Read v Burns
[2016] ACTSC 1
•25 January 2016
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Read v Burns & Ors |
Citation: | [2016] ACTSC 1 |
Hearing Date(s): | 10 November 2015 |
DecisionDate: | 25 January 2016 |
Before: | Burns J |
Decision: | See [36]-[37] |
Catchwords: | CORPORATIONS – Arrangements and Reconstructions – deed of company arrangement – effect – whether binding on plaintiff’s claim – plaintiff bound under deed – second defendant required to plead the deed – plaintiff’s claim to be dismissed. TRADE AND COMMERCE – Trade Practices – misleading and deceptive conduct – misrepresentations – managed investment scheme – accessorial liability – s 75B of the Trade Practices Act 1974 (Cth) – pleading requirements – further and better particulars to be provided. |
Legislation Cited: | Corporations Act 2001 (Cth) ss 444A, 444D, 444E, 444J, 565 Australian Securities and Investment Commission Act 2001 (Cth) Trade Practices Act 1974 (Cth) s 75B |
Cases Cited: | Hoath v Connect Internet Services (2006) 229 ALR 566 Lehman Brothers Holdings v City of Swan (2010) 240 CLR 509 Re: RL Child & Co Pty Ltd (1986) 5 NSWLR 693 |
Parties: | Jeffery Maxwell Read (Plaintiff) Diana Mary Burns (First Defendant) Prime Property Investment Pty Ltd (Second Defendant) Sidney Knell (Third Defendant) |
Representation: | Counsel Self-represented (Plaintiff) No appearance (First Defendant) Dr B O’Hair (Second and Third Defendants) |
| Solicitors Self-represented (Plaintiff) Boettcher Law (First Defendant) S & T Lawyers (Second and Third Defendants) | |
File Number(s): | SC 350 of 2008 |
BURNS J:
The plaintiff is currently prosecuting proceedings against the first, second and third defendants with respect to losses he alleges he sustained by reason of purchasing a property in NSW, and participating in a managed investment scheme with respect to that property. The first defendant is a firm of lawyers who acted for the plaintiff on the purchase of the property. The second defendant is a company which is said to have acted as the vendor’s agent on the sale of the property. The third defendant is alleged to have been a “principal” of the second defendant.
The plaintiff is currently not represented by a lawyer, although he has been represented by lawyers in these proceedings in the past. Most of the current Statement of Claim, the Further Amended Statement of Claim of September 2013 (the FASOC), was drafted by the plaintiff personally. I have encouraged the plaintiff on numerous occasions to obtain legal representation and advice. These proceedings are listed for hearing commencing on 1 February 2016.
I have before me two applications in these proceedings. The first is an application by the second defendant that the claim against it be dismissed, and that the plaintiff pay the second defendant’s costs of the application on an indemnity basis. The second application is by the third defendant, who also seeks an order that the claims against him be dismissed and that the plaintiff also pay his costs on an indemnity basis.
The application by the second defendant
These proceedings were commenced in 2008. In December 2013 the second defendant executed a deed of company arrangement (the DOCA) in compliance with a resolution of creditors at a creditors meeting held on 12 December 2013. The plaintiff was invited to provide a formal proof of debt to the administrator of the DOCA, but declined.
The DOCA provided that a third party, Prime Group Australasia Pty Ltd, would contribute $40,000 for distribution to creditors of the second defendant in accordance with the terms of the DOCA. Clause 17.2 (ii) of the DOCA provides:
(ii)Otherwise, the Creditors (other than Secured Creditors who are protected by the Corporations Act to the extent of that protection) must accept (whether the person’s Claim is or is not actually admitted or established under this Deed) their entitlements under this Deed in full satisfaction and complete discharge of all Claims and each of them will, if called upon to do so, execute and deliver to the Company such forms of release of any Claim as the Company of the Deed Administrator requires.
By a letter dated 3 August 2015 the second defendant, which had by then been discharged from voluntary administration on account of performance of the DOCA, wrote to the plaintiff requiring him to execute and deliver to the second defendant a form of release in which he released the second defendant with respect to the claim he has made against it in these proceedings. The plaintiff has not executed and returned the release as required by the second defendant.
It is convenient at this point to set out the relevant provisions of the Corporations Act 2001 (Cth) (CA):
444AEffect of creditors’ resolution
...
(4)The instrument must also specify the following:
...
(i)the day (not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the deed.
