Deep Investments Pty Ltd v Casey
[2018] FCA 603
•4 May 2018
FEDERAL COURT OF AUSTRALIA
Deep Investments Pty Ltd v Casey [2018] FCA 603
File number: NSD 2189 of 2016 Judge: GLEESON J Date of judgment: 4 May 2018 Catchwords: PRACTICE AND PROCEDURE – application for summary dismissal – where prior consent judgment in proceedings arising from same factual matrix – res judicata – issue estoppel – Anshun estoppel – abuse of process – application to strike out statement of claim – whether statement of claim fails to disclose reasonable cause of action – positive fiduciary duties – misleading or deceptive conduct – breaches of contractual and tortious duties by agent – consideration of s 91 Civil Procedure Act 2005 (NSW) Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12DA, 12DC, 12ED, 12GM
Corporations Act 2001 (Cth) s 917B Federal Court of Australia Act 1976 (Cth) s 31A
Trade Practices Act 1974 (Cth) s 52
Federal Court Rules 2011 rr 16.21, 26.01(1)
Civil Procedure Act 2005 (NSW) s 91
Supreme Court Rules 1970 (NSW) Pt 40 r 8
Uniform Civil Procedure Rules 2005 (NSW) r 36.1A
Cases cited: Asher v Secretary of State for the Environment [1974] EWCA Civ J 0131-1; [1974] Ch 208
Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd [2001] FCA 1861; (2001) 119 FCR 1
Beck v Weinstock; Beck v L W Furniture (Consolidated) Pty Ltd [2012] NSWCA 289
Blair v Curran [1939] HCA 23; (1939) 62 CLR 464
Bradford and Bingley Building Society v Seddon [1999] EWCA Civ J 0311–6; [1999] 1 WLR 1482
Breen v Williams [1995] HCA 63; (1996) 186 CLR 71
Cabassi v Villa [1940] HCA 41; (1940) 64 CLR 130
Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; (2010) 75 NSWLR 245
Christou v Stantons International Pty Ltd [2010] FCA 1150
Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398
City of Swan v McGraw-Hill Companies Inc [2014] FCA 442; (2014) 223 FCR 295
Conference & Exhibition Organisers Pty Ltd v Johnson [2016] NSWCA 11
Croker v Department of Family & Community Services [2000] FCA 883
Daly v The Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 372
Day v Rogers [2011] NSWCA 124
DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2015] WASC 105
Dresna Pty Ltd v Linknarf Management Services Pty Ltd (in liq) [2006] FCAFC 193; (2006) 156 FCR 474
Ekes v Commonwealth Bank of Australia [2014] NSWCA 336; (2014) 313 ALR 664
Ferella v Otvosi [2005] NSWSC 678; (2005) 63 NSWLR 523
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296
Isaacs v Ocean Accident and Guarantee Corp Ltd (1957) 58 SR (NSW) 69
JC Decaux Australia Pty Ltd v Adshel Street Furniture Pty Ltd [2000] FCA 1118; (2000) 178 ALR 339
Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1
Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2008] NSWSC 185; (2008) 72 NSWLR 160
LMI Mutual Life Insurance Company of New York v Hilton-Green [1916] USSC 188; 241 US 613
Macks v Viscariello [2017] SASCFC 172
Mastronardo v Commonwealth Bank of Australia trading as BankWest [2017] NSWSC 1020
Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd [2017] NSWSC 1463
Minero Pty Ltd v Redero Pty Ltd (unreported, Sup Ct, NSW, Santow J, 29 July 1998)
Morris v Wentworth-Stanley [1998] EWCA Civ J 0904–6; [1999] QB 1004
O’Shane v Harbour Radio Pty Ltd [2013] NSWCA 315; (2013) 85 NSWLR 698
Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd [1981] HCA 7; (1981) 148 CLR 457
Pilmer v Duke Group (in liq) [2001] HCA 31; (2001) 207 CLR 165
Pollnow v Armstrong [2000] NSWCA 245
Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589
R v O’Halloran [2000] NSWCCA 528; (2000) 159 FLR 260
Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271
Rasch Nominees v Bartholomaeus [2012] SASC 70
Re South American and Mexican Co; Ex parte Bank of England [1895] 1 Ch 37
Re Trawl Industries of Australia Pty Ltd [1992] FCA 377; (1992) 36 FCR 406
Redowood Pty Limited v Link Market Services Pty. Limited (formerly known as ASX Perpetual Registrars Limited) [2007] NSWCA 286
Rippon v Chilcotin [2001] NSWCA 142; (2001) 53 NSWLR 198
Sargent v ASL Developments Ltd [1970] HCA 40; (1974) 131 CLR 634
Secure Parking (WA) Pty Ltd v Wilson [2012] WASCA 230
Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93
Smits v Roach [2006] HCA 36; (2006) 227 CLR 423
Smythe v Burgman [2015] NSWSC 150
Sporting Shooters Association of Australia (New South Wales) Inc v McGuire (No 2) [2015] NSWSC 1239
State Bank v Stenhouse (1997) Aust Torts Reports ¶81-423
State of Western Australia v Fazeldean on behalf of the Thalanyji People (No 2) [2013] FCAFC 58; (2013) 211 FCR 150
Timbercorp Finance Pty Ltd (in liquidation) v Collins; Timbercorp Finance Pty Ltd (in liquidation) v Tomes [2016] HCA 44; (2016) 259 CLR 212
Date of hearing: 15, 16 and 22 May 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 251 Counsel for the Applicant: Mr P Dunning QC with Dr W Wild Solicitor for the Applicant: K2 Law Counsel for the First, Second and Third Respondents: Mr S Donaldson SC with Mr M Friedgut Solicitor for the First, Second and Third Respondents: MinterEllison Counsel for the Fourth Respondent: Mr AC Harding Solicitor for the Fourth Respondent: K&L Gates Counsel for the Fifth, Sixth and Seventh Respondents: Mr A McGrath SC with Mr SE Gray Solicitor for the Fifth, Sixth and Seventh Respondents: Moray & Agnew ORDERS
NSD 2189 of 2016 BETWEEN: DEEP INVESTMENTS PTY LTD ACN 000 339 319
Applicant
AND: KEVIN CASEY
First Respondent
PAUL CLARKE
Second Respondent
CBC PARTNERS PTY LTD ACN 104 815 483 (and others named in the Schedule)
Third Respondent
JUDGE:
GLEESON J
DATE OF ORDER:
4 MAY 2018
THE COURT ORDERS THAT:
1.The following paragraphs of the statement of claim are struck out:
14, 17, 26(b)-(d), 42, 43(b), 44(a)-(c), 44(d)-(f) to the extent that they relate to para 14(c), 45-48, 50-55, 57 to 77, 78(b)-(f), 79-92.
2.The applicant have leave to file and serve an amended statement of claim by 1 June 2018:
(a)from which the paragraphs identified in order 1 are excised, and
(b)which repleads:
(i)the claim or claims based on breach of a fiduciary duty by misuse of position to obtain a benefit for a third party;
(ii)the claims based on contraventions of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth).
3.Liberty to apply for further orders to give effect to these reasons, including orders for costs, by 11 May 2018.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
GLEESON J:
In this proceeding, the applicant (“Deep Investments”) seeks to recover losses allegedly sustained as a result of share trading between about May 2012 and February 2013.
The first respondent (“Mr Casey”), the second respondent (“Mr Clarke”) and the third respondent (“CBC”) (collectively “CBC respondents”) are two accountants and a firm of accountants who were retained by Deep Investments between around 2001 and 2013. The fourth respondent (“Mr Emanuel”) is a solicitor who acted for Deep Investments. The fifth respondent (“Mr Robinson”), sixth respondent (“Raven”) and seventh respondent (“QWL”) (collectively “Raven respondents”) are, respectively, a financial advisor and two companies associated with Mr Robinson who were involved in the provision of “MDA services” to Deep Investments.
The expression “MDA services” refers to the provision of a facility called a “managed discretionary account”, which may be constituted by a wide variety of arrangements. The statement of claim relevantly defines financial services involving the provision of power and authority to transact on the client’s bank accounts and buy and sell shares in the client’s name, on a discretionary basis in the client’s best interests, as “MDA services”.
Deep Investments previously brought a proceeding in the Supreme Court of New South Wales (“Supreme Court proceeding”) to recover losses allegedly sustained as a result of the share trading during the same period, including the shares the subject of the current proceeding. The Supreme Court proceeding was brought by Deep Investments together with three other plaintiffs (Rhonda Deep, Barry Deep and Finntrace Pty Ltd) (collectively “Deep plaintiffs”), against the Raven respondents. As expressed in a further amended commercial list statement filed 12 June 2015 (“FACLS”), the claim was that the Raven respondents “failed to follow the plaintiffs’ instructions and the terms of their appointment in the management of their portfolios”. An earlier claim that the Raven respondents were negligent in the management of the portfolios was removed in August 2014.
The trial in the Supreme Court commenced in February 2016 before Hammerschlag J. After hearing four days of evidence by witnesses for the Deep plaintiffs, Hammerschlag J made orders by consent including an order giving judgment in favour of the Raven respondents (“consent judgment”).
If the present proceeding is allowed to proceed in its current form, there will be extensive re‑litigation of the circumstances relating to the engagement of the Raven respondents by Deep Investments and the subsequent management of the Deep Investments’ share portfolio.
Deep Investments contended, in essence, that the current proceeding has been brought as a result of information obtained fortuitously on the eve of the Supreme Court trial. It argued that, in all of the circumstances, it is not precluded from pursuing the claims that it now seeks to make even though the case will involve some re-litigation of allegations previously made against the Raven respondents.
Principal arguments for interlocutory relief
This judgment concerns three separate interlocutory applications by which the respondents seek summary dismissal of the proceeding pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (“Federal Court Act”) and/or r 26.01(1) of the Federal Court Rules 2011, variously contending that Deep Investments is estopped from pursuing the claims made in the proceeding or that the proceeding is an abuse of process. Alternatively, the respondents seek various orders to the effect that the statement of claim be struck out in whole or in part pursuant to r 16.21 of the Federal Court Rules.
The principal argument of the CBC respondents is that the claims made in the current proceedings are in substance identical to, or so closely connected with the claims and issues and/or the factual matrix of the claims and issues which Deep Investments pursued in the Supreme Court proceeding that it was unreasonable for the claims not to have been made in that earlier proceeding. It follows, according to the CBC respondents, that Deep Investments’ claims are precluded by an estoppel of the kind identified in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 (“Anshun estoppel”).
In particular, the CBC respondents contend that Deep Investments elected to prosecute the Supreme Court proceeding on the basis of the allegations contained in its FACLS, filed in that proceeding, when Deep Investments was aware or ought reasonably to have been aware of all of the allegations that it seeks to make in this proceeding. Further, the Deep plaintiffs adduced evidence at the Supreme Court trial, including from Mr Clarke, to the effect (the CBC respondents said) that his role and the roles of the other CBC respondents in relation to the Deep share portfolios was much more limited than is now alleged. The CBC respondents argued that it would be an abuse of process to permit Deep Investments now to maintain a case inconsistent with the case prosecuted, with the benefit of evidence from Mr Clarke and Mr Casey, in the Supreme Court proceeding.
Mr Emanuel’s principal argument was that the proceeding constitutes an abuse of process because Deep Investments seeks to raise and have determined in its favour issues which were raised by it and determined against in in the Supreme Court proceeding. Mr Emanuel also alleged that the statement of claim is so defective in its pleading against him that it should be struck out in its entirety.
In addition to arguments that the current proceeding is precluded by Anshun estoppel and is an abuse of process, the Raven respondents relied on the principles of res judicata and issue estoppel. They said that the consent judgment is conclusive on the substance of the controversy raised by the causes of action in the Supreme Court proceeding and determined in their favour against Deep Investments; and that the issues of fact and law alleged or denied in the Supreme Court proceeding are taken to be matters necessarily decided by the consent judgment.
