David Benson Nominees Pty Ltd v Dicksons Ltd

[2005] SASC 97

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

DAVID BENSON NOMINEES PTY LTD v DICKSONS LTD & ANOR

Judgment of The Honourable Justice Besanko

18 March 2005

PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT - PLEADINGS

Application for an order striking out paragraphs of the Statement of Claim and for further material facts in relation to other paragraphs - where plaintiff claimed the second defendant authorised the first defendant to act as its agent in respect of a loan - whether it is arguable that a financial adviser could be an agent of a bank - strike out application dismissed - whether plaintiff should provide further material particulars of the loss of opportunity claim - application for further material facts allowed.

Trade Practices Act 1974 (Cth) ss 52, 53, 55A; Fair Trading Act 1987 (SA) ss 56, 58, 64; Australia Securities and Investments Commission Act 2001 (Cth) ss 12DA, 12DB; Supreme Court Rules 1987 rr 46.18, 46A.09, referred to.
General Steel Industries Incorporated v Commissioner for Railways (NSW) (1964) 112 CLR 125; Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1996-1997) 188 CLR 241; X v State of South Australia (2003) 86 SASR 516; Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371; Capricorn Financial Planners Pty Ltd v ASIC (1999) 31 ACSR 46; Jonstan Pty Ltd v Nicholson [2002] NSWSC 1043; Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552; Morlend Finance Corporation (Vic) Pty Ltd v Westendorp & Ors [1993] 2 VR 284; Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469; NMFM Property Pty Ltd & Ors v Citibank Ltd (No 10) (2000) 107 FCR 270; Palandri Wines Ltd v O'Donnell [2002] WASC 123; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; Pacific Blues (Fiji) Ltd v Levi Strauss (Australia) Pty Ltd [2004] SASC 125; Marini v MLH Insurance Brokers Pty Ltd & Ors [2004] SASC 400, considered.

DAVID BENSON NOMINEES PTY LTD v DICKSONS LTD & ANOR
[2005] SASC 97

Civil

1. BESANKO J:       There are nine actions in this Court which are currently being managed by one Judge, and in essence each action relates to a similar transaction and raises similar complaints about the transaction.  In seven actions, the respective plaintiffs are represented by the same firm of solicitors, Wallmans Lawyers.  I will refer to these actions as the Wallmans actions.  Generally speaking, the respective statements of claim in relation to the Wallmans actions are the same.  One of the Wallmans actions is an action commenced by David Benson Nominees Pty Ltd (“Benson”). 

2. Of the two remaining actions, in one the plaintiffs are W Stringer, A Stringer and M Thorne and they are represented by the firm, Griffin Hilditch.  I will refer to this as the Stringer action.  In the other action the plaintiff is Uang Pty Ltd and that company is represented by the firm, Meister Belperio Clark.

3. The Macquarie Bank Limited (“the Bank”) is a defendant to each action and it has brought an application seeking (among other things) various orders in relation to the statements of claim filed by the respective plaintiffs in the nine actions.  I heard that part of the Bank’s application on 11^th November 2004.  Since then I have been advised that three of the nine actions settled in principle at a mediation between the parties.  In relation to the Wallmans actions, the claims by Benson and Winn respectively have settled.  At the hearing of the Bank’s application on 11^th November 2004 the action by Benson was treated as representative of the Wallmans actions and I have been told that my rulings in relation to the claim by Benson will apply to the other Wallmans actions.  On that basis I will proceed to deliver my ruling in relation to the action by Benson.  The Uang action is the third action which has settled and there is no need for me to rule on the Bank’s application in relation to that action.

4. The effect of these developments is that I am left to deliver my ruling in relation to the Benson action and in relation to the Stringer action.

5. These reasons deal with the Benson action.

6. The following is a summary of the claim by Benson taken from its statement of claim.

7. Benson is a company incorporated in the State of South Australia and is the trustee of the Benson Family Trust.  Dicksons Limited (“Dicksons”) is a company incorporated in the State of New South Wales and carries on business in South Australia as stockbrokers and financial advisers.  The Bank is a company incorporated in the Australian Capital Territory and carries on business in Australia as a banking institution.

