Domaschenz v Scene No. 3 Limited

[2018] VSC 593

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S ECI 2017 00177

PHILIP AUSTIN DOMASCHENZ	Plaintiff
v
SCENE NO. 3 LIMITED (NEW ZEALAND BUSINESS NUMBER 9429035767619) AND ORS (ACCORDING TO THE SCHEDULE ATTACHED)	Defendants

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JUDGE:	Kennedy J
WHERE HELD:	Melbourne
DATE OF HEARING:	8 October 2018; 23 November 2018
DATE OF RULING:	23 November 2018
CASE MAY BE CITED AS:	Domaschenz v Scene No. 3 Limited & Ors
MEDIUM NEUTRAL CITATION:	[2018] VSC 593

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PRACTICE & PROCEDURE – Group proceedings – Application for approval to discontinue proceedings for lack of funding - Appropriate notice to group members under s 33(X)(4) Supreme Court Act1986 (Vic) - Whether appropriate to grant approval – Approval granted under s 33V.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Frauenfelder	Corrs Chambers Westgarth
For the First to Third Defendants	No appearance	No appearance
For the Fourth Defendant	No appearance	Arnold Bloch Leibler
For the Fifth to Fourteenth Defendants and the estate of the Fifteenth Defendant	No appearance	Lander & Rogers

HER HONOUR:

1. This is an application by the plaintiff for approval to discontinue this proceeding pursuant to s 33V of the Supreme Court Act 1986 (Vic) (Act). The proceeding was commenced as a group proceeding pursuant to Part 4A of the Act and may not be discontinued without the Court’s approval.

Background

1. The proceeding was commenced by originating process and statement of claim on 1  August 2017 as a group proceeding on behalf of the plaintiff and Group Members, being certain persons who entered into contracts with the first and/or second defendants for the purchase of a lease interest in apartments in the ‘Scene Three’ residential complex in Auckland (Scene 3).

1. The proceeding was brought against the first to fourth defendants as ‘Promoter Defendants.’ It was also brought on behalf of certain GE Subgroup Members against the fifth to fifteenth defendants who had been retained to act as solicitors in respect of the purchase of the apartment leases.

1. Broadly, the plaintiff’s claims concern whether the defendants engaged in misleading or deceptive conduct, negligence and/or breach of contract in relation to the calculation and amount of annual rent payable.

1. The proceeding was initially listed for directions on 2 February 2018 at which time the pleading was not yet served. However, Counsel for the plaintiff indicated that the pleading had been filed for the purpose of preserving rights in circumstances where a limitation period was about to expire.

1. The matter was adjourned for service to take place. 

1. In the result, no defences have been filed.

1. Moreover, given the first and second defendants are deregistered companies they have not been served with the statement of claim.

1. The third defendant has taken no steps in the proceeding and has not filed a notice of appearance.

1. The fourth defendant is represented by Arnold Bloch Leibler who has filed an appearance in the proceeding.

1. The fifth to fifteenth defendants are represented by solicitors from Lander & Rogers. They have not filed an appearance but, on 7 September 2018, filed an application seeking orders that the proceeding be stayed on the basis that the High Court of New Zealand is the appropriate court to determine the matter. 

1. On the same day (7 September 2018) the plaintiff filed a notice of discontinuance.

1. On 17 September 2018, the plaintiff then made the current application for approval to discontinue the proceeding pursuant to s 33V of the Act, providing brief submissions, and a copy of correspondence between the parties’ solicitors. The plaintiff requested that orders be made on the papers to grant leave to discontinue with the parties to bear their own costs of the proceeding.

1. The basis for the application was that the plaintiff is unable to fund the proceeding and has been unable to obtain third party funding to do so.

1. Correspondence from solicitors for the fourth defendants dated 10 September 2018 indicated that it consented to the orders sought.  

1. There was also correspondence from Landers and Rogers dated 25 September 2018  indicating that the fifth to fifteenth defendants took issue with service but that they also consented to the orders being made.

1. On 1 October 2018, the Court advised the plaintiff that a short appearance was required in relation to the application. In particular, that the plaintiff was required to address the requirement in s 33X(4) of the Act (set out below).

1. An affidavit of Pauline Nolan sworn 4 October 2018 (Nolan affidavit) was then provided together with oral submissions on 8 October 2018.

Principles

1. Part 4A provides for the commencement of a proceeding as a group proceeding.

1. Section 33V of the Act provides:

Settlement and discontinuance

(1)   A group proceeding may not be settled or discontinued without the approval of the Court.

(2)   If the Court gives such approval, it may make such orders as it thinks fit with respect to the distribution of any money, including interest, paid under a settlement or paid into court.

1. Section 33X (4) further provides:

When notice to be given

…

(4) Unless the Court is satisfied that it is just to do so, an application for approval under section 33V must not be determined unless notice has been given to group members.

1. The Court’s task pursuant to s 33V is to ‘determine whether the proposed settlement or compromise is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement.’[1]

   [1]Williams v FAI Home Security Pty Ltd (2000) 180 ALR 459, 465 [19]; Lopez v Star World Enterprises Pty Ltd (1999) 21 ATPR 41-678 [15].