Summary of conclusions
In summary, I have reached the following conclusions:
(1)There is no res judicata created by the consent judgment in relation to the claims now sought to be brought against the Raven respondents.
(2)There is no issue estoppel created by the consent judgment which precludes the claims now sought to be brought against any of the respondents.
(3)Section 91 of the Civil Procedure Act 2005 (NSW) has no relevant operation.
(4)There is an Anshun estoppel in relation to Deep Investments’ claims against the Raven respondents based on alleged breaches of fiduciary duty by the sale of pre-CGT National Australia Bank Limited (“NAB”) shares (as described in para 57 of the statement of claim) and by the trading in Boart Longyear Limited (“Boart Longyear”) and Billabong International Limited (“Billabong”) shares (as described in paras 64 and 72 of the statement of claim) pleaded in paras 78(d), (e) and (f) of the statement of claim.
(5)There is an Anshun estoppel in relation to Deep Investments’ claims against the CBC respondents based on alleged breaches of contractual and tortious duties by failing to identify and inform Deep Investments of the trades in pre-CGT NAB shares, and Boart Longyear and Billabong shares pleaded in paras 42 and 43(b) of the statement of claim, and referred to in para 47 of the statement of claim.
(6)Otherwise there is no Anshun estoppel.
(7)The claim involves an abuse of process corresponding with the scope of the Anshun estoppels.
(8)The statement of claim should be struck out to the extent that it makes claims covered by the Anshun estoppel and abuse of process.
(9)The statement of claim does not disclose a reasonable claim or cause of action in relation to the alleged breaches of fiduciary duty by the CBC respondents and Mr Emanuel concerning avoidance of conflicts or the alleged contraventions of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”), however, leave should not be granted to replead those claims or causes of action.
FACTS
It is necessary to examine the claims made in the Supreme Court proceeding and the facts that were known (or which it was reasonable for Deep Investments to have ascertained) during the course of that proceeding.
Barry Deep, Rhonda Warne née Deep and Robert Deep are siblings. All are directors of Deep Investments. As at 18 May 2011, Deep Investments held a portfolio of shares which included shares that had a pre-capital gains tax (“CGT”) status in NAB. Deep Investments alleges that, as at February 2012, it owned a portfolio of shares worth around $40 million.
According to Deep Investments, at the relevant times, Mr Casey and Mr Clarke had the day to day carriage of Deep Investments’ affairs within CBC. Mr Robinson was introduced to the Deep plaintiffs by Mr Casey and Mr Clarke.
Deep Investments alleges, and it does not appear to be in dispute that, from between 2011 and 25 February 2012, Mr Robinson was employed by Wilson HTM Investment Group (“Wilson”), another provider of MDA services.
Deep Investments claims that, in about June or July 2011, it entered into an agreement under which Mr Robinson provided MDA services to Deep Investments, on terms that required it to pay a substantial termination fee in the event that the agreement was terminated within 12 months of inception.
Thereafter, Mr Robinson provided MDA services to Deep Investments on behalf of Wilson.
In the Supreme Court proceeding, the Deep plaintiffs alleged that in October 2011, they signed one or more variations to their agreements with Wilson, removing the requirement for payment of the termination fees. During cross-examination at the Supreme Court trial, Rhonda Deep identified a letter of variation to the management agreement between Wilson and Deep Investments signed by her on 18 October 2011. Ms Deep agreed that she wanted to make sure that, if Mr Robinson was not at Wilson, she did not have to pay a termination fee and that this was a matter she raised with Mr Robinson.
According to Deep Investments:
(1)on about 25 February 2012, Mr Robinson resigned from Wilson;
(2)on or about 27 February 2012 and at Mr Robinson’s suggestion, as he was leaving Wilson, Deep Investments terminated its agreement with Wilson;
(3)thereafter, in the period 28 February 2012 to 21 February 2013, Mr Robinson provided MDA services to Deep Investments pursuant to a financial services licence held by QWL; and
(4)on or about 20 March 2012, Deep Investments executed an agreement with Raven for the provision to it of MDA services entitled “Managed Discretionary Service Agreement”.
According to expert evidence served by the Deep plaintiffs in the Supreme Court proceeding prima facie, the Deep plaintiffs did not suffer any economic loss during the period the portfolios were managed by Wilson, although some shares purchased by Mr Robinson at Wilson were subsequently sold by Raven at a loss.
Wilson demand on Deep Investments for termination fee
Following the termination of the agreement between Deep Investments and Wilson, on about 22 March 2012, Wilson made a written demand on Deep Investments for a termination fee of $719,610.72.
Deep Investments alleges that Mr Emanuel was retained for reward by Deep Investments and undertook and assumed responsibility to Deep Investments, including by acting for Deep Investments in relation to Wilson’s claimed termination fee.
Deep Investments alleges that:
(1)on 23 March 2012, Mr Robinson told Mr Clarke (who in turn told Mr Casey) and Mr Emanuel that the termination fee was disputed; and
(2)by 26 March 2012, Mr Robinson told Mr Clarke (who in turn told Mr Casey) and Mr Emanuel that the basis for disputing the fee was a variation to the Wilson agreement.
Ultimately, Wilson did not pursue payment of the termination fee.
The CBC respondents submitted that Deep Investments, knowing of the variation to its agreement with Wilson, “ought reasonably to have made enquiries in relation to the basis upon which Wilson was claiming the termination payment against it in early 2012 … Given the size of the alleged termination payment that Wilson was demanding … it was not open to the Applicant in 2012 to keep itself in blissful ignorance of the nature of the claim that was being made against it by Wilson. To have done so would have been unreasonable and commercially immoral”. I do not accept this submission. Deep Investments’ concern was to avoid paying the termination fee. Wilson’s demand could have led Deep Investments to explore the underpinnings of Wilson’s claim but there is no legal foundation for the suggestion that it should have done so.
Wilson documents
Relevantly, Deep Investments alleges that:
(1)On 5 April 2012, Mr Emanuel received from Wilson a copy of a letter from Wilson to the Australian Securities and Investments Commission (“ASIC”) enclosing a form FS80 in relation to a potential breach of licence (“Wilson/ASIC correspondence”). The FS80 recorded the following matters:
[T]he former employee ... Robinson ... resigned orally at a meeting with [Wilson’s] managing director on Saturday 25 February 2012 ...
…
On Monday 27 February 2012, [Wilson] received an email from ... Robinson in respect of five accounts and portfolios that he managed on behalf of related party clients. ... The email attached a letter signed by [inter alia, Deep Investments] which terminated their management agreements with [Wilson] which in turn attached two documents on the letterhead of [Wilson] both entitled “letter of VSL of Variation to the Management Agreement” dated 18 October 2011 (Purported Variation) [being the Purported Variation [Agreement] ...
…
The Purported Variation was signed by [Deep Investments] but not by [Wilson]
…
On receipt of the letter of termination and the Purported Variation [Agreement], [Wilson] began an internal investigation to scrutinise the circumstances in which the Purported Variation [Agreement] came to be produced and whether or not ... Robinson had authority to provide the Purported Variation [Agreement] to [Deep Investments]. That investigation has revealed:
that ... Robinson entered into [Wilson’s] premises at approximately 2:30am on the morning of his resignation and stayed for approximately an hour. During that time, the desktop of his computer was heavily modified;
by comparison with restored emails and documents to [Wilson’s] server from back-up tapes, that... Robinson deleted many documents from his computer, including a copy of the Purported Variation [Agreement], which does not appear to have been created or stored on [Wilson’s] central server;
that, to the best of [Wilson’s] knowledge (and in circumstances where... Robinson has declined to be interviewed or to provide an explanation):
o ... Robinson prepared the Purported Variation [Agreement] in breach of his contract of employment which expressly provided that he had no authority to contract on behalf of [Wilson];
o ... Robinson prepared the Purported Variation [Agreement] in breach of internal policies and guidelines concerning the execution of documents by authorised attorneys only;
o the effect of the Purported Variation [Agreement] is to provide [Deep Investments] to transfer the management of their portfolios to... Robinson at his new employer without having to pay a termination fee.
Whilst... Robinson has denied that he... did not have the requisite authority, he has declined to provide any explanation as to how he believes he was so authorised.
…
The actions of ... Robinson, which include creating the Purported Variation [Agreement] on his computer desktop to avoid monitoring and accessing [Wilson’s] premises in the early hours of the morning on a weekend to attempt to delete any trace of the Purported Variation [Agreement], suggest the conduct of a rogue employee who has gone to considerable lengths to conceal inappropriate and deceitful conduct from [Wilson].
(2)On about 18 April 2012, Mr Emanuel received a letter from Wilson requesting an explanation of how and when the variation agreement came to be signed by Deep Investments (“Wilson/Emanuel request for explanation”). The letter stated relevantly:
An internal investigation is being conducted into the circumstances concerning the preparation and approval of the Variation. We should be grateful if you could take instructions from your Clients and provide us with an explanation as to how and when the Variation came to be signed by them.
(3)By no later than 27 April 2012, Mr Robinson had become aware of Wilson’s request for an explanation.
(4)Mr Robinson became aware of the contents of the Wilson/ASIC correspondence by no later than 2 May 2012.
There is no evidence that the Wilson/ASIC correspondence was provided to Deep Investments around this time.
Deep Investments alleges that the Wilson/ASIC correspondence and the Wilson/Emanuel request for explanation (“Wilson documents”) conveyed to their readers (including Mr Robinson), the following matters:
(a)that a senior legal officer, in the form of Padman, in a well-known wealth management firm, in Wilson, had formed the views and believed that evidence existed to justify the views set out in those documents, the essence of which may be summarised as below; and
(b)the Robinson in his dealings with Wilson as his employer, and in respect of the affairs of Deep Investments:
(i) had engaged in deceitful conduct;
(ii) had engaged in inappropriate conduct;
(iii) was a rogue employee;
(iv)had gone to considerable lengths to conceal his inappropriate and deceitful conduct;
(v)had fabricated a document which affected both the interests of Wilson and Deep Investments;
(vi)had sought to tamper with the computer records of Wilson so as to remove evidence of his dishonest conduct;
(vii)was uncooperative with a former employer on a matter that he ought to have been willing to co-operate on;
(viii)had prejudiced his employers[’] position in an unauthorised way;
(ix)had breached his employment contract and internal policies and guidelines;
(x)had engaged in serious misconduct which was potentially a breach of the Corporations Act;
(xi)had engaged in conduct that called for an explanation and investigation (together “the allegations by Wilson”).
On behalf of Deep Investments, Mr Dunning QC contended that the respondents failed in their respective duties to provide the Wilson documents to Deep Investments. The question of whether it is arguable that the respondents owed duties to disclose the documents is considered below. I accept, however, that the Wilson/ASIC correspondence was not provided to Deep Investments or its lawyers until January 2016 in the circumstances explained below.
Share trades
Mr Robinson’s share trades on behalf of Deep Investments included dealings with three shares in three particular entities: NAB, Boart Longyear and Billabong .
Concerning NAB, in this proceeding Deep Investments alleges that:
(1)on 18 May 2012 and 5 July 2012, Mr Robinson sold a total of 398,741 NAB shares that had pre-CGT status from the Deep Investments portfolio; and
(2)the sales caused Deep Investments a loss of $3,769,079.
Concerning Boart Longyear, Deep Investments alleges trades from 23 May 2012 to 26 September 2012 and a total capital loss of $3,562,591. In particular, the statement of claim pleads that, by 25 July 2012, it had become apparent to Mr Robinson that Deep Investments had incurred but not realised a substantial capital loss of $345,691 on an investment of $2,804,311 in Boart Longyear shares.
