Harris v Financial Services Partners Pty Ltd
[2024] VSC 16
•2 February 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROFESSIONAL LIABILITY LIST
S ECI 2022 04091
BETWEEN:
| TERENCE HARRIS | Plaintiff |
| v | |
| FINANCIAL SERVICES PARTNERS (ACN 089 512 587) | Defendant |
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JUDGE: | Irving AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 December 2023 |
DATE OF RULING: | 2 February 2024 |
CASE MAY BE CITED AS: | Harris v Financial Services Partners Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 16 |
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PRACTICE AND PROCEDURE – Pleadings – Defendant’s application to strike out parts of the plaintiff’s amended statement of claim – Defendant claims that plaintiff’s pleadings go beyond that indorsed on the writ, are statute barred and are hopeless – Application granted in part.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Twidale of counsel | Pentana Stanton Lawyers |
| For the Defendant | Mr H Hill-Smith of counsel | Gilbert + Tobin |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Procedural background..................................................................................................................... 1
The claims............................................................................................................................................ 2
The indorsement................................................................................................................................ 2
The SOC............................................................................................................................................... 4
The ASOC............................................................................................................................................ 7
The rule and applicable principles................................................................................................. 8
Concessions and application made by Mr Harris at the hearing........................................... 10
Issues.................................................................................................................................................. 10
The defendant’s submissions........................................................................................................ 11
Mr Harris’ submissions.................................................................................................................. 13
The defendant’s reply submissions............................................................................................. 14
Consideration.................................................................................................................................... 14
Conclusion......................................................................................................................................... 19
HIS HONOUR:
Introduction
On 12 October 2022, Mr Harris commenced a proceeding in the Court by filing a writ and indorsement of claim. Mr Harris subsequently filed a statement of claim (SOC) as required by the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules).[1] On 5 June 2023, Mr Harris filed an amended statement of claim (ASOC). The defendant asserts that Mr Harris’ SOC and ASOC impermissibly extend his claim beyond the indorsement on his writ by adding new causes of action without the Court’s approval. The defendant sought orders that the alleged extended claims be set aside or alternatively, struck out.
[1]Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 14.02 (Rules).
Mr Harris opposed the defendant’s application.
For the reasons that follow I have decided that Mr Harris’:
(a) breach of contract claim in paragraphs [11] to [14] of his SOC and ASOC should not be struck out and that Mr Harris should be granted leave to amend that claim if so advised;
(b) breach of trust claim in paragraph [16] of his SOC and ASOC should be struck out and that Mr Harris should be granted leave to replead that claim; and
(c) breach of best interests obligations claims in paragraphs [16A] to [16E] and [20] of his ASOC should be struck out.
Procedural background
The defendant entered its notice of appearance on 31 October 2022.
On 16 January 2023, the Court extended the time for Mr Harris to file his SOC to 30 January 2023. On the same day the Court ordered the defendant to file its defence by 1 March 2023.
Mr Harris filed his SOC on 28 February 2023.
On 12 April 2023, the defendant filed a summons seeking orders that the proceeding be set aside on the basis that Mr Harris’ SOC extended beyond the indorsed writ in contravention of r 14.03 of the Rules. The defendant’s summons sought, in the alternative, that the proceeding be transferred to the County Court of Victoria. The transfer application was not before me on the hearing.
On 5 June 2023, Mr Harris filed his ASOC ‘pursuant to r 36.04(1)(a)’ of the Rules.
The defendant amended its summons on 21 June 2023 to narrow the scope of its application to particular paragraphs of Mr Harris’ SOC and ASOC.
On 29 August 2023, the Court granted the defendant leave to further amend its summons. The effect of the further amended summons, filed on 13 September 2023, was to clarify that the defendant sought to set aside the relevant paragraphs of Mr Harris’ SOC and ASOC on the basis that by those paragraphs Mr Harris had exceeded the bounds of his writ and indorsement of claim, and in addition that the relevant paragraphs be struck out pursuant to r 23.02 of the Rules.
