Layrir Pty Ltd and 44 ors v Jack Jordan and 6 ors - [2006] NSWSC 1228

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CITATION: Layrir Pty Ltd & 44 ors v Jack Jordan & 6 ors [2006] NSWSC 1228

HEARING DATE(S): 10/11/06

JUDGMENT DATE :
20 November 2006

JUDGMENT OF: Patten AJ at 1

DECISION: See paragrah 31

LEGISLATION CITED: Uniform Civil Procedure Rules
Trades Practices Act 1974 (Cth)
Supreme Court Rules

CASES CITED: Peter Kent Development Pty Ltd v The Australia and New Zealand Banking Group Ltd (Unreported 6 May 1980
Ritz Hotel Ltd v Charles of the Ritz Ltd (No 20) (1988) 14 NSWLR 124
Sutton v A J Thompson Pty Ltd (in Liq) (1987) 73 ALR 213
Yorke and Another v Lucas (1985) 55 ALJR 776
Wickstead and Ors v Browne (1992) 30 NSWLR 1

PARTIES: Jack Jordan and ors - Applicants
Layrir Pty Limited and ors - Respondents

FILE NUMBER(S): SC 20395 of 2005

COUNSEL: Mr J Stevenson SC with Mr C Bova - Applicants
Mr R Dubler SC with Mr A Harding- Respondents

SOLICITORS: Elliot Tuthill - Applicants
Hegarty & Elmgreen Solicitors - Respondents

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
PROFESSIONAL NEGLIGENCE LIST

Patten AJ

20 November 2006

20395 of 2005

Layrir Pty Ltd & 44 ors v Jack Jordan & 6 ors
JUDGMENT:

1 Before the court is a motion dated 6 July 2006, filed on behalf of the Fourth, Seventh and Eighth Defendants, wherein the following relief is claimed:

1. The claims made against the Fourth, Seventh and Eighth Defendants in paragraphs 65 (b) and 95 (b) of the Amended Statement of Claim be struck out pursuant to Pt 14.28 of the Uniform Civil Procedure Rules 2005 (NSW).

2. The proceedings against the Fourth, Seventh and Eighth Defendants be dismissed.

3. The Plaintiffs pay the Fourth, Seventh and Eighth Defendant’s costs of the motion and the proceedings.”

2 Mr J Stevenson SC with Mr C Bova appeared to support the motion and Mr R Dubler SC with Mr A Harding for the Plaintiff, to oppose it.

3 The motion is framed pursuant to Pt 14 rule 28 of the Uniform Civil Procedure Rules. Its terms draw attention to the fact that the Amended Statement of Claim is irregular, in that it names Mr J L Jordan and Mr D. A. Jordan as defendants, twice. Although it is pleaded that they are joined in separate capacities, once as members of the firm Elliot Tuthill Solicitors and once as directors of the Third Defendant, Elliot Tuthill Mortgages Ltd (ETML), it is plain that they are sued both as solicitors and as directors of ETML in their personal capacities. If they were, in truth, sued in separate capacities, the leave of the Court would be required (See Uniform Civil Procedure Rules 6.18 (d)).

4 The Defendants take no objection to the irregularity which, so I am informed, may be convenient because of the interests of different insurers. However, it is important to record that whatever the fate of the motion, Messrs J L Jordan and D A Jordan will remain defendants as members of Elliot Tuthill.

5 The other defendant for whom the motion seeks relief is the Fourth Defendant, Ms Madeleine Reid who, although employed by or an Associate of Elliot Tuthill at relevant times, was not sued as such. She is only sued as a director of ETML.

6 Rule 14.28 focuses on a pleading which may be struck out in contrast to the somewhat complementary provisions of rule13.4, which enables the court to dismiss proceedings. However, as Hunt J pointed out in Peter Kent Development Pty Ltd v The Australia and New Zealand Banking Group Ltd (Unreported 6 May 1980), in relation to Pt 15 rule 26 of the Supreme Court Rules (the predecessor of rule 14.28), an application under the rule differs from a demurrer in that evidence may be received. Even so, in the light of any such evidence, it is the pleading under challenge as opposed to the proceedings themselves, which must withstand an attack based on all or some of the three paragraphs (a), (b) and (c) of rule 14.28(1), namely that the pleading:

7 The action involves some 45 plaintiffs and originally 7 defendants. One of those defendants, upon going into liquidation was removed from the proceedings and as I have said 2 defendants have been named twice. The Statement of Claim was lengthy and complicated. It pleaded a number of separate causes of action against the various defendants, all said to arise out of the same factual matrix. In its most recently amended form, the text of the pleading contains 109 paragraphs and runs to some 45 pages, aside from its formal parts.

