Famel Pty Ltd v Burswood Management Ltd
[1989] FCA 284
•07 JUNE 1989
Re: FAMEL PTY LTD and STEVEN P.H. LUNN
And: BURSWOOD MANAGEMENT LIMITED; DALLAS REGINALD DEMPSTER; LIM KOK THAY;
WESTERN AUSTRALIAN TRUSTEES LIMITED and RIDER HUNT & PARTNERS
No. WAG 121 of 1988
FED No. 284
Trade Practices - Practice and Procedure
COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)
CATCHWORDS
Trade Practices - misleading or deceptive conduct - estimates of Casino construction costs in Prospectus - allegedly misleading - fraudulent and in breach of fiduciary duty - predictive statements - whether necessary to identify representations of past or existing fact - whether purely predictive statement actionable - Trustee of Unit Trust - inviting subscriptions - whether fiduciary duty owed to prospective beneficiaries.
Practice and Procedure - security for costs - action under consumer protection legislation - public interest - respondents' ability to pay - quantum - factors relevant to fixing quantum.
Casino Control Act 1984
Casino (Burswood Island) Agreement Act 1985
Companies (Western Australia) Code
Trade Practices Act 1974 s.52, s.75B, s.82
Federal Court Act 1976 s.56
Federal Court Rules O.28
Judiciary Act 1903 s.79
Finn - Fiduciary Obligations (1977) p 201
Lehane - Fiduciaries in a Commercial Context
Essays in Equity Finn (Ed.) p 104, p 246
Mason J. - Themes and Prospects - Essays in Equity p 246
A Lawyer's Guide to Misleading and Deceptive Conduct (1989) 63 ALJR 250
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171
Taco Co. of Australia Inc. v Taco Bell Pty Ltd (1982) 42 ALR 177
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
10th Cantanae Pty Ltd v Shoshana Pty Ltd (1988) 79 ALR 299
Chase Manhattan Overseas Corporation v Chase Corporation Ltd (1985) 9 FCR 129
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83
Wheeler Grace & Pierucci Pty Ltd v Wright (unrep Full Court; 13/4/89)
Cooke v Gill (1873) LR 8 CP 107
Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473
Fenech v Sterling (1983) 79 FLR 244
James v ANZ Banking Group Limited (1985) ATPR 40-567
Yorke v Lucas (1985) 158 CLR 661
Hutchence v South Seas Bubble Co. Pty Ltd (1986) 64 ALR 330
Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375
Byers v Dorotea Pty Ltd (1986) 69 ALR 715
Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367
Bryan E. Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Smail v Burton (1975) VR 776
Jet Corporation of Australia Pty Ltd v Petres Pty Ltd (1983) 50 ALR 722
Irwin Alsop Services v Mercantile Mutual Insurance Co. Ltd (1986) VR 61
Pearson v Naydler (1977) 1 WLR 899
Cowell v Taylor (1985) 31 Ch D 34
Mackie v Clough (1891) 17 VLR 201
Lloyd v Hathern Station Brick Co. Ltd (1901) 85 LT 158
Re Emery (1923) P 184
Semler v Murphy (1968) Ch 183
Co-Operative Farmers' and Graziers' District Meat Supply Ltd v Smart (1977) VR 386
HEARING
PERTH
#DATE 7:6:1989
Counsel for the Applicants : Mr E. Heenan QC with Ms F. Davis
Solicitors for the Applicants : McPhee & Myer
Counsel for the First, Second
and Third Respondents : Mr J. Ireland and Mr P Blackman
Solicitors for the First,
Second and Third Respondents : Robinson Cox
Counsel for the Fourth
Respondent : Mr T. O'Connor QC and Mr K. Martin
Solicitors for the Fourth
Respondent : Parker & Parker
Counsel for the Fifth
Respondent : Mr J. Ley
Solicitors for the Fifth
Respondent : Freehill Hollingdale & Page
ORDER
On the motion by the first, second and third respondents filed 3 October 1988 to strike out the applicants' statement of claim:
1. The following parts of the statement of claim be struck out:
(i) the second sentence of paragraph 1;
(ii) the whole of paragraph 19;
(iii) the third sentence in paragraph 20.
2. There be leave to the applicants to file and serve an amended statement of claim on or before 21 June 1989.
3. The motion be otherwise dismissed.
4. The costs of the motion are reserved.
On the motion by the fourth respondent filed 3 October 1988 for the dismissal of the claim against it:
1. The motion is dismissed.
2. The costs of the motion are reserved.
On the first, second and third respondents' motion for security of costs filed 3 October 1988:
1. The first applicant do on or before 28 June 1989 provide security for the first, second and third respondents' costs of the application in the sum of $30,000 by way of bank guarantee to be lodged with the Registrar.
2. In the event that the security ordered herein is not provided on or before 28 June 1989 the proceedings by the first applicant against the first, second and third respondents be thereafter stayed until such security is provided or until further order.
3. There be liberty to apply.
4. The costs of the motion are reserved.
On the fourth respondent's motion for security for costs filed 3 October 1988:
1. The first applicant do on or before 28 June 1989 provide security for the fourth respondent's costs of the application in the sum of $15,000 by way of bank guarantee to be lodged with the Registrar.
2. In the event that the security ordered herein is not provided on or before 28 June 1989 the proceedings by the first applicant against the fourth respondent be thereafter stayed until such security is provided or until further order.
3. There be liberty to apply.
4. The costs of the motion are reserved.
On the fifth respondent's motion for security for costs filed 3 October 1988:
1. The first applicant do on or before 28 June 1989 provide security for the fifth respondent's costs of the application in the sum of $30,000 by way of bank guarantee to be lodged with the Registrar.
2. In the event that the security ordered herein is not provided on or before 28 June 1989 the proceedings by the first applicant against the fifth respondent be thereafter stayed until such security is provided or until further order.
3. There be liberty to apply.
4. The costs of the motion are reserved.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
REASONS FOR JUDGMENT ON MOTIONS TO STRIKE OUT PLEADINGS AND FOR SECURITY FOR COSTS Introduction It was in the summer of 1797 while under the inspiration of a powerful anodyne that the poet Coleridge dreamed the well-known verses that begin:
"In Xanadu did Kubla Khan A stately pleasure-dome decree."
