Pico Holdings Inc v Voss
[2003] VSC 52
•6 March 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7324 of 2001
| PICO HOLDINGS INC | Plaintiff |
| v | |
| PETER DAVID VOSS | Defendant |
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JUDGE: | HARPER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 27 AND 28 FEBRUARY 2003 | |
DATE OF JUDGMENT: | 6 MARCH 2003 | |
CASE MAY BE CITED AS: | PICO HOLDINGS INC v VOSS | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 52 | |
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Practice and Procedure – Preliminary question under r.47.04 Supreme Court Rules – Whether action maintainable in respect of representation and warranties said to have taken effect outside Australia – Alleged liability of defendant as a person directly or indirectly knowingly concerned in, or a party to, misleading and deceptive conduct – Trade Practices Act (Cth) 1974, ss.52, 75B and 82 – Whether any utility in determining question before trial – Effect of amendment to statement of claim pleading a cause of action against the defendant as being directly liable under the Fair Trading Act 1999 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Pearce | Herbert Geer & Rundle |
| For the Defendant | Mr J. Simpson | Mallesons Stephen Jaques |
HIS HONOUR:
This proceeding was initiated by writ. It was issued on 29 August 2001. By the statement of claim, the plaintiff alleges that the defendant is and at all material times was a shareholder in and director of a company called Dominion Capital Pty Ltd ("Dominion Capital"). That company, in turn, is and was at all material times the owner of some 750,000 shares in a company named Dominion Wines Pty Ltd ("Dominion Wines").
Dominion Capital sought finance. It approached the plaintiff for that purpose. In so doing, it acted through the defendant. According to the statement of claim, the defendant told the plaintiff that Dominion Capital's holdings in Dominion Wines was unencumbered, and available as security. In reliance upon this information, and upon a warranty to the same effect contained in a promissory note issued on 8 September 2000 and signed by the defendant on behalf of Dominion Capital, the plaintiff lent $US1,000,000 to that company.
A further approach, for additional finance, was made by Dominion Capital in December 2000. Again, the company acted through the defendant. According to the statement of claim, the request on this occasion was for a loan of $US1,200,000. It was granted. As with the September loan, the transaction was evidenced by a non-negotiable secured promissory note. It was issued on 22 December 2000. It too included a warranty. By its terms (so the statement of claim alleges) Dominion Capital's obligations were to be secured by the delivery to the plaintiff of a certificate or certificates for 400,000 shares in Dominion Wines; and Dominion Capital warranted that it was the beneficial owner of those shares and able to mortgage them free of prior encumbrances. In reliance on that warranty, the plaintiff lent the funds as requested.
The plaintiff claims that its decision to lend to Dominion Capital was induced by the representation and by the warranties. But they were false; and neither loan has ever been repaid, although repayment of both is overdue. Not only that, but the shares, and some real estate also brought in by Dominion Capital as security, were subject to a fixed and floating charge granted in October 1996 by Dominion Capital to the National Australia Bank. Although it is not expressly pleaded, the inference is doubtless that the plaintiff has been unable to realise its security.
As presently drawn, the statement of claim alleges that by (a) making the representation to which I referred in paragraph [2] above, (b) giving the September warranty, and (c) giving the December warranty, Dominion Capital engaged in conduct that was false or misleading in breach of s.52 of the Trade Practices Act ("the TPA"); and the defendant was directly or indirectly knowingly concerned in, or a party to, that contravention. The plaintiff now seeks to amend the statement of claim by adding an allegation that the defendant, a person ordinarily resident in Victoria, is - by reason of the conduct impugned in the cause of action pleaded under the TPA - himself guilty as a principal of misleading or deceptive conduct in contravention of s.9 of the Fair Trading Act 1999 ("the FTA"). As a consequence (so the plaintiff alleges) it has suffered loss and damage. It claims the amounts owing under, and the costs of enforcing, the two promissory notes.
The defendant admits that on or about 22 December 2000 the plaintiff agreed to lend $US 1,2000,000 to Dominion Capital. He denies all the other presently material allegations in the statement of claim. He also contends that, as an individual, he cannot be a person "involved in a contravention" under s.75B of the TPA, and that the conduct upon which the plaintiff relies, if it can be proved, occurred outside Australia. It is for that reason beyond the reach of the TPA, because the extra-territorial limits of that Act are fixed by s.5. That section does not extend to the conduct in question. For that reason, too, the Court has no jurisdiction to entertain the plaintiff's claims.
