disadvantages, of this proposal, so as to mislead and deceive them.  In particular, paragraph 1 complains that WFS failed to put to the members the dissenting views of minority members on the proposals, although, oddly, the paragraph goes on to acknowledge that the dissenting views were in fact put before the general meeting. I presume, but in the absence of evidence do not know, that they were put before the meeting by Mr Cachia and, perhaps, others who viewed the proposal with disfavour as he did. 

Paragraph (1) first asserts that in acting as mentioned WFS failed in its duty of care.  However, the duty of care is not properly pleaded.  All that we know is that WFS, the manager, is said to have owed a duty to someone which it is said to have breached.  There is no pleading of the nature of the duty propounded, the general nature of the correct advice which Mr Cachia says WFS was obliged to give, what the chain of causation is said to have been from the breach of duty to the suffering of loss by Mr Cachia, or even whether it is alleged that unit-holders were misled.  As I indicated earlier, the problem with the chain of causation seems to affect all of the “causes of action” on which Mr Cachia relies.

The second cause of action referred to in paragraph (1) is that WFS did not “act in good faith” towards the members.  Again, the precise nature of this duty is not spelled out.  The law does not impose a duty to act in good faith upon every person having any kind of communication or dealing with any other person. Perhaps what Mr Cachia intends to assert is that WFS, as manager of the WRPG Trust, had fiduciary obligations to the holders of units in that Trust, and that by not putting all the information before them, in some way it breached those fiduciary obligations by acting in bad faith.  If so, why such an omission would constitute bad faith, as distinct from breach of a duty of care, eludes me. I need not speculate - the pleading is simply inadequate at present. 

I turn next to the pleading of causes of action based on s 995 (2) and (4) of the Corporations Law. Those subsections provide, in substance, that a person is not to engage in conduct that is misleading or deceptive or is likely to mislead or deceive in relation to securities. The provisions therefore bear some similarity to s 52 of the Trade Practices Act 1974. The “chain of causation problem” infects this part of the pleading.

The fourth cause of action is based on s 996 (1) of the Corporations Law and is defective for the same reason. 

The fifth cause of action is based on s 999 of the Corporations Law.  This section provides that a person must not, knowingly or recklessly, make false or misleading statements that are likely to induce persons to subscribe for, purchase or sell securities or to affect the market price of securities. Accordingly, it would be necessary for Mr Cachia to plead (and in due course to prove) that WFS knew that it was false or misleading not to refer to the disadvantages, or that WFS was indifferent as to whether the failure to state those disadvantages gave rise to a true or false impression.  For lack of these allegations, this cause of action is not adequately pleaded.  Moreover, there is a real problem with the notion of a “false” or “misleading” silence.  If Mr Cachia intends to plead that by reason of WFS’s silence, that which was stated gave a false or misleading impression, the pleading needs to say so and of course it needs to state what the false or misleading impression was. It fails in both respects at present.

The sixth cause of action is a contravention of Regulations under the Corporations Law. However, s 1005 of the Corporations Law does not provide for payment of compensation for contravention of the Regulations as distinct from contravention of a provision of the Corporations Law itself.  No other provision giving rise to an actionable duty is pleaded, and accordingly the causes of action based on the Regulations should be struck out. 

Finally (within paragraph (1)), s 52 of the Trade Practices Act is referred to.  There is again the “chain of causation problem”.  In addition, counsel for WFS submits that the cause of action is statute barred.  WFS’s point in this respect is that Mr Cachia would have suffered loss at the time of the “merger” in 1992, and that he launched the present proceeding on 29 October 1996, more than three years after the arising of the cause of action.  However, it is notoriously difficult to be certain when loss is first suffered for the purpose of the accrual of causes of action, and I am not, at least at present, satisfied to the requisite degree of certainty that Mr Cachia suffered any loss at the moment of the merger, rather than at, for example, some later time when his units were sold and when he may not have enjoyed the pre-capital gains tax status which he had enjoyed prior to the merger.

What I have said to date has merely dealt with paragraph (1) out of the 18 paragraphs of the statement of claim. I do not intend to address the remaining paragraphs in the same detailed fashion. 

I will mention one general problem.  Mr Cachia appears to rely upon Gambotto v WCP Limited (1995) 182 CLR 432. That case concerned an amendment to the articles of association of a company. It was held that the amendment was invalid as being directed to the expropriation by a holder of 99.69 per cent of the issued shares of the minority shareholders. Mr Cachia apparently wishes to say that the principle applies to the amendment which was made to the WRPG Trust.

