Lifestyle Investment Group v Coral Investments Securities Limited
[2016] NZHC 2262
•15 November 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-002352 [2016] NZHC 2262
BETWEEN LIFESTYLES INVESTMENT GROUP
Plaintiff
AND
CORAL INVESTMENTS SECURITIES LIMITED
First Defendant
AND
TONY NOEL LUSBY Second Defendant
AND
MACQUARIE BANK LIMITED AND MACQUARIE INVESTMENT MANAGEMENT LIMITED
Third Defendants
Hearing: 24 May 2016 Appearances:
M C Black for the Plaintiffs
A M Callinan and G K Holm-Hansen for the Third DefendantsJudgment:
15 November 2016
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 15 November 2016 at 2.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Simpson Grierson, Auckland
Devonport Law, Auckland
M Black, Auckland
LIFESTYLES INVESTMENT GROUP v CORAL INVESTMENTS SECURITIES LIMITED [2016] NZHC 2262 [15 November 2016]
[1] The plaintiffs are a large group of individuals, companies and trustees of various trusts who call themselves the Lifestyles Investment Group. The majority of the individual members of the group are New Zealanders who reside in New Zealand. All of the members have in common the fact that they have lost funds invested with Coral Investments Securities Limited, the first defendant. In their statement of claim they seek redress pursuant to several causes of action against Coral Investments, Mr Tony Lusby (the second defendant) who was at all material times the sole director of Coral Investments, and the third defendants, Macquarie Bank and Macquarie Investment and Management Limited, the financial and
banking entities in Australia with whom the investment funds were held.1
[2] The plaintiffs commenced the proceeding on 8 October 2015 in the Auckland
High Court. Simultaneously they served the proceeding on Macquarie in Australia.2
They served Mr Lusby by email as he had agreed.
[3] Macquarie elected not to file a statement of defence. Instead it instructed its solicitors to file a notice of appearance under protest to object to the jurisdiction of this court to hear and determine the proceeding. The protest was filed on 15 December 2015, within the time for filing a statement of defence. On
12 February 2016 Macquarie filed an application under s 22 Trans-Tasman Proceedings Act 2010 for an order staying the entire proceeding. It argues that in terms of s 24 the more appropriate court to determine the matters in issue in the proceeding is an Australian court, and not a New Zealand court.
[4] The plaintiffs oppose the application for stay, taking the contrary position.
[5] Macquarie and the plaintiffs have filed affidavit evidence in support of their respective positions. Mr Lusby and Coral Investments have taken no part in the
application and their positions are not known.
1 I refer to the third defendants throughout this judgment simply as Macquarie.
2 There is no dispute that the plaintiffs were entitled to serve the proceeding on Macquarie in Australia. Under subpart 1 of Part 2 of the Trans-Tasman Proceedings Act 2010, the initiating document for the proceeding may be served in Australia.
Background
[6] In 2007 Coral Investments, described by the plaintiffs as an investment promoter, opened a bank account in Sydney with Macquarie to seek funds from investors for direct deposit into that account. Coral Investments and its director, Mr Lusby, approached the plaintiffs as potential investors through presentations and meetings held mainly but not exclusively within New Zealand. The plaintiffs say they were told that 75% of the monies would be held on interest bearing deposit with Macquarie and the balance of 25% would be available for trading in securities on the Australian Stock Exchange. They say they were persuaded that the investments were sound and duly made deposits to the account.
[7] In May 2011 Macquarie deactivated the account. By this time there was no credit balance in it as all of the funds (in excess of $12,383,751) had been withdrawn by Mr Lusby and paid to offshore accounts around the world. He was found to have left New Zealand and is now believed to be residing in Chile. As a consequence, the plaintiffs allege that they have been defrauded by Coral and Mr Lusby of over
$12 million. The plaintiffs say that Mr Lusby is now under investigation by the New Zealand Police and Interpol. They also say that Macquarie knew that the account was a trust or depository account and that it was to be managed on trust for the depositors because, pursuant to various Australian banking regulations, Macquarie had to ensure it was informed about certain things: the purpose of the investment account; the business plan for it (a key element of which was the investment structure); and the source of the funds held in it. They also say that Macquarie knew or ought to have known that the account was being operated fraudulently and irregularly over a sustained period of years by Mr Lusby, contrary to the purpose for which it was established, and contrary to the interests of its third party beneficiaries.
[8] In their statement of claim the plaintiffs plead various causes of action against Coral Investments and Mr Lusby, and against Macquarie, which I will turn to presently.
