Perpetual Trustee Company Ltd v Kwok

[2011] NSWSC 422

Supreme Court

New South Wales

Medium Neutral Citation:

Perpetual Trustee Company Ltd v Michael Wilson Kwok [2011] NSWSC 422

Hearing dates:

9 May 2011

Decision date:

13 May 2011

Jurisdiction:

Equity Division - Commercial List

Before:

Einstein J

Decision:

Leave is refused to the defendant to file in these proceedings an Amended Commercial List Response and a Commercial List Statement of Cross Claim.

The Commercial List Response of the defendant is struck out and summary judgment should be entered in favour of the plaintiff, pursuant to rule 13.1(1) of the Uniform Civil Procedure Rules 2005.

The defendant is to pay the plaintiff's costs of the two notices of motion.

Catchwords:

Summary judgment - r13.1 UCPR - set-off - indirect causation - principle in Westco - guarantee - ousting of jurisdiction

Legislation Cited:

Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005

Cases Cited:

Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Digi-Tech (Australia) v Brand (2004) ATPR 46-248
Dobbs v The National Bank of Australasia Limited (1935) 53 CLR 643
General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125
Hampic Pty Ltd v Adams (2000) ATPR 41-737
Hill v Ziymack (1908) 7 CLR 352
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Jinhong Design & Construction Pty Ltd v Yi Nuo Xu & Anor [2010] NSWSC 523
Kleiss & Anor, Re: Ex parte Kleiss & Anor v Capt'n Snooze Pty Ltd (1996) 61 FCR 436
Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14
Lord v Direct Acceptance Corp (1993) 32 NSWLR 362
Marks v GIO Australia Holdings Limited (1998) 196 CLR 494
Rawson v Samuel (1841) Cr & Ph 154; 41 ER 451
Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84
Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514
Westco Motors Pty Ltd v Palmer [1979] 2 NSWLR 93

Texts Cited:

Meagher, Gummow and Lehane, Equity, Doctrines and Remedies, 3rd ed (1992),

Category:

Procedural and other rulings

Parties:

Perpetual Trustee Company Ltd (Plaintiff)
Michael Wilson Kwok (Defendant0

Representation:

Mr R Bellamy (Plaintiff)
Mr A Crossland (Defendant)
Gadens (Plaintiff)
Jackson Lalic (Defendant)

File Number(s):

2010/00261731

Judgment

The proceedings

1. These proceedings concern two notices of motion. The first was filed by the plaintiff seeking:

(1) The Commercial List Response of the Defendant be struck out and summary judgment be entered in favour of the plaintiff, pursuant to rule 13.1(1) of the Uniform Civil Procedure Rules 2005.

(2)   Costs.

(3)   Such further or other order as this Honourable Court considers appropriate.

1. The second was filed by the defendant seeking:

(1)   That leave be given to the defendant to file in this proceedings an Amended Commercial List Response and a Commercial List Statement of Cross Claim in the form annexed to the affidavit of Ryan Kim dated 6 May 2011.

(2)   Such other orders as the Court deems necessary to make.

1. The gravamen of the dispute concerns a guarantee given by Mr Kwok to the plaintiff (Perpetual) for monies advanced to World Best Holdings Limited (World Best) by the plaintiff.

1. The facts giving rise to this dispute are conveniently summarised in the defendant's chronology below.

CHRONOLOGY OF EVENTS

DATE

EVENT

10-Dec-2003

Loan entered into with Perpetual Trustee Company ("Perpetual") and Perpetual Investment Management Limited ("Perpetual Investments") brokered by Simon Levingston of Great Southern Loans Pty Limited ("Levingston") as broker for World Best Holdings Limited ("World Best").

By Letter of Offer & Facility Agreement (made on or about the same day), Perpetual Investment and Perpetual loaned to World Best a sum of $30,400,000.00 ("the Original Facility")

22-Dec-2004

World Best gave to Perpetual and Perpetual Investments a mortgage over Minto Mall Shopping Centre ("Minto Mall") as security Kwok guaranteed and indemnified the obligations of World Best

08-Dec-2006

By Letter of Offer, Perpetual and Perpetual Investment loaned World Best a further sum of $5,000,000.00 on the terms of the Original Facility were advanced and superseded and replaced ("the Facility")

