Hall Chadwick Corporation Finance (WA) Pty Ltd v Axiom Properties Ltd
[2002] WASC 179
•28 JUNE 2002
HALL CHADWICK CORPORATION FINANCE (WA) PTY LTD FORMERLY KNOWN AS HALL CHADWICK SECURITIES PTY LTD -v- AXIOM PROPERTIES LTD [2002] WASC 179
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASC 179 | |
| 28/06/2002 | |||
| Case No: | CIV:1246/1999 | 18 JUNE 2002 | |
| Coram: | PULLIN J | 19/06/02 | |
| 25 | Judgment Part: | 1 of 1 | |
| Result: | Application to amend defence disallowed in part | ||
| A | |||
| PDF Version |
| Parties: | HALL CHADWICK CORPORATION FINANCE (WA) PTY LTD FORMERLY KNOWN AS HALL CHADWICK SECURITIES PTY LTD (ACN 008 783 113) AXIOM PROPERTIES LTD (ACN 009 063 834) |
Catchwords: | Practice and procedure Amendment to pleadings Legal practitioners Duty of counsel in relation to pleadings |
Legislation: | Corporations Law, s 9, s 77, s 128, s 129, s 780, s 781, s 795, s 798, s 799, s 801, s 802 and s 803 |
Case References: | Cropper v Smith (1884) 26 Ch D 700 Edgelow v MacElwee [1918] 1 KB 205 Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 6 WAR 68 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 Hyde v Sullivan (1955) 56 SR (NSW) 113 Kyle v Legal Practitioners' Complaints Committee (1999) 21 WAR 56 Re Tummon Investments Pty Ltd (in liq) (1993) 11 ACSR 637 State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 Taylor v White (1964) 110 CLR 129 Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190 Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
AXIOM PROPERTIES LTD (ACN 009 063 834)
Defendant
Catchwords:
Practice and procedure - Amendment to pleadings
Legal practitioners - Duty of counsel in relation to pleadings
(Page 2)
Legislation:
Corporations Law, s 9, s 77, s 128, s 129, s 780, s 781, s 795, s 798, s 799, s 801, s 802 and s 803
Result:
Application to amend defence disallowed in part
Category: A
Representation:
Counsel:
Plaintiff : Mr P Mendelow
Defendant : Mr D M Stone & Ms G S Pitt
Solicitors:
Plaintiff : Mallesons Stephen Jaques
Defendant : Williams & Hughes
Case(s) referred to in judgment(s):
Cropper v Smith (1884) 26 Ch D 700
Edgelow v MacElwee [1918] 1 KB 205
Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 6 WAR 68
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
Hyde v Sullivan (1955) 56 SR (NSW) 113
Kyle v Legal Practitioners' Complaints Committee (1999) 21 WAR 56
Re Tummon Investments Pty Ltd (in liq) (1993) 11 ACSR 637
State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146
Taylor v White (1964) 110 CLR 129
Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190
(Page 3)
Case(s) also cited:
Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351
(Page 4)
1 PULLIN J: On 19 June 2002, I gave oral reasons for my decision to refuse leave to amend the defence. I indicated that I would publish my oral reasons in expanded written form. These are the expanded reasons for decision.
2 Following my decision to dismiss the defendant's application for an adjournment of the trial, I now have to consider an application by the defendant to amend its defence to plead to the plaintiff's amended statement of claim. I have already held that the plaintiff's amendments to the statement of claim, and complained about by the defendant, amounted to clarification only and not the introduction of a new case.
3 The application to amend the defence is in accordance with the minute of re-amended defence dated 18 June 2002, which was handed to me by counsel for the defendant on the afternoon of Tuesday, 18 June 2002. The two contentious defences proposed are:
(1) That Mr Lovelady, who was the person on behalf of the defendant who entered into the contract sued upon by the plaintiff, had no authority to enter into the contract.
(2) A defence based on s 802(2) of the Corporations Law ("Corporations Law Defence") which, if it can be relied upon and the facts established, will prevent the plaintiff from recovering.
4 In order to keep track of the developments since the commencement of this trial, I should now set them out.
5 The trial commenced at 10.30 am on Monday, 17 June 2002, with an application by the defendant to amend its defence to plead reliance on the Corporations Law Defence. That proposed amendment was contained in a minute of re-amended defence dated 17 June 2002. That minute did not raise any defence based on the lack of authority of Mr Lovelady. During the course of submissions on that application, the plaintiff said that it proposed some amendments to its statement of claim. As a result, I deferred my consideration of the application to amend the defence in accordance with the minute of re-amended defence dated 17 June 2002 until the plaintiff's amendments had been brought before the court. I adjourned at 12.35 pm on 17 June 2002 and directed that the parties return at 4.00 pm on that day to consider the plaintiff's proposed amendments. The court reconvened at 4.00 pm, and the plaintiff produced a minute entitled "Further Further Re-Amended Statement of Claim" dated 17 June
(Page 5)
- 2002. I granted leave to the plaintiff to amend the statement of claim in accordance with that minute, with questions about terms being reserved.
