TREW v SAS Financial Services Pty Ltd - [2006] WASC 116

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: TREW & ANOR -v- SAS FINANCIAL SERVICES PTY LTD & ORS [2006] WASC 116

CORAM: MASTER SANDERSON

HEARD: 16 & 31 MARCH 2006

DELIVERED : 21 JUNE 2006

FILE NO/S: CIV 1740 of 2005

BETWEEN: JEFFEREY JOHN TREW
JOAN MAUREEN TREW
Plaintiffs
AND
SAS FINANCIAL SERVICES PTY LTD (ACN 080 228 066)
First Defendant
SAS GLOBAL LTD (ACN 088 999 857)
Second Defendant
PHILIP ANTHONY MEAGHER
Third Defendant

Catchwords:

Practice and procedure - Application for leave to amend statement of claim - Turns on own facts

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth), s 12BAB, 12DA, 12GF
Fair Trading Act 1987 (WA)

Trade Practices Act 1974 (Cth), s 52

Result:

Leave to amend granted

Category: B

Representation:

Counsel:

Plaintiffs:     Mr J C Curthoys
First Defendant             :     Mr P G Clifford
Second Defendant         :     Mr P G Clifford
Third Defendant           :     Mr P G Clifford

Solicitors:

Plaintiffs:     Staffa Lawyers
First Defendant             :     Mendelawitz Morton
Second Defendant         :     Mendelawitz Morton
Third Defendant           :     Mendelawitz Morton

Case(s) referred to in judgment(s):

Astley v Austrust Ltd (1999) 197 CLR 1
Edgar v Farrow Mortgage Services Pty Ltd (In Liq) (1992) ATPR (Digest) 46‑096
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Redken Laboratories (Aust) Pty Ltd v Docker (2000) Aust Contract R 90‑113

Case(s) also cited:

Australian Competition and Consumer Commission v Global Prepaid Communications Pty Ltd (In Liq) [2006] FCA 146
Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276
Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215
Compaq Computer Australia Pty Ltd v Merry & Ors (1998) 157 ALR 1
Esanda Finance Corp Ltd v Peat Marwick Hungerfords (Reg) (1997) 188 CLR 241
Fico v O'Leary & Ors [2004] WASC 215
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216
Lawrance v Lord Norreys (1890) 15 App Cas 210
Metropolitan Bank Ltd v Pooley (1885) 10 App Cas 210
NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175
State of Queensland v Pioneer Concrete (Qld) Pty Ltd [1999] FCA 499
Walton v Gardiner (1993) 177 CLR 378
Warwick Entertaintment Centre Pty Ltd & Anor v Alpine Holdings Pty Ltd & Ors [2005] WASCA 174
Yorke v Lucas (1985) 158 CLR 661