A less splendid vision, but equally powerful inspiration, led to the construction in 1985 of Perth's own pleasure-dome, the Burswood Resort Complex. Located on the Swan River foreshore, 4 kilometres east of the Central Business District, the Resort comprises a Casino, Hotel, Convention Centre and Exhibition/Sports/Entertainment Complex.
Capital raising associated with the construction has given rise to the present action. Complaint is made of statements contained in a prospectus issued in April 1985 inviting members of the public to subscribe for units in the Burswood Property Trust to the extent of $50 million. The applicants who subscribed for and were allotted units in the Trust, say they relied upon representations as to construction costs of the project which were misleading or deceptive, were made fraudulently and reflected breaches of fiduciary duties. They claim various forms of relief cumulatively and in the alternative including rescission of the contracts of allotment, rectification of the Trust Registry, repayment with interest of moneys subscribed, damages, exemplary damages and compensation.
The respondents, however, say that the statement of claim discloses no reasonable cause of action and should be struck out in whole or in part. They also move for orders that before being allowed to proceed further, the applicants be required to provide security for costs against the event that the action is ultimately unsuccessful. In this connection BML, Dempster and Lim estimate the costs of defending the action at $300,000, WATL at $100,000 and Rider Hunt at $60,000. The principal sums in issue in the proceedings are the amounts of $25,000 and $1,000 subscribed by the first and second applicants respectively.
Factual Background and AllegationsThere are many matters of fact which are not seriously in dispute between the parties. The pleaded facts in contention are identified as such in the following narrative, although for the purpose of the strike-out motions, it is necessary to assume that the applicants are able to prove them all.
By an agreement dated 20 February 1985 between the State of Western Australia, West Australian Trustees Limited (WATL) and Burswood Management Limited (BML), WATL agreed to construct and develop the Burswood Island Resort for a cost at completion of not less than $200 million and thereafter to maintain and operate it. BML agreed to submit for approval to the Minister for Gaming a programme for the design, documentation, construction, fit-out and commissioning of the Resort and plans and specifications relating to each phase of the development. The agreement, made by the Minister on behalf of the State under the authority of the Casino Control Act 1984, was ratified and authorised by the Casino (Burswood Island) Agreement Act 1985. Although expressed to "operate and take effect notwithstanding the provisions of any act or law", the ratifying legislation does not in terms give it statutory effect.
On the same day as the agreement was made, a Trust known as the "Burswood Property Trust" was constituted by a deed between BML as settlor (designated as Manager under the deed) and WATL as trustee. On 18 April 1985, following a meeting of unit holders a new consolidated deed was executed embodying amendments to meet the listing requirements of the Australian Associated Stock Exchanges. The amendments were also necessary to comply with the Companies (Western Australia) Code. Recital "F" to the deed provided that:
"The general investment policy to be pursued by the Manager and the Trustee shall be primarily the purchase of and investment in the Hotel-Casino Complex, the Casino Licence and all associated property with a view to achieving income with security and capital appreciation over a term of years."
Clause 8 of the deed provided, inter alia, for the proper and efficient conduct by BML of any undertaking, scheme or enterprise to which the deed related and also required that:
"the Manager will not, without the approval of the Trustee; publish or cause to be published any advertisement, circular or other document containing any statement with respect to the Issue Price of Units or the yield therefrom or containing any invitation to buy or subscribe for Units and that in any letter or circular or other publication, reference shall be made to the Trustee only in terms approved by the Trustee;"
On or about 27 April 1985, BML issued a Prospectus inviting members of the public to subscribe to units in the Burswood Property Trust. The proposed issue was of 100 million units at 50 cents each payable in full on application. Successful applicants were also to be granted a free option to acquire one additional unit for every two alloted to them. The Trust capital structure disclosed in the Prospectus showed that issues were intended of 60 million units to Dempster Nominees Pty Ltd and Genting (Western Australia) Pty Ltd respectively, each representing a subscription of $30 million. Dempster Nominees Pty Ltd is described in the Prospectus as the Trustee of the Dallas Dempster Family Trust. Dempster, who is named as second respondent, is Chairman of Directors of BML. Genting (Western Australia) Pty Ltd is a wholly owned subsidiary of Genting Berhard, a publicly listed Malaysian company, and acts as Trustee of the Genting (Western Australia) Trust, whose ultimate beneficiary is said to be Genting Berhard. According to the Prospectus, Dempster Nominees were also to hold 30 million options in the Trust. A company called Tileska Pty Ltd, said to be one of the original sponsors of the Resort, was also to hold 30 million options. This company is beneficially owned and controlled by the family of Tan Sri Lim Goh Tong ("The Lim Family"). Lim Kok Thay, Deputy Managing Director of Genting (Berhard) is said to have been at all material times a director of BML. According to the statement of claim Dempster, Lim and WATL were each directly or indirectly knowingly concerned in or a party to the preparation of the Prospectus and authorised its issue.
The Prospectus included a letter, signed by Dempster as Chairman of BML, in which it was said that the estimated total cost of the project was $210 million, of which $60 million was to be contributed by Dempster Nominees and Genting (WA), $50 million raised by public subscription and $100 million borrowed. The Burswood Resort Complex was said in the letter to contain:
a) Burswood Casino constructed on a single level with 135 gaming tables, Keno and video machines. b) Burswood Hotel a 400 room Five Star luxury hotel.
c) Burswood Convention/Cabaret Centre, seating up to 3,600 persons.
d) Burswood Exhibition/Sports/Entertainment Complex, an enclosed building, with 25,000 square metres (269,000 square feet) of exhibition space or seating for 17,000 persons for a sporting or entertainment event. e) Burswood Recreation Centre having facilities such as tennis courts, squash courts and a gymnasium.
The statement of claim goes on in para.12 to refer to statements allegedly contained in the Prospectus relating to development costs. The first statement, which is said in para. 12(a) to appear at p 5 under the heading "Summary of Estimated Development Costs" is pleaded in the following terms:
"The Land and Building Costs of $200,205,000 include construction cost of $146,400,000.00";
In fact no such statement appears at p 5 of the Prospectus which was put in evidence. Paragraph 12(b) however, sets out the text of the Prospectus as it appears at p 17 in the following terms:
"Development Costs Total costs of the development of the Resort are estimated at $210 million. This amount includes provision for escalation contingencies, fees, net interest during construction and costs actually incurred to date. A summary of these estimates is set out in Table 1 below.
