Findlay v Next Financial Limited

[2012] FCA 241

FEDERAL COURT OF AUSTRALIA

Findlay v Next Financial Limited [2012] FCA 241

Citation:	Findlay v Next Financial Limited [2012] FCA 241
Parties:	SUZANNE MARY FINDLAY, SHAUN ALBERT REID, DIRK ASHTON HANS MANSON, ADAM DAMON THOMAS PRING, GEOFFREY PETER HUGHES, JANINE PATRICIA GILMOUR v NEXT FINANCIAL LIMITED (ACN 081 722 894)
File number:	WAD 413 of 2011
Judge:	BARKER J
Date of judgment:	15 March 2012
Catchwords:	PRACTICE AND PROCEDURE – applicants’ request for further and better particulars of defence – pleadings – plead directly to the allegations – ambiguity
CORPORATIONS – managed investment scheme – registration – regulated by Chapter 5C of the Corporations Act 2001 (Cth) – product disclosure statement – instalments – warrants – derivatives – exemption – security – loss – pooling of underlying securities
Legislation:	Corporations Act 2001 (Cth) s 9, s 92(4), s 601ED(1)(a), s 601ED(1)(b), s 700, s 761A, s 761D, Ch 5C, Ch 6D, Ch 7 Corporations Regulations 2001 (Cth) R 1.0.02(1), R 1.0.02(1)(a), R 6D.5.01
Date of Hearing:	10 February 2012
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of Paragraphs:	53
Counsel for the Applicants:	Mr DH Solomon
Solicitor for the Applicants:	Solomon Brothers
Counsel for the Respondent:	Mr B Le Plastrier
Solicitor for the Respondent:	King & Wood Mallesons

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 413 of 2011

BETWEEN:

SUZANNE MARY FINDLAY

First Applicant

SHAUN ALBERT REID

Second Applicant

DIRK ASHTON HANS MANSON

Third Applicant

ADAM DAMON THOMAS PRING

Fourth Applicant

GEOFFREY PETER HUGHES

Fifth Applicant

JANINE PATRICIA GILMOUR

Sixth Applicant

AND: NEXT FINANCIAL LIMITED ACN 081 722 894
Respondent

JUDGE:	BARKER J
DATE OF ORDER:	15 MARCH 2012
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1.        The Court orders that the respondent within 14 days provide the particulars requested in paragraph 1 of the applicants’ request for further and better particulars of the defence filed 14 December 2011.

2.There be no order as to costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 413 of 2011

BETWEEN:

SUZANNE MARY FINDLAY
First Applicant

SHAUN ALBERT REID
Second Applicant

DIRK ASHTON HANS MANSON
Third Applicant

ADAM DAMON THOMAS PRING
Fourth Applicant

GEOFFREY PETER HUGHES
Fifth Applicant

JANINE PATRICIA GILMOUR
Sixth Applicant­

AND: NEXT FINANCIAL LIMITED ACN 081 722 894
Respondent

JUDGE:	BARKER J
DATE:	15 MARCH 2012
PLACE:	PERTH

REASONS FOR JUDGMENT

APPLICATION FOR PARTICULARS

1. The applicants seek further particulars of defence.

   NATURE OF PLEADING

2. The first to sixth named applicants respectively seek to recover from the respondent investments made between June and September 2009 in the aggregate sum of $828,148.32, together with interest and costs.

3. The applicants plead that all material times they invested in an investment scheme operated by the respondent known as “Next Financial Instalments NF330 Series” which they call the “scheme”.

4. The applicants, by particulars [3.1] to [3.27] of the amended statement of claim identify a range of documents concerning the scheme by which the features of the scheme pleaded in [3] are said to be apparent.

5. The applicants plead in [4] that at all material times the scheme constituted a “managed investment scheme” as defined in s 9 of the Corporations Act 2001 (Cth) (CA), with all holders of instalments, including the applicants, being members of that scheme.