16-Aug-2009

Helen James ("Helen") and Levingston went to Perpetual's offices and had a meeting with Marven Seeto ("Seeto") and Paul Burns ("Burns"), Seeto was a loan manager with Perpetual and Burns was his boss. Perpetual introduced World Best to an architecture firm DEM Aust Pty Limited ("DEM")

21-Aug-2009

Burns arranged a meeting in Chatswood with DEM, Levingston, Seeto and Helen. The purpose was to discuss improvements to Minto Mall. At the meeting Burns Told Helen that according to their records the Loan between World Bank and Perpetual was due for expiry on 5 December 2009 and that it would not be extended and would need to be paid in full by that day. Helen expressed surprise at this and advised Burns that the loans normally taken out by World Best were for 5 years and not 3. Burns said he was sure that it was expiring and no further funds were going to be advanced. Helen asked for a copy of the loan agreement to be forwarded to World Bank. Burns agreed to do this. To date Burns has never forwarded the loan agreement document to World Best.

21-Aug-2009

After the meeting Helen met with Kwok and told him that according to perpetual the whole loan needed to be repaid by 5 December 2009. Kwok asked Helen to speak to Levingston and see if this was right. He added that if this was right then to ask Levingston to try and find refinance.

21-Aug-2009

Helen called Levingston and asked him if he knew how long the loan with perpetual was for, he said that if they asserted that it was 3 years, then it was probably 3 years. Helen said that if that is so then World Best needed to find refinance as soon as possible

22-Aug-2009

Levingston called Helen and told her that he had been trying to find refinance options but there were none available due to the size of the loan and the global financial crisis ("GFC"). He advised that the only way to repay the loan was to sell the centre.

22-Aug-2009

Helen called Kwok and told him that Levingston couldn't find finance and that he thought the best option was to sell the centre to repay the loan. Kwok expressed concern because he did not want people thinking that this was a forced sale. He advised Helen to put several stored up for auction and to ask the agent to speak with some developers and investors to get them to make an offer. He advised looking overseas into South East Asia where the GFC may not be so bad, so as not to alarm tenants. He emphasized the need to settle quickly so the loan could be repaid.

24-Aug-2009

World Best retained Colliers International to carry out an Auction of the ALDI and Hungry Jack's stores in Minto Mall and to further market Minto Mall.

15-Sep-2009

World Best received a letter from Perpetual regarding the expiry of the loan

25-Sep-2009

World Best retained Savills Australia to market the property for sale

Late Sept/Oct 2009

The Campbell Macarthur Advertiser ran a story about the financial situation of the Minto mall and the attempts by World Best to sell it. As a result some tenants left and others stopped paying their rent. The Value of Minto mall fell from $64.75m in 2006, to around $30m at this time. This value is based on the offers being received at this time

11-Nov-2009

World Best received a letter from Perpetual regarding the expiry of the loan

25-Nov-2009

Helen James on behalf of World Best wrote a letter to Perpetual and Perpetual Investments lawyers advising them that in actual fact the facility is not due to expire until 17 December 2011

26-Nov-2009

Letter in response to the above letter was received by World Best. It admits that as "Correctly pointed out in letter from the plaintiff dated 25 November 2009 the facility is not due to expire until December 2011"

30-Nov-2009

Offers were being received to purchase the mall around this time but they generally fell through due to the short settlement date. For example an offer from BB Retail Capital was unable to be completed due to the short timeframe required for settlement

24-Dec-2009

World Best commenced proceedings against Perpetual and Perpetual Investments in Supreme Court of New South Wales ("prior proceedings") . The relief claimed included a declaration that Perpetual and Perpetual Investments engaged in misleading and deceptive conduct or in the alternative, unconscionable conduct, or in the alternative that they had engaged in negligent conduct or made negligent mis-statements in breach of their duty, and damages/costs/interest

15-Apr-2010

Perpetual and Perpetual Investments filed a defence to the prior proceedings

23-Jun-2010

Proceedings Commenced by Perpetual in Supreme Court of New South Wales to wind up World Best

19-Jul-2010

Perpetual and Perpetual Investments filed a Notice of Motion seeking an order that the prior proceedings be dismissed due to the failure of World best to prosecute them. They also filed an Affidavit in Support of the Summary Dismissal motion setting out the history of the conduct of the prior proceedings until 19 July 2010

04-Aug-2010

World Best was wound up and Peter Marsden was appointed Liquidator

05-Aug-2010

Perpetual demanded payment from World Best under the facility and the Mortgage the outstanding sum of $35,580,093.86. Perpetual demanded payment from Kwok under the guarantee for the outstanding sum of $35,580,093.86

06-Aug-2010

Perpetual filed a Summons against Kwok claiming for relief in the form of Judgment in the sum of approx $35m, interest on the principal sum along with costs and other orders as the court sees fit on the basis that he guaranteed the loan to World Best from Perpetual and Perpetual Investment. In the Commercial List Statement filed on the same day, Perpetual seeks the relief set out in the summons on the basis that the loan facility was defaulted on when an application to wind up World Best was made, and when World Best was wound up.

