Russell, Christopher v GVM Adviser Services Ltd

[2009] VCC 743

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION

COMMERCIAL LIST – GENERAL DIVISION

Case No. CI-07-01029

CHRISTOPHER RUSSELL	Plaintiff
v
GVM ADVISER SERVICES LTD and OTHERS	Defendants

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JUDGE:	HIS HONOUR JUDGE ANDERSON
WHERE HELD:	Melbourne
DATE OF HEARING:	30 April and 18 June 2009
DATE OF JUDGMENT:	15 July 2009
CASE MAY BE CITED AS:	Russell, Christopher v GVM Adviser Services Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2009] VCC 0743

REASONS FOR JUDGMENT

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Catchwords:  Practice and procedure – Application to extend the validity of a writ for service – Plaintiff did not have expert opinion on quantification of damages – Plaintiff instructed his solicitors not to proceed with the action – Whether “good reason” for extension – Rule 5.12 County Court Civil Procedure Rules 2008.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J.F. Doherty	Lennon Mazzeo Solicitors
For the Defendants	Mr M.S. Osborne	Monahan & Rowell
HIS HONOUR:

1 Christopher Russell received financial advice from the defendants on 23 March and

27 June 2001. As a result of the advice, the plaintiff withdrew the lump-sum balance
of his Government Superannuation Office pension and invested it in various funds
recommended by the defendants. Later, in 2002, the defendants gave the plaintiff
further advice about his investments, suggesting the plaintiff should borrow further
moneys to invest in MLC products.

2 On 22 March 2007, the plaintiff’s then solicitors, Tolhurst Druce & Emmerson, issued a writ alleging that the defendants’ 2001 advice had been negligent and had resulted in the plaintiff “obtaining a worse financial outcome than if he had not followed it”.

Alternatively, claims were made that the defendants had engaged in misleading and
deceptive conduct in breach of the Trade Practices Act and the Fair Trading Act.
No legal action was ever brought in respect of the 2002 advice.

3           When the writ was issued, the plaintiff’s solicitors did not have expert advice concerning the plaintiff’s loss and whether the losses had crystallised. Over the following months, consideration was given to obtaining the necessary material (including a report from a certified financial planner, Mr Shane Williams), although this was never done.

4           In September 2007, a decision was made by the plaintiff and his solicitors not to pursue the court action. On 20 September 2007, the solicitors wrote to the plaintiff as follows:

“We refer to our letter dated 7 September 2007 and our conference with you

on 13 September 2007. We confirm that following our discussion of the
history of this matter, your dealings with Garvan and Lyn Jenkins, the
proposed report from Shane Williams and the risks of becoming involved in
multi-party litigation, you have instructed us to:

a.  prepare a letter of demand to Garvan regarding the advice you

received in 2002 to borrow funds to invest in MLC products,

b.	take no further steps with respect to Shane Williams, and
c.	not pursue the claim against Garvan regarding the initial advice you received to redeem the GSO pension and invest the proceeds with MLC”.

5 instructed Mr Wesley McMaster, the Adjunct Professor (Financial Planning) at RMIT

Subsequently, in April 2008, the plaintiff engaged his present solicitors. The solicitors Mr McMaster advised that; “A reasonable prudent financial adviser would not have

recommended that Mr Russell leave the Government Superannuation Office in July

2001”. Mr McMaster later advised that the present-day net cost of purchasing a
pension to give equivalent benefits would be $898,500.

6 The limitation period for the issue of the plaintiff’s claim expired on 23 March 2007. The writ was issued on 22 March 2007 and was valid for service until 22 March 2008. The application to extend the validity of the writ was made on 8 April 2009, approximately 12 months after the writ had expired. Rule 5.12 of the County Court Civil Procedure Rules 2008 provides that:

“5.12 Duration and renewal of originating process

(1) A writ or an originating motion shall be valid for service for one year after the

day it is filed.

