PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS –
ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL –
GENERALLY –
where the plaintiff (Blue Dog) alleges the first defendant (ASIC), by exercising
Source
Original judgment source is linked above.
Catchwords
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS –ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL –GENERALLY –where the plaintiff (Blue Dog) alleges the first defendant (ASIC), by exercisingor failing to exercise its statutoryfunctions and powers, conspired with otherdefendants to cause Blue Dog harm by contravening provisions of theCorporations Act 2001 (Cth) (the Act) – where Blue Dog seeks torecover damages from ASIC pursuant to s 1041I of the Act – where s 246 ofthe Australian Securities and Investments Commission Act 2001 (Cth) (theASIC Act) grants ASIC immunity in respect of damages resulting from, among otherthings, its exercise of its statutoryfunctions or powers in good faith –
where Blue Dog alleges ASIC acted in bad faith by exercising or failing to
exercise its
functions and powers – where ASIC seeks orders striking out
and dismissing Blue Dog’s claim as against it, without leave
to replead
– where Blue Dog later consented to an order striking out the statement of
claim against all defendants –
where Blue Dog relied on inferences from
alleged facts to establish that ASIC acted in bad faith – whether ASIC is
bound by
s 1041I of the Act – whether Blue Dog’s claim against ASIC
has any real prospect of success – whether there is
a need for a trial on
Blue Dog’s claim against ASIC – whether leave to replead the claim
against ASIC should be granted
– whether there are exceptional
circumstances such that the claim against ASIC should be dismissed
Australian Securities and Investments Commission Act 2001 (Cth), s
246, s 261
Corporations Act 2001 (Cth), s 5A, s 1041E, s 1041F, s 1041H, s
1041I, s 1043A, ch 7
Dey v Victorian Railways Commissioners (1949) 78
CLR 62
[1949] HCA 1, cited
Edington v Board of Trustees of the State
Public Sector
Superannuation Scheme [2012] QSC 211, cited
General Steel Industries Inc v Commissioner for Railways (1964) 112
CLR 125
[1964] HCA 69, cited
Oldfield v Keogh [1941] NSWStRp 33
(1941) 41 SR (NSW)
206, cited
Rajski v Bainton (1990) 22 NSWLR 125, cited
Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, cited
Judgment (41 paragraphs)
[1]
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - SUMMARY DISPOSAL - GENERALLY - where the plaintiff (Blue Dog) alleges the first defendant (ASIC), by exercising or failing to exercise its statutory functions and powers, conspired with other defendants to cause Blue Dog harm by contravening provisions of the Corporations Act 2001 (Cth) (the Act) - where Blue Dog seeks to recover damages from ASIC pursuant to s 1041I of the Act - where s 246 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) grants ASIC immunity in respect of damages resulting from, among other things, its exercise of its statutory functions or powers in good faith - where Blue Dog alleges ASIC acted in bad faith by exercising or failing to exercise its functions and powers - where ASIC seeks orders striking out and dismissing Blue Dog's claim as against it, without leave to replead - where Blue Dog later consented to an order striking out the statement of claim against all defendants - where Blue Dog relied on inferences from alleged facts to establish that ASIC acted in bad faith - whether ASIC is bound by s 1041I of the Act - whether Blue Dog's claim against ASIC has any real prospect of success - whether there is a need for a trial on Blue Dog's claim against ASIC - whether leave to replead the claim against ASIC should be granted - whether there are exceptional circumstances such that the claim against ASIC should be dismissed
[1] This is a decision on whether the plaintiff (Blue Dog) should have leave to replead its claim against the first defendant (ASIC) or whether the claim should be dismissed.
[2] Blue Dog filed a claim and statement of claim on 8 March 2024, and amended statements of claim on 16 April 2024 and 28 June 2024. Blue Dog filed a consolidated statement of claim (CSOC) on 30 July 2024, setting out the facts on which it relied to advance its claims against thirteen defendants, including ASIC.
[3] On 2 August 2024, ASIC filed an application for an order striking out the CSOC as against ASIC, dismissing Blue Dog's claim against ASIC, and for some other orders (the application).
[4] The application was listed for a 1-day hearing on 20 September 2024. At that hearing, Dr Wild, who appeared for Blue Dog, asked the Court to grant Blue Dog leave to replead its claim in the event that the Court struck out the CSOC against ASIC, in whole or in part. Counsel for ASIC, Mr Brady KC and Ms McLeod, asked the Court to refuse Blue Dog leave to replead, and dismiss Blue Dog's claim against ASIC. The hearing concluded at the end of that day, and the decision on the application was reserved.