6 At 10.30 am on Tuesday, 18 June 2002, the defendant applied for an adjournment on the basis that the plaintiff's amendments had introduced an entirely new case. During the course of his submissions, Mr Stone said that because of the entirely new case, he wished to consider amending the defence to plead lack of authority on the part of Mr Lovelady. He said that this did not arise in relation to the case which he understood that the defendant previously had to meet under the statement of claim before it was amended on 17 June 2002. (See TS71).
7 At 2.15 pm on Tuesday 18 June 2002, I dismissed the application by the defendant for an adjournment of the trial. I gave reasons for my decision which, in short, concluded that the plaintiff's amendments were by way of clarification and did not introduce an entirely new case as the defendant contended.
8 The defendant then applied to amend in accordance with the minute dated 18 June 2002, which I have referred to above and which raises the issue about Mr Lovelady's authority and persists with the application to amend to introduce the Corporations Law Defence (in a slightly different form from that which appeared in the 17 June 2002 minute).
9 The question is whether the defendant should be granted leave to introduce these two new areas of defence. Before considering the question, I also set out the history of the action up to the commencement of the trial.
The History of the Action before Trial
10 The case concerns a claim by the plaintiff based on a contract entered into in 1998 and, if performed, performed in the same year. The event which had to occur before commission was payable, was either:
(a) that the plaintiff "raised" funds for the defendant, or
(b) that the plaintiff "introduced" an investor to the defendant, which investor "introduced" funds to the defendant.
11 The plaintiff claims that one of those events occurred and that as a result commission was due under the contract. When a commission was not paid, a writ issued in 1999. Pleadings closed in 2000.
(Page 6)
12 The case has been through all of the interlocutory stages, including the giving of discovery and the provision of further and better particulars. The action was entered for trial in June 2001.
13 There was a callover in February 2002. The action has been case managed pursuant to O 29.
14 There was a directions hearing before me in the last week before trial, to deal with practical issues concerning the way in which evidence would be given.
15 The trial was scheduled to begin on Monday, 17 June 2002, and to run for a total of seven days.
Amendments to Plead Mr Lovelady had no Authority to Enter into the Contract
16 The application was supported by an affidavit sworn by Georgina Sarah Pitt, sworn 18 June 2002, pars 7 and 8 of which read:
"7. There is further evidence which, inferentially, supports the proposition that the oral agreement, and the letter of 18th (sic) February 1998 are outside the usual course of business: directors of Axiom, both at the time of the agreements relied on, and at later dates, will say that they were, throughout the takeover of Superior Properties Pty Ltd, totally unaware of the terms of the (asserted) 'commission arrangement' and there is no reference in Axiom's board minutes to any such arrangement.
8. I think it probable that Axiom will seek to amend its Defence generally in terms of the draft pleading to be handed up in Court this morning. I also have instructions from Axiom to issue third party proceedings against Mr Lovelady. Mr Lovelady has, as the Court has already been informed, refused to make a witness statement, and has now stated openly his hostility to Axiom. For that reason there is a very real risk of inconsistent results if proceedings relating to the same subject matter, the principal proceedings and the third proceedings, are not heard together."
(Page 7)
17 An application at this late stage of the action to add a defence which could have been raised earlier, requires full explanation before leave will be granted.
18 If leave is granted, the issue will be decided by reference to what authority Mr Lovelady had, and by reference to the assumptions the plaintiff was entitled to make pursuant to s 128 and s 129 of the Corporations Law.
19 It became clear during the course of submissions that counsel for the defendant has not called for, or examined, documents which would be critical to the decision to plead lack of authority (see TS113-114). Before pleading lack of authority, counsel would be duty bound to find out whether there was a contract between the defendant and Mr Lovelady, stating the terms on which he was appointed and the authority that he had as a result of the appointment. It would be important to find out whether or not the board minutes recorded the appointment of Mr Lovelady, and the terms of his appointment and his authority. I was informed that he had been appointed to some office in 1996. I was also informed that no board minutes for 1996 have been discovered, and no contract between the defendant and Mr Lovelady has been discovered – if it exists. What is important, however, is that counsel for the defendant informed me that he was not able to say whether any steps had been taken to find and examine any contracts relating to Mr Lovelady's authority: TS113-114. Notwithstanding this, counsel proffers the minute raising the lack of authority on Mr Lovelady's part.
