ALLSTATE LIFE INSURANCE CO & ORS v AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No NG 381 of 1994 GENERAL DIVISION ) BETWEEN: ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the amended statement of claim. Applicants AND: AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the amended statement of claim. Respondents CORAM: Lindgren J PLACE: Sydney DATE: 18 August 1995

MINUTE OF ORDERS THE COURT: 1. ORDERS that the applicants' motion brought by notice of motion filed on 31 July 1995 for leave to amend be dismissed. 2. ORDERS that the applicants pay the costs of the respondents to that motion, of that motion. 3. GRANTS leave to the 54th respondents to apply afresh for an order under O 62 of the Federal Court Rules in relation to its costs as a respondent to the applicants' motion referred to in para (1) above. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No NG 381 of 1994 GENERAL DIVISION ) BETWEEN: ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the amended statement of claim. Applicants AND: AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the amended statement of claim. Respondents CORAM: Lindgren J PLACE: Sydney DATE: 18 August 1995

REASONS FOR JUDGMENT (No 14) (Applicants' motion for leave to amend brought by notice of motion filed on 31 July 1995) NATURE OF PROCEEDINGS By motion brought by notice of motion filed on 31 July 1995, supported by an affidavit of John Frederick Warburton, sworn 31 July 1995, the applicants seek leave to amend in terms of a document headed "Second Further Amended Statement of Claim" a copy of which is annexure A to Mr Warburton's affidavit. BACKGROUND

In the existing form of the pleading, it is pleaded in paragraph 8 that by an amended registration statement incorporating a prospectus dated 6 October 1988 ("the Prospectus") registered with the Securities and Exchange Commission of the United States of America ("the SEC"), on or about 7 October 1988, Linter Textiles offered to issue certain subordinated debentures due on 1 October in the year 2000, to be delivered and paid for on or about 13 October 1988 at the offices of the underwriter of the issue, Drexel Burnham Lambert Incorporated ("the Underwriter"). It is subsequently pleaded that there were certain misrepresentations which arose from the Prospectus. Paragraph 30 pleads that by registering the prospectus and publishing and distributing it in the United States of America, Linter Textiles made the 14 representations the content of which is set out in sub-paragraphs within para 30. Some of the representations are pleaded as being express. Some are pleaded as arising from omissions from the Prospectus, or, perhaps more accurately, from omissions read in the context of what was said in the Prospectus. What is important for present purposes is that on the existing pleading the one and only means of the making of the representations is the Prospectus properly understood. That indicates that each applicant alleges that it relied upon representations the making of all of which arose from the Prospectus properly construed.

The essential change proposed to be made by the amendment is to plead different means of the making of the representations. In all respects except one, the content of the representations would remain the same. The exception is found in a new proposed para 30.13A in which it is proposed to plead that Linter Textiles had no plans or intentions to incur "senior indebtedness" as defined in the Indenture. But for present purposes, it suffices to regard the content of the representations as the same. The change to which I have referred is to be found in a new proposed para 7A and in "particulars" within and at the end of the proposed para 30. The proposed pleading would add a "preliminary prospectus" and oral statements by officers of Linter Textiles as further means by which the representations were made. The proposed para 7A reads as follows: "Between 19 and 28 September 1988 officers of Linter Textiles travelled throughout the United States of America promoting the proposed debenture issue at various meetings with potential investors ('the Roadshow'). Prior to and at the Roadshow Linter Textiles distributed a document entitled 'Presentation to Institutional Investors' dated September 1988 ('the Presentation Document') incorporating a preliminary prospectus dated 9 September 1988 ('the preliminary prospectus')." It is proposed to be pleaded that the 15 representations pleaded in the proposed para 30 (including that in the proposed new para 30.13A) were made at various times prior to 13 October 1988 in the ways set out in paras (a) to (d) of the particulars which are set out within and at the end of para 30. It is unnecessary for me to set out paras (a) to (d) fully. They all begin with the words, "On some occasions". For example, paragraph (a) commences,

"On some occasions partly expressly and partly by implication by delivery of the presentation document or the preliminary prospectus coupled with the omission of any reference to any contingent liability or proposed contingent liability ... ".