15-Oct-2010

At the 6 th Listing of the prior proceedings there was no appearance on behalf of Kwok and the motion was dismissed with costs.

09-Nov-2010

Perpetual issued a Lenders certificate to Kwok

Plaintiff's submissions

1. It was the plaintiff's case that not withstanding the defendant's amendment to its pleadings, the defendant's commercial list response and cross-claim should be struck out and summary judgment pursuant to rule 13.1(1) of the Uniform Civil Procedure Rules 2005 should be entered in its favour.

1. In support of this contention, the plaintiff advanced four propositions:

(1)   There is no proper basis for the defendant to deny its contractual obligation to repay the guarantee (Westco point);

(2)   Equitable set-off is not possible as the claim does not go to the root of the title;

(3)   The loss suffered by Mr Kwok as a result of the plaintiff's conduct is not direct enough to warrant a claim (Ingot point); and

(4)   For the above three reasons, the new pleadings do not give rise to a valid defence or cross-claim.

Defendant's submissions

1. The defendant's amended commercial list response only denies paragraphs 15,16 and 17 of the plaintiff's commercial list statement. That is:

(15)   World Best has failed or neglected to comply with the Facility and the Mortgage Demand.

(16)   Kwok has failed or neglected to comply with the Guarantee Demand.

(17)   As at 5 August 2010 Kwok is indebted to Perpetual pursuant to the Guarantee in the sum of $35,580,093.86.

and seeks to rely on the plaintiff's admitted misrepresentations as an answer by way of set-off to the whole of the plaintiff's commercial list statement.

1. In addition, the defendant responded to each of the four contentions advanced by the plaintiff.

Summary judgment principles

1. Rule 13.1 of the Uniform Civil Procedure Rules 2005 provides:

If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief:

(a) there is evidence of the facts on which the claim or part of the claim is based, and

(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,

the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires.

1. Barwick CJ in General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 to 130 enunciated the principles relevant to summary judgment, adopting the summary of authorities by Dixon J, as his Honour then was, in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91:

"A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle a court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process."

Barwick CJ goes on to comment at 130:

"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.

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 permit of argument"; "discloses a case which the court is satisfied cannot succeed"; "no possibility that there can be a good cause of action"; "manifestly faulty so that to allow the pleading to stand would involve useless expense.""

1. As Barwick CJ said in General Steel at 129, the subject expressions occur in cases of different types. However, once it appears, as his Honour pointed out, that there is a real question to be determined, whether of fact or law, and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action.

Turning to the present case

The Westco point

1. The plaintiff's primary contention was that there is no proper basis for the defendant to deny its obligation under the guarantee. The authorities are clear that an action for set-off is only available to a guarantor where it is available to the primary debtor. This was termed the Westco point. In this case, Mr Kwok attempted to claim a set-off in his own right, not in reliance of a claim of the primary debtor.

1. In Westco Motors Pty Ltd v Palmer [1979] 2 NSWLR 93 (' Westco' ), Westco called on Mr Palmer to make a payment on the basis of a guarantee he provided on behalf of W.H. Motors. Mr Palmer raised a counter claim in reliance on conduct by Westco that was allegedly in contravention of section 45 of the Trade Practices Act 1974 (Cth).