20 It seems that the attempt to plead the lack of authority point is based on the conclusion that the defendant's legal advisers have formed about the magnitude of the fee – something which has been plain to see from the beginning of the action. Ms Pitt's affidavit of 18 June 2002 reads in pars 4-5:
"4. I have discussed the question of the agreement for a '4% spotter's fee' with two of Axiom's directors. Both are experienced in stockbroking and/or merchant banking, and accordingly in the financial services, security dealing and investment advice industries. Both have said to me that:-
4.1 a 4% spotter's fee is, in the circumstances of this case, exorbitant and outside the usual course of business;
(Page 8)
- 4.2 an agreement under which a company, particularly a company listed on the Australian Stock Exchange, agrees to pay alternatively:-
(a) a spotter's fee;
(b) a fee for a capital raising at the same commission rate on funds introduced,
is extraordinary and quite outside the normal course of business; this is because, in the financial services, security dealing and investment advice industries, commissions are negotiated on the basis of effort and risk; the greater the effort and the greater the risk the higher the commission. A spotter's fee involves little 'effort' and 'no risk', whilst to raise capital may, and frequently does, involves significant effort and risk – particularly if the raising is underwritten;
4.3 an oral agreement for the payment of commission is quite exceptional and outside the normal course of business.
- 5. On the basis of these instructions I propose to seek further evidence – both expert and as to the facts."
21 Mr Stone of counsel for the defendant has submitted that the proposed plea is based on the defendant's view that the plaintiff introduced a new case as a result of the amendments to the statement of claim. As I have said, there is not any change of case by the plaintiff as a result of the amendments to the statement of claim, and the defendant had no basis for contending that it was under a misapprehension about the nature of the case it was facing.
22 Counsel who proffers a pleading owes a duty to the court. A pleading is not to be put up simply because it would, if it could be supported by any evidence, be a good defence. The duty of counsel is to ensure that only genuine points of defence are raised in a defence. See Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190 at 193 and Kyle v Legal Practitioners' Complaints Committee (1999) 21 WAR 56 at 60.
(Page 9)
23 If counsel has not investigated the state of Mr Lovelady's authority, then it is my opinion that counsel should not have proffered a pleading denying his authority.
24 No explanation is given as to why this issue was not investigated before. Counsel for the defendant persists in his assertion that the defendant thought a new case had been introduced by the amendments to the statement of claim. Counsel for the defendant said that the defendant was not concerned to raise the issue about Mr Lovelady's authority to enter into an agreement to pay 4 per cent in relation to a capital raising. Counsel said that the defendant does, however, wish to raise the lack of authority point in relation to an agreement to pay 4 per cent for the introduction of an investor.
25 Counsel for the defendant produced authorities concerning the proposed new issue going to Mr Lovelady's authority. What was produced was text and standard authorities going to the authority of a managing director. Paragraph 13.070 from Ford Corporations Law was referred to, and the cases of Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 6 WAR 68; Re Tummon Investments Pty Ltd (in liq) (1993) 11 ACSR 637; and Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 were cited. The facts in Re Tummon's case were referred to and the fact that the director in that case had no authority to borrow $12,000; that, I assume, being in contradistinction to the over-$700,000 alleged to be due to be paid under the contract alleged to have been entered into by Mr Lovelady. All of those authorities could equally be referred to in denying that Mr Lovelady had any authority to enter into a contract, even for the capital raising.
26 In fact, that is what the defendant is doing. The defendant is not simply seeking to plead the defence in relation to the "new case" it now thinks (wrongly) it has to meet, but it also seeks to advance the defence in relation to the alternative limb which it said it always thought it had to meet, namely the agreement to "raise" capital. No explanation at all is offered about why it has been so late in raising the plea in relation to that aspect of the contract.
27 I might be forgiven for gaining the impression that counsel now conducting the case is looking closely at the case for the first time and that it has occurred to him that there may be a number of possible defences worth considering. Before a possible defence is pleaded, counsel must be
(Page 10)
- satisfied that there is some credible material to support the plea. See Unioil's case and Kyle's case (supra).
28 This case is a long way from the facts in State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. In that case, the application to amend was made six months before the trial. I note some of the important considerations mentioned in that case in the joint judgment, and which I must bear in mind. It was said at p 155 that justice is the paramount consideration in determining an application such as the one in question. Save insofar as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or its delay in making the application. Case management, involving as it does the efficiency of the procedures of the court, is a relevant consideration but will not be determinative. This is because case management considerations should not "prevail over the injustice of shutting the applicant out from raising an arguable defence, thus precluding the determination of an issue between the parties".
