Cachia v Westpac Financial Services Ltd

THE STATEMENT OF CLAIM 3 What follows is an account of the statement of claim and does not involve any finding of fact. The statement of claim pleads the applicant's case in two general ways. 4 The first, pleaded paras 3-7 and 22-25 of the statement of claim, relates to certain representations ("the Representations") said to have been made by the respondent in its capacity as manager of the Westpac Real Property Growth Trust ("the Trust") constituted by deed dated 17 September 1984 ("the Deed"). In general terms, the Representations were to the effect that the main objective of the Trust was to acquire real estate for the purpose of long term capital appreciation, that investment in the Trust was a medium to long term investment (five to ten years), and that unitholders would be entitled to convert their units into cash upon request within a matter of days. The Representations should have been qualified by statements to the following effect ("the Qualifications") that: "(a) The Deed could be altered in the future by a vote of the unitholders leading to all of the units in the Trust being compulsorily redeemed for units in a different trust with fundamentally different investment purposes and without the [u]nitholders being able to convert their units for cash prior to or in lieu of the compulsory redemption; (b) … the Deed could be altered with retrospective effect to deem requests to convert units to cash to be of no force or effect; (c) … the respondent could in future choose to ignore requests to convert units to cash either pursuant to the terms of an amended Deed or in anticipation of such an amendment." 5 In reliance upon the Representations made in the absence of the Qualifications, in 1985 the applicant purchased 57,397.21 units in the Trust, and chose, down to 14 February 1992, not to have them converted into cash. As noted below, the date 14 February 1992 was the date of an unmet request by the applicant that the respondent convert his units to cash. 6 The applicant claims in paras 22-24 of the statement of claim that, by making the Representations and failing to make the Qualifications, the respondent was guilty of a material non-disclosure contrary to s 107 of the Companies Code, misleading and deceptive conduct contrary to s 52 of the TP Act and s 995 of the Corporations Law, and a breach of a common law duty of care owed to him. In consequence he suffered loss and damage. The loss and damage are particularised as follows in para 25 of the statement of claim: "Had the respondent not made the Representations and had the respondent made the Qualifications, the applicant would in 1985 have invested his money elsewhere for the long term and assuming a rate of return of 15.11% the applicant would have achieved an investment worth by January 1999 of [sic] in excess of $410,000 free of capital gains tax. This compares with the far lesser amount of the current value of the applicant's units in the Westpac Property Trust [see below] which is subject to capital gains tax." (emphasis supplied) 7 The second way in which the applicant's case is pleaded relates to certain provisions of the Deed and to certain alleged fiduciary duties. The provisions of the Deed, in particular, clause 51, and the fiduciary duties are said to have imposed, in one way or another, an obligation on the respondent, upon request by a unitholder, to convert the unitholder's units into cash. In February 1992, the respondent advised unitholders of a proposal that the Deed be amended: • to permit redemption of all units for units in a listed property trust called the "Westpac Property Trust", "a trust with fundamentally different investment purposes and taxation consequences for the applicant"; and • to provide that requests for conversion to cash received prior to the date fixed for the compulsory redemption of all units should be of no force or effect if not already acted upon by the respondent or by the trustee of the Trust. In response to this notification to all unitholders, the applicant wrote to the respondent on 14 February 1992 requesting that his units be converted into cash. On 5 March 1992 the unitholders resolved to amend the Deed as suggested by the respondent. On the same day the applicant confirmed in writing to the respondent his request of 14 February that the respondent convert his units to cash, but in breach of express and implied provisions of the Deed and the respondent's fiduciary duties, the respondent failed to meet the request. Instead, the respondent redeemed the applicant's units and issued him with units in the Westpac Property Trust. 8 The applicant claims that the respondent's breaches of the Deed and of its fiduciary duties caused him loss and damage which are particularised as follows: "Had the respondent repurchased or bought back the applicant's units on or about February 1992 the applicant would have received $2.27 per unit which he would have received free of capital gains tax and which would have been invested in another long term investment compared with the value of the units (worth approximately $1.11 in 1992) the respondent [semble - the applicant] currently has in the Westpac Property Trust pursuant to the compulsory redemption of the applicant's units which occurred on a date unknown to the applicant after 11 March 1992."

