Ogenic Ltd v Deloitte Touche Tohmatsu
[2000] FCA 894
•22 JUNE 2000
FEDERAL COURT OF AUSTRALIA
Ogenic Ltd v Deloitte Touche Tohmatsu [2000] FCA 894
PRACTICE AND PROCEDURE – late amendment of cross-claim to join additional parties – proceedings of considerable complexity – trial dates fixed – difficulty of assessing consequences of proposed joinders – likelihood of consequential additional cross-claims – disruption of pre-trial program and possible prejudice to trial dates – prejudice to parties joined late – joinders declined.
Corporations Law s 623, s 995(2), s 232
Law Reform (Contributory Negligence and Tortfeasors) Contribution Act 1947 (WA)
Trade Practices Act1974 s 52, s 75B
Fair Trading Act s 10State of Queensland v JL Holdings Pty Ltd ( 1996-97) 188 CLR 146 cited
OGENIC LTD v DELOITTE TOUCHE TOHMATSU AND OTHERS
WAG 3009 of 1997FRENCH J
22 JUNE 2000
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WG3009 OF 1997
BETWEEN:
OGENIC LIMITED (ACN 009 205 805)
Applicant
AND:
AND:
AND:
AND:
AND:
AND:
DELOITTE TOUCHE TOHMATSU
First RespondentPOUL ANKER KIRKEBJERG
Second RespondentIMODAN PTY LTD (ACN 009 295 158)
Third RespondentSTANTON PARTNERS (A PARTNERSHIP)
Fourth RespondentDELOITTE TOUCHE TOHMATSU
Cross-Claimant in First Cross-ClaimOGENIC LIMITED (ACN 009 205 805)
Cross-Respondent in First Cross-ClaimDELOITTE TOUCHE TOHMATSU
Cross-Claimant in Second Cross-ClaimSTANTON PARTNERS (A PARTNERSHIP)
First Cross-Respondent in Second Cross-ClaimJP VAN DIEREN, NB GRAHAM, ADB GRAHAM,
G KELLY, J SHERVINGTON
Second Cross-Respondents in Second Cross-ClaimABD GRAHAM, ER PEDLOW, DFG GRAHAM,
NDB GRAHAM
Third Cross-Respondents in Second Cross-ClaimPN NICHOLLS, GL KELLY, C PAPADOPOULOS
Fourth Cross-Respondents in Second Cross-ClaimPETER FARR CONSULTANTS AUSTRALIASIA
PTY LTD (ACN 051 294 583)
Fifth Cross-Respondent in Second Cross-ClaimSTANTON PARTNERS (A PARTNERSHIP)
Cross-Claimant in Third Cross-ClaimDELOITTE TOUCHE TOHMATSU
First Cross-Respondent in Third Cross-ClaimPN NICHOLLS, GL KELLY, C PAPADOPOULOS
Second Cross-respondent in Third Cross-ClaimPETER FARR CONSULTANTS AUSTRALASIA
PTY LTD (ACN 051 294 583)
Third Cross-Respondent in Third Cross-ClaimPOUL ANKER KIRKEBJERG
First Cross-Claimant in Fourth Cross-ClaimIMODAN PTY LTD (ACN 092 295 158)
Second Cross-Claimant in Fourth Cross-ClaimOGENIC LIMITED (ACN 009 205 805)
First Cross-Respondent in Fourth Cross-ClaimPOUL ANKER KIRKEBJERG
First Cross-Claimant in Fifth Cross-ClaimIMODAN PTY LTD (ACN 092 295 158)
Second Cross-Claimant in Fifth Cross-ClaimDELOITTE TOUCHE TOHMATSU
First Cross-Respondent in Fifth Cross-ClaimSTANTON PARTNERS
Second Cross-Respondent in Fifth Cross-ClaimPN NICHOLLS, CL KELLY and C PAPADOPOULOS
Third Cross-Respondents in Fifth Cross-ClaimJUDGE:
FRENCH J
DATE OF ORDER:
22 JUNE 2000
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1. The motion is dismissed.