444DEffect of deed on creditors
(1)A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).
444EProtection of company’s property from persons bound by deed
(1)Until a deed of company arrangement terminates, this section applies to a person bound by the deed.
(2)The person cannot:
(a) make an application for an order to wind up the company; or
(b) proceed with such an application made before the deed became binding on the person.
(3)The person cannot:
(a) begin or proceed with a proceeding against the company or in relation to any of its property; or
(b) begin or proceed with enforcement process in relation to property of the company; except:
(c) with leave of the Court; and
(d) in accordance with such terms (if any) as the Court imposes.
(4)In subsection (3):
property of a company includes:
(a) any PPSA retention of title property of the company; and
(b) any other property used or occupied by, or in the possession of, the company.
444HExtent of release of company’s debts
A deed of company arrangement releases the company from a debt only in so far as:
(a) the deed provides for the release; and
(b) the creditor concerned is bound by the deed.
444JGuarantees and indemnities
Section 444H does not affect a creditor’s rights under a guarantee or indemnity.
562Application of proceeds of contracts of insurance
(1)Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556.
(2)If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance.
(3)This section has effect notwithstanding any agreement to the contrary.
The relevant provisions of the DOCA are:
7.Scope of this Deed – Deed binds all persons
This Deed binds:
(a)all parties to this Deed;
(b)in accordance with section 444D of the Corporations Act, all creditors of the Company so far as concerns Claims arising on or before the Appointment Day, being the day specified in this Deed under section 444A(4)(i) of the Corporations Act; and
(c)in accordance with section 444G of the Corporations Act, the Company, the Deed Administrator and the members and officers of the Company.
17.2Discharge of debts
...
(iii)After the Deed Administrator has paid to the Creditors their full entitlement under this Deed, all Claims they (other than Secured Creditors being Secured Creditors where the Corporations Act 2001 does not permit the discharge of the Secured Creditor’s claim without the Secured Creditor’s consent, unless the security has been released as provided for herein) had or may have had are extinguished, and this Deed may be pleaded by the Company against any Creditor in bar of any Claim that is admissible and has been extinguished under this Deed, even though the person’s Claim is not, in actual fact admitted or established under this Deed.
(iv)Debts remained discharged notwithstanding the termination of this Deed and it is noted that at common law consideration was found to be present in the case of compositions and this provision is in addition to and not in derogation of any covenant herein shall not preclude the finding of a simple contract releasing such debts implied by the acceptance or receipt or both of any payment.
19.14Survival of Clauses
This clause and clauses 1, 4.6, 5, 6, 7.2, 13, 17.2, 17.3, 18.3, 19.2, 19.3, 19.5, 19.6, 19.8, 19.12, 19.13, 19.15 and 19.20 will continue to apply despite termination of this Deed. It is the intention of this Deed that all accrued rights shall be preserved and accordingly, the itemisation of the above is not intended to in any way detract from that intention being effective.
The term “claim” is defined in the DOCA and for its purposes as:
“Claim” means any debt owing by, any liability of or any claim against the Company in favour of a person, or any action, suit, cause of action, arbitration, cost, demand, verdict or judgment at law or in equity under any statute, against the Company which was incurred, instituted or made (of any description whatsoever and for instance, but without limitation, whether statutory, at law or in equity or howsoever otherwise, whether present, prospective or contingent or howsoever otherwise, whether or not general, aggravated, parasitic, special, or exemplary damages whether liquidated or unliquidated and whether sounding in contract or tort or howsoever otherwise arising) the circumstances giving rise to which occurred on or before the Appointment Day, and whether or not it is secured (including any lien or other security as defined below) on the Assets that would be provable in a liquidation and accordingly, this Deed is a complete and effective answer to any proceedings brought to enforce the Claim howsoever and wheresoever brought PROVIDED THAT this definition does not extend to anything that would be a claim, but for this proviso, being the rights of the Contributor against the Company arising out of the Contribution Amount, which debt does not give rise to any Claim to be adjusted hereunder and survives the termination of this Deed, unless the amount has been wholly or in part used to subscribe for the issue of shares in the Company, as provided for herein, but if it does survive, survives only on the basis of being an unsecured creditor for the Contribution Amount[.]
The term “debt” is defined to include a “claim” as defined in the DOCA. The “Appointment Day” was defined to mean 11 November 2013; the “Contributor” is defined to mean Prime Group Australasia Pty Ltd; the “Contribution Amount” is defined to mean $40,000, the “Company” is, of course, the second defendant.