8. Mr Adrian Cassidy is an employee and agent of Dicksons.

9. The Bank applies for an order striking out certain paragraphs in Benson’s Statement of Claim and for further material facts in relation to other paragraphs.  Benson has sued Dicksons (the first defendant) as well as the Bank (the second defendant), but the Bank’s application does not involve the claim against Dicksons and it is not necessary for me to say a great deal about the claim against Dicksons.  Benson has conceded that some paragraphs in its Statement of Claim should be struck out and it is not necessary to refer to these paragraphs.

10. Between June and October 2001, Macquarie offered a lending facility called a Shared Appreciation Loan (“SAL”).  The SAL was a facility to be used by a borrower to enable the borrower to invest in shares in certain companies as nominated from time to time by Dicksons (sic) which were listed on the Australian Stock Exchange.  Benson alleges that the SAL was a facility which the Bank offered via stockbrokers such as Dicksons, and that the Bank provided Dicksons with brochures and an information memorandum which contained an application form for a SAL as well as a list of companies whose shares could be purchased with the SAL.  From at least April 2001 the list included shares in a company called Peptech Limited (“Peptech”).

11. Benson alleges that in June 2001 Mr Cassidy spoke to an officer of the Bank in relation to the terms of the SAL and he was advised by that officer that the amount payable by a borrower in the event that the borrower wished to sell the shares and repay the loan prior to the expiration of the term of the SAL was in the order of 4 per cent to 5 per cent of the principal amount borrowed.  Those costs have been referred to as “the break costs” and I will use that expression.  Benson alleges that in providing the brochures, information memorandum and advice referred to, the Bank represented to Mr Cassidy and Dicksons that Dicksons could offer to its clients a SAL with the Bank on terms to the effect that the borrower could borrow money under the SAL, purchase Peptech shares with those funds and that the borrower could sell the shares and repay the loan prior to the expiration of the term of the SAL by paying break costs of 4 per cent to 5 per cent of the principal amount borrowed.

12. Benson alleges that the Bank paid a commission to Dicksons in respect of clients procured by Mr Cassidy and Dicksons to apply for and take out a SAL with the Bank and that commissions were paid on or after each SAL was taken out.  The commission was referred to as a trailing commission.

13. By reason of the above matters Benson alleges that the Bank either expressly or impliedly authorised Mr Cassidy and Dicksons to act as its agent in procuring clients of Dicksons to apply for and take out a SAL with the Bank on terms including a term about the break costs and the quantum thereof, and to make representations concerning the SAL and its terms consistent with the representations about the break costs and the quantum thereof said to have been made to Mr Cassidy by the officer of the Bank.  These allegations are contained in paragraph 10 of Benson’s Statement of Claim and the Bank seeks an order that this paragraph be struck out.

14. Benson alleges that in June 2001 and again in late September or early October 2001, Mr Cassidy, on behalf of Dicksons, spoke to Mr David Benson on behalf of Benson and made the following representations:

    “11.1that the plaintiff could borrow as much as $200,000.00 from the second defendant by way of a Shared Appreciation Loan;

    11.2that the plaintiff would pay an up front interest payment of approximately $25,000.00 on a loan of $200,000.00;

    11.3that the plaintiff could purchase Peptech Limited shares with the monies borrowed;

    11.4that Peptech shares were likely to rise in value in the short to medium term;

    11.5that the plaintiff could sell the shares prior to the expiry of the term of the loan, repay the principal borrowed and also pay “break costs” of 4 to 5% of the principal amount borrowed, but receive a rebate of interest paid, and that the plaintiff could keep the balance of funds from the sale of shares;

    11.6that the maximum capital gain the plaintiff could make under the terms of the Shared Appreciation Loan was limited to 100% of the amount borrowed;

    11.7that any gain greater than 100% of the amount borrowed would be kept by the second defendant;

    11.8that the greatest loss the plaintiff could suffer, if the Shared Appreciation Loan ran its full term, was limited to 5% of the amount borrowed.”

15. Benson alleges that these representations were made by Mr Cassidy on behalf of both Dicksons and the Bank.  This allegation is contained in paragraph 12 of Benson’s Statement Claim and the Bank seeks an order that the reference to it in this paragraph be struck out.

16. Benson alleges that induced by the representations, on 3^rd October 2001 it completed an application form forwarded to it by Dicksons, applied for and obtained a SAL with the Bank pursuant to which Benson paid up front interest of $25,020.00, borrowed $200,000.00 and purchased 79,808 Peptech shares at a price of $2.50 per share.