Concerning Billabong, Deep Investments alleges trades from 4 May 2012 to 16 October 2012 and a total capital loss of $2,118,883. The statement of claim pleads that, by 25 July 2012, it had become apparent to Mr Robinson that Deep Investments had incurred but not realised a substantial capital loss of $625,015 on an investment of $1,033,015 in Billabong shares.
By at least 5 July 2012, there was a dispute between the Deeps and Mr Robinson concerning their share portfolios. On that day, Ms Deep sent an email to Mr Robinson, Mr Casey and Mr Clarke saying relevantly:
Barry and I have had a meeting with the other Directors and shareholders of Deep Investments today.
The outcome was a vote to reduce the margin loans to zero over all the portfolios (Deep Investments, Finntrace, Rhonda Deep/Warne and Barry Deep and Douglas Warne).
Please do this as timely as possible without making any losses.
We have made this decision because of the volatile market situation. As a group we don’t feel comfortable with loans in the market. We don’t want to use these facilities and we don’t want anymore share trading at this stage. Share trading is not our style of investing and makes us feel uneasy.
This email produced a curious email from Mr Robinson to Ms Deep, copied to Mr Casey and Mr Clarke. The email included the following:
I find your email this afternoon very disappointing both personally and professionally – I have worked for over a year to gain your trust and spent numerous hours talking to you and explaining my approach – I have always acted in your best interests and this has included without limitation:-
ŸEnsuring that when you left Wilson HTM that you could come with me as a client
ŸPaying for legal advice on behalf of Deep Investments to ensure that you were protected from Wilson HTM when I left (including the payment of a termination fee); and
ŸAdvancing your interests in terms of ensuring that you were not charged management fees for my first month at Raven Capital.
Despite what is said in this email, by 5 July 2012, Wilson had not withdrawn its demand for the termination fee. To the contrary, by letter dated 16 July 2012, Mr Emanuel proposed a resolution of the dispute between the Deeps and Wilson on terms that included Wilson agreeing not to pursue any of Mr Emanuel’s clients for payment of the alleged termination fees. By email dated 17 July 2012 to Mr Casey, Mr Emanuel observed: “Clearly, the fact that they are still reserving their rights suggest that they are considering pursuing the claim for termination fees.”
By email dated 17 August 2012, Mr Emanuel wrote to Mr Robinson saying that he and Mr Casey had agreed that it seemed likely that Wilson would not pursue any action against the Deeps. He asked to whom his invoice should be addressed. Mr Robinson replied, agreeing with Mr Emanuel and requesting that the invoice be addressed to Raven.
November 2012 termination of Raven agreement
By letter dated 8 October 2012, Rhonda and Barry Deep on behalf of Deep Investments instructed Mr Robinson to act on their account in a manner specified in the letter. Relevantly, the letter authorised Mr Robinson to take instructions on the portfolio from Mr Clarke and Mr Casey.
However, within weeks Deep Investments terminated its contract with Raven, by letter dated 1 November 2012 from k2 Law on behalf of Deep Investments, the other potential Deep plaintiffs and Douglas Warne (Ms Deep’s son). The letter made the following allegations concerning the conduct of Mr Robinson:
Our clients has [sic] become aware that their respective portfolios were managed by Mr Robinson contrary to each of our clients’ express instructions and known investment requirements. In particular it appears that Mr Robinson:
1.Invested a very significant proportion of their portfolios in other than blue chip stocks, including “small cap” mining and resources service companies.
2.Sold both pre- and post-CGT shares without instructions, without any apparent consideration for tax considerations for the clients, and without any provision for payment of resulting tax liabilities to the ATO.
3.Rather than engage in the medium to long term rebalancing of the existing portfolios (which was expected by our clients) engaged in short term speculative trading including “dividend stripping”.
4. Used margin lending facilities to engage in short term speculative trading.
5.Diverted dividends payable to our clients (and on which they depended for their income) to bank accounts for the purpose of short term trading, without their knowledge or consent.
6.Failed to ensure dividends were received from companies in which the portfolio was invested, by failing to keep current account and address information with share registries.
This conduct by Mr Robinson constitutes serious breaches of the various agreements between our clients and Raven, and on our preliminary investigations also appears to be in contravention of the ASIC Act 2001 (Cth) and the Corporations Act 2001 (Cth).
As a result of these breaches and contraventions, which in our view also appear negligent, our clients have suffered very significant losses to the value of their portfolios, on a preliminary view in excess of $10 million, as well as incurring CGT liabilities.
By letter dated 7 December 2012 from Moray & Agnew Lawyers, on behalf of Raven, to k2 Law, Raven made various assertions of rights against the Deeps including a claimed entitlement arising from alleged defamatory statements by Mr Barry Deep and Ms Deep that Mr Robinson had misappropriated significant dividends.
By letter dated 16 January 2013, k2 Law asserted that Raven and Mr Robinson owed “both common law duties to account as well as fiduciary duties”. By letter dated 26 February 2013, Moray & Agnew on behalf of Raven and Mr Robinson denied any breach of duty but proposed a resolution of the dispute between the parties without recourse to litigation and asked k2 Law to identify the precise allegations made against their clients.
K2 Law responded by letter dated 19 March 2013 stating that their clients were “in the process of reconciling the transaction and the accounts” and, “[o]nce this reconciliation is complete, we will be in a position to propose further steps towards alternative dispute resolution”.
December 2013: commencement of Supreme Court proceeding
The Supreme Court proceeding was commenced in December 2013. The defendants were the Raven respondents and Wilson. The proceeding was commenced by a summons claiming damages for breach of contract and negligence, accompanied by a “Commercial List Statement” (“CLS”). The CLS summarises the nature of the dispute as follows:
The plaintiffs appointed the defendants to manage their share portfolios. In each case … Simon Robinson was the manager employed by [Wilson] and later [Raven Capital] as authorised representative of [QWL]. The plaintiffs claim that the defendants failed to follow the plaintiffs’ instructions and the terms of their appointment and were negligent in the management of their portfolios.
The CLS alleges that Mr Robinson and Raven failed to follow the Deep plaintiffs’ instructions in the following respects:
(1)invested in shares other than Australian “blue chip” shares;
(2)invested in shares other than shares with solid balance sheets and earning profiles;
(3)invested in shares other than shares with a record of paying franked dividends; and
(4)sold blue chip shares including banking stocks;
(5)did not invest conservatively;
(6)did not devise or implement a strategy intended to preserve capital while seeking a dividend return of circa 5-6% or greater;
(7)engaged in speculative trading including dividend stripping;
(8)utilised the margin lending facility to engage in speculative trading; and
(9)sold shares that were CGT free, and shares that created significant CGT liabilities for the plaintiffs.
The CLS also alleges that, in managing the Deep portfolios and in the selection of shares for investment, and for realisation, Mr Robinson and Raven failed to exercise reasonable care, skill and diligence or to apply their expertise and in particular:
(1)did not devise or implement an investment strategy consistent with the Deep plaintiffs’ instructions and investment objectives;
(2)did not carry out any relevant market research;
(3)did not review relevant balance sheets or earning profiles;
(4)did not investigate records in paying franked dividends; and
(5)chose investments on the basis of rumour, speculation and hearsay.
The CLS also alleges that Mr Robinson and Raven failed to follow an October 2012 instruction to sell the Billabong shares.
The loss allegedly suffered comprised:
(1)the net loss in value of their respective portfolios, relative to the position had the defendants followed their instructions and not been negligent;
(2)transaction costs including brokerage and interest on margin loans;
(3)the imposition of CGT liabilities; and
(4)costs involved in reconstituting the portfolios including the costs of professional advice and related management fees.
April 2014 Green report
By letter dated 14 April 2014, k2 Law served an expert report by Paul Green in support of the CLS. Relevantly, the letter made it clear that the Deep plaintiffs relied on the transactions identified in Mr Green’s report to support their allegations of failure to follow instructions.
Mr Green calculated that Deep Investments had suffered economic loss of $11,575,651 on the market value of its share portfolio in the period the portfolio was managed by Raven. Mr Green also calculated a CGT liability of $1,776,579 for unauthorised sales of Deep Investments’ pre-CGT shares and a gross taxable capital gain of $5,921,930.
Mr Green’s report refers to an instruction that, as at 30 June 2011, the share portfolio included 398,741 pre-CGT NAB shares. This instruction is consistent with the allegation in the statement of claim, referred to at [31] above. The report includes a calculation of realised capital gains of $8,802,797 for pre-CGT shares during the period 1 March 2012 to 30 November 2012.
The Raven respondents noted, and it was not disputed that:
The First Green Report addressed, amongst other things, the volume of trading that had been conducted by Robinson, that shareholdings having a pre-CGT status had been sold, that Robinson had used margin lending in order to trade, that Robinson had bought and sold shares in “small cap” mining stocks (including Boart) and that Robinson had managed the portfolios in a trading/speculative manner. Mr Green also specifically examined the transactions in respect of Billabong.
June 2014: Commercial List Responses
On 6 June 2014, Wilson filed its Commercial List Response in the Supreme Court proceeding. Notably, in response to the Deep plaintiffs’ allegation about the 18 October 2011 variation to the Wilson agreement, Wilson alleged that Mr Robinson had no authority to effect the variation; that Mr Robinson’s conduct in effecting the variation was in breach of his contract of employment with Wilson; that the Deep plaintiffs were aware, or should have been aware that he had no such authority; that by purporting to vary the Wilson agreement, Mr Robinson deprived Wilson of payment of the termination fee and that Mr Robinson’s employment with Wilson was terminated on 25 February 2011 [sic – 25 February 2012].
This last allegation was made in response to the Deep plaintiffs’ allegation that Mr Robinson had told the Deep plaintiffs that he was leaving Wilson at a meeting on 20 March 2012. The Commercial List Response thus raised, as issues, whether Mr Robinson had engaged in misconduct vis-à-vis Wilson (acting in excess of his authority and breaching his employment contract) and whether he had misled the Deep plaintiffs about the circumstances of his departure from Wilson.
Wilson’s Commercial List Response also alleged that CBC was a concurrent wrongdoer for the purposes of Pt 4 of the Civil Liability Act 2002 (NSW).
The Raven respondents also filed a Commercial List Response. Relevantly, they denied the central allegations made against them and also identified “CBC Partners” as a concurrent wrongdoer.
Mr Emanuel submitted that, having regard to Deep Investments’ knowledge of the variation to the Wilson management agreement, and the allegations of Mr Robinson’s lack of authority to effect that variation in Wilson’s Commercial List Response, Deep Investments, acting reasonably could and should have pursued a chain of enquiry which would have revealed the bases on which Wilson made the allegations in its Commercial List Response which were the matters that were disclosed in the Wilson documents. Mr Emanuel submitted that, acting with reasonable diligence, Deep Investments would therefore have been in a position, sometime in 2014, to turn its mind to, and to bring as part of the Supreme Court proceeding, the claim now sought to be raised against Mr Emanuel.
The CBC respondents made a similar submission: that Deep Investments either investigated the matters raised in Wilson’s Commercial List Response in 2014, or ought reasonably to have done so.
But Wilson was removed as a defendant to the Supreme Court proceeding in August 2014. From that time, there was no particular reason for the Deep plaintiffs to test the veracity of Wilson’s allegations as part of a claim against Wilson. It is not suggested that Wilson’s allegations were relevant to an issue in the Supreme Court proceeding after August 2014, beyond Mr Robinson’s credit.
