Tavares; Firstmac Ltd v Di Benedetto; Firstmac Ltd v O'Donnell [2011] NSWCA 389
Webster v Lampard (1993) 170 CLR 598
Woodcroft-Brown v Timbercorp Securities (No 2) [2011] VSC 526
Texts Cited: G E Dal Pont Law of Agency (2nd edn, LexisNexis, 2008)
W A Seavey "The Rationale of Agency" (1919-1920) 29 Yale Law Journal 859
P Watts and F M B Reynolds, Bowstead and Reynolds on Agency (19th edn, Sweet & Maxwell, 2010)
Category: Interlocutory applications
Parties: Investec Bank (Australia) Ltd (Plaintiff/Respondent)
Peter Colley (Defendant/Applicant) (Appearing in person)
Representation: Counsel
J M White (Plaintiff/Respondent)
Solicitors
Gadens (Plaintiff/Respondent)
File Number(s): 11/150895
[2]
Judgment
1HER HONOUR: Before me for hearing on 19 June 2012 were two separate applications:
(i) an application by Notice of Motion filed on 9 December 2011 by the defendant (Mr Colley), seeking leave pursuant to s 64 of the Civil Procedure Act 2005 (NSW) and rule 19.5 of the Uniform Civil Procedure Rules 2005 (NSW) to file an Amended Defence and Amended Cross-Claim; and
(ii) an application by Amended Notice of Motion filed on 2 February 2012 by the plaintiff (Investec Bank (Australia) Ltd), seeking an order pursuant to Rule 13.1 of the Uniform Civil Procedure Rules for summary judgment against Mr Colley on part of the claims made in the Statement of Claim and an order pursuant to Rule 14.28 that the Cross-Claim filed on 16 August 2011 by Mr Colley be struck out (the latter arising only if leave to amend the cross-claim is not granted). Investec did not press for the relief sought in paragraphs 3 and 4 of the Amended Notice of Motion (for dismissal of the proceedings on the Cross-Claim and its costs of those proceedings).
2By the time of the hearing of these applications, Mr Colley was self represented (the lawyers formerly acting for him in these proceedings having filed a Notice of Intention to File Notice of Ceasing to Act on 3 May 2012 and subsequently a Notice of Ceasing to Act on around 11 May 2012). On the hearing of the present applications (stood over from 21 May 2012), Mr Colley largely relied on the submissions that had been prepared by the lawyers previously acting for him in this matter.
Background facts
3The substantive proceedings brought by Investec are for the recovery of monies alleged to be due to Investec by Mr Colley under various finance agreements entered into by him in connection with his investment in a number of managed investment schemes. Rewards Projects Limited (a company now in administration) (RPL) was the responsible entity for each of the schemes (and a party to the first two of the finance agreements). Mr Colley admits that he held an interest as a member in each of the managed investment schemes in question (although in his defence he does not admit entry into the primary agreements with RPL). He admits entry into the respective loan agreements.
4There are five investments in respect of which loans were made to Mr Colley (to which I will refer, consistently with the definitions used in the Statement of Claim, as the Tropical Fruits Project 2004; the Sandalwood Project 5 Releases 1 and 3; the Teak Project 2006 Release 2 and the Sandalwood Project 2007 Release 1). Those investments related to the acquisition by Mr Colley of:
(i) 13 tropical fruit groves (in the Tropical Fruit Project 2004) in 2004, in connection with which, on or about 30 June 2004, Mr Colley entered into a terms payment agreement with RPL for a loan in an amount of $77,350;
(ii) a number of woodlots of sandalwood (in the Sandalwood Project 5 Release 1) in 2005, for the purpose of which Mr Colley entered into a terms payment agreement with RPL for an amount of $150,150 on or about 30 June 2005;
(iii) a further 20 woodlots of sandalwood (in the Sandalwood Project 5 Release 3) in connection with which, on or about 1 July 2006, Mr Colley entered into a finance agreement with Arrow Funding Pty Ltd (now known as Experien Nominees Pty Ltd) for an amount of $90,000;
(iv) a number of woodlots of teak in the Teak Project 2006 Release 2, in connection with which, or about 30 June 2007, Mr Colley entered into a finance agreement with Investec for the amount of $59,400; and
(v) a number of woodlots of sandalwood in the Sandalwood Project 2007 Release 1 project in 2007 in connection with which Mr Colley entered into another finance agreement with Investec on or about 30 June 2007 for the sum of $99,000.
5As can be seen from the above, only the last two of the five finance agreements were entered into directly with Investec as the financier. The other three were entered into with other parties (RPL, itself, for the first two and Arrow for the third), the rights under which were later the subject of assignment to Investec in the circumstances I outline in due course.