17. Benson alleges that at no time prior to it obtaining the SAL did Dicksons or the Bank:

    “14.1provide the plaintiff with an Information Memorandum relating to the Shared Appreciation Loan product;

    14.2provide any other written information explaining:

    14.2.1the rights of the borrower to terminate the Shared Appreciation Loan, or;

    14.2.2the manner in which fees, costs or charges would be calculated if the Shared Appreciation Loan was terminated prior to its due expiry, or;

    14.2.3that the terms of the Shared Appreciation Loan were different from those set out in the representations;

    14.2.4that the second defendant would only allow the sale of the shares prior to the expiry of the term of the Shared Appreciation Loan on the basis that the plaintiff would pay significantly higher break costs than those set out in the representations.”

18. Benson alleges that it would not have entered into the SAL but for the representations.  Benson alleges that the terms of the SAL between it and the Bank were partly in writing and partly oral and that in so far as they were in writing they comprised the application form and in so far as they were oral, they comprised the representations said to have been made by Mr Cassidy to Mr Benson.

19. After the SAL had been entered into, the Peptech shares rose in value.

20. Benson alleges that in early February 2002, the Bank sent a letter dated 6^th February 2002 to it in which the Bank asserted, contrary to the representations, that the terms of the SAL were different from those set out in the representations and the Bank indicated that it would only allow the sale of the shares prior to the expiry of the term of the loan on the basis that Benson would pay significantly higher break costs than those set out in the representations.

21. Benson alleges that Dicksons and the Bank engaged in conduct in contravention of ss 52, 53(g) and 55A of the Trade Practices Act 1974 (Cth) (“TPA”) and ss 56, 58(k) and 64 of the Fair Trading Act 1987 (SA) (“FTA”).  In this respect, the acts Benson relies on are as follows:

    1The making of the representation by Mr Cassidy to Mr Benson;

    2The failure to provide the information memorandum to Mr Benson;

    3The failure to fully and properly advise Mr Benson as to –

    (a)     the rights of a borrower to terminate the SAL;

    (b)the manner in which the Bank would calculate the fees, costs or charges that would apply if the SAL was terminated prior to its due expiry date;

    (c)the fact that the Bank would only allow the sale of shares purchased with the SAL prior to the expiry of the term of the SAL on Benson paying significantly higher break costs than those represented;

    4The procuring of Benson to enter into the SAL on the basis that the terms of the SAL were those set out earlier in the Statement of Claim as the terms of the contract.

    5The failure or refusal to allow or enable Benson to deal with the shares in accordance with the terms of the SAL as set out earlier in the Statement of Claim as the terms of the contract at a time after Benson had paid upfront interest of $25,020.00, borrowed $200,000.00 and purchased 79,808 Peptech shares at price of $2.50 per share.

22. Benson also alleges that by the above acts, Dicksons and the Bank engaged in conduct in contravention of ss 12DA and 12DB(1)(g) of the Australian Securities and Investments Commission Act 2001(Cth) (“ASIC Act”).

23. Benson alleges that on 20^th February 2002 Peptech shares traded on the Australian Stock Exchange at $5.45 and it could and would have, but for the position taken by the Bank, sold all the Peptech shares for that price on that day.  Furthermore, at various dates between 8^th and 24^th February 2002, Peptech shares traded on the Australian Stock Exchange at above $5.00 per share and throughout that time Benson could have sold its Peptech shares at or above $5.00 per share.

24. Benson alleges that on 16^th October 2002 the Bank sold the shares in Peptech for the sum of $177,971.84, purported to repay the SAL and demanded from Benson the sum of $11,340.21.  Benson alleges that the Bank repudiated the SAL and has caused loss and damage to it.

25. Benson claims loss and damage consisting of the amount it would have received had it been able to sell the shares in Peptech on 8^th February 2002 with break costs of 5 per cent being an amount of $180,746.00. 

26. In the alternative, Benson claims loss and damage on the basis that it could and would have secured funding of $200,000.00 from the Bank or another financial institution on terms that would have allowed it to sell, without break costs, shares in Peptech at $5.45 per share.  This alternative allegation of loss and damage is contained in paragraph 26 of the Statement of Claim and the Bank seeks an order that further material facts be provided of the allegations in that paragraph.  It submits that Benson should plead facts as to who would have provided the alternative facilities and the nature of those facilities.

27. Benson also alleges that as a result of the breaches of the TPA and the FTA it suffered loss and damage of the type I have just identified.  Alternatively it claims that it would not have entered into the SAL and it claims the loss and damage suffered as a result of doing so.