(2)	Where a writ or an originating motion has not been served on a defendant, the Court may from time to time by order extend the period of validity for such period from the day of the order as the Court directs, being not more than one year from that day.
(3)	An order may be made under paragraph (2) before or after expiry.
(4)	The plaintiff may apply under paragraph (2) without notice to the defendant, but if the Court considers that the defendant ought to be heard the Court shall adjourn the further hearing and direct the plaintiff to give notice to the defendant by summons or otherwise.
(5)	Where an order is made under paragraph (2), the Registrar shall stamp any sealed copy originating process for service with the date of the order and the
extended date of validity”.

7           The rule and its predecessors have been considered by the Supreme Court of Victoria on a number of occasions in recent years. In Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639, a decision of the Court of Appeal, Gillard AJA delivered the principal judgment of the Court. At paragraph 41, he noted a number of “general propositions” that had been established by the decided cases:

“(i)	It is the duty of the plaintiff to serve the writ promptly;
(ii)	There must be a good reason for the grant of an extension, and if the application is made after the period has expired the reason must be one of substance;
(iii)	... whether or not it is a good reason must depend upon all the circumstances of the particular case ... ;
(iv)	By reference to decided cases it is possible to compile a list of the circumstances which constitute a good reason. The cases also provide examples where the circumstances have not been a good reason to extend the period of validity. ... ;
(v)	... when a writ issued within the limitation period is not served and in the meantime the period expires [it is not the law in Australia that] it

was only in exceptional circumstances that the writ would be renewed”.

8           The issues for determination in the present application are:

a.	whether in all the circumstances of the case a “good reason” has been shown for the grant of an extension of the validity of the writ for service;
b.	whether, in the circumstances where the application was made after the expiration of the time for service, the reason is “one of substance”.

9           In the present case, the plaintiff relies upon the following matters as amounting to a “good reason” of “substance” justifying an extension of the validity of the writ:

a.	the plaintiff notified the defendants in 2005 of his claim. The defendants investigated the claim and gave a detailed response;
b.	although the plaintiff had instructed his previous solicitors not to proceed with the claim against the defendants, he now says that he was not aware that the proceeding would go stale and he had not given up hope of pursuing the

claim;

c. the new solicitors were engaged for that purpose, and when further advice was received about the viability of the claim, the present application was promptly made.

10         A large quantity of material has been filed in relation to the application. The material includes:

a.	documents relating to the advice given by the defendants to the plaintiff in 2001 and 2002;
b.	advice received by the plaintiff from Ms Lyn Jenkins of the Victorian Teachers Credit Union on 21 June 2004;
c.	complaints pursued by the plaintiff with the defendants in 2004 and 2005.
d.	dealings between the plaintiff and his first solicitors, Tolhurst Druce & Emmerson, between March 2006 and 17 April 2008;
e.	dealings between the plaintiff and his present solicitors from April 2008.

14 the complaints adjustment manager, at GWM Services. The plaintiff had been
corresponding with Mr Smith since 8 September 2004. In the further letter of
complaint, the plaintiff detailed, “my complaints and the financial problems I have as

11         In many instances, parts of the correspondence have been masked and a notation made that the material may contain “without prejudice discussions”. Apparently this was material in respect of which the defendants had not waived privilege, and it related to negotiations between the parties. Both counsel submitted that I should ignore the deletions from the material and take no account of them in my consideration of the application. I have followed that course. It is necessary, however, to note that the masking of parts of correspondence often makes it difficult to fully understand the context in which statements are made.

Complaints made by the plaintiff about the advice received from the defendants

12         On 21 June 2004, the plaintiff was advised in writing by Ms Jenkins that advice given by the defendants in 2002 “to invest in a high growth managed funds portfolio using

100 per cent borrowed funds … may be inappropriate and imprudent, given your

circumstances and state of health”. As a consequence of receiving the advice from Ms Jenkins, the plaintiff wrote a letter of complaint to Mr Taylor, the first defendant, on 28 June 2004.

13 2004. The letter of complaint also referred to the 2001 advice but only in the context
that none of the funds received, after drawing down the Government Superannuation
Office pension, were used to pay out the mortgage over the plaintiff’s home.

The letter to Mr Taylor enclosed the letter of advice from Ms Jenkins dated 21 June the defendants and was also the subject of investigation by the Garvan Business Review Group. The Financial Industry Complaints Service Ltd was asked by the plaintiff to investigate but eventually declined because the plaintiff’s potential loss exceeded its jurisdictional limit of $100,000.