Neither the CBC respondents nor Mr Emanuel offered a persuasive argument as to why reasonable diligence in the prosecution of the Supreme Court proceeding required Deep Investments to enquire as to the basis for Wilson’s allegations, or to consider whether it had a claim against Mr Emanuel or the CBC respondents in connection with those allegations.
August 2014: Deep plaintiffs evidence in Supreme Court proceeding
In August 2014 and June 2015, Mr Clarke swore affidavits in support of Deep Investments’ case in the Supreme Court. Mr Clarke’s August 2014 affidavit stated relevantly that:
(1)for the Deep family’s share portfolios, CBC’s role was as the record keeper of the portfolios, including the processing of dividends and accounting for those transactions (para 8);
(2)CBC did not have authority to pay bills or to transact account and held no powers of attorney or authorities to operate (para 7); and
(3)there were discussions in October 2012 concerning the discovery by the Deeps that they were holding a substantial amount of Billabong shares, share in companies that they did not know and their original shares including pre-CGT shares had been sold (paras 62 to 71).
Concerning the CBC respondents, Robert Deep’s affidavit sworn 6 August 2014 stated relevantly:
4.CBC Partners Chartered Accountants and its predecessor firms have had an association with the Deep family for about the last 50 years.
5.For some years now Kevin Casey has been the main contact at CBC Partners and also Paul Clarke from about 2008 has been involved and took over that role.
6.CBC prepared our end of year tax returns and also looked after all of the accounting. I saw their role as advisors to make sure that we doing things [sic] in the most tax effective way, including my own personal tax requirements.
Barry Deep’s affidavit sworn 8 August 2014 contains the following evidence, concerning the role of CBC and the move from Wilson to Raven:
2.Kevin Casey had been the main contact at CBC Partners but more recently Paul Clarke from about 2008 took over that role.
3.In 2011 I had been considering engaging JB Were to manage our share portfolios.
4.Paul told me that CBC Partners had a share investing professional that they recommended to their other clients, and that before engaging JB Were’s services I should first meet the person they were recommending.
…
35.[In January 2012] Simon also told us that he would handle any legal action Wilson HTM might launch against us for leaving their company within the 12 month contract period and that there would be no legal cost to us whatsoever if we were willing to go with him to Raven Capital.
…
37.[In February 2012] Simon produced a piece of paper showing a glowing report for Deep Investments over the last six months. Kevin Casey declared that this was “the best result the Deep Investments portfolio has ever had”. Robert was impressed with the result and said at the meeting that he was agreeable for Simon to continue managing the Deep Investments portfolio.
…
43.[In March 2012] Simon said that we could leave Wilson HTM without any exit fees because he would take care of any possible legal action.
Barry Deep’s affidavit also addresses the subject of the purchase of Billabong shares.
Ms Deep’s affidavit refers to a specific statement that the Deep plaintiffs “didn’t want to sell any pre-CGT shares”, and to a later statement that “if something happens I want to be left with CBA or NAB”. She refers to an instruction to Mr Robinson in December 2011, in answer to a request, to the effect “No you can’t sell the NAB shares you can’t sell any bank shares. You just can’t sell the bank shares.” Concerning Wilson, Ms Deep’s affidavit includes the following:
81.In February I received phone calls from Wilsons wanting us to stay with them and then some emails threatening us with exit fees. I forwarded these to Simon. He said not to talk to anyone from Wilson HTM – he was very insistent about that.
82.Paul checked the Wilsons contract and told that it did contain the clause that Simon said he had put in it and said we should be ok to leave without exit fees.
…
95.[In March 2012] Simon said that because of that clause he inserted into the Wilsons contract we could leave them without any exit fees and he would look after that for us. Again he said not to talk to anyone from Wilson HTM.
In August 2014, an Amended Summons was filed by which Wilson was removed as a defendant, and the relief claimed against the Raven respondents was amended to be damages for breach of contract “including breach of agency”, and to delete the claim for damages for negligence. An Amended Commercial List Statement was also filed.
October 2014: subpoena to CBC
In October 2014, a subpoena to produce was issued to CBC at the request of the Raven respondents seeking, in essence, CBC’s files in respect of the Deep plaintiffs from 30 June 2010 onwards. K2 Law identified the purpose of the subpoena as being to decide whether to plead that CBC was a concurrent wrongdoer. By letter dated 21 October 2014, k2 Law argued that, as a result of the amendments to the CLS, “a concurrent wrongdoer defence is not maintainable”. By letter dated 31 October 2014, k2 Law confirmed that no cause of action was advanced founded on a failure to exercise reasonable care and skill.
In November 2014, the Deep plaintiffs filed a notice of motion seeking to set aside the subpoena to CBC. Ultimately, the Raven respondents did not press for production under that subpoena.
By a Commercial List Response to the Amended Commercial List Statement filed 21 November 2014, the Raven respondents removed their allegation that CBC was a concurrent wrongdoer.
April/May 2015: Raven respondents’ evidence in Supreme Court proceeding
In April and May 2015, the Raven respondents served affidavits of Mr Robinson and Grant O’Donnell (who provided assistance to Mr Robinson), and expert reports of Rebecca Conoulty, a chartered accountant and Russell McKimm, a stockbroker.
The issue of pre-CGT stocks is referred to in this material and, in particular, Mr Robinson gives an account of a conversation in July 2012 in which Ms Deep said to her siblings, Mr Clarke and Mr Casey that she authorised the sale of the NAB shares.
Mr Robinson also refers to a discussion about the reasons for Deep Investments’ investment in Billabong.
June 2015 to January 2016: Events leading to Supreme Court trial
In about June 2015, the Deep plaintiffs served further evidence including affidavits made by Ms Deep, Barry Deep, Robert Deep, Mr Clarke, Mr Warne and Mr Casey. The evidence is detailed but, in particular, Mr Clarke disputed Mr Robinson’s evidence that Ms Deep said she had authorised the sale of the NAB shares. Mr Casey also gave evidence which tends to contradict the proposition that the Deeps authorised the sale of the NAB shares.
The FACLS was filed in the Supreme Court proceeding on 12 June 2015. The FACLS summarises the nature of the dispute and the issues likely to arise as follows:
The plaintiffs appointed the defendants to manage their share portfolios. In each case [Mr Robinson] was the manager employed by Wilson … and later [Raven] as authorised representative of [QWL]. The plaintiffs claim that the defendants failed to follow the plaintiffs’ instructions and the terms of their appointment in the management of their portfolios.
B ISSUES LIKELY TO ARISE
The issues likely to arise are:
1 What were the plaintiffs’ instructions to the defendants.
2 Whether the defendants followed those instructions.
3 [deleted]
4What is the quantum of loss and damage including the assessment of loss and damage as between [Mr Robinson] and [Raven/QWL] during the periods they were appointed as managers of the plaintiffs’ portfolios.
The FACLS introduced allegations that Mr Robinson breached warranties implied by s 12ED of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) by failing to provide services that were fit for the purposes made known by the Deep plaintiffs and would be of such a nature and quality that they might reasonably be expected to achieve the results that the Deep plaintiffs desired the services to achieve. The pleaded purposes and results included not selling down any significant part of the Deep portfolios as would represent CGT free shares and only to invest in Australian “blue chip” shares.
The losses claimed by the Deep plaintiffs now included the net loss in value of the Deep portfolios relative to the position had the defendants followed their instructions or provided services of quality complying with the implied warranties, and continued to include the imposition of CGT liabilities.
In July 2015, the Deep plaintiffs served a second report authored by Mr Green, dated 24 July 2015. The report expressed the opinion that, for the purposes of assessing losses attributable to the Raven respondents, it was appropriate to consider the Deep plaintiffs’ entire portfolios.
In a third report dated 10 November 2015, and served by the Deep plaintiffs, Mr Green expressed the opinion that Mr Robinson’s approach appeared to be to take a “highly concentrated high conviction position in smaller stocks”, referring to the Deep Investments’ holdings in Billabong and Boart Longyear, and to undertake “significant volumes of stock trading”.
By a notice to admit facts dated 15 January 2015, the Deep plaintiffs required the Raven respondents to admit share prices and dividend information concerning companies including Billabong and Boart Longyear.
Many other steps were taken by both the Deep plaintiffs and the Raven respondents to prepare the Supreme Court hearing for trial.
December 2015/January 2016: Production of Wilson/ASIC correspondence
On 22 December 2015, the Raven respondents again caused to be issued a subpoena to CBC. The subpoena was made returnable in the Supreme Court on 13 January 2016 and documents were produced to the Court in answer to the subpoena on 27 January 2016.
On or about 25 January 2016, Mr Clarke provided Mr Peter Kumnick of k2 Law with a copy of the documents that CBC intended to produce in answer to the subpoena. After receiving those documents, by letter dated 27 January 2016, Mr Kumnick wrote to Mr Emanuel seeking release of a complete copy of Mr Emanuel’s files. Mr Emanuel provided the file by letter dated 29 January 2016.
The enclosures to Mr Emanuel’s 29 January 2016 letter included the Wilson/ASIC correspondence (and, presumably, also the Wilson/Emanuel request for explanation). I accept the Wilson/ASIC correspondence first came to Mr Kumnick’s attention on 29 January 2016. There is no evidence that the Wilson/ASIC correspondence first came to the attention of officers of Deep Investments or anyone on their behalf prior to 29 January 2016. The evidence does not identify when the Wilson/Emanuel request for explanation first came to the attention of officers of Deep Investments or anyone on their behalf.
The evidence of the Raven respondents’ lawyer in this proceeding, Mr Tredinnick, was that he first received the Wilson/ASIC correspondence on 12 February 2016. I accept that evidence.
In the current proceeding, Deep Investment contends in effect that, had it known of the Wilson documents, it would have withdrawn or limited Mr Robinson’s mandate to provide MDA services.
Mr Kumnick’s evidence concerning events from 29 January 2016 to 23 February 2016
In his affidavit sworn 31 March 2017, Mr Kumnick says:
11.After 29 January 2016, there were 15 business days remaining until commencement of the trial … that period was fully occupied by preparation for the trial, which was scheduled to run for 3 weeks. My and counsels’ involvement in that preparation was typical of the full-time commitment necessary to prepare for a trial of that length.
12.There was no opportunity to investigate, give advice to the client and take instructions because preparing for the trial was the priority.
13.It was only after conclusion of the trial in the Supreme Court that it was opportune and appropriate to properly consider the ramifications, take full and proper instructions, obtain advice and act upon it.
14.In any event, it would have been impossible to have the claims now brought in the Federal Court proceedings heard in the trial of the Supreme Court proceedings, which commenced only 15 business days later, and to which the first to fourth respondents in these Federal Court proceedings were not even party.
Paragraph 12 of Mr Kumnick’s 31 March 2017 affidavit is not particularly clear as to what there was “no opportunity to investigate”. Mr Dunning QC submitted that the effect of Mr Kumnick’s evidence is that there was no opportunity to investigate matters arising out of the Wilson documents. In cross-examination, Mr Kumnick agreed that Mr Clarke and Mr Casey’s corroboration of the Deep plaintiffs’ version of events was important to their case. Mr Kumnick also agreed that, around this time, it “remained far more important to keep the CBC respondents in your camp as witnesses corroborating the Deeps case”.
February 2016: Supreme Court trial
The trial of the Supreme Court proceeding commenced on 22 February 2016. The trial proceeded on the Amended Summons, the FACLS and a Commercial List Response to the FACLS which continued to put in issue the alleged breaches of instructions and the alleged loss.
The trial was listed to run from 22 February 2016 to 10 March 2016. Mr Robinson, who was required to attend for cross-examination, travelled from London to Sydney for the hearing and incurred significant travel and accommodation costs.
By 25 February 2016, the Deep plaintiffs had opened their case, a five volume court book was admitted into evidence, affidavits of Ms Deep, Barry Deep, Mr Warne and Mr Clarke were read and they were each cross-examined.
