Johnston v Smith and 4 Ors

[2002] NSWSC 188

CITATION:

Johnston v Smith & 4 Ors [2002] NSWSC 188

CURRENT JURISDICTION:

Common Law

FILE NUMBER(S):

SC 20743/2001

HEARING DATE(S):

4 March 2002

JUDGMENT DATE:

20 March 2002

PARTIES :

Michael Peter Johnson
(Plaintiff)

Roderick Alexander Smith
(First Defendant)

Growthcorp (Aust) Pty Limited
(Second Defendant)

Charles Platcher
(Third Defendant)

Andrew Craig Ashton
(Fourth Defendant)

Mortgage Partners Pty Limited
(Fifth Defendant)

JUDGMENT OF:

Master Harrison

COUNSEL :

Mr J Wilson
(Plaintiff)

Mr T E Marshall
(Fifth Defendant)

SOLICITORS:

Chegwidden Solicitors
(Plaintiff)

Moray & Agnew
(Fifth Defendant)

CATCHWORDS:

Dismiss statement of claim as against fifth defendant

LEGISLATION CITED:

Supreme Court Rules - Part 13 r 5; Part 15 r 26

CASES CITED:

Agar v Hyde (2000) 201 CLR 552 [2000] HCA 41
Air Services Australia v Zarb (NSWSC unreported, 26 August 1998)
Dey v Victoria Railway Commissioners (1949) 78 CLR 62
General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125
Webster & Anor v Lampard (1993) 177 CLR 598
Union Bank of Australia Ltd v Rudder (1911) 13 CLR 152
Rajski v Bainton (1990) 22 NSWLR 125
Bullen & Leake and Jacob's Precedents of Pleading 12th Ed at 341

DECISION:

(1) The notice of motion filed 4 March 2002 is dismissed; (2) The fifth defendant is to pay the plaintiff's costs as agreed or assessed.

- 12 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER HARRISON

WEDNESDAY, 20 MARCH 2002

20743/2001 - MICHAEL PETER JOHNSTON v
RODERICK ALEXANDER SMITH & 4 ORS

JUDGMENT (Dismiss statement of claim as against
fifth defendant

1 MASTER: By amended notice of motion filed 4 March 2002 the fifth defendant seeks an order that the amended statement of claim as against the fifth defendant be dismissed; or alternatively, that paragraphs 7, 15 and 48 to 54 of the amended statement of claim be struck out; and paragraph 55 of the amended statement of claim from the words “and the Fifth Defendant” together with particulars (c) subscribed to paragraph 55 be struck out pursuant to Part 13 r 5 and Part 15 r 25 of the Supreme Court Rules (SCR). The fifth defendant relied on the affidavit of Geoffrey Thomas Connellan affirmed 14 December 2001. The plaintiff relied upon his affidavit affirmed 28 February 2002.

2 The first defendant is Roderick Alexander Smith, a solicitor of the firm Penrhyn Parker who acted in the mortgage transaction between the plaintiff and Burrawong Investment Pty Limited. Growthcorp (Aust) Pty Limited, the second defendant was an investment company. The third defendant Charles Platcher, was a director of the second defendant and acted on behalf of the second defendant in soliciting funds for investment by the second defendant. Andrew Craig Ashton the fourth defendant conducted an accounting firm. That firm completed documentation in relation to the plaintiff’s financial position and submitted it to the fifth defendant. Mortgage Partners Pty Limited the fifth defendant was a mortgage broker who arranged an offer for finance from Burrawong Investments Pty Limited.

3 In late 1999, the plaintiff owned a property at 6 Fay Street North Curl Curl. The property was the subject of a first mortgage in favour of the ANZ Bank. The amount secured by that first mortgage as at late 1999 is pleaded. However, as at 28 April 2001 the payout figure was $114,395.65.