It is not obvious to me that the Gambotto principle applies to the amendment of a unit trust deed. More significantly, Mr Cachia’s complaint, unlike that of Gambotto and Sandri, is not that there was a majority unit holder intent upon expropriating his units. Mr Cachia has not commenced proceedings against the trustee or the majority unit holders, but against the trust manager. His case, as pleaded, seems to be that the majority were misled, not that they conspired to oppress him.  Yet more significantly, there is nothing in the Gambotto case to suggest that an invalid amendment leads to an award of damages.  I understand Mr Cachia to be claiming damages at common law and under the Trade Practices Act 1974 (Cth). If Mr Cachia wishes, on the basis of the Gambotto case, to contend that the “merger” was ineffective, he cannot also say that the merger caused him loss.

In the remaining paragraphs of the statement of claim there are numerous obscurities and misconceptions.  I do not think it is my task to advise Mr Cachia, who, I should say, is not legally represented in the present proceeding, as to how to overcome the manifold problems with his pleading.  Lawyers are paid to provide the necessary professional learning and skill in this respect: it is not the role of a Judge to act as legal adviser and drafter of pleadings for a party. I have addressed the aspects of the pleading which appeared to me to be the most fundamental ones and which were the main concern of the parties’ submissions. Some of the matters to which I have referred, such as the alleging of a contravention of Regulations, the sweeping general allegation of lack of good faith, and the failure to plead facts constituting the cause of causation, also infect the subsequent paragraphs. Paragraph (6) pleads a fraud by the majority unit-holders on the minority, but WFS, as manager, is not the proper respondent to such a claim. 

It may assist Mr Cachia if I make three comments. The first is that I accept the validity of most, if not all, of the criticisms made by counsel for WFS of the remaining paragraphs of the statement of claim. Accordingly, it will be important for whoever settles the form of any amended statement of claim, to which I refer below, to pay close attention to the written submissions of counsel for WFS. The second matter, one which I have previously mentioned to Mr Cachia, is the desirability of his having professional legal representation in complex commercial litigation of the present kind. I understand (I hope I am mistaken) that it is his choice to appear unrepresented. The third matter is that my decision below that the statement of claim should be struck out is not a decision that Mr Cachia does not have an arguable cause of action. I can conceive of ways in which a cause of action in negligence and for contravention of s 52 of the Trade Practices Act 1974, for example, might be properly pleaded. (Whether the pleaded facts would accord with those in the real world would be a different question.) But Mr Cachia’s statement of claim cannot be allowed to survive on the basis of conjecture as to what a qualified legal practitioner might wish to plead on his behalf in a different document.

CONCLUSION AND ORDERS
It is clear to me that the statement of claim should be struck out in its entirety.  Counsel who appeared for WFS urged me also to dismiss the proceeding but I think that Mr Cachia should have one last opportunity to get the statement of claim in order, failing which my present intention is to dismiss the proceeding.  What I propose to do is only to strike out the statement of claim and to give Mr Cachia leave to file an amended statement of claim as well as a second further amended application within a limited time.  Of course he will be ordered to pay WFS’s costs of its motion. 

I would entertain a submission by WFS for leave for it to tax its costs now rather than to have to wait until the end of the proceeding.  At present the orders of the Court are:

1. That the statement of claim filed on 28 January, 1997 be struck out.  

1. That the applicant have leave to file a second further amended application amended to claim damages and exemplary damages and to refer only to ss 260 (1) (a) and 1005 of the Corporations Law and s 82 of the Trade Practices Act 1974 by Friday, 15 May 1998.

1. That the applicant have leave also to file and serve by 15 May, 1998 an amended statement of claim. 

1. That the applicant pay the respondent’s costs of the respondent’s motion brought by notice of motion filed on 14 February, 1997. 

1. That the respondent have leave to apply for leave to have those costs taxed forthwith.

I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren

Associate:

Dated:            27 April 1998

The Applicant (respondent to the motion) appeared in person
Counsel for the Respondent (applicant on the motion):	Mr N Perram
Solicitors for the Respondent:	Mallesons Stephen Jaques
Date of Hearing:	6 April 1998
Date of Judgment:	17 April 1998