Commonwealth Securities v Macko

[2001] NSWSC 683

CITATION:	Commonwealth Securities v Macko [2001] NSWSC 683
CURRENT JURISDICTION:	Equity - Commercial List
FILE NUMBER(S):	SC 50132/2000
HEARING DATE(S):	6 & 7 August 2001
JUDGMENT DATE:	8 August 2001
PARTIES :	Commonwealth Securities Limited - Plaintiff Victor Erwin Macko - Defendant
JUDGMENT OF:	Brownie AJ at 1

COUNSEL :	M. Walton SC & R.S. Hollo - Plaintiff N.A. Cotman SC & S.L. Bell - Defendant
SOLICITORS:	L.E. Taylor - Plaintiff Terrett Lawyers - Defendant
CATCHWORDS:	Turns on its own facts.
LEGISLATION CITED:	Fair Trading Act; Trade Practices Act; Supreme Court Act.
CASES CITED:	Gould v Vagellas (1985) 157 CLR 215; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Rejfek v McElroy (1965) 112 CLR 517.
DECISION:	Judgment to the plaintiff for the sum of $799,566.47 plus interest and costs.

- 8 -

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

COMMERCIAL LIST

50132/00

Brownie AJ

8 August 2001

Commonwealth Securities Limited v Victor Erwin Macko



Judgment

1 Brownie AJ: In August 2000, the defendant dealt extensively with the plaintiff, retaining the plaintiff as his broker in relation to the purchase and sale of shares on the stock exchange. He normally dealt with a Ms Alexander, a client adviser employed by the plaintiff.
2 It was his practice to buy shares and to sell them promptly, usually at a profit, and it seems that although the plaintiff's ordinary terms of engagement provided that people such as the defendant were to pay for shares within a certain time, the defendant's practice was to sell any shares he acquired so promptly, that he never actually paid for them. Instead, the plaintiff was reimbursed for the price paid by it for the shares, out of the proceeds of sale.
3 Further, the relationship was such that during August 2000, the plaintiff repeatedly accepted oral orders from the defendant to buy shares worth some $7.7 million dollars, without asking to be put in funds, or without asking for security.
4 The defendant also placed orders in different names. For that purpose, he caused accounts in various names to be established. Pursuant to this practice, in June 2000, he caused 24 separate accounts to be established in the name of Deutsche Securities Proprietory Limited, with each of those accounts being given a separate name, typically, the name of a country or a city.
5 The present action involves dealings relating to the purchase and sale of shares in NRMA Group Insurance Limited. Trading of shares in that company on the stock exchange commenced on 8 August 2000. Prior to 3 August 2000, the defendant was a director and the secretary of Deutsche Securities. In a practical sense, he appears to have been in sole control of its affairs.
6 On 3 August, he took steps which resulted in his ceasing to be a director of Deutsche Securities, and ceasing to be its secretary. From that date onwards, a Ms Corin was the company's sole director and its secretary, and she was, it is now agreed, solely in control of its affairs, and the defendant had no actual authority to do anything on its behalf.
7 However, before this date Deutsche Securities had, through the defendant, opened the 24 accounts I have mentioned. In doing that, the defendant had told the plaintiff that he was a director of Deutsche Securities, and the company had, through him, nominated him as the person authorised by Deutsche Securities, to give the plaintiff instructions. The defendant did not at any time on or after 3 August, and until after the events the subject of this litigation, say anything to the plaintiff to indicate to it either that he had ceased to be a director of Deutsche Securities, or that he lacked continuing authority to represent it.
8 On 8 August, the defendant and Ms Alexander had various conversations about dealings in NRMA shares. Upon his instructions the plaintiff bought, and a short time later that day sold, at a profit, one million shares. After the sale, the defendant asked Ms Alexander to treat these transactions as having been conducted on behalf of his wife, and this was done. No issue arises about these transactions.
9 At other times during that day, there were other conversations about possible dealings in NRMA shares. In one such conversation, the defendant asked the plaintiff to buy one hundred million shares. If carried out, that purchase would have cost about $335,000,000, and Ms Alexander asked the defendant to put the plaintiff in funds for a purchase of this magnitude. He said in substance that he had the money available, but he did not provide it to the plaintiff and the transaction did not proceed.
10 As a consequence of further instructions given in other conversations between the defendant and Ms Alexander between 9 and 18 August, the plaintiff purchased a further 2,566,000 NRMA shares that cost approximately $7.7 million dollars. Each of these transactions was conducted on the basis of the defendant's instructions, that the purchase be in the name of Deutsche Securities, and on each occasion the defendant nominated one of the 24 accounts mentioned.
11 It is I think common ground now, that the parties expected at the time that the shares would be resold before Deutsche Securities was required to actually pay for the purchase of them. However, the market price fell, and the defendant resisted a suggestion that he sell them at a loss. When the time for settlement arrived, neither Deutsche Securities nor the defendant paid the plaintiff the money due. The plaintiff pressed for payment and the defendant fobbed the plaintiff off.
12 The evidence of Ms Alexander as to what the defendant said on these occasions was neither challenged nor contradicted, and the defendant elected to call no evidence apart from the tender of some documents. It seems likely that some of the things said by the defendant whilst he was fobbing the plaintiff off, were untrue.
13 In time, the plaintiff resold the shares, as it was entitled to do, and it suffered a loss of some $800,000. The plaintiff claimed this sum from Deutsche Securities, that company did not pay, and ultimately the plaintiff forced it into liquidation. It seems that Deutsche Securities never had any assets, or any significant assets.
14 The plaintiff now sues the defendant seeking to recover its loss from him. Originally, it sued him for damages for breach of warranty of authority, and for negligent mis-statement, but it does not now press either of these claims. Instead, it presses claims for deceit and for breach of the provisions of section 42 and 44(d) and 44(f) of the Fair Trading Act , and for breaches of the equivalent provisions of the Trade Practices Act .
