GELENSCER v Sims - [2001] WADC 128

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: GELENSCER & ORS -v- SIMS & ORS [2001] WADC 128

CORAM: DEPUTY REGISTRAR HEWITT

HEARD: 24 MAY 2001

DELIVERED : 7 JUNE 2001

FILE NO/S: CIV 420 of 1998

BETWEEN: PETER GELENSCER
GUILIANA GELENSCER
First Plaintiffs
SHIRLEY WEAVER
Second Plaintiff
ALAN CLARKE
ROBIN HOLMES CLARKE
Third Plaintiffs
ELIZABETH ANNE WETHERAL
Fourth Plaintiff
AND
PAULA SIMS
First Defendant
LAWRENCE JOHN SCANLON
JEFFREY MALCOLM INNES
BARRY DANIEL O'ROURKE
Second Defendants
OLIVER GEORGE DOUGLAS
Third Defendant
GEOFFREY LEONARD WILLOT VICKERIDGE
Fourth Defendant

Catchwords:

Practice - Western Australia - Application to set aside judgment - Corporations Law deemed director - Promoter - Excluded issue

Legislation:

Corporations Law

Supreme Court Rules

Result:

Judgment set aside

Representation:

Counsel:

First Plaintiffs  :     Mr I K Bellamy
Second Plaintiff                  :     Mr I K Bellamy
Third Plaintiffs                   :     Mr I K Bellamy
Fourth Plaintiff                   :     Mr I K Bellamy
First Defendant                  :     No Appearance
Second Defendant
(Lawrence John Scanlon)     :     No Appearance
Second Defendant
(Jeffrey Malcolm Innes)      :     No Appearance
Second Defendant
(Barry Daniel O'Rourke)     :     No Appearance
Third Defendant                 :     In Person
Fourth Defendant               :     No Appearance

Solicitors:

First Plaintiffs  :     Solomon Brothers
Second Plaintiff                  :     Solomon Brothers
Third Plaintiffs                   :     Solomon Brothers
Fourth Plaintiff                   :     Solomon Brothers
First Defendant                  :     In Person
Second Defendant
(Lawrence John Scanlon)     :     Tottle Christensen
Second Defendant
(Jeffrey Malcolm Innes)      :     Cahill Billington
Second Defendant
(Barry Daniel O'Rourke)     :     In Person
Third Defendant                 :     In Person
Fourth Defendant               :     Blake Dawson Waldron

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Espanol Holdings Pty Ltd & Anor v Banning & Ors [1999] WASC 49
Tomwood Holdings Pty Ltd v Oliver, unreported; SCt of WA; Library No 980034; 4 February 1998