BACKGROUND FACTS 9 It is necessary now to refer briefly to some of the background to the events of 1992. During 1991, property values, and consequently the value of units in property trusts, were in decline. Many investors requested the managers of various unlisted property trusts to buy back their units. The trust deeds constituting the trusts generally obliged the managers to do so. However, the volume of requests was such that there was a fear that if the managers were to comply with them, they would be forced to sell the underlying properties quickly in an already depressed market. In response to this situation, the Corporations Law was amended to provide that the trust deeds of certain unlisted property trusts were deemed to be amended by including, inter alia, a provision that the managers of such trusts were not to buy back units until the expiration of a period of 12 months from the day on which a buy‑back request was received. 10 The amendments were affected by the introduction of Division 5A (ss 1076A‑1076ZC) into Part 7.12 of the Corporations Law with effect from 23 July 1991. The provisions introduced the concepts of a "Division 5A trust" and a "Subdivision C trust". Broadly, a "Division 5A trust" was an unlisted "property trust" in respect of which there was a deed approved for the purposes of Division 5 of Part 7.12 of the Corporations Law. A "property trust" was defined as a trust where at least 20% by value of the trust property consisted of estates in land or a trust that was promoted as a trust of that kind. A "Subdivision C trust" was defined as a trust that was a Division 5A trust on 23 July 1991 and at all times thereafter. I find it convenient to record here that the evidence satisfies me that the Trust was a property trust, a Division 5A trust and a Subdivision C trust. 11 Subdivision C (ss 1076K - 1076ZC) provided in s 1076K that the deed of a Subdivision C trust was deemed to contain a provision that the management company was not to buy back units pursuant to any request received after 23 July 1991 until after 12 months from the date of receipt of the request, after which period it should comply with its obligations to buy back "as soon as practicable". These "moratorium" provisions, implied in deeds by s 1076K, were called "entrenched provisions" and were to have effect notwithstanding anything else in a deed (s 1076L(2)). But the management company was permitted to convene a meeting of unitholders for the purpose of their voting on a "special variation proposal" relating to such entrenched provisions at a "special variation meeting". Certain voting majorities were required if a special variation proposal was to be passed at a special variation meeting (s 1076T). It is convenient to note here that the required majority was satisfied by the resolution passed on 5 March 1992 in the present case. 12 Section 1076Y was as follows: "A special variation proposal that relates to the entrenched provisions of the trust deed of a Subdivision C trust and has been passed, and amendments of the entrenched provisions of the deed in accordance with the proposal, do not apply to the buying back or redemption of units pursuant to a withdrawal request received by the trust before the proposal was passed, except so far as the contrary intention is expressed in the proposal." (emphasis supplied) 13 In the present case, the applicant's request was received by the respondent before the unitholders passed their resolution on 5 March 1992. Accordingly, a question arises whether "a contrary intention [was] expressed in the proposal" in the present case. The respondent's "Information Memorandum and Notice of Meeting" dated 5 February 1992 to the unitholders in the Trust referred to the legislative intervention and said that the respondent had "considered the various options available to Unitholders and [was] proposing a solution which it believe[d] [was] in the best interest of Unitholders as a whole". That solution involved the listing of the Westpac Property Trust and the merger of the Trust with the Westpac Property Trust. The merger was to be effected by an amendment to the Deed deeming all unitholders to have requested redemption of their units and to have agreed to accept, in lieu of cash, units in the Westpac Property Trust to an equal value. 14 The respondent's proposal was accepted at the meeting of the Trust's unitholders held on 5 March 1992 when votes were cast in respect of some 68% of the units on issue and some 97% of the votes cast were in favour of the proposal. 15 Pursuant to the resolution of unitholders, on 11 March 1992 the Deed was amended to give effect to the resolution. 16 The respondent contends that its refusal to buy back the applicant's units was authorised by the amendment of the Deed which was agreed to at the meeting. That amendment deemed any request to repurchase units lodged by a unitholder prior to the date fixed for the implementation of the proposal to be of no force and effect. The applicant denies that on its proper construction the amendment had the effect contended for by the respondent. In the alternative, he submits that the amendment could not, as a matter of law, unilaterally and retrospectively amend the contract between the parties (the applicant refers to Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399) and that the redemption of units in the Trust and the issue of units in the Westpac Property Trust in substitution for them amounted to a fraud on the minority unitholders in the Trust (the applicant refers to Gambotto v WCP Ltd (1995) 182 CLR 432). REASONING 17 I will deal first with the respondent's attack on the second way in which the applicant's case is put. Failure to comply with the buy-back request 18 The respondent submits that the applicant will not be able to succeed at trial because the respondent's defence, that the deed was validly amended, must succeed. The terms of the relevant amendments made by the amending deed of 11 March 1992 are as follows: "1. The [Deed] is amended by: (a) inserting an additional Clause at the end of the [Deed] as follows:

55 (1) Notwithstanding anything contained in this Deed, the parties to this Deed, including, without limitation, all Registered Holders, covenant to comply with the covenants required by sub-section 1069(1) of the Corporations Law [buy-back covenants] to be contained in this Deed…

Nothing in this Deed shall derogate from or affect the operation of or limit the interpretation of this covenant. …

(1) inserting the following additional Clause at the end of the [Deed]:

56 (1) Upon a date to be fixed by the Trustee by notice in writing to the Managers, all Unit Holders shall be deemed to have requested redemption of all their respective Units in the Trust in accordance with Clause 51 and to have agreed to accept, in full satisfaction of the amount payable on redemption by virtue of such request and the ensuing redemption of their respective Units under Clause 51, Units in Westpac Property Trust to a value equal to the value of the Units in the Trust so redeemed subject to the issue to the Trustee of Westpac Property Trust of Units in the Trust equal in number to the Units so redeemed. For this purpose, 'value' shall be determined in the manner set out in the Information Memorandum forwarded to Unit Holders together with the notice of the meeting at which the Unit Holders direct the Trustee to enter into an Amending Deed to amend this Deed to include this Clause. (2) For the purposes of this Clause, 'Westpac Property Trust' is the Unit Trust so called constituted by Deed dated 15 July 1977 (and subsequently amended from time to time) among the Managers, the Trustee and the Guarantor". (2) inserting the following additional sub-clause at the end of Clause 51: '(10) Any request to repurchase Units lodged by a Unit Holder with the Managers on or prior to the date fixed by the Trustee pursuant to Clause 56(1) and not acted upon by the Managers or the Trustee in accordance with this Clause on or prior to that date shall be deemed to be of no force or effect.' " 19 Counsel for the respondent acknowledges that there is a "tension" between the opening and concluding words of the new sub-clause 55(1) on the one hand and the new sub-clause 51(10) on the other. Counsel says that this tension is resolved by two considerations. The first is that clause 56 is an "entrenched provision" which is given paramountcy by s1076L(2) of the Corporations Law. The second is that the new sub-clause 51(10) does not derogate from the existence of the buy-back covenant: rather, it merely deems the particular notice of request not to have been given, as distinct from providing, for example, that the buy-back covenant does not apply at all. 20 The applicant submits that general law principles governed the ways in which the respondent and the majority unitholders were entitled to conduct themselves in relation to a unitholder placed as the applicant was, and in relation to the amendment of the Deed. As noted earlier, he refers, in particular, to Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 ("Bailey") and Gambotto v WCP Ltd (1995) 182 CLR 432 ("Gambotto"). The respondent seeks to distinguish Bailey as concerned with a "special contract" between a company and an individual member, and Gambotto on various bases, including the fact that the Information Memorandum and Notice of Meeting addressed the question of adverse capital gains tax consequences for unitholders who, like the applicant, had acquired their units prior to 20 September 1985. In this respect, counsel for the respondent said in oral submissions: "The capital gains tax loss which Mr Cachia painfully suffered, was fully disclosed in the information [memorandum]. The risk of it happening was set out. There really was nothing else for this trust to do. With respect, what he is seeking to do is to put above 99, or 98 per cent of the other unit holders who, in fact, did not want the trust to be wound up, his right and which he asserts to exist, to have his units redeemed even though that would require the sale of several large office blocks." 21 Counsel for the respondent submits that what was done here was necessary for the preservation of the Trust. 22 In my opinion, there are triable issues in relation to the present part of the applicant's claim. 23 To take but one example, the respondent submits that the fraud on the minority principle from Gambotto does not apply because the respondent had no other choice but to recommend the redemption of all units in the Trust and the issue of units in the Westpac Property Trust in their place. However, as the applicant points out, in the Information Memorandum and Notice of Meeting it was noted that outstanding requests for redemption of units amounted to less than 4.5 per cent of all units in the Trust. It is not clear why these requests could not have been met without the implementation of the respondent's proposal, particularly given the benefit of the legislatively imposed twelve month freeze on redemptions. There may be a perfectly satisfactory answer to this question, but I do not think it appropriate to resolve it on a strike out basis. 24 In addition, I would be reluctant to decide on the present motion the complex questions of construction of the legislation to which I have referred. I accept that the required level of satisfaction of a motion of the present kind may be properly attained after extensive argument: cf General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130, per Barwick CJ. But I do not think that on every application for summary determination, a court is required to analyse fully and reach a conclusion upon all questions of law that are raised. In particular, where, as here, there are other triable issues in any event, and competing constructions of complex legislation arise, decision upon those competing constructions are appropriately left to trial.