29 This is a case of a commercial nature like the State of Queensland case. There is nothing to indicate any personal strain justifying the conclusion that costs would not be an adequate remedy for prejudice. Amendment is not to be regarded as a matter of "favour or of grace" and a decision on an amendment application is not to be made "for the sake of discipline". See Cropper v Smith (1884) 26 Ch D 700 at 710.
30 At p 154 of the State of Queensland case, it is made clear that a party is not to be shut out from litigating an issue "which is fairly arguable".
31 Kirby J listed a number of points to be considered in relation to an application to amend pleadings. The first point made is that the decision to allow or disallow an amendment is a discretion on which no rigid pronouncements can be made. In point 5, Kirby J said that some of the relevant considerations to take into account were whether the "oversight" which occurred is adequately explained, as for example, if it arose out of sudden and unexpected events; that the proposed amendment is of considerable importance, and particularly where it provides a complete answer to the claim. His Honour considered that even the fact that fresh legal minds have perceived an important new point will, in some cases, support an application for leave to amend. This is not, however, a charter which says that a legal practitioner may allow a case to be listed for hearing, and then, in the days of final preparation for trial, consider for the first time possible defences which might have been considered at a much
(Page 11)
- earlier stage. It is not a charter allowing a party to raise possible defences without properly investigating whether any credible material exists to support the defence. This is particularly so in circumstances where the inevitable consequence of the addition of such defences will be an adjournment, and when acting for a party who will benefit from an adjournment. Considerations which tend to argue against the grant of an indulgence include the failure of a party to offer anything by way of explanation for a late application. See Kirby J in State ofQueensland v JL Holdings Pty Ltd (supra) at 170.
32 An application to amend which has the obvious consequence of adjournment has to be closely scrutinised if the adjournment is seen to be of advantage to the party making the application. In this case the defendant, if it loses, has to pay over three quarters of a million dollars and possibly interest and costs. In commercial terms, it would be seen as an advantage to defer payment of a large sum of money.
33 In addition, if the defendant is granted leave to amend, then even if the new pleading cannot be sustained at trial, it will be enough to cause the plaintiff concern, and such an amendment, coupled with an adjournment, will enhance the bargaining position of the defendant if it talks to the plaintiff about settlement of the claim. The Court will not allow an amendment at this late stage which gives that advantage, unless there is some explanation indicating that it will raise a "true issue". See Kyle's case at 60.
34 In ordinary circumstances when amendments are made at an early time in proceedings, sometimes without leave, the Court relies on the obligation imposed on counsel as an officer of the court to satisfy himself or herself that there is credible material to support a pleading. In the case of a late application of this kind, the court requires something more if the application is contested.
35 In this case, I am not satisfied that there is credible material to support the pleading, and I therefore conclude, on the basis of the information before me, that the defence of lack of authority is not "fairly arguable". See State of Queensland v JL Holdings Pty Ltd (supra).
36 Thus, in the exercise of my discretion, I refuse leave to amend in terms of pars 5AA, 5AB, 7A and 7B.
(Page 12)
The Corporations Law Defence
37 The point of the proposed defence is to plead that the plaintiff was a "non-licensee" within the meaning of s 802(2) of the Corporations Law and that, in consequence, the plaintiff was "not entitled to recover by any means … any brokerage, commission or other fee for which the (defendant) would, but for this section, have been liable to the non-licensee under or in connection with the agreement". If the pleading is allowed and it succeeds, then it provides a complete answer to the plaintiff's claim unless the plaintiff pleads in its reply and establishes the "non application" of s 802, the onus of which is placed on the plaintiff. See s 803 of the Corporations Law.
Why is the Defendant so Late in Making its Application for Leave to Amend?
38 The affidavit filed in support of the application for leave to amend the defence was sworn by Georgina Sarah Pitt, who is appearing as junior counsel in the case and has also acted as the solicitor with the day-to-day conduct of the action on behalf of the defendant for a long time. The affidavit was sworn on 17 June 2002.
39 Paragraph 4 of the affidavit reads:
"In the last few days, as part of the preparation of this matter for trial, I was asked by Counsel to enquire as to the terms of the Plaintiff's licence. I made enquiries of ASIC. I could not find a dealer's licence issued to Hall Chadwick. The ASIC search revealed only an investment advisor's licence which is restricted in its terms to expert reports …"
40 Why the question was only asked by counsel in the last few days is not explained. However, Ms Pitt in her affidavit says in par 3:
"I have had the day to day conduct of this matter for a long time. I assumed that the Plaintiff had all necessary regulatory approvals. I made that assumption because the Plaintiff is a medium sized firm of chartered accountants who might reasonably be expected to have satisfied itself of ASIC's licensing requirements, and to have complied with those requirements."
