Smith v Leveraged Equities Ltd
[2011] WASC 282
•14 OCTOBER 2011
SMITH -v- LEVERAGED EQUITIES LTD [2011] WASC 282
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2011] WASC 282 | |
| Case No: | CIV:3124/2009 | 26 AUGUST 2011 | |
| Coram: | ALLANSON J | 14/10/11 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | EDWIN GEORGE SMITH LEVERAGED EQUITIES LTD TODD MICHAEL KING ACN 118 453 679 PTY LTD AUSTRALIAN STOCKBROKING AND ADVISORY SERVICES LTD GLENICE BERYL KING |
Catchwords: | Practice and procedure Further and better discovery Turns on own facts |
Legislation: | Nil |
Case References: | British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709 Compagnie Financiere a Commerciale du Pacifique v The Peruvian Guano Company (1882) 11 QBD 55 Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904 Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341 Murex Diagnostics Australia Pty Ltd v Chiron Corporation (No 2) [1995] FCA 1040; (1995) 62 FCR 424 Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
LEVERAGED EQUITIES LTD
First Defendant
TODD MICHAEL KING
Second Defendant
ACN 118 453 679 PTY LTD
Third Defendant
AUSTRALIAN STOCKBROKING AND ADVISORY SERVICES LTD
Fourth Defendant
GLENICE BERYL KING
Fifth Defendant
GLENICE BERYL KING
Third Party
(Page 2)
Catchwords:
Practice and procedure - Further and better discovery - Turns on own facts
Legislation:
Nil
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr R W Douglas
First Defendant : Mr J A Thomson
Second Defendant : No appearance
Third Defendant : Ms F F Xue
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Third Party : No appearance
Solicitors:
Plaintiff : Solomon Brothers
First Defendant : Mizen & Mizen
Second Defendant : In person
Third Defendant : Gadens Lawyers
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Third Party : No appearance
(Page 3)
Case(s) referred to in judgment(s):
British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709
Compagnie Financiere a Commerciale du Pacifique v The Peruvian Guano Company (1882) 11 QBD 55
Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904
Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341
Murex Diagnostics Australia Pty Ltd v Chiron Corporation (No 2) [1995] FCA 1040; (1995) 62 FCR 424
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60
(Page 4)
1 ALLANSON J: The plaintiff seeks an order for further discovery against the first and third defendants.
2 The plaintiff began these proceedings in 2009. There are five defendants and several causes of action against each of them. Mrs Glenice King (fifth defendant) has not entered an appearance, and has taken no part in the proceedings.
3 The third defendant (formerly known as Stripe Capital, and which I will refer to as Stripe) was the plaintiff's stockbroker. Mr King was a director of Stripe and provided stockbroking services and advice to Mr Smith.
4 The first defendant, Leveraged Equities, provided margin loans for share transactions. The fifth defendant (Mrs Glenice King) had a margin loan facility with Leveraged Equities. On 30 July 2007, in transactions arranged by Mr King, Mr Smith agreed to transfer 85,000 Wesfarmers Ltd shares as collateral to Mrs King's margin loan facility, and signed documents under which he undertook obligations as a guarantor.
5 The plaintiff refers to documents relating to a company called Komplexity Capital Pty Ltd (Komplexity). He submits that the documents demonstrate that material relating to Komplexity is relevant to the risks he undertook in agreeing to provide the collateral and guarantee Mrs King's obligations to Leveraged Equities, and thus to the matters in question in this action.
6 The defendants have given discovery. The plaintiff applies under O 26 r 6 of the Rules of the Supreme Court 1971 (WA) and the inherent jurisdiction of the court for orders for further and better discovery against the first and third defendants of 'all documents that are, or were previously, in their possession, custody or power that concern Komplexity Capital Pty Ltd'.
7 On an application for an order for further discovery, the court must be able to draw the inference that there are further relevant documents that should have been discovered. The plaintiff does not seek discovery of specific documents, but of a class of documents that concern Komplexity. The court needs to be satisfied that a class of documents, so described, exists and is relevant. It is not necessary to infer the existence of a particular document, if it appears that the defendants have excluded documents from their discovery under a misconception of the plaintiff's case: British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709; Mulley v Manifold [1959] HCA 23; (1959) 103 CLR
(Page 5)
- 341, 343. The plaintiff submits that the defendants have misconceived its case, and all documents that concern Komplexity relate to matters in question and should have been discovered under the test set out in Compagnie Financiere a Commerciale du Pacifique v The Peruvian Guano Company (1882) 11 QBD 55, 62 - 63.
