Gunns Finance Pty Ltd v Braham and Ludekens

[2009] TASSC 69

[2009] TASSC 69

COURT:  SUPREME COURT OF TASMANIA

CITATION:              Gunns Finance Pty Ltd v Braham and Ludekens [2009] TASSC 69

PARTIES:  GUNNS FINANCE PTY LTD (ACN 091 861 700)
  v
  BRAHAM, Simon
  LUDEKENS, Andrew

FILE NO/S:  1098/2008
DELIVERED ON:  10 September 2009
DELIVERED AT:  Hobart
HEARING DATE:  31 July 2009
JUDGMENT OF:  Holt AsJ

CATCHWORDS:

Contracts – General contractual principles – Construction and interpretation of contracts – Other matters – Execution of written documents – Whether agreement wholly contained in written documents.

Aust Dig Contracts [120]

Procedure – Supreme Court procedure – Tasmania – Practice under Rules of Court – Pleadings – Striking out – Whether plea discloses a reasonable answer.

Aust Dig Procedure [272]

REPRESENTATION:

Counsel:
             Plaintiff:  S B McElwaine
             Defendants:  D J Williams
Solicitors:
             Plaintiff:  Shields Heritage
             Defendants:  Justin O'Keeffe & Associates

Judgment Number:  [2009] TASSC 69
Number of paragraphs:  23

Serial No 69/2009
  File No 1098/2008

GUNNS FINANCE PTY LTD (ACN 091 861 700)
v SIMON BRAHAM and ANDREW LUDEKENS

REASONS FOR JUDGMENT  HOLT AsJ

10 September 2009

1. The plaintiff has applied for an order striking out the defendants' defence and counterclaim. 

1. It is necessary to begin by referring to the statement of claim.  It is as follows.  The plaintiff agreed to lend to the defendants $2,199,885.57 at an interest rate of 10.5 per cent per annum.  The agreement was in writing and comprised in a loan application dated 30 June 2007 and a letter of acceptance bearing the same date.  The loan was repayable by monthly instalments commencing 31 July 2007.  It was a term of the loan that if any instalment was missed, the loan balance would become due for repayment without demand and would carry interest at 12.5 per cent per annum. The funds were advanced on 1 July 2007.  The defendants missed the March 2008 instalment and several others.  The claim is for repayment of the balance of the loan, with interest accruing at 12.5 per cent.

1. In the defence, the defendants admit that they signed the loan application and received the letter of acceptance.  However, despite this, they deny the existence of a contract.  In addition, they say that in signing the loan application, they acted in reliance on representations which were misleading and deceptive and made negligently.  They claim that the representations give rise to an entitlement to damages which may be set off against the plaintiff's claim and an entitlement to have the loan contract (if it is found to exist) put to an end. 

1. Counsel for the plaintiff submitted that the no contract plea is clearly without any prospect of success and that the misrepresentation pleas are defective.

1. The relevant rules are the Supreme Court Rules 2000 ("the Rules"), rr227(1), (3), 258(1) and 259. They are as follows:

"227    Statements in pleadings

(1)    A pleading is to —  

(a)be as brief as the nature of the case allows; and

(b)contain only a statement of all the material facts in summary form on which the party relies but not the evidence by which those facts are to be proved.

…

(3)    Every pleading is to be expressed so as to give reasonably explicit notice to any other party of all grounds of action or all defences on which the party pleading intends to rely at the trial.

258     Striking out certain matters

(1)    The Court or a judge may order to be struck out or amended in any endorsement or pleading any matter that —  

(a)may be unnecessary or scandalous; or

(b)may tend to prejudice or delay the fair trial of the proceeding."

"259     Striking out pleading

If a pleading does not disclose a reasonable cause of action or answer or shows that the cause of action or defence is frivolous or vexatious, the Court or a judge may order —

(a)that the action be stayed or dismissed or the pleading be struck out; and

(b)that judgment be entered accordingly."