[9] Mr Lusby filed a document purporting to be a statement of defence on
5 April 2016 (from Colombia). In the document he admits the factual allegations made in the statement of claim describing the investment funds scheme, but he denies having any knowledge of those allegations relating to misconduct on his part or Macquarie’s liability. Coral Investments has not filed a statement of defence or
taken any other steps in the proceeding.3
[10] Though Macquarie has not filed a statement of defence, it has placed on record in the context of this application that it considers the claims against it lack substance, and that it will vigorously defend against them, but that first the appropriate court for the proceeding needs to be determined. (In reality the choice is between a court in either Sydney or Auckland).
Trans-Tasman Proceedings Act 2010
[11] The Trans-Tasman Proceedings Act applies to civil proceedings with a trans-Tasman element. Section 24 gives the Court jurisdiction to make an order staying such a proceeding in specific circumstances.4 It provides:
24 Order of stay of proceeding
(1) On an application under section 22, the New Zealand court may, by order, stay the proceeding if it is satisfied that an Australian court—
(a) has jurisdiction to determine the matters in issue between the parties to the proceeding; and
(b) is the more appropriate court to determine those matters.
(2) In determining whether an Australian court is the more appropriate court to determine the matters in issue between the parties to the proceeding, the New Zealand court must not take into account the fact that the proceeding was commenced in New Zealand, but must take into account the following matters:
(a) the places of residence of the parties or, if a party is not an individual, its principal place of business;
(b) the places of residence of the witnesses likely to be called in the proceeding;
(c) the place where the subject matter of the proceeding is situated;
3 There are outstanding issues as to service of the proceedings on Coral Investments.
4 Skelton v Z487 Ltd [2014] NZHC 707 at [12] – [14].
(d) any agreement between the parties about the court or place in which those matters should be determined or the proceeding should be instituted (other than an exclusive choice of court agreement to which section 25(1) applies);
(e) the law that it would be most appropriate to apply in the proceeding;
(f) whether a related or similar proceeding has been commenced against the defendant or another person in a court in Australia;
(g) the financial circumstances of the parties, so far as the New Zealand court is aware of them;
(h) any other matters that the New Zealand court considers relevant.
[12] As Lang J noted in Skelton v Z487 Ltd, the key purpose of the Act is to streamline the resolution of trans-Tasman civil proceedings in order to reduce costs and improve efficiency.5 This purpose is mirrored in Australia by the Trans-Tasman Proceedings Act 2010 (Cth). His Honour also observed that s 22 of the New Zealand Act allows a defendant in a proceeding commenced in New Zealand to apply to a New Zealand court for an order staying the proceeding, on the ground that an Australian court is the more appropriate forum to determine the matters in issue.6
[13] The test as to whether an Australian court is the more appropriate is a discretionary one in that it allows the Court to stay the proceeding if satisfied that an Australian court has jurisdiction and is the more appropriate court (unless there is an exclusive choice of court agreement, in which case s 20 imposes a mandatory obligation to stay the proceeding). If the dual requirements of s 24 are met, there would need to be an exceptional reason for not ordering a stay.
[14] In Skelton Lang J undertook an analysis of the factors in s 24(2), weighing each party’s arguments in favour of hearing the case in Australia or New Zealand and noting that the exercise is to proceed on the basis that the New Zealand court is not to take into account as a factor whether the proceeding was commenced in New Zealand or Australia. In doing so he considered that it would not be a difficult
matter, in that particular proceeding, for a New Zealand court to apply Australian law
5 Skelton v Z487 Ltd [2014] NZHC 707.
6 At [12] – [15].
or for a court in Australia to apply New Zealand law.7 In that case the decision was finely balanced but he concluded that the factors were marginally in favour of New Zealand being the more appropriate forum.
[15] More recently the import of s 24 was discussed by AJ Bell in Leeds v Richards.8 He relevantly observed that in a stay application, jurisdiction under 24(1)(a) is determined according to the content of the matters in issue, not according to the Court or country where the plaintiff chooses to start a proceeding. Furthermore, the Court will consider “only the appropriate forum for the matters in issue but it does not decide the substantive merits of the case”.9 His Honour also noted that the Court’s traditional reluctance to exercise jurisdiction over non-residents does not apply in cases under the Act.10
[16] Before turning to the application of s 24 in this case, it is necessary to first consider the statement of claim and the five causes of action it relies upon. At this early stage of the proceeding it has to be assumed that all matters pleaded in the statement of claim are matters in issue in the proceeding.
