Gunns Finance Pty Ltd (in liq) v Correy

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2013 3896

GUNNS FINANCE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ABN 58 091 861 700	Plaintiff
v
NORMAN CORREY	Defendant

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JUDGE:	DERHAM AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	22 October 2014
DATE OF JUDGMENT:	4 August 2015
CASE MAY BE CITED AS:	Gunns Finance Pty Ltd (in liq) v Correy
MEDIUM NEUTRAL CITATION:	[2015] VSC 385

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PRACTICE AND PROCEDURE – Application to amend defence and counterclaim – Whether discloses defence to plaintiff’s claims and raises good causes of action against the plaintiff – Whether defence and counterclaim patently hopeless or without reasonable prospects of success – r 36.01 of the Supreme Court (General Civil Procedure) Rules 2005 – Defence and Counterclaim patently hopeless.

CORPORATIONS – Application for leave to proceed against corporation in liquidation – applicable test – Whether test satisfied – Sections 471B and 500(2) of the Corporations Act 2001 ‑ Re Sydney Formworks Pty Ltd (In Liquidation) [1965] NSWR 646; Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314; Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550; King v Yurisch [2006] FCA 1369; Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749; Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation)(No 2) [2009] FCA 42; Snelgrove v Great Southern Managers Australia Ltd (In Liq)(Receivers and Managers Appointed) [2010] WASC 51.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr WHC Forrester	K & L Gates
For the Defendant	Mr G Mukherji	Rothwell Lawyers Pty Ltd

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Background.................................................................................................................................... 1
History of the Proceedings.......................................................................................................... 3

Further Amended Defence and Counterclaim............................................................................. 4

Defence........................................................................................................................................... 4
Counterclaim................................................................................................................................. 4
Breach of Obligations under the Act................................................................................ 8
GPL’s Alleged Breaches of the Act...................................................................... 8
The Plaintiff’s Alleged Breaches of the Act...................................................... 10

Loss and Damage.............................................................................................................. 11

Submissions...................................................................................................................................... 11

Defendant’s Submissions........................................................................................................... 11
Application for Leave to file Amended Pleadings...................................................... 11
Application for Leave to Proceed................................................................................... 13

Plaintiff’s Submissions............................................................................................................... 14
Application for Leave to file Amended Pleadings...................................................... 14
Application for Leave to Proceed................................................................................... 16

The Defendant’s Submissions in Response............................................................................ 18

Legislative Provisions and Applicable Law................................................................................ 21

Leave to Proceed............................................................................................................... 21
Provisions relied on in the FADC................................................................................... 25

Analysis.............................................................................................................................................. 27

The Plaintiff’s Knowledge......................................................................................................... 28
The Plaintiff’s Involvement....................................................................................................... 29
Actual Authority................................................................................................................ 30
Ostensible Authority......................................................................................................... 32

Conclusion................................................................................................................................... 34

Summary Judgment Application.................................................................................................. 34

Conclusion......................................................................................................................................... 35

HIS HONOUR:

Introduction

On 11 September 2014, the amended defence filed in these proceedings was struck out. In the present application, the defendant seeks leave to file and serve a further amended defence and counterclaim (‘FADC’) in the form exhibited to the affidavit of Tracey Pauline Rothwell, sworn on 21 October 2014.

In addition, the defendant seeks leave to institute proceedings, by way of the counterclaim, against both the plaintiff and Gunns Plantations Pty Ltd (‘GPL’). Leave to proceed is sought under either s 471B or s 500(2) of the Corporations Act 2001 (Cth) (‘the Act’), indiscriminately, due to the fact that both the plaintiff and GPL are currently in liquidation. It is unclear from the material before me whether one or both of the plaintiff and GPL are being wound up in insolvency or are undergoing a voluntary winding-up.[1]
[1]However, from the decision in Re Gunns Finance Limited (in liq) (recs & mgrs apptd); and Re Gunns Plantations Limited (in liq) (recs & mgrs apptd) (No 2) [2013] VSC 365, [9], it appears that the administrators of Gunns Limited (and its subsidiaries) had become liquidators as a result of creditors’ resolutions under s 439C of the Act, which results in a deemed voluntary winding up: see s 446A.

Background

On 26 June 2008, the defendant entered into a written loan agreement (‘the first loan agreement’) with the plaintiff, in order to fund his investment in a number of woodlots in a managed investment scheme called the GPL Woodlot Project 2008 (‘the Woodlot Project’). Pursuant to the first loan agreement, the plaintiff lent the defendant the sum of $137,095.60 on 1 July 2008, of which $136,400 was to be paid to GPL to be invested in the Woodlot Project. The remaining $695.60 was used to pay a loan establishment fee.

On 12 June 2009, the defendant entered into a written loan agreement (‘the second loan agreement’) with the plaintiff, for the purposes of funding his investment in a number of walnut lots in the GPL Walnut Project No. 3 (‘the Walnut Project’). Under this loan agreement, the plaintiff lent the defendant the sum of $129,143.92 on 30 June 2009, of which $128,480 constituted the defendant’s investment in the Walnut Project and $663.92 was in payment of a loan establishment fee.

On 25 September 2012, Bryan Webster and Mark Korda were appointed as joint and several receivers and managers of the plaintiff. On 7 November 2012, the defendant failed to make a scheduled repayment under the first loan agreement. In accordance with cl 12.2 of the first loan agreement, this constituted an ‘event of default’, allowing the plaintiff to exercise its rights under cl 12.1 of that loan agreement.

On 13 March 2013, the plaintiff issued a default notice to the defendant, demanding payment of the amount outstanding under the loan agreement as at that date. On 18 June 2013, the plaintiff’s solicitors sent a letter of demand to the defendant, again advising him of the default and demanding payment of the balance of the loan by 28 June 2013. The letter stated that, if payment was not made by that date, proceedings would be commenced without further notice. On 29 July 2013, the plaintiff commenced the present proceedings seeking repayment of the amount owed under the first loan agreement plus interests and costs.

On 9 September 2013, the defendant failed to make a scheduled repayment under the second loan agreement, which constituted an event of default and gave rise to the same consequences under cls 12.1 and 12.2 of that agreement. On 22 October 2013, the plaintiff issued the defendant with another default notice, demanding payment of the balance owed under the second loan agreement as at that date. On 5 December 2013, the plaintiff sent a second letter of demand to the defendant under the second loan agreement, demanding payment of the outstanding amount due by 13 December 2013 in the same terms as the previous letter of demand. Pursuant to orders made by the Court on 24 January 2014, the statement of claim in these proceedings was amended to incorporate the amount owed under the second loan agreement.

Accordingly, the plaintiff is currently seeking payment of the following amounts by the defendant:

(a) $109,266.80, being the amount owed under the first loan agreement;

(b) Interest on the amount owed under the first loan agreement, calculated at the default rate of 9.67% per annum from 1 July 2013 until judgment;

(c) $118,628.79, being the amount owed under the second loan agreement;

(d) Interest on the amount owed under the second loan agreement, calculated at the default rate of 12.50% per annum from 14 February 2014 until judgment; and

(e) Legal costs on a full indemnity basis.

History of the Proceedings

After the filing and service of the amended statement of claim in these proceedings, the defendant filed and served an amended defence on 30 April 2014. On 23 May 2014, the plaintiff served on the defendant both a notice to admit facts and a notice to admit documents, to which no response was received. As a result, the plaintiff made an application for summary judgment in the proceedings, which was scheduled to be heard on 11 September 2014.

On 8 September 2014, the defendant sought to issue a proposed summons, seeking leave to proceed against the plaintiff and GPL, to file and serve an amended defence and counterclaim in the form exhibited to an affidavit of the defendant’s solicitor sworn that day, and to withdraw any deemed admissions as a consequence of his failure to file a notice of dispute in response to the plaintiff’s notices to admit. At the hearing on 11 September 2014, the defendant’s amended defence dated 30 April 2014 was struck out, and it was ordered that any application he chose to make in relation to the proposed summons must be filed and served by 25 September 2014. In the event that such an application was made, a timeline was set for the filing and service of subsequent documents in preparation for the hearing of the defendant’s application.