6. The applicants in [5] say the scheme being a managed investment scheme was required to be registered by reason of s 601ED(1)(a) or, alternatively s 601ED(1)(b) of the CA, and comply with Ch 5C of the CA generally, but it was not registered and so did not comply, and indeed was not registrable for the reasons pleaded in [5.3].

7. The applicants further plead at [6] that the instalments were not, contrary to assertions made in the product disclosure statement (PDS) pleaded in [3.8], “warrants” as defined in R 1.0.02(1) of the Corporations Regulations 2001 (Cth) (CR) because they were not “derivatives” under s 761D of the CA for the reasons pleaded in [6.1], and each instalment, being an interest in a managed investment scheme, was not merely a legal and equitable right or interest in an interest in a managed investment scheme and so para (a)(ii) of the definition of “warrant” in R 1.0.02(1) is not satisfied.

8. The applicants plead alternatively, in [7] that if the instalments were “warrants” as defined then, contrary to the assertions made in the PDS pleaded in [3.8], the exemption in R 6D.5.01 of the CR does not apply to the scheme because:

   ·the exemption only applies to a “warrant that is a security”;

   ·by operation of s 92(4) of the CA, in Ch 6D of the CA (an hence also for purposes of R 6D.5.01 of the CR) “securities” has the meaning given by s 700 and in Ch 7 of the CA “security” has the meaning given by s 761A of the CA;

   ·section 700 of the CA defines “securities” as having the same meaning as in Ch 7 of the CA but does not include a security referred in para (e) of the definition of security in s 761A; and

   ·an interest in a managed investment scheme does not come within any of the paragraphs (a) to (d) of the definition of security in s 761A of the CA.

9. The applicants plead in [8] the scheme at all material times was required to comply with Ch 6D of the CA and did not.

10. The applicants plead at [9] that the respondent on or about 27 April 2011 determined an early maturity date on the ground of occurrence of an instalment termination event.

11. The applicants say at [10] the determination of any early maturity date was unlawful because the respondent did this without contractual entitlement.

12. The applicants plead at [12]-[13] that the respondent engaged in conduct in contravention of Ch 5C, or alternatively, Ch 6D of the CA and allege the applicants have suffered or are likely to suffer loss or damage by reason of this conduct and plead alternatively that they would not have invested in the scheme and so, would not have suffered risks, including the risk of the respondent nominating an early maturity date, if they had received a proper prospectus and other documents complying with Ch 5C and Ch 6D of the CA detailing the extent of the risks to which they would be exposed by dealing with the respondent in the circumstances pleaded.

13. The respondent has denied any liability and has filed a defence.

14. The applicants have requested further and better particulars of the defence, which request in certain respects has been resisted by the respondent.

15. On 10 February 2012 following conclusion of written and oral submissions of the parties I ruled that all requests in contention, save in respect of request 1, need not be answered, and that in respect of request 1, I would reserve my decision.  These reasons now rule on request 1 and provide brief reasons for my decision in respect of the dismissal of the other requests.

    REQUEST 1

16. I referred broadly to [4] of the amended statement of claim above but now set it out in full:

    4.By reason of the matters pleaded in paragraph 3 above, the Scheme at all material times constituted a ‘managed investment scheme’ as that term is defined in s 9 of the CA, with all Holders of Instalments including the Applicants being members of that scheme, in that:-

    4.1contributions of beneficial interest in the Underlying Securities were contributions within paragraph (a)(i) of the definition of ‘managed investment scheme’;

    4.2as pleaded above, the Scheme contemplated that the Underlying Securities of all Holders were to be pooled and used by the Respondent to obtain funding to perform its obligations, thus satisfying the requirements of paragraph (a)(ii) of the definition of ‘managed investment scheme’;

    4.3further or alternatively to paragraph 4.2 above, by reason of the pooling referred to paragraph 4.2 and the utilisation of the pooled Underlying Securities to raise finance and the benefit of Corporate Actions, all Holders were involved in a common enterprise thus satisfying the requirements of paragraph (a)(ii) of the definition of ‘managed investment scheme’;

    4.4the Holders of Instalments would not have day-to-day control over the operation of the Scheme, thus satisfying paragraph (a)(iii) of the definition of ‘managed investment scheme’;

    4.5none of the exclusions from the definition of ‘managed investments scheme’ set out in paragraphs (b)-(n) of that definition applies.