The defendant has not yet filed its defence.
The claims
In order to understand the parties’ submissions it is necessary to set out the relevant parts of Mr Harris’ indorsement, SOC and ASOC.
The indorsement
The indorsement of claim alleges that:
(a) Terence Rio Rienzo Nugara (Rio) was a financial planner, director of Skynet Financial Services Pty Ltd (Skynet), and, between 24 May 2013 and 10 October 2016 an Australian Financial Service Authorised Representative (Authorised Representative) of the defendant;
(b) Skynet was, between 24 May 2013 and 24 February 2017 a corporate authorised representative (Corporate Authorised Representative) of the defendant;
(c) the defendant is the holder of an Australian financial services licence and a financial services licensee within the meaning of the Corporations Act 2001 (Cth) (Corporations Act);
(d) in early 2014 Rio, or Rio as agent for Skynet, advised Mr Harris that:
(i) he should obtain a finance facility with the Australian and New Zealand Banking Group (ANZ);
(ii) he should apply all the funds from the finance facility and his savings towards property investments that Rio developed, owned and/or built; and
(iii) if Mr Harris did so he would achieve returns in excess of 100% within two years, pay off the loan facility and acquire three or four investments properties prior to retirement within ten years,
(collectively the advice);
(e) in reliance on the advice, Mr Harris transferred $18,000 to Rio and acquired an ANZ finance facility of $60,000 (collectively the funds) and transferred the funds to Rio;
(f) Rio, or alternatively Rio as agent for Skynet, provided the Advice:
(i) with knowledge that the advice was false, or alternatively was reckless or careless as to whether the advice was false or not; and/or
(ii) in circumstances with knowledge that, or alternatively was recklessly indifferent to the possibility that, Mr Harris would not achieve returns over 100%; and/or
(iii) with an intention to induce Mr Harris to act upon the advice, and ultimately obtain the funds for his own benefit, and/or for purposes that did not wholly concern the identified investments, and without the knowledge and consent of Mr Harris;
(g) as a result Mr Harris suffered loss and damage, including loss of the funds and the lost opportunity of investing the funds in an alternative investment;
(h) the defendant is liable for Rio and Skynet’s conduct while they were its Authorised Representatives.
The SOC
The SOC pleads that:
(a) Rio was a director of Skynet and, between 24 May 2013 and 10 October 2016, an Authorised Representative of the defendant;
(b) Skynet was a Corporate Authorised Representative of the defendant between 24 May 2013 and 24 February 2017;
(c) the defendant holds an Australian Financial Services Licence and is a financial services licensee within the meaning of the Corporations Act;
(d) Mr Harris appointed Rio and Skynet as his financial advisers in about 2009 to 2010;
(e) in June 2015 Mr Harris had various discussions with Rio about Mr Harris investing in property development;
(f) in or around August 2015 Rio, individually or as agent for Skynet, advised Mr Harris that:
(iv) Rio would assist Mr Harris to obtain a loan from ANZ to purchase a new home and obtain capital to invest in property;
(v) they should apply all the funds from Mr Harris’ new finance facility, together with Mr Harris’ savings, towards various property investments of which Rio was the developer, owner or builder;
(vi) if Mr Harris followed these steps he would achieve returns on his investment in excess of 100% within two years; pay off the loan facility and reinvest in additional properties; and acquire three to four investment properties before retiring within ten years with a portfolio in excess of $1m before requirements (collectively the Advice);
(g) in reliance on the Advice:
(i) Mr Harris sold his home and used part of the sale proceeds to purchase a new property which was partly financed with a new ANZ home loan, secured by a mortgage over the new property;
(ii) Rio attended meetings with Mr Harris and ANZ to assist Mr Harris to acquire the new finance; and
(iii) at Rio’s request and to advance his investment:
(A)on 4 August 2015, Mr Harris authorised Rio to withdraw $60,000 from the ANZ facility and pay those funds into an account specified by Rio;
(B)on 9 December 2015, Mr Harris directed NAB to issue a cheque for $19,819.56 and handed the cheque to Rio;
(h) in late 2017 or early 2018 Rio told Mr Harris that there had been delays with the investment such that the investment would not mature at the end of 2017 as expected but were expected to be paid by late 2018, and Mr Harris agreed to the extension;
(i) despite repeated requests Rio and/or Skynet failed or refused to return the $60,000 and the $19,819.56 (collectively the Funds) together with any profits derived from the Funds.