28. Benson claims damages against the Bank either for breach of contract or negligence in the sum of $227,852.23 and orders including an order for damages pursuant to the TPA or FTA or the ASIC Act to compensate it for the loss and damage it has sustained.

29. In short, there are two aspects to the Bank’s applications in relation to Benson’s Statement of Claim.  First, it says that the allegation that Mr Cassidy and Dicksons were the Bank’s agents in relation to the transaction and the representations should be struck out.  Secondly, it says that further material facts of the alternative facilities that could and would have been obtained should be provided.

    The allegation of agency

30. The test for a strike out application is well known. The relevant rule of Court is r 46.18 of the Supreme Court Rules 1987 (see also r 46A.16).  There is a heavy onus on the party applying for the order and he must show that the particular allegation is clearly untenable.  The mere fact that a plaintiff’s prospects of success are slim is not enough; it must be plain that the plaintiff’s claim cannot succeed (General Steel Industries Incorporated v Commissioner for Railways (NSW) (1964) 112 CLR 125; Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1996 – 97) 188 CLR 241; X v State of South Australia (2003) 86 SASR 516).

31. The Bank submits that ordinarily a broker or financial adviser is an agent of the purchaser or borrower rather than the vendor or lender.  The Bank submits that the relationship between it and Dicksons was that the latter was a mere introducer of business.  The Bank referred to the factors Benson relies on to establish the relationship of agency and it submits that they are insufficient to establish a relationship of agency.  Benson relies on the following matters:

    1In relation to the SAL facility, the Bank provided to Dicksons brochures and an information memorandum containing an application form and a list of companies whose shares could be purchased under the facility.

    2The representations made by an officer of the Bank to Mr Cassidy about the terms of the facility, and in particular, the quantum of break costs should a borrower wish to sell the shares and repay the loan prior to the expiration of the term of the SAL.

    3The Bank paid a trailing commission to Mr Cassidy and or Dicksons in respect of clients procured by Mr Cassidy and/or Dicksons.

32. The Bank submits that the authorities clearly establish that none of these three factors considered individually or together are sufficient to give rise to an agency between it and Dicksons.

33. Ordinarily, a stockbroker or finance broker is an agent of his client (Daly v Sydney Stock Exchange Limited (1986) 160 CLR 371; Capricorn Financial Planners Pty Ltd v ASIC (1999) 31 ACSR 46; Jonstan Pty Ltd v Nicholson [2002] NSWSC 1043).

34. I was referred to a number of cases in which the circumstances in which a motor vehicle dealer or dealer in other goods might be held to be the agent of a finance company or hire purchase company has been considered.  A motor vehicle dealer was held not to be the general agent of a hire purchase company simply because he had the company’s forms, knew of the terms upon which the company was prepared to do business and completed the application form for finance (Branwhite v Worcester Works Finance Limited [1969] 1 AC 552 per Lord Upjohn at 577 – 578). A similar approach was taken by the Victorian Court of Appeal in Morlend Finance Corporation (Vic) Pty Ltd v Westendorp and Ors [1993] 2 VR 284 (per Fullager J (with whom Brooking and Tadgell JJ agreed) at 308) in which the additional factor of the financier paying a commission to the dealer for business introduced was not sufficient to establish an agency between the financier and the dealer.

35. In a case in Victoria shortly after the last mentioned case, Marks J, speaking on behalf of the Victorian Court of Appeal, held that a caravan dealer was not an agent of the finance company (Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469). In an important passage, Marks J said (at 486):

    “It is necessary to say a little more about agency in the present context.  It is true to say, as Mr North submitted, that agency depends on the facts of a particular case: Branwhite v Worcester Works Finance Ltd [1969] 1 A.C. 552, at pp. 573, 587. The position of Mr Cheap might be considered to have been analogous to that of a finance or insurance broker. In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 C.L.R. 226, at p 234, the High Court unanimously said: ‘ … under the general principles of the law of agency, a broker is the agent of the assured, not the insurer … There will be rare circumstances in which a broker may also be an agent of the insurer, but the courts will not readily infer such a relationship because a broker so placed faces a clear conflict of interest between his duty to the assured on the one hand and to the insurer on the other.’

