Investec Bank (Australia) Limited v Steven Burge

Judgment 1By Notice of Motion filed on 29 August 2011 in the District Court of New South Wales ("Mr Burge's motion"), the Defendant, Mr Steven Burge ("Mr Burge") sought leave to file an Amended Defence and Cross-Claim. These proceedings were subsequently transferred to this Court and the solicitors who were then acting for Mr Burge ceased to act for him. 2By Notice of Motion filed on 28 October 2011 ("Investec's motion"), the Plaintiff, Investec Bank (Australia) Limited ("Investec") sought an order pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 14.28 that each paragraph of the "Defence and Counter-Claim" filed on 9 May 2011 be struck out or alternatively, an order, pursuant to UCPR r 13.4, that the proceedings on the Defence and Counter-Claim be dismissed. 3Both motions were listed for hearing before me on 25 November 2011. On that date, I adjourned the motions to 7 December 2011 for the reasons set out in my earlier judgment. By an email dated 6 November 2011 from Mr Burge to the Plaintiff's solicitor, which was subsequently copied by Mr Burge to my Associate, he sought a further adjournment of the motions. Counsel appeared for Mr Burge, instructed only on the adjournment application, to press for such an adjournment. I did not grant that adjournment for reasons that I have set out in a separate judgment. Counsel then sought and was granted leave to withdraw prior to the hearing of the motions that were heard in Mr Burge's absence. Mr Burge's motion 4It is not entirely clear whether Mr Burge presses his motion, following the withdrawal of Counsel briefed on the adjournment application. However, Mr Burge had sent short written submissions to the Court prior to the previous listing of the matter on 25 November and had then consented to determination of his motion on the basis of those submissions. I consider that the preferable course is to have regard to those submissions and to indicate my view on the merits of the motion on the assumption that it is still pressed by Mr Burge. Investec filed comprehensive submissions in opposition to the motion. 5I will first deal with Mr Burge's proposed Amended Cross-Claim and then with his proposed Amended Defence. Mr Burge's proposed Amended Cross-Claim seeks, relevantly, orders under s 1325 of the Corporations Act 2001 (Cth) and s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act") that he is not liable for any loans, fees or costs in connection with the Berry Project 2007 Scheme and the Sandalwood Project 2007 Scheme (as defined) or the Loan Agreements entered into with Rewards Projects Limited ("RPL") relating to those Projects, which were assigned to Investec, and which (it is alleged) should be held void or otherwise unenforceable as a result of breach of statutory duty. Mr Burge also seeks damages, interest and costs and any other order the Court considers necessary or appropriate. RPL is not joined as party to the proceedings. 6Paragraph 1 of the proposed Amended Cross-Claim repeats paragraphs 1-29 of the proposed Amended Defence. Investec contends that paragraphs 1-4 of the Amended Defence in turn purport to withdraw admissions made by Mr Burge under his existing Defence and that leave has not been granted to do so. I will deal with this issue below. It seems to me that such leave should be granted and this matter would therefore not provide a basis to decline leave to file the proposed Amended Cross-Claim. 7The proposed Amended Cross-Claim pleads that, by agreements dated 7 November 2007 and 24 August 2010 respectively, RPL assigned its beneficial and legal right, title and interest in certain Loan Agreements to Investec and that, by reason of the assignment, Investec's rights under the Loan Agreements are subject to Mr Burge's rights and equities against RPL arising pursuant to statute. Mr Burge pleads that neither the Berry Project 2007 Loan Agreement nor the Sandalwood Project 2007 Loan Agreement is valid or enforceable. 8Paragraphs 8-18 of the proposed Amended Cross-Claim plead a contravention of s 601FC of the Corporations Act which, inter alia, required RPL to act in the best interests of members of the relevant scheme and, if there was a conflict between the members' interests and its own interests, to give priority to the members' interest. The relevant failure is said to arise from the failure to inform Mr Burge of an announcement by the Commonwealth Government that it would no longer allow up-front tax deductions to be claimed in respect of investments in and payments to non-forestry managed investment schemes ("tax decision"). Paragraph 14 pleads that that conflict of interest existed because the disclosure of the tax decision and associated matters was in the interests of members but could result in Mr Burge deciding not to make the relevant investments or enter into the Loan Agreements or pay further fees in connection with the Projects, which was contrary to RPL's commercial interests. Mr Burge contends that, by reason of the pleaded matters, RPL had duties to inform him of various matters, and breached those duties by failing to inform him of those matters, failing to give priority to his interests by failing to inform him of those matters, and thereby contravened s 601FC of the Corporations Act . 