Clarke v Great Southern Finance Pty Ltd (Ruling No. 1)
[2012] VSC 295
•29 June 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List C
No. S CI 2010 02882
| PETER CLARKE AS TRUSTEE OF THE CLARKE FAMILY TRUST & ORS (according to the schedule attached) | Plaintiffs |
| v | |
| GREAT SOUTHERN FINANCE PTY LTD (IN LIQUIDATION) (ACN 009 235 143) & ORS (according to the schedule attached) | Defendants |
---
JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 June 2012 | |
DATE OF RULING: | 29 June 2012 | |
CASE MAY BE CITED AS: | Clarke & Ors v Great Southern Finance Pty Ltd & Ors (Ruling No. 1) | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 295 | |
---
PRACTICE AND PROCEDURE – Application by Plaintiffs to amend statement of claim – whether proposed amendments are defective – whether prejudice is likely to be suffered if the application were to be allowed – application refused – ACN 074 971 109 v The National Mutual Life Association of Australasia Ltd [2010] VSC 186 – Aon Risk Services v ANU (2009) 258 ALR 14 – Taverners J Pty Ltd v Saxo Bank A/S [2011] VSC 27 – Civil Procedure Act 2010 (Vic) – Commercial Court Practice Note No. 10 of 2011 (the ‘Green Book’)
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G. Bigmore QC Mr S. Rubenstein | Macpherson + Kelley |
| For the First Defendant | No appearance | Norton Rose |
| For the Second, Third, Fourth and Fifth Defendants | Ms P. Neskovcin Mr. W.H.C. Forrester | Allens |
| For the Sixth Defendant | Ms C. Reigo, solicitor | Mills Oakley |
| For the Seventh Defendant | Mr A. McClelland Mr A.M. Dinelli | DLA Piper |
| For the Eighth Defendant | Mr. C. Calleo SC Mr. J. Evans | Colin Biggers and Paisley |
| For the Eleventh and Twelfth Defendants | Mr P Wood Mr C. Möller | Arnold Bloch Leibler |
| For the First and Second Third Parties | Mr D. Guidolin | Moray & Agnew |
RULING
HIS HONOUR:
This application to amend pleadings focuses on these proceedings (‘the Clarke proceedings’) but concerns other proceedings involving the Great Southern entities. The amendments sought in the other proceedings, the subject of the application, incorporate by reference significant parts of the proposed amendments to the Clarke proceedings - in critical respects. Consequently it follows that if the application with respect to the Clarke proceeding fails, so do the applications with respect to the other proceedings.
It is common ground that the amendments sought are not merely ‘tidying up’ or directed to minor matters. They go to substantive and serious issues which may be said to flow from existing pleadings (particularly in paragraphs 41(e) and 41(n)) but they go further and raise issues of knowledge and intention with respect to GSMAL.
In essence, the allegations are that the PDSs should have contained statements to the effect that GSMAL intended to engage in conduct in relation to the Great Southern Plantations 2005 and 2006 schemes which would be in breach of its AFSL (i.e. its Australian Financial Services Licence) and inconsistent with the ATO Product Rulings relating to the schemes.
These statements were required, as put on behalf of the Plaintiffs, because they produced risks - first that breach of its AFSL by GSMAL could lead to its inability to continue as the Responsible Entity and, secondly, acting inconsistently with the ATO Product Rulings could put the investors’ tax position at risk. Either way, it is put that these are matters which, if known to the investors, would have dissuaded them from investing in the schemes. Nevertheless, neither risk materialised and it is by no means clear that even if the breach and inconsistency was the case that it was likely that these consequences would follow.