[5] On 23 September 2024, Blue Dog consented to an order striking out the whole of the CSOC against all defendants, including ASIC. This order was made on the express basis that the Court was yet to decide whether Blue Dog should have leave to replead or whether Blue Dog's claim against ASIC should be dismissed.
[6] As the CSOC has been struck out, it is not necessary for the Court to determine whether that should happen. The only significant matter remaining to be determined from the application and the 20 September 2024 hearing is whether Blue Dog should have leave to replead against ASIC or whether Blue Dog's claim against ASIC should be dismissed.
[7] For the reasons that follow, leave to replead should be refused and Blue Dog's claim against ASIC should be dismissed.
[12]
[8] ASIC did not apply for summary judgment on Blue Dog's claim. ASIC could not, without filing a defence. By seeking orders that the CSOC be struck out with no leave to replead and that the claim be dismissed, ASIC sought to summarily terminate the proceeding as against it. As Barwick CJ noted in General Steel Industries Inc v Commissioner for Railways,[1] the power to do this is "sparingly employed" and not used "except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion."[2] His Honour observed:
[13]
"The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense'."[3]
[14]
[9] The Court should not exercise the power to dismiss a claim and refuse leave to replead where it appears there is a "real question" of fact or law to be determined on which "the rights of the parties depend".[4]
[10] Where a pleading is struck out because it includes scandalous, vexatious or embarrassing allegations or is otherwise an abuse the Court's processes, the question remains whether there is any real prospect of success or any need for a trial. Such instances may indicate something has gone wrong in producing the pleading. So, the Court may need to assess carefully whether, within an "ill expressed and unstructured" pleading, there is "a viable cause of action, which with appropriate amendment of the pleading and a little assistance from the court, could be put into proper form."[5]
[11] In Edington v Board of Trustees of the State Public Sector Superannuation Scheme,[6] Mullins J (as her Honour then was) observed that the effect of dismissing a claim - whether pursuant to the Court's inherent jurisdiction or pursuant to r 16 of the Uniform Civil Procedure Rules 1999 (Qld) (the UCPR) - was equivalent to granting summary judgment for a defendant under r 293.[7] Her Honour concluded that the approach to determining such an application "should be no less stringent than that provided under r 293 [of the UCPR]."[8]
[12] It follows that, before refusing Blue Dog leave to replead and dismissing its claim against ASIC, the Court must be satisfied that Blue Dog has no real prospect of succeeding on this claim and that there is no need for a trial of it.
[15]
[13] In each of its pleadings to date, Blue Dog's claim against ASIC has been articulated as two groups of allegations.
[14] Firstly, that, acting in bad faith, ASIC was knowingly involved in:
[16]
(a) the ninth defendant (Mr Wiechert) and the tenth defendant (Mr Aandahl) making a statement that was false in a material particular or was materially misleading, in contravention of s 1041E of the Corporations Act 2001 (Cth) (the Act);
(b) Mr Wiechert and Mr Aandahl making or publishing a statement known to be misleading, false or deceptive that induced other persons to deal in in ordinary shares of Blue Sky Alternative Investments Limited (BLA), in contravention of s 1041F of the Act; and
(c) conduct by Mr Wiechert and Mr Aandahl that was misleading or deceptive or was likely to mislead or deceive in relation to ordinary shares of BLA, in contravention of s 1041E of the Act.
[17]
[15] Secondly, that, again acting in bad faith, ASIC conspired with Mr Wiechert and Mr Aandahl to injure Blue Dog, and all persons who had an interest in ordinary shares of BLA on 28 March 2018, by unlawful means.[9]
[18]
Leave to replead claims against ASIC based on s 1041I of the Act
[19]
[16] Blue Dog relied on the first category of allegations to claim damages it allegedly suffered because of a "statement or representation" allegedly made by Mr Wiechert and Mr Aandahl in a report published about BLA in March 2018. In the CSOC, Blue Dog referred to the statement or representation as the Glaucus Statement.
[17] Blue Dog alleged the effect of the express statements in the report was:
[20]
"that BLA was a fraudulent, Ponzi-like scheme to inflate BLA's share price that had been dishonestly perpetrated by BLA's directors and officers for many years to enrich themselves at the expense of its shareholders and investors."
[21]
[18] The Glaucus Statement was not a statement or representation to this effect. Nor was the Glaucus Statement any of the "arguments" made in the report to justify its alleged effect. The Glaucus Statement was not even any particular express statement in the report.