9Investec contends that, although put in the language of conflict of interest, the substance of this claim is that the disclosure documents in respect of the schemes were misleading and deceptive so that they were "defective" within the meaning of s 1022A of the Corporations Act . There is, in my view, an open question whether it is possible to avoid the limitations imposed upon liability under Pt 7.9 of the Corporations Act (to which I refer below) by framing a case that is essentially one of misleading and deceptive conduct as an allegation of conflict of interest in contravention of s 601FC of the Corporations Act . However, I do not consider that it is necessary or appropriate for me to decide that matter in this context, particularly where Mr Burge has not made submissions as to that question and given the other difficulties with the present pleading to which I refer below. 10In particular, Investec identifies pleading deficiencies in paragraphs 8-18 of the proposed Amended Cross-Claim, which it contends do not plead that the tax decision had the effects to which Mr Burge refers or that knowledge of the tax decision would have caused Mr Burge to refrain from investing in either project. That pleading goes no further than to allege that disclosure of the tax decision "could result" in Mr Burge deciding not to make the relevant investments or enter the Loan Agreements or pay further fees in connection with the projects. In my view, a pleading that disclosure of the tax decision "could have" affected the decision of Mr Burge, a single potential participant in the projects, does not plead facts which would establish an arguable case of a conflict between the interests of members and the interests of RPL in respect of the disclosure of the tax decision. 11Paragraphs 19-29 of the proposed Amended Cross-Claim plead misleading and deceptive conduct by RPL in respect of the tax decision, which is alleged to have contravened s 1041H of the Corporations Act , s 12DA of the ASIC Act and s 42 of the Fair Trading Act 1987 (NSW). Mr Burge alleges that, by reason of the pleaded breach of duties and the pleaded misleading and deceptive conduct, he is entitled to orders under s 1325 of the Corporations Act and/or s 12GM of the ASIC Act that he is not liable for any amount owing under the Loan Agreements and/or the Loan Agreements are void or otherwise unenforceable. 12The alleged misleading and deceptive conduct in respect of the non-disclosure of the tax decision by RPL is not expressly pleaded by reference to the content of any disclosure document issued by RPL in respect of the relevant projects. However, Investec contends that deficiencies in a disclosure document or statement within the meaning of s 1022A of the Corporations Act are regulated exclusively by Pt 7.9 of the Corporations Act , in particular ss 1022B and 1022C, which limit the orders that can be made to orders against a "liable person": Bendigo and Adelaide Bank Ltd v Cairncross [2011] NSWSC 610 at [54]. In Woodcroft-Brown v Timbercorp Securities Ltd (No 2) [2011] VSC 526, Judd J noted that the plaintiff there argued that there was scope for a misleading or deceptive conduct case, outside the operation of s 1022B of the Corporations Act , where the conduct was by silence. Judd J rejected that contention on the basis that the case for misleading or deceptive conduct by silence was based on the contention that the scheme members had a reasonable expectation that they would be informed of the adverse matters because there was a statutory obligation to do so. His Honour observed that: "The Act contains a comprehensive scheme to prescribe and regulate the disclosure obligations of a responsible entity such as Timbercorp Securities. The scheme prescribes what a Product Disclosure Statement must and need not contain; and the ongoing disclosure obligations of the issuer of such a statement. The scheme has created a self-contained external legal context to the alleged representations and conduct. There would seem little scope for claims of misleading or deceptive conduct falling outside the scheme. That implicit, and entirely logical, limitation upon the scope of such claims is given statutory force in s 1041H(3)(c), which provides that "conduct in relation to a disclosure document or statement within the meaning of s 1022A does not contravene" the prohibition on misleading or deceptive conduct in relation to a financial product in s 1041H(1). Section 1041K extends the operation of that limitation to exclude the Fair Trading Act; and s 12DA(1A) of the Australian Securities and Investments Commission Act 2001 (Cth) provides that the prohibition found in s 12DA(1) does not extend to "conduct in relation to a disclosure document ... within the meaning of s 1022A"." 