4 In the period October 1999 to January 2000, the third defendant invited the plaintiff to lend monies to the second defendant. It is significant that Nathan Morgan was an employee and/or agent of the second defendant (see para 8 ASC) because it is Nathan Morgan’s name and fax number that appear at the top of the refaxed letter of 22 December 1999 (I refer to this in more detail later in this judgment). The third defendant made representations to the plaintiff in order to induce the plaintiff to lend money to Growthcorp. In order to lend money to Growthcorp the plaintiff had to borrow money in the sum of $360,000. It is alleged that the financial information concerning the plaintiff presented by the fourth defendant to the fifth defendant was false.

5 On 21 and 22 December 1999, there was correspondence between the second and fifth defendants. There are some interesting and unusual features in the correspondence dated 21 and 22 December 1999 so I will briefly highlight them. The original letter dated 21 December 1999 on Growthcorp (Australia) Pty Limited’s letterhead and signed by Charles Platcher, was written to Mortgage Partners. The letter was an application for second mortgage funding and sought the sum of $360,000 for a 6 to 12 month period. The purpose of the loan was cited to be “Investment purposes into property”.

6 By letter dated 22 December 1999, Mortgage Partners wrote to Burrawong Investments Pty Limited (Burrawong) the financier. This letter stipulated that the purpose of the loan was “to purchase business” and stated that the plaintiff “will refinance in less than 3 months”. The term of the loan was expressed to be 6 months maximum. Inexplicably, between receipt of the letter from Growthcorp, the purpose of the loan and the repayment period had altered. Also on 22 December 1999, Mortgage Partners faxed a loan approval to the plaintiff c/- Growthcorp although Mortgage Partners was aware of the plaintiff’s residential address at Curl Curl. This approval stipulated that the principal was $360,000 for a period of six months and the purpose of the loan was to purchase a business. If the plaintiff wished to proceed with this application he was requested to sign at the foot of this letter and fax it back to Mortgage Partners. Consent had to be obtained by the plaintiff from the ANZ bank to the taking of a second mortgage. At this point the fifth defendant’s counsel gave an interesting analogy, namely, that the fifth defendant was similar to a hotel concierge who called a taxi for the plaintiff. It was then up to the plaintiff whether or not he caught the taxi and that was the end of the concierge’s (fifth defendant’s) involvement. Using the same analogy it appears to me that the concierge called a particular taxi and in so doing derived a benefit, namely, a payment of $7,000.

7 The plaintiff in his affidavit deposes that he did not sign the letter nor did he date same. The signature on the letter was not his. In relation to the letter of 22 December 1999 addressed to the ANZ bank, which authorises Charles Platcher to act on his behalf in obtaining a second mortgage from Bunnerong (sic) Investment Pty Limited, the plaintiff’s evidence is that he has no recollection of ever signing this document nor authorising a third party to act on his behalf in dealings with the ANZ Bank.

8 By January 2000, the plaintiff had retained the first defendant as his solicitor in relation to the loan transaction. On 28 January 2000, the plaintiff attended the offices of his solicitor (the first defendant) for the purpose of signing documents. One of the documents executed was the mortgage whereby Burrawong obtained security for the loan of $360,000. The transaction with Burrawong was settled on 28 January 2000 and on that day the funds were advanced by Burrawong and disbursed. The funds were disbursed at the instruction of the plaintiff’s solicitor. It is not disputed that the plaintiff received $159,769 of the loan proceeds. However, at paragraph 23 of the amended statement of claim the plaintiff disputes that he gave authority to the first defendant, his solicitor to disburse the other moneys.

9 On 10 February 2000, 15 February 2000 and 14 March 2000, the plaintiff made further advances to the second defendant at the request of the third defendant.

10 On 28 July 2000, the loan from Burrawong to the plaintiff was due for repayment. The plaintiff defaulted in repayment of the loan. On 17 March 2001, Burrawong exercised its right as second mortgagee, obtained possession of the property and sold it by action. The sale price was $505,000. The sale was completed on 28 April 2001.

11 On 28 April 2001, the ANZ Bank was paid out. The amount paid out to discharge the first mortgage to the ANZ Bank was $114,395.65. After sale expenses, the balance was appropriated by Burrawong to the amount owing. There was a shortfall after appropriating the net sale proceeds. As at 28 April 2001, the shortfall was alleged to be $78,173.66.

