Gartner v Ernst & Young (No 2)

Case [2003] FCA 1436

FEDERAL COURT OF AUSTRALIA

Gartner v Ernst & Young (No 2) [2003] FCA 1436

EQUITY – fiduciary relationship – consideration of circumstances in which fiduciary relationship may exist between professional advisers and client

EQUITY – unconscionable conduct – consideration of circumstances in which conduct of professional advisers in relation to client may be unconscionable

PRACTICE & PROCEDURE – amendment of statement of claim – leave sought to include allegations of breach of fiduciary duty and unconscionable conduct – allegations made against professional advisers of applicants in respect of entering into financing arrangement – consideration of circumstances in which professional advisers may owe fiduciary duties to client – whether professional advisers may owe fiduciary duties to client – whether arguable case made out by allegations – consideration of nature of relationship which may give rise to unconscionable conduct on part of professional advisers

Corporations Act 2001 (Cth)
Trade Practices Act 1974 (Cth)

Gartner v Ernst & Young [2003] FCA 152 referred to
Ernst & Young (Reg) v Tynski Pty Ltd [2003] FCAFC 233 referred to
The State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 cited
Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 applied
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 cited
Murex Diagnostics Australia Pty Ltd v Chiron Corporation (1995) 55 FCR 194 referred to
Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 referred to
Jenyns v Public Curator (Q) (1953) 90 CLR 113 referred to
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 applied
Pilmer v Duke Group Limited (In Liquidation) (2001) 207 CLR 165 applied
Breen v Williams (1996) 186 CLR 71 referred to
Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 cited
United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 referred to
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 197 ALR 153 applied
Blomley v Ryan (1956) 99 CLR 362 referred to
The Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 cited
Bridgewater v Leahy (1998) 194 CLR 457 cited
Barnes v Addy (1874) LR 9 Ch App 244 referred to
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 cited
Selangor United Rubber Estates Ltd v Cradock(No.3) [1968] 2 All ER 1073 cited
Rowlandson v National Westminster Bank Ltd [1978] 1 WLR 798 cited
Delvaux v Sociéte Générale pour Favoriser le Développment du Commerce et de l’Industrie en France SA (1992) 4 All ER 161 referred to
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 applied

MICHAEL JOHN GARTNER, ALICE WINIFRED GARTNER, TYNSKI PTY LIMITED (ACN 008 162 123), NORSBAY PTY LIMITED (ACN 008 205 687), FRESREND PTY LIMITED (ACN 008 174 990), GARTNER FARMS PTY LIMITED (ACN 086 128 880) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT), AUSVINE VITICULTURAL MANAGEMENT PTY LIMITED…

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AGLC
Gartner v Ernst & Young (No 2) [2003] FCA 1436
Case
[2003] FCA 1436
Decision Date

CaseChat Overview and Summary

In the matter of Gartner v Ernst & Young (No 2), the applicants, members of the Gartner Family Group, sought to amend their statement of claim to include allegations of breach of fiduciary duty and unconscionable conduct against the professional advisers, Ernst & Young. The court was tasked with deciding whether the proposed amendments to the statement of claim were permissible, specifically whether the allegations of fiduciary duty and unconscionable conduct were adequately pleaded and if the proposed amendments met the requirements for leave to amend under the rules of court.

The court considered the nature of the relationship between the professional advisers and the clients, and whether a fiduciary relationship existed. It also examined the nature of the alleged unconscionable conduct and the sufficiency of the particulars of loss. The court held that while the allegations were not sufficiently particularised, it was not necessary to strike out the proposed amendments outright. The court allowed the applicants to further amend their statement of claim, excluding certain paragraphs that did not adequately plead a cause of action, while permitting others to proceed pending further particulars and expert evidence.

The court's reasoning was that the proposed amendments, while not perfect, contained sufficient allegations to potentially establish a case of breach of fiduciary duty and unconscionable conduct. The court emphasised that the particulars of loss would likely become clearer as the litigation progressed and as the applicants provided more detailed evidence of their losses. The court also noted that separate trials might be required for different issues, and that the professional advisers would need a clearer pleading of loss to properly respond to the claims against them.