The SOC then pleads three causes of action:
(a) breach of contract;
(b) deceit; and
(c) breach of trust.
The breach of contract claim pleads:
(a) Mr Harris and Rio and/or Skynet’s agreement to invest the Funds in Rio’s nominated investments (agreement);
(b) that it was a term of the agreement that Rio or Skynet would return the Funds to Mr Harris with the profits derived from them on the maturity date (repayment term);
(c) in late 2017 the parties agreed to vary the terms of the agreement to extend the maturity date to late 2018 (variation);
(d) in breach of the repayment term Rio and/or Skynet did not return the Funds with profits to Mr Harris.
The defendant seeks to set aside or strike out the breach of contract claim.
The deceit claim pleads that Rio, or Rio as agent for Skynet, provided the Advice with knowledge that the Advice was false, or alternatively reckless or careless as to whether the Advice was false. Mr Harris pleads that Rio provided the Advice with knowledge or reckless indifference that Mr Harris would not achieve returns over 100% and with an intention to induce Mr Harris to act upon the Advice and to obtain the Funds for Rio’s own benefit.
The breach of trust claim pleads that Rio and/or Skynet held the Funds and any profits derived from them on constructive or resulting trust and as trustee for Mr Harris.
The defendant seeks to set aside or strike out the breach of trust claim.
The SOC pleads Mr Harris’ pecuniary losses in the amount of $101,159.92 being loss of the Funds plus interest charged on the ANZ Facility to 20 October 2022, and alternatively loss of the opportunity to invest those funds in another investment. Mr Harris also claims non-pecuniary loss for pain and suffering in the sum of $25,000.
As against the defendant, the SOC pleads the defendant is responsible for the actions of Rio and Skynet pursuant to ss 917A and 917B of the Corporations Act including, pursuant to s 917E any loss or damage suffered by Mr Harris. The SOC pleads that by reason of s 917F of the Corporations Act, Mr Harris has the same rights against the defendant has they have against Rio and Skynet.
The ASOC
The ASOC is in the same terms as Mr Harris’ SOC but adds an additional ‘Best Interests Obligations’ cause of action.
The Best Interests Obligations claim pleads:
(a) the supply of the Advice by Rio and/or Skynet was in breach of s 961B of the Corporations Act as it was not in the best interests of Mr Harris;
(b) alternatively, Rio and/or Skynet knew or ought to have known there was a conflict between the interests of Mr Harris, Rio and/or Skynet’s personal interests and in breach of s 961J of the Corporations Act, Rio and/or Skynet failed to give priority to Mr Harris’ interests when giving the Advice;
(c) alternatively, in breach of s 961H of the Corporations Act, Rio and/or Skynet failed to warn Mr Harris that the Advice may be incomplete or inaccurate relating to Mr Harris’ personal circumstances and that Mr Harris should consider the appropriateness of the Advice before acing upon it;
(d) alternatively, in breach of s 961G of the Corporations Act, Rio and/or Skynet provided the Advice in circumstances where it would be reasonable to conclude the Advice was not appropriate for Mr Harris; and
(e) Mr Harris suffered loss and damage by reason of these contraventions of the Corporations Act.
The defendant seeks to set aside or strike out the Best Interests Obligations claim.