On 11 April 2005, the plaintiff sent a further detailed complaint to Mr Matthew Smith, that, “Since I forfeited a lifetime indexed pension based on the advice provided I have

17

experienced loss of income and lifestyle to date, loss of future income for life – which

has been estimated to have a present value of about $310,000”. The letter set out the basis the plaintiff asserted that the advice he had received was “inappropriate” and “misleading”.

15         On 15 June 2005, the plaintiff received a four page response from Mr Smith. Much of the first page is masked. The letter noted that, “As part of our investigation we have

spoken with and examined the documents and file notes prepared by Michael Guthrie and Grant Taylor in respect of their dealings with you regarding the allocated pension

investment”. The letter addressed the issue of the failure to pay out the mortgage
over the plaintiff’s home (noting “amended recommendations confirmed your

instructions that you propose to sell your house and would attend to the discharge of

the mortgage at that time”). The letter concluded that the defendants had “provided

comprehensive advice which was sufficient to enable you to make a fully informed
decision about your beneficiary choice options and specifically your decision to

commute your GSO disability pension and to invest in the MLC Masterkey allocated

pension fund” (emphasis added).

16         A letter from the plaintiff to the senior complaints analyst at Garvan Financial Planning, dated 29 September 2005, noted that, “I have advised Mr Grant Taylor that I do not want to take court action”. The next communication with the first defendant, GWM Adviser Services Pty Ltd, was a letter from the plaintiff’s first solicitors, Tolhurst Druce & Emmerson, dated 20 September 2007. The letter demanded payment of the sum of $57,312.94, said to reflect “the actual loss incurred by our client by reason of having accepted the advice provided in 2002”. The letter did not make any complaint about the defendants’ advice in 2001 concerning the drawdown of the GSO pension. The defendants were not aware that the plaintiff was pursuing a complaint in respect of the 2001 advice until April 2009 when the present application was served.

Dealings between the plaintiff and his solicitors

On 12 March 2006, the plaintiff sent certain documents relating to the dispute with plaintiff first met with Mr Phelan on 21 November 2006, although previously there had been correspondence and telephone contact between them. On 23 February 2007, the plaintiff and Mr Phelan met with Mr Daniel Harrison of counsel. As a result, the writ initiating the present proceeding was filed on 22 March 2007. The plaintiff was told that this was necessary to preserve his rights “prior to the expiration of the limitation period”.

18         As earlier mentioned, the writ alleged that the defendants’ 2001 advice, to drawdown the GSO pension and invest it in other securities, had been negligent and constituted misleading and deceptive conduct as a result of which the plaintiff had obtained “a

worse financial outcome than if he had not followed” the defendants’ advice. Before
the writ was issued, both Mr Phelan and counsel had expressed their concerns to the
plaintiff about proceeding with court action without obtaining expert opinion on the
question of any loss the plaintiff had suffered.

19         On 27 March 2007, Mr Phelan foreshadowed briefing a financial planning expert, Mr Shane Williams, to provide an opinion. On 16 May 2007, Mr Phelan advised that he had written to Mr Williams “requesting that he discuss the scope and likely cost of

examining material and preparing a written opinion before he commences work on

your behalf”. Delays occurred before Mr Phelan advised the plaintiff by letter, dated
28 August 2007, that Mr Williams’ fees may be between $5,000 to $6,000 for the
report and that there was some doubt as to whether Mr Williams would permit his
opinion to be used as expert evidence in the court proceeding.

20         On 18 August 2007 the plaintiff, in correspondence with Mr Phelan, had raised a query as to whether he might have a claim against the Victorian Teachers Credit Union. In the letter dated 28 August 2007, Mr Phelan raised three options for the plaintiff to consider:

“a. Engage Mr Williams to prepare his expert’s report and then decide
whether or not to serve the writ upon the defendants depending upon

the advice he provides;

b. Instruct us to send a letter of demand to the defendants which encloses a copy of the writ and notify them of your intention to formally serve the writ in the event that a commercial settlement cannot be

reached in a prompt manner;

c. Elect not to proceed with the claim so as to avoid incurring any further

legal costs or fees to Mr Williams”.

