Heperu Pty Ltd & Ors v Morgan Brooks Pty Ltd & Ors

[2007] NSWSC 77

CITATION:	Heperu Pty Ltd & Ors v Morgan Brooks Pty Ltd & Ors [2007] NSWSC 77
HEARING DATE(S):	7 February 2007
JUDGMENT DATE :	7 February 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
EX TEMPORE JUDGMENT DATE:	7 February 2007
DECISION:	Leave to amend granted.
CATCHWORDS:	PRACTICE AND PROCEDURE – LEAVE TO AMEND – Whether leave to amend Statement of Claim should be refused because new claims disclosed no arguable cause of action – claims for economic loss founded on negligence and misleading and deceptive conduct – duty of care alleged in novel circumstances – importance of facts in developing area of law.
LEGISLATION CITED:	Australian Securities and Investments Commission Act 2001 (Cth) – s.12DA Corporations Act 2001 (Cth), s.728, s.995 Fair Trading Act 1987 (NSW) – s.42
CASES CITED:	- Perre v Apand Pty Limited (1999) 198 CLR 180 - Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515
PARTIES:	Heperu Pty Ltd – First Plaintiff Kirisi Holdings Pty Ltd – Second Plaintiff Barry Samuel Landa – Third Plaintiff Drummoyne Administrative Services Pty Ltd – Fourth Plaintiff Morgan Brooks Pty Ltd – First Defendant/Cross Claimant Dominic Cincotta – Second Defendant/First Cross Defendant ACN 067 567 702 Pty Ltd (In liq) – Third Defendant (Dismissed) Patrice Ann Cincotta – Fourth Defendant/Third Cross Defendant Perpetual Trustees Australia Ltd – Fifth Defendant
FILE NUMBER(S):	SC 6165/03
COUNSEL:	G.K. Burton SC, C.L. Cochrane – Plaintiffs R.E. Dubler SC – Fifth Defendant
SOLICITORS:	Schreuder Partners – Plaintiffs Phillips Fox – FifthDefendant