2.The Fourth Respondent is to pay the Third Cross-Respondent’s and Mr Farr’s costs of the motion forthwith.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WG3009 OF 1997
BETWEEN:
OGENIC LIMITED (ACN 009 205 805)
ApplicantAND:
AND:
AND:
AND:
AND:
AND:
DELOITTE TOUCHE TOHMATSU
First RespondentPOUL ANKER KIRKEBJERG
Second RespondentIMODAN PTY LTD (ACN 009 295 158)
Third RespondentSTANTON PARTNERS (A PARTNERSHIP)
Fourth RespondentDELOITTE TOUCHE TOHMATSU
Cross-Claimant in First Cross-ClaimOGENIC LIMITED (ACN 009 205 805)
Cross-Respondent in First Cross-ClaimDELOITTE TOUCHE TOHMATSU
Cross-Claimant in Second Cross-ClaimSTANTON PARTNERS (A PARTNERSHIP)
First Cross-Respondent in Second Cross-ClaimJP VAN DIEREN, NB GRAHAM, ADB GRAHAM,
G KELLY, J SHERVINGTON
Second Cross-Respondents in Second Cross ClaimABD GRAHAM, ER PEDLOW, DFG GRAHAM,
NDB GRAHAM
Third Cross-Respondents in Second Cross-ClaimPN NICHOLLS, GL KELLY, C PAPADOPOULOS
Fourth Cross-Respondents in Second Cross-ClaimPETER FARR CONSULTANTS AUSTRALIASIA
PTY LTD (ACN 051 294 583)
Fifth Cross-Respondent in Second Cross-ClaimSTANTON PARTNERS (A PARTNERSHIP)
Cross-Claimant in Third Cross-ClaimDELOITTE TOUCHE TOHMATSU
First Cross-Respondent in Third Cross-ClaimPN NICHOLLS, GL KELLY, C PAPADOPOULOS
Second Cross-respondent in Third Cross-ClaimPETER FARR CONSULTANTS AUSTRALASIA
PTY LTD (ACN 051 294 583)
Third Cross-Respondent in Third Cross-ClaimPOUL ANKER KIRKEBJERG
First Cross-Claimant in Fourth Cross-ClaimIMODAN PTY LTD (ACN 092 295 158)
Second Cross-Claimant in Fourth Cross-ClaimOGENIC LIMITED (ACN 009 205 805)
Cross-Respondent in Fourth Cross-ClaimPOUL ANKER KIRKEBJERG
First Cross-Claimant in Fifth Cross-ClaimIMODAN PTY LTD (ACN 092 295 158)
Second Cross-Claimant in Fifth Cross-ClaimDELOITTE TOUCHE TOHMATSU
First Cross-Respondent in Fifth Cross-ClaimSTANTON PARTNERS
Second Cross-Respondent in Fifth Cross-ClaimPN NICHOLLS, CL KELLY and C PAPADOPOULOS
Third Cross-Respondents in Fifth Cross-Claim
JUDGE:
FRENCH J
DATE:
22 JUNE 2000
PLACE:
PERTH
REASONS FOR JUDGMENT ON MOTION TO ADD
PARTIES TO CROSS-CLAIM
This action was commenced in 1997. It has grown to a proceeding of considerable complexity with a number of respondents, cross-claimants and cross-respondents. The action arises out of the acquisition by a company, Ogenic Ltd, of the issued shares in a company called PKE Ltd, losses said to have been sustained as a result of that acquisition and the alleged failures of various professional advisers and directors to discharge their duties in connection with due diligence and other processes associated with the agreement and its implementation. The agreement for acquisition was made in February 1994.
I don't propose to traverse the pleadings in detail. The matter came before me for a case management conference on 29 February 2000, having been transferred to my docket from that of Lee J. At that time I made an order that the action and cross-claims be set down for trial for five weeks commencing on 9 October. Comprehensive programming orders were made including an order in par 8 that any motion for leave to file any further cross-claim be filed and served by 14 June 2000 and be made returnable on 16 June at 9 am.
The case management conference was reconvened on 16 June. The program had broken down in certain respects and reprogramming orders were made. There was then before the court, returnable on that day, a motion by the fourth respondent, Stanton Partners, seeking leave to amend its existing cross-claim and to join to it John Peter Farr, a principal of an existing cross-respondent, Farr Consultants, and A.D.B. Graham, E.R. Pedlow, D.F.G. Graham and N.D.B. Graham, collectively referred to as the Ogenic directors. The hearing of that motion was adjourned to today.