The ASOC also amends the claim against the defendant to add a claim that the defendant is liable under s 961M(2)(b) of the Corporations Act to compensate Mr Harris for the loss and damage suffered as a result of Rio and/or Skynet’s conduct as described in the Best Interests Obligations claim (the s 961M(2)(b) claim).
The defendant seeks to have the s 961M(2)(b) claim set aside or struck out.
The Best Interests Obligations claim refers to provisions of the Corporations Act that fall within Part 7.7A of Chapter 7 – Financial Services and Markets.
Section 961M(2)(b) provides that if the person who contravenes the best interests obligations in Division 2 of Part 7.7A is a representative of a financial services licensee, the Court may order the responsible licensee to compensate the client for the loss and damage caused by the breach.
Relevantly, s 961M(6) sets a limitation period for an action to recover loss and damage. Such an action must be commenced within six years after the contravention.
The rule and applicable principles
Rule 5.04 of the Rules requires that a writ contain an indorsement of claim that is either a statement of claim or a statement sufficient to give with reasonable particularity notice of the nature of the claim and the cause thereof and of the relief or remedy sought in the proceeding. An indorsement that is not a statement of claim is not a pleading. It must however give with reasonable particularity notice of the nature of the claim; the cause of action and the relief or remedy sought. An indorsement may give sufficient notice of the cause of action even though it does not use the precise legal name of a cause of action.[2]
[2]Buttigieg v VL Finance Pty Ltd (1986) VR 392, 397.
Where an indorsement of claim on a writ does not constitute a statement of claim in accordance with r 5.04 and a defendant files an appearance, the plaintiff must serve a statement of claim on that defendant within 30 days after the appearance, unless the Court orders otherwise.[3]
[3]Rules, r 14.02.
Rule 14.03 of the Rules provides:
(1)Where a statement of claim is served in a proceeding commenced by writ, the plaintiff may therein alter, modify or extend the claim as indorsed on the writ without amendment of the indorsement.
(2)The Court may, by order, allow the plaintiff to serve a statement of claim the effect of which will be to add a new cause of action to or substitute a new cause of action for a cause of action disclosed in the writ.
(3)Where the Court makes an order under paragraph (2), it may further order that the plaintiff shall amend the indorsement of claim on the writ to make it conform to the statement of claim.
In Willmott Forests Ltd (Receivers and Managers appointed)(in liq) v Armstrong Dubois Pty Ltd,[4] Derham AsJ considered the authorities before summarising the relevant principles as follows:
[4][2016] VSC 61, [30] (citations omitted).
(a)an indorsement is notice of the plaintiff’s claim, cause of action and relief sought and is not a pleading;
(b)an indorsement is general in nature, and need not identify the plaintiff’s claim with any particularity;
(c) insufficiency of the indorsement does not render the writ a nullity;
(d)the indorsement marks out the perimeter or range of the area within which the plaintiff may express its claim later in the statement of claim;
(e)the statement of claim is the specific way of stating the claim the plaintiff has indorsed on the writ;
(f)the alteration, modification, or extension of the claim in the statement of claim must remain within the area marked out by the indorsement;
(g)the basic nature of the claim contained in the indorsement cannot be changed, but the plaintiff has broad authority to widen, lessen or express in better terms its claims so long as the substance is consistent with the original claims contained in the indorsement;
(h)the indorsement on the writ determines the essential nature of the action, but neither defines, nor necessarily forms part of, the definition of the issues for trial;
(i)once a statement of claim is served it is the base document and, subject to recourse to the indorsement for the purposes of resolving an ambiguity, for all other purposes; and
(j)unless the claims that are notified by the statement of claim fall within the notice given by the indorsement then the indorsement is required to be amended.
Rule 23.02 of the Rules empowers the Court to strike out the whole or part of a pleading that does not disclose a cause of action; is scandalous, frivolous or vexatious; may prejudice, embarrass or delay the fair trial of the proceeding; or is otherwise an abuse of the process of the Court. The power to strike out a pleading or order its amendment is discretionary, and usually only exercised when a substantial defect in the pleading is established or where real embarrassment is shown.[5]
[5]Clarke v Great Southern Finance [2010] VSC 473, [11].