41 Exhibited to the affidavit was a copy of an "Investment Advisers Licence" granted on 30 October 1998, which reads:
(Page 13)
- "Restricted –
Experts report.
Hall Chadwick Corporate ACN 008 783 113
Finance (WA) Pty Ltd
was licensed as an Investment Adviser under the Securities Industry (W.A.) Code on 28 June 1990 and is deemed to be licensed under the Corporations Law. The conditions of the licence are hereby varied and from the date hereunder the licensee shall continue to be licensed as an Investment Adviser pursuant to section 784 of the Corporations Law subject to the conditions and restrictions as are prescribed, and to the following conditions:
1. The licensee may carry on an investment advice business only for the purpose of acting for and on behalf of clients in relation to proposed or actual mergers, acquisitions, takeovers, corporate restructures or share issues …"
42 The defendant says that it has found no other evidence of any other licence.
The Steps Taken by the Defendant After Its ASIC Search
43 After receiving the search results from ASIC, Ms Pitt wrote to the plaintiff's solicitors on 14 June 2002. The letter read:
"Your client holds itself out as being a person conducting a business in securities, dealing with or advising on securities. The transaction in issue in these proceedings appears to us to involve dealing in securities and/or advising on securities. Your client is not entitled to recover any commission for this transaction unless it holds a security dealers licence. Therefore, the fact that your client holds a security dealers licence is a material fact, as a sine qua non to the payment of commission.
Please would you:-
1. advise whether you propose to amend the statement of claim to plead that your client held a security dealers licence at the time when the transaction took place;
(Page 14)
- 2. immediately produce your client's security dealers licence.
If there any issue (sic) as to whether your client conducted a securities business, please would you discover today all promotional handouts referring to your client's business, and its financial statements for the year ending 30 June 1998, and the two preceding years."
44 On the same day, ie on the Friday before the Monday on which the trial was scheduled to commence, the plaintiff's solicitors responded to Ms Pitt in the following terms:
"We refer to your letter dated 14 June 2002 dealing with whether our client 'holds a security dealers licence'.
We do not understand why you raise this issue at this point in the proceedings.
Please tell us on what legislative provisions you rely on in support of the assertions you now make, specifying each section of any act you rely on."
45 Ms Pitt then wrote to the plaintiff's solicitors again on that day, in the following terms:
"I refer to your facsimile of today's date.
We raise the issue at this point in the proceedings, because it has become apparent that your client may not hold a securities dealers licence.
The relevant provisions, of the Corporations Law as it was in 1998, are:-
1. section 780 – a person must not carry on a securities business or hold out that the person carries on a securities business unless the person holds a dealers licence or an exempt dealer;
2. section 93 – a securities business is a business of dealing in securities;
3. section 798(1) – subject to this section, the client may, whether before or after completion of the agreement, give
(Page 15)
- to the non-licensee a written notice stating that the client wishes to rescind the agreement;
- 4. section798(2) – the client may only give a notice under this section within a reasonable period after the coming aware of the facts entitling the client to give the notice;
5. section 801(2) – the non-licensee is not entitled to enforce the agreement or rely upon it;
6. section 802(2) – the non-licensee is not entitle (sic) to recover by any means any brokerage, commission, or other fee for which the client would, but for this section, have been liable to the non-licensee under or in connection with the agreement.
According to our search at ASIC this morning, your client has only an investment advisers licence, number 14727.
Please would you respond as a matter of urgency."
46 The final communication in this series on Friday, 14 June 2002, was a letter from the plaintiff's solicitors to Ms Pitt reading:
"We refer to your previous correspondence relating to the issue of our client's alleged dealing in securities.
Firstly, your letter seems to suggest that it is up to our client to plead and prove that the raising event for which remuneration is payable comes within the provisions of the Corporations Law (as it was in 1998) identified by you.
If your client wishes to make the assertion set out in your earlier correspondence, it would have been for your client to raise that issue in its defence. If what you now raise was to be an issue in these proceedings, we would have expected it not to be raised on the last business day before trial, particularly in view of the fact that these proceedings have been on foot for over 3 years.
In so far as further and better discovery is sought in relation to the issue now raised, our client has no obligation to provide discovery in relation to any matter which is not before the court. Your request for further discovery is, in our view, a fishing expedition.
(Page 16)
- As a result, further discovery will not be provided. Our client will, however, discover its investment adviser's licence."