13In the present circumstances, the substance of Mr Burge's allegation appears to involve non-disclosure in the relevant disclosure documents, because the proposed Amended Cross-Claim does not plead other occasions on which matters should have been disclosed and were not. Indeed, earlier allegations as to specific dealings with a representative of RPL have been omitted from the proposed Amended Cross-Claim. In my view, consistent with the reasoning in Woodcroft-Brown v Timbercorp Securities Ltd (No 2) , I could not grant leave to file the Amended Cross-Claim so far as it contains the allegations of misleading and deceptive conduct in paragraphs 19-28 and the consequential claim for relief. 14Investec also opposes leave to file the Amended Cross-Claim on the further basis that RPL is a necessary party and has not been joined as a defendant. In my view, that criticism is well-founded so far as the relief pleaded in the proposed Amended Cross-Claim extends to "fees or costs" in connection with the Berry Project 2007 Scheme and the Sandalwood Project 2007 Scheme but would not affect the Cross-Claim so far as it seeks relief in respect of loans made in respect of those Schemes. 15Investec also contends that a claim for damages against it is only available against it, as an assignee of the rights under the Loan Agreements under s 12 of the Conveyancing Act 1919 (NSW), to found a right of deduction or set-off against its claim for damages and not to "over-top" its claim: Young v Kitchin (1878) 3 Ex D 127; Mitchell v Purnell Motors Pty Ltd (1961) 78 WN (NSW) 26; Franks v Equitiloan Securities Pty Ltd [2007] NSWSC 812 at [25]ff. In my view, this criticism is also well founded and leave should not be granted to file the Amended Cross-Claim so far as it extends to a claim for damages against Investec arising from the alleged conduct on the part of RPL, as distinct from a right of deduction or set-off. 16In these circumstances, I would not grant leave to Mr Burge to file the proposed Amended Cross-Claim in its present form. It may be possible to address these matters by further amendment to the proposed Amended Cross-Claim but it is a matter for Mr Burge to seek to formulate any such amendment. 17I now turn to Mr Burge's proposed Amended Defence. As I noted above, Investec contends that paragraphs 1-4 of the proposed Amended Defence seek to withdraw admissions made by Mr Burge under his existing Defence and that leave has not been granted to do so. This requires a comparison of Mr Burge's proposed Amended Defence with his existing Defence, which is complicated by the fact that it appears that a Defence was filed in the District Court on 9 May 2011 and served on Investec and a further Defence was filed in the District Court on 27 May 2011 but, I am informed by Counsel for Investec, not served on it. I have undertaken that comparison with the earlier of those Defences. It appears that paragraphs 1-4 of the proposed Amended Defence do withdraw or qualify matters which were previously admitted in Mr Burge's Defence and leave to do so would be required under UCPR r 12.6(2). However, it seems to me that such leave should be granted since discovery has not yet been given and evidence has not yet been filed in the proceedings and Investec has not identified any detriment that it would suffer from the grant of such leave. Apart from this matter, paragraphs 1-27 of the proposed Amended Defence appear to be in appropriate form. 18Paragraph 28 of the proposed Amended Defence pleads a defence that Mr Burge is entitled to set-off in extinction, or alternatively diminution of any liability claimed against him, the loss or damage referred to by the Defendant in his Cross-Claim. However, the form in which that paragraph is presently formulated means that it could not be permitted unless I had granted leave to file the Amended Cross-Claim, since it proceeds by reference to that Amended Cross-Claim. Paragraph 29 of the proposed Amended Defence seeks to repeat the allegations in the Amended Cross-Claim by way of defence to Investec's claim and could also only be permitted in its present form if leave had been granted to file the Amended Cross-Claim. 19It follows that I will grant leave to Mr Burge to withdraw the admissions to which I have referred in paragraph 17 above and file an Amended Defence containing paragraphs 1-27 of the proposed Amended Defence. If Mr Burge wishes to seek leave further to amend the Defence to reformulate paragraphs 28-29 of the proposed Amended Defence to address the matters which I have noted in paragraph 18 above, he would need to file a motion seeking leave to do so. Investec's motion 20As noted above, by Motion filed on 28 October 2011, Investec seeks orders under UCPR r 13.4 or r 14.28 that the existing Defence and Counter-Claim filed on 9 May 2011 be struck out. It may be that that document will be superseded by reason of the leave that I have granted above, but I will nonetheless address Investec's motion in case no Amended Defence is filed. 