The statement of claim
[17] The statement of claim pleads five causes of action as follows:
(a) Breach of investment contracts – against first and second defendants. (b) Breach of fiduciary duty, breach of trust and equitable proprietary
claim - against first and second defendants.
(c) Breach of obligation in managing the trust accounts and liability as a constructive trustee – against third defendants.
(d) Breach of duty of care – against third defendants.
7 At [45].
8 Leeds v Richards [2016] NZHC 1191.
9 At [28].
10 Haines v Herd [2015] NZHC 3365.
(e) Dishonest accessory and knowing receipt – against third defendants.
[18] The plaintiffs allege in the two causes of action against Coral Investments and Mr Lusby essentially that:
(a) Coral Investments “via” Mr Lusby promoted the Lifestyle Investment Scheme in New Zealand (and in limited instances in Australia and America), in the course of which they made various representations (including that 75% of the monies would be held on interest bearing deposit with Macquarie, and the balance of 25% for trading in certain securities through the Australian Stock Exchange); that the representations resulted in payments being made by the plaintiffs in and from New Zealand pursuant to an investment contract termed “Lifestyle Group” directly to an account provided by Macquarie to Coral Investments; and the payments were from the inception of the contract progressively misappropriated from the account by the first and second defendants in breach of the contract. They allege additionally that the representations were terms of the contract pursuant to s 4 Contractual Remedies Act 1979, entitling the plaintiffs to remedies under ss 9 and 10 or at common law and that the contract was expressly or impliedly subject to New Zealand law.
(b)Coral Investments and Lusby owed, and breached, fiduciary duties not to fraudulently misuse the funds “held and supervised” by Macquarie, but to use them strictly as represented and not for their own personal profit or gain or in a way that conflicts with the interests of the plaintiffs.
[19] As against Macquarie, the plaintiffs allege in the third to fifth causes of action that for Macquarie to open the account, specific information was required to fulfil Australian banking and regulatory requirements, including information about the nature of the first and second defendants’ business, their business plan, purpose and identity; and that such information enabled Macquarie to make an informed decision about the purpose for opening the account for providing its “financial products and
services” and to meet regulatory requirements. Macquarie therefore knew or ought to have known that the plaintiffs had beneficial interests and rights in the deposits paid by them directly into the Coral Investments account. The plaintiffs say further that Macquarie:
(a) Owed duties as constructive trustee and acted in dereliction of duty in the management of the account by arranging and implementing transfer to offshore accounts in suspicious circumstances that put it on notice or should have put it on notice that the funds were not being used in accordance with the business plan and should have prompted further enquiries to be made.
(b)Was in breach of a duty owed to the plaintiffs by negligently failing to properly supervise the account and to have in place proper risk management and other procedures to identify, control and report suspicious activity involving the account.
(c) Acted in breach of trust and the fiduciary duties owed as it assisted Coral and Mr Lusby’s breaches of fiduciary duty by permitting the account to be misused (or by being wilfully blind to such misuse); and by failing to observe reasonable standards of banking practice which would or should have identified the suspicious transactions.
[20] I turn then to consider whether this is a proceeding which should be stayed on the application of the requirements of s 24.
[21] In the course of dealing with s 24 considerations, I do not wish to be taken as saying anything that is determinative of the substantive issues in the proceeding. They are matters for trial.
Should the proceeding be stayed?
Jurisdiction to determine the matters in issue
[22] There is no dispute between Macquarie and the plaintiffs that given the significant trans-Tasman element in all causes of action, an Australian court would have jurisdiction to determine the matters in issue in the proceeding.
The places of residence of the parties
[23] Under s 24(2)(a) the first of the statutory factors to be considered is the places of residence of the parties. Where a party is not an individual, the principal place where the party carries on business (as opposed to the location of its registered office) is the relevant consideration.
[24] On the limited evidence presently before the Court, it appears that an Australian court would be as convenient as a New Zealand court for the first and second defendants should they participate in the proceeding. Mr Lusby is a New Zealand citizen who appears to be very mobile. It seems he did reside in Auckland, though he has used contact addresses in the Cook Islands, Sydney, and Orewa. He apparently now resides in Chile. Coral Investments has its registered office in Samoa. The evidence points to business activity in both jurisdictions, though quite where its principal place of business is presently located is a matter of speculation (if indeed it currently has one). The plaintiffs say Auckland is one of Coral Investments’ main places of business (and that is where it contracted with most of the plaintiffs, if not all of them). Macquarie says Coral Investments’ main place of business is more likely to be Sydney, where it has undertaken significant business activity.