In the amended statement of claim, Ogenic makes claims against the accountants, Deloitte Touche Tohmatsu, and against Stanton Partners who are chartered accountants. In par 18 of the statement of claim it is said that in March 1994 Stanton Partners, by their partners Van Dieren and Lingard, at the request of Ogenic prepared a report to Ogenic's shareholders pursuant to s 623 of the Corporations Law on whether the consideration payable by Ogenic for the PKE shares was fair and reasonable and that in preparing that report they relied on financial statements and other matters prepared by Deloittes, the first respondent.
Van Dieren was also said to be chairman of Ogenic's due diligence committee and to have reported in relation to that. Paragraph 41(a) which was inserted by amendment earlier this week alleged:
“At all material times the Fourth Respondent by its partners and or servants, Van Dieren and Lingard (the Authors), knew of the PKE Retainer and its terms.”
It then went on, at par 42, to refer to what was called the Stanton Partners’ contract. It said Stanton Partners by Van Dieren and Lingard, prepared and delivered the s 623 report to Ogenic. The report was intended to advise and inform Ogenic's shareholders and directors in relation to a proposed shareholders' resolution to agree to the issue and allotment of 14 million shares in Ogenic to the shareholders of PKE. The proposed issue and allotment was in consideration of the shareholders transferring their shares in PKE to Ogenic. Preparation and delivery of the s 623 report was said to be conduct in connection with a dealing in securities and in connection with an act preparatory to or related to the allotment and/or issue of securities within the meaning of s 995(2) of the Corporations Law. Various statements in the s 623 report are referred to. Implied representations are pleaded in relation to those statements and each of the statements implied is said to constitute misleading or deceptive conduct on the part of Stanton Partners. Reliance is pleaded at par 51 of the statement of claim.
There is a further cause of action based on the s 623 report as to the fairness and reasonableness of the proposed transaction, representations associated with that, and in relation to the value of certain intellectual property held by PKE called the PKE technology. Again, reliance is pleaded on the part of the shareholders of Ogenic and loss and damage alleged. Stanton Partners is also said to have breached an implied term of its contract and duty to take reasonable care in various aspects of the assessment of the value of the shares in PKE, investigations and inquiries to enable it to form a reliable and reasonable evaluation and other associated matters which it is not necessary for me to refer to now.
Deloittes, which is named as the first respondent, has filed an extensive cross‑claim. That cross-claim names a number of cross-respondents including Stanton Partners and, more particularly, includes as third cross-respondents the Ogenic directors to which I have already referred. So it is said that in the event that Ogenic succeeds in its claim or any part of it in this action for loss and damage against Deloittes, Deloittes is entitled to relief against each or all of the Ogenic directors. They are said in par 46 of the Deloittes’ cross-claim to have each owed duties of care to Ogenic under s 232 of the Corporations Law and the common law including duties to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise.
Deloittes, it is said, was engaged by the Ogenic directors in February to prepare a report as pleaded in par 11 of Deloittes’ defence. In particular the retainer contained terms that the report would not be a valuation but a normal report based on profit history of both PKE and Ogenic, a pro forma balance sheet, and so forth. Each of the Ogenic directors is said to have been in breach of his duties of care to Ogenic in that the directors individually and as a group failed to rely on the s 623 report which was prepared for the express purpose of obtaining an independent valuation of the PKE business, failed to have the going concern valuation done as envisaged in a letter in February 1994, failed to take into account express reservations and qualifications contained in a draft extract and draft and final report relating to the valuation of the technology, failed to take into account Deloittes’ limited retainer and the fact that it was not retained to provide advice as to the budgeted performance of PKE, failed to conduct any or any sufficient inquiries into the post 30 November 1993 sales performance of PKE and failed to procure and examine financial statements of PKE. The directors are also said to have failed in their duties to Ogenic by recommending the acquisition of PKE to Ogenic shareholders, recommending the issue of a prospectus, declaring the agreement of February 1994 unconditional, settling the agreement and making loans to PKE.
It can be seen that the scope of the cross-claim against the Ogenic directors and also separately against the due diligence committee in respect of which two of the directors were members raises a wide range of issues associated with the transaction.