1. In Westco it was decided that where a claim arises out of a related but ultimately distinct transaction, the guarantor must make good its promise. Such a claim does not diminish the guarantor's obligation. This was set out by Sheppard J at 98:

"It may be true, as counsel for the defendant submitted, that the breaches of the Act which are alleged to have been committed arise out of transactions pursuant to which the very goods the price of which is guaranteed were supplied. But the cause of action is, nevertheless, separate and distinct from the cause of action which the plaintiff has for the moneys which it is owed, and in respect of which the defendant has been sued upon his

guarantee. By the guarantee, the defendant guarantees the payment to the plaintiff "of all such amounts as become due and payable" to the plaintiff by the company "for all goods so supplied" by the plaintiff to the company. The obligation, therefore, is to guarantee the sum or sums of money which become due by the company to the plaintiff for the supply of goods. If it were alleged that the goods so supplied were not in accordance with the contract, and that the principal debtor had a claim upon that ground, the position would be similar to what it was in Langford's case But here the cause of action is separate and distinct from that upon which the plaintiff would rely in proceedings against the principal debtor. It is the amount owing upon the plaintiff's cause of action which the defendant guaranteed to pay." (emphasis added)

1. It is clear that as set out in Westco , the misrepresentation claim cannot validly operate as a set-off. It must be agitated separately.

The principle in Langford

1. Accepting the principle in Westco governs this case, it is strictly unnecessary to consider Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14 (' Langford' ), for it involves a situation in which a set-off claim was available to the guarantor on the basis that it was available to the primary debtor. Despite this, I deal with Langford to highlight that even if the defendant were allowed to bring a set-off claim, on a proper construction of the loan and deed agreements, it could not succeed.

The agreements

1. The relevant agreements are contained in the annexure to Melvin Seeto's 11 November 2010 affidavit (MS-1).

1. The salient parts of the agreements are:

Clause 9.5 of the Deed of Guarantee dated 24 December 2004 which states:

All money payable by the Guarantor under this Guarantee must be paid without set-off or counter claim and free of all deductions.

Clause 2:

The Guarantor must immediately pay the Debt immediately on demand to the Lender.

Clause 12.1, which defines debt as all money that the borrower is liable to pay to the lender on any account. This must also be paid without set-off or counter-claim: see clause 8.1(b) of the 2006 facility agreement and clause 12.7 of the 2004 facility agreement.

1. It is clear from these clauses, that the proper construction of the guarantee, is that the amount payable by Mr Kwok is the amount payable by World Best and these amounts must be paid without set off or deductions.

1. As discussed above, Langford concerned a guarantee whereby the guarantor promised to pay 'all moneys which are now payable or may in the future become payable by the Builder to the Contractor". This is in contrast to the position in this case where the guarantee was for the liability of the Borrower free from any set-off or counter claim.

1. This importance of construction in a set-off claim is emphasised by Hope, Hutley and Samuels JJA's in Langford at 17:

"The substantial issue to which the appeal gives rise is whether a guarantor can take advantage of the reduction in the price to be paid which the debtor could claim by reason of defective work... Not every type of cross-claim can however be utilised to diminish a debt connected with the same transaction. ... this guarantee is so formulated that the guarantor can take advantage of the proposed cross-claim. All that the appellant undertook to pay was what was payable, that is, payable by the debtor. It was not a guarantee to pay the price, or the price without deduction, but to pay only what the debtor could have been compelled to pay."

1. It is clear from clause 8.1(b) of the 2006 facility agreement and clause 12.7 of the 2004 facility agreement that by virtue of construction, the guarantee was not open to a set-off claim. On the basis of their Honours decision in Langford, as well as supporting authority in Jinhong Design & Construction Pty Ltd v Yi Nuo Xu & Anor [2010] NSWSC 523 and Re Kleiss & Anor: Ex parte Kleiss & Anor v Capt'n Snooze Pty Ltd (1996) 61 FCR 436 the availability of a set-off claim turns on the true construction of the Deed of Guarantee. In this case, as distinct from Langford, the defendant has no basis on which to argue a diminution of his liability.

The defendant's argument

1. In response to the plaintiff's Westco argument, the defendant advanced two submissions:

(1)   This case is distinguishable on its facts from the authorities relied upon by the plaintiff; and

(2)   Despite the wording of the guarantee agreement, the defendant did not validly forgo its right to a set-off claim.

1. Mr Crossland sought to distinguish the present case from the authorities relied on by the plaintiff, arguing that all the cases cited concern a defendant attempting to diminish its liability in reliance on a set-off claim which belongs to the principal debtor. In this case the defendant seeks to make the set-off claim in its own right. I accept the distinction drawn, but Mr Crossland provided no authority or logical reason to indicate why this factual distinction renders the principles enunciated above inapplicable. Despite this factual distinction, the principles set out in Westco and the related cases stand.