[25] Turning to the plaintiffs, the evidence indicates there are 60 or more11 plaintiffs, most of whom reside or have their place of business in New Zealand. Those who do reside in New Zealand (as opposed to overseas) reside in various places throughout the country. One and possibly more reside in Australia. The plaintiffs as a group have a three member committee whose chair lives in Auckland. I conclude that the plaintiffs’ places of residence are predominantly in New Zealand,
and that for most of them a New Zealand court would be a more convenient venue.
11 This number takes account of plaintiffs listed as couples or as trustees.
[26] Macquarie’s principal place of business is Australia. Its head office is in
Sydney. Plainly, an Australian court would be a more convenient venue for it.
[27] Overall I find that this factor (the places of residence of the parties) favours the plaintiffs’ position, given the large number of New Zealand residents among them.12
The places of residence of the witnesses
[28] It is not known whether Coral Investments and Mr Lusby will take an active role in the proceeding, or whether they will call any witnesses. The plaintiffs point out that these defendants engaged three or four New Zealand residents to promote the investment scheme. Those persons must therefore be potential witnesses, and it is safe to conclude that they would find it be more convenient to give evidence, if required to do so, in a court in Auckland. There is also a suggestion that the plaintiffs may wish to call these persons.
[29] On the present state of the pleadings, the plaintiffs will need to give evidence at trial. Macquarie will need its witnesses to give evidence at trial. If the proceeding is determined in Australia it is possible that the plaintiffs will wish to call an expert in New Zealand law. I accept the submission for the plaintiffs that for the most part it would be easier for both plaintiffs and expert (and any other witnesses the plaintiffs may wish to call) to give evidence in New Zealand rather than Australia. For those who live in Auckland (or areas within driving distance), this court would obviously be more convenient and less costly than a court in Sydney. For those who live outside of Auckland, they may well have reasonable access to direct flights to Auckland, but not necessarily to Australia.
[30] Macquarie says that it intends to call at trial at least four witnesses who all reside in Australia, including the account manager for the Coral Investments account. Additionally it says it is likely to need about four expert witnesses on Australian law
if the case is heard in New Zealand. I accept Macquarie’s submission that these
12 For the most part it would be easier for the plaintiffs to participate in pre-trial matters at Court in
New Zealand, while the contrary obviously applies to Macquarie (and without qualification).
persons would be inconvenienced by having to come to New Zealand to give evidence, though with direct flight access from Sydney the inconvenience should not be overstated. Many business people commute regularly between Australia and New Zealand and accept it as a normal facet of their work. I have no reason to conclude the witnesses for Macquarie would treat the inconvenience in any other way.
[31] Further, any such inconvenience would not outweigh the collective inconvenience to a large number of plaintiffs having to travel to Australia. Counsel for Macquarie submits however that the inconvenience caused to the plaintiffs by having to give evidence in Australia could readily be overcome by the use of audio visual link. She argues that this is especially so as the evidence of each plaintiff is likely to be relatively brief, lacking in complexity, and consisting largely of the circumstances around the presentations given by Coral Investments and each subsequent engagement with the investment program.
[32] On the evidence presently before the court I do not think Macquarie’s reliance on the possibility of the plaintiffs’ evidence being given by audio-visual link is especially persuasive. A conspicuous omission in its argument is that under the trans-Tasman statutes there exists the possibility for all witnesses to give evidence by audio-visual link. Given their limited number it may well be more practical, convenient and cost effective for its own witnesses to give evidence by that method than for potentially scores of plaintiffs to do so. Ultimately however the decision whether or not to allow evidence by video link will be a matter for the trial judge and not on that I can pre-empt or determine. I regard the point as neutral. It is not therefore one which should carry any real weight in the assessment I am required to make.
[33] Weighing these considerations, this factor (the places of residence of the parties) does not justify a bias or weighting towards an Australian court as the more appropriate court to determine the matters in issue in the proceeding. In a comparative sense the sheer number of likely witnesses for the plaintiffs and the fact that most appear to be located in New Zealand favours a New Zealand court as more
appropriate. However, that point is not to be viewed in isolation. There are other factors to be weighed in the overall assessment and I turn to consider the next one.
The place where the subject matter of the proceeding is situated
[34] The subject matter of this proceeding is in a broad sense about an investment fund that was allegedly obtained by misrepresentation and lost by misappropriation on the part of fiduciaries (the former taking place in New Zealand, and the latter perpetrated in Australia and in circumstances in which the provider of the relevant account in Australia was allegedly complicit); and the question of who among the defendants (if any) are legally liable to compensate the plaintiffs for the loss of the fund from the account in Australia. Ultimately the subject matter is most concerned with allegations of loss by breach of trust and fiduciary duty and knowing assistance in the breach, in Australia. The requisite knowledge is, on the plaintiffs’ pleadings, founded in the information that Macquarie is obliged to obtain from its account holder under the Australian statutory regime.
