Bucketts Road Business Services Pty Ltd v Phalona Pty Limited

REASONS FOR JUDGMENT 1 By a motion filed on 15 October 2007, the applicants seek orders granting the relief claimed in their pleadings against the first and second respondents (respectively 'Phalona' and 'Clifton'). The application is made pursuant to Federal Court Rules ('FCR'), O 35A r 3, by reason of the default by the respondents in complying with orders requiring them to file defences. 2 Order 35A r 3(2) provides that if a respondent is in 'default' (as that term is defined in O 5A r 2(2)), the Court may: '(c) if the proceeding was commenced by an application supported by a statement of claim … give judgment against the respondent for the relief that: (i) the applicant appears entitled to on the statement of claim; and (ii) the Court is satisfied it has power to grant.' 3 The present proceedings were commenced on 2 November 2006 by an application supported by a statement of claim. The applicants sought, inter alia, declarations that Phalona was liable to account to each of the applicants for its breach of trust and that Clifton was liable to account to each of the applicants on the ground that he knowingly assisted Phalona in its breach of trust. The applicants also sought damages for contraventions of the Trade Practices Act 1974 (Cth) ('TP Act') or the Fair Trading Act 1988 (NSW) ('FT Act'). 4 Phalona was the trustee of the Phalona Unit Trust, which was created by deed in August 2000. Clifton is alleged to have been the sole director of Phalona. It appears that Clifton is a bankrupt. However, on 10 September 2007, I granted the applicants leave to proceed against Clifton for declarations that, by reason of his knowing assistance in Phalona's breach of trust, he is jointly and severally liable to the applicants for any moneys that Phalona is liable to pay to the applicants: Bucketts Road Business Services Pty Ltd v Phalona Pty Ltd [2007] FCA 1444. In the judgment, I noted (at [10]) that leave of the Court is not required for the applicants to pursue the claim against Clifton for damages for misleading or deceptive conduct. 5 On 10 September 2007, I also directed that Phalona and Clifton file their defences within 28 days. Neither Phalona nor Clifton complied with the direction and neither has filed a defence in the proceedings. Each is therefore in default for the purposes of O 35A r 3: see r 2(2)(d). 6 The claim pleaded by the applicants, insofar as it is relevant to the current application, is as follows. 7 On 18 September 2001, the first applicant ('Bucketts') applied in writing to Phalona for 250,000 units in the Phalona Unit Trust and paid $250,000 for the units. The second applicant ('Lastleto') and third applicant ('Tall Timbers') applied subsequently for a total of 800,000 units in the Phalona Unit Trust. Lastleto paid Phalona $600,000 in respect of its units and Tall Timbers paid $200,000 for its units. 8 Each of the applicants was induced to invest moneys with Phalona by representations made by or on behalf of Phalona and Clifton. Each of the pleaded representations made by Phalona and Clifton was false and, accordingly, constituted misleading or deceptive conduct in contravention of s 52(1) of the TP Act on the part of Phalona and of s 42(1) of the FT Act. 9 Phalona, through its director, Clifton, withdrew moneys from the account it maintained for the Phalona Unit Trust. In so doing, Phalona acted in breach of its duties as trustee of the Phalona Unit Trust. Clifton knowingly participated in Phalona's breach of trust. 10 The applicants seek declarations that Phalona is liable to account to them for breach of trust. They also seek orders that Phalona, on account of its breach of trust, pay equitable compensation to: · Bucketts, in the amount of $250,000; · Lastleto, in the amount of $600,000; and · Tall Timbers, in the amount of $200,000. 11 As against Clifton, the applicants seek a declaration that, on the ground of his knowing assistance in Phalona's breach of trust, he is jointly and severally liable for any moneys the Court declares that Phalona is liable to pay to the applicants. The applicants do not specifically seek orders that Clifton pay to the applicants amounts equivalent to those that Phalona is obliged to pay to the applicants. However, they seek damages from Phalona and Clifton in respect of their contraventions of the TP Act and FT Act. 12 Order 35A r 2(2)(c) empowers the Court, provided that the conditions specified in the sub-rule are satisfied, to give judgment against the respondent for the relief that the applicant appears entitled to on the statement of claim. As Heerey J observed in Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433, at [3], r 2(2)(c): 'does not require proof by way of evidence of the applicant's claim; rather that on the face of the statement there is a claim for the relief sought and, of course, that the Court has jurisdiction to grant that relief.' 13 The application for default judgment came before me for hearing on 12 December 2007. Ms Dawson, who appeared for the applicants, read several affidavits in support of the relief claimed in the motion. Some of this evidence was relevant to a summary judgment application which the applicants ultimately did not pursue. However, the evidence suggested a possible disconformity between the pleaded case and the facts deposed to in the affidavits read on behalf of the applicants. 14 I expressed concern to Ms Dawson about two matters. First, the evidence showed that: · Bucketts is the trustee of the Bucketts Road Business Services Superannuation Fund; · Lastleto is the trustee of the Lastleto Superannuation Fund; and · Tall Timbers is the trustee of the Tall Timbers Superannuation Fund. The statement of claim makes no reference to the fact that each of the applicants is apparently a trustee of a superannuation fund and that each invested moneys on behalf of the beneficiaries of a fund. 15 Secondly, some of the evidence suggested that persons who were not parties to the proceedings may have invested their own moneys with Phalona. For example, Mr Crichton, a director of Bucketts, deposed that: 'I believed that Mr Clifton had my interests in mind when he made the suggestion that I invest in [Phalona].' (Emphasis added.) Mr Crichton then said that on the basis of what he had been told: 'I agreed to withdraw $250,000 of my investments with Synergy and invest in [Phalona]'. (Emphasis added.) Similar evidence was given by Ms Grant, a director of Lastleto, and Mr Morgan, a director of Tall Timbers. 16 I invited Ms Dawson to address these apparent difficulties in supplementary submissions. In those submissions, Ms Dawson accepted that the affidavits employ lay language, which does not necessarily distinguish between family companies and individual members of the families. However, she pointed out, correctly, that the documentation annexed or exhibited to the affidavits made it clear that the moneys were paid to Phalona by each of the applicants in its capacity as the trustee of a superannuation fund, and that each applicant had used trust funds for that purpose. 17 Ms Dawson also drew attention to FCR O 6 r 14, which provides as follows: 'A proceeding concerning property subject to a trust … may be brought by or against the trustees … without joining a person having a beneficial interest in the trust … and unless the Court otherwise orders on the ground that the trustees … could not or did not represent the interest of that person, an order granted or made in the proceeding is binding on that person.' 18 The supplementary submissions adequately address the concerns I raised with Ms Dawson. I therefore do not regard them as an obstacle to making the orders sought by the applicants. 19 Subject to one matter, the applicants have made out their case for judgment by default against Phalona and Clifton. Insofar as the applicants seek judgment against Clifton for payment of particular sums, they appear to be entitled to that relief by reason of the pleaded case based on contraventions of s 42(1) of the FT Act. 20 The matter to which I refer in the previous paragraph is that Ms Dawson, quite properly, drew to my attention that Phalona has now been deregistered. It is therefore inappropriate that any orders be made against it. I will provide for the applicants to have leave, should Phalona be reregistered, to relist the proceedings. 21 I propose to make the orders sought against Clifton and to reserve liberty to the applicants to apply to restore the proceedings on seven days notice. I certify that the preceding twenty-one (21) numbered Paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.