17. The defence by [3] pleads in respect of [4.2] and [4.3] of the amended statement of claim as follows:

    3.        As to paragraph 4.2 and 4.3 denies the allegations contained therein:

    (a)by reason of the fact that prior to making the alleged Contributions nothing in the terms of the documents referred to in the Statement of Claim required pooling within the meaning of section 9 of the Act;

    (b)further and alternatively, by reason of the fact that any pooled Underlying Securities were never pooled to raise finance or funding and the benefit of Corporate Actions.

18. In request 1, the applicants seek in substance the following further and better particulars of [3(b)] of the defence, namely:

    ·whether it is alleged that underlying securities were pooled or not;

    ·if it is alleged that any underlying securities were pooled, state with respect to all underlying securities which were pooled; the details of the pooling, the purposes of the pooling and whether some underlying securities were not pooled.

19. The applicants contend that by [3(b)] of the defence the respondent has raised the potential issue of the pooling of underlying securities without stating whether any were in fact pooled, and if so, which and how they were pooled and for what purposes they were pooled, and that this pleading is accentuated in that a positive allegation is made concerning the purpose of the pooling.

20. The respondent contends that the meaning of [3(b)] is clear, although a more precise expression of the pleading would be:

    Further and alternatively, by reason of the fact that if any Underlying Securities were pooled, they were never pooled to raise finance or funding and the benefit of Corporate Actions.

21. As to the “purpose allegation”, the respondent says that while the success of this request depends on the success of the first request, it is willing to state the following in relation  to “purpose”:

    First, the purpose of any pooling of Underlying Securities was not “to obtain funding” or “to raise finance” because the funding was utilised to obtain the Securities, not vice versa (see PDS 29 February 2008, page 7 and page 8).

    Secondly, nor was the purpose of any pooling of Underlying Securities to obtain “the benefit of Corporate Actions”,  because nothing in the PDS states that pooling of Underlying Securities is a pre-condition to that occurring.  The reliance on the wording in the PDS in relation to paragraph 3 is clear in paragraph 3(a) which refers to “nothing in the terms of the documents referred to in the Statement of Claim”.

22. While the subject of the request is [3(b)] of the defence, it is worth noting the plea in [3(a)].  By [4.2] of the amended statement of claim, as noted above, the applicants plead that the scheme “contemplated” that the underlying securities of all holders were to be pooled and used by the respondent to obtain funding to perform its obligations, thus satisfying the definition of “managed investment scheme”.

23. In [3(a)] of the defence the particular plea concerning the contemplation of the scheme is denied by the plea that nothing in the terms of the documents pleaded “required pooling” within the meaning of s 9 of the CA.

24. That plea is not to say there was not pooling, only that there was nothing that “required” pooling within the meaning of s 9 of the CA.

25. Then in [3(b)] of the defence, the further or alternative plea is set out that “by reason of the fact that any pooled Underlying Securities were never pooled to raise finance or funding and the benefit of Corporate Activities”.  This, on the face of it, appears to be a response to [4.3] of the amended statement of claim which, as set out above, pleads that by reason of the pooling referred to in [4.2] and the utilisation of the pooled underlying securities “to raise finance and the benefit of Corporate Actions”, all holders were involved in a common enterprise, thus satisfying the requirements of the definition of “managed investment scheme” in para (a)(ii).