1. The defendant also sought to convince the Court that there was some ambiguity over the interpretation of clause 9.5 of the Deed of Guarantee which warranted hearing. This was an unimpressive submission which is clearly wrong when due regard is paid to the Deed of Guarantee itself, and particularly the fact that the parties to the guarantee were unambiguously the plaintiff and the defendant.

1. Finally, the defendant sought the assistance of Dobbs v The National Bank of Australasia Limited (1935) 53 CLR 643 to argue that if clause 9.5 is valid, it impermissibly ousts the jurisdiction of the Court to determine a valid set-off claim. This contract does not in anyway attempt to oust the jurisdiction of the Court, it merely defines and limits the parties legal rights within the permissible scope of contractual obligations. This is a valid exercise per Rich, Dixon, Evatt and McTiernan JJ in Dobbs at 652 to 653.

Equitable set-off

1. The plaintiff also submitted that as far as a claim for equitable set-off operates as a defence and not a cross-claim, it does not go to the root of the title of the plaintiff's claim, and thus cannot succeed.

1. It has been well established since Rawson v Samuel (1841) Cr & Ph 154; 41 ER 451 (at 458) that the mere existence of a cross-demand is not a sufficient basis for an equitable set-off. Instead, what is required is that the applicant for relief shows good equitable grounds for being protected from the plaintiff's demand such that the plaintiff's title to its demand is impeached. Accordingly, the defence of equitable set-off will not necessarily be available in circumstances where the basis for the claim is that the cross-demand arises out of the same contract as the claim against which the set-off is sought.

1. The test established by Lord Cottenham in Rawson v Samuel has been applied and explained in numerous decisions in Australia: eg Hill v Ziymack (1908) 7 CLR 352 at 360-362. In Lord v Direct Acceptance Corp (1993) 32 NSWLR 362 at 367, Sheller JA (with whom Kirby P and Meagher JA concurred) approved the view of the concept of equitable set-off as stated in Meagher, Gummow and Lehane, Equity, Doctrines and Remedies, 3rd ed (1992), paragraph 3709(h) at 818, to the effect that:

"It is an indispensable requirement of equitable set-off that the set-off actually go to the root of, be essentially bound up with, and "impeach" the title of the plaintiff."

1. For the reasons given above, the defendant's claim is related but does not go to the very root of the plaintiff's claim. For this reason, equitable set-off, as a defence, is unavailable.

The misleading and deceptive conduct claim

1. The principle defence and cross claim of the defendant was that the defendant's loss was caused by the misleading and deceptive conduct of the plaintiff (paragraph 19 of the amended commercial list response and paragraph 15 of the commercial list statement of cross claim).

1. The misrepresentations relied upon were that in or about July/August 2009, 15 September 2009 and 11 November 2009, the plaintiff represented to World Best that:

(1)   the loan would expire on 17 December 2009.

(2)   no offer of a renewal of a facility for a further term would be provided.

(3)   World Best was required to make arrangements to pay out the loan facility in full by its maturity date - 17 December 2009.

(4)   should the loan not be repaid by the due date, the loan would be in default and the plaintiff would increase the interest rate to the equivalent rate charged by the Commonwealth Bank of Australia on their Corporate Overdraft Loans plus the high margin from 18 December 2009 as per section 405 of the Standard terms and conditions.

(5)   that the plaintiff was reserving all its rights to take further action upon maturity of the loan.

(6)   that the state of the loan was a serious concern.

1. The plaintiff admitted these misrepresentations.

1. The difficulty with the defence's claim is that Mr Kwok did not personally rely upon these misrepresentations within the scope of his role as guarantor. In advancing this claim, Mr Kwok relies on the misrepresentations made to World Best and their consequential loss. As indicated by Giles JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 at 657-658, referring to Digi-Tech (Australia) v Brand (2004) ATPR 46-248, indirect losses of this nature are not recoverable causes of action:

The Court (Sheller JA, Ipp JA and McColl JA) went to deal with an

alternative case first propounded on appeal, namely (at 54,241 [148]-[149]):

"[148] The appellants submitted that it was not necessary for a party seeking to recover damages to show direct reliance upon misleading conduct by the representor. They submitted that the misleading conduct might cause other persons to act in a way that leads to loss suffered by a plaintiff. They submitted that this approach gives effect to the words in s 82 of the Trade Practices Act 1974 (Cth), namely, 'suffers loss or damage by conduct of'. They relied on Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 529-530, Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 at 525, Marks v GIO Australia Holdings Limited (1998) 196 CLR 494, Hampic Pty Ltd v Adams (2000) ATPR 41-737 and Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84.