21         In relation to the plaintiff’s “request for advice regarding a claim against the Victorian Teachers Credit Union and Lyn Jenkins instead of the defendants”, Mr Phelan suggested that, “It would be more appropriate to decide what to do about the writ

which has been issued against the defendants before considering an alternative

claim which raises different issues”.

22         On 13 September 2007, the plaintiff met with Mr Phelan and with Mr Ian Lulham, a partner of Tolhurst Druce & Emmerson. The plaintiff stated that, “In the course of

discussion, it was agreed to desist from obtaining a report from Mr Williams, and not
to pursue the claim concerning the 2001 advice given by the defendants, and to
pursue a claim against the 2002 advice given by the defendants. It was agreed that
after the latter claim was settled we could then revisit the question first mooted in
conference with counsel on 23 February 2007 concerning a possible claim against

the VTCU”.

23         This advice was confirmed in the letter from Mr Phelan to the plaintiff dated 20 September 2007. On that date, the letter of demand was sent to the first defendant claiming $57,312.94 in respect of the 2002 advice. On 9 April 2008, the

“complaint against Mr David

plaintiff met with Mr Lulham and gave him a written appeared to criticise Tolhurst Druce & Emmerson for issuing the writ in the County Court making allegations which were “unsubstantiated” and “without the express support of counsel” as to the question of the quantification of damages at that time, sufficient to found the claim.

24         The plaintiff’s last contact with Tolhust Druce & Emmerson was a letter to Mr Lulham dated 17 April 2008 which read as follows:

“Re complaint against Mr David Phelan

Please note that I would like Tolhurst Druce & Emmerson to continue to represent me. I would prefer to seek a resolution of the problems I have had in a positive way, beneficial to us both, that does not involve other

parties”.

25         On 24 April 2008, the plaintiff first saw his present solicitor, Mr Mazzeo of Lennon Mazzeo and gave them instructions to act on his behalf. At that time, the plaintiff did not have all relevant documents in his possession. On 21 July 2008, part of the plaintiff’s VTCU file was received and the balance of the file in October. On 15 July 2008, following a conference with Mr Jim Doherty of counsel, Mr Mazzeo said he:

“ … formed the opinion that for Mr Russell to effectively prosecute any

action against the defendant, Mr Russell needed expert evidence in
relation to the advice given by the defendant, in particular that the
advice was not advice that a reasonably prudent financial advisor ought

to have given and further, evidence that Mr Russell had suffered loss as

a result of the advice given by the defendant”.

26

On 21 October 2008, Mr Mazzeo briefed Mr McMaster to provide an opinion. application was issued on 8 April 2009 in anticipation of the receipt of the report. As previously mentioned, Mr McMaster advised that “a reasonably prudent financial advisor would not have recommended that Mr Russell leave the GSO in July 2001”.

Plaintiff’s reason for not serving the writ and other relevant circumstances

27 application before April 2009 to extend validity of the writ was that, until
Mr McMaster’s reported, he did not know whether the plaintiff had a proper basis for

The reason the plaintiff’s present solicitor, Mr Mazzeo, gave for not bringing an solicitors, Tolhurst Druce & Emmerson, did not serve the writ between the time it was issued on 22 March 2007 and the conference on 13 September 2007, when the plaintiff instructed his solicitors not to proceed with the claim.

28

The plaintiff said he had not given up hope of pursuing the claim. He said that he Mazzeo on 24 April 2008. The time for service of the writ had expired on 22 March 2008 before the plaintiff first saw Mr Mazzeo. However, no action was taken by the solicitors to alert the defendants to the possibility that the writ had been issued or that the plaintiff, at some time in the future after further investigation had been completed, may wish to pursue a claim based upon the 2001 advice.