TABLE 1 SUMMARY OF ESTIMATED DEVELOPMENT COSTS $'000 $'000 Payments on entering of
Burswood Agreement including
acquisition of the Site
and expense of the
development of Burswood
Park $ 42,733 Resort Complex Building
design and construction $141,984 Furniture, fittings,
equipment and
commissioning costs $ 15,488 Land and Building Costs $200,205 Financing costs to
commencement of
operations $ 5,598 Establishment, Training,
Promotion and other
pre-opening costs $ 4,197 $210,000 ======== NOTE: The Land and Building Costs of $200,205,000 include the payment of $25,000,000 which the Trust is obliged to pay the State pursuant to the Burswood Agreement, construction costs of $146,500,000 with the balance representing professional, consultancy and project management fees. Training, promotion and other pre-opening costs indicated in (sic) relate predominantly to the Casino. Additional training, promotion and other pre-opening expenses, estimated at $1,950,000 and which relate mainly to the hotel will be written off against income in the 1986/7 year and are included in the financial projections for that year. The estimated development costs exclude the payment of $5,000,000 to be paid to the State pursuant to the Burswood Agreement on the third anniversary of the grant of the casino licence or the commencement of construction of a second hotel, whichever is the earlier. The construction costs of $164,500,000 has been reviewed by Rider Hunt & Partners, whose report appears on page 47 of this Prospectus."
Rider Hunt & Partners, is a partnership which carries on the business of quantity surveyors. A report from that firm on budgeted constructions costs is contained in the Prospectus. Its terms are pleaded in para.12(c) of the statement of claim as follows:
"REPORT OF THE QUANTITY SURVEYORS AND BUILDING COST CONSULTANTS RIDER HUNT & PARTNERS 3rd April 1985
The Directors,
Burswood Management Limited,
8 St. George's Terrace,
PERTH, WA 6000
Dear Sirs,
BURSWOOD ISLAND RESORT PROJECT ("THE PROJECT") This report has been prepared for inclusion in the statement ("Prospectus") relating to the issue to the public of 100,000,000 units in the Burswood Property Trust ("the Trust") at an issue price of $0.50 per unit. West Australian Trustees Limited ("The Trustee") is the trustee of the Trust. The Project will comprise a 400 room five star luxury hotel, casino, convention cabaret centre, exhibition/sports/entertainment complex and a recreation centre having available facilities such as golf, tennis, squash, aerobics, swimming pool and gymnasium.
We have been appointed Quantity Surveyors and Building Cost Consultants for the Project. Although the construction contract does not specify an upper limit of construction costs, we confirm our preliminary estimate of the cost for completion of construction of the Project to be in the budgeted sum of $146,500,000. The construction work estimates for the Project have been based upon the drawings current to this date. The rates used for pricing have been extensively researched and checked in Western Australia and elsewhere in Australia and have been taken from our library and knowledge accumulated over many years, of projects of this magnitude and type.
Although the construction contract does not contain a completion date, the construction period for the Project is programmed for 21 months with completion in December 1986. We consider these to be appropriate and achievable construction periods. All facets of the building design will be investigated in order to assist in minimising the construction period. Past experience in major projects in Western Australia have demonstrated that there will be an excellent opportunity to fix the price of a large proportion of the works, thereby removing the risk of inflation during the construction period. Notwithstanding unforeseen circumstances, containment of cost escalation within the amount allowed in the budget appears achievable.
In conclusion, whilst detailed design and documentation is still being completed, we consider that sufficient knowledge of the Project requirements has been acquired to enable us to be confident that the final cost for completion of construction of the Project shall be contained within the budgeted sum of $146,500,000. Yours faithfully,
WILLIAM ROBERT WRIGHT
Associate Member of the Australian Institute of Quantity Surveyors Resident Partner"
The statements set out in para.12 are said in para.13 to have been made in order to induce the public to subscribe for units in the Burswood Property Trust. Dempster, Lim, WATL and Rider Hunt are all alleged to have been aware "that the statements were being made for that purpose and would, or be likely to, have that effect". On the faith and in reliance upon "the said statements" the applicants claim (in para.14) to have each subscribed for and been allotted units and options in the Burswood Property Trust as follows:
"a) the First Applicant applied for and, on the 20th day of May 1985 was allotted 50,000 units in the Trust for which it paid the sum of $25,000 and was also allotted 25,000 free options;
b) the Second Applicant applied for and, on the 20th day of May 1985 was allotted 2,000 units in the Trust for which he paid the sum of $1,000 and was also allotted 1,000 free options;"
Paragraph 15 then alleges:
"The said statements were untrue in that:- a) prior to the issue of the Prospectus the Fifth Respondent supplied to the First Respondent, which in turn provided the information to the Second and Third Respondents, four estimates as to the construction costs as follows:-
(i) 23.1.85 Construction Costs $175,000,000
(ii) 29.1.85 Reduction from the above construction costs to the sum of $149,350,000
(iii) Mid- A reduction of Feb 85 $3,000,000 approx. in the cost of the hotel $146,500,000
(iv) 10.4.85 Detailed cost -12.4.85 estimate $180,935,000 b) none of the above cost estimates included the construction costs of the separate sports complex, notwithstanding that this was part of the Burswood Resort Complex. On or about the 18th April 1985 the Fifth Respondent had calculated the estimated construction costs of the sports complex were $6.7 million. The cost estimates referred to in sub-paragraphs
(a) and (b) were provided to the First Respondent, and by it to the Second and Third Respondents on dates and in a manner presently unknown to the applicants; c) the First Respondent, by its directors, including the Second Respondent, sought legal advice as to the significance and effect of the increased cost projections before the Prospectus issued. Subsequently, on dates presently unknown to the applicants, the First Respondent, by its officers and agents including the Second and Third Respondents, met with the Fifth Respondent to review the expert report. The Applicants are unable to give further particulars of the dates, places or circumstances of these meetings at this time;
d) following these meetings the Fifth Respondent agreed to the insertion of its report in the Prospectus without alteration; e) the Burswood Resort Complex could not be constructed for $146,400,000. Estimates of the construction cost of the Burswood Resort Complex obtained by the First Respondent put the cost at $187,500,000.00 or thereabouts."