6165/03 Heperu Pty Ltd & Ors v Morgan Brooks Pty Ltd & Ors

JUDGMENT – Ex tempore
7 February, 2007

1 This matter is set down for trial for nine days before me commencing on 10 April 2007. The Plaintiffs (“Heperu”) now seek leave to file a Further Amended Statement of Claim. The minor amendments are opposed. The major amendments seek to add two causes of action against the Fifth Defendant, (“Perpetual”). Perpetual opposes the granting of leave so as to raise these new causes of action upon only one ground, namely, that neither discloses an arguable cause of action. 2 The proposed causes of action are, first, breach of an alleged duty of care owed by Perpetual to Heperu to regulate its system of dealing with applications for investment in such a way as would prevent economic loss to investors such as Heperu from the type of fraud alleged against the Second Defendant. 3 The second cause of action is founded upon alleged representations by Perpetual said to constitute misleading or deceptive conduct in contravention of s.12DA of the Australian Securities and Investments Commission Act 2001 (Cth), s.995 Corporations Act 2001 (Cth), s.728 Corporations Act or s.42 of the Fair Trading Act 1987 (NSW). The alleged misrepresentations are to the effect that Perpetual had in place a system of dealing with applications for investment which would prevent the type of fraud alleged against the Second Defendant. 4 Mr Dubler SC, who appears for Perpetual, has prepared very careful submissions in support of his assertion on behalf of Perpetual that neither cause of action is reasonably arguable. 5 The submissions, which are I think thirteen pages in length, traverse a large number of the recent and not so recent decisions of the Courts of this country dealing with the identification of a duty of care in tort, particularly in circumstances said to give rise to economic loss. This is an area of the law which, as the High Court has repeatedly said, is one which is continually evolving. It is a cause of action the success of which is very much determined by the particular facts of the case, particularly when a duty of care is said to arise in circumstances not previously considered by the Courts. 6 I do not need to go into any detail in the present case in examining the various factual circumstances relied upon by Heperu to found the alleged duty of care and its breach in the first cause of action. It seems to me, for the reasons which Mr Burton SC, who appears for the Plaintiffs, has enunciated in his submissions, also careful and detailed, that this is a case which will be of some consequence, probably to the investment industry generally, because it is said to found upon practices which are probably common in the investment industry relating to the manner in which investments are accepted and dealt with, particularly when those investments come through agents for investors. 7 Heperu’s first cause of action, as pleaded, is not unarguable. It seems to me that the case will necessitate a close examination of the factual circumstances of Perpetual's system of dealing with investments and whether, in the circumstances of this particular case, Heperu was in a category of persons said to be “vulnerable”, as that expression is used in Perre v Apand Pty Limited ((1999) 198 CLR 180) by a number of members of the Court, in relation to Perpetual or was, as Mr Dubler will suggest, vulnerable only to the actions of Heperu’s agent, the Second Defendant. 8 It would be foolhardy in the extreme, in my view, to attempt to ascertain whether any arguable duty of care can exist in the first cause of action upon what are said to be the bare facts pointed to by Mr Dubler. The matter is far more complicated and more subtle than that, in my opinion. 9 As to the second cause of action, a central issue will be whether or not there is a causal link between the alleged misrepresentations of Perpetual as to its system of dealing with investments and any loss suffered by Heperu. Probably no issue in the law has provoked the spilling of more judicial ink than the meaning of "causation" and whether, in a particular case, causation is established on the facts. In borderline cases, and this is likely to be one of them, it is very common that what is a clear causal link to one Judge is exactly the opposite to another. Judicial minds frequently differ on causation, as the reports amply demonstrate. It would be foolhardy for me to endeavour to decide that there is no arguable issue of causation in the misrepresentation case on the bare facts said to be relevant by Mr `Dubler. 10    In coming to the conclusion that I cannot refuse leave to the Plaintiffs to raise these causes of action, I bear very much in mind comments such as were made by Kirby J at 566 in Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515, at paragraph 138:
“Where the law is uncertain, and especially where it is in a state of development, it is inappropriate to put a plaintiff out of court if there is a real issue to be tried. The proper approach in such cases is one of restraint. Only in a clear case will answers be given, and orders made, that have the effect of denying a party its ordinary civil right to a trial. This is especially so where, as in many actions for negligence, the factual details may help to throw light on the existence of a legal cause of action – specifically a duty of care owed by the defendant to the Plaintiff."

I bear in mind also the remarks of Callinan J at paragraph 231:
“… for economic loss, an evolving area of the law, cases will in practice only be resolved by closely and carefully examining the facts to ascertain whether a sufficiency of factors of a sufficient degree of relevance and importance has been demonstrated."
11    In my view, bearing in mind the significance to the investment industry generally of the issues raised on the proposed causes of action, it is particularly important that the facts of this case be examined carefully before any findings are made as to the possible existence of the alleged duty of care or as to whether a causal link can be established between allegedly wrongful acts of Perpetual and the loss suffered by Heperu. 12    For those reasons, I will grant leave to the Plaintiffs to amend their Amended Statement of Claim in accordance with the Further Amended Statement of Claim which is attached to the affidavit of Mr Hensley of 28 November 2006. 13    Mr Dubler says that he is not able to predict with any degree of assurance that the addition of these two new causes of action will prolong the trial beyond the nine days fixed. He does point out, however, that Perpetual will need to file an expert report on the issues now raised and, in all probability, the Plaintiffs will wish to respond with their own expert’s report. He also refers to the possibility of an application by Perpetual for security, for Perpetual's costs of these new causes of action as against Heperu. It is clear that some case management will be required to ensure that this matter does come on for trial on the date fixed and that the trial proceeds smoothly. 14    I think probably the best course of action is for me to allow the parties some little time now, if they wish, to formulate a proposed timetable for further steps to be taken and I will make some directions, if the parties so desire, today otherwise I will stand it over to a day some days from now to deal with any dispute as to directions or other interlocutory steps. 15    I think that because of the novelty, perhaps, and difficulty of the issues which will be raised by the new causes of action, the costs of this motion ought to be costs in the trial. I so order, save that I order that the Plaintiffs pay the Fifth Defendant's costs thrown away by reason of the amendment. 16    I make orders and directions in accordance with Short Minutes of Order initialled by me dated today and placed with the papers. 17    The matter will be listed before me for further directions on 26 February at 9.30am.
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