1. The equivalent of r258 was considered in Meckiff v Simpson [1968] VR 62. There, Winneke CJ, Adam and Gowans JJ said at 70:

"It is important at the outset to stress that the order appealed against was made on an application under O XIX, r 27, which authorizes a judge to strike out any matter in any pleading which may tend to a prejudice, embarrass or delay the fair trial of the action.  As is shown by numerous authorities on this rule, which takes its place in an order dealing with pleadings generally, matter in a pleading will be struck out under this rule only where there is some defect in the pleading attacked, eg where the pleading is unintelligible, ambiguous, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him.  The rule is one to ensure compliance with the rules of pleading and nothing else."

1. Rule 259 was considered by Porter J in Gunns Ltd v Alishah [2009] TASSC 45. He said at par23:

"Summary dismissal is a step which should only be taken if the case is 'very clear'; Dey v Victorian Railways Commissioners (1949) 78 CLR 62 per Dixon J at 91, General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 per Barwick CJ at 128 – 130 and Cubillo v Commonwealth (1999) 89 FCR 528 at 549 - 551. Frivolous and vexatious claims are ones which cannot possibly succeed; Pridmore v MagentaNominees Pty Ltd (1999) 161 ALR 458 at 462-63."

1. I commence with the no contract plea.  The defendants plead that when completing the loan application form, the second defendant crossed out the typed figure of 10.5 per cent and substituted 10 per cent.  They assert that because the plaintiff has claimed interest at 10.5 per cent, it must be the case that the plaintiff entered into the agreement on the understanding that that was the agreed interest rate.  Accordingly there was "no meeting of the minds" and hence no agreement.

1. The defendants admit that they executed the loan documentation and there is no suggestion of any failure by the plaintiff to countersign.  There is no plea of non est factum.  The inevitable conclusion will be that there is an agreement.  In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, the Court said at par33:

"The parol evidence rule Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133, the limited operation of the defence of non est factum Petelin v Cullen (1975) 132 CLR 355 and the development of the equitable remedy of rectification Taylor v Johnson (1983) 151 CLR 422, all proceed from the premise that a party executing a written agreement is bound by it. … Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified." [My emphasis.]

1. If the plaintiff, in executing the agreement, was mistaken as to the applicable interest rate, that could not possibly afford to the defendants an opportunity to rescind.  This is clear from the judgment of Mason ACJ, (as he then was) Murphy and Deane JJ in Taylor v Johnson (1983) 151 CLR 422 at 432. It was said:

"The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension."

1. The defendants' no contract plea is without any prospect of any success.  It will be struck out.

1. I now turn to the misrepresentation pleas.

1. The defendants rely on the statutory causes of action created by the Australian Securities and Investments Commission Act 2001 (Cth) (the Act), and the liability which attaches at common law for negligent misstatement. The relevant sections are 12DA(1), 12GF(1), and 12GM(2). The equivalent of these provisions for cases not concerning financial services can be found in the Trade Practices Act 1974 (Cth), ss52(1), 82(1) and 87(1A). The ASIC provisions are as follows:

"sect 12da

Misleading or deceptive conduct

(1)    A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

sect 12gf

Actions for damages

(1)    A person who suffers loss or damage by conduct of another person that contravenes a provision of Subdivision C (sections 12CA to 12CC) or Subdivision D (sections 12DA to12DN) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

sect 12gm

Other orders

…

(2)    Without limiting the generality of section 12GD, the Court may, on the application of:

(a)person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division; or

(b)ASIC in accordance with subsection (3) on behalf of such a person or persons;

make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7)) if the Court considers that the order or orders concerned will:

(c)compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage;  or

(d)prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person or persons."

1. The existence of each cause of action is dependent upon there being a link between the making of the representations and the suffering of loss or damage (including, in the case of s12GM, the likelihood of loss or damage). 