The proposed amendments are criticised on the basis that they do not properly plead causation and consequence and, further, that they are fatally defective in relation to the primary allegations - particularly intention, knowledge and causation. In this respect, I note particularly paragraphs 19, 20 and 24 of the written submissions on the part of the Bank parties[1] and paragraphs 4 to 17 in GSMAL’s written submissions.[2]
[1]Outline of Submissions on behalf of the Second to Fifth Respondents dated 28 June 2012 provides:
‘19.New paragraph 41(o) alleges that GSMAL intended to engage in ‘conduct’ as set out in paragraphs 41A-J and, in doing so, would be in breach of the conditions of its AFSL. However, the matters pleaded at paragraph 41A-J do not constitute conduct or matters that constituted a breach of the conditions of the AFSL. Paragraphs 41A-J contain a mixture of allegations, legal arguments and conclusions, but do not constitute conduct. It cannot seriously be contended that GSMAL was required to disclose all of those matters in the PDSs.
20.Also, the particulars to paragraph 41C do not support the allegation that at all times on and from 8 March 2005, GSMAL was dependent upon the availability of trees growing upon land not under its control.
…
24.The allegations made at paragraphs 41J and 41N of the Clarke ASOC and paragraph 28(p) of the Olives ASOC and HVT ASOC, that GSMAL intended to not comply with the Lodgement Obligation (as defined) and intended to act in accordance with the Product Ruling/Product Ruling Representation (as defined), are of a serious kind. Such allegations are required by Supreme Court Rule 13.10(3) to be supported by proper particulars and cannot be the subject of mere inference.’
[2]GSMAL submissions are contained in a letter from DLA Piper to Macpherson & Kelly Lawyers dated 28 June 2012 which provides:
Whilst conceding that much of the proposed additional material could be treated as particulars to the existing allegations contained in paragraph 41 of the existing pleadings, the Plaintiffs have not, in my view, addressed the matters put against them with respect to intention, knowledge and causation – matters which, in my view, provide cogent reasons for accepting the position put on behalf of GSMAL and the Bank parties and also on behalf of Mr Young – in the formers’ written and oral submissions and in the latter case, Mr Young’s oral submissions. I also note that GSMAL and the Bank parties adopted each other's submissions and that other parties submitting against the Plaintiff's application also adopted each other's submissions.
Finally, issues of prejudice were considered. As the Plaintiff argued, the authorities do establish that courts will, in the usual course, allow pleading amendments to ensure that the real questions in controversy between the parties are before the court.[3] This is, however, not the usual case, for all the reasons already discussed in these proceedings, today and at other times. I do not need to rehearse all those issues with those present today. The trial date looms, the very substantial discovery processes is well advanced and the introduction of further substantive claims as proposed at this stage is, in my view, likely to require a review of existing discovery, even though it may not necessarily necessitate additional categories of discovery. The Civil Procedure Act 2010 (Vic) provisions, the High Court’s decision in Aon Risk Services v ANU[4] and the Commercial Court Practice Note, the ‘Green Book’, provide any number of bases for a court to refuse the proposed amendments in the present circumstances. Nonetheless the critical basis relied upon is that it is more than likely, for the reasons indicated, that the trial date of 17 September 2012 will be lost and the trial substantially delayed if the proposed pleading amendments were permitted which would result in prejudice to the parties. The balance of prejudice is discussed further below.
[3]ACN 074 971 109 v The National Mutual Life Association of Australasia Limited [2010] VSC 186, [28].
[4](2009) 258 ALR 14.
A further reason for refusing the application – in what I might call a discovery context – is because I am of the view that, as submitted by the Bank parties, and discussed with reference to documents in the course of oral submissions, there has been sufficient documentary material available to the Plaintiffs to plead the matters proposed very much earlier in the proceedings – if not initially. In my view, this position applies in spite of information said to have been disclosed more recently in discovered documents. In terms of the process of pleading allegations clearly and then later particularising them, I refer to and rely on the comments and authorities set out in my decision in Taverners J Pty Ltd v Saxo Bank A/S.[5] In other words, I think the matters proposed as additional pleadings could have been pleaded earlier even though it might have been necessary for particularisation to await progress with the discovery processes. But this does not prevent early pleading of a cause of action sought to be relied upon.
