NEYLON v Aust. Rural Group and Ors.
[2001] FMCA 97
•23 November 2001
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| NEYLON v AUST. RURAL GROUP & ORS. | [2001] FMCA 97 |
| AMENDMENT – Not manifestly hopeless – misleading and deceptive conduct – negligence – evidence needed to determine if out of time – whether Trade Practices Act s 51AF applies – whether Fair Trading Act 1985 or 1999 applies. |
| Applicant: | NOEL NEYLON |
| First Respondent: Second Respondent: | AUSTRALIAN RURAL GROUP LIMITED JAMES STANLEY PHILLIPS |
| File No: | MZ 543 of 2001 |
| Delivered on: | 23 November 2001 |
| Delivered at: | Melbourne |
| Hearing Date: | 2 September 2001 |
| Judgment of: | Phipps FM |
REPRESENTATION
| Counsel for the Applicant: | Mr. P. G. Cawthorn |
| Solicitors for the Applicant: | Davies Moloney |
| Counsel for the First Respondent: | Mr. C Salpic |
| Solicitors for the First Respondent: | Abbott Stillman & Wilson |
| Counsel for the Second, Third and Fourth Respondents: | Mr. J. Pennell |
| Solicitors for the Second, Third and Fourth Respondents: | Scarebrook & Associates |
ORDERS
The Applicant have leave to amend his Statement of Claim in the form of the proposed Statement of Claim filed 5 September 2001.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MZ 543 of 2001
| NOEL NEYLON |
Applicant
And
| AUSTRALIAN RURAL GROUP LIMITED |
First Respondent
| JAMES STANLEY PHILLIPS |
Second Respondent
| ALLAN WAINRIT |
Third Respondent
| JOHN PETRIDIS T/A LANDY & COMPANY |
Fourth Respondent
REASONS FOR JUDGMENT
Eight proceedings were commenced by application and statement of claim on 20 July 2001. This was prior to the Federal Magistrates Court Rules 2001 coming into operation. Consequently, the Rules of Court made under the Federal Court of Australia Act 1976 then applied – Federal Magistrates Act 1999 s 43(2)(b). This meant that the application could be commenced by way of an application and statement of claim.
At the first hearing date on 29 August 2001 the Court was informed that the respondents’ solicitors had communicated certain objections to the statements of claim to the applicant’s solicitors. The applicant’s solicitors had then advised that it was intended to deliver amended statements of claim. At the first hearing date, the respondents desired to reserve their right to object to any amendment to the statement of claim.
In each application it was ordered that any proposed amended statement of claim be filed and served on or before 5 September 2001 and that the applicant have leave to apply to amend in the form of the proposed amended statement of claim so filed and served without the need to file a motion or affidavit.
The Federal Magistrates Court Rules 2001 commenced on 30 July 2001. Those rules do not provide for pleadings, but the Federal Court Rules may still be applied. Rule 7.01 of the Federal Magistrates Court Rules provide for the Court allowing for the amendment of a document.
Pursuant to the order made on 29 August 2001,the applicant in each case has filed and served a proposed amended statement of claim. Various parts of it are objected to by the respondent.
The claims all arise out of the Wallco Ostrich Trust (“the Trust”). The nature and object of the Trust can be established from the proposed amended statement of claim and from documents exhibited to an affidavit of the applicant’s solicitor.
A company, Wallco Ostrich Corporation Limited (“the Manager”) and the first respondent (“the Trustee”) executed a deed of trust by which the Trust was established. The Trustee held the trusts of the assets on trust. The Manager invited members of the public to provide funds for the acquisition, breeding, management and sale of ostriches and then the Manager carried out the purpose.
For the purposes of the argument, the application in which NOEL NEYLON is applicant was used. In these reasons I will refer to him as “the Applicant”.
The first respondent is the Trustee, the second, third and fourth respondents are accountants who are alleged to have prepared cashflow analyses and an accountant’s report, balance sheet and profit & loss statement for the purpose of a prospectus which was issued for the scheme.
The amended statement of claim first alleges misleading and deceptive conduct on the part of both the Trustee and the accountants.
In summary, it is alleged that on or about 27 August 1996 a prospectus was issued. The representations said to constitute the misleading and deceptive conduct are contained within the prospectus. It is then alleged that on or about 10 September 1996 the applicant completed application forms and paid $59,000 to invest in the scheme and on or about 4 June 1997 completed further forms and paid another $45,000 to invest in the scheme.
Paragraph 22 of the statement of claim says:
“By reason of the matters referred to in paragraphs 13, 17 and 18, the Trustee engaged in conduct that was misleading and deceptive or likely to mislead or deceive in contravention of s 11 of the Fair Trading Act 1985 (Vic) and/or s 9 of the Fair Trading Act 1999 and/or s 52 of the Trade Practices Act 1974.”
Paragraph 53 of the statement of claim says:
“Accordingly, the prospectus was issued in relation to securities within the meaning of s 995 of the Corporations Law.