On 15 September 2014, the defendant issued a summons in the same terms as that proposed on 8 September 2014, with the application to be heard on 22 October 2014. However, on the date of the hearing, the defendant filed and served a further affidavit of Tracey Pauline Rothwell, sworn 21 October 2014, to which was exhibited the FADC. The defendant no longer seeks leave to withdraw any deemed admissions as a consequence of his failure to file a notice of dispute, and seeks leave to file and serve the FADC, rather than the amended defence and counterclaim exhibited to the affidavit sworn 8 September 2014.[2]
[2]Defendant’s outline of submissions dated 22 October 2014, [2].

Further Amended Defence and Counterclaim
Defence

The proposed FADC is exhibited to the affidavit of Ms Rothwell, sworn 21 October 2014. The defendant commences by stating that the plaintiff:

(a) Is and was at all relevant times a member of the Gunns Group of Companies and a wholly-owned subsidiary of Gunns Limited;

(b) Carried on a business of providing loans to investors in managed investment schemes offered by GPL, including the Woodlot Project and the Walnut Project (‘the MIS Projects’), in relation to which GPL managed the application process; and

(c) Authorised GPL to act as its agent to promote the availability of loans and to procure loans for investors to finance their acquisition of rights in relation to the MIS Projects.

In the remainder of the defence, the defendant admits, does not admit or denies the allegations made in the plaintiff’s statement of claim, referring to and repeating the matters set out in the counterclaim. As a result, the defendant’s defence in substance is his counterclaim, which commences at paragraph 26 of the FADC.

Counterclaim

It should be noted that GPL plays a large role in the defendant’s counterclaim and the defendant has specifically sought relief against GPL. However, GPL was not a party to the summons nor notified of the hearing of the application on 22 October 2014.

The counterclaim commences by stating that the defendant was an investor in the MIS Projects, and refers to and repeats the allegations made in relation to the plaintiff, which are listed above in paragraph 12. The defendant then goes on to make a number of allegations in relation to GPL, including that it:

(a) Acted in the capacity of trustee of funds on behalf of investors who paid application fees to participate in the MIS Projects;

(b) Acted in the additional capacity of manager of the MIS Projects to perform required services on behalf of investors whose applications for entry into the MIS Projects had been accepted;

(c) Acted in the capacity of agent to originate loans to investors in the MIS Projects for the plaintiff;

(d) Was, by operation of law, under a duty to inform the plaintiff of matters known to GPL that might materially affect the plaintiff’s business; and

(e) Was at all relevant times a wholly-owned subsidiary of Gunns Limited.

The defendant claims that, in operating the MIS Projects, GPL acknowledged that they were to be run as commercial enterprises, with the aim of selling the timber and walnuts grown for commercial profit. He states that investors were provided with security over their investments in two ways. First, GPL was required under the conditions of its Australian Financial Services Licence (‘AFSL’) to maintain a certain level of liquidity. Secondly, the application fees paid by investors were held on trust by Gunns Limited as custodian until they were distributed in accordance with the Constitution of the relevant Project.

According to the Woodlot Project Constitution, which is dated 27 December 2007, GPL acts as the Responsible Entity and on behalf of investors in the Project, as well as being trustee of the Woodlot Project Fund. The defendant alleges that, under this Constitution, GPL was required to ensure that investors’ application fees were not released by Gunns Limited – as custodian – unless and until it was satisfied of certain matters specified in the Constitution. In particular, GPL was not permitted to instruct Gunns Limited to release any application fees unless it was satisfied, inter alia, that there were no outstanding material breaches of any provisions of the Constitution that would be detrimental to the interests of the member(s) whose application money was being released. The Walnut Project Constitution contained conditions that were identical in substance, if not in form. The Constitutions for both MIS Projects required GPL as Responsible Entity to comply with the provisions of the Act.

Under the Woodlot Project Management Agreement, GPL was required to ensure that services, including all things necessary to grow and maintain the trees in accordance with good silvicultural practices, were carried out in a proper and diligent manner. Identical terms were contained in the Walnut Project Management Agreement. In addition, GPL had entered into a Forestry Right Deed and an Orchard Right Agreement with Gunns Limited, which granted GPL a right over the relevant lots that formed part of the MIS Projects. A Sub-Forestry Right Deed and an Orchard Right Agreement formed part of the agreements between the defendant and GPL. Under these GPL agreed not to breach the principal agreements with Gunns Limited or to do anything that may bring those agreements to an end prematurely.

Importantly, the defendant alleges that GPL held itself out as being able to fulfil its role as Responsible Entity and act as manager of the woodlots and walnut lots for the life of both MIS Projects. In relation to the Woodlot Project, it is argued that this is a result of a clause in the Woodlot Project Constitution stating that GPL would act as Responsible Entity and manager for the life of the Project. It is also to be implied from the fact that fees for rent and ongoing maintenance owed by the defendant to GPL over the life of the Project were only to become payable upon completion of the Project and sale of the wood. With respect to the Walnut Project, the defendant relies on the Walnut Product Disclosure Statement—which states that GPL will be appointed as manager of the relevant walnut lots for the life of the Project—and states that further particulars may be provided after discovery.

With respect to the plaintiff in these proceedings, the defendant alleges that it obtained product rulings from the Australian Taxation Office (‘the ATO’), which required that the trees under the Woodlot Project were to have been established by 30 June 2009. The defendant claims that GPL promoted the loans available through the plaintiff in both PDS documents, which contained information about the loan terms, security and the application process. The defendant claims that the plaintiff knew of the broad scope of the content of GPL’s PDS documents, as well as the information contained therein with respect to loans available from the plaintiff.

The defendant claims that, through its own due diligence, the plaintiff knew that GPL had undertaken a review of potential risks facing investors in the Woodlot Project, particularly with respect to GPL’s ability to act in its respective capacities of Responsible Entity and manager through to the completion of the Woodlot Project. Specifically, it is claimed that the plaintiff knew that:

(a) GPL considered as at 17 June 2009 that it may be unable to service the Woodlot Project through to completion;

(b) This fact had not been disclosed in GPL’s PDS on 18 January 2008; and

(c) This fact was disclosed in GPL’s Supplementary PDS published on 17 June 2009, and noted as important for prospective investors in the subsequent GPL Woodlot Project 2009.

The defendant relies on similar claims with respect to the Walnut Project, alleging that the plaintiff knew that:

(a) GPL promoted loans from the plaintiff in the Walnut Project PDS;

(b) GPL had reviewed any risks to potential investors, particularly with respect to its ability to service the Walnut Project through to completion, prior to publication of the Walnut PDS;

(c) By 17 June 2009, GPL had formed a view that there was a risk it would be unable to service the Walnut Project through to completion;

(d) This risk was not disclosed in the Walnut Project PDS dated 13 May 2009; and

(e) The risk was disclosed in the Supplementary PDS published on 17 June 2009.

It is further claimed with respect to both MIS Projects that the plaintiff knew that GPL was required by law to disclose in its PDS any risk to prospective investors with respect to their investment in the relevant managed investment scheme.

Breach of Obligations under the Act
GPL’s Alleged Breaches of the Act

With respect to GPL, the defendant claims that it contravened the Act by virtue of the fact that it has been in liquidation and receivership. As a result, it has not maintained adequate resources and competence to carry out the financial services covered by its AFSL or to carry out supervisory arrangements.[3]
[3]See s 912A(1)(d)-(e) of the Act. Counsel for the defendant retreated somewhat from this position in oral submissions, focusing primarily on s 601FC(1) of the Act as the foundation for the defendant’s counterclaim.