Mr Clarke was cross-examined about his role in relation to the Deep plaintiffs’ share portfolios. Mr Clarke said that he did not review the performance of the portfolio and agreed that his evidence was that he was “only there to do the bookkeeping and the tax”. In re-examination, Hammerschlag J took Mr Clarke to evident inconsistencies between the evidence of Mr Clarke and Barry and Rhonda Deep, concerning Mr Clarke’s role. In the course of his Honour’s questions, Mr Clarke disagreed with evidence given by Rhonda Deep that she gave Mr Clarke instructions to monitor the share trading on the portfolio. Concerning whether Mr Clarke reported on Ms Deep’s portfolio, Mr Clarke responded: “Outside of my speciality and I’m not authorised or permitted to do that”.
At the end of the day on 25 January 2016, Hammerschlag J asked counsel for the Deep plaintiffs whether he intended to seek to persuade his Honour that he should believe the evidence of Ms Deep. Counsel replied “I don’t think I’d mount that task, your Honour” and Hammerschlag J responded “Good”. Hammerschlag J then asked counsel whether he intended to seek to persuade his Honour that he should believe the evidence of Barry Deep which was not corroborated by something objective or whether he should believe Mr Clarke. Plainly, Hammerschlag J had formed a negative view of the credibility of Ms Deep and Barry Deep and perhaps also a negative view of Mr Clarke’s credibility.
That night, the Raven respondents’ lawyers wrote to Hammerschlag J’s associate to inform the Court that the parties had reached a settlement. The following morning, 26 February 2016, the parties sent signed consent orders to his Honour’s chambers and requested that Hammerschlag J consider making the orders in chambers.
The Deep plaintiffs made no mention of the Wilson documents in the Supreme Court proceeding. As the CBC respondents noted, they adduced evidence from Mr Casey and Mr Clarke in support of their claims in the Supreme Court proceeding which they probably could not have done if they had made the claims now made against the CBC respondents prior to the trial.
However, the Raven respondents contended that the terms of a notice to produce issued by the Deep plaintiffs on 15 February 2016 show that the Deep plaintiffs were exploring the possibility of raising the contents of the Wilson/ASIC correspondence at the trial. When he read the Wilson/ASIC correspondence, Mr Kumnick recognised it was relevant to Mr Robinson’s credit at the impending trial.
29 February 2016: Consent judgment
On 29 February 2016, judgment was entered, by consent, for the Raven respondents. The precise orders were:
1Judgment for the defendants on the Further Amended Commercial List Statement.
2The Amended Summons and the Further Amended Commercial List Statement be dismissed.
3The First Cross Claim by the defendants against the plaintiffs and Wilson HTM Ltd is discontinued.
4 All prior costs orders in the proceedings are vacated.
5 Each party to pay their own costs of these proceedings.
Could the Supreme Court proceeding have been amended to seek the relief now sought?
The CBC respondents submitted, in effect, that the hearing in the Supreme Court could have been adjourned “so as to facilitate an amendment of the claim and the joinder of the CBC Respondents”. Mr Kumnick agreed that he could have applied for an adjournment and sought to reconstitute the proceedings “if that was fully investigated”.
The CBC respondents’ submission puts the position too highly. The most that the Deep plaintiffs could have done was to apply for an amendment which, in my view, almost inevitably would have entailed vacation of the hearing date. It would have been a matter for the Supreme Court’s discretion whether it would have granted that relief: see e.g., Mastronardo v Commonwealth Bank of Australia trading as BankWest [2017] NSWSC 1020; Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd [2017] NSWSC 1463; Smythe v Burgman [2015] NSWSC 150; and Sporting Shooters Association of Australia (New South Wales) Inc v McGuire (No 2) [2015] NSWSC 1239.
Further, I do not accept that the evidence supports only two alternative possibilities, being that the claim now brought against the CBC respondents was overlooked or a forensic decision was made not to join the CBC respondents. On the other hand, I accept that as a practical matter (cf. Evidence Act 1995 (NSW) s 12), had the Deep plaintiffs sought to bring the claim prior to the Supreme Court trial, they would not have been able to call Mr Casey and Mr Clarke as witnesses in their case against the Raven respondents.
PRIMARY FACTS AND CLAIMS MADE IN THE TWO PROCEEDINGS
Supreme Court proceeding
The primary facts required to be proved to demonstrate the Deep plaintiffs’ right to judgment in the Supreme Court proceeding, as articulated by their FACLS, were:
(1)the Deeps’ share portfolios as at 18 May 2011 (para 10);
(2)the management agreements between the various Deep plaintiffs and Raven as authorised representative of QWL (para 26);
(3)the Raven respondents’ agency in respect of the management of the Deeps’ share portfolios (para 29);
(4)the instructions given by the Deep plaintiffs as to the management of their share portfolios (para 34);
(5)that Mr Robinson and Raven failed to follow the Deep plaintiffs’ instructions in managing the Deep share portfolios (para 38);
(6)that the services provided by Mr Robinson and Raven were not reasonably fit for the purposes made known by the Deep plaintiffs and were not of such a nature and quality that they might reasonably be expected to achieve the results that the Deep plaintiffs sought to achieve, those results being known to Mr Robinson and Raven (para 39);
(7)the Deeps’ share portfolios as at 3 October 2012 (para 40);
(8)the instructions given by the Deep plaintiffs to Mr Robinson during a meeting on 3 October 2012 (para 43) and by letters dated 8 October 2012 (para 45);
(9)that Mr Robinson and Raven engaged in breaches of contract and breaches of agency by failing to follow the Deep plaintiffs’ instructions and breached warranties implied by s 12ED of the ASIC Act; and
(10)that the Deep plaintiffs suffered loss and damage comprising:
(a)loss in the value of their respective portfolios, relative to the position had the Raven respondents followed their instructions or provided services of quality complying with the implied warranties;
(b)transaction costs including brokerage and interest on margin loans; and
(c)imposition of capital gains tax liabilities.
Causes of action
The Raven respondents identify the causes of action “if analysed in a technical ‘form’ manner” the subject of the consent judgment as:
… the claims for damages arising from breaches of contract by Raven and breaches of agency by Robinson (for which QWL were also alleged to be liable) as a result of:
(a)The failure of Robinson and Raven to follow the plaintiffs’ instructions for the management of their portfolios;
(b)The failure of Robinson and Raven to provide services in managing the portfolios which were reasonably fit for the purposes made known by the plaintiffs [including Deep Investments] in accordance with the warranty implied by s 12ED of the ASIC Act.
(c)The failure of Robinson and Raven to provide services in managing the portfolios which were of a nature and quality that might reasonably be expected to achieve the results the plaintiffs [including Deep Investments] desired to achieve in accordance with the warranty implied by s 12ED of the ASIC Act.
I accept that this is an accurate statement of the causes of action the subject of the consent judgment.
At the trial, the particulars of the failure to follow instructions were the same as had been identified in the CLS, referred to at [45] above.
Central issues in the Supreme Court proceeding were whether Raven, by performing the share trades, had:
(1)acted without or contrary to the Deep plaintiffs’ instructions in breach of contract or in breach of agency;
(2)acted contrary to the Deep plaintiffs’ instructions and thereby rendered services that were not reasonably fit for purpose and were not of a nature and quality that might reasonably be expected to achieve the result intended by those instructions.
Losses claimed
As set out in written submissions dated 18 February 2016, the Deep plaintiffs claimed damages under the following heads:
(1)the direct loss in value of the portfolios to the date Mr Robinson’s instructions were withdrawn, said to be 3 October 2012, “relative to ‘blue chip’ portfolios;
(2)consequential losses arising from the subsequent sale of shares in the portfolio on 3 October 2012 that were not blue chip shares (including Boart Longyear and Billabong);
(3)the loss in value by reason of the disposal of the pre-CGT bank shares (including NAB); and
(4)CGT liabilities imposed by Mr Robinson’s trading.
Current proceeding
A core allegation in the statement of claim, not made in the Supreme Court proceeding, is to the effect that, had Deep Investments known of the allegations made by Wilson concerning Mr Robinson, Deep Investments would have withdrawn or limited the mandate given to Mr Robinson to provide MDA services and would not have been exposed to losses resulting from Mr Robinson’s conduct in the course of providing MDA services to Deep Investments. Deep Investments alleges that each of the respondents breached their respective duties to Deep Investments by failing to inform it of the allegations made by Wilson.
Against the CBC respondents
The claims or causes of action pleaded against the CBC respondents are in contract, tort (presumably negligence), breach of fiduciary duty and breach of s 12DA of the ASIC Act. The claims involve the following key elements:
(1)Mr Casey and Mr Clarke had day to day carriage of Deep Investments within CBC, which carried on a business of providing accounting and other professional services;
(2)the CBC respondents were retained by Deep Investments to provide commercial and management advice to Deep Investments in relation to its share portfolio, and to liaise with the directors of Deep Investments and Mr Robinson in relation to the most efficient and best method of management of the Deep Investments share portfolio;
(3)the CBC respondents were retained by Deep Investments to instruct Mr Robinson and his employers in relation to the provision by Mr Robinson of MDA services to Deep Investments and to ensure Deep Investments’ best interests were looked after in relation to the provision by Mr Robinson of MDA services to Deep Investments;
(4)Mr Emanuel provided the Wilson documents to the CBC respondents in about April 2012;
(5)the CBC respondents failed to identify and inform Deep Investments that Mr Robinson had engaged in, or was continuing to engage in, the trading in NAB pre-CGT shares, Boart Longyear shares and Billabong shares;
(6)the CBC respondents breached their duties owed to Deep Investments in contract and tort by their failure to inform Deep Investments of the Wilson documents because Mr Robinson was acting in a position of trust with respect to the provision of MDA services to Deep Investments and the allegations were material to the question whether Deep Investments should continue to retain Mr Robinson or should continue to act in a position of trust in relation to the Deep Investments portfolio;
(7)similarly, the CBC respondents breached their various fiduciary duties to Deep Investments and engaged in conduct in relation to financial services that was misleading or deceptive or likely to mislead or deceive in contravention of s 12DA by their failure to inform Deep Investments of the Wilson documents (SoC para 44 and 48);
(8)had the CBC respondents not breached their duties to Deep Investments or contravened s 12DA, Deep Investments would, from about April 2012, have withdrawn or limited Mr Robinson’s mandate and thereby would not have been exposed to the losses which it suffered as a result of Mr Robinson’s conduct as pleaded, namely his conduct in buying and selling shares in NAB, Billabong and Boart Longyear;
(9)CBC received information from Raven about trades undertaken on behalf of Deep Investments in shares in NAB, Boart Longyear and Billabong, on behalf of and instead of Deep Investments; and
(10)as a result of the information acquired by CBC (including the allegations made by Wilson), the CBC respondents should have informed Deep Investments that the trades in shares in NAB, Boart Longyear and Billabong were not in its best interests.
Thus, as the CBC respondents put it, the statement of claim makes two central complaints about their conduct concerning:
(1)their alleged failure to inform Deep Investments about the allegations of misconduct (as revealed by the Wilson documents) made by Wilson against Mr Robinson; and
(2)their alleged failure to inform Deep Investments that Mr Robinson had engaged in, or was continuing to engage in, trading in shares in NAB, Boart Longyear and Billabong.