[35] To the extent that “subject matter” of such a kind can be said to be “situated” in a place, this factor favours an Australian court as being the more appropriate to determine the matters in issue. The question of subject matter does not however favour an Australian court with quite the same force as it would if it were land situated in Australia. It is a factor to be weighed with others.
Any agreement between the parties about the court or place in which the matters in issue should be determined or the proceeding should be instituted (other than an exclusive choice of court agreement to which section 25(1) applies)
[36] The plaintiffs contend that the individual contracts between themselves and Coral Investments and Mr Lusby, pursuant to which they agreed to invest monies in the fund from time to time, was expressly or impliedly subject to New Zealand law. The plaintiffs may well be proven right, but I accept, as Macquarie submits, that the point is arguable. Macquarie submits there is presently little evidence before the Court that provides any substantial factual foundation for such a contention. Other factors might be said to suggest the contrary, one such factor being that in terms of
the contract the funds were to be paid directly to the Macquarie account in Australia and in Australian dollars; and another being that they were to be invested in Australia. The point is not one that I can determine in the context of this present application. I view the point as having a neutral impact on the assessment I must make.
[37] Macquarie contends that the Trust Deed that governs the relationship between itself and the first and second defendants in connection with the bank account contains an agreement as to the court or place where matters should be determined. Clause 40 of the deed states:
The rights, liabilities and obligations inter se of the Manager and the Trustee and the Unit Holders are governed by the law of the state of New South Wales.
[38] Two points arise. The first is that the plaintiffs are not party to, nor bound by the Trust Deed. The deed is not therefore an agreement that shows the parties have already turned their minds to and agreed upon the question of which court would provide the more efficient and cost effective way of dealing with issues that arise between them.
[39] The second is that the deed is an agreement between the defendants as to the choice of law for determining issues between them, and implies a preference for Australia as the place where such issues ought to be determined, should they arise. Assuming they do arise, however, I do not consider that would be sufficient to tip the balance one way or the other over other significant factors.
[40] I therefore treat this factor (any agreement between the parties about the court or place in which the matters in issue should be determined or the proceeding should be instituted) as neutral.
What is the law that it would be most appropriate to apply in the proceeding?
[41] Counsel for the parties placed much emphasis on this factor, but for opposing ends.
[42] Macquarie’s position is that Australian law would be the most appropriate to apply in most (and possibly all) causes of action and that this strongly weighs in favour of an Australian court as the more appropriate court to deal with the plaintiffs’ claim in terms of both cost and efficiency.
[43] Counsel for Macquarie relies in support on submissions that are essentially fourfold:
(a) The most appropriate choice of law for the causes of action against Macquarie would almost certainly be Australian law, as in terms of conflict of laws principles:
(i)The choice of law for the tort action would be the law of the place of Macquarie’s alleged wrongdoing (Australia). This is so whether the common law rule of “double actionability” or the law of the “place where the wrong was committed” (lex loci delicti) applies.
(ii)The same will apply for the two equitable causes of action as the choice of law for such actions will generally follow the choice of law for actions in tort.13
(b)The plaintiffs’ claim will require consideration of a “myriad” of provisions in Australian legislation such as “the ASIC Act, the Anti- Money Laundering Act and the Trade Practices Act, and these pieces of legislation are complex in their own right”. These will need to be dealt with in evidence by an Australian expert if the proceeding goes ahead in New Zealand.
(c) The law on knowing assistance may differ between the two countries.
Though Commonwealth authorities on the topic are relevant to both
13 The guidance provided by Dicey, Morris & Collins on the Conflict of Laws (15th edition, Sweet
& Maxwell, London 2012) [34-084], [34-089]-[34-090] indeed indicates that. While there is some uncertainty in the law in this area, claims in equity generally fall under the choice of law rules for non-contractual obligations.
jurisdictions, the Privy Council’s decision in Royal Brunei v Tan has not yet been adopted in Australia, meaning the area of law is still unsettled there.14 Whichever Court deals with the matter, its decision is likely to be the subject of appeal, and if the Court is in New Zealand there will be an additional call for evidence by an Australian expert to deal with that aspect of the law in Australia. All of this points strongly to the desirability of a court in Australia.