The plaintiff’s written submissions with regard to this application proceeded on the basis that the application is based on his failure to accede to the written demand that he execute a deed of release, and submitted that clause 17.2 (ii) was invalid as either conferring a power on the second defendant during the period of administration, or providing for powers conferred by the DOCA to be exercised after the termination of the DOCA. Secondly, he submitted that at the time of the second defendant entering into voluntary administration he did not have a “provable claim” against the company given the existence of a genuine dispute concerning his claim. Thirdly, he submitted that this Court has granted de facto leave pursuant to s 444E of the CA for those proceedings to “continue beyond” the second defendant’s administration and the subsequent termination of the DOCA. Finally, he submitted that the second defendant had not previously pleaded its purported right to rely upon the DOCA as a bar to his claim, presumably because it accepted his claim was not admissible under the terms of the DOCA or because that the DOCA did not affect his rights under a contract of insurance entered into by the second defendant, as provided by ss 444J and 562 of the CA.
In oral submissions the plaintiff appeared to concede that the DOCA bound him with respect to his claim, and operated to release the second defendant from any debt or claim arising from these proceedings. The plaintiff’s main concern, he said, was to ensure that he did not prejudice any potential claim he may have against the second defendant’s professional indemnity insurer, if it was covered by such a policy of insurance at the relevant time. I note in passing that counsel for the second defendant indicated that he understood there was no such policy.
Consideration – application by the second defendant
I am satisfied that the plaintiff is bound by the DOCA. In Lehman Brothers Holdings v City of Swan (2010) 240 CLR 509, the plurality (French CJ, Gummow, Hayne and Kiefel JJ) after receiving the provisions of the CA concerning deeds of company arrangement, said at [38]:
The subject matter, scope and purpose of the provisions that have been mentioned readily yield the inference that the subject matter of the compromise or arrangement must be debts or claims against the company. And the debts or claims the subject of the compromise or arrangement can, and ordinarily will, extend to any debt or claim that would be provable in a winding up. That is, in the words of the provision identifying provable debts and claims (s 553(1)), the debts or claims the subject of the compromise or arrangement, whether by way of moratorium or release, will be “all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date”.
It is clear from the above, and from the provisions of the CA, that the deed of company arrangement provisions concerning what debts or claims may be compromised by a deed of company arrangement are not to be read narrowly. The deed may bind not only creditors whose debts are due and payable, but also contingent and prospective creditors who have claims for unliquidated damages: Hoath v Connect Internet Services (2006) 229 ALR 566 per White J at [190]. Not only may contractual claims be compromised, but so may claims in tort: Re: RL Child & Co Pty Ltd (1986) 5 NSWLR 693.
The plaintiff’s claim against the second defendant is for unliquidated damages for misrepresentation in contravention of the Trade Practices Act 1974 (Cth), the CA and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Although the plaintiff’s claim was contingent, in the sense that liability on the part of the second defendant had not been established as at the date of execution of the DOCA, the plaintiff’s claim is one that would have been provable on a winding up of the company, and accordingly is a claim which was, at the relevant date, capable of being compromised by a deed of company arrangement.
I am further satisfied that the plaintiff’s claim against the second defendant falls within those debts or claims compromised by the DOCA.
The issue raised by the plaintiff, that the second defendant is required to plead the DOCA, is an interesting one, but not one that should determine the outcome of the present application. To the extent that it is necessary for the second defendant to amend its present defence to plead the DOCA, I would grant it leave to do so. It is an issue which may, however, have significance for any costs order concerning the application, a matter to which I will return. There is, however, no purpose in leaving to the trial the issue of whether, in the light of the terms of the DOCA, the plaintiff has any reasonable cause of action against the second defendant. The plaintiff has not suggested that it has any evidence relevant to this issue that it has not already presented.
There is no merit in the submission of the plaintiff that the second defendant’s application should be refused because of the alleged invalidity of clause 17.2 (ii) of the DOCA. First, the validity or invalidity of clause 17.2 (ii) is irrelevant to determining whether the plaintiff’s claim has been compromised by the DOCA. Secondly, consistent with conventional principles governing the interpretation of deeds, the DOCA should be interpreted so as to preserve the validity and efficacy of the document and all its provisions. As such, where the provisions of 17.2 (ii) permit the company to call for a creditor to complete a form of discharge, this should be interpreted as limited to the period after the termination of the DOCA and the role of the Deed Administrator. The continuation of clause 17.2 in force after the termination of the DOCA is provided for by clause 19.14. Provisions such as clause 19.14 are quite common and necessary provisions which ensure the efficacy of the deed after the DOCA has terminated under its terms.