47 On Saturday, 15 June 2002, Ms Pitt visited the plaintiff's website - - and printed off material from it, which was exhibited to Ms Pitt's affidavit. This website represented on 15 June 2002 that:
"As a licensed dealer, Hall Chadwick Securities Ltd provides financial planning and advice to individuals seeking to manage and grow their investments"
and that
"The Corporate Finance Division is a boutique advisory practice which operates a personalised service focussed on adding value to our clients' businesses and increasing shareholder wealth … The Corporate Finance Division provides advice to private and public companies on the following areas: … mergers and acquisitions … Our work involves assisting clients to: … create opportunities for strategic alliances, joint ventures, syndications, acquisitions, and divestitures …"
48 After the website visit, Ms Pitt, on Saturday 15 June 2002, then sent a facsimile to the plaintiff's solicitors, which read:
"This facsimile is written pursuant to Order 59 rule (sic) of the Rules of the Supreme Court.
Thank you for your facsimile yesterday which we received at 4.01 pm. Please provide a copy of your client's investments advisers licence by return.
A search at ASIC has revealed that your client has an investment adviser licences number 14727, granted on 28 June 1990, which is restricted to expert's reports. Enclosed are pages downloaded from your client's website this morning. I note that:-
1. your client represents that it has a dealers licence;
2. the range of services set out on the website go far beyond the terms of your client's investment adviser licence – which appears restricted to 'expert reports'.
(Page 17)
- It appears to us that your client was not entitled, under the terms of its licence, to engage the activities which it says (in these proceedings) that it engaged in. In my facsimile to you on Friday, 14 June 2002, I drew to your attention the relevant provisions of the Corporations Law to the effect that a non-licensee is not entitled to recover commission.
We have sufficient information now to apply for leave to amend the defence. If leave is granted, then an adjournment of the trial is likely unless you can give discovery very promptly. Given that fact, we invite you to advise us:-
1. whether it is your view that the terms of your client's licence entitled it to perform the acts it contends in its counsel's submissions it performed;
2. alternatively, if you consider no licence was required why that is so;
3. whether your client contends that notwithstanding Section 802(3) Corporations Law it is entitled to commission;
4. why your client, which claims to occupy a position in relation to Axiom which was fiduciary, has not disclosed hitherto that it did not have a dealers' licence and only a restricted investment advisers' licence.
Please would you respond by noon tomorrow, 16 June 2002."
49 The letter sought a response by noon on Sunday, 16 June 2002.
50 On 16 June 2002, the plaintiff's solicitors wrote to Ms Pitt, noting that the letter of 15 June 2002 from Ms Pitt came to their attention at 5.50 pm on Saturday 15 June 2002. The response from the plaintiff's solicitors was in these terms"
"We refer to your letter dated 15 June 2002, which came to our attention at 5.50 pm last night.
We only intend to respond to the matters in your letter which are relevant to the current proceedings.
Your letter asserts that our client is not entitled to recover commission by reason of the operation of the Corporations Law
(Page 18)
- (as it was at the time) provisions identified n (sic) your letters of 14 and 15 June 2002.
You have failed, however, to identify with any precision (or at all) on what basis the pleaded claim falls within the Corporations Law provisions identified in your previous letters so as to disentitle our client to its claim for commission as pleaded. As a result, there is no basis on which you can now seek leave to amend your client's defence.
Your 'invitation' to respond to the queries raised in items 1-4 of your 15 June 2002 letter constitutes a fishing expedition to see whether there are grounds on which to amend your client's defence.
The current proceedings have been on foot for over 3 years. It was incumbent on your client during that period to have pleaded all relevant defences.
Any application for leave to amend the defence will be opposed."
51 The plaintiff objects to the proposed amendments to introduce the Corporations Law Defence. First, it complains of inadequacies in the proposed pleading, and, secondly, complains that even if the amendments proposed are not inadequate, then in the exercise of my discretion, I should refuse leave to amend.
Inadequacies in the Pleadings
52 The plaintiff pleads an agreement between the plaintiff and the defendant, whereby the plaintiff was to be paid commission if it raised "funds" of approximately $10M, or alternatively introduced an investor which introduced "funds". "Funds" was defined to include "securities". The word "securities" is not defined in the pleading, but in the context it may have the same meaning as in s 92 of the Corporations Law.
53 The defendant seeks leave to plead the defence which is set out in its minute of 18 June 2002.
54 To understand the proposed amendments and the objections to them, it is necessary to follow through the relevant provisions in the Corporations Law ("CL").
(Page 19)
Corporations Law Provisions
55 First, I refer to the definition of "deal" in s 9 of the CL. It reads:
"…
(b) in relation to securities … means … make or offer to make … an agreement:
(i) for or with respect to acquiring, disposing of, subscribing for … the securities …"
"A securities business is a business of dealing in securities".