In addition, the defendant claims that GPL is in breach of its duties under s 601FC(1) of the Act in that it has:

(a) Failed to exercise the requisite degree of care and diligence and to act in the best interests of members of the MIS Projects; and

(b) Made use of information acquired in its position as Responsible Entity of the MIS Projects to either gain an improper advantage for itself or to cause detriment to the MIS Projects’ members.[4]

[4]See s 601FC(1)(b) and (e) of the Act.

With respect to the allegation that GPL failed to act with the requisite degree of care and diligence in its position as Responsible Entity of the Woodlot Project between 30 June 2008 and 30 June 2009, the defendant claims that GPL:

(a) Went ahead with the establishment of the woodlots despite lacking a reasonable basis for believing that it would have adequate financial resources to be able to meet ongoing costs through to the end of the Woodlot Project;

(b) Instructed Gunns Limited to release the establishment fees without having a reasonable belief that it would continue thereafter to have adequate resources and maintain competence to continue providing the relevant financial services;

(c) Acted with undue haste in instructing Gunns Limited to release the application fees considering the duration of the Woodlot Project;

(d) Ought to have decided in all the circumstances to abandon the Woodlot Project prior to performing – and incurring the costs of – the establishment services such as the planting of the trees;

(e) Ought to have returned the defendant’s establishment fee to him by no later than 30 June 2009; and

(f) Ought reasonably to have foreseen that the defendant would be facing loan repayment obligations in respect of the Woodlot Project, notwithstanding the strong likelihood that the Woodlot Project would provide no return on investment if GPL was unable to fulfil its obligations for the duration of the Project.

With respect to the allegation that GPL failed to act with the requisite degree of care and diligence in its position as Responsible Entity of the Walnut Project between 30 June 2009 and 31 October 2010, the defendant repeats each of the above allegations, with the exception of (d). That is, the defendant does not allege that GPL ought to have abandoned the Walnut Project prior to performing and incurring the costs of the requisite establishment services. Nevertheless, the defendant claims that GPL ought to have retained his establishment fee in the Walnut fund, and returned it to him by no later than 31 October 2010.

In addition, the defendant claims that, during the same establishment periods –30 June 2008 to 30 June 2009 with respect to the Woodlot Project, and 30 June 2009 to 31 October 2010 with respect to the Walnut Project – GPL failed to act in his best interests. The defendant alleges that a conflict existed between GPL’s interests and his interests as a member of the MIS Projects throughout these establishment periods. As a result, he claims that GPL acted in breach of the Act by failing to give priority to his interests during those periods.[5]
[5]See s 601FC(1)(c) of the Act.

Further or alternatively, the defendant claims that GPL acted in breach of the Woodlot Project Constitution by virtue of the fact that it:

(a) Was in breach of the above statutory provisions during the relevant establishment periods;

(b) Failed to carry out its duties as trustee imposed by cls 3.2 and 13.3 of the Woodlot Project Constitution; and

(c) Failed to hold his application fee on trust until at least 30 June 2009 and failed otherwise to properly discharge its duties as trustee owed to him as a member of the Woodlot Project.

By reason of the above breaches of the Woodlot Project Constitution, the defendant argues that GPL has contravened its statutory duty under s 601FC(1)(m) of the Act.

The Plaintiff’s Alleged Breaches of the Act

With respect to the plaintiff’s involvement in GPL’s breaches of the Act, the defendant relies primarily on the plaintiff’s alleged knowledge of the matters set out at paragraphs 20 to 23, above. The defendant claims that, with knowledge of these matters, the plaintiff caused or permitted him to invest in the MIS Projects by making funding available to him for this purpose. It is further alleged that the plaintiff knew of the fact or prospect (or both) of GPL instructing Gunns Limited to release the defendant’s application fees with respect to the Woodlot Project to GPL prior to 30 June 2009. As a result, the defendant alleges that the plaintiff was involved in GPL’s breaches of the Act due to the fact that, by act or omission, it was directly or indirectly knowingly concerned in or party to the contraventions of the Act by GPL.[6]
[6]See s 79(c) of the Act.

Loss and Damage

The defendant claims that he has suffered or is likely to suffer loss or damage as a result of the conduct of GPL in contravening the Act as alleged above. The defendant further claims that he has suffered or is likely to suffer loss or damage because of the conduct of ‘GPL acting as agent for [the plaintiff] and within the scope of its actual or ostensible authority in originating loans on behalf of [the plaintiff]’ in contravention of the Act.[7] As a result, the defendant claims compensation against both GPL and the plaintiff under s 1325 of the Act.
[7]Paragraph 89 of the FADC.

Further or alternatively, the defendant claims compensation from GPL by virtue of its contravention of the provisions of the Act relevant to its breaches of duty as trustee.[8] Further and in the alternative, with respect to the plaintiff, the defendant claims a declaration that both the first loan agreement and the second loan agreement are unenforceable, or alternatively that they have been unenforceable since 31 December 2010 (or such other date as the Court determines).
[8]See s 601MA of the Act.

Submissions
Defendant’s Submissions
Application for Leave to file Amended Pleadings

The defendant seeks leave to file his FADC pursuant to r 36.01 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (‘the Rules’), and relies on Aon Risk Services[9] and Ultra Thoroughbred Racing[10] in support of his application. Nonetheless, he submits that many of the principles covered in Aon Risk Services relate specifically to prejudice caused by the timing of an application to file an amended pleading and, as such, do not apply to his application to file an FADC.
[9]Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175.
[10]Ultra Thoroughbred Racing v Those Certain Underwriters (Ruling) [2011] VSC 370.

The defendant submits that, although some time has elapsed since the commencement of these proceedings, his application has nonetheless been filed at the very outset of the matter, given that discovery has not been completed, no trial date has been set and the parties have not yet begun to prepare their cases ‘in earnest’. In particular, he argues that no prejudice will be caused to either the plaintiff or GPL if his application is granted, and certainly none that could not be addressed by way of costs.

The FADC is said to narrow the issues in dispute before the Court and properly identify the real issues between the parties, despite the fact that it has 93 paragraphs over 21 pages of dense pleadings. The defendant submits that the further amended defence admits a number of matters that were previously either denied or not admitted, thereby reducing the number of issues to be determined by the Court. In addition, the counterclaim sets out the defendant’s damage and losses that are said to be the result of the conduct of the plaintiff and GPL.

In response to an anticipated argument by the plaintiff that the amendments sought are bad in law – and therefore that the grant of leave would be futile – the defendant relies on the case of EWC Payments.[11] In that case, Justice Elliott approved my statement of the relevant test: that an application for leave to amend a statement of claim should only fail where it introduces a patently hopeless issue for determination, or if the amendment has no reasonable prospect of success at trial; the Court will not engage in an examination of the merits of the case foreshadowed.[12]
[11]EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207.
[12]Ibid [15].

Also in EWC Payments, Elliott J noted the judgment of Justice Croft in National Mutual Life Association,[13] in which his Honour observed that pleadings are merely a means to ensure that the real issues of controversy are raised for determination in a procedurally fair manner.
[13]ACN 074 971 109 v The National Mutual Life Association of Australasia Ltd [2010] VSC 186.

Application for Leave to Proceed

In relation to his application for leave to proceed against the plaintiff and GPL, the defendant relies on the cases of Re Gordon Grant and Grant Pty Ltd[14] and Commonwealth v Davis Samuel Pty Ltd.[15] It is said that these cases stand for the principle that (the historical equivalent of) s 471B of the Act existed to protect a company in liquidation from a multiplicity of proceedings, and therefore that the party seeking leave must demonstrate the merit of their action so as to avoid the dissipation of company assets on hopeless litigation.
[14][1983] 2 Qd R 314.
[15](2008) 164 ACTR 1.

The defendant submits that the question to be asked on an application for leave to proceed against a company in liquidation is whether the Court can be ‘satisfied that the claim has a solid foundation and gives rise to a serious dispute’.[16] In particular, the defendant relies on the following matters, which he says favour the grant of leave to proceed against the plaintiff and GPL in this matter:
[16]Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550, 556.