MASTER SANDERSON: By application to the case management registrar filed 13 December 2005, the plaintiffs sought leave to amend their statement of claim in terms of a further substituted minute of proposed statement of claim dated 13 December 2005. The matter came on for hearing on 16 March 2006, at which time the plaintiff, through counsel, indicated that they intended to file a further minute of substituted statement of claim. That minute was filed 23 March 2006. The matter came on for hearing on 31 March 2006. A number of submissions made by counsel for the defendants during the hearing and concessions made by counsel for the plaintiffs highlighted a need for yet another minute of substituted statement of claim. That minute was filed 2 May 2006. The plaintiffs now seek leave to amend in terms of the latest minute. (I will refer to that document hereafter as "the minute").
One of the primary submissions made by counsel for the defendants was that the plaintiffs had been given ample opportunity to amend their statement of claim and had not, as at the date of hearing, been able to produce an acceptable pleading. In fact, the minute represents the eighth attempt by the plaintiffs to plead their case. The defendants say, in the circumstances, filing of a pleading in terms of the minute ought not be countenanced - the matter has gone on too long and it is unfair for the defendant for them to continually deal with a revamped pleading. As an alternative position, the defendants say that if the minute is to be considered it should be regarded as the plaintiff's last chance. If the minute cannot stand then that should be the end of the matter.
In my view, leave should be granted to the plaintiffs to amend their claim in terms of the minute. The leave so granted should be accompanied by costs orders which, it is to be hoped, will protect the defendant's position. But it must be said that there is substance in the defendant's complaints. As will emerge from these reasons, the plaintiffs' claim is not all that complex and it should not have been difficult to plead. There is no reason why the first version of the statement of claim could not have been in an acceptable form. It serves no purpose to analyse why there was a repeated failure to properly plead the plaintiffs' case. But in allowing leave in this case it ought not be assumed that, in different circumstances, repeated failures to produce an adequate statement of claim will not lead to the action being dismissed.
Turning to the minute, pars 1 and 2 identify the first and second defendants as corporations. Paragraph 3 identifies the third defendant as a director of both corporations. By par 4 it is pleaded that at all material times the defendants were engaged in the provision of financial services within the meaning of s 12BAB of the Australian Securities and Investments Commission Act 2001 (Cth) (the "ASIC Act"). By par 6 it is pleaded that at all material times each of the three defendants were and held themselves out to the plaintiffs as advisers in financial planning and investment in share market securities.
It is convenient at this point to note that in a number of previous versions of the statement of claim, claims were made against the defendants by the plaintiffs based upon the misleading and deceptive conduct provisions (and other provisions) of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA). Counsel for the defendants pointed out that, as the allegation against the defendants was that they were engaged in the provision of financial services, neither the Fair Trading Act nor the Trade Practices Act applied to their activities. Counsel for the plaintiffs conceded this point. It was that concession which necessitated the filing of the minute. It also means that a significant number of the objections raised by the defendants to the pleading fall away.
Paragraph 7 of the minute appears under the heading "THE CONTRACTUAL DUTY - SAS FINANCIAL SERVICES". Presumably that heading is intended to indicate that par 7 is a plea dealing with the contractual relationship between the plaintiffs and the first defendant. The paragraph then pleads that by letter dated 21 December 2001 the plaintiffs were invited by the first defendant to attend a one‑day investment course called the Hedged Equity Investment Loan Extension Course ("HEILS Course"). The course was to be presented by the third defendant and the fee for the course was $5,000. It is pleaded that on or about 8 January 2001 the plaintiffs paid the $5,000 registration fee. That, it is said, gave rise to a contract between the plaintiffs and the first defendant. Paragraph 7(d)(i), (ii) and (iii) then plead what is said to be the express terms of the contract. It is alleged that the first defendant would provide the HEILS Course, that the services provided by the first defendant would include the preparation of a detailed, personal, well‑balanced equity wealth plan ("the Plan") and that the Plan would be managed by the third defendant. Presumably these express terms are to be found in the letter of 21 December 2001. The defendants do not suggest otherwise. By par 7(e) it is pleaded that it was an implied term of the contract the preparation and management of the Plan would be carried out with due care and skill.
The form of the plea in par 7 might well be open to criticism. It is in a slightly strange form and it does not sit happily with accepted pleading practice. That said, the defendants could be in no doubt as to what is put against them. Everything turns on the letter of 21 December 2001. It either contains the terms pleaded in par 7(d) or it does not. There is nothing exceptional about the alleged implied term. Such an implied term is one that attaches as an incident of contracts of this kind: see Astley v Austrust Ltd (1999) 197 CLR 1, at 22: Redken Laboratories (Aust) Pty Ltd v Docker (2000) Aust Contract R 90‑113.