57 It is not in dispute that the phrases "conduct of business" or "carry on a business", require proof that the activities are conducted with "system, repetition and continuity". See Taylor v White (1964) 110 CLR 129; Edgelow v MacElwee [1918] 1 KB 205; and Hyde v Sullivan (1955) 56 SR (NSW) 113.
58 Section 780(1) of the CL provides:
"A person must not:
(a) carry on a securities business; or
(b) hold out that the person carries on a securities business;
unless the person holds a dealers licence …"
59 Section 781 of the CL reads:
"A person must not:
(a) carry on an investment advice business; or
(b) hold out that the person is an investment adviser;
unless the person is a licensee or an exempt investment adviser."
60 Section 77 defines an "investment advice business" as "a business of advising other persons about securities …"
(Page 20)
61 Section 9 defines "investment adviser" as meaning "a person who carries on … an investment advice business".
62 Section 795(1) reads:
"Subdivision B applies where, during a period when a person (in this section and Subdivision B called the 'non-licensee') is unlicensed, the non-licensee and a client of the non-licensee enter into an agreement that:
(a) constitutes, or relates to, a dealing or proposed dealing in securities; or
(b) relates to advising the client about securities, or giving the client securities reports."
63 Section 795(3) of the CL reads:
"A person is unlicensed during a period when the person:
(a) in contravention of section 780, carries on, or holds out that the person carries on, a securities business; or
(b) in contravention of section 781, carries on an investment advice business or holds out that the person is an investment adviser."
Subdivision B Contains the Following Provisions
64 Section 801(1) reads:
"This section:
(a) applies while both of the following are the case:
(i) the client is entitled to give a notice under section 798;
(ii) a notice so given will result under section 799 in rescission of the agreement; and
(b) applies after the agreement is rescinded under section 799;
but does not otherwise apply."
(Page 21)
65 Section 801(2) reads:
"The non-licensee is not entitled, as against the client:
(a) to enforce the agreement, whether directly or indirectly; or
(b) to rely on the agreement, whether directly or indirectly and whether by way of defence or otherwise."
66 Section 798 reads:
"(1) Subject to this section, the client may, whether before or after completion of the agreement, give to the non-licensee a written notice stating that the client wishes to rescind the agreement.
(2) The client may only give a notice under this section within a reasonable period after becoming aware of the facts entitling the client to give the notice.
(3) The client is not entitled to give a notice under this section if the client engages in conduct by engaging in which the client would, if the entitlement so to give a notice were a right to rescind the agreement for misrepresentation by the non-licensee, be taken to have affirmed the agreement."
(4) The client is not entitled to give a notice under this section if, within a reasonable period before the agreement was entered into, the non-licensee informed the client (whether or not in writing) that:
(a) the non-licensee did not hold a dealers licence; or
(b) the non-licensee did not hold a dealers licence and did not hold an investment advisers licence;
as the case requires …"
(Page 22)
The Alleged Inadequacies in the Proposed Defence
68 Paragraph 45 of the proposed defence pleads that the plaintiff at all material times (a) carried on a securities business or (b) alternatively, held out that it carried on a securities business.
69 The material facts to support this plea (wrongly placed under the heading "Particulars") are that on 16 February 1998, the plaintiff represented to the defendant that it could do certain things related to the particular transaction in question. There is also a reference to earlier representations (see par 45(a), (b) and (c)). In my view, the pleaded facts do involve a "dealing" in securities, but this one-off transaction, and statements made in relation to it, does not mean that the plaintiff was conducting a business or holding out that it entered into such transactions on a repetitive or continuous basis.
70 The defendant then pleads other facts in par 45(d), (e) and (f). It is clear, however, that the facts relied on in (d), (e) and (f) all relate to the material gleaned from the website search conducted on 15 June 2002. Accepting for the present moment that the material on the website shows that the plaintiff was holding out that it carries on a securities business, such holding out in 2002 says nothing about whether there was any such holding out in 1998.
71 Paragraph 45(g) is not probative of the conduct of a securities business or the holding out that the plaintiff conducts a securities business.
72 In my opinion, par 45 is defective in that it affords no reasonable ground of defence and would be struck out if it had been pleaded as of right. As a result, I consider that leave should not be granted to amend the defence to add par 45.
73 The proposed par 46 is also attacked by the plaintiff. By that paragraph, the defendant seeks to plead that the plaintiff "carried on an investment advice business" or "held out that it was an investment adviser". Once again, there are no material facts showing that the plaintiff conducted a business. All the pleaded facts reveal is that the plaintiff, on one occasion, engaged in a "dealing" in relation to securities, or that it held out that on this one occasion it could provide investment advice. The facts in par 46(a), (b), (c) and (d) do not support a plea that the plaintiff carried on an investment advice business, or that the plaintiff held out that it was an investment adviser (ie that it carried on an investment advice business).