Paragraph (b) begins, "On some occasions expressly in writing" by certain identified pages of the preliminary prospectus and orally at the Roadshow (see para 7A quoted earlier). Paragraph (c) begins, "On some occasions expressly in writing" by certain identified pages of the Prospectus - that is, of the final prospectus. Paragraph (d) commences, "On some occasions partly expressly and partly by implication by delivery of the prospectus coupled with ...". Here again the reference is to the final prospectus. In summary, what is now proposed to be pleaded is that the means of the making of the various representations varies as between the 15 representations and, so far as the respondents know, as between the respective applicants. It is not possible from the proposed pleading to say which of the four means of the making of representations is relevant to any particular representation as it was made to any particular applicant. REASONING Order 11 sub-r 2 (a) of the Federal Court Rules provides that a pleading shall contain "a statement in a summary form of the material facts on which [the pleading party] relies." In the former pleading it was known that what was being alleged was that the means of the making of all of the representations to all of the applicants was nothing other than the registration, publication and distribution of the Prospectus. Accordingly, a respondent knew that what was alleged was that each applicant had relied upon the making of each representation by that means. Under the proposed amendment, it is not possible to know what means of the making of any particular representation is relied upon by any particular applicant. It cannot even be said that the respondents would know, as they know under the existing pleading, that at least it is asserted that in every case the applicants relied upon the Prospectus, since even in relation to that document the relevant paragraphs commence, "On some occasions". It was put for the applicants that the representations remain the same. In one sense this is correct (subject to the proposed para 30.13A to which I referred earlier) but in another sense it is incorrect. It depends upon what one means by "the representations". A representation may be the same in terms of content but quite different in terms of the means of the making of it. It can hardly be said that the mere fact that the content of a representation remains the same signifies that it is immaterial to a respondent on what occasions and in what contexts it is alleged to have been made. Yet the applicants' submission must go so far. If this were so, it would be open to an applicant to prove, without pleading, any making of a representation provided only that its content had been pleaded. This is not the law. Nor is the position different in principle where a representation is pleaded to have been made to an applicant in an unidentified one of several identified ways. And the position is all the less informative in terms of making clear a particular applicant's case, where (as in the present case) there are numerous applicants and numerous representations. What must be pleaded is facts showing, in respect of each applicant, not merely the content of any representation upon which an applicant alleges it relied, but as well, the material facts relating to the making of it to that applicant. Reference was made in argument to O 12 r 2 of the Federal Court Rules which provides that "A party pleading shall give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence on which he relies." The case does involve an allegation of fraud. In cases of fraud, of all cases, respondents are entitled to have the allegations against them made with clarity and particularity. I do not find it necessary to deal with the various ways that respective respondents are detrimentally affected by the fact that the proposed amendments do not comply, as I think they do not, with O 11 sub-r 2 (a) or 12 r 2. I note, however, that the submissions were made on behalf of the 29th to 47th respondents ("the Linter group") the 5th and 6th respsondents ("Citibank"), the 10th respondent ("Sumitomo") and the 54th respondents ("Freehills") which, inter alia, pointed to aspects of the unfairness to those respondents of the proposed pleading. For example, Freehills submitted that the case pleaded against them is of two kinds: common law fraud and knowing involvement or knowing participation in the making of representations having the character of misleading conduct under the Trade Practices Act 1974 (Cth). They submitted, and I accept, that they are entitled to know how each applicant alleges the representations relied upon by it were made, since, for example, the manner of the making of the respective representations is something in which it is alleged, that Freehills were knowingly involved and knowingly participated. The applicants submitted that an applicant should not be required necessarily to identify by name the particular officer or particular officers who made a representation allegedly relied upon by it. It was put that an applicant may not know this and that it could not be said that it would fail for its inability to give the name or names in question. This may well be so. But in the proposed pleading there is no attempt whatever to identify, in relation to the respective applicants, the occasion or occasions of the making of any representation relied upon, the maker or makers of the representation or the person or persons to whom, on behalf of the applicant, the representation was made, or the particular means of the making of the representation. It was put for the applicants that any deficiency is merely a matter of particulars rather than of facts necessary to be pleaded. I do not agree. There may be argument over whether a particular pleading alleges sufficient facts, but the proposed amended pleading clearly does not plead any facts which can be identified as being in respect of the making of any particular representation to any particular applicant. The applicants submitted that the respondents would know in the very near future, when witness statements are to be served, what facts are alleged as to the manner of the making of the representations to the respective applicants. But witness statements and affidavits are no substitute for a proper pleadings. Pleadings and evidence serve different functions. Pleadings identify the material facts relied upon as constituting a cause or causes of action or other ground or grounds of relief propounded. Witness statements and affidavits contain the evidence by which those essential facts are proposed to be proved. That the two categories are distinct is recognised in O 11 sub-r 2 (1) of the Federal Court Rules. It is obviously inappropriate and unfair that a respondent should be required to divine, from a study of an applicant's witness statements and affidavits (not all of which may be relied upon at the hearing) which, out of possibly the numerous facts referred to in them, are the material ones relied on by an applicant as constituting such cause or causes of action or other ground or grounds of relief. Moreover, the "material facts" may not be formulated in the witness statements or affidavits in a manner conforming to the law's definition of the necessary elements of a cause of action, and may even arise by way of inference from the primary facts which appear in those documents. It is necessary that the material facts be pleaded in a statement of claim so that the other party can understand the case made against him, and decide whether to apply for a striking out or summary dismissal or to plead to the statement of claim in a way which will appropriately define the issues for ultimate decision. It is an applicant which is obliged, in its pleading, to identify the material facts on which it relies.