Paragraphs 8 and 9 of the minute appear under the heading "THE DUTY OF CARE". Quite why it should have been necessary to insert a paragraph dealing with this issue is unclear. Perhaps the pleader was intent upon establishing with precision the duty of care which arose in this particular circumstance. But given the nature of the contract pleaded in par 7, the scope of the duty seems plain. The thrust of par 8 seems to be that the first and third defendants knew or ought reasonably to have known that the plaintiffs would act upon their advice. Paragraph 9 pleads the same duty in slightly different terms. Neither paragraph adds anything to the plea, but at least it alerts the defendants to the plaintiffs' allegation that there was a duty of care, and the scope of that duty. The defendants can respond to that plea in the manner they see fit.
Paragraphs 10 through to 25 appear under the heading "THE ADVICE". Paragraphs 10, 11 and 12 then appear under the subheading "HEILS Course". By par 10 it is said that on or about 10 January 2002 the plaintiffs attended the HEILS Course and were given a booklet entitled "HEILS Objectives". Paragraph 11 refers to the "HEILS Extension Course". This is presumably a reference to the HEILS Course. The paragraph goes on to allege that subsequent to the HEILS Course, certain oral advice about investment was given by the third defendant to the plaintiffs. It is said that this advice was offered to the plaintiffs by the third defendant on his own behalf and on behalf of the two other defendants.
Paragraphs 13, 14 and 15 appear under the subheading "The Analysis for Instalments Brochure". By par 13 it is alleged that around 5 April 2002 the plaintiff received from the second defendant a brochure entitled "SAS Global Ltd Analysis for Instalments". This is referred to in the minute as "the Analysis for Instalments Brochure". It is further alleged that the Analysis for Instalments Brochure was provided to the plaintiffs in order to give effect to the Plan.
By par 14 it is alleged that the Analysis for Instalments Brochure advised a dual investment strategy which the minute defines as "the Investment Strategy". The Investment Strategy comprised of two different strategies which are pleaded in pars 14(a) and 14(b). By par 15 it is pleaded that the Analysis for Instalments Brochure was provided to the plaintiffs by all three defendants.
Paragraphs 16 and 17 appear under the subheading "The circumstances in which the advice was given". Paragraph 16 sets out the plaintiffs' circumstances. For instance, it is pleaded that they were 65 years old and retired. Details of their income are given. By par 17 it is pleaded that the plaintiffs were "not sophisticated investors" and the reasons why they were not sophisticated investors are set out.
Paragraphs 18 through to 20 appear under the subheading "Standard of Care - Investment Advice". Paragraph 18 refers to pars 16 and 17 and says that a prudent financial planning and investment adviser would have "paid particular attention" to a number of matters. Without going through each of these in detail, they pick up what is pleaded in earlier paragraphs. For instance, par 18(a) pleads that one matter the prudent financial adviser would have considered was the plaintiffs' lack of sophistication in their understanding of investments and financial planning. Paragraph 19 pleads further, in the alternative, that the Investment Strategy did not work. Paragraph 20 pleads that it was foreseeable that the strategy would not work.
Paragraphs 21 through to 24 appear under the subheading "Failure to exercise due care and skill". These paragraphs plead a mix of material facts and particulars and are mostly directed at the alleged breach by the defendants of their duty of care to the plaintiffs. Paragraph 24 does plead breach of an express term. Essentially, it is pleaded that the plan which the first defendant was required to provide pursuant to the contract was not in fact provided. (Oddly, par 24 does not mention the Plan, but it must be to this the paragraph is referring because par 7(d)(ii) is mentioned.)
Paragraph 25 appears under the subheading "Reliance". This paragraph pleads what was done by the plaintiffs with their investments. Reference is made to pars 11 and 14. Presumably this means then that the plaintiffs followed the advice offered by the third defendant subsequent to the HEILS Extension Course and pursued the investment strategy which was set out in the Analysis for Instalments Brochure. Reference is also made to pars 36, 45, 56, 88 and 93. Each of these paragraphs refer to certain representations in addition to the representations allegedly made and pleaded in pars 11 to 14.
The damages plea is found in pars 102 to 104. By par 102(a) it is alleged that the first defendant breached its contractual duty pleaded in par 23(a). By par 102(b) it is alleged that the first defendant breached its duty of care as pleaded in par 23(b). By par 102(c) it is pleaded that the first defendant breached its contractual duty pleaded in par 24. By par 103(a) it is pleaded the second defendant breached its duty of care as pleaded in par 23(c). By par 104(a) it is pleaded that the third defendant breached his duty of care as pleaded in par 23(d). As a consequence of these breaches by the three defendants it is alleged that the plaintiffs suffered loss and damage.