15 The defendant now admits that he had no actual authority to give on behalf of Deutsche Securities, the instructions he gave between 9 and 18 August. He says however, that he continued during that period to have the apparent authority of Deutsche Securities, and that since the plaintiff treated him as the agent of Deutsche Securities, and attempted to enforce its rights against Deutsche Securities on the basis that he had its authority, it cannot now be heard to say that the contract between the plaintiff and Deutsche Securities was ineffective. This was put on the basis that the plaintiff had elected to treat its contract with Deutsche Securities as valid, and on the basis that the plaintiff had affirmed this contract.
16 Additionally, although the plaintiff disavowed any claim against the defendant for damages for breach of warranty of authority, the defendant invited me to find that he was liable to the plaintiff on this basis, and only on this basis. He contended that, viewing the case through this prism, he was liable for nominal damages only because when one assesses damages for breach of warranty of authority, one measures those damages by comparing the plaintiff's actual position with what its position would have been, but for the breach of warranty. Therefore, he says, the plaintiff had an enforceable right against Deutsche Securities, but since that company was worthless, the right against it was worthless.
17 In contrast, the plaintiff said that it had proved the commission of the tort of deceit, and infringements of the statutes mentioned, and that in each case, damages were to be assessed by measuring the difference between the plaintiff's actual position, and what its position would have been but for the conduct of the defendant. (See Gould vVagellas (1985) 157 CLR 215 at 220-221, 232, 242, 254-255, 265, and Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 14-15).
18 I approach the case on the basis that the plaintiff needs to establish its case by reference to the standard discussed in Rejfek v McElroy (1965) 112 CLR 517 at 521.
19 The separate strands of the defendant's case do not seem to be entirely compatible with each other, but that does not matter. He is entitled to advance whatever arguments are proper.
20 There were two witnesses for the plaintiff, Ms Alexander, and Ms Corin. Their evidence was uncontradicted, and to a large extent unchallenged. It is plain, first, that the defendant lacked actual authority from Deutsche Securities to give the instructions he gave between 9 and 18 August, and secondly that he knew that he lacked that authority. I think it is plain that after 8 August, what he told the plaintiff cannot be justified. Certainly, he did not attempt to justify it.
21 The defendant focussed on the question of his authority, rather than the proposition that he had ceased to be a director of Deutsche Securities, while the plaintiff focussed on the proposition that he had been a director, and that he did not tell the plaintiff that he had ceased to be a director. I think that the two matters need to be considered together, and I accept that from the perspective of the plaintiff and of Ms Alexander, what was important was the relationship between the defendant and Deutsche Securities, or that relationship as it was apparent to the plaintiff.
22 Throughout the period 8 to 18 August, the plaintiff was content in substance to give to the defendant or his nominees, credit for sums of up to $7.7 million dollars. It baulked at giving credit for $335,000,000, but it seems to have given Deutsche Securities credit for $7.7 million dollars almost without pause for thought.
23 On the evidence, it seems likely that it gave Deutsche Securities credit for this sum, because it treated Deutsche Securities as being, in substance, the defendant's company. In truth however, as from 3 August, and as he actually knew, he had no authority at all to represent Deutsche Securities.
24 In these circumstances, whether one is considering the claim in deceit or the claims made under the two statutes, I think it is clear beyond argument, that the circumstances called for him, to disclose the change in position that had occurred, both as to his actual authority to represent Deutsche Securities, and as to his having ceased to be a director of that company. In terms of section 42 of the Fair TradingAct , it was deceptive and misleading conduct not to do so. In terms of section 44, what he did falsely represented that Deutsche Securities had agreed to acquire the shares, and that the defendant had an affiliation with Deutsche Securities that he did not have.
25 Ms Alexander said, and I accept, that had she been told either that the defendant was no longer a director of Deutsche Securities or that he had ceased to have that company's authority to provide instructions to the plaintiff, she would not have accepted the defendant's instructions, given purportedly on behalf of the company to buy the shares bought between 9 and 18 August.
26 The defendant submitted that the plaintiff had effectively received what it wanted, namely an effective contract between itself and Deutsche Securities, and therefore that the plaintiff had no residual right to sue him. Whilst I am inclined to think that, if the plaintiff sued the defendant in contract, the plaintiff might be in difficulty asserting the existence simultaneously of a valid contract with Deutsche Securities, and the lack of a valid contract with Deutsche Securities.
27 That is not the way that the plaintiff puts its case now. Rather, it sues in deceit and under the two statutes, and that seems to me to be a sufficient answer to the defendant's proposition. But for the defendant's conduct, the plaintiff would not have entered into the transactions in question at all, and it would not have suffered the loss now sued for.
28 I conclude therefore that the plaintiff is entitled to judgment for a sum which I understand to not be in dispute, $799,566.47.
29 I consider that the plaintiff is entitled to interest on that sum pursuant to s 94 of the Supreme Court Act from 8 September 2000 until today. I do not consider that, as against the defendant, it is entitled to interest at the rate mentioned in the contract, or purported contract between the plaintiff and Deutsche Securities.
30 The plaintiff is also entitled to its costs generally including the costs thrown away by reason of the defendant's late admission, following his earlier denial that he lacked the authority to give instructions on behalf of Deutsche Securities.
31 I note that the plaintiff seeks an order for costs against the defendant's former solicitors. The solicitor handling the matter is I understand ill, and the matter will need to be adjourned for a time. It seems to me that that motion can be dealt with by any judge. If I am available it might be convenient to list it before me, but as presently arranged, I do not expect to be sitting in the Commercial List again before November.

Last Modified: 08/13/2001