8 As the motion concerns only relief sought by Messrs J L and DA Jordan and Ms Reid, (hereafter as in the Statement of Claim “the directors”), it is unnecessary to refer to the pleading in any detail. However, in order to put that part of the Statement of Claim, to which it is necessary to refer in context, I will need to provide an outline of the Plaintiffs’ claim. They assert that at various times in 1999 and 2000 they advanced monies to a contributing mortgage scheme at first conducted by Elliott Tuthill and later by ETML. Monies were advanced against a mortgage over property at Castle Cove (the property), in reliance upon valuations provided by one of the defendants, Rex G McDonald Pty Ltd, an expert in property valuations.

9 They further contend that for a number of reasons involving negligence by the valuer, the valuations considerably overstated the true value of the property. As a consequence, when the mortgagors defaulted and the property was sold there was a large shortfall, which the Plaintiffs sue to recover.

10 Against ETML, inter alia, causes of action were pleaded under s82 of the Trade Practices Act alleging misleading or deceptive conduct contrary to s52. Against the directors, it was pleaded in respect of those causes of action that they were “directly or indirectly knowingly concerned in or party to the conduct of ETML ………”.

11 I pause to observe that the pleading against the directors, as above, would not technically be demurrable as facts are alleged, which support a cause of action. Upon the test propounded by McLelland J in Ritz Hotel Ltd v Charles of the Ritz Ltd (No20) (1988) 14 NSWLR 124 at 126, the claim would relevantly be made out if the pleaded allegations were admitted.

12 However, the bare allegation that the director “were directly or indirectly knowingly concerned in or party to the conduct of ETML” which simply follows the wording of s75B (i) (c) of the Trade Practices Act may obviously be the subject of a request for particulars (see for example Sutton v A J Thompson Pty Ltd (in Liq) & Ors (1987) 73 ALR 213. To this end ETML wrote to the Plaintiffs’ solicitors Messrs Hegarty Elmgreen on 6 June 2006 in these terms (omitting formal parts):

We refer to the Amended Statement of Claim (ASC) filed in this matter and our letter dated 31 May 2006.

As we understand the ASC, the only claims made against the fourth, seventh and eighth defendants are made pursuant to s75 of the Trade Practices Act 1974 (Cth) TP ACT: see paras 65(b) and 95(b) of the ASC.

With respect, your allegation that the fourth, seventh and eighth defendants were “knowingly concerned in or party to “ the alleged conduct of the fourth defendant (sic–third defendant) is embarrassing and liable to be struck out. This is at least because you have not pleaded any material facts which would constitute the fourth, seventh and eighth defendants being “knowingly concerned in or party to” the alleged conduct of the fourth defendant (sic). The allegation is simply made in terms of the section. As the Full Court of the Federal Court (Forster, Woodward and Wilcox JJ) said in Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 at 242, the fourth, seventh and eighth defendants are “entitled to have the details of (their) alleged involvement, amounting as it does to something akin to fraudulent conduct, spelt out”.

Moreover, it is clear from the authorities that actual knowledge that conduct was misleading or deceptive is required before an accessory is liable under s75B of the TP Act: see Yorke v Lucas (1985) 158 CLR 661 at 667-668, 670 and 677 and Sutton v AJ Thompson at 243. No such actual knowledge has been pleaded in the ASC.

It appears to us that the reason why no material facts to support the mere allegations in terms of s75B of the TP Act have been pleaded is because no such material facts exist. It further appears that you have no basis upon which to plead actual knowledge of misleading or deceptive conduct on the part of the fourth, seventh and eighth defendants. We therefore invite you to discontinue the proceedings as against the fourth, seventh and eighth defendants as a matter of urgency.

In the event that you are of the view that such material facts or knowledge exists to support the allegations underlying paragraphs 65(b) and 95(b) of the ASC, we invite you to forward to us a draft further amended statement of claim within seven (7) days which addresses our concerns.

Should you fail to discontinue against the fourth, seventh and eighth defendants or amend the ASC so as to correct its current defective form we shall forthwith proceed to move the Court for summary judgment and associated orders in favour of the fourth, seventh and eighth defendants without further notice.”

13 Upon 5 July 2006, the Plaintiffs’ solicitors replied (again omitting formal parts) in these terms:

We refer to your letters of 7 June 2006 and today. We apologise for the oversight in not having replied earlier.

Lest there be any doubt, the plaintiffs contend that the fourth, seventh and eighth defendants, as directors of Elliot Tuthill Mortgages Limited (ETML).