26. The difficulty with [3(b)] is that the expression “any pooled Underlying Securities were never pooled to raise finance or funding” etc, is ambiguous.  It raises the question whether there is an implied admission that pooling occurred but that the pooling was not used “to raise finance or funding and the benefit of Corporate Actions”, but for some other purpose.

27. While I accept generally that a respondent may deny an allegation, or not admit it, or put forward some other positive case in respect to a matter alleged, the way these pleas have been developed in both the statement of claim and the defence in these particular paragraphs gives rise to the ambiguity I have discussed.

28. Ultimately, the plea that “any pooled Underlying Securities were never pooled to raise finance or funding” etc is a meaningless plea if the underlying securities were not pooled at all.  In these circumstances, I tend to consider that the applicants are right when they submit there is a positive plea put forward by the respondent as to the purpose of pooling of underlying securities and they are entitled to have particulars of it. 

29. I would, therefore, order that the respondent answer the request for particulars contained in request 1 of the applicants’ request for further and better particulars of defence dated 14 December 2011.

    REQUEST 3

30. This request is in the following terms:

    As to paragraph 10 of the Defence, state all acts, facts, matters, circumstances and things relied on for the allegation (by negative pregnant denial) that the Instalments were warrants as denied in r 1.0.02(1) of the CR.

31. Paragraph 10 of the defence pleads:

    As to paragraphs 6.1 and 6.2 denies the allegations by reason of the matters pleaded in paragraphs 2, 3 and 4 above.

32. The amended statement of claim by [6], generally referred to above, pleads in full as follows:

    6.The Instalments were not, contrary to the assertions made in the PDS (pleaded in paragraph 3.8 above), ‘warrants’ as defined in r 1.0.02(1) of the CR because:-

    1 the Instalments were not ‘derivatives’ under s 761D of the CA because excluded by s 761D(3)(c) read with s 764A(1)(ba)(i), and so paragraph (a)(i) of the definition of ‘warrant’ is not satisfied;

    2    each Instalment, being an interest in a managed investment scheme, was not merely a legal or equitable right or interest in an interest in a managed investment scheme, and so paragraph (a)(ii) of the definition of ‘warrant’ is not satisfied.

33. The applicants contend that [10] of the defence denies the negative allegation in [6] of the statement of claim and this implies a positive averment: that this part of the defence asserts positively that the instalments were “warrants” as defined in the CR, contrary to the negative assertion in [6] of the statement of claim that they were not warrants as so defined.

34. The applicants say that [2], [3] and [4] of the defence and the answers provided to the request do not provide any particulars whatsoever of the “implied positive” allegation that the instalments were warrants as so defined.

35. I agree, with the contentions of the respondent, however, that the defence makes no positive allegations that the instalments were or were not warrants.  The material fact which informs the applicants’ conclusion that the instalments were not warrants is that the respondent was operating a managed investment scheme.  That material fact is denied in [10] of the defence, having regard to [2], [3] and [4].  The respondent has not responded to the allegation in [6] of the amended statement of claim by making any positive allegation.

36. I accept the respondent’s contentions that [6] of the amended statement of claim pleads that the instalments do not fall into the definition of warrant.  I also accept the submission that [6.1],  in effect,  adumbrates why the plea in [6] is so.  In this context, [10] of the defence pleads that the instalments were not interests in a managed investment scheme.  Because the conclusion in [6] of the statement of claim is based on the assertion that each instalment is an interest in a managed investment scheme, it simply denies the case that the applicants have chosen to plead. 

37. For these reasons, I rejected the applicants’ request 3 for particulars on 10 February 2012.

    REQUEST 4

38. The defence by [11] pleads as follows:

    As to paragraph 7:

    (a)Denies that the Instalments were interests in a managed investment scheme by reason of the matters pleaded in paragraphs 2, 3, and 4 herein;

    (b)Says further that if the Instalments were not interests in a managed investments scheme and were ‘warrants’ as defined in r 1.0.02(1) that they were ‘warrants that are securities’ within the meaning of r 6D.5.01;

    (c)Admits subparagraphs 7.1, 7.2, 7.3 and 7.4.