The applicants allege that the statements were made by BML, Dempster, Lim and Rider Hunt "fraudulently or recklessly not caring whether they were true or false and without any honest belief as to the truth of each of those statements" (para.16). The issue of the Prospectus containing "the said statements" was said to constitute conduct which was misleading or deceptive or likely to mislead or deceive. Dempster and WATL were also said (in para.18) to have been at all material times in a fiduciary relationship with the applicants. That relationship derived from the position of WATL as trustee for the unit holders and BML as manager of the Trust Fund for the benefit of the unit holders. The relationship extended to the applicants as "potential, and ultimately actual, holders of units". On this basis BML and WATL had a duty to the applicants and potential unit holders to make full disclosure of the true estimated construction costs of the Burswood Resort Complex. Their failure to make this disclosure and their issue or authorisation of the issue of the Prospectus with false or misleading statements was said to constitute a wilful default and wilful breach of trust by each of them (para.19). In para.20 the applicants plead their entitlement to rescission of the issue of the units in the Burswood Property Trust and repayment of the moneys subscribed by them with interest. They also claim as a result of the fraud and misleading or deceptive conduct of the respondents, the untrue statements contained in the Prospectus and the breach of trust or fiduciary duty by BML and WATL, to have suffered loss and damage. The damage is said to be the reduction in value of the units below 50 cents. Further particulars are promised before trial.
And in para.23, the basis for a claim of exemplary damages is laid as follows:
"Further, the issue of the Prospectus containing the untrue statements was conduct by the First, Second, Third and Fifth Respondents showing a conscious and contumelious disregard for the rights of the applicants and each of them and of the public and was conduct calculated with a view to profit. In the premises exemplary damages should be awarded against the First, Second, Third and Fifth Respondents and each of them."
Although no defences have been filed, Mr Douglas Bishop, an employee of the solicitors for the first, second and third respondents, swore an affidavit indicating that they intend to defend the action on the basis that:
(a) The statement of claim does not disclose a cause of action against the first, second and third respondents or any of them.
(b) None of the Statements made in the prospectus by the first respondents was made fraudulently or recklessly or without any honest belief as to the truth of those statements.
(c) The issue of the prospectus was not conduct which was or was likely to be misleading or deceptive.
(d) The first respondent's actions do not constitute wilful default or wilful breach of any fiduciary duty it may owe to the applicants or either of them.
(e) The applicants have not suffered any loss or damage.
Allan Read, the Manager, Corporate Services of WATL, also gave evidence on affidavit noting the absence of any allegation in the statement of claim that the trustee was aware at the time of issue of the Prospectus that the statements referred to in para.12 of the statement of claim were untrue. He added in his affidavit that "the Trustee did not have any such knowledge". WATL did however, look at draft copies of the Prospectus to ensure that it conformed with all statutory, trust deed and Stock Exchange requirements. It also secured the insertion of a disclaimer which said:
"...The Trustee wishes to point out that it has not prepared or issued this Prospectus and gives no assurance whatsoever as to the projections or opinions expressed in it."
It is also to be noted that in an affidavit sworn by Michael Shaw Ferguson, a member of the firm of solicitors formerly acting for the applicants, it was expressly stated that "The Applicants do not allege, as against the Fourth Respondent, knowledge of the falsity of the statements pleaded at paragraph 12 of the Statement of Claim."
It is not in dispute that the first applicant, Famel Pty Ltd, is a trustee company incorporated on 28 June 1979 with a paid up capital of $2 and net tangible assets of $2. Its annual return filed 21 July 1988 shows it to have two shareholders, Neil Donald Edmunds and Keven Gottlieb Kunzli, who also comprised the Board of Directors. Carole Ann Kunzli holds the office of Secretary. The company's registration was cancelled on 25 November 1986 but restored on 29 July 1988. According to Edmunds, this was due to the failure of its accountant to lodge annual returns. Notices form the Corporate Affairs Commission were sent to the accountant's address which was the registered office of the company but never reached the directors. Edmunds said that immediately he became aware of the cancellation he took steps to rectify the situation and have the company reinstated.
On 28 and 30 August 1988 Edmunds and Kunzli, together with the second applicant, Lunn, placed notices in the Sunday Times and West Australian newspapers advertising a public meeting in the Perth Town Hall to be held on 30 August. They were described in the notice as the Concerned Burswood Unit Holders Committee. It appears from a document distributed at the meeting that they hold office as Chairman, Secretary and Treasurer of the committee respectively. The same document said that the committee had been formed "to raise funds to take legal action over matters relating to the prospectus, rights, issue and hotel sale". It told its readers that "The Committee is seeking your financial and moral support for the legal fighting fund". At the meeting, according to Bishop's affidavit, they asked for financial support from the unit holders and other persons present to fund the conduct of these proceedings. Ferguson's affidavit disclosed that Famel is the trustee of the Famel Unit Trust and trades in that capacity under the name "Custom Aluminium" from a factory unit in Osborne Park which is owned by Edmunds and Kunzli. Ferguson gave some evidence of the asset position of the directors and of Lunn which indicated that none of them is a person of any great financial standing. When Ferguson swore his affidavit they had raised and exhausted some $21,000 in costs relating to these proceedings.
He rightly pointed out that this action concerns matters which have been the subject of much public interest. The question of "cost overruns" so called has been the subject of consideration by the Commissioner for Corporate Affairs, officers of the State Crown Law Department and at a Parliamentary inquiry. There are questions of considerable public interest involved in these proceedings which cannot be dismissed as frivolous or insubstantial.
Bishop estimated that the trial of the action would last some 6 weeks and on that basis would cost some $300,000 including an allowance for the fees of senior counsel. No breakdown of this figure was offered beyond the assertion that the costs of all interlocutory proceedings, including briefing counsel and getting up for trial, would be $75,000. The balance of the estimate was for the trial of the action and associated costs. WATL, as I have already indicated, seeks security in the sum of $100,000, while Rider Hunt asks that $60,000 be secured in relation to their costs.
There was evidence that the value of the units at the time of argument on the motion was a little in excess of their issued value.
