Duxbury v Pierce

Case [2009] FCA 367

FEDERAL COURT OF AUSTRALIA

Duxbury v Pierce [2009] FCA 367

TRADE PRACTICES – misleading or deceptive conduct – where investments in joint venture business – representations regarding financial position of companies – whether representations misleading or deceptive – whether first respondent liable for representations under section 75B of Trade Practices Act 1974 (Cth)

PRACTICE AND PROCEDURE – application for summary judgment – relevant considerations – where first respondent filed a defence – where second respondent failed to take any step in proceeding – where respondents did not rely on any evidence – whether respondents in default

Trade Practices Act 1974 (Cth) ss 51A, 52, 75B, 82
Federal Court Rules O 35A

Macquarie Bank Ltd v Seagle (2005) 146 FCR 400, cited
Lenjimar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388, cited
Yorke v Lucas (1985) 158 CLR 661, applied

BRUCE LYALL DUXBURY, PAUL DAMIAN KINNANE, GLENN STUART BLAKISTON, SIMON BRETT BLAKISTON, B. DIMENSIONAL PTY LTD (ACN 094 847 793) AND JAMES PATRICK EAVES v ROGER BRIAN PIERCE AND DAVID COLIN HUGHEY

VID 991 of 2007

MARSHALL J
21 APRIL 2009
HOBART (HEARD IN MELBOURNE)


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 991 of 2007
BETWEEN:

BRUCE LYALL DUXBURY
First Applicant

PAUL DAMIAN KINNANE
Second Applicant

GLENN STUART BLAKISTON
Third Applicant

SIMON BRETT BLAKISTON
Fourth Applicant

B. DIMENSIONAL PTY LTD (ACN 094 847 793)
Fifth Applicant

JAMES PATRICK EAVES
Sixth Applicant
AND:

ROGER BRIAN PIERCE
First Respondent

DAVID COLIN HUGHEY
Second Respondent

JUDGE:

MARSHALL J

DATE OF ORDER:

21 APRIL 2009

WHERE MADE:

HOBART (HEARD IN MELBOURNE)

THE COURT DECLARES THAT:

1.Subject to paragraph 2 hereof, the first respondent aided, abetted, counselled or procured contraventions of s 52 of the Trade Practices Act 1974 (Cth) by EVP Holdings Pty Ltd and/or EVP Recruitment Pty Ltd (“the Companies”) as follows:

(i)With respect to the first applicant, as a result of the conduct referred to at [15](a), (b), (e), (f) and (g) of the amended statement of claim.

(ii)With respect to the second applicant, as a result of the conduct referred to at [11](a) and [15](e), (f) and (g) of the amended statement of claim.

(iii)With respect to the third, fourth, fifth applicants, as a result of the conduct referred to at [11](a) and (b) and at [15](b), (e), (f) and (g) of the amended statement of claim.

(iv)With respect to the sixth applicant, as a result of the conduct referred to at [15](b), (e), (f) and (g) of the amended statement of claim.

2.Paragraph 1 above is varied as follows:

(i)The first respondent is liable to the second applicant for the loss suffered as a result of the conduct set out at [15](a) and (b) of the amended statement of claim until 24 January 2005.

(ii)The first respondent is liable to the second applicant for the loss suffered as a result of the conduct set out at [15](e) of the amended statement of claim until 15 September 2004.

(iii)The first respondent is liable to…

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Duxbury v Pierce [2009] FCA 367
Case
[2009] FCA 367
Decision Date

CaseChat Overview and Summary

The case of Duxbury v Pierce involved applicants who sought relief against the respondents, EVP Recruitment and its director, for alleged misleading and deceptive conduct in relation to the sale of recruitment businesses. The applicants had invested in joint venture businesses with EVP Recruitment based on representations made by the respondents regarding the financial position and expected returns. However, the applicants found the businesses to be unprofitable, and several entered administration. The case was heard in the Federal Court of Australia, where the applicants sought default judgment against the first respondent. The court had to determine whether it was appropriate to grant default judgment or to test the evidence supporting the applicants' claims.

The legal issues before the court were whether the applicants were entitled to relief based on the respondents' alleged misleading and deceptive conduct and whether it was appropriate to grant default judgment against the first respondent. The applicants argued that the first respondent had made misrepresentations about the financial stability and expected returns of the joint venture businesses, which they relied on when making their investments. The first respondent did not provide any evidence in response to the applicants' claims, and the second respondent was in default for failing to enter an appearance or file a defence.