The law on summary judgment

12 Part 15 r 26 provides:

“(1) Where a pleading -
(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;
(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or
(c) is otherwise an abuse of the process of the Court,
the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleading be struck out.
(2) The Court may receive evidence on the hearing of an application for an order under subrule (1).”

13 Part 13 r 5 says:

“(1) Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings-
(a) no reasonable cause of action is disclosed;
(b) the proceedings are frivolous or vexatious;
or
(c) the proceedings are an abuse of the process of the Court,
the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings.”

14 In Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 the High Court held at 57 that:

“Ordinarily a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”

15 According to their Honours, this is because:

“It would be wrong to deny a plaintiff resort to the ordinary processes of a court on the basis of a prediction made at the outset of a proceeding if that prediction is to be made simply on a preponderance of probabilities” (at 58).

16 Similarly, in Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted in Zarb.

17 In General Steel Barwick CJ, who heard the application alone stated at 130:

“Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.”

18 Barwick CJ also said at 129:

“It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; ‘so obviously untenable that it cannot possibly succeed’; ‘manifestly groundless’; ‘so manifestly faulty that it does not admit of argument’; ‘discloses a case which the Court is satisfied cannot succeed’; ‘under no possibility can there be a good cause of action’; ‘be manifest that to allow them’ (the pleadings) ‘to stand would involve useless expense’.”

19 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at 602:

“The power to order summary judgment must be exercised with ‘exceptional caution’ and ‘should never be exercised unless it is clear that there is no real question to be tried.”’

20 According to Rolfe AJA in Zarb at 15-16:

“The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241.”

Amended statement of claim

21 The plaintiff pleads two causes of action against the fifth defendant, namely negligence and conspiracy. In paragraphs 7, 14 and 15 it is pleaded:

“7. At all material times the Fifth Defendant was engaged in business as a finance broker arranging and facilitating loans between lenders and borrowers.
14. On 22 December 1999 the Fifth Defendant purported to confirm a loan approval for the borrowing by the Plaintiff of the sum of $360,000 from Burrawong Investments Pty Limited.
15. The Plaintiff has never had any dealings with the Fifth Defendant nor has the Plaintiff authorised any person on his behalf to have any dealings with the Fifth Defendant.

The claim in negligence

48. The Fifth Defendant purporting to act on behalf of the Plaintiff in or about December 1999 made an application to Burrawong Investments Pty Limited to borrow the sum of $360,000.
49. The Plaintiff did not at any time authorise the Fifth Defendant to make a loan application to Burrawong Investments Pty Limited.
50. The Plaintiff did not at any time authorise any person to instruct the Fifth Defendant to make a loan application to Burrawong Investments Pty Limited on behalf of the Plaintiff.
51. The loan application made by the Fifth Defendant to Burrawong Investments Pty Limited for the sum of $360,000 was made without the consent, direction or authority of the Plaintiff.
52. The fifth Defendant owed a duty of care to the plaintiff when making the loan application to Burrawong Investments Pty Limited:
(a) To act in the interests of the Plaintiff.
(b) Not to act in the interests of any other person.
(c) To submit accurate documentation in support of the loan application.

53. In breach of the said duty of care the Fifth Defendant:
(a) Did not act in the interests of the plaintiff.
(b) Acted in the interests of the Second Defendant and/or the Third Defendant.
(c) Submitted documentation in support of the loan application which was inaccurate and misleading.
54. As a result of the breach of the said duty of care the Plaintiff has suffered loss and damage.
Particulars
(a) Loss of borrowings $360,000.00
(b) Amount claimed by Burrawong
Investments Pty Limited $ 78,809.75
(c) Loss of house property $ 390,604.35
Total $829,414.10”

22 The plaintiff has pleaded that the fifth defendant owed him a duty of care. He has particularised these duties and alleged that they were breached. It also pleads that as a result of the breaches of duties of care, he has suffered loss and damage. The claim for negligence is one which should be permitted to go to trial.