Concessions and application made by Mr Harris at the hearing
During the course of the hearing Mr Harris’ counsel conceded that:
(a) the s 961M(2)(b) claim in his ASOC falls outside the four corners of the indorsement on his writ and that Mr Harris requires the leave of the Court to maintain this claim; and
(b) the current pleading of the breach of trust claim is inadequate, should be struck out and Mr Harris given an opportunity to replead that claim.
During the course of the hearing Mr Harris’ counsel made an application for leave under r 14.03(2) of the Rules to amend Mr Harris’ ASOC to include any of his proposed amendments that the Court might find to be beyond the four corners of the indorsement on his writ, including the s 961M(2)(b) claim.
Issues
The issues on the defendant’s application are:
(a) has Mr Harris contravened r 14.03(2) of the Rules by including the breach of contract and breach of trust causes of action in his SOC;
(b) if yes, should the Court now grant Mr Harris leave to plead those causes of action;
(c) should the Court grant Mr Harris leave to plead the s 961M(2)(b) claim in his ASOC; and
(d) alternatively, should Mr Harris’ breach of contract, breach of trust and s 961M(2)(b) claims be struck out.
The defendant’s submissions
The defendant submitted that the indorsement on Mr Harris’ writ contained a single cause of action, being deceit. Accordingly, the defendant submitted that the breach of contract and breach of trust causes of action contained in Mr Harris’ SOC were new and beyond the scope of the indorsement. Similarly, the defendant argued Mr Harris’ s 961M(2)(b) claim in his ASOC was also new and required the leave of the Court.
The defendant submitted that the Court should not grant Mr Harris leave to plead the new claims because:
(a) the breach of contract claim has no real prospects of success because the alleged cause of action accrued after Rio and/or Skynet ceased to be Authorised Representatives of the defendant;
(b) the s 961M(2)(b) claim is clearly statute barred; and
(c) the breach of trust claim is vague, embarrassing and liable to be struck out.
The defendant submitted that the language of r 14.03(2) requires a plaintiff to obtain the leave of the Court before adding a new cause of action. According to the defendant the requirement to obtain leave to plead the new causes of action under r 14.03(2) is not determined by whether the remedy sought under the new causes of action is similar to or identical to the remedy sought under the original cause of action. Similarly, the defendant said that whether the new causes of action arise out of similar material facts or circumstances as the existing cause of action is irrelevant.
The defendant submitted that the factors relevant to the exercise of the Court’s discretion under r 14.03(2) include the factors that guide an application for leave to amend a pleading under r 36.04(1)(b). The defendant submitted that this approach is consistent with the requirement in ss 8 and 9 of the Civil Procedure Act 2010 (Vic) for the Court to give effect to the overarching purpose in s 7 of that Act. The defendant said it would be inconsistent with the overarching purpose to grant leave under r 14.03(2) to allow new causes of action to be pleaded that are bad in law; clearly statute barred; or not properly pleaded.
The defendant argued Mr Harris’ breach of contract claim was futile because:
(a) Mr Harris pleaded Rio and/or Skynet breached a contract said to have been formed on 4 August 2015;
(b) the term of the contract said to have been breached was the term requiring Rio and/or Skynet to repay Mr Harris’ funds with derived profits on the maturity date;
(c) Mr Harris’ pleading alleged that in late 2017 the parties agreed to vary the terms of the agreement to extend the maturity date to late 2018 and that Rio and/or Skynet never repaid the funds;
(d) Rio ceased to be an Authorised Representative of the defendant on 10 October 2016;
(e) Skynet ceased to be an Authorised Representative of the defendant on 24 February 2017;
(f) on Mr Harris’ pleaded case, the breach of contract would only arise late in 2018 when the repayment of the funds and profit became due under the varied contract, by which time neither Rio nor Skynet were Authorised Representatives of the defendant; and
(g) under the relevant provisions of the Corporations Act, the defendant cannot be liable for the pleaded breach of contract by Rio and/or Skynet.