The Strike-Out MotionThere are two motions before the Court which attack the applicants pleadings. The first, second and third respondents move for the entire statement of claim to be struck out as disclosing no reasonable cause of action against them, and alternatively seeks to strike out paras. 1, 2, 6, 7, 11, 13, 15, 16, 18, 19, 20, 22 and 23. The fourth respondent, WATL, moves to strike out the allegation that it was directly or indirectly knowingly concerned in or party to the preparation of the Prospectus and authorised its issue. It also attacks the claim in para.18 that a fiduciary relationship existed between it and the applicants and the assertion in para.19 that it was guilty of a wilful default in its duty and a wilful breach of trust. BML, Dempster and Lim submit that the statement of claim discloses no cause of action under the Trade Practices Act 1974 because the statements said to constitute the misleading or deceptive conduct are estimates or predictions. The applicants, it is argued, must allege knowledge on the part of the relevant respondents that their prediction would not be fulfilled. Knowledge of falsity of a statement is of course not a requirement of its characterisation as misleading or deceptive conduct - Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 197 (Gibbs CJ). It is not therefore a criterion of liability for a contravention of s.52, although it may be a necessary element of accessorial liability on the part of persons who are said to be "involved in the contravention" pursuant to s.75B of the Trade Practices Act. Indeed, it is on that basis that the applicants bring their claims against Messrs. Dempster, Lim and Rider Hunt & Partners who, as natural persons, are not, except under the extended operation of the Act exposed to direct liability for contravention of s.52.
The substantive complaint raised by BML, Dempster and Lim, turns on the absence of any allegation of a false representation of past or existing fact, e.g. that the maker and publishers of the estimates held a belief as to their accuracy. There is authority for the proposition that promissory or predictive statements cannot constitute misleading or deceptive conduct by reason only of their non-performance or non-fulfilment - Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171. That is related to the wider proposition which has attracted significant judicial support that conduct cannot be misleading or deceptive unless it involves a representation of past or existing fact - Taco Co. of Australia Inc. v Taco Bell Pty Ltd (1982) 42 ALR 177, 202 (Deane and Fitzgerald JJ); Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82, 88 (FCT); 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1988) 79 ALR 299; Chase Manhattan Overseas Corporation v Chase Corporation Ltd (1985) 9 FCR 129, 139 (Wilcox J.); (1985) 12 FCR 375, 378 (Lockhart J.), 393 (Beaumont J.). Recent decisions of the Full Court in non-disclosure cases however indicate that factual representation may not be an essential element of conduct contravening s.52 - Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83. In the context of purely promissory or predictive statements, Lee J. recently suggested that there may be conduct which could be shown to be a contravention of s.52 without it being established that there was an implied representation by the maker of the prediction or promise that there were reasonable grounds for the believe that it would be fulfilled. In his reasons for judgment in the Full Court in Wheeler Grace & Pierucci Pty Ltd v Wright (unrep Full Court; 13/4/89) his Honour said at p 15 of his reasons:
"A positive unqualified prediction by a corporation may be misleading conduct in trade or commerce if relevant circumstances show the need for some qualification to be attached to that statement or the possibility of its non-fulfilment to be disclosed as a requirement of fair trading. The fact that the corporation believed or had reasonable grounds for belief that the prediction would be fulfilled, would not answer the question as to whether the conduct was misleading or deceptive conduct in trade or commerce. The misleading or deceptive conduct may be found in the failure to qualify the statement or disclose the risk of non-fulfilment and the event of non-fulfilment of a prediction or promise may be evidence that raises an inference that such a risk of non-performance existed or that qualification of the positive statement, prediction or promise was required. Each case will depend upon its own circumstances, but the assessment of misleading or deceptive conduct is an objective test not dependent upon the proof of an intent to mislead or deceive on the part of a corporation... and restriction of the application of s.52 in respect of promissory or predictive statements by a corporation to conduct of the corporation which involves a lack of belief on the part of the corporation or absence of grounds upon which the corporation could form such a belief would be inconsistent with the thrust of the section."
Assuming that the pleaded representations were promissory or predictive only, the case cannot, therefore, be disposed of at the threshold. The assumption is, in any event, open to argument. The ground upon which the applicants seek to falsify the impugned statements in para.15 goes to aspects apparently involving assertions of existing fact as to the currency of the construction cost estimates and the inclusion in them of a provision for the sports complex. The last sentence in the letter from Rider Hunt expresses confidence in the final cost estimates for completion of construction of the project. As a factual propositon concerning the author's state of mind, it may be falsified by showing the existence of a later higher cost estimate predating the letter and by demonstrating that it had been calculated on the basis that did not include the cost of all elements of the project.
The pleading might have been more narrowly drawn so that specific elements of the impugned statements could be identified and the basis of their falsity or misleading or deceptive character set out. In my opinion however, the material facts pleaded are sufficient to disclose conduct capable of characterisation as misleading or deceptive within the meaning of s.52.
As to the allegation of fraud, it is submitted that there is no plea of any "knowledge on the part of the First, Second and Third Respondents of the impossibility of the achievement of the prediction". However, the facts pleaded in para.15 and in particular the supply to the relevant respondents of a higher estimate not including the sports complex costs, is sufficient to convey the contention that they knew of the pleaded inconsistencies between the published information and that made available by Rider Hunt.
BML attacked the plea of breach of fiduciary duty, saying that there was no allegation of any material facts which would found a fiduciary relationship. The remedy for non-disclosure in breach of fiduciary duty does not, it was submitted, sound in damages. There being no claim of any secret profit or for an account, there was no basis for such a cause of action. Counsel for the applicants on the other hand linked the claim for recission of each of the contracts of allotment to the breach of fiduciary duty.
Accepting that WATL as Trustee of the Burswood Property Trust is in a fiduciary relationship with unit holders, it would not be a large step to conclude that, having regard to its functions and duties under the trust deed, BML stands in a like relationship. That is not necessarily to say that they stand in such a relationship to prospective beneficiaries. A fiduciary has been simply defined as someone who undertakes to act for or on behalf of another in some particular matter or matters - Finn - Fiduciary Obligations (1977) p 201. Despite that beguiling simplicity, the application of fiduciary duties in commercial relationships is a "notoriously difficult area of the law" - Lehane - Fiduciaries in a Commercial Context - Essays in Equity - Finn (Ed.) p 104. The fiduciary relationship generally has been described as "a concept in search of a principle" - Mason J. - Themes and Prospects -Essays in Equity (Op Cit) p 246.