    Such a conflict would clearly have existed if Mr Cheap was the agent of the appellant.  But everything done by Mr Cheap purported to be done for the respondent.  The mere possession of the appellant’s forms is not enough to constitute agency (Branwhite’s Case, per Lord Morris, at p 575), nor is the fact that commission was payable for the introduction: (Con-Stan’s Case, at p 234; Octapon Pty Ltd v Esanda Finance Corporation Ltd (unreported, NSW Supreme Court, 3 February 1989), at pp 27-8), nor is the filling in of the charges on the forms: Branwhite’s Case, at p 577.”

1. In NMFM Property Pty Ltd and Ors v Citibank Limited (No 10) (2000) 107 FCR 270 Lindgren J held that financial advisers were mere introducers of business to Citibank Limited and not its agent even if the advisers answered questions in relation to the financial product and conducted all the dealings in relation to the applications including filling out the necessary forms. Citibank Limited carried out no quality control in relation to the information supplied by the advisers to their clients about the product (392 – 396) (see also Polandri Wines Limited v O’Donnell [2002] WASC 123).

2. The authorities to which I have referred represent a powerful battery of authority in favour of the proposition that a party in the position of Dicksons as stockbrokers and financial advisers would not ordinarily be considered the agent of the Bank and that the three factors upon which Benson relies either individually or together are unlikely to be sufficient to create an agency between Dicksons and the Bank.  They suggest that Benson’s prospects of establishing an agency between the Bank and Dicksons are slim but I do not think that it can be said that the allegation of agency is clearly untenable.  I say that for three reasons.  First, agency is a question of fact and will depend on the particular facts of the case (Branwhite v Worcester Works Finance Limited (supra) per Lord Morris at 573 and Lord Wilberforce at 587).  There is no rule of law which provides that Dicksons could never be the agent of the Bank.  Secondly, there is no authority binding on me to the effect that there can be no agency in the circumstances of this case.  Thirdly, in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, although the High Court confirmed the general rule in an insurance context that under the principles of the law of agency a broker is the agent of the assured and not the insurer, it is implicit from what the Court said that it is possible that a broker may place himself in a position of conflict by also being the agent of the insurer.

3. I will not strike out paragraph 10, or the reference to the Bank in paragraph 12 of Benson’s Statement of Claim.  I also reject the Bank’s alternative complaint about a lack of particularity in relation to the claim of agency.  The allegations are clear enough and in my opinion the Bank has fair notice of the case it will have to meet.

   Loss of opportunity claim

4. The Bank submits that further material particulars should be provided of the allegation that the plaintiff could and would have obtained an alternative facility. I considered the scope of r 46A.09 of the Supreme Court Rules 1987 in Pacific Blues (Fiji) Ltd v Levi Strauss (Australia) Pty Ltd [2004] SASC 125 at [14] – [19] and Marini v MLH Insurance Brokers Pty Ltd and Ors [2004] SASC 400. I will not repeat what I said in those cases.

5. I think the Bank’s submission that sufficient material facts have not been pleaded in relation to the claim that funds of $200,000.00 would have been obtained via an alternative facility is correct. Benson alleges that an alternative facility could and would have been obtained from the Bank or another financial institution. The Bank may be taken to know what facilities it was offering at the relevant time. Although it is reasonable to assume that it would have a fair idea of the facilities offered by at least some financial institutions, it does not know precisely what case Benson will present on this issue. The pleading of the loss suffered suggests that Benson has a specific case on the nature of the alternative facility including its terms. For example, I refer to the interest rate of 9 per cent used in the calculations. The Bank is entitled to know what Benson’s case is on these matters so that it can adequately prepare its case. The Bank is entitled to know the nature of the alternative facility which Benson is alleging and by whom it was being offered at the relevant time. To put the matter in terms of r 46A.09, the Bank is entitled to be told these matters otherwise it will not have fair notice of Benson’s case on this issue and will be significantly prejudiced in the presentation of its case without them.

6. I will make an order pursuant to r 46A.09 of the Supreme Court Rules 1987 that Benson provide further material facts of the allegations in paragraph 26 of the Statement of Claim and in particular that Benson provide:

   1.further material facts of the nature of the funding or facilities referred to including the terms thereof;

   2.further material facts of the institution or institutions offering such facilities at the relevant time.

   Conclusion

7. In relation to this action, I decline to strike out the pleas of agency.  The plaintiff must provide further material facts in relation to the loss of opportunity claim in accordance with these reasons. 

8. I will hear the parties as to the appropriate orders.