[5][2011] VSC 27.
With respect to the balance of prejudice, I accept the written submissions of the Bank parties at paragraph 44 to 47, and particularly paragraph 46.[6] I think those submissions are a very helpful summary of the proper treatment of the balance of prejudice in the present circumstances. Mr Caleo SC also, in his submissions on behalf of Mr Young, raised further prejudice issues, in relation to third party claims. Mr Bigmore QC sought to rebut or alleviate my concern in that respect, but I am afraid my concern is not alleviated. I think there is a very real possibility that allowing the proposed amendments may lead to third party claims of the kind outlined by Mr Caleo and I need say no more about the effect that would have on the present state of the proceedings and the arrangements for trial – save that significant delay would be likely, with consequent prejudice to the parties.
[6]Outline of Submissions on behalf of the Second to Fifth Respondents dated 28 June 2012 provides:
’44.Allowing the proposed amendments will prejudice all of the defendants and the third parties because it will require those parties to revisit discovery and amend their pleadings, with the potential outcome that the trial date will not be maintained.
45.Whilst the prejudice to the Bendigo and Adelaide Bank Parties as well as the other defendants is significant should the proposed amendments be allowed, the refusal to allow the amendments would not prejudice the Plaintiffs in any material way.
46.As discussed above at paragraphs 27 to 31, the allegations regarding GSMAL’s intention to engage in conduct which would be in breach of the ASFL are misguided. Refusing leave to amend will not deprive the Plaintiffs of a cause of action that has not been made in the proceedings, i.e. that the PDS was misleading and deceptive due to the ‘relevant matters’ already pleaded in paragraphs 41(a) to (m) of the Clarke ASOC and corresponding paragraphs of the Olives ASOC and the HVT ASOC. The refusal to allow the amendments simply prevents the plaintiffs from including, as another ‘omission’, misguided allegations which would be bound to fail at trial and which would have a serious impact on the just and efficient disposal of the proceedings.
47.The prejudice caused by the substantial delay, costs and inconvenience that would flow from allowing the proposed amendments, outweighs any prejudice suffered by the Plaintiffs.’
Finally and by way of summary, for these reasons and for the reasons indicated in discussions with counsel, I accept and adopt the written and oral submissions of GSMAL and the Bank parties and also the oral submissions on behalf of Mr Young, particularly but without detracting from submissions in similar vein from other parties, as my reasons for refusing the application in the Clarke proceedings. As indicated the same position follows with respect to the other proceedings in which pleading amendments were sought.
I did not reserve my decision in this matter. I think that given the pressing time constraints in the preparation of the Clarke and other proceedings for trial it is appropriate and desirable to deliver an ex tempore decision as I have done.
For these reasons, I refuse the application.