1. The representations are pleaded at par9(a), (b), (f), and (g).  (The allegations in subpars(c), (d), and (e), having been abandoned).  The link is pleaded at pars10, 14 and 15.  In the pleas, the plaintiff is referred to as GFPL and the company with whom the borrowed funds were to be invested, Gunns Plantations Limited, is referred to as GPL.  The relevant parts of the pleas are as follows:

"9Further and in the alternative to the foregoing, in or about April and May 2007 GFPL and GPL represented to the defendants that:

(a)  their parent company, Gunns Limited ('Gunns'), and its subsidiaries, were no longer involved in the logging of old growth forests;

(b)  investors in GPL's 2006 woodlot project ('the 2006 woodlot project') described in the Product Disclosure Statement ('PDS') issued by GPL in respect of that project could reasonably be expected to receive future returns on such investment consistent with those set out in a Microsoft Excel spreadsheet ('the spreadsheet') emailed to Ludekens by Ian Blanden on behalf of GFPL and GPL on or about 10 May 2007;

(f)   timber harvest data from earlier plantings by GPL demonstrated that:

(i)GPL and/or its parent, Gunns, was an outstanding, alternatively above average, forest manager;

(ii)investors in the 2006 woodlot projects could reasonably expect to receive significantly higher returns than those stated in the PDS having regard to the track record of GPL and/or Gunns as a forest managers [sic] or reflected in that data

(g)  insofar as the representations alleged in paragraphs 9(b) and (f) above were representations as to future matters, GFPL and GPL and each of them had reasonable grounds for doing so –

('the representations')

10In reliance on the representations and each of them, the defendants:

(a)  signed the application alleged in paragraph 2 of the statement of claim;

(b)  thereby applied to GFP [sic] to participate in the 2006 woodlot project and to obtain finance from GFPL in connection with, and to facilitate, such participation.

14… insofar as … the representations or any of them were made by GPL, but not by GFPL, GFPL was a person involved in the contraventions within the meaning of s12GF of the ASIC Act, in that:

(a)  the overall scheme of the 2006 woodlot project as promoted in the PDS and otherwise to the defendants was a seamless investment involving the application for participation in the project and the application for finance in a single document as part of what was, in substance, a single transaction;

…

15By reason of the contraventions and each of them if (which is denied) the defendants are bound by a contract between themselves and GFPL arising in whole or in part from appending their signatures to the application form then by reason of the contraventions the defendants have suffered, further or alternatively are likely to suffer, loss and damage.

Particulars

(1)It follows from the reliance alleged in paragraph 10 above, that the defendants would not have executed the application to participate in the 2006 woodlot project and the application for finance but for the making of the representations.  Insofar as (which is not admitted) the defendants are found to have any liability to GFPL arising from the application for finance, such liability (including but not limited to principal, interest, legal and enforcement costs and their own costs associated with the conduct of the present proceedings) is a loss which they would not have incurred but for the contraventions.

(2)Further or alternatively, the second defendant lost the opportunity to participate in an alternative investment or investments prior to 30 June 2007 which would have yielded investment returns and afforded tax deductibility benefits broadly similar to those offered to him pursuant to the 2006 woodlot project."

1. Regarding the alleged representation concerning the logging of old growth forests, there are no facts pleaded which are capable of leading to a reasonable inference that the representation and the making of the contract stood to each other in the relation of cause and effect.  In genuine cases such facts are capable of being stated and must be stated.  If it is the fact that as a result of the representation, the defendants believed that neither Gunns Limited nor any of its subsidiaries were involved in old growth logging, this should be specified.  If it is the fact that but for the belief the defendants would not have borrowed the money and invested it in the woodlot project, this must also be specified.  The requirement to plead such facts is made clear in Bond Corporation Pty Ltd v Theiss Contractors Pty Ltd (1987) 14 FCR 215 at 222 where French J said:

"The material facts establishing the necessary causal link should be pleaded. In cases of contravention of s 52 said to be constituted by misrepresentation this will generally require more than appears in the opening words of par 50: 'by reason of such conduct ... .'