DEPUTY REGISTRAR HEWITT: In this matter a judgment in default of defence was entered against the third defendant on 14 March 2000 and by application filed 7 March 2001 the third defendant applies to set aside that judgment. The delay of approximately one year between the date of entry of the judgment and the date upon which the application was brought is unexplained and it is clear from information contained in par 13 of the applicant's affidavit sworn 30 March 2001 that he was first alerted to the existence of a judgment against him by letter from the plaintiff's solicitors on 12 April 2000. The applicant's delay in bringing the application is unexplained and I will return to that point later in these reasons.
The judgment was regularly entered and it therefore falls upon the applicant to explain to the Court circumstances which led to his failure to comply with the time limits imposed by the Supreme Court Rules so as to allow the judgement to be entered against him and to show a defence on the merits.
As to the first of those matters, the explanation given by the applicant is that he filed an appearance to the writ and was not aware of the fact that he had to do anything further in order to defend the action. Given that the third defendant is acting in person and unfamiliar with the procedural requirements of actions within this Court I consider that to be a satisfactory explanation for his failure to file a defence.
I now turn to a consideration of the issues of the case in order to determine whether or not the applicant has made out a defence on the merits. The plaintiffs are individuals who invested monies into units in a Unit Trust named Ocean View Unit Trust of which the trustee was a company Red tail Investments Pty Ltd. Insofar as their claim concerns the third defendant, it is essentially based upon allegations of his breach to comply the requirements of the Corporations Law. The building blocks of that proposition are that the third defendant was by virtue of his involvement in the relevant events and s 60 of the Corporations Law ,a person who was deemed to be a director of the company Red tail Investments Pty Ltd, and further, by reason of s 9 of the Corporations Law he was a promoter of that company. The plaintiffs allege that they were induced to make an investment in the Unit Trust by reason of an offer made by the Trustee, Red tail Investments Pty Ltd. They say that offer was, by virtue of the interpretations contained in the Corporations Law, a prospectus which was made in breach of the Corporations Law. From that, the plaintiffs allege that they are entitled to a remedy by reason of the provisions of s 1006 of the Corporations Law against both the duly appointed directors (who are other defendants to the action) and the third defendant, by reason of the fact that he is a defacto director of the company and therefore liable, or a promoter of the company and by that reason liable.
The defendant asserts in the materials filed to support his application that he is not and never was involved in the affairs of the company to an extent that he could properly be deemed to be a director of it.
It is clear on these materials that the third defendant had a considerable involvement in the affairs with which we are concerned in this action. He was, for instance, the settlor of the Trust Deed which created the Unit Trust into which the plaintiffs invested their funds. He offers an explanation for that in his affidavit, which in effect is that he was simply obliging those by pursuing the investment project in which the company intended to engage. It is, however, in my view, a significant matter which suggests to me that the level of the involvement of the third defendant in the management of the company is more deep rooted than he concedes in his affidavit in support of the application. Essentially the proposition in that affidavit is that he was a financial adviser acting in his professional capacity on instructions from the company, and assisting it in the financing requirements of a project which it had in mind. The materials before me are not determinative of that issue, and it is not clear from the papers before me whether the level of involvement of the third defendant was sufficient for him to be deemed a director of Red tail Investments Pty Ltd and therefore responsible under s 1006 of the Corporations Law.
Likewise there is evidence to indicate that the third defendant was at some level at least, involved in the promotion of the investment project in which the company was involved. Once again, it is difficult to determine on the materials which are before me whether that level of involvement was sufficient for him to be characterised as its promoter and therefore liable for deficiencies under the Corporations Law.
An issue which has been raised by the third defendant is whether or not the offer which was made by the company was in fact a prospectus within the meaning of the Corporations Law. In the course of address in support of his application, the third defendant indicated that he prepared at least some of the information, and I gather the greater part, which was included in the offer which the plaintiffs have characterised as a prospectus. The third defendant relies upon the definition of a promoter with the Corporations Law which indicates that a person acting in the proper performance of the functions attaching to his or her professional capacity, or in business relationship with the promoter of the company, is not thereby to be deemed a promoter. There is, I would imagine, a grey area in which it is difficult to discern whether or not an individual is acting in performance of his professional capacity or pursuing his own interests as a promoter. It is difficult in the present case to say on which side of the line this defendant falls. A further issue raised by the third defendant is that the offer was not a prospectus and therefore the remedies pursued by the plaintiff are not available to it. In that regard, the third defendant relies on the provision of s 66 of the Corporations Law which concern excluded issues and in particular, s 66(3)(d)(ii) of that section. Essentially that section provides that if an offer or invitation is made to not more than 20 individuals, that offer or invitation is an excluded issue and not a prospectus within the meaning of the act.
In the present case it appears that the offer was conveyed to the first defendant who was a financial adviser with the purpose of being put before her clients. Correspondence exhibited to the affidavit makes it clear that it was intended that not more than 20 individuals subscribe to the offer. On my reading of the materials, it is not necessarily the case that because not more than 20 people subscribed to the offer it is entitled to the protection provided by s 66(3)(d)(ii). The essential ingredient is that the offer not be made to more than 20 people and the relevant determinant is not how many people accept, but how many people received the offer.
In the present case it is not really possible to say with any conviction whether the first defendant conveyed the offer to more or less than 20 people. What we do know is that there were ultimately less than 20 subscribers to the offer and there is a dearth of information as to whether or not it was conveyed to more or less than 20 people.
This point goes to the very heart of the plaintiffs' case. If on a full examination of the facts it transpires that the offer was not put to more than 20 people I consider there is an excellent chance that a Court would determine the offer not to be a prospectus and if that determination were to be made then clearly the duties relating to prospectuses would not attach to this defendant in any shape or form.
I therefore consider in summary that:
(a)whether or not the third defendant is a deemed director of the company Red tail Investments Pty Ltd is a matter of fact requiring further evidence to determine one way or the other;
(b)whether or not the third defendant was a promoter of the company is again a matter of fact which would need to be determined after a thorough airing of the evidence; and
(c)whether or not the offer upon which the plaintiff bases its claim is in truth a prospectus again requires a consideration of additional materials which are not before me.
For these reasons, I consider that the judgment in default of defence should be set aside and the third defendant should be given leave to defend.
I am, however, concerned at the delay in bringing this application and concerned about the fact that there is no explanation whatever as to why that delay should have occurred. I find it remarkable that a man would allow a judgment to remain on the record against him for nearly a year after he learned of it. I am also concerned that on the version of events given by the third defendant in support of his application there is material which to me suggests it is quite likely that the third defendant was involved sufficiently with the project underlying this action to be deemed a promoter in respect of it and a director of the company. Although I think the judgment should be set aside, I also think that some consideration should be given to the terms upon which that order should be made and whether or not there should be some security given by the third defendant in relation to the action.
I shall, however, leave that matter to be determined when this decision is delivered since it will no doubt require some additional evidence to be required before a proper adjudication could be made.