In relation to the s 961M(2)(b) claim, the defendant argued that:
(a) Section 961M(6) provides that an action to recover an amount of the loss or damage may be begun at any time within six years of the contravention and thus the limitation period depends on the timing of the contravention rather than when the damage is suffered;
(b) the contravention pleaded by Mr Harris arises from Rio and/or Skynet’s provision of the Advice, which occurred in or around August 2015, more than six years before the writ was filed on 12 October 2022;
(c) while it is ordinarily undesirable for the Court to determine a limitation question at an interlocutory stage, that principle does not apply in ‘the clearest of cases’;
(d) the limitation period issue should be determined now in this case because the inclusion of the s 961M(2)(b) claim is a barrier to the proceeding being transferred to the County Court of Victoria which is a more appropriate forum given the modest quantum of the claim.
Given the concession made by Mr Harris’ counsel at the hearing, which I accept, it is unnecessary to set out the defendant’s submissions in relation to the breach of trust claim.
Mr Harris’ submissions
In summary, Mr Harris’ counsel submitted that:
(a) the defendant should plead its defence to the breach of contract claim and the Court should permit Mr Harris to reply to the defence because Mr Harris would wish to raise the defendant’s delay in notifying Mr Harris that Rio and/or Skynet’s authorisation had been revoked to argue the defendant is estopped from relying on the revocation to avoid liability;
(b) the pleadings should be closed before the Court considers whether the breach of contract claim should be struck out or the issue of the defendant’s liability for Rio and/or Skynet’s alleged breach determined as a separate question before trial;
(c) the s 961M(2)(b) claim should be permitted to proceed because the availability of relief under that section requires a plaintiff to establish relevant loss and the trial judge is in the best position to determine whether and, if so when, relevant loss occurred.
The defendant’s reply submissions
The defendant submitted that Mr Harris’ allegation – that a licensee is liable for a breach of contract occurring after the Authorised Representative has ceased to be authorised – is unarguable, given the clear language of the Corporations Act, and thus hopeless.
The defendant said that any argument that the defendant is potentially estopped from alleging that Rio and/or Skynet had ceased to be Authorised Representatives because of a delay in notifying Mr Harris is also unarguable. The defendant submitted that any reliance by Mr Harris on Casaclang v Wealthsure Pty Ltd (Casaclang)[6] to support his estoppel argument is misplaced as the relevant part of that judgment concerned claims brought pursuant to s 769B of the Corporations Act, and not ss 917A to 917F.
[6][2015] FCA 761.
Consideration
As has been noted before, an indorsement on a writ is not a pleading. It is general in nature. The indorsement must disclose the essential nature of the claim but the specificity of a statement of claim is not required. Notwithstanding the generality permissible in an indorsement the basic nature of the claim contained in the indorsement cannot be changed.
In my view the defendant’s submissions that Mr Harris’ breach of contract and breach of trust claims fall outside of the indorsement cannot be accepted. Those submissions seek to take too rigid a view of requirements of an indorsement, in effect, requiring the indorsement to be expressed with the specificity required of a pleading.
The indorsement sets out the basis of the relationship between Mr Harris and Rio and/or Skynet under which the alleged advice was provided. That included that Rio was a financial planner and Authorised Representative of the defendant at the time the advice was provided; that Rio was a director of Skynet, a Corporate Authorised Representative of the defendant, at the time the advice was given; and that the advice involved representations about the returns on investment that Mr Harris could achieve within particular timeframes. The indorsement is expressed in terms broad enough to foreshadow not only the deceit claim but also the breach of contract and breach of trust claims.