Some guidance to the proper approach may be derived from the ordinary rule of pleading applicable in cases of fraud of which Lord Watson said in Dow Hager Lawrance v Lord Norreys (1890) 15 App Cas 210 at 221:

" ... the ordinary rule of pleading applicable to cases of fraud, ... was thus expressed by Earle Selborne in Wallingford v Mutual Society (1880) 5 App Cas 685 at 697: 'general allegations, however strong may be the words in which they are stated, are insufficient to amount to an averment of fraud of which any court ought to take notice.' It is not a sufficient compliance with the rule to state facts and circumstances which merely imply that the defendant, or someone for whose action he is responsible, did commit a fraud of some kind. There must be a probable, if not necessary, connection between the fraud averred and the injurious consequences which the plaintiff attributes to it; and if that connection is not sufficiently apparent from the particulars stated, it cannot be supplied by general averments. Facts and circumstances must in that case be set forth, and in every genuine claim are capable of being stated, leading to a reasonable inference that the fraud and the injuries complained of stood to each other in the relation of cause and effect."

A perusal of the relevant precedents in E Bullen, S M Leake, I H Jacob, Precedents of Pleadings in the Queen's Bench Division of the High Court of Justice (12th ed, 1975), pp 702-707, supports the view that the approach enunciated by Lord Watson is equally applicable to actions for negligent misstatement.

While the same point did not arise squarely in James v ANZ Banking Group Ltd (1985) ATPR 40-504, Toohey J in striking out particulars of loss and damage there pleaded said at 46,034:

'While the Bank is not required to plead specifically to particulars of damages, it is entitled to know with some certainty what is being claimed and the basis of the claim.'

In my opinion the statement of claim in par 50 does not plead the necessary material facts to establish the causal relationship between contravention and loss which is necessary to the cause of action. In the case of misleading and deceptive statements said to constitute a contravention of s 52, to paraphrase Lord Watson, facts and circumstances should be set out leading to a reasonable inference that the conduct and the damage stood to each other in the relation of cause and effect."

1. In addition, the misrepresentation pleas do not identify any loss at all.  Nothing has been alleged from which it might be inferred that the transaction did or was likely to have created obligations or liabilities on the part of the defendants which exceeded the value of the benefits conferred.  A mere contingency or possibility that a transaction might prove to be detrimental is not enough.  Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514.

1. The misrepresentation pleas do not, as presently drafted, set out sufficient facts to provide an answer to the plaintiff's claim or to give rise to a counterclaim.  They will be struck out.

1. There were some other complaints made about the misrepresentation pleas which I will deal with briefly.

1. Firstly, the pleas do not separately identify which representations are said to relate to matters of existing fact and which representations are said to relate to future matters.  It is important for the plea to disclose this distinction and maintain it in setting out the facts relied upon to show that the representations were misleading or likely to mislead.  Where a representation concerns a future matter, it is sufficient to allege that it was made without reasonable grounds to give it the character of being misleading.  The Act, s12BB provides that a representation about a future matter, made without reasonable grounds, is taken to be misleading.  The onus is on the person who made the representation to show that there were reasonable grounds for it.  The failure to distinguish results in the pleas being defective as lacking the necessary clarity and specificity.

1. Secondly, it was said that insufficient facts had been pleaded to show that the representations were made in relation to financial services.  The plea shows that the finance application was for a loan for the purpose of making a financial investment in a timber plantation.  This is plainly enough to set up an arguable case that the representations related to financial services.  Nothing further is required.

1. Thirdly, it was argued that the plea in par14 that the plaintiff was involved in contraventions of the Act by Gunns Plantations Limited is in insufficient.  For the plaintiff to be involved in the contravention, it would need knowledge of the essential facts which constituted the contravention.  Yorke v Lucas (1985) 158 CLR 661. It was submitted that the facts from which such knowledge might be inferred had not been satisfactorily set out. It is true that such facts have not been set out, but r238 provides that "It is sufficient to allege … knowledge … as a fact without setting out the circumstances from which it is to be inferred." Knowledge should be specifically pleaded. That is yet to be done. When it is there will be no requirement to plead the facts from which knowledge might be inferred.

1. I have found that the no contract plea is without any prospect of success and that the misrepresentation pleas are defective.  All that is left are the pleas consisting of admissions, non-admissions, and denials.  Those pleas are contained in pars1, 2, 3(a), 4 and 5(a).  There will an order striking out the defence and counterclaim, except for these paragraphs.