29         An examination of the “complaint” correspondence between the plaintiff and the defendants discloses that:

a.	the letter to Mr Taylor dated 28 June 2004 made passing reference to the 2001 advice in the context of the question of the failure to pay out the mortgage over the plaintiff’s home;
b.	the more detailed letter dated 11 April 2005 referred directly to the 2001 advice. The letter estimated that the loss the plaintiff had incurred as a result of the advice at $310,000 and described the advice as not appropriate and as misleading;
c.	the response from the defendant on 15 June 2005 referred specifically to the question of the failure to pay out the mortgage and described as “sufficient” the advice given to the plaintiff, upon which he decided to commute his GSO pension and place the proceeds in other investments;
d.	the letter of demand to the defendants from the plaintiff’s first solicitors on 20 September 2007 related to the 2002 advice and not to the 2001 advice.

30         It is apparent from this correspondence that the matters raised in the writ were not the primary focus of the investigations by the defendants in 2004 and 2005. The defendants’ counsel, Mr Osborne, further submitted that the defendants would suffer both general and specific prejudice if the plaintiff’s claim were permitted to proceed. He relied upon the following matters:

a.	the events complained of took place over eight years ago;
b.	the third defendant had primarily dealt with the plaintiff in 2001 and he had not worked in the financial services industry for about five years;
c.	the first defendant’s paper file relating to the 2001 advice had been destroyed and only some documents had been electronically copied; and
d.	the 2004/05 investigation had not focussed on the matters to be litigated in the proceeding.

31         In my view the defendants’ affidavit material, in which these matters were addressed, generally overstated the position and the factual basis for many of the assertions was not established. Further, the statement in the letter from Mr Smith to the plaintiff,

dated 15 June 2005, that, “As part of our investigations we have spoken with and

examined the documents and file notes prepared by Michael Guthrie and Grant
Taylor in respect of their dealings with you regarding the allocated pension

investment” was not specifically addressed.

32         Whilst it was stated by Mr Guthrie that he “believed” that the paper file had been destroyed ”in about early 2004” the basis of his belief as to the timing was not given, nor reference made to the statement of Mr Smith in his letter dated 15 June 2005. Also, no indication was given as to what documents were contained on the electronic file apart from a statement by Mr Guthrie as to what was “usually” on a paper file. Because of the split hearing and the fact that the issue had been raised at the April hearing, the defendants had ample opportunity to remedy these deficiencies. Notwithstanding these matters, it is likely that the defendants will suffer some prejudice as a result of the failure by the plaintiff’s solicitors to serve the writ or at least to give some indication to the defendants that a claim against them was proposed by the plaintiff.

33         The determination of the plaintiff’s claim at trial would require consideration of not only the written advices given but also the background circumstances. These would include matters referred to by the plaintiff and by the defendants in the affidavit material:

a.	background information had been provided by the plaintiff to the defendants before the advices were given, although apparently, what the defendants considered relevant, was set out in the advices;
b.	the plaintiff referred to “the persuasive marketing strategies used (such as

imploring me to ‘believe in shares’ as an ‘evangelical style’ meeting in the

advisor’s office)”;

c. according to Mr Smith, the documents and file notes in the defendants’ possession indicated that the plaintiff met with the second and third defendants “on or about 22 March 2001 to discuss your beneficiary choice options” and:

“ … that you again met with Messrs Taylor and Guthrie a week or so

after your receipt of the financial plan to discuss their
recommendations. In mid April 2001 you met with Messrs Guthrie
and Taylor to further discuss the recommendations for your
investment in the allocated pension documented in the financial plan.
At that meeting, it was agreed that the entirety of your remaining
funds would be invested in the MLC Masterkey Allocated Pension
Fund rather than the funds proposed in the financial plan of 23 March

2001”;

d. Mr Guthrie stated that he “would expect” the original paper file to have included “authorities and notes of meetings with Russell, by way of example,

and comprehensive source documents the subject of overview and some

summary documents”.

34         In the decided cases, there are examples of the circumstances which have been regarded as “good reason” to extend the validity of a writ and other examples where relief had been refused. I will refer only to the cases where the circumstances are most similar to the present case.