(a) There will be no significant procedural or substantive prejudice to the creditors resulting from the proceedings;

(b) The liquidator is likely to reject any proof of debt lodged by the defendant, so that an appeal to the court will be necessary;

(c) The resources of the plaintiff and GPL are not meagre, and they are equipped to be able to meet the costs of any litigation; and

(d) The issues raised by the counterclaim are sufficiently serious, together with a degree of complexity in the legal question involved.

In addition, the defendant submits that, if leave is not granted, he would likely be required to seek to institute separate proceedings against GPL. He would then have to claim loss suffered by way of any findings made against him from the plaintiff in the present proceedings. The defendant submits that this possibility of multiple proceedings in the event that leave is not granted has been recognised as a powerful factor weighing in favour of the grant of leave.[17]
[17]Sydlow Pty Ltd (in liq) v T G Kotselas Pty Ltd (1996) 65 FCR 234, 242.

Plaintiff’s Submissions
Application for Leave to file Amended Pleadings

Counsel for the plaintiff submits that the Court should not grant leave to file and serve the FADC – even if there were an arguable case to be put – on the basis that the pleading itself is embarrassing and should not be allowed. With respect to the allegations made against GPL, the plaintiff submits that the contraventions alleged do not appear to be properly pleaded, but does not take this submission any further.

The primary issue identified relates to the allegation that GPL was acting as an agent of the plaintiff at the time that it engaged in conduct that allegedly contravened the Act. The plaintiff submits that this allegation is not supported by any pleading of facts, matters or circumstances said to have given rise to such a relationship. There is merely an allegation that the plaintiff authorised GPL to act as its agent to promote and procure loans for investors. Further, the allegations that do exist are circular, in that paragraph 1 of the FADC alleges an agency relationship on the basis set out in paragraphs 57–69 of the FADC,[18] while paragraph 57 refers to and repeats paragraph 1 of the FADC as the basis for the existence of the agency relationship. As a result, the plaintiff is unable to properly respond to the allegation.
[18]In addition, from the fact that each PDS issued by GPL contained an application for finance through the plaintiff.

In addition, the plaintiff submits that the pleading is improper as there are no facts or allegations put in relation to the scope of the agency relationship, which is essential to the alleged liability of the plaintiff for GPL’s breaches of the Act. In the absence of any particulars with respect to the scope of the agreement and the basis for this, the plaintiff cannot respond to the implied allegation that GPL was acting within the scope of its authority when it contravened the Act.

The plaintiff goes on to address the specific allegations made in relation to its conduct in contravention of the Act. Paragraph 84 of the FADC states that the plaintiff ‘caused or permitted’ investors—including the defendant—to acquire an interest in the MIS Projects, with knowledge of the information contained in the PDS documents. The plaintiff emphasises that no particulars have been provided with respect to the knowledge of the plaintiff at this time, or how it is alleged to have ‘caused or permitted’ the defendant to acquire an interest in the MIS Projects. Similar issues arise in relation to paragraph 85 of the FADC, which states that the plaintiff had knowledge of the prospect or fact (or both) of GPL causing the application fees to be released to it after the risk became known on 17 June 2009. With respect to this paragraph, the plaintiff submits that there are no particulars set out in relation to who exactly knew this, or how or when they came to learn of it. Without specific information as to the manner by which (and the person through which) the plaintiff is said to have gained the knowledge, it cannot properly rebut the allegation.

Paragraph 86 of the FADC states that, on the basis of paragraphs 84 and 85, the plaintiff was involved in GPL’s various contraventions of s 601FC(1), it having by act or omission been directly or indirectly knowingly concerned in or party to the contraventions by GPL. The plaintiff submits that the only allegations relied upon in support of that conclusion are those relating to the plaintiff’s knowledge as pleaded earlier. On this basis, paragraph 87 alleges that the plaintiff has contravened s 601FC(5) of the Act, in spite of the fact that mere knowledge is not sufficient to support an allegation of involvement.

The plaintiff further submits that the allegation as to loss and causation in paragraph 89 of the FADC is rolled up, confusing, embarrassing, and should be struck out. It appears to be an attempt to link the conduct of GPL after 17 June 2009 with its authority to originate loans for the plaintiff under the alleged agency relationship; however, it is unclear.

Finally, the plaintiff submits that, in order to allege that it was involved in GPL’s contravention of the Act, the defendant must rely on s 79 of the Act, which has been considered in a number of cases. The key issue here is that it is critical for any reliance on s 79 to be properly pleaded in the clearest way. Similarly, the plaintiff relies on Investec Bank v Colley,[19] which sets out the requirement that any allegations relying on s 601FC(5) of the Act must clearly and properly allege how the particular party was involved in the contravention.
[19]Investec Bank (Australia) Ltd v Colley (2012) 91 ACSR 597, 614–7 [107]–[120].

The plaintiff submits that the contravention can only have occurred after 17 June 2009, at which point the existence of a risk was known. This was after the defendant had entered into both loan agreements with the plaintiff. There is no information in the pleadings in relation to the date at which the plaintiff is said to have had knowledge of the various issues stated, which is essential when this knowledge is relied on as the foundation for a claim of knowing involvement. As a result, the FADC neither satisfies the test for leave to amend nor complies with the authorities in terms of the clarity required of allegations of knowing involvement.[20]
[20]Although it was not raised by the plaintiff, I also note Ward J’s comment in Investec Bank v Colley (2012) 91 ASCR 597, 617 [119] that the Briginshaw standard would apply to any proof of knowing involvement under s 601FC(5), as it is a civil penalty provision.

Application for Leave to Proceed

With respect to the application for leave to proceed against it, the plaintiff focuses in particular on the substance of the pleading, rather than the form. The actual knowledge that is alleged with respect to the plaintiff relates to the information on loans in the PDS documents, the fact that GPL had undertaken its due diligence with respect to the PDS documents, the general obligations on responsible entities to disclose risks to investors in any PDS and the fact that GPL knew of a risk to investors as at 17 June 2009. The plaintiff submits that the knowledge of the plaintiff alleged in no way relates to the actual contraventions alleged against GPL, which occurred at some point after the PDS documents were published. Effectively, the allegations are founded on the concept that, due to its knowledge of events that occurred significantly earlier in time, the plaintiff is somehow responsible for later conduct that breaches the Act. Such an argument is untenable.

The plaintiff further submits that there is no allegation that the defendant relied on the PDS documents in entering into the loan agreements with the plaintiff, or that he was induced to do so by the implication in the PDS documents that GPL would be able to comply with its obligations through to the conclusion of the MIS Projects. There is also no allegation that such a statement was false or misleading at the time of publishing the PDS documents. As a result, even if the PDS documents were in some way connected with the breach, there is no link between the plaintiff’s knowledge of them and any actual loss or damage suffered by the defendant.

On the other hand, even if it were accepted that the plaintiff had the required knowledge of GPL’s breaches, the plaintiff submits that it cannot have been ‘involved’ in them. In particular, even if the agency relationship were properly pleaded, the plaintiff submits that its purpose could not extend to the conduct that was allegedly in breach of the Act. Rather, the plaintiff argues that the agency relationship could go no further than attracting investors to enter into a loan agreement with the plaintiff in order to finance an investment in the relevant Project. There is no basis alleged for this agency relationship to extend at all beyond the defendant entering into the loan agreement with the plaintiff, let alone to the point of GPL’s contravention of the Act. As such, the plaintiff cannot have been ‘involved’ in such conduct.

In response to the defendant’s reliance on the plaintiff’s omission in failing to prevent GPL from going ahead with the establishment of the MIS Projects after the risk was identified, the plaintiff submits that this would nonetheless require an obligation on the plaintiff to intervene and prevent the contravention from occurring. Given the issues with the pleading in relation to the agency relationship, this cannot be relied on as the basis for knowing involvement. In the absence of such a relationship, the finance company has neither the right nor the obligation to interfere in the conduct of a managed investment scheme by a Responsible Entity. Without such an obligation, there is no involvement in the contravention, even if it were to be held that the plaintiff had the requisite knowledge.