The relationship between the trustee of a unit trust and prospective subscribers may not fall under any of the hitherto recognised categories. But accepting that fiduciary duties including duties of disclosure arise from the moment that units in the trust are alloted, it is open to argument that they should extend to those who are to be persuaded to become beneficiaries under the trust. In the event, I am not satisfied that the plea of breach of fiduciary duty is so clearly untenable that it ought to be struck out at this stage. Nor am I satisfied that the remedies sought in relation to the claimed breach are beyond the reach of the applicants.
Paragraph 19 of the statement of claim however, alleges, inter alia, that the failure by BML and WATL to disclose the true estimated construction costs of the Burswood Resort Complex and their issue and authorisation of the issue of the Prospectus containing false and misleading statements "constituted a wilful default and a wilful breach of trust" by each of them. There is nothing in the statement of claim which alleges or supports the conclusion that WATL knew of the discrepancy between the construction costs as disclosed in the Prospectus and the last estimate said to have been made prior to its publication. Nor is it alleged that WATL was aware of the fact that the estimate did not cover the sports complex. In the circumstances, there are no facts pleaded to support the conclusion in para.19 that WATL's conduct constituted a wilful default or wilful breach of trust. The paragraph cannot, in my opinion, stand as against WATL. The reference to "wilful default" is also difficult to fathom. Does this refer to a breach of fiduciary duty or something else? In my opinion the paragraph as a whole needs recasting and should be struck out with leave to amend.
BML, Dempster and WATL also contended that on the pleaded facts the action for contravention of s.52 was statute barred. This contention relied upon s.82(2) of the Trade Practices Act. Section 82 provides:
"82(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
(2) An action under sub-section (1) may be commenced at any time within 3 years after the date on which the cause of action accrued.
(3) Sub-section (1) does not apply in relation to conduct done in contravention of section 52A."
The incidence of loss or damage is an essential element of recovery under s.82. The term "cause of action" refers to "every fact which is material to be proved to entitle the plaintiff to succeed, - every fact which the defendant would have a right to traverse" Brett J. - Cooke v Gill (1873) LR 8 CP 107, 116. The cause of action under s.82 accrues when loss or damage is suffered in consequence of a contravention of a provision of Pt. IV or Pt. V and in this context, in consequence of a contravention of s.52, - Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473, 45,454 (Toohey J.); Fenech v Sterling (1983) 79 FLR 244, 259 (Davies J.); James v ANZ Banking Group Limited (1985) ATPR 40-567, 46,577 (Toohey J.). In this case counsel for BML, Dempster and Lim submitted that the cause of action, if there be one, arose on the day that the units were allotted, that is 20 May 1985. I am not satisfied that that is necessarily the case. It may be that the units not having been sold, no loss has been sustained and no cause of action yet accrued. More importantly, as Toohey J. observed in Arcadi (supra), the question is not merely one of statutory construction. It involves the application of the sub-section as construed to the particular facts of the case. And as his Honour said in that judgment "...particular care is called for in considering whether a reasonable cause of action has been disclosed, or perhaps more accurately, in determining that none has been disclosed". As presently formulated the statement of claim alleges that as a result of the misleading and deceptive conduct of each of the respondents, each of the applicants has suffered loss and damage. This is rather unhelpfully particularised as "Reduction in value of the units below 50 c" with the promise that further particulars will be supplied before trial. Plainly further particulars will be necessary. For the purposes however of the motions presently before me, the necessary material facts are pleaded and they do not disclose that the cause of action under s.82 is statute barred.
The statement of claim does appear, in the paragraph just quoted, to treat Dempster and Lim as persons who have engaged in misleading or deceptive conduct. Their liability, of course, can only arise as an accessorial liability under s.75B on the basis that they were persons involved in the contravention by BML. There are however, sufficient material facts pleaded to support the assertion that they were so involved and possessed the requisite intent and knowledge - Yorke v Lucas (1985) 158 CLR 661, 670. In the event, so far as the submissions on behalf of BML, Dempster and Lim are concerned, I am not satisfied that the statement of claim as a whole is so untenable that it ought to be struck out.
WATL has moved to strike out certain parts of the pleading relating to it and for the summary dismissal of the action. Mr O'Connor for WATL, pointed to the absence in the statement of claim of any plea that his client was aware of the alleged falsity of the construction cost estimate in the Prospectus. He pointed to a statement in the affidavit made by Mr Ferguson on behalf of the applicants, that they do not allege as against WATL knowledge of the falsity of the statements pleaded at para.12 of the statement of claim. Indeed that position was confirmed by Mr Heenan in reply on behalf of the applicants. To the extent that the case against WATL relies upon establishing accessorial liability for the contravention of s.52 alleged to have been committed by BML, the lack of knowledge may be fatal - Yorke v Lucas (supra). The pleaded facts will however, support a contention that WATL authorised the issue of the Prospectus - (see para.7). Clause 8 of the Trust Deed prohibits BML from issuing any Prospectus without the approval of the Trustee. If the issue does, as pleaded, constitute misleading or deceptive conduct then the statement of claim can support a submission that WATL either directly, on ordinary principles of agency, or by force of s.84 of the Act, was also in contravention of s.52.
Reliance was placed by WATL on the Trustee's disclaimer contained in the Prospectus and referred to in the affidavit of Allan Read which has already been mentioned. The effect of a disclaimer upon liability of a contravention of s.52 is in the end a question of fact rather than law. It provides considerably less than absolute protection and cannot be invoked in this case as a summary answer to the claim. As Wilcox J. said in Hutchence v South Seas Bubble Co. Pty Ltd (1986) 64 ALR 330, 338:
"There are occasions upon which the effect of otherwise misleading or deceptive conduct may be neutralized by an appropriate disclaimer...But such cases are likely to be comparatively rare and to be confined to situations in which the Court is able to reach satisfaction - the onus resting on the party relying upon the disclaimer - that the disclaimer is likely to be seen and understood by all those - leaving aside isolated exceptions - who would otherwise be misled before they act in relation to the relevant transaction." See also Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 (Wilcox J.); Byers v Dorotea Pty Ltd (1986) 69 ALR 715 (Pincus J.); Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 (Full Ct.); A Lawyer's Guide to Misleading or Deceptive Conduct
(1989) 63 ALJR 250, 261-264.