[149] The appellants put their case in this way. They said that if Digi-Tech had not produced misleading and deceptive forecasts concerning the revenue and

gross margin of the products, Deloitte would not have produced a valuation to support the price of $72.5m. In the absence of that valuation, or any valuation supporting that price, the investment scheme would not have gone ahead and Mr Urwin would not have proposed the scheme to any of the investors. It was submitted that Digi-Tech's misleading conduct, thereby, caused Mr Urwin to act

in a way that led to loss or damage to the appellants. They described this argument as the 'indirect causation theory'...

Their Honours then said (at 54,242 [155]-[159]):

"[155] ... Stockland , like Janssen-Cilag , was not a case where the plaintiff claimed damage caused by entering into a transaction induced by misleading conduct. In both cases the misleading conduct had caused others to act to the direct prejudice of the plaintiff. That is to say, the chain of causation was as follows: firstly, misleading conduct by the defendant; secondly, an innocent party is induced by the misleading conduct to act in some way; thirdly, the innocent party's act, by its very nature, causes the plaintiff loss. On this basis, no act of the plaintiff contributes to the loss. The chain of causation is complete without there needing to be any act or omission on the part of the plaintiff.

1. Most importantly Giles JA refers to the distinction their Honours drew between direct and indirect causation at [156]:

The Janssen-Cilag and Stockland category of claim is materially different to that which occurs when plaintiffs suffer loss because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced. The difference lies in the fact that in the first category of case no conduct on the part of the plaintiff forms a link in the causation chain.

In the second category, the inducement of the plaintiff and his or her act or omission causing loss is an essential part of the chain. Without such inducement and a consequential act or omission on the part of the plaintiff there is indeed no

linking chain between the misleading conduct and the plaintiff's loss.

[157] This analysis demonstrates the fallacy of applying the so-called indirect theory of causation to this case.

[158] On the assumption that Digi-Tech's forecasts as to the revenue and gross margin of the products were misleading and deceptive, that misleading and

deceptive conduct resulted in Deloitte producing, in essence, a misleading and deceptive valuation to support the price of $72.5m. That valuation enabled the investment scheme to be put together and proposed by Urwin to the appellants. But to complete the chain of causation, there must be something linking the appellants' loss to their entry into the investment scheme. That link is the inducement of the appellants and their consequential act of entering into the transaction to their prejudice. Without that link, there is no proof that the misleading conduct caused the loss.

1. I respectfully adopt their Honours position in Digi-Tech(Australia) v Brand (2004) ATPR 46-248 that the claimant is required to show a direct chain of causation between their loss and the conduct of the contravening party. In this case, despite the logical connection the defendant sought to draw between the chain of events, the plaintiff's actions simply did not cause in a direct way the loss of the defendant, nor did the defendant, in his capacity as guarantor, rely on them. The loss arose from Mr Kwok's agreement to guarantee the debts of World Best and World Best's subsequent default.

1. In coming to this conclusion there was much force in Mr Bellamy's submission that essentially Mr Kwok is no different to any other creditor of the company. This is a case of post contractual misleading and deceptive conduct, which allegedly caused certain undesirable consequences for World Best, but those undesirable consequences, affected not only Mr Kwok, but also, relevantly, the entire body of creditors of World Best. These creditors are indistinguishable from Mr Kwok. If this were not the position, then it would give rise to a cause of action on behalf of every creditor of the company against a representor in respect of a representation that they did not hear or rely upon.

1. It is unnecessary to deal in great length with Mr Crossland's submissions in this regard, other than to say that the factors relied upon by the defendant, namely Mr Kwok's proximity to the transaction, his directorship of Big World and the short chain of events that lead to the demand for the defendant to make good its guarantee, have no material impact on the Court's exercise of discretion.

Orders

1. The plaintiff has satisfied the Court that the defendant has no arguable defence or cross-claim. Consequently:

(1)   Leave is refused to the defendant to file in this proceedings an Amended Commercial List Response and a Commercial List Statement of Cross Claim;

(2) The Commercial List Response of the defendant is struck out and summary judgment should be entered in favour of the plaintiff, pursuant to rule 13.1(1) of the Uniform Civil Procedure Rules 2005; and

(3)   The defendant is to pay the plaintiff's costs of the two notices of motion.

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Decision last updated: 13 May 2011