Stanton Partners' cross-claim, which has already been filed in this matter, names as cross-respondents Deloitte Touche Tohmatsu as first cross-respondent, Messrs Nicholls, Kelly and Papadopoulos as second cross-respondents, and Peter Farr Consultants as third cross-respondent. By its motion filed on 15 June, Stanton Partners seeks to join the Ogenic directors as fifth cross‑respondents in this cross‑claim and I will deal with that aspect of the motion first. The firm also seeks to join Mr Farr personally. There has been filed, as well as a consolidated amended cross‑claim, an amended minute of a fourth respondent's cross‑claim against the proposed additional cross‑respondents.
On the assumption that Ogenic succeeds in its claim against Stantons, Stantons asserts that the Ogenic directors owed duties of care to Ogenic under the Corporations Law and the common law and at par 96 of the minute of proposed amendment to the cross‑claim it says that they owed a duty to Ogenic to conduct a proper and adequate due diligence investigation, as contemplated by the Due Diligence Guide dated April 1991 issued by the Securities Institute of Australia, or to appoint an accountant or other specialist to perform the due diligence investigation on their behalf. They owed a duty also to conduct a proper assessment, based on findings of the due diligence investigation, as to whether the acquisition of PKE was a sound and beneficial business decision for Ogenic. They also owed a duty to refrain from relying on the s 623 report as a report on the results of a due diligence investigation for the purpose of the acquisition of PKE. When it was pointed out that the third element of that duty, to refrain from relying on the s 623 report, could not stand with the opening to par 96 because the s 623 report postdated the making of the agreement, counsel for Stanton Partners foreshadowed an amendment to reflect what apparently was intended to be pleaded, that the duty covered the entry into the agreement and the agreement becoming unconditional in due course, thus including the time period during which the s 623 report was extant.
It is said, in par 97 of the minute:
“Prior to making any or each loan payment to PKE after the Agreement was declared unconditional on 27 May 1994, the Ogenic Directors owed a duty to Ogenic to:
a) conduct adequate inquiries into the then current financial position of PKE;
b)obtain or have prepared updated management accounts for the period post November 1993;
c)investigate and determine the capacity of PKE to repay loans;
d)investigate and determine PKE’s capital working position;
e)to refrain from making any or further loan payments to PKE without having satisfied themselves that PKE would be in a position to repay each loan payment;
f)to refrain from lending money to PKE and making each loan payment without obtaining adequate security from PKE.”
There is, as may be seen, a degree of overlap with the allegation against the Ogenic directors in the Deloittes’ cross‑claim to which I have referred earlier. Then, in par 98, it is said:
“98.After the Agreement was declared unconditional on 27 May 1994 ADB Graham and DFG Graham, who were also directors of PKE after 27 May1994 and were appointed as such to protect the interests of Ogenic as the sole shareholder of PKE, owed a duty to Ogenic to ensure that:
a)the products and business of PKE, as wholly owned subsidiary of Ogenic, were properly and adequately marketed;
b)the February 1993 Business Plan of PKE was properly implemented;
c)all aspects of the conduct of PKE's business were properly managed;
d)key personnel of PKE were retained and that appropriately qualified and experienced personnel were employed;
e)the directors of PKE would work together in best interest of PKE.”
It is said that the directors acted negligently in various respects. First of all, dealing with the allegations referred to - the duties pleaded in pars 96 and 97, they breached those duties by failing to conduct proper and adequate due diligence investigations, proper assessments on the basis of the findings of the investigations and relying on the s 623 report, and failing to take proper steps by way of inquiry in various ways before making each of the loan payments that were made to PKE after the agreement was declared unconditional on 27 May 1994. Then, it is said in par 100, that in breach of the duty alleged in par 98, and to the extent that Ogenic's allegations are proven:
“…ADB Graham and DFG Graham acted negligently and in breach of their duties of care to Ogenic in that they after the Agreement was declared unconditional on 27 May 1994, failed to ensure that:
(a) the products and business of PKE were properly and adequately marketed;
(b)the February 1993 Business Plan was properly implemented;
(c)all aspects of the conduct of PKE's business were properly managed;
(d)key personnel of PKE were retained and that appropriately qualified and experienced personnel were employed;
(e)the directors of PKE did work together in the best interest of PKE.”