The plaintiff relies on Clarke v Great Southern Finance,[21] and ACCC v SensaSlim Australia Pty Ltd (‘SensaSlim’),[22] in support of the proposition that mere knowledge is not enough to satisfy the requirements of s 79(c) of the Act. In particular, the plaintiff refers to the statement of Yates J in SensaSlim that ‘more is required for the person to be concerned in or party to the contravention’.[23] In this case, the defendant has not even pleaded knowledge of the contravention, but merely knowledge of facts that were preliminary to the contravention alleged. Indeed, the facts with respect to which knowledge is claimed were publically available facts. As a result, if the pleadings were said to give rise to involvement in the contravention by the plaintiff, then a large number of other people could be said to have been involved on the same basis.
[21](2010) VSC 473, [20]–[22], [28].
[22](2014) FCA 340, [535]–[545].
[23]Ibid [536].

In relation to the relief sought, the plaintiff argues that there is no basis on which to declare the loan agreements unenforceable under s 1325 of the Act. Certainly, it is argued that there is no link between the allegation that the plaintiff is involved in GPL’s contraventions of the Act after the loan agreements were entered into and a declaration that those loan agreements are unenforceable.[24]
[24]If it were necessary to discuss the question of relief in relation to this application, I would note here the statements of Croft J in Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liq) [2014] VSC 334, [2001]-[2003]. These reasons were attached as an annexure to Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liq) [2014] VSC 516.

The Defendant’s Submissions in Response

In response to the plaintiff’s submissions, counsel for the defendant submits that the key question currently before the Court is as to the substance of the defendant’s counterclaim, rather than its form. It is argued that, deficiencies in form notwithstanding, the defendant should be given leave to file and serve the FADC, subject to amendments that may be made to cure such defects as have been pointed out above.

With respect to the substance of the counterclaim, the defendant submits that the argument turns on the fact that the application fees were to be held until a certain point, and that the loan agreements did not effectively become live until these fees were actually released to GPL. He submits that this occurred after 17 June 2009, and that GPL should not have caused those funds to be released. Given the risk identified on 17 June 2009 that GPL may not be able to comply with its obligations through to the completion of the MIS Projects, it was argued that the clear breach by GPL is in continuing with the Projects nonetheless, and that the plaintiff is responsible for this breach. Effectively, the defendant submits that the plaintiff was intimately involved in the actual release of the funds by GPL on the basis that it was only at this point that the loan agreements became ‘live’, and it started gaining a benefit from those loans.[25] As a result, the defendant submits that the plaintiff should have prevented this from occurring, which would have brought the MIS Projects to a halt.
[25]I note that there are no allegations or particulars in the pleading relating to this matter, nor are any clauses of the loan agreement cited as support for this conclusion. Even if it were the case that the plaintiff did not derive any benefit under the loan agreements unless and until the application fees were released, this does not entail that it had any control over that process, or even that it was informed prior to the application fees being released. It was Gunns Limited who was custodian of the application fees, rather than the plaintiff.

With respect to paragraphs 84–85 of the FADC, counsel for the defendant concedes that the form is deficient, but submits that the substance of the issues is identified sufficiently clearly. As a result, it is submitted that leave to file should be allowed, with permission to amend those paragraphs so as to put them in a form that is not embarrassing. With respect to the substance of the claims, it is argued that the plaintiff caused or permitted the defendant to acquire an interest in the MIS Projects on the basis that the only means for him to do so was through the provision of finance by the plaintiff.

Furthermore, it is argued that the key point in time is when GPL caused the application fees to be released to it, which occurred prior to the actual establishment of the woodlots and orchards in each of the respective MIS Projects. Counsel for the defendant submits that the application fees can only be released under the Constitution if GPL can confirm that it is going to continue to fulfil its obligations to the end of the scheme.[26] Given that GPL was acting as agent for the plaintiff in marketing its loans in combination with the MIS Projects, the defendant argues that the scope of the agency agreement goes beyond simply marketing and facilitating the loan, to the point at which GPL directs the application fees to be paid to it for the purposes of establishment and the loan agreements are, thereby, enlivened.
[26]This is not exactly what is stated in the pleading. The Constitution, as quoted in the FADC, states that GPL must be reasonably satisfied that there are no outstanding material breaches of any of the provisions of the Constitution that are detrimental to the interests of the member(s) whose application money is being released.

As a condition of its AFSL, GPL was required to meet a surplus liquid funds test. In addition, GPL appointed Gunns Limited as a custodian to hold the application fees with respect to both MIS Projects on trust for investors. Release of the money by Gunns Limited was to occur only when GPL confirmed that the relevant conditions were satisfied,[27] and this set in motion the chain of events by which the plaintiff derived a benefit from the loan agreement. As the loans are marketed and facilitated through the PDS documents, the defendant submits that the plaintiff had the power to prevent GPL from directing the release of the application fees on the basis of its continuing agency relationship with GPL.
[27]There were no allegations pleaded to support a conclusion that GPL was materially in breach to the defendant’s detriment at the time the application money was released. Additionally, there were no allegations or particulars in the pleading with respect to the plaintiff’s knowledge of the requirements under the Constitution. Nor were any facts pleaded that would support a conclusion that the defendant knew of any material breach at the time the application fees were released, even if it is accepted that it knew when such a release took place.

As a result, the defendant submits that GPL was acting in its capacity as agent of the plaintiff when it directed the application fees to be paid to it, at which point the loan agreements were ‘enlivened’. It is at this point, says the defendant, that the plaintiff was required to intervene to prevent GPL from breaching its obligations under the Act. While the defendant concedes that mere knowledge is not enough to establish accessorial liability under the Act, he submits that the plaintiff was involved in this contravention on the basis of its omission, in accordance with s 79(c) of the Act.

Legislative Provisions and Applicable Law

In relation to his application for leave to file the FADC, the defendant has relied on r 36.01(1) of the Rules, the terms of which are well known. The rule gives to the Court a discretion to allow an amendment for the purpose of determining the real question in controversy between the parties, correcting any defect or error in any proceeding or avoiding multiplicity of proceedings.

Leave to Proceed

With respect to his application for leave to proceed against the plaintiff and GPL, the defendant relies alternatively on either s 471B or s 500(2) of the Act, which provide as follows:

471B Stay of proceedings and suspension of enforcement process
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a)a proceeding in a court against the company or in relation to property of the company; or
(b)enforcement process in relation to such property;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
…
500 Execution and civil proceedings
…
(2)After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.
…

The provision pursuant to which the defendant requires leave will be determined by the nature of the liquidation to which the plaintiff and GPL are subject. In this case, as previously noted, it appears that both the plaintiff and GPL are subject to a creditors’ voluntary winding up. This means that the relevant provision is s 500(2) of the Act. However, for the purposes of the defendant’s application here, it is of no consequence. This is because the two provisions are in similar terms. The authorities concerning the purpose of, and the considerations relevant to granting leave under, s 471B, are relevant to the purpose of, and the considerations relevant to granting leave under, s 500(2).[28]
[28]Snelgrove v Great Southern Managers Australia Ltd (In Liq)(Receivers and Managers Appointed) [2010] WASC 51 (Snelgrove).