1. had knowledge of the affairs and conduct of ETML generally; and

2. had knowledge of the conduct of ETML pleaded at paragraphs 54, 57, 60, 84 and 87 in respect of which ETML and its directors are sued for misleading and deceptive conduct under the Trade practices Act 1974 (Cth), being activities at the core of ETML’s business activities.

Paragraphs 62 and 90 of the Amended Statement of Claim expressly recite, in length and in detail, matters which were known or which ought to have been known to ETML (and hence, its directors, as persons involved in ETML’s core activities) and ET Solicitors (i.e. the ETML directors Jack Jordan land David Jordan) in respect of the conduct of ETML paragraphs 54,57, 60, 84 land 87.

Accordingly, the material facts which constitute the fourth, seventh and eighth defendants being knowingly concerned in or party to the relevant conduct of ETML have been pleaded in the Amended Statement of Claim.

We therefore:

(a) decline you client’s invitation to discontinue the proceedings against the fourth, seventh and eighth defendants; and

(b) advise that any application by your clients to strike out parts of the Amended Statement of Claim will be strenuously opposed and will be met with an application for costs.

14 Notwithstanding that reply, the directors on 6 July 2006 filed the motion now before me. However, since then a Second Amended Statement of Claim has been prepared and served on the Defendants. Mr Dubler seeks leave to file it and subject to the determination of the motion, the Defendants or, at least the directors do not object to that leave being granted.

15 The proposed Second Amended Statement of Claim provides particulars of the allegations against the director. Such particular in a distilled and summarised form were handed to me by Mr Stevenson without objection during the course of argument as follows:

(1) Madeleine Reid (4th Defendant)

(a) Was a director at the time representations at 54, 57 and 60 were made;

(b) Was aware of the terms of the Fund Prospectuses issued between 20 January 2000 and 6 March 2002; (B82, 95 110 & 139).

(c) Was aware of the terms of the Syndicate Prospectuses and Advice of Mortgage statements (B258ff) sent by ETML to each of the Group A plaintiffs and the Group BHP plaintiffs:

(d) Was a member of the Information Technology Committee and had specific areas of responsibility in this regard (which are listed at particular 9):

(e) Was responsible for receiving and considering reports by the Compliance Officer (the eighth defendant) as to the performance of external service providers such as valuers);

(f) Regularly attended meetings held by the ETML board:

(g) Drafted and executed numerous letters in respect of the Coulthurst loan including letters dated 23 October 2002 (B301); and

(h) Was an Associate of Elliot Tuthill Solicitors from 1994 until 1 March 2004, when she became a Partner.

Jack Jordan (7th Defendant)

(a) Was a director at the time representations at 54, 57 and 60 were made;

(b) Was aware of the terms of the Fund Prospectuses issued between 20 January 2000 and 6 March 2002; (B82, 95 110 &139);

(c) Was aware of the terms of the Syndicate Prospectuses and Advice of Mortgage statements sent by ETML to each of the Group A plaintiffs and the Group B plaintiffs;

(d) Was chairman of the Loan Approval Committee and had designated areas of responsibility (which are listed at particular 7);

(e) Was responsible for receiving and considering reports by the Compliance Officer (the eighth defendant) as to the performance of external service providers such as valuers);

(f) Regularly attended meetings held by the ETML board;

(g) Drafter and executed letters in respect of the management of the Coulthurst loan, including letters dated 14 June 2000 (B297), 14 November 2002 (B302), 28 November 2002 (B303), 3 December 2002 (B305) and 19 December 2002 (B308 & 309: to valuers);

(h) Was a solicitor and partner of ET solicitors at all times from 1998;

(i) Had been involved in the management of the solicitors’ mortgage practice for 40 years, had undertaken the examination of loan applications, valuations and financial details of intending borrowers for that period and dealt with approximately 900 mortgage transactions over the past 5 years;

(j) Received a telephone call from Mr David Bray in December 2000 expressing a concern that the Second McDonald valuation may be wrong and too high. Mr Bray asked who held the contract and deposit for the alleged sale of the property for l$7.9 million which had been represented in the Advice of Mortgage dated September 2000 (B270);

(k) Acted as solicitor for the mortgagee and executed the Mortgage and Annexure thereto dated 5 May 1999 (B310) registered over the Property, executing as solicitor for the Mortgagee, the said Mortgage being granted by Gizmo as Mortgagor, consequent upon the transfer of the Property from Ms Irit Davis to Gizmo for $750,000 by transfer also dated 5 May 1999 (B317)