35         In Ramsay v Madgwicks (a firm) [1989] VR 1, a decision of the Full Court of the Supreme Court of Victoria, the reason an extension of the writ had been sought was because the plaintiffs “wished to await the outcome of the appeal to this Court in the

proceedings instituted by the Commissioner for Corporate Affairs before proceeding

with the action which they had initiated” (p4). Young CJ stated that:

37 Ministry of Defence [1972] 1 All ER 1. In that case the medical situation of the
plaintiff was uncertain, the writ was not served for nearly a year and application for
leave to serve the writ out of the jurisdiction was made about two weeks before the
period for service expired. The Master granted the leave sought and, in addition,
gratuitously extended the validity of the writ. The defendant was served during the
extended period. Lord Denning MR considered that, if an application for renewal of
the writ had been made, “there was good cause for renewal”. His reasoning was that
“there were only 12 days to go before the writ was due to expire. There might be
difficulty in serving it on Mr Bugden in that time”. Edmond Davies LJ, whilst
dissenting on the basis that the Master had no power to make the order extending Bongiorno J referred to a decision of the English Court of Appeal in Bugden & Anor v well be regarded as amounting to ‘good cause’’”. Stephenson J agreed with Lord Denning and referred to the fact that the “defendant was in Scotland and there were about 12 days in which to serve him” as “the very special circumstances of this case”.

“ … it must at least be doubtful whether the mere wish of the party can

ever be a sufficiently good reason for extending the time of the writ …[the relief] should only be granted where the Court is satisfied that good reasons appear to excuse the delay in service … but ordinarily it is not a good reason that the plaintiff desires to hold up the proceedings while some other case is tried or to await some future development … But of course, in spite of these observations, all the circumstances of a particular case must be considered before a discretionary judgment is

exercised”.

36         In Mali v Benchmark Healthcare Pty Ltd [2005] VSC 72, Bongiorno J determined an appeal from the decision of a Master who had set aside an earlier ex-parte order he had made extending the validity of a writ. The original application to the Master had been made 10 days before the period of validity for service of the writ had expired.

The writ had not earlier been served because the solicitor said that “she had not

concluded her enquiries as to the issue of negligence … and needed to confirm that

her clients had a case which could be made out” (para 13). Bongiorno J stated that
the effect of the plaintiff taking this course was that otherwise the proceeding may
have needed to be discontinued with costs consequences for the plaintiffs “which
may well have been significant” and that the “defendants would have been put to the

trouble, expense and inconvenience, not to mention the anxiety of commencing to

defend a case which may not be going to proceed” (para 14). Bongiorno J concluded
that the actions of the plaintiff’s solicitor had been appropriate in the circumstances,
including the fact that the solicitor had sought “an extension of the writ a sufficient

time before it expired to enable her to take other remedial action within time, had the

extension not been granted” (para 20).

38         In the present case:

a.	the reason for the failure to serve the writ was unrelated to any difficulties with service upon the defendants;
b.	the reason was that the plaintiff instructed his solicitors in September 2007 that they were to “not pursue the claim against Garvan regarding the initial

advice you received to redeem the GSO pension and invest the proceeds with

MLC”. The plaintiff and his solicitors, at that stage, did not have sufficient information to proceed with the claim. The plaintiff was only able to make a decision to proceed after his new solicitors engaged an expert who reported encouragingly;

c.	the possibility of a claim based on the 2001 advice was raised in correspondence with the defendants in 2004/05 and was investigated to some extent;
d.	the adjudication of the plaintiff’s claim as pleaded in the statement of claim would require careful consideration, not only of the written advices given by the defendants but also the information provided by the plaintiff and the
discussions with the second and third defendants from March through to June 2001. It would be difficult after the passing of many years for any witness to have a complete recall of the relevant discussions;
e.	if the present application were refused, the plaintiff would not be able to pursue any legal rights against the defendants in respect of matters which appear to have had significant financial consequences for him.

39         I consider, however, that applying the principles to be discerned from the authorities, the circumstances of the present case are not sufficient to amount to “good reason” for the proceeding to be reinstated and the period of validity of the writ for service to be extended. The application will therefore be refused

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Certificate

I certify that these 14 pages are a true copy of the reasons for decision of His Honour

Judge Anderson delivered on 15 July 2009.

Dated: 15 July 2009.

Julien Lowy

Associate to His Honour Judge Anderson