As I foreshadowed in the course of submissions, the last allegation raises a case against the directors in which they could not be said to be presently involved as parties in any of the other pleadings that have been raised. It is a new case and although it may well be that Stanton Partners would be entitled, on the existing pleadings, to raise questions of the post‑acquisition management of PKE in defending the assessment of damages in the event that they were to be found liable, that does not of itself raise issues of negligence or involve any assertion of personal liability on the part of the directors. It simply puts a limit on the damages that might be recoverable by Ogenic in the event that it could be shown that there was an intervening cause which broke the chain of causation from any proven breach of duty to subsequent loss. It seems to me that to raise the cause of action raised in par 100 and the particulars which are expressed with a high level of generality, is to raise a new case which has the high probability of significantly affecting the progress of this matter to trial on the dates that have been reserved, a period of some five weeks in October of this year.
The question then arises as to whether I should give leave to join the Ogenic directors in respect of the breach of the duties asserted in par 96 and 97 of the proposed minute. I accept, as I think was to some extent accepted by counsel for the directors, that there is a degree of factual overlap between those matters and the allegations made against the Ogenic directors by Deloittes in its cross‑claim. This case is presently just over three and a half months, out from trial. It is a case which, as inspection of the pleadings will disclose, is one of considerable complexity and a large number of parties. It has to be carefully case managed with a view to ensuring that the trial date and the time that has been made available, which is itself a valuable resource, is not prejudiced in a way that would operate unfairly against any present or prospective party.
I am conscious of what was said in State of Queensland v JL Holdings Pty Ltd (1996-97) 188 CLR 146 and the proposition that case management principles are not to dominate the ultimate objective of proceedings in this and any other court which is, of course, to hear and decide the case according to law, to do justice according to law and to try, so far as possible, where parties are sought to be joined, to ensure that the whole dispute is able to be dealt with. That principle is certainly thrown into sharp relief when one is dealing with what I might say is a simpler case than this case - the case of an amendment to a pleading occurring late in the day of progress of a matter towards trial. But, where an amendment to a pleading is involved, it is possible to look at the amendment to consider the extent to which it will raise new factual issues and perhaps the consequences in relation to those issues of preparation for the trial. It may be that an amendment raises a narrow factual issue which is likely to have little impact and result in little prejudice to the parties. It may be that it simply raises a new legal issue without any new factual issues. In most of those cases there is little difficulty in making the orders and little prejudice that may be suffered save that which can be rectified by appropriate costs orders.
It is however an important aspect of the making of judgments of the kind that I have mentioned about late amendments to pleadings that the Court is in a position to predict with a reasonable degree of confidence, allowing for the contingencies and exigencies of litigation, what the impact of an amendment on the parties will be. I think that becomes a deal more difficult where in a case such as the present, with its complexity and, as it were, interlocking network of parties, it is sought to join parties in contribution claims that have not previously been raised.
The difficulty that I have in this case is assessing the flow-on from the joinder of the Ogenic directors. I accept that there is a degree of factual overlap with the Deloittes’ cross-claim which would have exposed them in terms of preparation of the case to many of the issues that they face in the case as it now stands. I accept also that for that reason the burden of discovery may be fairly limited. There is nevertheless the uncertainty associated with the possible joinder, by way of further contribution claims, of other parties, including the lawyers and accountants who were advising the directors. That sort of subsequent joinder would be a natural result of the joinder of the directors by Stanton Partners. It would itself have flow-on consequences in terms of the directions to be made, consequences which it is hard to crystallise and limit, even conceptually, at this time. In addition there is likely to be the necessity for further experts' reports in relation to the issues raised against those directors by the proposed cross-claim. It is possible that experts already engaged for the purposes of this litigation could be engaged for the purposes of dealing with issues raised against the directors in this cross-claim. But it cannot be said that there will not be a need for some additional external expert. The lead time to master and give a useful opinion on a case such as this is not likely to be less than a period of weeks or months.