Paragraph 54 then alleges:
“In breach of s 995 of the Corporations Law, the Trustee engaged in conduct that was misleading or deceptive or likely
to mislead or deceive in authorising or causing the issue of
the prospectus and in making the Trustee prospectus representations.”
Paragraph 55 has a similar allegation in relation to the accountants.
Arising out of this, the respondents make a number of submissions.
Section 51AF of the Trade Practices Act states:
(1)This part does not apply to the supply, or possible supply, of services that are financial services.
(2)Without limiting subsection (1):
(a)Sections 52 … do not apply to conduct engaged in, in relation to financial services; … “
Section 4 of the Trade Practices Act contains definitions which state that “financial product” and “financial service” has the same meaning as in Division II of Part II of the Australian Securities and Investments Commission Act 1989.
The respondents’ submission asserts that the conduct relied upon by the applicant as being the misleading and deceptive conduct was conduct engaged in in relation to financial services and concerned the supply, or possible supply, of services that are financial services. Therefore, it is asserted, s 52 of the Trade Practices Act does not apply.
Next it is submitted that the Fair Trading Act 1999 cannot apply because it did not come into operation until 1 September 1999 and it can have no application.
As to the claim under the Corporations Law for the respondents, reliance is placed on s 995A of the Corporations Law which states:
“The provisions of the State Fair Trading Act do not apply to dealings in securities.”
To some extent allied with these submissions is the respondents’ submission that the applicant’s claim under the Trade Practices Act and the Fair Trading Act 1985 are statute-barred. Both these Acts have a three-year limitation period.
The submission in response on behalf of the applicant in relation to
s 51AF of the Trade Practices Act is that that section came into operation in September 1998 and so did not apply at the time of the misleading and deceptive conduct in 1996 or, at the time of the applicant’s second investment in 1997.
As to s 995A of the Corporations Law, the applicant’s response is that that section did not come into operation until 24 November 1999, again after the time of the misleading and deceptive conduct.
The respondents complained of the lack of particularity in the applicant’s claim for damage. The particulars given are: “The applicant’s investment has been lost.” In particular, the respondents complained that the time at which it has been lost is not given.
Paragraph 51 of the statement of claim refers to “participation interest”.
Paragraph 52 refers to “prescribed interest”. The respondents point out that ‘participation interest’ and ‘prescribed interest’ are no longer expressions used in Corporations Law and there is now no s 996 of the Corporations Law. The applicant’s response to that is that all of this came about as a result of amendments which came into operation in November of 1999.
The approach to be taken to proposed amendment is well-known. An amendment should only be disallowed if it is futile or manifestly hopeless – Dey v Victorian Railways Commissioners (1948) 78 CLR 62.
In Wickstead v Browne (1992) 30 NSWR 1 Kirby P. said at 5:
“Common experience teaches it that it is usually more efficient and just to consider the viability of a cause of action when the facts said to support it are adduced and the suggested action can be judged with the full understanding of all relevant evidence. Testimony gives colour and content to the application and development of legal principle.”
One of the complaints on behalf of the respondents is that the applicant has not stated at what time it says the particular statutory provisions it relies upon should be applied. They also complained that the time at which the damage is alleged to have occurred is not alleged I do not think that any of these are valid criticisms nor a basis for not allowing the amendments.
There are a number of dates which are potentially relevant and for potentially different reasons.
The representations relied upon were, on the allegations in the amended statement of claim made at some time between 27 August 1996 when the prospectus was issued and 10 September 1996 when the applicants allege they paid the first amount, $59,000. Possibly the representations were repeated prior to the second amount of money being paid on 4 June 1997. The commencement of the chain of causation, or possibly the only event of causation is between 27 August 1996 and the payments of the amounts of money. Next there is the date of commencement of s 51AF which came into operation in 1998, and then s 995A on 21 November 1999.
The respondents submit that if September 1996 or June 1997 is the relevant date for determining what legislation applies, then the application must be out of time under the Trade Practices Act 1974 and the Fair Trading Act 1985.
There are two reasons why this submission is not correct in the context of an application to amend. The date on which the misleading and deceptive conduct occurs is not necessarily the same date as the date on which the cause of action accrues. The date on which the misleading and deceptive conduct occurs may be the date at which it has to be determined whether s 52 of the Trade Practices Act 1974 applies. It may be that the date on which it has to be determined that s 52 applies is not the same date as the date of accrual of cause of action. Section 52 may apply on 10 September 1996 and 4 June 1997, the alleged dates of reliance upon the representations. But the date on which the damage occurred may be after s 51AF came into operation and may be within the three-year period. The opposite may be the case, but it is not so clear that the amendment should not be allowed.
Three-year limitation periods apply for claims for damages under the Trade Practices Act 1974 and the Fair Trading Act 1985. The respondents’ submission was that it was clearly beyond argument that the applicant’s claim was statute-barred. The submission was that the causes of action arose on 10 September 1996 and 4 June 1997.