The plaintiff’s submission that this Court granted de facto leave pursuant to s 444E of the CA for the continuation of these proceedings is also without merit. No application under s 444E was ever made or suggested by the plaintiff, and no such orders were ever contemplated by this Court.
For more abundant caution I will require the second defendant to file and serve an amended defence pleading the DOCA. Upon filing that amended defence the plaintiff’s claims against the second defendant will be dismissed.
If it was necessary for the second defendant to plead the DOCA, this will be a significant circumstance touching upon the question of the costs of the application. Each party may file and serve short written submissions, limited to no more than two A4 pages, on this issue within 21 days.
The third defendant’s application
The third defendant seeks an order that the proceedings against him be dismissed on the grounds:
(a) that the third defendant has served the plaintiff with requests for documents and particulars which have not been responded to; and
(b) that the case which has been pleaded against him discloses no cause of action, and any amendment to plead a recognised cause of action would amount to a late fraud allegation.
With regard to the first ground, the third defendant relies upon a letter dated 13 August 2015 which he sent to the plaintiff, and which was in the following form:
In reference to your further amended statement of claim, the particulars to paragraph 22 include the following: -
(f) The Plaintiff repeats and relies on the particulars provided at para 5 A(g) above.
(g) The Plaintiff relies on the particulars at para 20 of his Affidavit lodged 16 Oct 2012.
(h) The Plaintiff relies on the particulars provided in his Affidavit lodged 3 May 2013.
There is no paragraph 5A(g) above. Accordingly, we take it that there is nothing relied upon in that respect.
Further, it is not proper to provide particulars by reference to an affidavit, however, if you provide the paragraphs you rely on to us forthwith, we will make no objection on that account. Plainly, when we review the paragraphs, we may have other objections.
If you ignore making a timely response to this letter, there will be an application to court and the seeking of indemnity costs.
In order to understand the second ground relied upon by the third defendant, it is necessary to set out the claims made against the third defendant by the plaintiff in his FASOC.
At paragraph 5 of the FASCOC, the plaintiff pleads that at all material times the third defendant was “the principal” of the second defendant.
At paragraph 5B he pleads that “the defendants” had firsthand knowledge of the managed investment provisions of the “Corporations Law”.
In paragraph 6, the plaintiff alleges that the second defendant, in trade or commerce, made representations to the plaintiff concerning the property. In paragraph 7 he alleges that these representations were in writing and contained in a document handed to the plaintiff by the third defendant on behalf of the second defendant. The plaintiff then goes on to plead that these representations, and other additional representations said to have been made by the second defendant, were misleading or deceptive and contrary to provisions of the Trade Practices Act, the CA and the ASIC Act. The basis of the claim against the third defendant is found in paragraph 11 of the FASOC:
The Third Defendant was, in terms of the accessorial liability provisions, involved in the making of the representations, in the (sic) breach of the misleading conduct provisions.
The preamble to the FASOC contains the following relevant definitions:
“Accessorial liability provisions” – in respect of alleged contravention of misleading conduct provisions or misleading conduct in relation to land provisions means, as the case requires:
(a) s75B of the TPA where contravention relates to (a) of those provisions; otherwise
(b) s79 of CA.
“Misleading conduct provisions” –in respect of alleged conduct engaged in by a corporation in trade and commerce means, as the case requires -
(a) s52 TPA where conduct relates to real estate agency services not involving supply, or possible supply, of financial services; or
(b) s12DA ASIC Act where conduct relates to financial services not involving dealings in interests in a managed investment scheme; or
(c) s995, s999, s1000, and/or s1001 of CA where conduct relates to dealings in interests in a managed investment scheme not involving a misleading or deceptive disclosure document; or
(d) s728(1), s999, s1000, and/or s1001 of CA where conduct relates to offering interests in a management investment scheme under a misleading or deceptive disclosure document.
The only other reference to the third defendant in the FASOC is in paragraph 22C, where the plaintiff simply claims exemplary damages.