(d)The plaintiffs’ claims in contract against Coral Investments in respect of the individual investment contracts are likely to be subject to Australian law because despite the contracts being made in New Zealand, they were performed and breached in Australia. Additionally, the misappropriation of the funds relied on in both causes of action against Coral Investments and Mr Lusby took place in Australia.
[44] It is reasonably plain that Australian law would be the most appropriate to apply to the causes of action against Macquarie. Counsel for the plaintiffs did not press any argument to the contrary, but he submits that the point is of no great significance in determining whether an Australian court would be more appropriate for several reasons:
(a) The plaintiffs’ claims are founded in equity, so Australian legislation is not the most important concern and equitable arguments can be heard in either jurisdiction. The causes of action pleaded involve duties owed by banks which are common to both New Zealand and Australian law and can be dealt with just as well by courts in New Zealand as Australia.
(b)This is supported by the expert evidence of Professor Rickett, the Dean of Law at Auckland University of Technology. In his affidavit he sets out his opinion as an expert that the law of liability to third
parties by those who assist in a breach of trust or fiduciary duty is
14 Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97.
essentially the same in both New Zealand and New South Wales and that “both jurisdictions approach dishonest assistance and knowing receipt liability issues in the same way and refer to the same panoply of cases from Commonwealth jurisdictions in settling their approach to the law”. He adds that he considers that the courts in both countries are equally competent to assess the evidence as to whether Macquarie:
(i)Had the requisite mental state to found liability and had acted in a way which amounted to either assistance in a breach by Coral Investments and Lusby for their fiduciary duties to the plaintiffs, or
(ii) Had received funds owned in equity by the plaintiffs; and that
(iii)There will be no disadvantage to Macquarie, nor any unfair advantage to the plaintiffs having claims concerning such breaches heard in New Zealand.
(c) A New Zealand Court will have no difficulty dealing with Australian legislation. The principles of statutory interpretation are the same in the two countries, and there is unlikely to be difficulty for a New Zealand Court in dealing with the relevant Australian legislation that governs banking activity in Australia.
(d)Furthermore, as the investment contracts were entered into in New Zealand, the Contractual Remedies Act 1979 applies, for which Australia does not have an equivalent.
[45] On this last point, counsel for Macquarie submits that the plaintiffs have not pleaded any remedies under the Contractual Remedies Act and that, in any event, as only damages are sought, these can equally be awarded by an Australian Court. I do not however think there is anything in the submission that the plaintiffs have not pleaded any remedies under the Contractual Remedies Act. It is plain on the plaintiffs’ pleading that they rely on that Act, but there is nothing about it to indicate
that it would be a difficult matter for an Australian court to deal with the legal and factual issues raised or to apply New Zealand law. No particular reason has been suggested as to why an Australian Court could not deal with the relevant cause of action against Coral Investments and Mr Lusby, or why the form of relief sought by the plaintiffs should be awarded. Damages can be as readily awarded by an Australian court as a New Zealand court. If an Australian court deals with the claim there would likely be the additional cost of a New Zealand legal expert, but that aside, the significance of the choice of law in relation to this cause of action is neutral. It is not a reason to favour an Australian court but nor is it an impediment to an Australian court determining the claim.
[46] However, I am not persuaded that the causes of action against Macquarie can be determined as readily by a New Zealand court as an Australian court. I accept much of what the plaintiffs’ submissions say about them, but with two reservations that weigh in favour of an Australian court. The first relates to the statutory context and regulatory regime in Australia that applies to Macquarie’s activities there, which features as an important element in the statement of claim. Though small differences between the two countries’ regulatory regimes are unlikely to pose any difficulty for a New Zealand court, it has to be acknowledged that the Australian courts are likely to have a familiarity with Australian regime that would be beneficial to the efficient determination of matters in issue around the information that Macquarie has or should have had about the purpose of the account.
[47] The second relates to the test to be applied to establish the necessary knowledge on the part of the accessory in the law of knowing assistance. Accepting what Professor Rickett says about the law being “essentially the same” in the two jurisdictions, uncertainty remains. The law in Australia on the point is not settled.15
G E Dal Pont in Equity and Trusts in Australia16 opines:
15 A L Tyree, Banking Law in New Zealand, Seventh Edition. The author observes at that the Australian courts have not adopted the approach of the Privy Council in Royal Brunei. See p 103. By comparison, in New Zealand the position has been settled by the Supreme Court in Westpac NZ Limited v MAP & Associates Ltd [2011] NZSC 89, [2007] 3 NZLR 751 at [27]. The Court has endorsed an objective approach to questions of honesty for the purpose of accessory liability, based largely on Royal Brunei. The requisite state of mind may consist in actual knowledge that the transaction is one in which the assistor cannot honestly participate, but it may also include a situation where there is a sufficiently strong suspicion of a breach of trust, alongside a deliberate decision not to make an enquiry for fear that the enquiry may result in
(a) The High Court of Australia’s decision in Consul Development Pty Ltd v DPC Estates Pty Ltd17 … “ostensibly remains” the leading case in Australia and it is “no paragon of clarity on the issue”.
