H.S.D. Co Pty Ltd v Masu Financial Management Pty Ltd

DECISION : (ii) Leave be granted to the first and second defendants to file a further amended defence to plead proportionate liability, to the extent they are advised so to do, and to the extent that they can overcome the deficiencies in the current proposed second amended defence;

(iii) The defendants pay the plaintiff's costs, of and incidental to the notice of motion, as agreed or assessed, and the defendants pay the plaintiff's costs thrown away, if any, as a result of the amendments.

CATCHWORDS : PRACTICE AND PROCEDURE - amended defence - proportionate liability - must be pleaded in manner that discloses the cause of action and damage as if initiating process - amendments disallowed - leave to re-plead

Australian Securities and Investments Commission Act 2001 (Cth) LEGISLATION CITED : Civil Liability Act 2002 Civil Procedure Act 2005 Trade Practices Act 1974 (Cth)

Caltex Oil (Australia) Pty Ltd v Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529 Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450 CASES CITED : Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562 UCAK v Avante Developments [2007] NSWSC 367 Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515

H.S.D. Co Pty Ltd (Plaintiff) PARTIES : Masu Financial Management Pty Ltd (First Defendant) Surendra Pather (Second Defendant)

COUNSEL : A Abadee (Plaintiff) G Curtin (Defendants)

SOLICITORS : Judd Commercial Lawyers (Plaintiff) Gilchrist Connell Legal (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20075/2007 H.S.D. Co Pty Ltd v Masu Financial Management Pty Ltd & Anor

JUDGMENT 1 HIS HONOUR: The defendants seek leave to file an amended defence, to add paragraphs 16-22 and some other consequential alterations, dealing with a more detailed contention in relation to contributory negligence (paragraphs 13-17) and with an allegation of proportionate liability (paragraphs 18-22). 2 The plaintiff does not oppose the amendments to the defence, save as to paragraphs 18-22, which it submits does not adequately plead proportionate liability. Facts 3 The facts necessary, for the purpose of the exercise of the Court's jurisdiction to deal with the issues that are before it, are within short compass. The substantive proceedings involve a professional negligence claim by an investor against financial advisers. The claimed loss is approximately $1 million and arises from advice, which resulted in an investment in the Westpoint Group. 4 It is alleged that the defendants recommended that the plaintiff invest in a property development on York Street, Sydney, being constructed by one or more companies associated with Westpoint Corporation Pty Ltd ("Westpoint"). The plaintiff invested. Money was lost. There were a number of times, on which advice was given, and the total amount of money invested was invested over a period of time commencing in or about November 2002 through to about July 2005 with, it is alleged, an assurance by the defendants, given in or about August 2005, that the investment of approximately $1 million was secure. 5 The defendants seek to allege that Westpoint Corporation Pty Ltd, the Westpoint Entities and a number of individuals are concurrent wrongdoers. The defendants seek to limit their liability in accordance with: Part 4 of the Civil Liability Act 2002; Part 2, Division 2, Sub-Division GA of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"); and Part VIA of the Trade Practices Act 1974 (Cth). 6 Pursuant to the aforementioned statutes, the defendants' liability is limited to an amount reflecting the proportion that the Court considers just, having regard to the extent of the liability of the defendants, compared with the liability of the concurrent wrongdoers. 7 It should be noted, for present purposes, that the statement of claim was filed on 16 March 2007 and the original defence was filed on 14 August 2007. An amended defence (leave having been granted on 14 February 2008) was filed on 22 February 2008. 8 The defendants have served this proposed second amended defence on the plaintiff on or about 10 June 2008. The plaintiff requested further and better particulars of the second amended defence, which were answered (in whole or in part) on or about 22 July 2008. The notice of motion, with which the Court is now dealing, was filed on 18 August 2008. Civil Liability Act 9 The issue between the parties concerns the proper construction of the Civil Liability Act and whether the second amended defence conforms with the requirements to establish proportionate liability and pleads the defence appropriately. The relevant sections are:

"34 Application of Part (1) This Part applies to the following claims ('apportionable claims'): (a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury, (b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act. (1A) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind). (2) In this Part, a 'concurrent wrongdoer', in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim. (3) For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1). (4) For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died."