8 The defendants did not dispute that they may have documents that concern Komplexity in their possession, and I am satisfied that each of them is likely to have, or to have had, documents relating to that company. The defendants say however, that the class of documents sought does not relate to matters that are in question; the case the plaintiff relies on in its submissions is not the case it has pleaded, nor have the defendants put matters concerning Komplexity in issue by their defences.
9 The matters in question are generally to be determined by reference to the pleadings: Mulley v Manifold (345). The statement of claim refers once (in a particular) to a transfer in August 2007 from Mrs King's account at Leveraged Equities to an account held by Komplexity. Save for that one particular, the statement of claim does not refer to Komplexity. The plaintiff, however, submits that, 'where adequate disclosure has been specifically pleaded as a defence, and the existence of unusual factors specifically denied, and in circumstances where the Komplexity account bears a clear economic and control relationship to the Mrs King Account, a relationship of relevance and relatedness can be demonstrated for the broad purposes of discovery'.
10 This is a very broad brush approach to the pleadings, and it is necessary to consider them more closely than that.
The plaintiff's case
11 The plaintiff pleads that, in about May 2006, he engaged Stripe as his stockbroker. Mr King was a director of Stripe and provided stockbroking services and advice to Mr Smith. The plaintiff pleads that Stripe and Mr King owed various duties to him in contract and tort, as well as fiduciary duties and duties arising under statute. I will not deal with all of the many pleaded claims, but only those that bear on the issues now said to be relevant.
12 First, Mr Smith pleads that, on or shortly before 30 July 2007, Mr King made to him the statements set out in pars 11.1 to 11.9 of the statement of claim.
(Page 6)
- 11.1. Todd King wanted to borrow 85,000 Wesfarmers Ltd shares from Smith for a period of six weeks in return for which Todd King would pay Smith $50,000;
11.2. Todd King's stepfather had arranged a margin loan facility for Todd King's mother, Glenice King, with Leveraged Equities but had to go to Canada on business for 6 weeks before the final arrangements for security could be completed;
11.3. Glenice King needed some collateral to secure certain borrowings by her for those 6 weeks;
11.4. if Smith provided the shares pleaded at subparagraph 11.1 as that collateral, Todd King would pay him $50,000 on 15 September 2007;
11.5. the collateral would be required for only a limited time and would be released on 15 September 2007;
11.6. Glenice King only held shares in Westpac, ANZ Bank and Paladin Resources which were pledged as collateral to Leveraged Equities (the first defendant) in support of the margin loan facility;
11.7. neither Glenice King nor any other person would purchase securities by draw upon, or otherwise make any further draw upon, the margin loan facility during the period in which the collateral was provided;
11.8. there would be no risk in providing the requested collateral as King was the controlling broker of Glenice King; and
11.9. under no circumstances would the additional collateral requested of Smith be sold.
13 The plaintiff pleads that the statements constituted representations by Stripe, further or alternatively by Mr King. The representations are set out in par 12 of the statement of claim. They include representations (par 12.5 to par 12.8) that:
12.5. no securities would be purchased by draw upon Glenice King's margin loan facility during the period in which Smith provided collateral;
12.6. Todd King intended to ensure that no assets were purchased by draw upon Glenice King's margin loan facility during the period in which Smith provided collateral;
12.7. there was no possibility of any collateral provided by Smith being sold; and
(Page 7)
- 12.8. there was no, alternatively no significant, risk of Mr Smith's financial position being affected detrimentally.
14 The representation pleaded in par 12.8 regarding the risk of entering the arrangement is, accordingly, quite specific and arises out of the statements in par 11.
15 Mr Smith agreed to transfer 85,000 Wesfarmers Ltd shares to Mrs King's margin loan facility as collateral. He signed an Authority Letter and an Application Form. He signed the Application Form as guarantor: par 13. The plaintiff pleads that by signing the Application Form, he was placed at risk of becoming liable to pay to Leveraged Equities any amount due by Mrs King under the margin loan facility: par 15.