The court found that while the second respondent's default warranted a judgment against them, the appropriate course of action for the first respondent was to test the evidence supporting the applicants' claims. The court noted that the objectives of the O 35A procedure were to provide a ready and expedient means to dispose of uncontested litigation. However, the court decided that it was more appropriate to assess the evidence supporting the applicants' claims against the first respondent. The court found the first respondent liable for the loss suffered by the applicants due to the alleged misleading and deceptive conduct.

In conclusion, the court did not grant default judgment against the first respondent, opting instead to test the applicants' evidence. The first respondent was found liable for the applicants' losses, and the matter was adjourned for a directions hearing. The second respondent, who was in default, was also found liable for the applicants' losses based on the allegations in the amended statement of claim.

Orders

Orders of the court

1. The first respondent is liable to the applicants for the loss suffered as a result of the conduct referred to in the declarations made above.

2. The second respondent is liable to the applicants for the loss suffered as a result of the conduct referred to at [15] of the amended statement of claim.

3. The matter is adjourned to a directions hearing at 9.30 am on 1 May 2009.

Note:

Background

Background to the litigation

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Evidence

Evidence Before The Court

In light of the relief sought by the applicants, the lack of notice to the first respondent of the applicants’ intention to seek default judgment and the reasons given by the first respondent for the default, I am not satisfied that it is appropriate to give default judgment against the first respondent. It is more appropriate to test whether the evidence supports the claims made by the applicants against the first respondent.THE EVIDENCE The applicants’ evidence is that the respondents were involved in the selling of recruitment businesses by EVP Recruitment Pty Ltd (“EVP Recruitment”). At the relevant time, the first respondent was a director of EVP Recruitment and its parent company, EVP Holdings Pty Ltd (“EVP Holdings”). The second respondent was the managing director of EVP Holdings. EVP Recruitment operated joint venture recruitment businesses across Australia and New Zealand in conjunction with investors such as the applicants. Investment in the joint ventures was marketed through internet advertisements. During 2004, the applicants each invested in a joint venture business with EVP Recruitment after responding to an internet advertisement. The second respondent became a bankrupt in New Zealand on 7 July 2004. EVP Recruitment entered voluntary administration on 11 March 2005 and was placed into liquidation on 14 April 2005. The applicants ultimately found each of the joint venture businesses to be unprofitable, with several of the joint ventures also entering administration. The applicants allege that they relied on representations made by the respondents either personally or as representatives of EVP Recruitment as to the financial position and history of EVP Recruitment and the returns, costs and services which they could expect as investors in the joint venture. The applicants say that they would not have invested in the joint ventures if the alleged misrepresentations had not been made. The respondents did not rely on any evidence in the proceeding.THE ALLEGED MISREPRESENTATIONS AND DECEPTIVE CONDUCT The applicants claim that the first respondent made the representations described in [15] of these reasons in contravention of s 52 of the Act (the “Further Conduct”). In addition, [11] of the amended statement of claim alleges that the first respondent made a further 21 misrepresentations that:(a)the EVP group and business model had a solid and successful trading history behind it;(b)the previous joint-venture businesses commenced with EVP of the type advertised had all, alternatively, been largely successful and/or that 10 or more EVP offices (including a Perth office) were established and operating at the time;(c)a new joint venture business commenced by any of the first, second, third, fourth or sixth applicants (hereafter ‘the Applicants’) would enjoy the benefit of the proven EVP business model;(d)a new joint venture business commenced by the Applicants would enjoy the benefit of access to EVP’s established and commercially proven infrastructure and/or office systems and/or centralized administrative, clerical and accounting support and/or training and/or management and business advice from experienced operators;(e)a new joint venture business commenced by the Applicants would enjoy the benefit of access to and use of proven and functional EVP developed software which could track and report on consultant activity, work in progress and key performance business indicators in an accurate, efficient and effective manner including standard labour hire functions such as payroll, accrual, timesheet entry and rostering functions and/or that EVP would provide ongoing IT systems and support;(f)EVP had a detailed and sound business plan for the establishment of such a joint venture business;(g)EVP would prepare and provide a specific and detailed business plan for the respective joint-venture business;(h)financial projections provided to the Applicants in each case, being budgets and cash-flows, were based on other EVP joint venture businesses and/or were based in fact and/or gave a genuine indication of earnings and returns which could be reasonably expected to be enjoyed by the business;(i)financial data provided to the Applicants or any of them as being derived from an EVP joint venture business in Perth was based in fact and/or reasonably indicative of the level of earnings and profit the proposed joint venture business might reasonably expect to enjoy in each case;(j)on the basis of their experience, projections and the established business mode, the joint-venture business would only require working capital of $80,000.00;(k)the Applicant/investor would only be required to contribute up to $40,000.00 to working capital with that sum to be matched by Holdings and/or Recruitment and/or the EVP group;(l)any further capital required to fund the business would be provided by Holdings and/or Recruitment and/or the EVP group;(m) investors would operate the business as partners/managers and would receive a salary of $100,000.00 per annum;(n)the joint venture business, funded as aforesaid, with the financial support of Holdings and/or Recruitment and/or the EVP group would be able to pay the said salary and meet its outgoings from inception, alternatively within months of commencement;(o)the financial projections provided were conservative and valid and it could reasonably be expected that the initial investment, including the cost of purchase of the investor share in the joint-venture and associated licences from EVP would be fully recouped within 18 months of commencement;(p) the joint venture business would receive the benefit of EVP group branding and marketing as well as specifically targeted marketing campaigns and strategies provided by Holdings and EVP;(q)the financial position of Holdings and/or Recruitment and/or Hughey and/or Pierce was sound and solvent;(r)that the EVP group and its predecessors as managed by Hughey and or Pierce had sound financial and/or trading history;(s)the Applicant/investor would benefit from the services of the respondents’ factoring company, Scottish Pacific, needed to establish the business;(t)the Applicant/investor would have the opportunity to earn income from the additional revenue streams that the EVP Group was developing;(u)the joint venture business would leverage off an existing database developed by EVP Recruitment(“the Initial Representations”).