6By reference to an ASIC names search in evidence before me, it is clear that the company now known as Experien Nominees Pty Ltd was formerly known as Target Funding Pty Ltd and before that was known as Arrow Funding Pty Ltd. References throughout these reasons to Experien, Target and Arrow are to the same entity (in whatever iteration the company was at the relevant time).
7There is no challenge made by Mr Colley (in either his filed Defence and Cross-Claim or the amended versions of those pleadings which he now seeks leave to file) to the validity of the first three finance agreements. Instead, the allegations made in Mr Colley's existing Cross-Claim (and sought to be made in the proposed Amended Cross-Claim), by reason of which it is said that loan agreements are unenforceable, are confined to his investments in the Teak Project 2006 Release 2 and the Sandalwood Project 2007 Release 1.
8The application by Investec for summary judgment is now pressed only in relation to its claim for the amounts outstanding on the first three loan agreements. Mr Colley does not admit liability for those amounts (thus Investec is required to establish its claim to those monies on its summary judgment application). Further, he seeks to set-off any amounts for which he may be liable under the first three agreements against his claims against Investec in respect of the others.
9Investec contends, but Mr Colley does not admit, that the beneficial interest of RPL in the first and second of the terms payment agreements was assigned on about 10 November 2005 to Experien (the entity from whom finance for the 2006 Sandalwood Project 5 Release 3 was directly obtained). It is alleged that Experien subsequently assigned to Investec both its beneficial interest in the two RPL terms payment agreements and its right title and interest in the July 2006 (Sandalwood 5 Release 3) finance agreement. Notice of the assignment of the third (Arrow) loan agreement was given to Mr Colley on 14 March 2011. In relation to the first and second (RPL) terms payment agreements, it is alleged that RPL assigned to Investec on about 24 August 2010 its legal right title and interest therein and that notice of that assignment was sent to Mr Colley's nominated address for service by letter dated 25 August 2010. (The delay in notification is presumably due to the perfection of title clauses in the agreement pursuant to which the equitable interest in the loan facilities was initially assigned.)
10Investec maintains that it is entitled to enforce the three earlier terms agreements, the benefit of and rights under which have been assigned to it. I consider in due course the evidence as to how those assignments were effected.
11It is alleged that Mr Colley defaulted under each of the terms agreements at around the end of February 2011 by failing to pay the monthly interest then due. Failure to pay instalments when due amounted to an event of default under the terms of the relevant agreements. Notices of Demand were issued in relation to the initial defaults under the agreements (claiming the amounts necessary to bring the accounts back into order). When the defaults were not remedied within 14 days, Investec claimed the entire balance of the loans as immediately due under the default provisions of the relevant agreements.
12These proceedings were commenced on 9 May 2011 for the whole of the outstanding balances plus interest at the rate payable under the loan agreements (10.95%). (Investec does not press a claim for interest at the default rate specified in the agreements.)
13In his Defence, Mr Colley denies the various allegations of default (other than to admit receipt of the Notice of Default dated 14 March 2011 by which Investec notified Mr Colley of the overdue monthly repayments and demanded payment within 17 days, failing which it was said that the entire balance outstanding would become due and payable). Mr Colley also denies that he failed to remedy the defaults (although, as I understand it, it is not suggested by Mr Colley that he in fact paid to Investec the amounts so demanded and, indeed, the evidence for Investec on this application is that no amounts have been paid on any of the loans since early 2011).
Evidence
14Before I turn to the particular applications before me, I note that during the course of argument on the summary judgment application I raised an issue as to the admissibility of the various documents under which the rights under the first three loan agreements were assigned to Investec. This was because there was no indication on the face of those documents that any stamp duty (assuming that any of the instruments was dutiable) had been paid thereon.
15Section 304 of the Duties Act 1997 (NSW) prohibits the presentation in evidence of an instrument that effects a dutiable transaction or is chargeable with duty under the Act, unless stamped:
(1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless:
(a) it is duly stamped, or
(b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner.
(2) A court or tribunal may admit in evidence an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, and that does not comply with subsection (1):
(a) if the instrument is after its admission transmitted to the Chief Commissioner in accordance with arrangements approved by the court or tribunal, or
(b) if (where the person who produces the instrument is not the person liable to pay the duty) the name and address of the person so liable is forwarded, together with the instrument, to the Chief Commissioner in accordance with arrangements approved by the court or tribunal.
(3) A court or tribunal may admit in evidence an unexecuted copy of an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, if the court or tribunal is satisfied that:
(a) the instrument of which it is a copy is duly stamped, or is stamped in a manner approved by the Chief Commissioner, or
(b) the copy is duly stamped under section 299.