The claims for statutory contraventions and breach of duty of care 25 I turn now to the first way in which the case was put by the applicant. The respondent makes complaint about the pleading of its failure to state the Qualifications. It submits that it could not reasonably have been expected to warn the applicant of the "crash in the property market" or of the possibility that Government might place a statutory moratorium on the redemption of units. The respondent also relies on statements in the prospectus that it was entitled to vary the investment policy of the Trust (acquisition of a portfolio of prime Australian real estate for long term capital appreciation). There is force in the respondent's submissions but the question of the extent to which the applicant should have been warned of the risk that he might not, after all, be entitled to have his units redeemed at any time, is one for the final hearing. 26 The respondent also submits that the measure of damages claimed by the applicant is "unknown to the law". It submits, relying upon Potts v Miller (1940) 64 CLR 282 and Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 ("Wardley"), that the only proper measure of damages in this case is any difference between the price paid by the applicant for his units and their true value at the time of acquisition. I accept that this is at least the prima facie or "starting point" measure of damages where a person is induced to purchase property which the purchaser can readily realise in a market. But the applicant pleads that the misrepresentations induced him, not only to purchase the units but to retain them until 1992 when he requested redemption of them when faced with the respondent's proposal. 27 In reply to the respondent's submission, the applicant seeks to distinguish the holdings in Potts v Miller and Wardley, and refers to the discussion of Jobbins v Capel Court Corporation Ltd (1989) 25 FCR 226 ("Jobbins") in Wardley at 529 and to Spice v Westpac Banking Corporation (Foster J, 1 September 1989, unreported) at 75. Counsel for the respondent submits that those authorities have nothing to say to a case such as the present one, where the applicant was induced by representations to purchase property. I note that Jobbins was disapproved by the High Court in Wardley. Spice, which pre-dated Wardley, was a foreign currency loan case. 28 I think that the pleading of loss and damage is defective. The applicant claims that if the respondent had not made the Representations or had stated the Qualifications, he would not have purchased the units in 1985, and would, instead, have invested elsewhere and would now have an investment worth $410,000, whereas the current value of his units in the Westpac Property Trust is far less than that and those units are, moreover, subject to capital gains tax. The applicant has not sold his units in the Westpac Property Trust with the result that his loss has not yet crystallised. Actual loss or damage as distinct from a potential for, or risk of, loss or damage is required for an award of damages under s82 of the TP Act: see Wardley above at 526; Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 at paras [9], [107]. In my view, this requirement clearly also applies to claims under s107 of the Companies Code and ss 995 and 1005 of the Corporations Law. 29 In my opinion, the applicant has not pleaded material facts showing the actual suffering of any loss or damage; cf O 11 r 2(a) of the Federal Court Rules. He pleads in para 25 of the statement of claim only that by reason of contraventions of the three statutes and of a general law duty of care, he has suffered loss and damage. The reference in the particulars of para 25 to "the current value of the applicant's units in the Westpac Property Trust" betrays the problem rather than overcomes it. The word "current" refers to the date of the pleading, that is, 2 December 1998. In the absence of a pleading of further facts (I do not mean to suggest that they are available to be pleaded) the measure of the applicant's loss is the amount he outlaid minus the value of his units in the Trust, as at some date earlier than 2 December 1998, such as the date of their acquisition, or the date (on or about 14 February 1992) when the inducement ceased to be operative, or the date (perhaps March 1992) when he first became able to sell his units in the Westpac Property Trust on the stock exchange. 30 It suffices for the disposition of the present motion for me to decide, as I do, that the applicant has not pleaded facts showing a suffering of loss or damage according to the measure of damages assumed by his particulars or otherwise. 31 I note, in passing, the power of the Court to award interest under s51A of the Federal Court of Australia Act 1976 (Cth) from the date on which the applicant's cause of action arose to the date as of which judgment is entered. CONCLUSION 32 Paragraphs 3-7 and 22-25 of the statement of claim will be struck out. The applicant will have leave to re-plead in respect of the claims for damages for statutory contraventions and breach of duty of care. Otherwise, the respondent's motion will be dismissed. 33 Both parties have had some success on the motion. There will be no order for costs. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Counsel for the applicant Mr R Dubler (Respondent to motion):

Solicitor for the applicant (Respondent to motion): The applicant appears on the record in person

Counsel for the respondent Mr N Perram (Applicant to motion):

Solicitors for the respondent (Applicant to motion): Mallesons Stephen Jaques

Date of Hearing: 4 August 1999

Date of Judgment: 7 September 1999