CONCLUSION For the foregoing reasons, I am of the view that the application for leave to amend in accordance with annexure A to Mr Warburton's affidavit should be refused. Accordingly, the orders of the Court on the applicants' motion for leave to amend brought by notice of motion filed on 31 July 1995 is that the motion be dismissed and that the applicants pay the costs of the respondents to the motion, of that motion.

COSTS Indemnity costs An application has been made by Freehills for an order that the costs order which I have made in their favour should be on an indemnity basis. The case for indemnity costs rests on a letter dated 11 August 1995 from Freehills' solicitors Norton Smith & Co, to the solicitors for the applicants, Messrs Sly & Weigall. That letter referred to Mr Warburton's affidavit and the proposed pleading annexed to it. The letter pointed to certain matters which, in one way or another, are reflected in the reasons for judgment which I have just given. It is put for Freehills that there was ample opportunity, following receipt of that letter, for the applicants to consider their position, and, in effect, that they have proceeded with the application for leave to amend in the face of a clear warning of the problems which the pleading has now in fact encountered. It is put for the applicants that the test to be satisfied for indemnity costs is not satisfied here. Attention has been drawn to the fact that the proceedings were listed for hearing yesterday and today on rather short notice. This is true. It is put for the applicants that they received a number of letters from firms of solicitors appearing in the proceedings for various respondents making complaint about the form of the proposed pleading and it is put that time did not permit a thorough consideration of the submissions made in those various letters prior to the listing of the matter yesterday. I think that the case is a borderline one in relation to the question of indemnity costs. However, having regard to the fact that the proceedings were listed on fairly short notice when some hearing time unexpectedly became available to the Court, it would not, in my view, be appropriate to order indemnity costs on this occasion and I do not do so.

Application for leave to tax costs and to enforce costs order forthwith Freehills also seek an order under O 62 r 3 of the Federal Court Rules granting them leave to tax at this stage the costs ordered in their favour and an order that the costs be paid forthwith. In my view, this provision of the Rules is possibly under utilised. However, it is put for the applicants that a matter which would have to be taken into account in the exercise of my discretion in determining Freehills' application pursuant to O 62 r 3 is the fact that there have been various other orders for costs made in the proceedings to date, including an order or orders that Freehills pay the applicants' costs on one or more earlier interlocutory applications. I am not familiar with that earlier history of the matter and have not been taken to the detail of it. I would not at present make the order sought by Freehills in the light of that. But I grant leave to Freehills to apply afresh for the order sought under O 62 r 3. If they see fit to make such an application, at that time a thorough assessment should be made of the state of play in relation to existing costs orders. It does seem to me, particularly in cases such as this one where the final determination of the proceedings is so far away, that it may be appropriate for more use to be made than is commonly made of O 62 r 3. For the foregoing reasons, I do not at this stage grant Freehills' application under O 62 r 3, but I reserve liberty for Freehills to renew that application if they so see fit. I certify that this and the preceding 11 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren. Associate: Dated: 24 August 1995. Heard: 17, 18 August 1995 Place: Sydney Decision: 18 August 1995 Appearances: Mr W G Muddle with Mr D Stack of counsel instructed by Sly & Weigall appeared for the applicants. Mr P Anastassiou of counsel instructed by Mallesons Stephen Jaques appeared for the 5th and 6th respondents ("Citibank"). Mr S D Robb QC instructed by Middletons Moore & Bevins appeared for the 10th respondent ("Sumitomo"). Mr L Glick with Ms R Rana of counsel instructed by Phillips Fox appeared for the 29th to 47th respondents ("Linter Group"). Mr T E F Hughes QC with Mr R M Smith of counsel instructed by Norton Smith & Co appeared for the 54th respondents ("Freehills").