Although s 500 is silent as to the principles under which leave to proceed will be granted, there are many authorities that establish a range of principles and factors relevant to the exercise of the discretion to grant leave, as follows:

(a) The prohibition on proceeding without the grant of leave is intended to effect the statutory policy of ensuring that the assets are distributed rateably amongst all creditors so that no creditor will obtain an advantage over another;[29]
[29]Re Sydney Formworks Pty Ltd (In Liquidation) [1965] NSWR 646 at 650; Op Cit Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation)(No 2) [2009] FCA 42 at [18]; But doubted by McPherson J in Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314 at 316 (Gordon Grant);

(b) The purpose of the provision is to prevent a company in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of the creditors of the company and, perhaps, unnecessarily;[30]
[30]Fielding v Vagrand Pty Ltd (In Liquidation) (1993) 11 ACLC 172 at 174; Ogilvie Grant v East (1983) 2 Qd R 314 at 316; Maher v Taylor (1984) 8 ACLR 931 at 934; Re A J Benjamin Ltd (In Liquidation) (1969) 90 WN (Pt 1) (NSW) 107 at 110.

(c) The liquidator’s attention and resources should not be diverted into expending substantial funds on defending proceedings by those with claims against the company when there is a simpler procedure available, namely calling for and adjudicating upon creditors’ proofs of debt, with a right of appeal under s 1321:[31]
[31]King v Yurisch [2006] FCA 1369 at [13]; Gordon Grant at 316;

(d) There is, in effect, a presumption in favour of leaving those with claims against companies in liquidation to the ordinary proof of debt procedure which is, generally speaking, a cheaper and more efficient way of resolving their claims;[32]
[32]King v Yurisch [2006] FCA 1369 at [13]; Gordon Grant at 317.

(e) Thus the starting point is that a claimant must lodge a proof of debt unless that person can demonstrate there is good reason to depart from that procedure;[33]
[33]Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749; (2009) 72 ACSR 627 (Swaby) at [26].

(f) In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate, in respect of a particular claim, to proceed by way of action;[34]
[34]Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484 at 2, citing Fielding v Vagrand Pty Ltd (In Liquidation) (1993) 11 ACLC 172 at 174 (affirmed on appeal in Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 at 555; 10 ACSR 373);

(g) There must be a serious or substantial question to be tried and the claim must not be futile;[35] This has been expressed in different ways, as ‘that the claim has a solid foundation and gives rise to a serious dispute’, and as akin to the test used in considering whether interlocutory relief should be granted: ‘a serious question to be tried’.[36] There must be evidence establishing the basis for the existence of a serious question to be tried.[37] Mere assertion, which is unsupported by a solid foundation, will not suffice.[38] However, an applicant is not required to adduce evidence of every element of its claim because to impose that burden would be to shut out many meritorious claims;[39]
[35]Per Lee J in Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484.
[36]Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 at 555; 10 ACSR 373); But see now Australian Broadcasting Commission v O’Neill (2006) 227 CLR 57, 82 [65] (Gummow and Hayne JJ); see also 68 [19] (Gleeson CJ, Crennan J).
[37]Nu Life Air Conditioning Pty Ltd v Reef Building Contractors Pty Ltd [2006] NSWSC 1245 at [7];
[38]Tolhurst Druce & Emmerson (a firm) v Maryvell Investments Pty Ltd (in liq) [2007] VSC 271 at [164].
[39]Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 at 553; 10 ACSR 373).

(h) Claims for unliquidated damages for misleading or deceptive conduct, for breach of contract or for tort are admissible to proof in a liquidation;[40]
[40]Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123 at 128.

(i) It is impossible to state exhaustively the circumstances in which the Court should exercise its discretion to grant leave to proceed. However, in determining whether leave to proceed should be granted, generally relevant factors will include:[41]
[41]Gordon Grant at 317; Swaby at [29]; Commonwealth v Davis Samuel Pty Ltd at [30], [32]; Lawless v McKendrick (No 2) [2008] WASC 15 at [35]; Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (in liq)(No 2) [2009] FCA 42; Ingot Capital Investments Pty Ltd and Ors v Macquarie Equity Capital Markets Pty Ltd and Ors [2004] NSWSC 406.

(i) The amount, nature and seriousness of the claim;

(ii) The degree of complexity of the legal and factual issues involved;

(iii) Whether the relief is not otherwise available to the applicant except by application to the court;

(iv) The stage to which the proceedings, if already commenced, may have progressed;

(v) In the case of a counterclaim (or cross-claim), whether it arises out of the same factual matrix as the claims made in the primary proceedings;

(vi) Whether there is a risk that the same issues would be re-litigated if the claims were to be the subject of a proof of debt;

(vii) Whether the proceedings will result in prejudice to the creditors;

(viii) Whether the company has a policy of insurance from which any judgment will be paid;

(ix) Whether the claim is in the nature of a test case for the interest of a large class of potential claimants;

(x) Whether the grant of leave will unleash an 'avalanche of litigation';

(xi) Whether the cost of the hearing will be disproportionate to the company's resources;

(xii) Delay; and

(xiii) Whether pre-trial procedures, such as discovery and interrogatories, are likely to be required or be beneficial.

Where there is an insurance company standing behind the company to pay any judgment which the claimant may obtain, that is a factor strongly favouring the grant of leave. In such circumstances, the proceedings will generally cause no prejudice - procedural or substantive - to the other creditors.[42]
[42]Re AJ Benjamin Ltd [1969] 2 NSWR 374; Re Sydney Formworks Pty Ltd [1965] NSWR 646; Re Coastal Constructions Pty Ltd (1994) 13 ACSR 329; Lawless v McKendrick (No 2) [2008] WASC 15 at [37].

Provisions relied on in the FADC

As noted above, the defendant has claimed that GPL has breached ss 912A and 601FC of the Act, each of which relates to a different role of GPL. With respect to its capacity as the holder of an AFSL, GPL is under obligations imposed by s 912A(1) of the Act,[43] which provides, relevantly, as follows:
[43]At the hearing, it was conceded that there were some issues with the substance of this claim. As a result, these reasons will focus on the claim under s 601FC(1).

912A General obligations
(1) A financial services licensee must:
…
(d)… have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and
(e)maintain the competence to provide those financial services; and
…

Section 601FC of the Act, on the other hand, imposes obligations on GPL in relation to its conduct as a Responsible Entity, relevantly stating as follows:

601FC Duties of responsible entity
(1)In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:
…
(b)exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity’s position; and
(c)act in the best interests of the members and, if there is a conflict between the members’ interests and its own interests, give priority to the members’ interests; and
…
(e)not make use of information acquired through being the responsible entity in order to:
(i)gain an improper advantage for itself or another person; or
(ii)cause detriment to the members of the scheme; and

…
(m)carry out or comply with any other duty, not inconsistent with this Act, that is conferred on the responsible entity by the scheme’s constitution.
…

(5)A responsible entity who contravenes subsection (1), and any person who is involved in a responsible entity’s contravention of that subsection, contravenes this subsection.

The defendant argues that the plaintiff is liable under s 601FC(5) of the Act for the breaches of that section by GPL, on the basis that it was ‘involved’ in those breaches. As noted in that section, the circumstances in which a person is ‘involved’ in a contravention are set out in s 79 of the Act as follows:

79 Involvement in Contraventions
A person is involved in a contravention if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b)has induced, whether by threats or promises or otherwise, the contravention; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)has conspired with others to effect the contravention.

The defendant relies on s 79(c) of the Act with respect to the plaintiff’s alleged involvement in the breaches by GPL of s 601FC of the Act.

Analysis

Having regard to the authorities on the consideration for the grant of leave under s 500(2), to which I have referred above, the key question is whether there is a serious question to be tried, for which there is a solid foundation, that the plaintiff is to be held liable for GPL’s alleged breaches of the Act, in which the plaintiff is claimed to have been knowingly involved.

For present purposes, I propose to proceed on the assumption that the defendant’s claims against GPL are well-founded – both in fact and in law – without attempting to determine the correctness of the assumption. In this way I will consider whether the FADC meets the requirements for leave to be given for the defendant to file the FADC and to proceed against the plaintiff, as a first step. That is, I will determine whether there is a viable claim that plaintiff was involved in GPL’s breaches (assuming that this is what they are), so as to have breached s 601FC(5) of the Act. If there is no substance to this claim, then it is unnecessary to consider the FADC any further, as the claims against GPL are irrelevant in this proceeding except insofar as the plaintiff is liable for them.