(b)In Farah Constructions Pty Ltd v Say-Dee Pty Ltd18 the Court “at least by way of obiter clarifies Australian law” by finding support in Consul for constructive knowledge based on circumstances that would have put an honest and reasonable person on enquiry. He also makes the cautionary comment that the Court seems to have read more into the earlier judgment in this respect than appears on its face.
[48] Professor Dal Pont is careful to acknowledge that though the approaches in Royal Brunei and Farah are different in formulation, in their application the result is unlikely to be different in the vast majority of cases.19 This acknowledgement indicates that the views of Professor Rickett and Professor Dal Pont are closely aligned but not identical. It may be that the difference is a matter of emphasis, but the fact remains that neither Royal Brunei nor the obiter finding in Farah have
become established principle in Australia. The approach that will ultimately be followed and become governing law in Australia remains uncertain. That situation, together with the concerns I have referred to about the statutory context, suggests that it would be preferable for the proceeding and any appeals to be determined by the courts of Australia.
[49] The alternative is for New Zealand courts to determine matters of Australian law on significant elements of the plaintiffs’ claim as matters of fact with the assistance of expert evidence, which, as counsel submits, is less efficient and likely
to involve significantly greater cost.
actual knowledge. It is necessary that the strength of the suspicion that a breach of trust is intended makes it dishonest not to make enquiry.
16 GE Dal Pont, Equity and Trusts in Australia (6th edition), Law Book Company, Piermont, 2015, pp 1177-1178.
17 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373.
18 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
19 GE Dal Pont, Equity and Trusts in Australia, p 1181.
[50] Taking into account and weighing the various considerations I have referred to, I consider that I must accept that this is not a case in which the choice of law can be judged as not favouring an Australian court over a New Zealand Court.
[51] I do not therefore consider that the case for treating this factor (the choice of law that would be the most appropriate to apply in the proceeding) as a neutral factor is correct. I am satisfied that it is a factor that weighs in favour of an Australian court, but it is still to be weighed with others factors that point to a New Zealand court as the more appropriate venue.
The existence of any related proceeding in another jurisdiction
[52] This factor is not relevant. There are no related proceedings.
The financial circumstances of the parties as far as the New Zealand court is aware
[53] The plaintiffs and Macquarie have not provided detailed evidence of their financial circumstances. Plainly Macquarie has the resources to cover the legal costs and witnesses’ expenses, whether or not the proceeding is in Australia or New Zealand. Macquarie submits however that because the plaintiffs have not provided any evidence that they lack the resources to instruct counsel in Australia, and are financially unable to pursue a claim there, this factor should be treated as neutral.
[54] It cannot be overlooked that it is inevitable there will be greater expense for the plaintiffs if they are required to proceed in Australia rather than in New Zealand, and that whether they are financially secure or not, this expense will be in addition to the substantial loss they say they have suffered. It would be blind to ignore the risk that having to have their claims dealt with in a Australian court could be a disincentive to pursuing the proceeding and having the claims determined on their merits. That would not be in the interests of justice.
[55] I conclude that this factor is one that supports the proceedings being determined by the courts in New Zealand.
Other relevant matters
[56] Relevant under this heading is the issue of limitation. Both sides accept that there are potential limitation problems if the proceeding has to be recommenced in Australia.
[57] Counsel for Macquarie concedes that those problems might well be pivotal, and has arranged for Macquarie to provide a written undertaking in response. The undertaking is to the effect that Macquarie will not take any limitation argument in the Australian courts should its stay application be granted. The undertaking is subject to the proviso that it applies to a new proceeding in Australia based on the same causes of action as the current proceeding, and to amendments to those causes of action that would not fundamentally change them (or would effectively amount to new causes of action).