It is this last assertion that has brought the present applications before me. On 4 February 2003, a Master of the Court ordered pursuant to r.47.04 of the Rules of the Supreme Court that "the following question is to be determined:
'whether the plaintiff is entitled to rely upon s.75B of the Trade Practices Act 1974 (Cth) to establish accessorial liability against the defendant in respect of the alleged conduct, the subject of the claim engaged in outside of Australia'."
By r.47.04, the Court may order that any question in a proceeding be tried before, at, or after, the trial of the proceeding. The Master did not in the order specify when the question was to be determined. But the trial itself has been fixed for 17 June 2003, the plaintiff has issued a summons returnable on 27 February last, and the parties appear to accept that - the summons coming on before me on that day - I should now deal both with that summons (by which the plaintiff seeks leave to amend its statement of claim) and the Master's question. Indeed, it seems that by arrangement with the Master's office, the latter was referred to a judge for hearing on 27 February. This may be the explanation for the return date of the plaintiff's summons.
The proposed amendment raises no new issue of fact, save for that concerning the defendant's ordinary place of residence[1]; and nothing put to me suggests that that is a matter of controversy. Certainly, as at 16 December last year, the defendant – in an affidavit sworn in this proceeding – gave his address as 5 Tennyson Street, Brighton in this State. In my opinion, the application for leave to amend should succeed. I will give leave accordingly.
[1]The proposed place of supply of the loan funds to Dominion Capital mayl need to be established.
The circumstances before me as I turn to the Master's question are thus different from those that obtained when the question was posed. Indeed, the question itself has changed, at least if I proceed with the formulation now put forward by the defendant. It reads as follows:
"Whether the plaintiff is entitled to rely at the hearing upon the Trade Practices Act 1974 (Cth) to establish accessorial liability under s.75B(1)(c) thereof against the defendant to the extent that the alleged conduct of Dominion Capital Pty Ltd described as:
1.The 'Representation' under paragraph 6 of the statement of claim;
2.The 'September Warranty' under paragraph 8(d) of the statement of claim; and/or
3.The 'December Warranty' under paragraph 12(d) of the statement of claim;
was engaged in by Dominion Capital outside of Australia?"
I am prepared to accept that, as reformulated, the question is altered in form but not in substance. It is therefore appropriate to refer to it as “the Master’s question”. On the other hand, I also accept the plaintiff's principal submission on the r.47.04 point: namely, that by the amendment which the plaintiff has by leave made to its statement of claim, the answer to the Master's question, however formulated, can no longer advance the purposes which r.47.04 is designed to serve.
It will be apparent from the above that the issues argued before me went beyond the correct answer to the Master’s question. They included whether the question should be answered at all. The defendant did not object that, because I am not hearing an appeal from the Master, this was impermissible; but the defendant’s failure to object is doubtless entirely explicable on the basis that such an objection would have lacked substance. Not only have the circumstances changed materially since the matter was before the Master, but unless the reference comes from the Court of Appeal, no judge to whom the question is referred under r. 47.04 can be required to answer it if he or she is of the opinion that such a step would be inappropriate. It is a necessary concomitant of our judicial hierarchy that no single judge or Master can oblige another judge to act judicially in a way which the latter concludes is inappropriate. Thus, a question such as the Master’s question in this case comes to the judge to whom it is referred with the express or implied opening qualification: “Subject to any order to the contrary of the judge to whom the matter is referred, the following question is to be determined before the trial of the proceeding…”.
The utility of r.47.04 is demonstrated most clearly where a single question can be isolated from the other questions in the proceeding, whether of fact or law, and the answer to that question will finally determine the proceeding as a whole. This may be so where, for example, it is contended by a defendant that the contract upon which the plaintiff relies is void for illegality; or where the issue is whether the jurisdiction of the court has been ousted by a statute which confers exclusive jurisdiction upon another tribunal. A further example, the defendant would contend, is where some or all of the material facts admittedly occurred outside the jurisdiction, and where – given those facts – the extra-territorial operation of relevant legislation will, once its extent (if any) is judicially ascertained, resolve the dispute. The defendant would say that, at least before the amendment to the statement of claim, that was this case (and the plaintiff would argue to the contrary).