Decision

Reasons for decision

MARSHALL J
Both respondents reside in New Zealand.APPLICATION FOR SUMMARY JUDGMENT A motion for summary judgment under O 35A of the Federal Court Rules was made orally on behalf of the applicants at the trial. Where a respondent is in default, O 35A r 3(2) provides that:(c)if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on the pleadings — give judgment against the respondent for the relief that:(i) the applicant appears entitled to on the statement of claim; and(ii) the Court is satisfied it has the power to grant … The acts which may constitute default on the part of the respondent are set out in O 35A r 1(2). Those acts include:(a)the time for the respondent to enter an appearance has expired and the respondent has failed to enter an appearance; or(b)the time for the respondent to file a defence has expired and the respondent has failed to file a defence; or(c) the respondent fails to attend a directions hearing; or(d)the respondent fails to comply with an order of the Court in the proceeding; or(e)the respondent fails to file and serve a pleading as required by Order 11; or(f)the respondent fails to serve a list of documents or an affidavit or other document, or does not produce a document as required by Order 15; or(g)the respondent fails to do any act required to be done by these Rules; or(h)the respondent fails to defend the proceeding with due diligence.The second respondent On 14 November 2007, Weinberg J granted the applicants leave to serve the originating processes on the respondents in New Zealand pursuant to O 8 rr 2 and 3 of the Federal Court Rules. The second respondent was served with the application and statement of claim on 7 May 2008. The second respondent failed to enter an appearance, file a defence or take any part in these proceedings. The evidence shows that the second respondent was aware of the proceeding and nevertheless failed to take any step to defend it. The second respondent’s failure to enter an appearance, file a defence or take any step to defend the application constitutes default under O 35A r 1(2)(a)­–(c), (g) and (h). However, the Court may only give judgment under O 35A for relief that “the applicant is entitled to on the statement of claim”. In Macquarie Bank Ltd v Seagle (2005) 146 FCR 400 at [24], Conti J observed that:Counsel for the Bank submitted that so long as each element of the relevant civil wrong involved is properly and discretely pleaded in the statement of claim, the requirement of subr (2)(c)(i) will be satisfied in principle. In light of the evident objectives of the O 35A procedure in providing for a ready and expedient means to dispose of uncontested litigation, I consider that the Bank’s submission duly reflects a correct description of the subr (2)(c)(i) requirement. Paragraph 11 of the applicants’ amended statement of claim dated 13 May 2008 identifies 21 representations made during the negotiations for the joint venture businesses which are said to be misleading and deceptive conduct in contravention of s 52 of the Act. The prefatory words to [11] read:In the course of the said negotiations in each of the aforesaid cases Hughey and/or Pierce made the following representations and/or caused them to be made and/or were directly or indirectly knowingly involved in such representations being made by [EVP] Holdings and/or [EVP] Recruitment …

Ratio Decidendi

Legal Principle Established

Established by: MARSHALL J

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