In my opinion there are too many contingencies associated with this proposed joinder at this late stage in the preparation of the case to enable me to say with any confidence that there would not be prejudice, not only to these parties who are sought to be joined but to others whom they would in all fairness seek to join as a consequence and I do not think, therefore, that the joinder which is sought should be permitted. I have considered the options of permitting joinder on the basis that the proceedings would stand over until after the trial of the action or, alternatively, giving directions for joinder, together with programming, subject to liberty to apply for a separate trial of the proceedings if the programming became impossible of performance at this time. That, of course, does not deal with the issue of potential additional cross-claimants and the impact that it might have upon them. It would fragment the trial process, I think, in a way that is undesirable and in the event I don't think it is an answer to this particular difficulty. I propose therefore, in relation to the motion so far as it concerns the Ogenic directors, to decline the joinder.
The joinder is also sought of John Peter Farr. Peter Farr Consultants Australasia Pty Ltd (“Farr Consultants”) is named as third cross-respondent in the Stanton Partners’ cross-claim. It is said in relation to Farr Consultants that it was engaged in February 1994 by Ogenic to prepare an independent technical expert's report for inclusion in the explanatory memorandum to be provided to the shareholders of Ogenic and for inclusion in what was called the Broadbanx Prospectus. It was a term of the retainer that the scope of the report would include a number of matters. It covered the obligation to gather, interpret and summarise material information needed by the shareholders of Ogenic in order to make the decision whether they should issue and allot shares in Ogenic in consideration for purchasing the PKE shares, advice on the areas of engineering manufacturing facilities, quality control, markets, customer attitudes towards PKE products and services and the protection of intellectual property and know-how.
It is said that Farr Consultants and Ogenic were in a relationship of proximity and that Farr Consultants owed Ogenic a duty to take reasonable care in the preparation of what was called the Farr Report, to make all necessary inquiries and investigations as to the technical and operational aspects of the PKE business and to make all necessary investigations and inquiries as to the market and customer-related aspects of the PKE business and other related investigations and inquiries which it's not necessary for me to set out here.
The report was provided on 18 March for inclusion in the explanatory memorandum on the merger of Broadbanx Investments with PKE Ltd and on 15 April for inclusion in the Broadbanx’ Prospectus. Representations were said to have been made by Farr Consultants in the reports as to their performance, the thoroughness of the investigation, the examination of historical sales data, the effect and projections of PKE's overall market size and growth trends and a number of other matters. There are implications said to have been contained in each of the representations that Farr Consultants knew the facts to support or justify their opinions or representations. The representations are said to have been false. This is conditional, of course, upon the allegations contained in Ogenic's statement of claim being proved. The representations are said to be false in that the consultants did not know of the facts which would support or justify the representatives and that the statements of opinion contained in the representation were not based on reasonable grounds.
The representations are also said not to have been the product of the exercise of due care and skill. On essentially the same factual grounds it is said that Farr Consultants negligently breached its duty of care to Ogenic and that by reason of all of these matters, Farr Consultants was a tortfeasor liable to Ogenic for the same damage for which Stantons might be found liable and reliance is placed on the Law Reform (Contributory Negligence and Tortfeasors) Contribution Act 1947 (WA) and an indemnity claimed on that basis, or alternatively a contribution in respect of the whole of Ogenic's claim and alternatively a contribution in common law or in equity. There is a breach of retainer alleged and a liability on the part of Farr Consultants to Stantons based on its alleged duty of care to Stantons and the breach of that duty. A separate cause of action in misleading or deceptive conduct is said to arise from Farr Consultants' preparation of the report.
That is the way the cross-claim is raised against Farr Consultants by Stanton Partners. What Stantons now seek to do is to join Mr John Peter Farr who is the only director, apart from his spouse, of Farr Consultants and said, in the proposed minute, to be the alter ego of Farr Consultants. It is said that Farr and Ogenic were in a relationship of proximity. He owed Ogenic a duty of care to do all the same sorts of things that Farr Consultants was to do. It is said that he made implied representations, that the representations were false, and that he was negligent in breaching his duty of care to Ogenic. The representations were also said to have constituted conduct in trade or commerce which was misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 and s 995(2) of the Corporations Law.
It is said that in relation to the representations attributed to the company, Farr knew that there were no facts which could support them, that the statements of opinion contained in them were not based on reasonable grounds and that the representations were not the product of the exercise of due care and skill and therefore that he was knowingly concerned in the contravention of s 52 by his company pursuant to s 75B of the Trade Practices Act. Further and in any event, it is said he was the person who made the representations in contravention of s 995(2) of the Corporations Law and in contravention of s 10 of the Fair Trading Act which would impose direct personal liability under state law.