WATL also submitted that the action was statute barred by virtue of s.82(2). For reasons already outlined, I am not prepared to dispose of the application summarily on that basis.
As appears from the above, so far as the two motions seek to strike out the statement of claim as a whole, they must fail.
There are however narrower criticisms of particular aspects of the statement of claim which were made in written submissions on behalf of BML, Dempster and Lim and which were not addressed in oral argument. These require consideration and I will deal with them by reference to the relevant paragraph numbers in the pleading.
Paragraph 1The second sentence in this paragraph says of BML and WATL that "Each is engaged and has engaged in trade or commerce and, at all times material to this action, was engaging in trade or commerce".
This plea is wider than necessary and raises a false issue. The question whether BML and WATL had engaged in trade or commerce is relevant only to whether the impugned conduct was in "trade or commerce" within the meaning of s.52. The sentence should be struck out and an opportunity afforded to amend if desired so that the allegation that these respondents engaged in trade or commerce is limited to the conduct complained of. Even then, the plea arguably raises no more than a conclusion, the pleaded circumstances of the issue of the Prospectus being in all likelihood sufficient if proved to establish it as conduct in trade or commerce. I should not leave this topic without noting that the issue whether BML and WATL are financial or trading corporations within the meaning of the Act, has not been pleaded and was not raised on the strike out motion. It is however a threshold question which should be pleaded.
Paragraph 2This paragraph alleges that Dempster and Lim are and were at all material times directors of BML. The plea is said to be unnecessary and irrelevant. In my opinion their status as directors of the company may be an important element of their alleged involvement in its conduct and the paragraph should stand.
Paragraph 6By the second and third sentences in this paragraph, the applicants allege that the units in the Burswood Property Trust constitute a beneficial interest in the Fund under and subject to the provisions of the Trust Deed and are freely negotiable subject to the terms thereof. It is further alleged that any unit or units of the Burswood Property Trust constitute a prescribed interest under Pt.IV, Division 6 of the Companies (Western Australia) Code. In my opinion the matters raised in the second sentence may at least be relevant to the question of the existence or non-existence of a fiduciary duty to prospective subscribers to the units. The contention that the units constitute a prescribed interest under the Companies (Western Australia) Code is not clearly relevant to any particular cause of action. However, in the absence of substantive argument I do not propose to strike it out at this stage.
Paragraph 7Here it is pleaded that each of Dempster, Lim and WATL was directly or indirectly knowingly concerned in or a party to the preparation of the Prospectus and authorised its issue. The respondents submit that this is a legal conclusion and not material fact. It is sufficient for me to say that I do not accept that characterisation of the paragraph.
Paragraph 11The first, second and third respondents say this paragraph is entirely irrelevant. It asserts that the Burswood Resort Complex "as proposed by the Prospectus" was to contain various elements they being identified as the Casino, Hotel, Convention/Cabaret Centre, the Sports Complex and the Recreation Centre. Given that the published estimate of construction costs is said to have purported to cover the entire project, its composition as set out in the Prospectus is a relevant fact.
Paragraph 13This is said to contain a plea of a conclusion and not a material fact. I am satisfied that this is not the case and that there is no substance in the objection.
Paragraphs 15 and 16The objections to these paragraphs raise the questions of the predictive nature of the estimates and have been dealt with already in these reasons.
Paragraph 18This paragraph asserts the existence of a fiduciary relationship between BML, WATL and the applicants and the existence of a duty to make full disclosure of the true estimated construction costs of the Burswood Resort Complex. Objection is made that it pleads legal conclusions rather than material facts. I am satisfied that the material facts relied upon to establish the fiduciary relationship and duties are otherwise pleaded in the statement of claim. The paragraph does plead what, in essence, is legal argument. In that respect however it does not differ from para.17 which asserts that the issue of the Prospectus constituted misleading or deceptive conduct. While not strictly necessary, it is not embarrassing and does identify the legal basis of one of the causes of action.
Paragraph 20The impugned sentence in this paragraph relates to the application of subscription moneys by BML and WATL in the construction and operation of the Burswood Resort Complex. I am satisfied that that aspect of the paragraph may be relevant on the question of recoverable interest. The third sentence which is also attacked merely foreshadows the claim for interest at the end of the pleading. It has no separate use or function and can be struck out.
Paragraph 22This paragraph alleges that the issue of the Prospectus containing the untrue statements was conduct by BML, Dempster, Lim and Rider Hunt showing a conscious and contumelious disregard for the rights of the applicants and each of them and of the public and was conduct calculated with a view to profit. In the premises it is contended that exemplary damages should be awarded against all but WATL. While it may be true to say as the respondents do, that this paragraph pleads a conclusion in support of the claim for exemplary damages, it does so in a way that makes clear that it relies only upon conduct actually pleaded in the statement of claim and raises no additional features in support of that relief. In my view therefore it should not be struck out.
Paragraph 23The relief claimed in this paragraph is attacked on the basis that no ground for recission or rectification of the Register is found in the pleadings and that the Court has no power to award compound interest except perhaps as damages. Having regard to the fairly limited argument advanced in these matters, I am not prepared to summarily strike out any of the claims for relief.
Motions for Security for CostsThe motions for security for costs are brought under s.56 of the Federal Court Act 1976, O.28 of the Federal Court Rules and, in the alternative, in relation to Famel Pty Ltd, s.533(1) of the Companies (Western Australia) Code applicable in these proceedings by virtue of s.79 of the Judiciary Act 1903.
Dealing first with the position of Famel Pty Ltd, I am satisfied in terms of s.533 that it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the respondents if they are successful in their defences. The evidentiary basis for that finding has already been canvassed in these reasons. Famel is a $2 company carrying on business as the trustee of the Famel Unit Trust. It does not own the property from which it carries on that business. There is nothing to suggest that it has the means to meet the costs of the action and the evidence is to the contrary.