16Counsel for Investec (Mr White) sought leave to adduce further evidence and to make further submissions (once he had had an opportunity to obtain instructions in relation to that issue). Therefore, I simply marked those documents for identification and gave leave for further submissions to be made by Investec once it had ascertained the stamp duty position in relation to those documents. Those submissions have since been received, together with an application to tender in evidence a further copy of the first of those instruments (on which stamp duty imprints are apparent) and for the documents previously marked for identification now to be admitted into evidence on the application. The documents in question are:
a Loan Acquisition Agreement (MFI-1) dated 9 November 2005 to which, among others, Arrow, RPL and RPL's holding company (Rewards Group Ltd) were party;
an agreement headed Sale of Purchased Loans and Receivables Agreement (MFI-2) dated 23 March 2007 to which Investec (as buyer) and Target (as seller) were party;
an Assignment Agreement (MFI-3) made on 24 August 2010 between the administrators of RPL and Investec; and
a Sale Agreement (MFI-4) dated 22 March 2007 between Investec and Target.
17Of those documents, Investec accepts that the Loan Acquisition Agreement was liable to duty but submits that duty has in fact been paid thereon. It submits that duty is not payable on any of the remaining agreements.
18The copy of the Loan Acquisition Agreement, which was tendered and marked MFI-1, was partially redacted. Tendered by Investec as a business record on this application (and which I have now marked Exhibit 1) was an extract from another copy of the Loan Acquisition Agreement on which there appear two separate stamp duty imprints indicating that duty in two amounts of $200 each was assessed and paid on that instrument on 8 February 2006.
19Each of the imprints refers to s 58(1) of the Act, which provides that duty is chargeable in respect of an instrument executed in New South Wales that declares a trust over New South Wales property none of which is dutiable property. (Mr White notes that, since 2008, the amount of such duty has been $500.00 but that prior thereto the relevant amount of duty was $200.00.)
20Mr White submits that the Loan Acquisition Agreement was liable to duty in those amounts because it provided, by clauses 3.6 and 6.1 thereof (the latter being redacted in the copy of the agreement which was MFI-1), for the establishment of two trusts over New South Wales property that was not dutiable property. From the document now tendered it is apparent that clause 6 provides for the establishment of a "Project Trust".
21Section 289 of the Duties Act provides that an instrument is duly stamped if it is stamped in accordance with the Act. Section 297 provides that the stamping of the instrument is taken to be an assessment of duty payable upon the instrument "or the dutiable transaction effected or evidenced by that instrument".
22Mr White submits that although there is no direct evidence of strict compliance with the requirements for stamping (by reference to ss 287, 288 and 289A of the Act) it should be inferred from the stamp duty imprints that the Loan Acquisition Agreement was assessed for duty in respect of two transactions (each contained within the same instrument); that duty of $200 was charged on each occasion; and that the duty so assessed was paid.
23My attention was drawn to the decision in Anakin Pty Ltd v Chatswood BBQ King Pty Ltd (2008) 250 ALR 620; [2008] FCA 1467 where Branson J found the stamp on the face of the agreement insufficient to conclude that the agreement had been "duly stamped" (in that it did not indicate that a specific amount of duty had been paid and the document duly stamped [14]-[18]). Mr White submits that this decision is distinguishable since the stamp appearing on the face of that agreement (unlike the imprints in the present case) included no entry for the amount of duty paid, nor did it refer to the basis on which duty was apparently assessed.
24I would infer, from the imprints appearing on the Loan Acquisition Agreement (which nominate both the amount of duty and the section pursuant to which duty has apparently been assessed), that the document has been duly stamped. On that basis there is no prohibition on its admission into evidence. Therefore, I have now admitted the document formerly marked as MFI-1 as Exhibit 1.
25For completeness, I note that Mr White indicated that if (which is not the case) I were not satisfied that the document had been duly stamped (so as to satisfy the requirements of s 304), then Investec would (without prejudice to its contention that the document had been properly stamped) undertake to transmit the Loan Acquisition Agreement to the Commissioner in the manner envisaged in s 304(2)(b) of the Act, together with the details of those who may be liable for duty (complemented by the undertaking by person "not liable" set out in Part 31 r 13(2) of the Uniform Civil Procedure Rules, namely that "the party will, within a time specified by the court, forward to the Chief Commissioner of State Revenue the name and address of the person liable to pay duty on the instrument under that Act together with the instrument"), noting that on any view Investec (which was not party to that agreement) was not the party liable to pay duty on the instrument. As it is, such an undertaking will not be necessary.