Paragraphs 26 through to 35 of the minute appear under the heading "CONTRACTUAL DUTY AS TO MANAGEMENT". By par 26 it is pleaded that the third defendant managed the plaintiffs' investment in Strategy 1 and Strategy 2 on behalf of the first and second defendants. Paragraph 27 refers to "the Management Agreement" as defined in par 25(d). The Management Agreement is alleged to have been constituted by the plaintiffs completing and signing "the SAS Client Application Agreement". This agreement appointed the first defendant to manage the plaintiffs' investments. By par 27(a) it is alleged there was an implied term in the Management Agreement that the second and third defendants would manage the plaintiffs' investments with due care and skill. By par 27(b) it is pleaded that there was an express term of the Management Agreement that investments made on behalf of the plaintiffs would not be "speculative".
Paragraph 28 appears under the subheading "The Management". It alleges that, in the period from May 2002 to June 2005, the third defendant as agents for the first and second defendants "made investments and exercised put options" in the course of managing the plaintiffs' Strategy 1 and Strategy 2 investments. Paragraph 29 appears under the subheading "Standard of Care". The paragraph alleges, by reference to pars 16 and 17, that a prudent adviser would have "paid particular attention" to the need to manage Strategy 2 carefully and for the need for Strategy 2 to provide protection for the investment in Strategy 1.
Paragraphs 30 and 31 appear under the subheading "Failure to exercise due care and skill in management". By par 30 it is alleged that a prudent advisor would not have managed Strategy 1 and Strategy 2 by "investing in highly speculative put options". By par 31 it is alleged that each of the defendants breached their duty of care in relation to Strategy 1 and Strategy 2. Paragraph 32 and 33, each of which appears under a separate subheading, allege the plaintiffs sustained losses during specified periods as a consequence of investment in Strategy 1 and Strategy 2. Paragraphs 34 and 35 appear under the subheading "Consequences of the failure of Strategy 1 and Strategy 2". These two paragraphs really total up the alleged losses sustained by the plaintiffs.
This is the extent of the plea which deals with breach of contract and perhaps a claim in tort. No‑one could describe this pleading as elegant. In this day and age, pleading a claim in professional negligence is hardly novel. A good starting point is the precedent found in Bullen & Leake and Jacobs, Precedents of Pleading (13th ed) at 760‑761. With respect to the pleader, the difficulty with the paragraphs I have mentioned above is that there are pleaded causes of action rather than material facts. In a claim for professional negligence, the duty of care and any alleged breach must be pleaded. But really, in this case all that need be pleaded is that it was a term of the agreement or, in the alternative, that it was the duty of the defendants to exercise all reasonable care and skill as investment advisors in relation to the advice they gave to the plaintiffs. Perhaps the duty might be fleshed out somewhat, but there is no real mystery as to what duty is owed by a financial adviser to the client. It also must be said that the use of headings and subheadings really does nothing to clarify the position.
Having said all of that, the question is whether the pleading is so deficient that it ought not be allowed to stand. Or perhaps put more correctly, the question is whether the defendants know the case they have to meet. On balance, I am satisfied they do. I accept, as was submitted by counsel for the defendants, it will not be an easy matter to plead to these paragraphs. But I see no real value in requiring the plaintiffs to replead. It is in everyone's interests that the action push on to a conclusion - either a negotiated settlement or a trial. Equally, there is nothing to be gained in refusing the plaintiffs leave to amend and dismissing the action. There is no reason why they could not begin again. There is, apparently, no question of any claim being time‑barred. As to costs, the defendants can be protected by orders made in these proceedings, although perhaps not as comprehensively as if the action itself was brought to a halt. Nonetheless, on balance, it seems to me to be appropriate to give leave to amend.
That then deals with the contract and tort plea. Paragraphs 36 to 55 of the minute appear under the heading "MISLEADING OR DECEPTIVE CONDUCT". Paragraphs 36 through to 44 appear under the subheading "The HEILS Booklet Representation". By par 36 it is alleged that the HEILS Booklet represented that the three defendants could "call the market direction with proven accuracy". This representation is defined as "the HEILS Booklet Representation". Paragraph 37 alleges that the HEILS Booklet Representation was misleading or deceptive because the defendants could not call the market direction with proven accuracy. By par 38 it is alleged that the making of the misrepresentation pleaded in par 36 was misleading and deceptive conduct by the first and second defendants contrary to s 12DA of the ASIC Act. Paragraph 39 says, as an alternative to par 38, the third defendant was "a person involved" in the pleaded conduct of the first and second defendants within the meaning of s 12GF of the ASIC Act. By par 40 a similar plea is made against the first defendant. Paragraph 41 is a plea that the HEILS Booklet Representation was a representation as to future matters and that the representation was made without reasonable grounds. Paragraphs 42 and 43 alternatively alleged, respectively, as against the third defendant and the first defendant, that they were persons involved in the misleading and deceptive conduct. Paragraph 44 pleads that none of the defendants called the market accurately and refers to pars 32 and 33.