SCHEDULE OF PARTIES
No. S CI 2010 02882
| PETER CLARKE (AS TRUSTEE OF THE CLARKE FAMILY TRUST) | First Plaintiff |
| SAMANTHA BARBERA MURRAY | Second Plaintiff |
| RAYMOND CARL DRUMMONS | Third Plaintiff |
| LAURENCE DAVID HOGAN | Fourth Plaintiff |
| JACLYNE EDWINA FISHER | Fifth Plaintiff |
| and | |
| GREAT SOUTHERN FINANCE PTY LTD (RECIEVERS & MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 009 235 143) | First Defendant |
| BENDIGO AND ADELAIDE BANK LIMITED (ACN 068 049 178) | Second Defendant |
| ABL CUSTODIAN SERVICES PTY LTD (IN ITS CAPACITY AS TRUSTEE OF THE ABL PORTFOLIO FUNDING TRUST 2007-1) (ACN 097 889 720) | Third Defendant |
| ABL NOMINEES PTY LTD (IN ITS CAPACITY AS TRUSTEE OF THE LIGHTHOUSE TRUST NO 12) (ACN 106 756 521) | Fourth Defendant |
| PIRIE STREET HOLDINGS LIMITED (ACN 061 461 550) (FORMERLY ADELAIDE BANK LIMITED) | Fifth Defendant |
| JAVELIN ASSET MANAGEMENT PTY LTD (ACN 136 367 194) | Sixth Defendant |
| GREAT SOUTHERN MANAGERS AUSTRALIA LIMITED (RECEIVERS & MANEGERS APPOINTED) (IN LIQUIDATION) (ACN 083 825 405) | Seventh Defendant |
| JOHN CARLTON YOUNG | Eighth Defendant |
| | |
| | |
| CAMERON ARTHUR RHODES | Eleventh Defendant |
| PHILLIP CHARLES BUTLIN | Twelfth Defendant |
| and | |
| JEFFREY ARTHUR SYDNEY MEWS | First Third Party |
| PETER JOHN PATRIKEOS | Second Third Party |
‘4Paragraph 41 of the proposed amended statement of claim alleges that the following statements were omitted from the PDS dated 8 March 2005 issued by GSMAL in respect of the 2005 and 2006 Plantation Schemes (Schemes):
4.1that GSMAL intended to engage in conduct as set out in paragraphs 41A-J and, in doing so, would be in breach of the conditions of its Australian Financial Services Licence (AFSL); and
4.2that GSMAL intended to operate the Schemes inconsistently with Product Rulings issued by the ATO in respect of the Schemes.
5Paragraph 42 of the proposed amended statement of claim alleges that each of the ‘Relevant Matters’ (which is defined to include the two matters set out in sub-paragraphs 4.1 and 4.2 above) were:
5.1information about a significant risk associated with investment in the Schemes within the meaning of s. 1013D(1)(c) of the Corporations Act; and
5.2information that might reasonably be expected to have a material influence on the decision of a reasonable person, as a retail client, whether to acquire an investment in the Schemes within the meaning of s. 1013E of the Corporations Act.
6The particulars to paragraph 42 confine the relevant information about ‘significant risks’ that the Plaintiffs allege ought to have been disclosed in the PDS as follows:
6.1‘GSMAL might breach the conditions of its AFSL and as a result, be unable to continue its role as Responsible Entity of the Schemes or complete the Schemes’; and
6.2‘GSMAL might operate the Schemes inconsistently with the Product Ruling and/or the Product Ruling Representation and, as a result, prevent the Plaintiffs and Scheme Members from being able to rely on the Product Ruling’.
7The meaning of paragraphs 41 and 42 of the proposed amended statement of claim is unclear. Insofar as paragraphs 41 and 42 of the proposed amended statement of claim are to be understood as meaning that:
7.1GSMAL had a subjective intention, at the time the PDS was issued on 8 March 2005, to contravene its AFSL or to engage in conduct that was inconsistent with the Product Rulings; and
7.2GSMAL ought to have disclosed that subjective intention in the PDS,
the allegation is scandalous, and ought not be permitted unless your clients are in a position to properly particularise it.
8If, on the other hand, paragraph 42 of the proposed amended statement of claim is to be understood as meaning that, at the time the PDS was issued on 8 March 2005, as a matter of objective fact, there was a significant risk which ought to have been disclosed that GSMAL might:
8.1breach its AFSL, and thereby be unable to continue its role as Responsible Entity of the Schemes; and/or
8.2engage in conduct that was inconsistent with the Product Rulings and, as a result, prevent the Plaintiffs and Scheme Members from being able to rely on the Product Rulings,
then the proposed amended statement of claim is equally objectionable.