"35 Proportionate liability for apportionable claims (1) In any proceedings involving an apportionable claim: (a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount. (2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim: (a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and (b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant. (3) In apportioning responsibility between defendants in the proceedings: (a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and (b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings. (4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings. (5) A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise."

"35A Duty of defendant to inform plaintiff about concurrent wrongdoers (1) If: (a) a defendant in proceedings involving an apportionable claim has reasonable grounds to believe that a particular person (the 'other person') may be a concurrent wrongdoer in relation to the claim, and (b) the defendant fails to give the plaintiff, as soon as practicable, written notice of the information that the defendant has about: (i) the identity of the other person, and (ii) the circumstances that may make the other person a concurrent wrongdoer in relation to the claim, and (c) the plaintiff unnecessarily incurs costs in the proceedings because the plaintiff was not aware that the other person may be a concurrent wrongdoer in relation to the claim, the court hearing the proceedings may order that the defendant pay all or any of those costs of the plaintiff. (2) The court may order that the costs to be paid by the defendant be assessed on an indemnity basis or otherwise."

"37 Subsequent actions (1) In relation to an apportionable claim, nothing in this Part or any other law prevents a plaintiff who has previously recovered judgment against a concurrent wrongdoer for an apportionable part of any damage or loss from bringing another action against any other concurrent wrongdoer for that damage or loss. (2) However, in any proceedings in respect of any such action the plaintiff cannot recover an amount of damages that, having regard to any damages previously recovered by the plaintiff in respect of the damage or loss, would result in the plaintiff receiving compensation for damage or loss that is greater than the damage or loss actually sustained by the plaintiff."

"38 Joining non-party concurrent wrongdoer in the action (1) The court may give leave for any one or more persons to be joined as defendants in proceedings involving an apportionable claim. (2) The court is not to give leave for the joinder of any person who was a party to any previously concluded proceedings in respect of the apportionable claim." 10 While different in form, the requirements for proportionate liability under the Trade Practices Act and/or the ASIC Act are similar. Principles 11 The provisions of ss 56, 57, 58 and 59 of the Civil Procedure Act 2005 affect the exercise of jurisdiction to make any order or direction for the management of proceedings before the Court and, to the extent relevant, inform the exercise of any discretion of the Court in relation to the principles of case management and the balancing of justice between the parties. 12 Proportionate liability claims, apart from the delay that may be caused by any amendment to pleadings, will not, generally, prejudice a plaintiff, except to the extent that any such claim would delay the proceedings and prolong the hearing. 13 If, as the legislature contemplates, a defendant is not wholly responsible for the damage caused to a plaintiff, and others are, it is appropriate that those others share the burden of such damages as may be awarded. The provisions of s 38 of the Civil Liability Act have the effect that, a plaintiff can, in circumstances where a defendant alleges the existence of concurrent wrongdoers and a limitation in liability proportionate to the extent to which the defendant is responsible, join the alleged concurrent wrongdoers as defendants to the proceedings. While this may make the proceedings more complicated and more expensive from the perspective of the plaintiff, any prejudice to the plaintiff created thereby can be overcome with appropriate orders for costs. Principles - Proportionate Liability 14 The fundamental principle underpinning the promulgation of legislation permitting proportionate liability is that persons, who are one only of a number who have occasioned the same damage, should bear the damage proportionately to the number of persons who are responsible. 15 The obvious precondition to limiting liability, on the basis that others are also responsible for the damage, is to prove that those others have caused the damage and are legally responsible for it. 16 There is a complementary duty (s 35A of the Civil Liability Act, above) on the defendant, who invokes the provisions, to inform the plaintiff of relevant information on any person, who may be a concurrent wrongdoer, in default of which there are consequences in costs. 17 As seems obvious from the foregoing, the scheme extends protections that would otherwise be available by issuing a cross-claim. In order to utilise a cross-claim, a defendant must allege a cause of action by it against the cross-defendant. The proportionate liability provisions allow the defendant to allege a cause of action by the plaintiff against the concurrent wrongdoer. Such a right brings with it the correlative duty to specify, in the same way as if there were a cross-claim, the basis for proportionate liability and the basis for identifying a person as a concurrent wrongdoer. 18 It is essential, if these provisions are to operate appropriately, that any defendant be required to plead the proportionate liability defence in a manner that discloses the cause of action and damage in at least as detailed a manner as would be required of any initiating process for such a cause of action. The information should include:

(b) the basis for the cause of action - if it be contract, identify the contract; if it be tort, identifying the duty, its scope and the breach; and

(c) the damage - the aspects of causation; the alleged extent and proportion of the damages, and the causal connection with the damage said to be suffered by the plaintiff in the substantive proceedings. In this regard, I agree, with great respect, with the view expressed by McDougall J in his paper "Proportionate Liability in Construction Litigation" (2006) 22 BCL 394 at 400; see also UCAK v Avante Developments [2007] NSWSC 367 (per Hammerschlag J) and Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450 (per Middleton J). Paragraphs 18-22 of the Proposed Second Amended Defence 19 The contentious paragraphs are in the following terms: "18. The Defendants say that:

are concurrent wrongdoers within the meaning of the various statutes referred to below.

19. By the operation of Part 4 of the Civil Liability Act 2002 (NSW) (in relation to the claims in tort), Part 2, Division 2, Sub-division GA of the ASIC Act 2001 and Part VIA of the Trade Practices Act and liability of the Defendants is limited to an amount reflecting that proportion the Court considers just having regard to the extent of the Defendants' responsibility for the Plaintiff's loss or damage.

20. Each of the concurrent wrongdoers owed a duty to the Plaintiff to ensure prospective promissory note holders, including the Plaintiff, were provided with information which:

a) presented a fair and balanced picture of the risks involved to the [sic] those who invested in promissory notes;

iii) the use of which funds raised from the holders of promissory notes would be put;

i) an inadequate account of financial data associated with the York Street development in respect of cash flow projections, financing costs, draw downs and project costs;

ii) no independent expert opinion as to the viability of the developments.

21. Each of the concurrent wrongdoers breached their duty thereby causing the Plaintiff's loss.

a) Each of the concurrent wrongdoers failed to ensure that the information provided to prospective promissory note holders (by way of the various Information Memoranda);

i) presented a fair and balanced picture of the risks involved to the [sic] those who invested in promissory notes;

iii) accurately reflected the projected costs of the development;

iv) accurately reflected the projected income of the development;

v) accurately reflected the use to which funds raised from the holders of promissory notes would be put;

vi) made clear that the consolidated balance sheet of York Street Mezzanine Pty Ltd in the Information Memoranda had not been audited;

vii) made clear that the consolidated balance sheet of York Street Mezzanine Pty Ltd in the Information Memoranda contained valuations supplied by directors rather than independent and qualified third parties;

viii) made clear that there was an inadequate account of financial data associated with the York Street development in respect of cash flow projections, financing costs, draw downs and project costs;

ix) made clear that there were no independent expert opinion as to the viability of the redevelopments.

b) Further particulars will be provided as soon as possible after completion of investigations by ASIC and the liquidator of York Street Mezzanine, Ann Street Mezzanine and/or Westpoint Corporation Pty Ltd.