(l) Acted as solicitor for the Mortgagee in executing the Mortgage dated 26 July 1999 (B318) granted by the Coulthurst over the Property as solicitor and was involved in assessing, approving, recommending and managing the First Advance (including executing Advice of Mortgage documents sent to investors – B258ff) until the transfer of the Mortgage to the Fund;

(m) Received and considered the Second McDonald Valuation and executed a letter dated 31 May 2000 (B296) (pleaded at paragraph 50 of the statement of claim). The letter in response from Mc Donald was addressed to the seventh defendant;

(n) Acted as solicitor for the Mortgagee which held the Mortgage over the Property as nominee of the lenders under the terms of the Constitution of the Fund, including executing the Variations of Mortgage dated 7 June 2000 (B326), 29 October 2001 (B328) and 22 august 2002 (B334 as the Mortgagee’s solicitor; and

(o) Was responsible for the statement of accounts that were sent from ETML to the Coulthursts at various dates.

(3) David Jordan (8th Defendant)

(a) Was a director at the time of representations at 54, 57 and 60 were made;

(b) Was aware of the terms of the Fund Prospectus (B82, 95, 110, 139)

(c) Was aware of the terms of the Syndicate Prospectuses and Advice of Mortgage statements sent by ETML to each of the Group A plaintiffs and the Group B plaintiffs;

(d) Was a Compliance Officer in accordance with the Compliance Fund;

(e) Was a member of the Loan Approval Committee and had specific areas of responsibility in this regard (which are listed at particular 8);

(f) Regularly attended meetings held by the ETML board;

(g) Was a solicitor and partner of ET Solicitors at all times from 1998;

(h) Had been involved in mortgage transactions in relation to the mortgage practice of Elliott Tuthill solicitors, including being involved in the mortgage process from inception of matters until completion, including consideration of loan applications and consideration of valuations and consideration of a borrower’s financial worth and capacity to meet loan repayments; and

(i) Executed the Discharge of Mortgage dated 26 July 1999 (B339) granted by Gizmo over the Property as secretary of the Mortgagee and the seventh defendant executed the said Discharge as director of the Mortgagee.”

16 Mr Stevenson’s submissions focussed on the particulars, it being contended, in effect, that taken at their highest they could not provide the Plaintiffs with a cause of action.

17 The relevant claims against ETML, as I have indicated, involve asserted breaches of s52 of the Trade Practices Act which fall within Part V. Section 82 (i) provides:

18 As against the directors, reliance is placed upon s75 B (i) which provides:

“A reference in this part to a person involved in a contravention of a provision of (Part V) shall be read as a reference to a person who-

(a) has aided, abetted, counselled or procured the contravention;

(b) has induced, whether by threats or promises or otherwise, the contravention;

(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d) has conspired with others to effect the contravention.

19 It is to be noted that in this case, the pleading is confined to paragraph (c). Section 75B (i) was considered by the High Court in Yorke and Another v Lucas (1985) 55ALJR 776. In relation to paragraph (c) Mason ACJ, Wilson, Deane and Dawson JJ in a joint judgment (with which Brennan J in a separate judgment agreed) said at page 779:

20 As I have said, although the allegations in the Statement of Claim are numerous and lengthy, they essentially revolve around the reliance by the Plaintiffs upon allegedly gross undervaluations of the property and, relevantly to the motion before me, the involvement of ETML in obtaining and disseminating those valuations, it being claimed, in effect, that ETML knew, or should have known, that the valuations were wrong but, nevertheless, permitted or caused the Plaintiffs to rely upon them to their detriment.

21 Mr Stevenson submitted that none of the particulars pleaded against the directors could lead to an inference that any of them was knowingly concerned in or party to a contravention of the Trade Practices Act by ETML, bearing in mind, on the authority of Yorke, that liability depends on proof that the director was an intentional participant in a contravention of s52 by ETML, in the sense of having actual knowledge of the matters constituting the contravention. However, it was established that the directors were the only directors of ETML at the relevant time and, in my view, slight evidence would suffice to justify a conclusion that a particular director was knowingly concerned in, or party to, the company’s conduct.

22 This is perhaps what Forster Woodward and Wilcox JJ had in mind in Sutton when they said at page 242, “The allegation was simply made in terms of the section. This is undesirable, at least where the respondent concerned is not a principal of the respondent company of the prime actor in the conduct alleged”. But having said that, I am inclined to agree with Mr Stevenson that none of the matters particularised could, either standing alone, or in combination, if proved, warrant a finding that any of the directors was knowingly concerned in, or party to breaches of the Trade Practices Act by ETML.