Mr Harris’ counsel has conceded that his current pleading of the breach of trust claim is deficient and should be struck out. I agree with that concession. I will order that the breach of trust claim be struck out and Mr Harris given an opportunity to replead that claim.
It is now necessary to consider whether Mr Harris’ breach of contract claim should be struck out as hopeless because the alleged cause of action accrued after Rio and/or Skynet ceased to be, respectively, Authorised Representative of the defendant and Corporate Authorised Representative. This issue is relevant to whether the breach of contract claim should be struck out. It is also relevant to whether, even if I am wrong about that claim being within the four corners of the indorsement, I would grant Mr Harris leave to plead the breach of contract claim.
The defendant argued that Mr Harris’ breach of contract claim was hopeless because it was based on a breach of the amended repayment term, in circumstances where that amendment was agreed and the breach occurred after Rio and/or Skynet had ceased to represent the defendant. The defendant’s submission rests upon the provisions of Division 6 of Part 7.6 of the Corporations Act which deals with liability of financial services for representatives, i.e. ss 917A to 917F.
The defendant submitted that because s 917A limits the application of Division 6 to any conduct of representative of a financial services licensee, any conduct of Rio and/or Skynet occurring after they were no longer representatives of the defendant is irrelevant for the purposes of Division 6. The defendant said its interpretation of the limitation on liability under Division 6 was supported by Buchanan J in Casaclang.
Mr Harris’ counsel argued that the Court should not strike out a pleading that raises a debatable point of law and that Casaclang is not authority that supports the defendant’s position. Counsel submitted that if he was wrong on this point and the Court accepted the defendant’s interpretation of the operation of Division 6 of the Corporations Act, it would be open to Mr Harris to assert in his reply pleading that the defendant is estopped from relying on s 917A to limit its liability because it failed to advise Mr Harris that Rio and/or Skynet’s authority had been revoked. Mr Harris submitted that the Court should allow the breach of contract pleading to be maintained and grant the defendant liberty to apply to the Court to have this question determined before trial.
In response to Mr Harris’ foreshadowed potential estoppel pleading, the defendant submitted there was no arguable basis to suggest that there is a potential estoppel that would prevent the defendant denying liability under Division 6. The defendant argued that in Casaclang, Buchanan J found that the licence holder should be estopped from arguing the representative did not have apparent authority under s 769B of the Corporations Act, not an estoppel relevant to the operation of Division 6.
It is not necessary to rehearse in detail the circumstances of the claims considered by Buchanan J in Casaclang. It is sufficient to note that in that case the plaintiff sought to extend liability to the financial services licence holder through both the operation of Division 6 of the Corporations Act and, on the basis that the representative had, at the relevant time, the ‘apparent authority’ of the financial services licence holder under s 769B of the Corporations Act. His Honour found, in relation to one set of clients, that the licence holder had not taken effective steps to revoke or deny the representative’s authority or to notify the representative’s clients that authority had been revoked. Buchanan J found in those circumstances the licence holder was estopped from denying the representative’s apparent authority under s 769B(1) of the Corporations Act.
Mr Harris has not sought to plead the defendant’s liability by virtue of s 769B.
I accept the defendant’s submission that in Casaclang Buchanan J noted that although s 917B makes clear that responsibility is assigned to a licensee whether or not particular conduct is within authority, that can only be the case when a person is a representative. Further, Buchanan J noted that a person is not a representative of another for the purpose of Division 6 if authorisation has been revoked.[7]
[7]Ibid [201]–[202].
In Casaclang, Buchanan J observed, and I respectfully agree, that:
…The standards of conduct which are set out in the Corporations Act in general and in Ch 7 in particular should operate as a reliable guide to conduct, readily ascertainable and capable of equally ready understanding. They should be accessible and comprehensible by those whose conduct is governed and by those whose interests might be affected — ie consumers and clients, small as well as big. The provisions with which I am dealing in this judgment fall short of that objective by a large margin, even for trained lawyers. That is unfortunate. The result is that the provisions of Ch 7 do not, in my view, act as an effective guide to conduct at all. They represent a complicated catalogue from which to select instruments of retribution well after loss or damage has been suffered. The applicants in the present case have persevered, but justice for them and others (and for licensees) should not depend upon such complexities as Ch 7 presents, and should not be endangered by the real possibility of misunderstanding or misapplication of its provisions.[8]
[8]Ibid [236].