The power to direct provision of security for costs under s.533 being thus enlivened, the question is whether or not it should be exercised in relation to the company. On the usual criteria which I had occasion to review in Bryan E. Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, this is an appropriate case for the exercise of the discretion. Accepting that the claim is brought bona fide and cannot be dismissed as insubstantial or trivial, it must also be accepted that any substantial order for provision of security may well frustrate the company's claim. There is nothing however to suggest that the respondents are in any way responsible for the company's financial position. Nor can it be said that there has been any delay in bringing the application. On the other hand there is a public interest element in this case which is relevant to the exercise of the discretion to order the provision of security. In Smail v Burton (1975) VR 776, Gillard J. with whom Newton and Norris JJ agreed, said that it was a fairly well established 'practice in Victoria that where the decision on points of law raised in an appeal may affect matters of public importance, the Court generally would not order security for costs to be provided. In the present case the public interest relates not to the resolution of important points of law, but rather to allegations of serious misconduct in the raising of funds from members of the public to finance the construction of a major new public building. As Northrop J. said of the respondents in Jet Corporation of Australia Pty Ltd v Petres Pty Ltd (1983) 50 ALR 722 at 733:
"...the obligations placed upon the respondents by the Trade Practices Act are in the nature of public standards of conduct which are considered desirable and in the public interest. To some extent the existence of that public interest transcends the private interests of the parties to these proceedings and at this stage weighs in the balance against making the orders sought by the respondents."
It may be said that both BML and WATL are corporations of considerable financial standing who are much less likely to be adversely affected by being unable to recover their costs against Famel, than that company would be by an order for security made at this stage. In Irwin Alsop Services v Mercantile Mutual Insurance Co. Ltd (1986) VR 61, the insurer defendant was sued to enforce certain professional indemnity policies. The plaintiffs were two companies of architects and engineers, one acting as the service company of another. In refusing an application by the defendant for security for costs, Ormiston J. said at p 65, that the remedy given by s.533 was "designed to protect those who cannot adequately protect and cover themselves against the cost of litigation". His Honour referred to the dictum of Megarry VC in Pearson v Naydler (1977) 1 WLR 899 at 906 that:
"The Court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company."
These factors are weighty ones, but are insufficient to persuade me that no order for security ought to be made against Famel. They are however relevant on the question of quantum. In my opinion the company should be ordered to provide security.
The position of Mr Lunn is different. He is not subject to the provisions of s.533 and has the protection of the venerable principle that mere poverty or insolvency on the part of a plaintiff will not of itself attract a requirement for security. This however has always been subject to the qualification that an impecunious plaintiff who is only nominal, that is to say who sues for the benefit of another, may be required to give security - Cowell v Taylor (1885) 31 Ch D 34; Mackie v Clough (1891) 17 VLR 201; LLoyd v Hathern Station Brick Co. Ltd (1901) 85 LT 158; Re Emery (1923) P 184 at 189 (Sir Henry Duke P.); Semler v Murphy (1968) Ch 183; Co-Operative Farmers and Graziers District Meat Supply Ltd v Smart (1977) VR 386 at 387. And indeed O.28 r.3(1)(b) provides:
"(1) Where, in any proceeding, it appears to the Court on the application of a respondent - .
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(b) that an applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;
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the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding."
In my opinion, whatever else that requirement means, it does not extend to this case. Mr Lunn is suing for relief in his own right as a subscriber for units in the Burswood Property Trust. The fact that he obviously does so as part of a test case in whose outcome other unit holders have an interest, does not mean that he sues for their benefit within the meaning of O.28 r.3. While his means may be modest, he evidently owns property and by taking this action exposes himself to the possibility of a significant liability for costs in the event that it is unsuccessful. He sues as a consumer under the consumer protection provisions of the Trade Practices Act. The application of s.52 over the years since its enactment has been dominated by contests between commercial or trading entities rather than between consumers and traders. This is probably one of those rare cases falling within the original legislative intent. Given the substantial financial risks that he faces in the event that the action is unsuccessful, I do not consider it appropriate or in the public interest that the further hurdle of a requirement for the provision of security for costs should be erected in his path.
Turning now to the question of quantum in relation to the order against Famel, the provisions of s.533 require no more than that the security be "sufficient". That must, I think, be taken to mean sufficient in the circumstances of the case. It does not require that the Court give a complete and certain indemnity to a respondent. The public interest which may be taken into account in deciding whether to order security at all also has a role to play in the assessment of quantum. The amount of $300,000 estimated by Mr Bishop as the costs likely to be incurred by BML, Dempster and Lim in defending the case may be an accurate estimate, although the evidence in support of it was not weighed down with detail. Nor, for that matter, was the evidence in support of the estimates of the other respondents. In any event the Court cannot, in a bona fide action brought under consumer protection legislation, countenance the erection of barriers of the magnitude proposed in the path of the applicants. To the extent it can affect the position the Court should not allow the cost of legal services to shut its doors to consumers, corporate or otherwise, who seek to bring to it actions which are neither trivial nor frivolous and which have a reasonable prospect of success. It is not good enough to characterise the present proceedings as seeking a "petty cash" judgment as counsel for BML, Dempster and Lim sought to do. Action by consumers, or in this case small investors, will frequently seek recovery of sums which are relatively small. The wider public interest is nevertheless served where such claims, if justified, are able to be satisfied. And it is fair to say that the respondents in their own approach to this litigation rightly regard it as of importance to them. Not only is there the possibility that like claims might be raised by others if the present application succeeds. Their commercial reputations and the question whether they have adhered to minimum standards of commercial probity are also at stake.
The corporate applicant in this case, however, must accept that the decision to institute proceedings is a serious one and the risks associated with it substantial. It would not be fair or proper, having regard to the provisions. of s.533 of the Companies (Western Australia) Code to allow it to proceed free of any real risk to its principals or supporters in relation to the respondents' costs should the proceedings fail. Those who stand behind the company must be prepared to make some commitment which will recognise the respondents' rights to recover costs in the event that the application is unsuccessful.
Weighing these factors as best I can, and making a significant allowance for the public interest factors to which I have referred, I will require Famel to provide security for costs in the amount of $30,000 for the first, second and third respondents, $15,000 for the fourth respondent and $30,000 for the fifth respondent.
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