The final orders of the court allowed the applicants to amend their statement of claim as varied, excluding certain paragraphs, and directed the parties to proceed with the amended statement of claim subject to any further orders the court might make in the future.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

MANSFIELD J
I do not consider it necessary, in the interests of justice, to strike out pars 77.1, 77.2, 77.3 and 78 of the proposed statement of claim. The allegations are insufficiently particularised. Indeed, I anticipate that the nature of the applicants’ claimed losses will become more explicit and particularised with the process of realisation of the ‘secured assets’ (apparently occurring on the basis of some common understanding notwithstanding the challenge to the various security instruments), and by the provision of some expert report. The losses may depend upon whether the claim against the bank succeeds. It is likely that the issues arising generally in the proceeding may not be tried together. There may be a trial separately of the issues on liability. The bank still has outstanding an application for the disjoinder of the claim against it, or for the separate hearing of the claim against it. At a later point, clearly, the accountants may require a better pleading of loss so that they may fairly consider and confront the claim against them. That time may be sooner rather than later.(e) Conclusion For the reasons given, I propose to allow the applicants to further amend the further statement of claim in terms of the proposed statement of claim, as varied by the one page document of further variations, a copy of which is annexed to these reasons for judgment as Annexure A, to avoid any uncertainty but excluding pars 66E to 66L of the proposed statement of claim.(f) The AWG Proposed Statement of Claim The AWG proposed statement of claim pleads a case on behalf of the second applicant Alice Winifred Gartner (AWG) based upon the High Court decision in Amadio. AWG was born in 1940, and has been married to the first applicant since 1964. It pleads her limited role in the activities of the Gartner Family Group, and that she habitually relied on the first applicant in relation to matters of money and finances. It further pleads that AWG at all times placed her trust and reliance upon the first applicant to conduct the business and financial affairs of each member of the Gartner Family Group, and that she did not know of the retainer of the accountants nor of the first to seventh representations made by the accountants nor of the Finance Submission nor of the Finance Offer nor of the funding shortfall which was identified on consideration of the Finance Offer, nor of the bank representations. In November 2001, AWG was told that some $9 million was to be borrowed to construct the proposed winery (the plan for which she was aware of only in a general way) and on 23 November 2001 she attended a meeting at which the various guarantees and security instruments were signed. She did not read them, and they were not explained to her. She received no independent legal, accounting or financial advice. She had no earlier contact with the bank. It is then alleged that AWG received no benefit from entering into any of the guarantees or security instruments, but now stands to lose the value of her interest in any of the assets of the Gartner Family Group.

Ratio Decidendi

Legal Principle Established

Established by: MANSFIELD J

The content and numbering of relevant paragraphs in the further statement of claim sufficiently corresponds with the content and numbering of the relevant paragraphs in the proposed statement of claim. It is therefore convenient in the main simply to refer to numbered paragraphs. The accountants and the bank assert that the following paragraphs of the proposed statement of claim should not be permitted:1. Paragraphs 64A to 64F and 66A to 66D as they fail to disclose a reasonably arguable cause of action based upon:1.1the existence of a fiduciary duty;1.2breach of any relevant fiduciary duty;1.3the existence of a special disability and/or knowledge of that disability;1.4any unconscionable taking of advantage on the part of EY or EYCF.3.Further, and alternatively, each of pars 64A to 64F and 66A to 66D as they are defective both in form and in substance.4.Paragraphs 66E to 66L as they cannot stand if pars 64A to 64F and 66A to 66D are not permitted. 5.Paragraph 77.1 as it fails to plead any loss.6.Paragraph 77.2 as it is vague and embarrassing in that receivership costs are the only loss pleaded.7.Paragraph 77.3 as it pleads loss was suffered as a result of the granting of securities, and the purported enforcement of the securities by bank, but fails to plead any material facts capable of sustaining that allegation.8.Paragraph 78 as it is vague and embarrassing, and further cannot stand if 64A to 64F and 66A to 66L are not permitted. If pars 64A to 64F and 66A to 66D are not permitted, it is contended that pars 2 and 6 of the amended application filed on 31 March 2003 should also be struck out. Those paragraphs seek against the accountants a declaration that, in making the first representations to the seventh representations, and in their conduct as set out in the further statement of claim, the accountants acted unconscionably towards the applicants and each of them in contravention of s 51A of the Trade Practices Act 1974 (Cth) and secondly that the accountants are liable to pay equitable compensation to the applicants. CONSIDERATION Paragraph 64A of the proposed statement of claim asserts that each of the applicants was inexperienced in understanding and assessing the financial implications of the proposed winery construction and of entering into the finance package with the bank, including the risky nature of the enterprise. They variously were operating profitable businesses. In the case of the first, second and third applicants, they had existing financial facilities and in those instances they had no need to refinance those facilities. In the case of the first, second, third, fourth and fifth respondents, they owned valuable land that was not at risk. Each is said not to have stood to benefit from the proposed guarantees to the bank, and each had no need to offer security to the bank to secure the financing of the winery. It alleges they were each unable to ‘properly protect’ their respective interests, or to assess the merit and the risk of entering into or becoming part of the finance facility with the bank under the Finance Offer, without the advice of the accountants.