Against Mr Emanuel
The claims or causes of action pleaded against Mr Emanuel are likewise in contract, tort, breach of fiduciary duty and breach of s 12DA of the ASIC Act. In summary, the claims against Mr Emanuel involve the following elements:
(1)Mr Emanuel was retained to act for Deep Investments in connection with Wilson’s demand of a termination fee;
(2)Mr Emanuel obtained the Wilson documents in about April 2012;
(3)Mr Emanuel breached his duties owed to Deep Investments in contract and tort by his failure to inform Deep Investments of the Wilson documents because Mr Robinson was acting in a position of trust with respect to the provision of MDA services to Deep Investments and the allegations were material to the question whether Deep Investments should continue to retain Mr Robinson or should continue to act in a position of trust in relation to the Deep Investments portfolio (SoC para 50);
(4)similarly, Mr Emanuel breached his fiduciary duties to Deep Investments and engaged in conduct in relation to financial services that was misleading or deceptive or likely to mislead or deceive in contravention of s 12DA by his failure to inform Deep Investments of the Wilson documents (SoC para 51 and 54); and
(5)had Mr Emanuel not breached his duties to Deep Investments or contravened s 12DA, Deep Investments would, from about April 2012, have withdrawn or limited Mr Robinson’s mandate and thereby would not have been exposed to the losses which it suffered as a result of Mr Robinson’s conduct as pleaded, namely his conduct in buying and selling shares in NAB, Billabong and Boart Longyear (SoC para 56).
Deep Investments alleges that, once he was aware of the allegations made by Wilson, Mr Emanuel knew or ought reasonably to have known that Deep Investments interests and Mr Robinson’s interests conflicted “in respect of those matters”.
Against the Raven respondents
The facts pleaded against the Raven respondents in the current proceeding may be summarised as follows:
(1)the provision of MDA services by Mr Robinson and Raven to Deep Investments in the period 28 February 2012 to 21 February 2013 (paras 6 and 7);
(2)the agreement with Raven pursuant to which it was to provide MDA services to Deep Investments (para 23), being the agreement relied upon by Deep Investments in the Supreme Court proceeding (referred to at [101] above);
(3)fiduciary duties owed to Deep Investments by Mr Robinson and Raven pursuant to the agreement and, in particular, the powers and authorities granted by that agreement (para 26);
(4)Mr Robinson’s sale of NAB pre-CGT shares from 18 May to 5 July 2012, allegedly in the interests of Mr Robinson and Raven and contrary to Deep Investment’s best interests (paras 57 to 61);
(5)Mr Robinson’s trades in Boart Longyear shares for Deep Investments between 23 May 2012 and 26 September 2012, allegedly in the interests of Mr Robinson and Raven and contrary to Deep Investments’ best interests, by which Deep Investments suffered a total loss of $3,562,591 (paras 62 to 69);
(6)Mr Robinson’s trades in Billabong shares for Deep Investments from 2 May 2012 to 16 October 2012, allegedly in the interests of Mr Robinson and Raven and contrary to Deep Investments’ best interests, by which Deep Investments suffered a total loss of $2,118,883 (paras 70 to 77);
(7)that fiduciary duties were breached by the failure of Mr Robinson and Raven to inform Deep Investments of the serious allegations made by Wilson in April 2012, in their interests and contrary to the interests of Deep Investments;
(8)that fiduciary duties were breached by Robinson’s trading of the NAB, Boart Longyear and Billabong shares in the interests of Mr Robinson and Raven and contrary to the interests of Deep Investments; and
(9)that the failure to inform Deep Investments of the Wilson documents was conduct in contravention of s 12DC of the ASIC Act.
The claims or causes of action pleaded against Mr Robinson and Raven are for equitable compensation for breaches of fiduciary duty and compensation pursuant to s 12GM of the ASIC Act.
Six breaches of fiduciary duty are pleaded at para 78 of the statement of claim. They may be summarised as:
(1)failure to inform and advise Deep Investments in connection with the Wilson documents (characterised in two different ways);
(2)the making of false and misleading representations by Mr Robinson in the 5 July 2012 email, set out at [37] above;
(3)the sale of pre-CGT NAB shares in the interests of Mr Robinson and Raven;
(4)the trading in Boart Longyear shares from 25 July 2012, said to have involved a “doubling strategy” in the interests of Mr Robinson and Raven; and
(5)the trading in Boart Longyear shares from 3 July 2012, said to have involved a “doubling strategy” in the interests of Mr Robinson and Raven.
The claim for statutory compensation is based on alleged contravention of s 12DA by Mr Robinson’s conduct in making false and misleading representations in the 5 July 2012 email.
The claim against QWL is made pursuant to s 917B of the Corporations Act 2001 (Cth) and what is said to be QWL’s responsibility to Deep Investments for the pleaded conduct of Raven and Mr Robinson.
Losses claimed
The losses are claimed are identified as “subsequent losses as a result of Robinson’s conduct in the course of providing MDA services to Deep Investments, as pleaded in 57 to 77” against the CBC respondents by para 49 of the statement of claim; against Mr Emanuel by para 56 of the statement of claim, against QWL by paras 88 to 92 of the statement of claim and against Mr Robinson and Raven by paras 89 to 91 of the statement of claim.
The losses comprise:
(1)a loss of $3,769,079 being the then present value to Deep Investments of the pre-CGT status of the NAB shares;
(2)a total capital loss of $3,562,591 due to Mr Robinson’s conduct in relation to Boart Longyear shares (summarised by Mr Emanuel’s submissions, apparently uncontentiously, as the acquisition of significant quantities of the shares and the subsequent implementation of risky trading strategies with respect to those shares); and
(3)a total capital loss of $2,118,883 due to Mr Robinson’s conduct in relation to Billabong shares (being conduct of a similar kind to the conduct concerning the Boart Longyear shares).
There is no dispute that the losses claimed in the current proceeding are a subset of the losses claimed in the Supreme Court proceeding.
SUMMARY DISMISSAL
Section 31A of the Federal Court Act provides relevantly:
(2)The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a)the first party is defending the proceeding or that part of the proceeding; and
(b)the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3)For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
By r 26.01(1) of the Federal Court Rules, a party may apply to the Court for an order that judgment be given against another party because, relevantly, the applicant has no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding; or the proceeding is an abuse of the process of the Court.
Deep Investments did not dispute that the proceedings were liable to be summarily dismissed if the Court concluded that there was a relevant res judicata or issue estoppel or if the proceedings were affected by an Anshun estoppel or were an abuse of process.
Overview of grounds for summary dismissal in this case
In Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; (2015) 256 CLR 507, the plurality (French CJ, Bell, Gageler and Keane JJ) explained the effect of a judgment as follows (at [20]):
An exercise of judicial power, it has been held, involves “as a general rule, a decision settling for the future, as between defined persons or classes of persons, a question as to the existence of a right or obligation, so that an exercise of the power creates a new charter by reference to which that question is in future to be decided as between those persons or classes of persons”. The rendering of a final judgment in that way “quells” the controversy between those persons. The rights and obligations in controversy, as between those persons, cease to have an independent existence: they “merge” in that final judgment. That merger has long been treated in Australia as equating to “res judicata” in the strict sense.
In addition, a judgment may give rise to an estoppel. At [21] to [23], the plurality identified three forms of estoppel, each of which is relied upon by the respondents, as follows:
[21] Estoppel in relation to judicial determinations is of a different nature. It is a common law doctrine informed, in its relevant application, by similar considerations of finality and fairness…. It operates …as estoppel operates in other contexts: as a rule of law, to preclude the assertion of a right or obligation or the raising of an issue of fact or law.
[22] Three forms of estoppel have now been recognised by the common law of Australia as having the potential to result from the rendering of a final judgment in an adversarial proceeding. The first is sometimes referred to as “cause of action estoppel”. Estoppel in that form operates to preclude assertion in a subsequent proceeding of a claim to a right or obligation which was asserted in the proceeding and which was determined by the judgment. It is largely redundant where the final judgment was rendered in the exercise of judicial power, and where res judicata in the strict sense therefore applies to result in the merger of the right or obligation in the judgment. The second form of estoppel is almost always now referred to as “issue estoppel”. Estoppel in that form operates to preclude the raising in a subsequent proceeding of an ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination made in the judgment. The classic expression of the primary consequence of its operation is that a “judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies”. The third form of estoppel is now most often referred to as “Anshun estoppel”, although it is still sometimes referred to as the “extended principle” in Henderson v Henderson. That third form of estoppel is an extension of the first and of the second. Estoppel in that extended form operates to preclude the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding. The extended form has been treated in Australia as a “true estoppel” and not as a form of res judicata in the strict sense. Considerations similar to those which underpin this form of estoppel may support a preclusive abuse of process argument.
[23] The present significance of the recognition of those three forms of estoppel is that each has the potential to preclude assertion of a right or obligation, or the raising of an issue of fact or law, between parties to a proceeding or their privies.
[Emphasis added]
Concerning the doctrine of abuse of process, the plurality said, relevantly (at [24] to [26]):
[24] The doctrine of abuse of process is informed in part by similar considerations of finality and fairness. Applied to the assertion of rights or obligations, or to the raising of issues in successive proceedings, it overlaps with the doctrine of estoppel. Thus, the assertion of a right or obligation, or the raising of an issue of fact or law, in a subsequent proceeding can be simultaneously: (1) the subject of an estoppel which has resulted from a final judgment in an earlier proceeding; and (2) conduct which constitutes an abuse of process in the subsequent proceeding.
[25] Abuse of process, which may be invoked in areas in which estoppels also apply, is inherently broader and more flexible than estoppel. Although insusceptible of a formulation which comprises closed categories, abuse of process is capable of application in any circumstances in which the use of a court’s procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute. It can for that reason be available to relieve against injustice to a party or impairment to the system of administration of justice which might otherwise be occasioned in circumstances where a party to a subsequent proceeding is not bound by an estoppel.
[26] Accordingly, it has been recognised that making a claim or raising an issue which was made or raised and determined in an earlier proceeding, or which ought reasonably to have been made or raised for determination in that earlier proceeding, can constitute an abuse of process even where the earlier proceeding might not have given rise to an estoppel.
Conflicting judgments
The concern to avoid conflicting judgments is relevant to all of the principles outlined above.
In Minero Pty Ltd v Redero Pty Ltd (unreported, Sup Ct, NSW, Santow J, 29 July 1998) (“Minero”), Santow J explained the concept of “conflicting judgments” as follows:
Conflicting judgments include “judgments which are contradictory though they may not be pronounced on the same cause of action; it is enough if they appear to declare rights which are inconsistent in respect of the same transaction” (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 603-4 per Gibbs CJ, Mason and Aikin JJ).
But it does not follow that every issue of fact determined or, importantly, expressly assumed in the course of a judgment is to be treated as giving rise to inconsistent judgments if attempted to be re-visited in a subsequent proceeding. In Port Melbourne Authority (supra) at 603, Gibbs CJ, Mason and Aickin JJ cite the decision of Brewer v Brewer (1953) 88 CLR 1 as “illuminating”. This was a case concerning Anshun estoppel (though not held applicable) in which Fullagar J (with whom Dixon CJ agreed) made clear (at 15) the nature of a conflicting judgment. According to Fullagar J, a conflicting judgment is one that contradicts an assumption “which was fundamental to the decision in the sense that, if the assumption had not been made, the decision must have been different”.
The quoted passage from Fullagar J makes clear that “assumption” includes not only a point which might have been raised but was omitted in the first proceedings, but also the point which was not argued but expressly assumed against the party who might have argued it. Both are of course potential examples of Anshun estoppel.
…
[T]he principle of avoiding conflicting judgments is not truly involved, where the second proceedings is in relation to a claim reasonably omitted from the first though based on the same matrix of facts. If a different result occurs in the second proceedings, the conflict is not truly between decisions but ultimate result; the first decision never dealt with the omitted claim nor reasonably should it have.