[19] As Dr Wild confirmed in oral submissions, the Glaucus Statement was a representation that the effects of the report (and/or the arguments used to justify its alleged effect) were reasonably justified by its contents and the documents extracted in, referenced in, or cited by the report. In other words, Blue Dog's first group of claims against ASIC proceeded on the basis that it was materially false or misleading, or misleading, false or deceptive, or likely to mislead or deceive in that it would represent that the effect of the report was justified by its contents, extracts, references and citations.
[20] Blue Dog alleged Mr Wiechert and Mr Aandahl acted in contravention of ss 1041E, 1041F and 1041H of the Act in making the Glaucus Statement. Blue Dog alleged that ASIC was involved in Mr Wiechert and Mr Aandahl making the Glaucus Statement. On this basis, Blue Dog said it could recover from ASIC damages resulting from publication of the Glaucus Statement.
[21] An entitlement to bring an action to recover damages from a person alleged to be involved such contraventions arises under s 1041I of the Act. This is the basis for the first part of Blue Dog's claim. Section 1041I is in chapter 7 of the Act (chapter 7), which deals with financial services and markets.
[22] By s 5A of the Act, Parliament relevantly provided:
[22]
(1) To avoid doubt, a reference in this section to the Crown in a particular right includes a reference to an instrumentality or agency (whether a body corporate or not) of the Crown in that right.
[23]
(4) A provision of Chapter 5D, 6CA or 7 only binds the Crown in a particular capacity in circumstances (if any) specified in the regulations."
[24]
[23] No regulations have been made specifying that s 1041I (or any provision in chapter 7) binds the Crown in any capacity.
[24] ASIC is an instrumentality or agency of the Crown in right of the Commonwealth. Its powers pertain to executive functions of government. It is a body corporate established by s 7 of the Australian Securities and Investments Commission Act 1989 (Cth) and continued in existence by s 261 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). The Governor-General appoints the members of ASIC on the nomination of the relevant minister. The minister may give written directions to ASIC about the exercise of its functions and powers. ASIC holds any money or real or personal property for and on behalf of the Commonwealth. Its liabilities are taken to be liabilities of the Commonwealth. A parliamentary committee enquires into the activities of ASIC. The Auditor-General audits ASIC. ASIC is treated as part of the Commonwealth for the purposes of the Public Governance, Performance and Accountability Act 2013 (Cth).
[25] Dr Wild submitted that, despite the express terms of s 5A(4) of the Act, ASIC was bound by chapter 7 because that provision only grants ASIC "immunity ... conditional on ASIC relevantly conducting itself in good faith." I reject this interpretation.
[26] Section 5A(4) does not grant ASIC an immunity. It provides a means by which parts of chapter 7 could be made binding on the Crown (including ASIC). That means has not been used. Section 5A(4) does not include the good faith condition articulated by Dr Wild. That condition is found in s 246 of the ASIC Act, which relevantly makes ASIC immune from liability in respect of any claim or action for damages of any kind resulting from, among other things, ASIC's exercise of its functions or powers in good faith.
[25]
[30] In addition to the claims that depend on s 1041I of the Act, Blue Dog claimed for damages suffered because, it alleged, ASIC participated in a conspiracy with Mr Wiechert and Mr Aandahl to the effect that Mr Wiechert and Mr Aandahl would:
[26]
(a) mislead the market, by contravening ss 1041E, 1041F, 1041H and 1043A of the Act;
(b) defame the directors and officers of BLA; and
(c) commit insider trading, with the common aim of injuring Blue Dog and other investors in BLA.
[27]
[31] The conduct Blue Dog alleged against ASIC was conduct in relation to the performance of ASIC's functions and the exercise of its powers under the Act.
[32] As noted in paragraph [27] above, s 246 of the ASIC Act provides that ASIC is not liable for damages for or in relation to anything ASIC did or omitted to do in good faith in the performance or purported performance of any of its functions or in the exercise of any of its powers under the Act. No doubt conscious of this statutory immunity, by the CSOC, Blue Dog alleged that ASIC acted in bad faith.
[33] This is a serious allegation of misconduct by the federal regulator. Blue Dog ought not have pleaded this allegation unless it, and its lawyers who prepared the CSOC, were satisfied that evidence was expected to be available to prove it at a trial. As the person making the allegation, Blue Dog was required to plead it precisely and not casually.[10]
[34] Blue Dog pleaded that ASIC's bad faith was to be inferred from other matters set out in about 144 paragraphs over 38 pages of the CSOC. Most of these other matters were themselves things Blue Dog alleged were to be inferred from a much smaller set of matters.
[35] Conscious of the considerations in paragraph [11] above, a close examination of the CSOC was warranted. It revealed that Blue Dog's bad faith allegation against ASIC was founded on the following alleged facts that were not said to be inferences drawn from other facts.