In Wardley Australia Limited & anor. v The State of Western Australia (1992) 175 CLR 514, the High Court said:
“We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question.”
The respondents submitted that this was the clearest of cases and relied upon Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1988) ATPR 40-835 and Jobbins v Capel Court Corporation Limited & anor. (1990) 26 FCR 266.
The respondents submitted that these cases showed that it was unarguable that the applicant suffered its loss when it entered into the investment. They submitted that even though Jobbins had been disapproved by the High Court in Wardley, the particular aspect of Jobbins on which they relied had not. The respondents’ submission relies upon it being clear beyond argument that the applicants suffered damaged when they made the initial investment. Both Keen Mar Corp and Jobbins referred to a decision of the English of Appeal, Forster v Outred & Co. (1982) 1 WLR 86. That concerned, among other things, the time limit for institution of proceedings against a solicitor for negligence. The plaintiff’s complaint was that the solicitor gave bad and insufficient advice concerning the execution of a mortgage by her as a result of which she was obliged, some time later, to pay the amount of the mortgage out. The Court held that the plaintiff had suffered damage by entering into the deed, “… the effect of which has been to encumber her interest in the freehold estate with this legal charge and subject her to a liability which may, according to matters completely outside her control, mature into financial loss – as indeed it did … “
In Keen Mar Corp, the Court held that when a person was induced to enter into a mortgage by misleading and deceptive conduct, the damage was suffered when the lease was entered into and that was when the cause of action arose.
In Jobbins, the applicant was allegedly induced to invest $60,000 in a film on the basis of certain misleading representations. The Full Court held that the cause of action arose when the investment was made and not at some later date.
I do not think that it is clear beyond argument that the applicant’s claim is statute-barred. This is not a case where the plaintiff executed a document such as a lease or a mortgage which immediately gave rise to a liability. That is the basis of the decision in Forster ats. Outred & Co. The scheme in which the applicants alleged they invested was, as best as can be seen on the pleadings and the material which has been filed, one where the applicants became the owners of individual ostriches. They paid a management fee for the breeding of progeny from the ostriches they owned. They made their investment for the purpose earning a profit. The profit was to come from the sale of the progeny.
It may be that the representations may have been misleading as alleged but that for some period after the investment had been made there was no loss. It was submitted that the Manager was placed in liquidation on 13 March 1998. It was said that in a similar proceeding issued out of the Magistrates Court of Victoria, particulars of loss were sought and provided and in that case, the investment was said to have been lost as a result of the Manager being placed in liquidation.
This is not necessarily the way the case will be put in this Court. It does not necessarily follow that the date of the loss could have been no later than the time at which the Manager was put into liquidation. Under the scheme, the applicants were meant to become the owners of particular ostriches; whether they did or did not is not something which can be known without evidence. The point at which the ostriches were lost to them is not known, and cannot be known without evidence.
This is a case where, in the words of the High Court, “… insufficient is known of the damage sustained by the plaintiff and the circumstances in which it was sustained to justify a confident answer to the question.” It is not “the clearest of cases”.
The respondents submitted that the Fair Trading Act 1999 (Vic) could not apply because it did not come into operation until 1 September 1999. Section 107 of the Fair Trading Act 1999 defines a “fair trading dispute”. The claim made by the applicant here comes within the definition.
Section 108 gives the Victorian Civil & Administrative Tribunal jurisdiction to hear and determine a fair trading dispute.
In Vamot Pty Ltd v Tempacoe Pty Ltd [2000] VSC 251 at 12, Beech J said that in his opinion, s 108 is retrospective and applied to a dispute which had arisen prior to the section coming into operation.
Whether, when a federal court, pursuant to its accrued jurisdiction, in exercising the powers given by the Fair Trading Act 1999, steps into the shoes of the Victorian Civil & Administrative Tribunal, so that the jurisdiction is retrospective, may be a matter of debate, but not something which is so clear that it can be decided on an application for amendment.
The limitation period under the Fair Trading Act 1999 is six years. It does not contain any limitation period itself so that the normal six-year limitation period from the Victorian Limitation and Actions Act 1958 applies.
It may be that even if the claim under the Trade Practices Act 1974 and the Fair Trading Act 1985 was statute-barred, the Fair Trading Act 1999 might give a Federal Court jurisdiction over all respondents in a misleading and deceptive conduct claim. Again, that depends on evidence and argument which cannot be dealt with on an application for amendment.
The deficiency alleged in the negligence claim is that the alleged breaches of duty of care set out in a schedule, Schedule B, do not in any way relate to the duty of care pleaded in paragraph 9. It is not a circumstance where it is alleged that a duty of care cannot arise. The criticisms are insufficient to justify a refusal of leave to amend.
Similar criticisms are made of the claims for breach of trust. Again, the criticisms are insufficient to justify refusal of leave to amend.
Accordingly, in each case, I will grant leave to amend as proposed.
I certify that the preceding fifty-three (53) paragraphs are a true copy of the reasons for judgment of Phipps FM
Deputy Associate:
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