Res judicata
Legal principles
In Jackson v Goldsmith [1950] HCA 22; (1950) 81 CLR 446 at 466, Fullagar J stated:
The rule as to res judicata can be stated sufficiently for present purposes by saying that, where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. This rule is not, to my mind, correctly classified under the heading of estoppel at all. It is a broad rule of public policy based on the principles expressed in the maxims “interest reipublicae ut sit finis litium” and “nemo debet bis vexari pro eadem causa”.
In Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271 at 280, Barwick CJ differentiated issue estoppel from res judicata, “using that expression strictly” as a bar to action on the basis that in the latter, but not the former, “the cause of action is the same in each case”.
The statement of claim pleads the following fiduciary duties:
14.In the premises, pursuant to the Emanuel Instruction retainer, Casey, Clarke and CBC owed Deep Investments fiduciary duties:
(a)not to withhold from Deep Investments knowledge or information that was relevant to Deep Investments’ interests, where he or it received that knowledge or information in the course of instructing Emanuel in those matters or matters incidental to them;
(b)not to permit his or its own interests, or the interest of any other person, to conflict with Deep Investments’ interests in the matters the subject of the Emanuel Instruction Retainer or matters incidental to them; and
(c)not to instruct Emanuel in those matters or matters incidental to them where:
(i) his or its own interests, or
(ii)the interests of any other person with whom he or it is dealing or associated, or who might otherwise influence he or it, in respect of those matters,
do or might conflict with Deep Investments’ interests.
…
17.In the premises pursuant to each of the General Legal Services Retainer and the Wilson Dispute Legal services Retainer, and/or them collectively, Emanuel owed Deep Investments fiduciary duties:
(a)not to act in relation to the matters the subject of those retainers, or matters incidental to them, without the instructions of Deep Investments or a person acting properly as its agent for that purpose;
(b)not to withhold from Deep Investments knowledge or information that was relevant to Deep Investments’ interests, and that he received in the course of executing those retainers; and
(c)not to permit the interests of any other person to conflict with the interests of Deep Investments in relation to matters the subject of those retainers or matters incidental to them.
…
26.By reason of the Raven Agreement, and by reason of the undertakings and assumptions of responsibility as described in 24 and 25 above, each of Robinson and Raven owed Deep Investments fiduciary duties:
(a)not to allow his or its own interests to conflict with Deep Investments’ interests in respect of matters the subject of the Raven Agreement;
(b)not to withhold from Deep Investments any information that he or it had which was relevant to Deep Investments’ interests in the matters subject of the Raven Agreement;
(c)not to mislead or deceive Deep Investments of any matter relevant to Deep Investments’ interests in the matters subject of the Raven Agreement;
(d)not to exercise any power or authority conferred by Deep Investments on his or it:
(i)other than exclusively for the benefit of Deep Investments; or
(ii)for the benefit of him or it, save as expressly authorised by the terms of the Raven Agreement.
In Breen v Williams [1995] HCA 63; (1996) 186 CLR 71 at 113, Gaudron and McHugh JJ explained:
In this country, fiduciary obligations arise because a person has come under an obligation to act in another’s interest. As a result, equity imposes on the fiduciary proscriptive obligations – not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed.
That passage was cited with approval by the plurality in Pilmer v Duke Group (in liq) [2001] HCA 31; (2001) 207 CLR 165 at [74]. See also Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [178].
In Dresna Pty Ltd v Linknarf Management Services Pty Ltd (in liq) [2006] FCAFC 193; (2006) 156 FCR 474, the majority (Heerey and Bennett JJ) found that no fiduciary relationship existed between the relevant parties. Gyles J, dissenting on this point, found that arrangements between the parties to pursue litigation involved a fiduciary relationship insofar as that enterprise was concerned. However, his Honour rejected a contention that this fiduciary relationship required the disclosure of commercial dealings which ultimately defeated the purpose of the litigation. At [132], his Honour said:
[I]n my opinion, the non-disclosure, on or about 15 October 2001, by Franklins of its knowledge concerning the dealings between Coles and the Lessor to Dresna was not the breach of any fiduciary duty. Generally speaking, fiduciary duties are proscriptive rather than prescriptive. I regard a duty to disclose as prescriptive. A positive obligation of that kind is not imposed because of the fiduciary relationship that existed here.
In Daly v The Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 372, the High Court held that a stockbroker was in breach of its fiduciary duty to its client in not disclosing its unsatisfactory financial position. At 377, Gibbs CJ said:
It was right to say that Patrick Partners owed a fiduciary duty to Dr. Daly and acted in breach of that duty. The firm, which held itself out as an adviser on matters of investment, undertook to advise Dr. Daly, and Dr. Daly relied on the advice which the firm gave him. In those circumstances the firm had a duty to disclose to Dr. Daly the information in its possession which would have revealed that the transaction was likely to be a most disadvantageous one from his point of view. Normally, the relation between a stockbroker and his client will be one of a fiduciary nature and such as to place on the broker an obligation to make to the client a full and accurate disclosure of the broker’s own interest in the transaction …
At 385, Brennan J said:
The adviser cannot assume a position where his self-interest might conflict with the honest and impartial giving of advice: see In re a Solicitor; Ex parte Incorporated Law Society (1894) 1 QB 254, at p 256; Armstrong v. Jackson, at pp 824-825.
The duty of an investment adviser who is approached by a client for advice and undertakes to give it, and who proposes to offer the client an investment in which the adviser has a financial interest, is a heavy one. His duty is to furnish the client with all the relevant knowledge which the adviser possesses, concealing nothing that might reasonably be regarded as relevant to the making of the investment decision including the identity of the buyer or seller of the investment when that identity is relevant, to give the best advice which the adviser could give if he did not have but a third party did have a financial interest in the investment to be offered, to reveal fully the adviser’s financial interest, and to obtain for the client the best terms which the client would obtain from a third party if the adviser were to exercise due diligence on behalf of his client in such a transaction.
In DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2015] WASC 105, Le Miere J refused to strike out pleadings of apparently prescriptive fiduciary directors’ duties to act in good faith in certain dealings, saying at [55] that the “existence and scope of fiduciary duties, whether they are proscriptive or prescriptive and whether prescriptive duties may be recognised in particular contexts are matters which should be determined at trial when all of the evidence has been led, the relevant facts determined and full legal argument presented”.
More recently, in Macks v Viscariello [2017] SASCFC 172 at [211] and [212], the Full Court of the South Australian Supreme Court said:
The question whether a fiduciary was under a duty to disclose a particular matter has been considered in a variety of contexts. In P & V Industries v Porto, Hollingsworth J held that the plaintiffs should not permitted to plead that the defendant owed a fiduciary duty to disclose past misconduct. Although the issue arose on a pleading summons, her Honour concluded that ‘there is no indication that the law in Australia is developing or likely to develop to include a positive fiduciary duty of disclosure’. That was because under Australian law, fiduciary duties were limited proscriptive obligations: ‘fiduciary duties are limited to imposing constraints on conduct which the fiduciary has embarked upon and not by imposing a positive obligation of disclosure of the kind assumed by a duty to disclose’. As her Honour noted, the High Court had recognised the distinction between proscriptive and prescriptive duties in Breen v Williams and Pilmer v Duke Group Ltd.
It was alleged in Sliteris v Ljubic that an accountant owed a fiduciary duty to a company and its creditors to give certain advice in relation to a proposal to appoint an administrator. The accountant was a shareholder in and a creditor of the company, as well as its accountant. Black J held that the accountant did not owe a fiduciary duty to the company’s creditors and added:
A further difficulty with Mr Sliteris’ claim is that it appears to contemplate a positive fiduciary duty of disclosure, or to provide advice, owed by Mr Harrow, of a kind that is plainly not accepted in Australian law, rather than disclosure in order to obtain ratification or consent to a conflict of interest which would otherwise arise.
(Citations omitted.)
The duties pleaded in paras 14(a), 17(b) and 26(b) are expressed in negative terms, but in fact describe a positive duty to disclose information in the interests of Deep Investments that is not referable to a conflict of interest that would otherwise arise. Based on the authorities just set out, I do not accept that duties of this kind arise under Australian law. Accordingly, Deep Investments has no reasonable prospect of succeeding on those alleged duties and they should be struck out from the statement of claim. It follows that the following should be struck out: in paras 44(a) to (c); the words “and 17(b)” in para 51(d); para 78(b); and the words “and 26(b)” in para 81.
As to paras 14(b) and 17(c), there is no duty to avoid a conflict between the interests of Deep Investments and those of any other person (besides, of course, the fiduciary’s own). However, there may be a duty owed by a fiduciary not to use their position to obtain a benefit for a third party by virtue of their role as fiduciary. Reading these sub-paragraphs with paras 44 and 51 of the statement of claim, it may be that this is the duty contemplated by Deep Investments. The suggested benefit seems to be the maintenance of Raven’s retainer to provide services to Deep Investments: there is no identified interest of the CBC respondents which was allegedly preferred. Thus, paras 14(b), 17(c), 44(d) to (f) (to the extent that they relate to para 14(b)) and 51(e) to (g) should be struck out, but I will grant leave to re-plead.
Paragraph 14(c) does not appear to add anything to para 14(b) and should be struck out as well as paras 44(d) to (f) to the extent that they relate to para 14(c).
Paragraphs 17(a) and 26(c) do not allege fiduciary duties under Australian law. Accordingly, they should be struck out together with the balance of paras 51 and 78(c).
Paragraph 26(d) goes nowhere in the light of my Anshun estoppel finding and accordingly, it should also be struck out.
Contraventions of s 12DA of ASIC Act
Allegations of misleading or deceptive conduct by silence are pleaded against all the respondents except QWL, at paras 45 to 48 of the statement of claim (CBC respondents), paras 52 to 55 (Mr Emanuel) and paras 81 to 83 (Mr Robinson and Raven).
The pleadings are deficient in that they do not identify the facts upon which it is alleged that the relevant conduct was misleading or deceptive. It is not sufficient to plead that there was a duty to speak; rather, Deep Investments must plead the facts relied upon to prove that what was not said was likely to mislead or deceive: see Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 467.
Accordingly, paras 45 to 48, 52 to 55 and 81 to 83 should be struck out as they do not disclose a reasonable cause of action, with leave granted to re-plead.
There is no pleading of loss suffered by reason of the misleading conduct alleged in para 80, namely, the alleged misrepresentations by Mr Robinson to Ms Deep in his 5 July 2012 email. Accordingly, paras 79 and 80 should also be struck out as they do not disclose a reasonable cause of action against Mr Robinson.
Mr Emanuel’s provision of Wilson documents to CBC
Mr Emanuel noted that Deep Investments’ case against him is premised on contentions that he wrongly failed to disclose the Wilson documents to Deep Investments and to provide Deep Investments with advice in the light of Wilson’s allegations.
However, as he pointed out, it is part of Deep Investments’ case that he provided those documents to the CBC respondents. In particular, Mr Emanuel noted the following allegations:
(1)the CBC respondents were retained for reward by Deep Investments, and undertook and assumed responsibility to Deep Investments from at least 22 March 2012 to instruct Mr Emanuel in respect of the matters the subject of the “Wilson Dispute Legal Services Retainer”;
(2)the CBC respondents undertook to instruct Mr Emanuel in relation to the matters the subject of the “Wilson Dispute Legal Services Retainer” and matters incidental to them;
(3)each of the CBC respondents instructed Mr Emanuel in respect of certain matters being either (broadly) the Wilson documents or the CBC respondents’ failure to inform Deep Investments in relation to the Wilson documents;
(4)Mr Emanuel provided a copy of the Wilson documents to the CBC respondents by no later than 27 April 2012; and
(5)the CBC respondents were under a duty to convey the information in the Wilson documents to Deep Investments.