16 In par 16, the plaintiff pleads that the representations were false, misleading or deceptive at the dates on which they were made. Relevantly, par 16.2 and par 16.3 plead:
16.2 as at 30 July 2007:
16.2.1 a total amount of $2,301,340.38 was due by Glenice King to Leveraged Equities, which constituted a total loan of $205,859.38 and outstanding transactions which constituted commitments under and future draws upon the Margin Loan Facility of $2,095,781;
16.2.2 the securities held through the Margin Loan Facility were shares in Arc Energy, Eureka Mines Ltd, National Australia Bank, Paladin Resources and Suncorp-Metway and instalment warrants in ANZ Bank and Macquarie Bank;
16.2.3 the total market value of the securities held through the Margin Loan Facility was $2,071,483.60;
16.2.4 the total margin lending value ascribed by Leveraged Equities to the securities held through the Margin Loan Facility was $502,019; and
16.2.5 there was a shortfall due from Glenice King to Leveraged Equities of $1,799,621.40.
16.3 as at 30 July 2007, Todd King did not intend to ensure that no assets were purchased through the margin loan facility.
17 The particulars of the plea at par 16.3 contain the sole reference in the statement of claim to Komplexity. The plaintiff pleads facts from which 'it is to be inferred that Todd King did not intend to ensure that no
(Page 8)
- assets were purchased through the Margin Loan Facility'. One of those facts is that, within one month, Mr King had committed Mrs King to make transfers of cash from the margin loan facility to Komplexity totalling $75,000.
18 Paragraph 16.6 pleads that there was a substantial risk of Mr Smith suffering financial detriment if he proceeded with Mr King's proposal. That, however, must be read with the whole of par 16. It is part of a plea that the representations constituted by statements of Mr King (which are set out in par 11) were false, misleading or deceptive.
19 Finally, in relation to the claim against Stripe and Mr King, the plaintiff pleads that Mr King knew each of the matters pleaded in pars 15 and 16, and that Stripe is taken to have had his knowledge: pars 17 and 18.
The case against the first defendant
20 The case against Leveraged Equities is quite different. That plaintiff pleads that Leveraged Equities failed to disclose 'Unusual Features' of the margin loan facility to Mr Smith (par 21A, 21B). The Unusual Features are specified in par 21A.1 - 21A.10. The plaintiff pleads that Leveraged Equities knew each of the Unusual Features (par 21C); that had it disclosed them Mr Smith would not have entered into the arrangement (par 21D); and that, in the circumstances, the failure to disclose all or any of them constituted a representation that there were no unusual features, further or alternatively, that the Margin Loan Facility did not bear any of the specified Unusual Features (par 21E). That conduct is alleged to be misrepresentation, and also misleading or deceptive conduct (pars 21F - 21H).
21 In this application, the plaintiff relies in particular on the plea that on multiple occasions before 30 July 2007, Leveraged Equities had made advances to Mrs King when the margin utilisation ratio on her Margin Loan Facility either exceeded 100% or came to exceed 100% as a result of the advance, and no margin call had been made at any time. The plaintiff pleads that the making of the advances in those circumstances, and the failure to make a margin call, were an unusual accommodation to Mrs King: par 21A.9. Paragraph 21A.10 further pleads as an unusual feature of the margin loan facility that ought to have been disclosed to Mr Smith:
[T]he reason why:
(Page 9)
- 21.A.10.1 advances were made to Glenice King under the margin loan facility when the margin utilisation rate exceeded 100% or came to exceed 100% as a result of the advance; and
21.A.10.2 no margin call was made under the margin loan facility.
The defences
The defence of the first defendant
23 Leveraged Equities admits that Mr Smith authorised the transfer of the 85,000 shares to Mrs King's margin loan facility. It pleads that the plaintiff was made aware of the risks of becoming liable to pay to Leveraged Equities the amounts due by Mrs King pursuant to the margin loan facility as:
(1) Mr Smith had previously had a margin loan;
(2) He acknowledged that he understood the risks in entering into the relevant agreements; and
(3) He was advised of risks in a telephone discussion.
That plea is specifically in relation to the risks alleged in par 15 of the statement of claim. It is not, as I understand it, a general plea relating to adequate disclosure.
24 Leveraged Equities admits that it did not disclose the matters set out in par 21A.1 to 21A.10 of the statement of claim. It denies that, in the circumstances, it made an unusual accommodation to Mrs King. Further, Leveraged Equities does not admit some of the specific allegations in par 21A.