The parties respective arguments about Mr Harris’ potential estoppel claim are based on a pleading that has not yet been filed and nor was a draft of that pleading before the Court. While I accept the defendant’s submissions that, on the wording of Division 6, estoppel on the basis of apparent authority appears irrelevant, I am reticent to strike out the current breach of contract pleading without giving Mr Harris the opportunity to plead his apparent authority and estoppel case. It seems to me that to strike out the breach of contract claim now would serve neither the interests of justice nor the efficient case management of the proceeding.
I will grant Mr Harris leave to amend his breach of contract claim if so advised, including paragraph [19] which is the paragraph by which Mr Harris seeks to extend liability to the defendant.
That leaves the question of whether the Court should grant Mr Harris leave to plead the s 961M(2)(b) claim given his concession that it is outside the confines of the indorsement on his writ. The Court will not grant leave if that pleading should be struck out because it is clearly statute barred.
Mr Harris seeks to rely on s 961M(2)(b) to make the defendant liable for Rio and/or Skynet’s alleged breaches of their best interests obligations. That section permits the Court to order the licensee to compensate a client for loss and damage occasioned by a contravention of a provision of Division 2 of Part 7.7A of the Corporations Act. That Division includes the best interests obligations.
Mr Harris’ counsel submitted, and the defendant accepted, that ordinarily it is inappropriate for the Court to determine a limitations period issue at an interlocutory stage of a proceeding. Both parties accepted that an exception to this general principle is where the limitation period has clearly expired.
Under s 961M(6) of the Corporations Act a proceeding to recover the amount of loss or damage may be commenced at any time within six years of the contravention. The defendant submitted that Mr Harris has pleaded that Rio and/or Skynet was in breach of ss 961B(1), 961J, 961H and 961G of the Corporations Act in providing the Advice. According to paragraph [7] of the ASOC, Rio or Rio as agent for Skynet provided the Advice to Mr Harris ‘In or around August 2015’. The defendant submitted that as the proceeding was not commenced until 12 October 2022, this aspect of the pleading is clearly statute barred.
Mr Harris submitted that the trial judge is in the best position to determine whether, and if so when, Mr Harris suffered loss, with loss being a prerequisite to relief under s 961M of the Corporations Act.
While I accept that relief under s 961M will not be granted unless the relevant loss is established, I also accept that on the clear wording of s 961M(6) the time limit for bringing an application is six years from the contravention. Mr Harris’ pleading pleads the provision of the Advice as the basis of the contravention. The claim under s 961M(2)(b) is clearly statute barred and should be struck out.
Conclusion
For the reasons given above I will order that:
(a) Paragraph 16, of the plaintiff’s SOC and ASOC, and paragraphs 16A, 16B, 16C, 16D, 16E and 20 of the plaintiff’s ASOC be struck out; and
(b) The plaintiff has leave to file a further ASOC by 1 March 2024 including any repleaded breach of trust claim and amended breach of contract claim.
I request that the parties confer on the issue of costs. Without wishing to prejudice those discussions or any application in relation to costs either party may wish to make, I draw the parties’ attention to the rr 63.17 and 63.20 of the Rules. If the parties are unable to reach agreement on the issue of costs within seven days of the date of this ruling, the matter will be relisted for oral submissions on costs.
SCHEDULE OF PARTIES
| S ECI 2022 04091 | |
| BETWEEN: | |
| TERENCE HARRIS | Plaintiff |
| - v - | |
| FINANCIAL SERVICES PARTNERS (ACN 089 512 587) | Defendant |
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