This is not now the position here. Indeed, in my opinion, it could never have been the position, even without the amendment. As I understand it, the defendant accepts that the December warranty was signed by him in Melbourne. If so, it is arguable that, while within the jurisdiction, he aided and abetted, or was in some way directly knowingly concerned in, or a party to, Dominion Capital’s contravention.
It is also relevant, it seems to me, that preliminary questions of law should generally be isolated for separate determination only where the factual situation is such that whichever way the question is decided it will not be necessary to determine what are the facts: Williams' Civil Procedure Victoria at 4756. The learned author continues, at 4757:
"In Dunstan v Simmie & Co Pty Ltd [1978] VR 669, the Full Court considered that although every case must depend upon its own facts, it will as a general rule only be appropriate to order that a preliminary issue be isolated for determination before trial where the determination of the issue in favour of one party or the other will end the litigation, or where there is a clear line of demarcation between issues and the determination of one issue in isolation from the other issues in the case is likely to save inconvenience and expense."
Again, that is not this case. Even if the question were answered as the defendant would have me answer it, all the evidence necessary to support the cause of action under the TPA would be called to support that under the FTA.
Resort to r.47.04 can often have the reverse effect to that which it is designed to promote. This was pointed out by Byrne J in Hyder Consulting (Vic) Pty Ltd v CGU Insurance Ltd[2]. A similar warning was given by the High Court in Bass v Permanent Trustee Co Ltd[3]. There, Gleeson CJ and Gaudron, McHugh, Gummow, Hayne and Callinan JJ said:
"Courts have traditionally declined to state – let alone answer – preliminary questions where the answers will neither determine the rights of the parties nor necessarily lead to the final determination of their rights. The efficient administration of the business of courts is incompatible with answering hypothetical questions which frequently require considerable time and cause considerable expense to the parties, expense which may eventually be seen to be unnecessarily incurred."
[2][2001] VSC 449 at [25]
[3](1999) 198 CLR 334 at 357
This reasoning seems to me to be applicable here. The defendant submits to the contrary. He contends that no element of the hypothetical is involved. The plaintiff has not withdrawn, and has informed the Court that it has no intention of withdrawing, its claim under the TPA. Accordingly, the defendant argues, the extent of the extra-territorial reach of that Act remains alive.
This, I accept, is strictly accurate. It is nevertheless a contention which in the present circumstances lacks substance. In my opinion, it is strongly arguable that, if the plaintiff can prove the facts as now pleaded in its amended statement of claim, it will make out a cause of action under the FTA. True, it will be challenged on the extra-territorial reach of that Act. But by s.6(1)(b), the FTA applies to a supply of services (and I assume that these include financial accommodation) if those services are proposed to be supplied in Victoria; and by s.6(2)(b) the Act applies to the engaging in conduct outside Victoria by persons ordinarily resident in Victoria. It is at least possible that the plaintiff will be able to demonstrate that one or other or both of these provisions applies. If so, and if the cause of action under the FTA can otherwise be substantiated, then that under the TPA will doubtless become irrelevant.
If such were to be the case, it would be unnecessary and perhaps unwise for a judge to seek to rule upon the extra-territorial effect of the TPA. Such effect is the subject of conflicting authorities. On the one hand, Lockhart J in Trade Practices Commission v Australian Iron & Steel Pt [4] and Merkel J in Bray v F. Hoffman-La Roche Ltd[5] held that s.5 of the TPA states exhaustively the extraterritorial operation of that Act. On the other hand, in Trade Practices Commission v Australian Meat Holdings Pty Ltd[6] Wilcox J rejected that view.
[4](1990) 22 FCR 305 at 319-320
[5](2002) 190 ALR 1 at 13
[6](1988) 83 ALR 299 at 356
The occasion to decide between this difference of judicial opinion is not, in my opinion, now. Even at trial, the need to attempt the task might not arise; indeed, the trial judge may, depending on the outcome of the FTA proceeding, properly decide that the issue were best left for another time. Any decision on the point may well be obiter. In my opinion, the Court would overreach itself were such an attempt to be made in such circumstances. All the more so were the attempt to be made in answer to a preliminary question.
For these reasons, it seems to me that I ought not to exercise my discretion in favour of answering the Master's question. I accordingly decline to do so.
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