With respect to the requirements set out in r 36.01(1) of the Rules, I consider that the proposed FADC – if corrected in form – would both narrow the issues between the parties (in the defence) and avoid a multiplicity of proceedings (by virtue of the counterclaim). However, as stated above, leave should be given for the FADC to be filed only if it does not introduce a ‘patently hopeless’ issue for determination, or if the amendment has no reasonable prospect of success at trial.[44] This is a more stringent threshold than the requirement that leave to proceed against an insolvent company be given only where there is a serious question to be tried with a solid foundation.[45] If the proposed FADC passes the latter test, then it will necessarily have passed the former, and leave should be given. On the other hand, if it is ‘patently hopeless’, then it will have no chance of meeting the less stringent threshold, and leave should be refused.
[44]EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207 [15].
[45]Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550, 556.

Looking only at the allegations made against the plaintiff, there are a large number of issues with the defendant’s proposed FADC; some of which are significant and some of which are minor. However, the nub of the matter is that in order to make out the plaintiff’s liability to him, the defendant must show that the plaintiff was ‘knowingly involved’ in the contraventions of GPL under s 79(c) of the Act (although this is not specifically pleaded).

The Plaintiff’s Knowledge

Putting aside deficiencies in the form of the pleading, there are two different areas of knowledge that are alleged against the defendant. The first set of knowledge relates to the PDS documents, and appears to relate to the claim that an agency relationship existed between the plaintiff and GPL. The second is an allegation that the plaintiff had knowledge ‘of the prospect or fact of or both the prospect and fact of GPL releasing the application fees’.[46] This allegation was only made with respect to the defendant’s investment in the Woodlot Project, but it can be considered in the abstract with respect to both MIS Projects. It is this second area of knowledge that appears to be the basis for the ‘knowing’ element of ‘knowing involvement’.
[46]Paragraph 85 of the FADC.

Taking the proposed FADC at its highest, it may be accepted for the purposes of argument that the plaintiff had knowledge that GPL would be releasing the application fees in relation to the Woodlot project prior to 30 June 2009, and in relation to the Walnut Project prior to 31 October 2010, due to the taxation rulings it had obtained. It would also have known, as at 17 June 2009, that the application fees had not yet been released because the loan agreements with respect to the MIS Projects would not yet have been ‘enlivened’. As a result, it can be accepted that it knew that the application fees with respect to both MIS Projects would be released after 17 June 2009 – at which point both GPL and the plaintiff knew of the risk that GPL would not be able to see the MIS Projects through to completion – and before the end of the relevant establishment period. Given that it is the release of the application fees that the defendant says is the crux of GPL’s conduct in contravention of the Act, it may be accepted, for the purposes of argument only, that the defendant has a solid foundation for its claim that the plaintiff had ‘knowledge’ of GPL’s breach of the Act.

The Plaintiff’s Involvement

With respect to the plaintiff’s alleged involvement in this conduct, the defendant argues that the plaintiff had the power to intervene to prevent GPL from directing Gunns Limited to release the application fees. It is argued further that the plaintiff had an obligation to do so by virtue of the alleged agency relationship. The existence of an agency relationship with GPL is disputed by the plaintiff. However, it may be accepted for present purposes that such a relationship could have existed for the purposes of GPL’s marketing and facilitation of loans from the plaintiff to investors for the purposes of the MIS Projects.[47] The key question here is whether, assuming such a relationship exists, GPL could have been acting within the scope of its authority in directing Gunns Limited to release the application fees. If the scope of the agency relationship does not extend this far, there is no obligation on the plaintiff to prevent the application fees from being released, and thus it cannot have been involved in GPL’s breach.
[47]I note the remarks of Allsop P (with whom Bathurst CJ and Campbell JA concurred) in relation to a similar factual scenario in Tonto Home Loans Australia Pty Ltd v Tavaras [2011] NSWCA 389 [193]. That case involved an allegation of agency in the context of a mortgage ‘originator’ and a mortgage provider, with Allsop P stating that the agreement between them was one ‘between two entities each of which had its own business’, in which the originator would ‘endeavour to introduce business from its own customer base for the mutual commercial advantage of both’.

The defendant claims that the agency relationship existed for the purpose of marketing the plaintiff’s loan agreements and, as such, it extended to the point at which the loan agreements were ‘enlivened’ by the release of the application fees to GPL. On the defendant’s pleaded case, this cannot be so. If the agency existed for the purpose of getting investors to enter into loan agreements with the plaintiff, this purpose has been fulfilled at the point at which the application fees are given by the plaintiff to Gunns Limited as custodian. This is the point at which the plaintiff has fulfilled its role as the provider of the loan, and GPL’s role as agent in ‘procuring’ the loan has ceased. While it may be the case that the terms of the loan agreement state that no repayments are to be made or interest incurred until the application fees are released by the custodian, this does not alter the fact that the agency relationship has fulfilled its purpose and has, therefore, come to an end.

Even if it is accepted that the agency relationship was still operative at the point at which the application fees were released to GPL by the custodian, there is a more fundamental issue with the defendant’s claim as to the scope of the agency relationship.

Every agency relationship must necessarily have a scope. The essence of an agency relationship is that the agent has been authorised to act ‘on behalf of’ the principal. However, an agent can be acting on behalf of the principal in one set of circumstances and on his own account or on someone else’s behalf in another set of circumstances.[48] Thus, it is necessary to look at the scope of the agent’s authority in the context of the case, in order to determine whether he is acting as the principal or in his or her own capacity.[49] Here, the defendant has pleaded that GPL was acting within the scope of either its actual or ostensible authority. Neither of these allegations is tenable in substance, for the reasons outlined separately below.
[48]Kirkpatrick v Kotis (2004) 62 NSWLR 567, 581 [85].
[49]Ibid [86].

Actual Authority

The fundamental basis for agency by actual authority is the maxim that ‘what a person may do himself, he may do by an agent’.[50] The agent thus derives his authority to act from the principal and so, when acting in accordance with that authority, he acts as the principal; his conduct is treated as the principal’s conduct.[51] By contrast, where he acts in his own capacity and for his own benefit, he is not acting as an agent.[52]
[50]This is translated from the Latin: ‘qui facit per alium facit per se’; see, eg Christie v Permewan, Wright & Co Ltd (1904) 1 CLR 693, 700 (Griffith CJ, Barton and O’Connor JJ).
[51]Jones v Bouffier (1911) 12 CLR 579, 611 (Isaacs J).
[52]Ibid.

From these basic principles, two conclusions can be drawn. The first conclusion is that, where an agent holds a power independently of the agency relationship, he is capable of exercising that power on his own behalf, rather than on behalf of the principal. The second is that an agent appointed to exercise a power on behalf of the principal holds that power by virtue of the agency relationship, through which he exercises the principal’s power on the principal’s behalf. For this reason, an agent cannot have greater authority than the principal, as the principal cannot delegate power that he does not have.[53] If the principal were able to do so, he would be able then – through the vehicle of agency – to extend his own authority.[54]
[53]This principle was described as ‘one of the most basic propositions of agency law’ by MacKenzie J in Cripps v Lakeview Farm Fresh Ltd (in receivership) [2006] 1 NZLR 238, 245 [22].
[54]Ibid.

These two conclusions are derived easily from the fundamental principles of agency set out above. However, they stand in stark contrast with the defendant’s pleadings and submissions in this case. Here, GPL had been appointed as Responsible Entity in relation to the MIS Projects and, as such, it was capable of exercising its power as Responsible Entity on its own behalf. Given that this is the case, convincing factual circumstances would be required for me to conclude that it was acting as agent for any other entity. Even more compelling is the fact that, not only does GPL independently hold the power to direct the release of the application fees as Responsible Entity, but it is the sole repository of such a power.[55] As a result, it cannot be acting pursuant to any authority delegated to it by another party, let alone the plaintiff. The plaintiff had not been appointed as Responsible Entity, and it had no power to direct the custodian to release the application fees to GPL. Given that the plaintiff could not delegate to GPL a power that it does not have, the scope of any agency relationship between the two cannot extend to the actual conduct of GPL in releasing the application fees to itself.
[55]See s 601FB of the Act.