23 However, the fifth defendant’s counsel referred to Union Bank of Australia Ltd v Rudder (1911) 13 CLR 152 and 163.5 where the High Court stated that “Ratification is equivalent, as we all known, to original authority”. According to the fifth defendant once the plaintiff sought the advice of a solicitor in relation to the offer of finance, the transactions were ratified. The plaintiff had admitted that he received proceeds of the loan, namely, the sum of $159,769 which is part of the proceeds of the funds. It is necessary that the facts be ascertained at trial before it can be determined whether there had been ratification of the transaction. It would seem on the pleadings it is arguable that at least part of the transaction was not ratified.

The claim in conspiracy

24 Paragraph 55 pleads:

“55. The Second Defendant by its agent the Third Defendant, the Third Defendant on his own behalf, the Fourth Defendant and the Fifth Defendant engaged in a conspiracy to cheat and defraud the Plaintiff out of the moneys loaned to the Plaintiff by Burrawong Investments Pty Limited.

25 Paragraph 55(c)pleads:

“The Fifth Defendant:
(i) Accepted instructions from the Third Defendant to make a loan application to Burrawong Investment Pty Limited on behalf of the Plaintiff.
(ii) Prepared an application for loan to Burrawong Investments Pty Limited without any instructions from the Plaintiff.
(iii) Supported the loan application with a wages certificate provided by the Third Defendant.
(iv) Provided the loan confirmation to the Third Defendant.”

26 In relation to conspiracy, in the text of Bullen & Leake and Jacob’s Precedents of Pleadings 12th Ed at 341, the learned author says:

“The statement of claim should describe who the several parties are and their relationship with each other. It should allege the agreement between the defendants to conspire, and state precisely what was the purpose or what were the objects of the alleged conspiracy, and it must then proceed to set forth, with clarity and precision, the overt acts with are alleged to have been done by each of the alleged conspirators in pursuance and in furtherance of the conspiracy; and lastly, it must allege the injury and damage occasioned to the plaintiff thereby.”

27 In Rajski v Bainton (1990) 22 NSWLR 125 the Court of Appeal (per Samuels and Handley JJA) stated:

“It is not necessary in this proceeding to examine exhaustively the nature of a conspiracy or, in particular, the way in which it may be proved: see generally Williams v Hursey (1959) 103 CLR 30; Little v Law Institute of Victoria (1989) Aust Torts Reports 80-250; Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1989) Aust Torts Reports 80-303 and Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173. It is sufficient to say that in the sense here relevant a conspiracy may be shown to exist either by showing the making of an actual agreement or agreements between conspirators, made at one or more times; or by showing acts done by them pursuant to a common purpose or with a common end from which the making of the agreement is to be inferred: see, eg, R v Associated Northern Collieries (1911) 14 CLR 387 at 400 and Williams v Hursey (1959) 103 CLR 30 at 107.
…
Alternatively, a conspiracy may be constituted, not by an actual agreement or agreements to do what is alleged, but by the doing of acts with the necessary common purpose, in the sense referred to in the authorities. In such a case, the plaintiff must show that there was the common purpose – in this case, to injure or exhaust Mr Rajski – between the conspirators. That common purpose may be proved directly, by evidence of what they said, or indirectly, by inference from what they did.”

28 The statement of claim describes the parties and their relationships to each other. The agreement and its purpose is pleaded in paragraph 55. The acts with a common purpose have been pleaded. The fifth defendant is in a position to know the case it has to meet. It is my view that the cause of action of conspiracy has been properly pleaded and the matter should proceed to trial.

29 Costs are discretionary. Costs follow the event. The fifth defendant is to pay the plaintiff’s costs as agreed or assessed.

30 The orders I make are:

(1) The notice of motion filed 4 March 2002 is dismissed.

(2) The fifth defendant is to pay the plaintiff’s costs as agreed or assessed.
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Last Modified: 03/22/2002