1. The Court must be satisfied that any settlement or discontinuance of representative proceedings has been undertaken in the interests of the group members as a whole, and not just in the interests of the applicant and the respondent.[2]

   [2]Wheelahan v City of Casey [2011] VSC 215 [57] citing Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250, 258.

1. Various potentially relevant considerations whether or not to approve a compromise have been articulated.[3] However, many of these issues are not relevant to this case where the application is made by a plaintiff absent a settlement agreement, and rather concerns a discontinuance at the early stages due to a lack of funds.

   [3]See Williams v FAI Home Security Pty Ltd (2000) 180 ALR 459 [19] and Matthews v AusNet Electricity Services Pty Ltd and Ors [2014] VSC 663 [43].

1. Nevertheless, the court was concerned about the potential impact on the group members. In particular, that, although discontinuance of a proceeding is not a defence to a subsequent proceeding for the same, or substantially the same, cause of action,[4] that the limitations period might mean that no subsequent proceeding might be brought by a group member.

   [4]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 25.06.

1. It was in this context there were two issues for the court:

(a)   whether it was appropriate to give notice to group members, and, if yes, the form of that notice; and

(b) whether it was appropriate to grant approval under s 33V.

Appropriate form of notice

1. At the hearing on 8 October 2018 the solicitor for the plaintiff accepted that notice ought be given and produced a form of notice relying on the Nolan affidavit.

1. The Nolan affidavit was sworn by an investor in the Scene 3 complex in Auckland. Ms Nolan is also Chair of a Steering Committee of an Action Group formed in November 2013 which is constituted by current or former owners in Scene 3. The Steering Committee communicates with the Action Group via email and oral communication.

1. Ms Nolan estimated that approximately 150 people are within the group defined in the Statement of Claim, but that approximately 102 of those are members of the Action Group. It was further confirmed at the hearing that it was the members of the Action Group who were aware of, and had given instructions through, the Steering Committee in relation to the current proceeding. 

1. In the light of this evidence, the court accepted that it was appropriate to give notice of the proceeding to group members under s 33(X)(4) via email to the Action Group. There was nothing to show that any other group member had an active interest in the proceeding. Ms Nolan had also confirmed that if it was necessary to give notice to group members outside the Action Group funds would need to be raised for this purpose. Pursuant to s 33Y(4) the Court must not order that notice be given personally to each group member unless it is satisfied that it is reasonably practicable, and not unduly expensive, to do so. I am not so satisfied. Consistent with the overarching purpose contained in the Civil Procedure Act[5] it was also not efficient or cost-effective to require funds to be raised to give notice to non-active group members.

   [5]Civil Procedure Act 2010 (Vic) s 7.

1. Accordingly, on 8 October 2018 the court made orders for the giving of notice.  Consistent with the evidence of Ms Nolan, this was effected by way of email to all the members of the Action Group on 11 October 2018.[6]

   [6]Affidavit of Richard Alexander Leder sworn 22 November 2018 [3].

1. Pursuant to the 8 October 2018 order, any opposition (by way of affidavit and written grounds of objection) was also to be filed by 9 November 2018. In the result, there was no opposition filed pursuant to that order.

Whether appropriate to grant approval

1. I am satisfied that it is appropriate to grant approval for the proceeding to be discontinued with no order as to costs.

1. First, there is the consent to the orders by the active defendants.

1. Second, insofar as group member are concerned, there is the lack of opposition despite the giving of notice to active group members as described above. I also note that, even if a group member wishes to commence an individual action post discontinuance, that s 33ZE provides for the suspension of limitation periods while the group proceeding was on foot.

1. Third, given the relative complexity of the proceeding, I accept that it is not appropriate for the proceeding to continue absent proper funding for appropriate representation.

1. Finally, the orders have been sought at an early stage so as to avoid unnecessary costs consistent with the overarching purpose.

1. Overall, I am therefore satisfied that orders for approval should be made.

Conclusion

1. The following orders will be made:

(a) The proceeding be discontinued with the approval of the Court, pursuant to s 33V of the Supreme Court Act 1986 (Vic).

(b)      There be no order as to costs.

SCHEDULE OF PARTIES

BETWEEN:
PHILIP AUSTIN DOMASCHENZ	Plaintiff
- and -
SCENE NO. 3 LIMITED - 1398071 (NEW ZEALAND BUSINESS NUMBER 9429035767619)	First Defendant
- and -
BEACH CONSTRUCTION MANAGEMENT NO. 3 LIMITED - 1400739 (NEW ZEALAND BUSINESS NUMBER 9429035761563)	Second Defendant
- and -
REDWOOD GROUP LIMITED - 1203552 (NEW ZEALAND BUSINESS NUMBER 9429036536191)	Third Defendant
- and -
PACIFIC EAST COAST PROPRIETARY LIMITED (ABN 87 003 135 617)	Fourth Defendant
- and -
TIMOTHY JONES, JACK PORUS, SIMON KEMBER, STEPHANIE HARRIS, PAUL COLLINS, JULIAN EDELMAN, MALCOLM MACLEAN, BRETT VAUTIER, DEIRDRE NORRIS, KIM GORDON & GLENN SATHERLEY (trading as the partnership of Glaister Ennor, a firm)	Fifth to Fifteenth Defendants