By reason of all these matters Farr is said to be a tortfeasor liable to Ogenic for the same damage for which Stantons may be found liable and again the Law Reform (Contributory Negligence and Tortfeasors) Contribution Act is referred to and a claim for indemnity and contribution in common law or in equity is asserted. It is also asserted that he has a personal liability to Stantons for negligence and for misleading or deceptive conduct.
The question which arises is why was this joinder left so late. There was an affidavit filed in that regard. The affidavit by Cassandra Paterson, an employee of the firm Freehill Hollingdale and Page, states, inter alia, that Stanton Partners joined Farr Consultants on the basis that its report of 18 March 1994 later incorporated into the Broadbanx Investments Ltd Prospectus and dated 15 April 1994 was in the name of Farr Consultants and signed by Mr Farr in his capacity as chairman of Farr Consultants. She refers to the pleading and then says:
“6.At the time that the third cross-claim was issued the fourth respondent did not consider it necessary to join Farr in person to the action as Farr Consultants had written the report relied upon by the fourth respondent.
7.However, since the third cross-claim was filed, the fourth respondent's solicitors and Farr (on behalf of Farr Consultants) and its solicitors had discussions which led to the fourth respondent's view that Farr should be joined in person to the action.”
The content of those discussions is not disclosed as it appears that there is some dispute as to whether or not they were without prejudice so there is no assistance to be derived from them. Ms Paterson then goes on to refer to the first minute of the proposed cross-claim which sets out the nature of the claim against Farr; sets out the facts that he conducted the investigations on which the report was based; says that there were discussions between him and Van Dieren of Stanton Partners in February and March; that he attended a meeting of the due diligence committee in April 1994 and that he made representations there about the sales earning ability of PKE. On this basis Stanton Partners contends that Farr also had a duty of care to Ogenic and to Stanton Partners, similar to the duty of care owed by Farr Consultants and that he was knowingly concerned in the contravention by Farr Consultants of s 52.
The lateness of the proposed joinder is inexplicable. It must be plain on the pleadings of the cross-claim as originally filed by Stanton Partners that Farr Consultants operated by virtue of the actions of Mr Farr who was described, I think, as its alter ego. If there were a basis for joining him, it must have been apparent at that time since the relevant conduct would appear in large part to have been that of Mr Farr, although I am told from the bar table by Mr McLean that there was another person involved, not a director, in the preparation of the report. That of course immediately raises the spectre of the possibility of a further flow-on cross-claim.
In my opinion, again for reasons to do with the contingencies, the prejudice that this imposes on Mr Farr in terms of now having to prepare a case, to defend the case based on his personal liability at a short remove from the trial itself and for reasons, similarly for the reasons which I have expressed in relation to the Ogenic directors so far as they are common, the motion must also be dismissed in that regard. The upshot of all of that is that the motion will be dismissed.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate:
Dated: 2 August 2000
Counsel for the Applicant: Mr D M Stone Solicitor for the Applicant: Williams and Hughes Counsel for the First Respondent: Ms AF Robertson Solicitor for the First Respondent:
Counsel for the Fourth Respondent:
Solicitor for the Fourth Respondent:
Counsel for the Second and Third-named Second Cross Respondents in the Second Cross-Claim and the Third Cross-Respondents in the Second Cross-Claim:
Solicitors for the Second and Third named Second Cross-Respondents in the second Cross-claim and the Third Cross-Respondents in the Second Cross-Claim:
Counsel for the Fifth Cross-Respondents in the Second Cross-Claim and the Third Cross-Respondents in the Third Cross-Claim:
Solicitor for the Fifth Cross-Respondents in the Second Cross-Claim and the Third Cross-Respondents in the Third Cross-Claim:
Phillips Fox
Ms AMI Schoombee
Freehill Hollingdale & Page
Mr PA Tottle with Mr JR Atkinson
Freehill Hollingdale & Page
Mr A McLean
Corrs Chambers Westgarth
Date of Hearing: 22 June 2000 Date of Judgment: 22 June 2000
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