[28]
(a) In February 2017, Mr Wiechert and Mr Aandahl announced "in the Australian national press" that they intended to identify fraud by two or more companies listed on the Australian Securities Exchange (ASX), publish reports about the frauds, and take short positions in those companies prior to publishing the reports.
(b) In February 2017, ASIC did not seek to use its powers to prevent persons from selling shares in companies on the ASX while in possession of information that Mr Wiechert and Mr Aandahl would publish their report.
(c) In March 2017, Mr Wiechert and Mr Aandahl published a report on an ASX-listed company known as Quintis Ltd (Quintis).
(d) In April 2017, ASIC issued Quintis with seven notices to produce documents as part of an on-going investigation and issued two notices requiring Quintis to provide ASIC with all reasonable assistance.
(e) In June 2018, ASIC commenced proceedings against the former managing director of Quintis, alleging a failure to exercise due care and diligence in communications with the Quintis board.
(f) ASIC did not seek to use its powers to prosecute Mr Wiechert and Mr Aandahl for publishing the report on Quintis.
(g) In March 2018, Mr Wiechert and Mr Aandahl published a report on BLA.
(h) In June 2018, ASIC commenced an investigation into whether BLA may have breached the continuous disclosure requirements arising under s 674 of the Act.
(i) In November 2018, an ASIC staff member recommended that no action be taken in relation to an allegation by BLA that there had been an increase in short positions in BLA leading up to publication of the report by Mr Wiechert and Mr Aandahl. The reasons for the recommendation included that no potential false or misleading statements were found in the report and no apparent short selling misconduct was found.
(j) In November 2018, an ASIC staff member recommended that ASIC take no further action in relation to the investigation of BLA.
(k) In May 2019, ASIC advised BLA that it proposed to take no action against BLA.
(l) In June 2022, Blue Dog's solicitors asked ASIC to investigate the report on BLA for possible false and misleading statements and possible insider trading.
[29]
[36] As Blue Dog noted repeatedly in the CSOC, one could infer from each of the above facts that ASIC:
[30]
(a) "genuinely considered" each matter;
(b) exercised its powers when "satisfied the matter was of sufficient significance to justify the allocation" of its resources; and
(c) conversely, did not exercise its powers when it "genuinely considered" that the matters "were not of such significance that they justified the allocation" of its resources.
[31]
[37] With respect, that would be the obvious inference. However, Blue Dog alleged that, from these facts, it should be inferred that ASIC's conduct "was not based on a genuine consideration of whether these matters justified the allocation" of its resources "but was instead" conduct pursuant to an alleged "understanding" between ASIC, Mr Wiechert and Mr Aandahl to the effect of the alleged conspiracy between them.
[38] Even if, at a trial, Blue Dog proved the facts summarised at paragraph [36] above, the Court could not find, as an inference drawn from those facts, that ASIC acted in bad faith. Those facts are insufficient to draw such an inference. They are insufficient even to justify Blue Dog's pleading that ASIC acted in bad faith.
[39] The CSOC was Blue Dog's fourth pleading. It was certainly the third substantive version of its case against the defendants. Before the CSOC was filed, ASIC had put Blue Dog on notice of the inadequacy of the case pleaded against it for damages for the alleged conspiracy.
[40] Blue Dog says it (and the other class members) suffered the claimed damages commencing in March 2018. Blue Dog commenced the proceeding nearly six years later. Given the history of the proceeding, the clear challenge by ASIC to an earlier version of the pleading, and the form of the CSOC, I am satisfied that Blue Dog did not have evidence available to prove the allegations of bad faith it made against ASIC. Nor did it have evidence to infer the other substantive conspiracy-related allegations it made based on the same underlying facts. Without such evidence, Blue Dog's claim against ASIC for damages for conspiracy must fail.
[41] As Mr Brady KC for ASIC put it, Blue Dog's claim, as against ASIC, has a circular or even a "bootstraps" character. To infer that ASIC acted in bad faith, Blue Dog relied on an assumption that ASIC conspired with Mr Wiechert and Mr Aandahl to contravene the Act and defame BLA's directors and officers. To infer that ASIC conspired with Mr Wiechert and Mr Aandahl, Blue Dog relied on an assumption that ASIC acted in bad faith. When one card falls, so does the other, and the whole house collapses.
[42] Adopting the words of Sir Frederick Jordan, to give any of these allegations any further consideration "would be to treat it with a seriousness which it does not deserve".