22. As a result of the concurrent wrongdoers breaches of duty, the Plaintiff has suffered the same loss and damage as that alleged by it against the Defendants." 20 Paragraph 18 of the proposed second amended defence identifies the persons who, it is said, are concurrent wrongdoers. Paragraph 19 purports to make clear that it is the proportionate liability defences upon which the defendants rely. Paragraphs 20 and 21 of the proposed second amended defence purport to allege a duty by each of the identified concurrent wrongdoers to the plaintiff "to ensure prospective promissory note holders … were provided with information" of a certain kind and alleges a breach of the duty by the failure to provide the information that, it is alleged, the concurrent wrongdoers were obliged to provide. 21 The assertion that there exists a duty, without more, is not a sufficient pleading to enable the plaintiff to determine for itself whether each identified person owes such a duty. The existence of a duty of care depends upon the relationship between the alleged wrongdoer and the person to whom it is alleged that the duty is owed. It is not clear, from the pleading, whether the duty alleged in paragraph 20 of the proposed second amended defence is a duty in contract or tort. Nor is it expressed, at any point, whether there is a relationship, and if so the nature of the relationship, between the alleged wrongdoer and the plaintiff. Further, if the duty is said to arise from statute, likewise, the duty has not been specified. 22 There is no precise formula that can be applied to determine whether a duty exists: Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562, at least in relation to negligence. Since no other relationship is expressed (and no statutory duty is identified), the Court must assume that the defendants rely upon one or other of the liabilities in tort. The pleading certainly does not make it clear. And if it be such a liability, the relationship that gives rise to the duty of care is also not specified. Because the damage seems to be economic loss, and necessarily the duty must relate thereto, the issue of relationship becomes even more important: Caltex Oil (Australia) Pty Ltd v Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529; Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515 at [22]-[24]. 23 The plaintiff also complains about the duty being expressed as one "to ensure" the provision of certain information. This is, in some respects, a counsel of perfection. Given the nature of the conduct, which, it is alleged, the wrongdoers were required to perform in order to fulfil their duty to the plaintiff, it is clear that the allegation is that the wrongdoers failed to take reasonable steps to ensure. 24 However, the statement of the breach of duty does not particularise sufficiently, or allege at all, the acts that were not performed, which thereby led to the breach of the alleged duty. Rather, the defendants allege a result and, it seems, assume that there must have been steps that could have been taken that would have produced a different result and that those steps were reasonable (assuming negligence is the cause of action). Further, they must be requesting the Court to assume that it was part of the duty of the concurrent wrongdoer to the plaintiff to take those steps. 25 None of the foregoing is pleaded in a manner that would allow the plaintiff to understand the nature of the relationship between it and the alleged wrongdoers, the duty that arises from that relationship, the conduct (including omissions) that gave rise to a breach of that duty and the losses occasioned thereby. In those circumstances, the plaintiff is not placed, by these proposed pleadings, in a position of being provided with sufficient information, to determine whether it is appropriate to join, as defendants, the proposed concurrent wrongdoers, or otherwise to deal with the defence of proportionate liability based upon this allegation. Conclusions 26 For the foregoing reasons, leave is not granted to plead paragraphs 18-22 in their current form. 27 The plaintiff submits that no further liberty should be granted to re-plead the proportionate liability defence. 28 There has been significant lapse of time during which the defendants have had the ability to garner the necessary facts and plead them with some specificity. The defence of proportionate liability was first raised in August 2007. However, the Civil Liability Act allows such a defence to be pleaded. Even if the defendants are not "in a better position now to articulate that defence" than they were in August 2007, the defendants should not be denied the capacity to raise an appropriate and available defence, if they be capable of so doing. 29 The problems with the proposed second amended defence are problems that can be resolved by the provision of appropriate information. Because of the particular nature of proportionate liability defences, the Court does not take the view that it is appropriate for the defendant to supply that information by way of an answer to a request for further and better particulars. The omissions in the proposed second amended defence are not omissions of particulars. They are omissions that go to the heart of the defence. Nevertheless, it is appropriate, if those omissions be corrected, that the defendants have the capacity to plead the defence. 30 For the foregoing reasons, the Court makes the following orders:

(i) Leave be granted to the first and second defendants to amend their amended defence in accordance with the proposed second amended defence annexed the affidavit of Steve Vrtkovski, sworn 15 August 2008, except that such proposed second amended defence may not include paragraphs 18-22 thereof;

(ii) Leave be granted to the first and second defendants to file a further amended defence to plead proportionate liability, to the extent they are advised so to do, and to the extent that they can overcome the deficiencies in the current proposed second amended defence;

(iii) The defendants pay the plaintiff's costs, of and incidental to the notice of motion, as agreed or assessed, and the defendants pay the plaintiff's costs thrown away, if any, as a result of the amendments.

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