25 Leveraged Equities denies the allegations in par 21E that it failed to disclose the Unusual Features set out in par 21A and that this constituted a representation that there were no unusual features. Again the plea is specific, and cannot be read separately from par 21E of the statement of claim to which it responds.
(Page 10)
26 Leveraged Equities denies misrepresentation and misleading or deceptive conduct.
Defence of third defendant
27 The substance of Stripe's defence is that the particular matters which give rise to the plaintiff's claim were not with respect to the provision of stockbroking services to the plaintiff, or in relation to the buying and selling of securities listed on the ASX. It denies that Mr King was acting in his capacity as a director of Stripe or was acting on behalf of or as an authorised representative of Stripe, and pleads that the agreement between Mr King and Mr Smith was a private agreement in which Mr King was acting on behalf of his mother.
28 Stripe does not admit the allegations in pars 11, 13, 14, 15, 16 and 17. It denies pars 12 and 18. That is, Stripe does not admit the pleadings regarding Mr King's conduct, and denies that he was acting with its actual or apparent authority. It denies making the representations pleaded against it, and denies knowledge of the matters pleaded by the plaintiff in pars 15 and 16 of the statement of claim.
29 Stripe does not admit any of the matters pleaded in relation to Leveraged Equities in pars 21A to 21H of the statement of claim.
Komplexity
30 The plaintiff submits that the documents it now relies on disclose, or support inferences, that:
1. from October 2003, Komplexity had a margin loan account with Leveraged Equities;
2. Mr King was the broker and financial adviser, and the authorised representative, for Komplexity from the time that it opened the account;
3. Mr King was the ultimate beneficiary of trading by Komplexity;
4. there is a relationship between the trading undertaken by Komplexity, using its margin loan facility with Leveraged Equities, and the trading on Mrs Kings account;
5. there were three transfers from the margin loan account of Mrs King to the account of Komplexity in the period 28 August
- 2007 to 4 September 2007, totalling $575,000; although by 21 September 2007 the same amount had been transferred back.
31 Save for the one transfer between the margin loan accounts of Mrs King and Komplexity, pleaded as a particular to par 16.3, the plaintiff has not pleaded any of these matters. He does not plead that the relationship of Mr King and Komplexity was a risk that Mr Smith undertook in providing the shares as collateral and signing the Application Form; or that the relationship between Mr King and Komplexity was an unusual feature of Mrs King's margin loan facility; or that any of the defendants was aware that there was a risk related to Komplexity and should have disclosed it.
32 In my opinion, the documents concerning Komplexity do not relate to the issues between the plaintiff and the first and second defendants in the case as pleaded. I do not believe the defendants have misconceived the plaintiff's pleaded case at all. The plaintiff asks the court to read quite specific pleas in the statement of claim and the defences as raising much more general questions than they do.
33 Finally, O 26 defines the obligation of discovery by reference to documents that relate to matters in question in the cause or matter. It does not confine the obligation to matters in question between the party seeking discovery and the party from whom it is sought: compare Murex Diagnostics Australia Pty Ltd v Chiron Corporation (No 2) [1995] FCA 1040; (1995) 62 FCR 424, 430. I have considered the pleadings primarily by reference to the cases against Stripe and Leveraged Equities. It may be that some documents concerning Komplexity relate to questions between the plaintiff and Mr King.
34 Mr King has entered an appearance but did not file a defence and has not actively participated in these proceedings. The plaintiff has not taken any steps to enter judgment in default of defence. The defendants plead that Mr King entered into a deed of settlement with the plaintiff. I presently do not expect that there will be any questions for determination between the plaintiff and Mr King.
35 A party does not have a strict entitlement to an order for discovery, including an order for further discovery: Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904, 910; Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 [6]. Further, the amendments to the Rules introducing case flow management emphasise the need to have regard to the timely and cost effective disposal of the action in the
(Page 12)
- exercise of the discretion to order discovery: see Youlden Enterprises[6]. The discovery sought is wide. Even if documents that concern Komplexity may relate to the case against Mr King, that is not, in the circumstances, a sufficient basis to order further discovery against the other defendants, and I would exercise my discretion to refuse the order.
36 I dismiss the application.
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