9The requirement to include information of the kind described in paragraph 42 of the proposed amended statement of claim is imposed by s. 1013C of the Corporations Act. Section 1013C(2) provides:
‘The information required by section 1013D and 1013E need only be included in the Product Disclosure Statement to the extent to which it is actually known to:
(a) the responsible person…’ [bold emphasis added]
10The use of the words ‘actually known’ in s. 1013C(2) makes it clear that the requirement is for actual, and not constructive, knowledge on the part of GSMAL about the relevant information.
11This is confirmed by [14.74] of the Revised Explanatory Memorandum to the Financial Services Reform Bill 2001 (a copy of which is now attached):
’14.74 Proposed section 1013D contains the list of topics that must be included in all Product Disclosure Statements, to the extent that they are relevant to the particular product. It distinguishes between statements and information. In relation to statements all relevant information must be included, for example, the name and contact details of the product issuer. In relation to information, however, only such information under the particular item as a retail person would reasonably require for the purpose of making a decision whether to acquire the financial product needs to be included in the PDS. This will vary from product to product and allow for flexibility in the detail that is to be included under each topic. In addition information need only be included to the extent that it is within the actual knowledge of the persons described in proposed subsection 1013C(2). Unlike the current fundraising provisions in the Corporations Act a full ‘due diligence inquiry is not required by these provisions.’ [bold emphasis added]
12The requirement of actual knowledge on the part of GSMAL about the existence of the alleged ‘significant risks’ and ‘material information’ is a material fact that must be pleaded: Rule 13.02. Further, particulars of the allegation that GSMAL had actual knowledge must be provided: Rule 13.10.
13The necessity that these rules be complied with are all the more compelling given the complexity of the factual and legal material that will be put in issue at trial, the seriousness of the new allegations, the fact that our client (GSMAL) does not have ready access to employees who might be able to explain the factual matrix surrounding the new allegations, the imminence of the trial date, and the requirement that we prioritise discovery (for the benefit of all the other parties).
14Paragraph 46AG of the proposed amended statement of claim (which has not been amended) alleges that GSMAL knew that the PDS ‘omitted the Relevant Matters’. Presumably, paragraph 46AG is intended to extend GSMAL’s knowledge of the existence of the significant risks alleged in the particulars sub-joined to paragraph 42 of the proposed amended statement of claim.
15However, no particulars to paragraph 46AG are provided, and the only basis for the allegation in paragraph 46AG appears to be that Mr Young and Mr Rhodes must have known of the ‘Relevant Matters’ by reason of their position as officers of GSMAL. Accordingly, paragraph 46AG does not adequately inform GSMAL of the basis on which the Plaintiffs now intend to allege that GSMAL had actual knowledge of the significant risks alleged in paragraph 42 about the possible loss of its AFSL and loss of tax deductions by Scheme members.
16In paragraph 1(c) of your letter to Allens dated 27 June 2012, you assert that ‘documents supporting these allegations are referred to in the Watson affidavit’, being the affidavit of Matthew Paul Watson sworn 5 June 2012. That assertion is of no assistance to our client.
17Further, the additional particulars to paragraphs 41C and 41M provided under cover of your letter to Allens dated 27 June 2012 do not assist us to understand the basis on which it is to be alleged that GSMAL had actual knowledge of the alleged significant risks at the time the PDS was issued on 8 march 2005. In particular:
17.1the proposed particulars to paragraph 41C do not relate to GSMAL’s AFSL or the Product Rulings in respect of the Schemes, or suggest that GSMAL was aware of significant risks concerning those matters; and
17.2the proposed particulars to paragraph 41M are irrelevant insofar as they relate to coppicing. The remainder of the particulars to paragraph 41M post-date the issuance of the PDS in respect of the Schemes by more than a year, and to the extent that they are relevant, they suggest that GSMAL had received advice from PwC to the effect that the ‘HPE issue’ did not create any concerns with respect to Product Rulings. In the circumstances, on no view do the particulars to paragraph 41M suggest that at the time the PDS was issued on 8 March 2005, GSMAL had actual knowledge of any significant risk concerning its AFSL or the Product Rulings.’