39. By request 4 the applicants require the further particulars of [11(b)] of the defence as follows:

    4.1whether it is alleged that the Instalments were warrants as defined in R 1.0.02(1) of the CR; and

    4.2if so, all acts, facts, matters, circumstances and things relied on for the allegation that the instalments were warrants as defined in r 1.0.02(1) of the CR.

40. The applicants contend that [7] of the statement of claim is an alternative averment based on the warrants being instalments as defined in R 1.0.02(1) of the CR. They say the paragraph only uses the word “if” to make it clear that the pleading is an alternative allegation to that made in [6].

41. The applicants say that in [11(b)] of the defence the pleading “if the Instalments…were warrants” is ambiguous in that it is not clear whether or not the respondent alleges the instalments were warrants.  If the respondent alleges the instalments were warrants, the applicants say they are entitled to particulars of the reasons why that is so.

42. I accept the contentions of the respondent, however, that taking [11(b)] as an alternative argument, namely, that the warrants were not interests in a managed investment scheme, this is a repetition of the allegation made in [7]. The request merely asks if it is alleged that the instalments were warrants and this is not a proper request.

43. In my view, the plea in [11(b)] of the defence does nothing more than deny the primary pleas made by the applicants and does not raise any new issue in relation to which particulars need to be given.

44. It is plain to all that questions of whether or not investments pleaded in this case satisfy particular statutory definitions, including that of a “warrant”, will be agitated at the hearing.  It seems to me that generally speaking, to demand of the respondent at this point that they be requested to plead the reasons why the investment may or may not be considered a “warrant” is to agitate a well defined question of law that the parties are fully familiar with.  Particulars are not appropriate.

    REQUEST 5

45. The defence by [12] pleads as follows:

    12.      As to paragraph 8.1

    (a)denies the allegation by reason of the matters pleaded in paragraphs 2, 3 and 4 herein;

    (b)further and alternatively if the Scheme is a managed investment scheme:

    (i)repeats and relies upon the admissions in respect of paragraphs 7.1, 7.2, 7.3 and 7.4 of the Statement of Claim;

    (ii)says that in the premises Chapter 6D does not apply;

    (iii)says that in the premises compliance with Chapter 6D was not required.

1. By request 5, the applicants require the respondent:

   As to paragraph 12(b) of the Defence state all acts, facts, matters, circumstances and things relied on for the allegation that:

   5.1 Chapter 6D does not apply; and

   5.2 compliance with Chapter 6D was not required.

2. The applicants contend that the pleaded conclusions in [12(b)(ii) and (iii)] of the defence that Ch 6D of the CA does not apply and that compliance with Ch 6D was not required are conclusions which depend on facts, thus justifying the request for particulars.

3. I agree with the contentions of the respondent, however, that the applicants are well aware from the pleadings that the respondent contends that if it is necessary for the Court to determine if the instalments are warrants, then it says they are “securities” within the definition of warrant and that Ch 6D does not apply and compliance is not required.

4. This is another instance where the defence simply denies the plea put forward and does not raise new allegations of fact.

5. For these reasons, I have rejected request 5 on 10 February 2012.

   COSTS

6. On the basis that the applicants were entitled to particulars pursuant to each of the above requests, the applicants contended that they are entitled to an order for costs to be paid  forthwith in a sum fixed by the Court.

7. In the result, the applicants have been successful in obtaining an order for particulars in relation to request 1 but not otherwise.

8. In these circumstances, the fruits of this interlocutory dispute having been more or less shared between the applicants and the respondent, I will make no order as to costs.

   ORDER

   1.The Court orders that the respondent within 14 days provide the particulars requested in paragraph 1 of the applicants’ request for further and better particulars of the defence filed 14 December 2011.

   2.There be no order as to costs.

I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.

Associate:

Dated:       15 March 2012