Looking back to the maxim that ‘what a person may do himself, he may do by an agent’, one could ask: If the plaintiff had determined to end the agency relationship as at 17 June 2009 – when it learned of the risk that GPL may be unable to manage the MIS Projects to completion – would it have had the power to undertake on its own behalf the conduct that is said to have been undertaken on its behalf by GPL? The answer must surely be no. GPL was the only appointed Responsible Entity with power to direct Gunns Limited to release the application fees. GPL was also the only manager appointed in each of the MIS Projects. It was GPL who held a right over the relevant lots under the Forestry Right Deed and the Orchard Right Deed. The plaintiff was none of these things. As a result, it cannot be said that GPL was acting on behalf of the plaintiff when the plaintiff had no power to do any of the acts that are said to constitute contraventions of the Act. No such actual authority existed for GPL to engage in such conduct on the plaintiff’s behalf.

Ostensible Authority

In the alternative, the defendant has pleaded that GPL was acting within the scope of its ostensible authority when it released the application fees to itself. The basic principle of the doctrine of ostensible or apparent authority is that, where a principal has held a person out as having authority to perform certain acts on his behalf, and where another person has relied on such a representation to his detriment, the principal will be prevented from denying it. In this respect, the agency operates as an estoppel by way of representation between the principal and the third party, to which the agent is a stranger.[56] The object of the estoppel is to ‘prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment’.[57]
[56]Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 503 (Diplock LJ).
[57]Thompson v Palmer (1933) 49 CLR 507, 547 (Dixon J).

There are two key issues with the application of the doctrine of ostensible authority in this case. The first issue is that the defendant is required to plead and prove that the plaintiff made a representation of some kind that GPL was acting as its agent in releasing the application fees to itself. While this could be made out on the basis of a course of dealing, it would have to be demonstrated that the course of dealing was sufficiently frequent and understood.[58] In this case, the only course of dealing that has been identified is that GPL consistently marketed the plaintiff’s loans to prospective investors in the MIS Projects. Once the loan was procured by GPL, however, all investors dealt with the plaintiff directly from then onwards, rather than through GPL. Thus, the proposition that the plaintiff held GPL out as being its agent for the purposes of any conduct after the loan agreements had been entered into is untenable – this conduct is in no way linked to the course of dealing identified in the pleading.
[58]Darrell McGregor (Contractor) Ltd v Mountain Lake Holdings Ltd [2006] NZHC 591.

Furthermore, in order to rely on an estoppel by representation, the defendant would have to plead and particularise an allegation that he had reasonably relied on such a representation to his detriment.[59] While it is true that no reliance is pleaded here,[60] even if the defendant had relied on a representation by the plaintiff, it is clear that such reliance would not be reasonable. Thus, for example, the defendant might argue that he relied on the plaintiff’s holding out that it was authorising GPL to release the application fees on its behalf. However, no reasonable person in his position would have made such an assumption, because the documentation clearly relates to two separate entities. He has contracted with the plaintiff specifically in relation to the loan, and GPL is not party to this agreement. On the other hand, he has contracted with GPL specifically in relation to the investment, on the basis that GPL alone has the authority to direct the custodian to release the application fees. He was well aware that the plaintiff had no power to do so. I cannot accept that a reasonable person would believe in those circumstances that GPL would be acting for the plaintiff in exercising a power that the plaintiff did not have.
[59]Hoare v McCarthy (1916) 22 CLR 296, 305-6 (Isaacs J).
[60]In this respect see, eg, Clarke v Great Southern Finance Pty Ltd [2014] VSC 516, [2000].

Conclusion

Without any scope for GPL to have been acting within either the plaintiff’s actual or ostensible authority in releasing the application fees to itself, there is no right or obligation on the plaintiff to intervene to prevent GPL from doing so. Without an obligation to act, there is no ‘omission’ in the legal sense, and so there cannot be any involvement in the relevant conduct. As stated by Yates J in SensaSlim:

A person’s actual knowledge of the essential elements of a contravention of the Act or the Australian Consumer Law by another will not of itself be enough to sheet home liability to that person in an accessorial capacity. More is required for the person to be concerned in or party to the contravention.[61]

[61]ACCC v SensaSlim Australia Pty Ltd [2014] FCA 340, [536]; See also Sent v Jet Corporation of Australia Pty Ltd, (1984) 2 FCR 201 at 207-8; Clarke v Great Southern Finance Pty Ltd & Ors [2010] VSC 473 at [17]–[28].

Without an obligation to act, the plaintiff’s alleged knowledge – that GPL would be directing Gunns Limited to release the application fees after it had disclosed a risk that it may not be able to manage the MIS Projects through to completion – is simply insufficient to establish liability. In the circumstances of this case, there is no scope for GPL to have been acting on behalf of the plaintiff in releasing the fees. The plaintiff had no such power to delegate. As a result, and given that no other basis has been identified on which the plaintiff may have been involved in GPL’s alleged contraventions of the Act, I consider that the defendant’s pleading is patently hopeless. The claim against the plaintiff, therefore, does not disclose a serious question to be tried, quite regardless as to whether there is any solid foundation established in the evidence advanced by the defendant.

No pleading, no matter how expertly drafted, could succeed in establishing that GPL was acting both as agent and Responsible Entity at the relevant point in time. The plaintiff’s applications for leave to file the FADC and for leave to proceed against the plaintiff (to say nothing of its prospects against GPL) must be dismissed.

Summary Judgment Application

The plaintiff’s summary judgment application remains extant, as counsel for the plaintiff noted in oral submissions on 22 October 2014. Indeed the defendant acknowledged that unless the leave were granted, the defence, depending as it does on the proposed counterclaim, provided no defence to the recovery by the plaintiff of the moneys claimed.[62] Due to the late filing of the affidavit to which the first further amended defence and counterclaim was exhibited, the hearing on 11 September 2014 resulted only in orders that the defendant’s amended defence filed on 30 April 2014 was struck out and the making of directions for an application by the defendant for leave to file and serve an amended defence and counterclaim and to seek leave to proceed with the counterclaim. The plaintiff’s summary judgment application, which was before the Court on the occasion, was not dealt with.
[62]Transcript 22 October 2014 P.46.

The test as to whether to grant an application for summary judgment is no more onerous than the test for refusal of leave to file an amended pleading. With respect to the former, summary judgment in a case such as this may be granted where the plaintiff proves all the elements of its causes of action and the defence has no real prospect of success. The test for denying leave to amend pleadings is, as I have said, whether the amendment introduces an issue that is ‘patently hopeless’ or has no reasonable prospect of success at trial.[63] Given that I have concluded that the defendant’s FADC is patently hopeless, there does not seem to be any scope for the defendant to resist the application for summary judgment.
[63]EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207; referring to and approving of the comments of Derham AsJ in the decision under appeal.

Nonetheless, because the plaintiff’s application for summary judgment was not specifically addressed at the hearing of the defendant’s applications, I will give the defendant the opportunity to make submissions as to whether, accepting the above analysis of the set-off and counterclaim to be correct, there is any reason why the plaintiff should not be entitled to summary judgment in its favour.

Conclusion

For the reasons outlined above, I consider that the defendant’s claims against the plaintiff have no substance and no prospect of success. I refuse the defendant’s application for leave to file the FADC and for leave to proceed against the plaintiff. The summary judgment application remains to be finally determined and I will invite the parties to make submissions with respect to that application.

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[2015] VSC 385

4 August 2015