The third defendant on 31 January 2014 filed a Further Amended Defence in response to the FASOC, which relevantly said:
12. The Third Defendant raises a point of law as to whether the claim against the Third Defendant is one that requires the proof of accessorial liability and therefore the civil law equivalent of a guilty mind and accordingly, further, whether the Statement of Claim makes any such claim with sufficient or any particularity and if not, ought to be dismissed.
In his Reply, the plaintiff said:
54.In reply to paragraph 12 of the Defence and as a point of law, the Plaintiff answers that he has particularised the Third Defendant’s direct involvement in the making of the negligent misrepresentations and KNELL is therefore liable for the loss or damage suffered consequent on the Plaintiff’s reliance on those misrepresentations i.e. proof of accessorial liability is not required as KNELL was “involved” in the making of the misrepresentations in terms that he “aided, abetted, counselled or procured” or “induced by promises or otherwise”; or was “directly or indirectly” ”by act or omission” “party to”, “or conspired with others to effect” the making of the negligent misrepresentations.
55.In further reply to paragraph 12 of the Defence and as a point of law, the Plaintiff answers that in accordance with s729(1) CA he is entitled to recover the loss and damage suffered (consequent on the Second Defendant’s offer of interests under a defective disclosure document) from KNELL being a “director of the body making the offer” and the alleged “proof of accessorial liability and therefore the civil law equivalent of a guilty mind” is therefore not required.
56.In further reply to paragraph 12 of the Defence and as a point of law, the Plaintiff answers that in accordance with s1005(1) CA and s12GF ASIC Act he is entitled to recover the loss and damage suffered consequent on the Second Defendant’s contravention of the misleading and deceptive conduct provisions from KNELL “being a person involved in the contravention” and the alleged “proof of accessorial liability and therefore the civil law equivalent of a guilty mind” is therefore not required.
57.In further reply to paragraph 12 of the Defence and for the avoidance of doubt, the Plaintiff answers that notwithstanding any apparent contrary references erroneously included in his FASOC or the particulars thereto, including the reference at FASOC-22C to “knowingly or recklessly”, the claims pleaded against the Second and Third Defendants are founded in liability at statute and common law for negligent misrepresentation and breach of warranty of (sic) authority in that they should have known and had a duty of care to know that the alleged representations were false (i.e. that they had no reasonable basis for making them) and not in the tort of deceit (i.e. that they had no honest belief in the truth of them) and it is therefore not necessary for the Plaintiff to prove the state of their (KNELL’s) knowledge as would be necessary if allegations of fraud had been pleaded in the FASOC.
(emphasis as per original.)
Despite the ambiguity of paragraph 54 of the Reply, it is clear from the FASOC and the references to the basis of alleged liability in paragraph 54 that the plaintiff’s claim as pleaded against the third defendant is founded in some form of accessorial liability. In his oral submissions the plaintiff adopted a slightly more nuanced approach to that revealed in the FASOC by stating that the primary basis of his claim against the third defendant is the CA, and that the claims apparently pleaded under the Trade Practices Act and the ASIC Act are “backups”.
The essential submission made by the third defendant is that in order for the plaintiff to succeed on the basis of s 75B of the Trade Practices Act he must prove that the third defendant knew not only that a representation had been made to the plaintiff, but also that the third defendant knew that the representation was misleading or deceptive. It is his further submission that the plaintiff is required to allege both of these circumstances in his pleading, which he has not done.
Consideration – the third defendant’s application
The plaintiff should be required to provide to the third defendant the particulars sought in the third defendant’s letter of 13 August 2015, but otherwise the application should be dismissed.
The structure of the FASOC, to the extent that it applies the “accessorial liability provisions” as defined in paragraph A1, picks up the requirements of those sections, including any requirement to prove a particular mental state on the part of the third defendant. That is sufficient for pleading purposes.
Orders
With regard to the application by the second defendant I make the following orders:
(a) that the second defendant be granted leave to file and serve an amended defence pleading the DOCA;
(b) that upon the filing of the amended defence the plaintiff’s claim against the second defendant will be dismissed; and
(c) the parties are to file written submissions on costs in conformity with these reasons.
With regard to the application by the third defendant. I make the following orders:
(a) the plaintiff is to provide further and better particulars to the third defendant as requested in the third defendant’s letter of 13 August 2015 by 4pm on 29 January 2016;
(b) the application is otherwise dismissed; and
(c) costs of the application are reserved.
| I certify that the preceding thirty-seven [37] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Burns. Associate: Date: 25 January 2016 |
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