23 What the particulars do indicate, however are, in my opinion, areas where Discovery and/or Interrogatories might be fruitful. It would, in my view, be entirely appropriate for the Plaintiffs to promise further particulars after Discovery and Interrogatories as the relevant facts are virtually exclusively within the directors' knowledge. Indeed, that is substantially the basis upon which Mr Dubler submitted that the motion should fail. In doing so he placed particular reliance on what the Court of Appeal said in Wickstead and Ors v Browne (1992) 30 NSWLR 1.

24 In Wickstead the Court was dealing with an application under Pt 13 rule 5 of the Supreme Court Rules, the predecessor to rule 13.4 rather than the predecessor to rule 14.28. However, the general similarity between the two rules and the fact that under both of them the court may receive evidence persuades me that cases upon one of them may be persuasive in cases upon the other. So it is with Wickstead.

25 In my view, the following statement of principle in Wickstead by Handley JA and Cripps JA is applicable to this case:

“The respondent submitted that the appellants had failed to adduce any evidence or any admissible evidence on a number of issues and that the appeals should therefore be dismissed. Again it seems to us that those submissions misconceived the nature of the court's jurisdiction to dismiss summarily a plaintiff's action. By launching such an application a defendant undertakes the burden of establishing that there is no triable issue. On such
an application the defendant bears the onus of proof and where the facts are peculiarly within the defendant's knowledge the plaintiff's action should not be dismissed because of gaps in the case if the necessary evidence might be obtained as a result of discovery or interrogatories.

Menzies v Australian Iron & Steel Ltd

Supreme Court Rules

26 Although Kirby P dissented in respect of one aspect of the majority judgment, he affirmed the principles quoted above. I should record that his dissent was upheld by the High Court when it allowed an appeal on 30 April 1993, but nothing before the High Court is relevant to this case.

27 In my opinion, what was said in Wickstead is compelling. It would, in my view, be an inappropriate exercise of the power conferred by rule 14.28 to strike out, at this stage, the pleading against the directors based upon their alleged role in the company ETML.

28 In any event, I think that the relief sought by the directors should be refused in the exercise of discretion for the first two of the five reasons propounded by Kirby P in Wickstead at page 5. The present motion deals with but a small part of the Plaintiffs’ causes of action, which must go to trial. Two of the three directors and ETML will remain as defendants whatever the result of this motion. The utility of granting the relief sought would be very limited as opposed to the danger identified by Kirby P that after the trial were concluded an appellate court might hold that the cause of action was viable.

29 I would dismiss the Notice of Motion. As to costs, the directors have failed to obtain the relief sought but, on the other hand, the Plaintiffs failed to provide any particulars as requested by the directors up to the filing of the Notice of Motion, and to this day have failed to provide, what I would regard as, adequate particulars. However, I recognise that such particulars may now properly await Discovery and Interrogatories.

30 In the result, I think justice would be served if I order that costs of the motion be costs in the cause but, as the matter has not been argued, I will reserve liberty to apply in case either party wishes to contend that some other order regarding costs should be made.

31 I make these orders:

1. Leave to the Plaintiffs to file Second Amended Statement of Claim within 14 days.

2. The Notice of Motion is dismissed.

3. Costs of the motion are costs in the cause.

4. Liberty to each party to apply regarding costs on 7 days notice.

5. Exhibits may be returned.

oOo

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Citations

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CITATION:	Layrir Pty Ltd & 44 ors v Jack Jordan & 6 ors [2006] NSWSC 1228
HEARING DATE(S):	10/11/06
JUDGMENT DATE :	20 November 2006
JUDGMENT OF:	Patten AJ at 1
DECISION:	See paragrah 31
LEGISLATION CITED:	Uniform Civil Procedure Rules Trades Practices Act 1974 (Cth) Supreme Court Rules
CASES CITED:	Peter Kent Development Pty Ltd v The Australia and New Zealand Banking Group Ltd (Unreported 6 May 1980 Ritz Hotel Ltd v Charles of the Ritz Ltd (No 20) (1988) 14 NSWLR 124 Sutton v A J Thompson Pty Ltd (in Liq) (1987) 73 ALR 213 Yorke and Another v Lucas (1985) 55 ALJR 776 Wickstead and Ors v Browne (1992) 30 NSWLR 1
PARTIES:	Jack Jordan and ors - Applicants Layrir Pty Limited and ors - Respondents
FILE NUMBER(S):	SC 20395 of 2005
COUNSEL:	Mr J Stevenson SC with Mr C Bova - Applicants Mr R Dubler SC with Mr A Harding- Respondents
SOLICITORS:	Elliot Tuthill - Applicants Hegarty & Elmgreen Solicitors - Respondents