(Page 23)
74 Again, the defendant pleads the material on the website to prove that the plaintiff held out that it was an investment adviser. Assuming that such material does show such a holding out, that is a holding out in 2002 and is not probative of what was held out in 1998.
75 For those reasons, I consider that par 46, if it had been included in the defence as of right, would have been struck out. On that basis, I consider that leave should not be granted to amend the defence to insert par 46.
76 In consequence, the other paragraphs in the proposed minute of amendment all fall away. This is because the result of the disallowance of pars 45 and 46 means that s 795(1) will not apply, and so Subdivision B will not apply because it will not be shown that the plaintiff was unlicensed at the time the plaintiff and the defendant entered into the agreements sued upon by the plaintiff. As a result, the defendant was not entitled to give a notice under s 798 (see s 801).
77 I therefore refuse leave to amend in terms of pars 45-52 of the minute of 18 June 2002.
Discretionary Considerations
78 I have refused leave to amend to add the Corporations Law Defence because of the inadequacies of the proposed pleadings. It is not therefore necessary for me to consider the discretionary considerations required to be taken into account as a result of State of Queensland v J L Holdings Pty Ltd (supra).
Summary
79 I refuse leave to amend the defence by inserting pars 5AA, 5AB, 7A, 7B, 45 to 52. The other amendments in the minute of 18 June 2002 will be allowed.
Events Following My Decision
80 After refusing leave to amend the defence, the trial commenced.
81 The next day the parties informed me that the action had been settled. The action was then adjourned sine die to allow the settlement to be implemented.
(Page 24)
82 By letter dated 26 June 2002, counsel appearing for the defendant wrote to my Associate, indicating that there were a number of matters in my reasons for decision "which involve a personal criticism which I would like to address". Counsel said that he considered that we were at cross-purposes during some matters raised during the course of argument.
83 As a result, I deferred publication of these reasons until counsel for both parties had appeared before me again.
84 Counsel for the defendant referred me to part of the transcript where the following exchange took place (at p 113 and p 114):
"PULLIN J: That case gives you some idea of the sort of case it becomes with a pleading about authority; that is, the need to look at the company, to look at the history of the company, the history of the actions of the managing director to put it all in context.
STONE, MR: Your Honour, yes, but we have given all the discovery that goes to it and as I said it's a point which may be - - -
PULLIN J: When you say all the discovery do you mean the minutes of the company for the whole time Mr Lovelady was managing director?
STONE, MR: No, your Honour, I don't. We are going to find out exactly how much of it has been given. Do bear in mind that Mr Lovelady wasn't managing director for very long.
PULLIN J: No. I picked that up. What about contracts that showed what his authority was and the like? Has that all been discovered?
STONE, MR: No, your Honour, no, it has not, but it's easy enough to do it.
PULLIN J: Yes, but I think it's pretty evident that there must be documents not discovered which would become discoverable as a result of this.
STONE, MR: I accept that. All I'm saying to you is it's not a big a task as it might otherwise appear. We have discovered the minutes from 1998 I'm told by my learned friend.
(Page 25)
- PULLIN J: I have seen somewhere when Mr Lovelady joined the company. Can you remember when that was?
…
PULLIN J: Are you able to say that steps have been taken to examine any contracts, to find and examine any contracts relating to Mr Lovelady's authority?
STONE, MR: No, your Honour, I'm not. We're not aware of any contract of a similar nature. May I put it in those terms?"
85 Counsel explained that he had taken my question "Are you able to say that steps have been taken to examine any contracts, to find and examine any contracts relating to Mr Lovelady's authority?" to be a question as to whether contracts which Mr Lovelady had made (for and on behalf of Axiom) as managing director had been examined. He indicated that this was demonstrated by the answer which was in the following terms: "No, your Honour, I'm not. We're not aware of any contract of a similar nature. May I put it in those terms?" Counsel for the defendant produced two letters dated 9 June 1999 and 18 June 1999 from the solicitors for the defendant to the defendant, referring to questions which had been raised by counsel (the same counsel now appearing for Axiom) about whether there were any documents recording any devolution of authority to Mr Lovelady as managing director. The other letter asked whether there were any minutes of a meeting of the board of directors of which Mr Lovelady was appointed managing director and which set out his powers.
86 I therefore accept that counsel for the defendant did misunderstand the import of the question I was asking. I accept that there was no unprofessional conduct on the part of counsel for the defendant in moving for the amendments to the defences. I still hold to the statement of principles set out in the reasons for decision.
87 Counsel for the defendant did not move for any order recalling the orders which I made, because the action has now been settled.
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