21The Court's power to dismiss a Summons generally or claims made in it arises under rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) which relevantly provides that: If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings: ... (b) no reasonable cause of action is disclosed ... the court may order that the proceedings be dismissed generally or in relation to that claim. The Court's power to dismiss proceedings under this rule is exercised with caution but may be exercised where a plaintiff's case is so weak that it would be futile to permit the proceedings to go to trial: see Ritchie's Uniform Civil Procedure NSW at [13.4.15]. UCPR r 14.28 in turn permits the Court to order that the whole or any part of a pleading be struck out if the pleading discloses, relevantly, no reasonable cause of action or defence or has a tendency to cause prejudice, embarrassment or delay in the proceedings or is otherwise an abuse of the process of the Court. 22Investec contends that the existing Defence and Counter-Claim is embarrassing and prolix and relies on a letter dated 1 June 2011 sent from its solicitors to Mr Burge's original solicitor in the proceedings. Investec points out that the amended pleadings proceed on a fundamentally different premise to the original Defence and Counter-Claim, which asserted that RPL was agent for Investec in making the relevant representations and notes the possibility that Mr Burge has abandoned any attempt to conduct the proceedings on the basis originally pleaded. Mr Burge also filed no submissions seeking to support the existing Defence and Counter-Claim. 23The form of the Defence and Cross-Claim is not consistent with the requirements of UCPR r 9.1(2), which contemplates that a Cross-Claim will be made by a Statement of Cross-Claim in proceedings commenced by a Statement of Claim. Paragraphs 3.1ff of the Defence and Counter-Claim contain a detailed pleading of representations made by representatives of RPL to Mr Burge, which is not repeated in the proposed Amended Defence or Amended Counter-Claim. Paragraphs 26-29 plead various matters that are alleged to be inconsistent with the alleged representations. Paragraph 31 appears to contest the efficacy of the assignment of the relevant loans to Investec, and in that respect is inconsistent with the approach adopted in the proposed Amended Defence and Amended Counter-Claim. Paragraphs 34ff plead representations alleged to have been made by RPL in project summaries. Paragraphs 45-49 plead alleged breaches of contract by RPL. Paragraph 52 claims damages against RPL and Investec under s 82 of the Trade Practices Act 1974 (Cth) and other relief and paragraphs 53-54 claim a right of set-off against Investec. 24In my view, there are several fundamental defects with the existing Defence and Counter-Claim. First, the Defence and Counter-Claim pleads that the alleged representations were made by RPL as agent for Investec without pleading the material facts which are alleged to support the allegation of agency, and alternatively that Investec "is to be attributed with the making of the representations by operation of the Trade Practices Act" without identifying any basis for that attribution. If the intended basis for that attribution is an allegation of knowing involvement under s 79B of the Trade Practices Act , then neither the material facts relevant to any involvement of Investec nor the material facts relevant to any knowledge on its part of the falsity of representations made by RPL are pleaded. Second, no basis is established in the pleading for any conduct on the part of Investec that could support the relief under the Trade Practices Act claimed against it and no breach of contract is pleaded against Investec so as to support any claim for contractual relief against it. Third, the Defence and Counter-Claim claims relief against RPL, which has not been joined as party to the proceedings. These matters should not come as a surprise to Mr Burge since they had been outlined in a letter dated 1 June 2011 from Investec's solicitors to his former solicitors, which had invited him to replead his case against Investec and foreshadowed an application of the kind which Investec has now brought. 25In my view, the present form of the Defence and Counter-Claim has a tendency to cause prejudice, embarrassment or delay in the proceedings for these reasons and should be struck out on that basis. Investec made clear in oral submissions before me that it was not contended that such an order would finally dispose of the proceedings. Orders 26Accordingly, I order that: 1 The Defendant have leave to file an Amended Defence containing paragraphs 1-27 of the proposed Amended Defence which was marked Exhibit P1. 2 The Defence and Counter-Claim filed by the Defendant on 9 May 2011 be struck-out. 3 The proceedings be listed before the Registrar in Equity on 10 February 2012 for further case management.