Next, Mr Emanuel contended that where an agent comes into possession of knowledge which the agent is under a duty to convey to the principal then, absent fraud, that knowledge will be imputed to the principal citing Sargent v ASL Developments Ltd [1970] HCA 40; (1974) 131 CLR 634 at 658-9. Mr Emanuel also relied on the statement of Barrett J, made in the context of considering directors’ duties that “[a]n unqualified duty to communicate information to another person will generally be presumed to be duly discharged, with the result that knowledge of the information is regarded as attributed to that other person”: LMI v Baulderstone [2001] NSWSC 886 at [86].
Finally, Mr Emanuel argued that portions of the statement of claim, alleging that a reasonably competent solicitor in the circumstances would have recognised certain matters and information, and informed Deep Investments of the contents of the Wilson documents and the allegations made by Wilson in the documents, should be summarily dismissed or struck out. The allegations are said to go nowhere by reason of the earlier allegation that the Wilson documents were conveyed to the CBC respondents, from which it must be inferred that Mr Emanuel did what a reasonably competent solicitor would have done in the circumstances, namely, informed Deep Investments (through the CBC respondents) of the requisite matters.
In response, Mr Dunning QC referred to the following passage from Mutual Life Insurance Company of New York v Hilton-Green [1916] USSC 188; 241 US 613 at 681:
The general rule which imputes an agent’s knowledge to the principal is well established. The underlying reason for it is that an innocent third party may properly presume the agent will perform his duty and report all facts which affect the principal’s interest. But this general rule does not apply when the third party knows there is no foundation for the ordinary presumption,—when he is acquainted with circumstances plainly indicating that the agent will not advise his principal. The rule is intended to protect those who exercise good faith, and not as a shield for unfair dealing.
I do not accept that this passage provides an answer to Mr Emanuel’s argument where there is no allegation that Mr Emanuel had knowledge that there was no reason for him to believe that the CBC respondents would not report to Deep Investments.
Mr Dunning QC referred to the general proposition, stated in Smits v Roach [2006] HCA 36; (2006) 227 CLR 423 at [47], that “[t]he considerations according to which a principal is affected by an agent’s knowledge, and the relevance of the circumstances in which the agent acquired the knowledge, depend upon the context in which the problem arises”. However, in the absence of any pleaded fact on the basis of which it is alleged that Mr Emanuel did not discharge any duty to provide the Wilson documents to Deep Investments by providing them to CBC, I accept Mr Harding’s submission. The statement of claim does not plead any matter that might support a conclusion that provision of the Wilson documents to the CBC respondents, in the manner pleaded, was insufficient to comply with the contractual obligations and discharge the duty of care pleaded in the statement of claim. It follows that paras 50(a)(i) to (v) of the statement of claim should be struck out, as well as para 50(b) to the extent that it refers to those paragraphs.
Mr Emanuel’s failure to advise Deep Investments
Mr Emanuel also argues that Deep Investments has no prospects of success in relation to its allegations that Mr Emanuel breached his duties in contract or tort by failing to advise Deep Investments that:
(1)in the light of the allegations by Wilson, permitting Mr Robinson to continue to act in a position of trust in respect of the provision of MDA services represented an unusual and significant risk to it; and
(2)it was not appropriate for Mr Robinson to instruct it or him in relation to any matters (SoC 50(a)(vi) and (vii)).
As Mr Emanuel’s submissions point out, the alleged breaches are not expressed as failures to provide legal advice. In Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 at 418, Sheller JA (Meagher JA and Abadee AJA agreeing) noted that the “solicitor’s duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon”. The statement of claim pleads two retainers (“the “General Legal Services Retainer” and the “Wilson Dispute Legal Services Retainer”) and alleges that Mr Emanuel was retained and assumed responsibility to act on “such matters [as] are to be inferred” from specified written correspondence “in respect of the Wilson Dispute Legal Services Retainer” and both Mr Emanuel’s conduct and that of his employees relating to the pleaded retainers. The alleged assumption of responsibility does not extend Mr Emanuel’s alleged duty beyond the scope of the pleaded retainers in any specific respect. It is not pleaded that Mr Emanuel was retained to advise Deep Investments on whether to retain or continue to retain Mr Robinson. However, para 16 of the statement of claim alleges that Mr Emanuel owed duties in contract and tort, arising out of the terms of the pleaded retainers, to provide advice:
(e)… in relation to any matter that came to his attention that would be a risk to Deep Investments; and
(f)to give the advice and take the steps that a reasonably competent solicitor would take to protect Deep Investments from financial loss from matters or circumstances he became aware of in the course of performing the retainer.
I am not satisfied that a proper factual foundation is pleaded for these broadly pleaded duties, duties which must provide the foundation for the alleged breaches in paras 50(a)(vi) and (vii) of the statement of claim. Even accepting that a solicitor’s duties are not necessarily confined to the provision of legal advice, no reasonable cause of action is presently disclosed in relation to those two paragraphs. Accordingly, I will strike them out. It follows that the entirety of para 50 must be struck out.
SECTION 91 OF CIVIL PROCEDURE ACT 2005 (NSW)
Section 91 of the Civil Procedure Act 2005 (NSW) provides:
(1) Dismissal of:
(a)any proceedings, either generally or in relation to any cause of action, or
(b)the whole or any part of a claim for relief in any proceedings,
does not, subject to the terms on which any order for dismissal was made, prevent the plaintiff from bringing fresh proceedings or claiming the same relief in fresh proceedings.
(2)Despite subsection (1), if, following a determination on the merits in any proceedings, the court dismisses the proceedings, or any claim for relief in the proceedings, the plaintiff is not entitled to claim any relief in respect of the same cause of action in any subsequent proceedings commenced in that or any other court.
This section permits fresh proceedings on a cause of action following the dismissal of proceedings, unless there has been a determination on the merits: Day v Rogers [2011] NSWCA 124 at [81].
Rule 36.1A (“Consent orders”) of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) provides:
(1)The court may give judgment, or order that judgment be entered, in the terms of an agreement between parties in relation to proceedings between them.
(2)Unless the court, for special reasons, otherwise orders, the court must refuse to give judgment, or order that judgment be entered, in terms that restrict, or purport to restrict, any disclosure of the terms of the judgment or order.
(3)Subrule (2) does not limit the effect of any agreement between the parties that contains provisions that restrict the parties, or purport to restrict the parties, from disclosing the terms of the agreement or of the judgment or order.
Deep Investments argued that, where the Amended Summons and the FACLS were dismissed by consent, the preceding order giving judgment for the Raven respondents on the FACLS was “ancillary” and “non-operative”. This argument was based on the following propositions:
(1)The decision in Ferella v Otvosi [2005] NSWSC 678; (2005) 63 NSWLR 523 (“Ferella”) applies in this case so that the order for dismissal does not preclude the bringing of fresh proceedings because it was not made following a determination on the merits. By reason of s 91, the form of the order for dismissal excepted it from the ordinary doctrine of finality.
(2)In Ferella at [11], Hamilton J said:
There is some history relating to the effect of orders of dismissal on the Equity side of the Court. Prior to the enactment of the SCR an order for the dismissal of the proceedings was the usual form of judgment for the defendant in defended Equity proceedings. The judgment of Needham J in Newmont Pty Ltd v Laverton Nickel NL (No 2) [1981] 1 NSWLR 221 appeared to indicate that a bare order for dismissal was no longer efficacious to dispose of proceedings; even in Equity proceedings, there should be an order in the Common Law form giving judgment for the defendant, or at least an order directing that the order for dismissal should be entered as a judgment. At that time, however, s 91 of the Supreme Court Act 1970 (“the SCA”) was in the mandatory form that the Court is, after trial, to “direct judgment to be entered as it thinks fit”. In 1989 s 91 was amended, probably in response to the Newmont case, to provide that the Court is to “give such judgment or make such order as the nature of the case requires”. This would seem to validate an order of dismissal as the final order in favour of the defendant after the trial of Equity proceedings …
(3)It follows, having regard to UCPR r 36.1A, that where a proceeding is dismissed by consent, the statement “judgment for the defendants” is “not a term on which an order for dismissal is made which engages the caveat in and so precludes the operation of s91(1)”. That statement merely reflects the entry of the mandatory and final order for dismissal of the proceedings as a judgment.
(4)Further, it is well recognised that a statement in an order of the court may be non-operative: cf. Beck v Weinstock; Beck v L W Furniture (Consolidated) Pty Ltd [2012] NSWCA 289 at [55] (“Beck”).
I do not accept this reasoning. Rule 36.1A is directed to the limits on the court’s power to give judgments in terms of an agreement between the parties. As Campbell JA said in Beck at [60], UCPR r 36.1A recognises the distinction between agreements that the court will, if asked, give effect to by itself pronouncing an order and agreements that the court is willing to note but will not turn into an actual order. UCPR r 36.1A does not preclude the giving of a judgment in favour of the defendants together with an order for dismissal. Nor do the observations in Ferella at [11]. If a bare dismissal is not efficacious to dispose of proceedings, that implies that a dismissal may be accompanied by other orders in order to achieve a disposal of a proceeding. Further, in Ferella, there was no order giving judgment in favour of any party.
In my view, the judgment for the defendants on the FACLS must be understood as an order pronounced by the Supreme Court, by consent. It cannot be construed as a mere agreement between the parties. Section 91 therefore does not deprive the judgment for the defendants of its operation.
There is a separate question concerning the effect of the dismissal order apart from the judgment order.
In Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2008] NSWSC 185; (2008) 72 NSWLR 160 at [61], Barrett J concluded that a case in which an order for dismissal made by consent of all affected parties is made is “a case in which all those parties have agreed that the dismissal is to be of the same force and effect as if there had been a hearing on the merits”. Barrett J noted that an order for dismissal after such a hearing was clearly capable of raising an estoppel despite Pt 40 r 8 of the Supreme Court Rules 1970 (NSW) (the predecessor to s 91). Thus, Barrett J concluded that the effect of a consent order for dismissal was to be determined by reference to general law principles unaffected by the relevant rules of court.
Earlier, in Minero, Santow J considered the effect of dismissal of proceedings by consent and said, relevantly:
[W]here a consent judgment or consent Order final in nature, rather than interlocutory or on merely procedural grounds, disposes of the substantive proceedings, whether with or without an anterior formal agreement, such an outcome constitutes a judicial decision founding a res judicata. Where the merits have thus been effectively conceded, rather than tested by argument, this may still give rise to a res judicata. I emphasise this because to say that res judicata does not apply “because there has been no decision on the merits of the case” may be apt to mislead. The question is always, has there been a decision and did it finally dispose of the substantive proceedings, and not merely on a procedural or interlocutory basis.” The Applicant submits that there is no abuse of process because s 91 of the CPA specifically permits the Applicant to use the Court’s process to bring the current proceedings. That submission is misconceived.
On these authorities, I am satisfied that s 91 does not affect the operation of the dismissal order in this case.
CONCLUSION
I will strike out those aspects of the statement of claim that are precluded by the Anshun estoppel, and are an abuse of process. I will also strike out those paragraphs which do not presently disclose a claim or cause of action but, in respect of which it is not obvious that the intended claim is precluded by the Anshun estoppel or is an abuse of process.
In summary, the effect of my judgment is that Deep Investments will be permitted to pursue the proceeding, limited to those claims or causes of action that arise out of the non-disclosure of the Wilson documents.
I certify that the preceding two hundred and fifty-one (251) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate:
Dated: 4 May 2018
SCHEDULE OF PARTIES
NSD 2189 of 2016 Respondents
Fourth Respondent:
KEVIN EMANUEL
Fifth Respondent:
SIMON ROBINSON
Sixth Respondent:
RAVEN CAPITAL PTY LTD ACN 149 962 649
Seventh Respondent:
QWL PTY LTD ACN 096 284 383
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