A pleading of misleading and deceptive conduct has about it a number of elements. Generally, reference is made to a representation or representations made by one party to another. There is then a plea that the claimant relied upon the representation. Material facts are pleaded, demonstrating the representation was misleading or deceptive. Then there must be a pleading of loss because otherwise no cause of action exists. What is missing in pars 36 to 44 is any plea of reliance. However, by reference to earlier pleaded paragraphs, such reliance can probably be identified. Loss and damage is pleaded in pars 102, 103 and 104. I need not repeat, with respect to this plea, what I have said above with respect to the contract/tort plea. I am satisfied that, on balance, it should stand.
Paragraphs 45 through to 55 appear under the subheading "The Meagher Representation". Paragraph 45 pleads three oral representations which are defined as "the Meagher Representation". Paragraph 46 pleads that the Meagher Representations were made by the third defendant in his own right and on behalf of the other two defendants. Paragraph 47 pleads that the Meagher Representations "depended for their truth" on certain matters which are pleaded in subs 47(a) to 47(d). By paragraph 48 it is pleaded that the Meagher Representations did not state the matters pleaded in par 47. By par 49 it is alleged that making the Meagher Representation without stating the matters pleaded in par 47 was misleading or deceptive conduct by the first and second defendants. Paragraphs 50 and 51 alternatively allege, respectively, that the third defendant and the first defendant were persons involved in the pleaded conduct of the second defendant.
There is, it seems, still a good deal of uncertainty as to when silence will amount to misleading and deceptive conduct. (Most cases in this area have dealt with s 52 of the Trade Practices Act. But there is no reason why the same principles ought not apply to the ASIC Act.) In Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, the Full Court of the Federal Court said (at 453):
"While s 52 does not impose an independent duty of disclosure which would require a corporation or its directions to give any particular information to members … where information is given, unless the information constitutes a full and fair disclosure of all facts which are material to enable the members to make an informed decision, the combination of what is said and what is left unsaid may be likely to mislead or deceive the membership."
What is not pleaded in the paragraphs to which I have referred is the circumstances in which it can be said that failure to disclose matters pleaded in par 47 was required so that the Meagher Representations were not rendered misleading or deceptive. But those material facts can, I think, be teased out of the earlier pleas. It no doubt relates to the relationship between investment advisor and client and the particular circumstances of the plaintiffs. Once again, while the plea is not entirely clear, I am satisfied it should stand.
Paragraphs 50 through to 55 raise the same matters, but plead that the failure to say certain things amounted to a making of a representation as to a future matter. There is some doubt as to whether or not such a plea can be sustained: see Edgar v Farrow Mortgage Services Pty Ltd (In Liq) (1992) ATPR (Digest) 46‑096. Given that no new matters are raised in these paragraphs which would not be canvassed under the plea of misleading and deceptive conduct, it is appropriate to allow these paragraphs to stand.
Paragraphs 56 through to 101 appear under the heading "THE ANALYSIS FOR INSTALMENTS BROCHURE". Paragraphs 56 through to 87 appear under the subheading "The Investment Strategy Characteristics Representations". Paragraph 56 pleads that the Analysis for Instalments Brochure represented certain "key characteristics" of the investment strategy. For instance, par 56(a) alleges that one of these key characteristics was that the investment was protected through put options. In subsequent paragraphs, the plaintiffs go on to allege that each of these representations pleaded in par 56 was misleading or deceptive. It is also alleged that they were representations as to future matters and they were made without reasonable grounds. It is further alleged that there was, in effect, misleading and deceptive conduct by silence. It would serve no purpose for me to analyse each of these paragraphs in detail. The reasoning I have applied to earlier paragraphs would apply to these paragraphs. The same can be said of pars 88 to 92 which appear under the subheading "The Strategy 1 Representation", and pars 93 to 101 which appear under "The Strategy 2 Representation". All of these paragraphs should be allowed to stand.
In dealing with the application for leave to amend in terms of the minute, I have not dealt specifically with complaints as to particular paragraphs made by the defendants. Nonetheless, I have taken all their concerns as represented by their oral submissions and their written submissions into account. There is, however, one matter I should mention. Counsel for the defendants complained that certain technical terms were used in the minute without explanation. For instance, par 56(c) says that the Analysis for Instalments Brochure represented, as one of the key characteristics of the investment strategy, that it "utilized well recognised long term technical analyst [sic] key reversal points for entry and exit strategies". Counsel submitted it was inappropriate to use such terms without defining what was meant by them. There are two answers to that complaint. The first is that anyone with any real knowledge of the stock market would know exactly what was meant by that terminology. Whatever else may be said about the defendants, it cannot be suggested that they did not claim to have technical stock market expertise. Second, the plaintiffs have done no more than pick up the language used by the defendants in the Analysis for Instalments Brochure. They can hardly be criticised for doing so. This aspect of the defendants' complaints has no substance.
In summary then, I am prepared to allow the minute to stand as the statement of claim. I will hear the parties as to the precise form of orders and as to costs.