[32]
[43] There is no real question of fact or law to be determined on which Blue Dog's legal rights would depend. Blue Dog has no real prospect of succeeding in its claim against ASIC for damages under s 1041I of the Act because that provision does not bind ASIC. It has no real prospect of succeeding in any of its claims for damages against ASIC because Blue Dog cannot plead a case that ASIC acted in bad faith.
[44] At the 20 September 2024 hearing, Dr Wild sought to rely on copies of some newspaper and magazine articles published online. He submitted these were relevant to whether Blue Dog should have leave to replead, if the CSOC were to be struck out, in whole or part.[12] These documents show that, between December 2018 and April 2020, various websites published articles about the short selling of shares traded on the ASX. All were posted and available about four or five years before Blue Dog filed the CSOC.[13]
[45] Assuming the matters reported could be proved at a trial, the articles do not provide any further basis for the serious allegations Blue Dog made against ASIC in the CSOC. They do not show that there are any further facts Blue Dog could plead and prove to make out the allegation that ASIC acted in bad faith.
[46] Blue Dog made use of the UCPR and of the Court's directions to plead its claim against ASIC. Had Blue Dog not consented to the Court striking out the CSOC in its entirety, for the reasons set out above, the Court would have struck it out as against ASIC. There is no reason to believe Blue Dog could plead its claim in a way that could survive another application by ASIC to strike it out. It is also clear that, if repleaded, and allowed to proceed to a trial, Blue Dog's claims against ASIC will suffer the same defects. In other words, Blue Dog cannot improve its position by a proper amendment of the pleading.
[47] In short, Blue Dog has no viable cause of action against ASIC. There are no issues that need to be investigated at trial. So, there is no need for a trial of the claim against ASIC.
[48] Lacking any proper basis, Blue Dog's successive pleadings against ASIC were scandalous and embarrassing. ASIC should not be required to respond to untenable allegations that could not possibly succeed.
[49] In the circumstances, Blue Dog's request for leave to replead should be refused and its claim against ASIC should be dismissed.
[9] The unlawful means were alleged to be contraventions of ss 1041E, 1041F, 1041H and 1043A of the Act and defamation of the directors and officers of BLA.
[12] These were exhibited to an affidavit Dr Wild had affirmed on 10 September 2024.
[41]
[13] Dr Wild did not depose to the date he downloaded copies of these articles from each website.
Parties
Applicant/Plaintiff:
Blue Dog Group Pty Ltd
Respondent/Defendant:
Australian Securities & Investments Commission [2024] QSC 233
Legislation Cited (4)
Securities and Investments Commission Act 2001
Civil Procedure Rules 1999
Securities and Investments Commission Act 1989
Governance, Performance and Accountability Act 2013
Cases Cited (4)
(1949) 78 CLR 62
(1964) 112 CLR 125
(1990) 22 NSWLR 125
(1986) 6 NSWLR 534
[27] ASIC's immunity from any damages claim under s 246 of the ASIC Act is not inconsistent with s 5A(4) of the Act. The former provision does not affect the proper interpretation of the latter to give it the construction for which Dr Wild contended. The two provisions operate consistently according to their terms.
[28] Blue Dog has no cause of action against ASIC under s 1041I of the Act. This conclusion does not depend on any factual matter that Blue Dog might allege and prove at a trial. Blue Dog cannot succeed in this claim against ASIC.
[29] If, contrary to the conclusion expressed above, s 5A(4) of the Act were to operate as Dr Wild contends, then Blue Dog's s 1041I claims against ASIC would still be bound to fail. This is because, for the reasons set out below, Blue Dog is unable to plead a case that ASIC failed to act in good faith.
(m) In July 2022, ASIC advised Blue Dog's solicitors that it had decided not to take any enforcement action, having considered:
(i) the availability and strength of evidence to support Blue Dog's allegations;
(ii) the fact that BLA made several announcements to the ASX in April and May 2018 shortly after the report was published;
(iii) the increase in reported short positions in BLA in the period leading to the publication as not unusual; and
(iv) that covered short selling is permitted if conducted in accordance with Australian law.
(n) In August 2018, a firm associated with Mr Wiechert (Bonitas) published a report on Rural Funds Group (RFF).
(o) In September 2019, ASIC investigated RFF.
(p) In December 2020, in a proceeding in which Bonitas did not participate, the Supreme Court of New South Wales declared that Bonitas had made statements in the report on RFF that were false and misleading in contravention of ss 1041E, 1041F and 1041H of the Act.
(q) ASIC did not investigate or prosecute any other person for knowing involvement in the contraventions found by the New South Wales Supreme Court.
(r) ASIC did not investigate or prosecute any person for insider trading in RFF shares.