[58] Counsel for the plaintiffs submits in response that there are very real objections to Macquarie’s argument, which are threefold, and that demonstrate the potential for prejudice to the plaintiffs. First, he submits that although Macquarie is able to provide an undertaking for itself, it cannot provide an undertaking on behalf of Coral Investments and Mr Lusby; as such Macquarie cannot “overcome” the entitlement of those defendants to rely upon limitation defences should a new proceeding be filed in Australia. Secondly, it cannot be assumed that the plaintiffs will be able to obtain an undertaking from Mr Lusby and Coral Investments, and this may mean they would have to split the proceeding or abandon the claim against the first and second defendants. Thirdly, he contends that Macquarie’s undertaking essentially fixes in stone the formulation of the plaintiffs’ present claim and precludes any amendment of significance. It would deprive the plaintiffs of the ability to rely on further events or circumstances. This, he argues, may curtail their entitlement to conduct proceedings as they may wish to.
[59] I accept that it would not be in the interests of justice if the plaintiffs are forced to recommence their claim in an Australian Court, only to find that they are confronted by limitation defences that could not have been relied upon in the current proceeding. The plaintiffs cannot however have any legitimate concern about the
possibility of limitation defences that would bar amendments to the statement of claim in the current proceeding, assuming the proceeding were to continue to be dealt with here. If a new proceeding is commenced in Australia, the plaintiffs should be in no better position as far as limitation arguments are concerned than they are currently. I am satisfied therefore that Macquarie’s underlying approach to its undertaking is reasonable, and such an approach should adequately safeguard the plaintiffs’ interests.
[60] In relation to the plaintiffs’ claims against Coral Investments and Mr Lusby, it is correct that Macquarie can give no undertaking for those defendants. However the risk that Coral Investments and Mr Lusby will raise limitation defences in an Australian proceeding can I think be dealt with on the basis of an order for a stay of the present proceeding on terms. Such terms would reserve leave to the plaintiffs to seek an order lifting the stay if limitation defences are pleaded by any defendant (provided they are defences that would not have been available in the present proceeding). That would safeguard the plaintiffs’ ability to amend their claim as presently pleaded, provided the amendments would not have been barred here.
[61] I need however only consider this approach if, after all weighing all other considerations, limitation concerns remain the only ones standing in the way of a finding that an Australian court is more appropriate for this proceeding.
Conclusion
[62] In the final analysis, whether or not an Australian Court is the more appropriate court to determine the matters in issue between the parties to the proceeding is not an easy decision, as there are no overwhelming factors that justifies strong bias in favour of either court so as to tip the balance one way or the other. The factor most strongly in favour of an Australian court is that Australian law will be the most appropriate law to apply to most if not all of the causes of action in the proceeding, and that Australian law in the area of knowing assistance is not yet settled. It is for the Australian courts to settle the law for Australia. What might appear to be very subtle nuances in the different courts’ approaches to refining the test for knowing assistance may prove to be all important in that undertaking.
Additionally there is the fact that the subject matter (when viewed overall) is more closely connected to Australia than New Zealand.
[63] Factors that most favour a New Zealand court as the most appropriate forum include the very large group of plaintiffs who reside in New Zealand, and that they will also be required as witnesses and may wish to call as witnesses others who reside in New Zealand. As such, there is also a real and substantial connection here. A further real and substantial connection is that many (and possibly all) of the plaintiffs appear to have contracted with Coral Investments in New Zealand. Further, for the plaintiffs, given the nature and scale of the harm they allege, they will almost certainly want to attend the trial in person (as well as being required in their capacity as witnesses). The greater cost and inconvenience of doing so is not to be put to one side lightly. These factors weigh in favour of a New Zealand court.
[64] In the final analysis, I am forced to the conclusion that the factors pointing to the appropriateness of an Australian Court tip the balance in favour of a court in New South Wales, provided limitation concerns can be dealt with so as to safeguard the plaintiffs’ rights of action and the legitimate concerns that they have in relation to them.
[65] I conclude that a stay is appropriate, but on the terms that deal adequately with limitation concerns.
Result
[66] I make the following orders:
(a) This proceeding is stayed on terms that the plaintiffs may seek an order lifting the stay, in the event that any current defendant pleads limitation defences in an Australian proceeding, being a limitation defence that would not have been available or viable in the present New Zealand proceeding.
(b)Costs are reserved. My present impression is that costs should lie where they fall, but I do not have a closed mind on the matter. Any application for costs may be made by way of memorandum to be filed and served with 10 working days of the date of this judgment. If an application for costs is made, the matter is to be listed in the next available Chambers list for mention and further direction.
[67] It occurs to me that counsel for the parties did not deal with the question of the time within which a proceeding should be commenced in Australia and whether orders relating to that question or related questions may need to be dealt with. I reserve leave to raise such issues by way of memorandum to be filed and served
not later than 12 December 2017.
Associate Judge Sargisson
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