26As to the balance of the agreements that were marked for identification, Mr White submits that none of those instruments effected a dutiable transaction or is otherwise chargeable with duty under the Act. He notes that MFI-2 and MFI-4 effect the sale of rights under various loan agreements and that MFI-3 effects the legal assignment to Investec of debts that have previously been the subject of an equitable assignment to it.
27Having regard to the definition in s 8(1) of the Act of dutiable transactions and the definition of "dutiable property" in s 11 of the Act, I accept that the agreements in question do not effect any dutiable transaction nor do they deal with dutiable property. On that basis, I have now admitted the agreements formerly marked as MFI-2 to MFI-4, respectively, as Exhibits 2 to 4.
28I turn then to the respective applications before me.
(i) Investec's application for summary judgment
29This was ultimately pressed, as noted above, only in relation to the claims for monies claimed to be outstanding in respect of the first three of the five loan agreements (and not the loans in respect of the Teak Project 2006 Release 2 and the Sandalwood Project 2007 Release 1).
30Rule 13.1(1) of the Uniform Civil Procedure Rules provides as follows:
(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief:
(a) there is evidence of the facts on which the claim or part of the claim is based, and
(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,
the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires.
31In circumstances where Mr Colley does not raise a positive defence (or make any challenge in his cross-claim to the agreements giving rise) to the claims made under the first three loan agreements, the question is whether, on the evidence before the Court, Investec has sufficiently established its claims in relation thereto in order to permit the entry of summary judgment. (As adverted to above, Mr Colley does, however, plead in his defence that in the event that he is liable to Investec in the terms alleged in respect of the Tropical Fruits Project 2004 or the Sandalwood Project 5 or at all, which he denies, he is entitled to set off, in extinction or diminution of any such liability, the loss and damage referred to in his Cross-Claim.)
32The evidence in relation to the three loans the subject of the summary judgment application is largely contained in the first affidavit of Mr Robert Westgarth, the manager within Investec with responsibility for managing Mr Colley's loan accounts, though that is supplemented by a later affidavit by Mr Westgarth updating the amounts outstanding.
Order that the defendant pay the plaintiff the following amounts:
(a) $11,179.38 being the entire balance outstanding under the Tropical Fruits Loan as at 15 June 2012;
(b) $71,291.18 being the entire balance outstanding under the Sandalwood 2005 Loan as at 15 June 2012;
(c) $86,999.10 being the entire balance outstanding under the Sandalwood 2006 Loan as at 15 June 2012; and
(d) interest on the amounts referred to above (being the entire balance outstanding under each of the said Loan Agreements as at 15 June 2012) from that date at a rate of 13.95% per annum calculated daily and compounding monthly from 12 April 2011 until today's date.
(e) Interest on the judgment amount at the rate provided for in s 100 of the Civil Procedure Act 2005 (NSW) from the date of judgment to the date of payment.
Stay the enforcement of the judgments in Order 1 above, pending the determination of the Cross-Claim (as may be amended in accordance with the orders below) in these proceedings.
On Mr Colley's Notice of Motion of 9 December 2012:
Grant leave to file the Amended Defence within 28 days in the form of the Amended Defence exhibited to the affidavit of Sanin Pasagic sworn 17 December 2011 in these proceedings (save that the reference to an Amended Cross-Claim is only to be made if one is filed in accordance with order 4 below).
Dismiss Mr Colley's application for leave to file an amended Cross-Claim in the form contained in the exhibit to the affidavit of Sanin Pasagic sworn 17 December 2011 in these proceedings but in lieu thereof grant leave to Mr Colley to file within 28 days an Amended Cross-Claim that identifies the matters in respect of which vicarious liability on the part of Investec for conduct or omissions on the part of its alleged agent is alleged (including, in relation to each such claim, the particular basis on which it is said that such vicarious liability arises) and, in relation to any liability on the part of Investec (vicarious or otherwise) arising out of knowledge said to be imputed to it from its alleged agent, identifying with precision the knowledge said to be held by the agent; the facts matters and circumstances on which Mr Colley relies for the allegation that it is to be imputed to Investec; and the basis on which it is alleged that this knowledge gives rise to a cause of action against Investec as principal.
240As to costs, on the claims the subject of the summary judgment in Investec's favour, I consider that Mr Colley should pay the costs of Investec as costs following the event. In light of the provisions contained in the respective agreements (see for example clause 6.5 of the Tropical Fruits project loan agreement), those costs should be paid on a solicitor/client basis. On the application for leave to amend, Mr Colley should pay the costs thrown away by reason of the amendments for which leave has been granted.
241As these reasons are being published in chambers I will give the parties the opportunity to make any brief submissions as to the form of the proposed orders (or as to the proposed costs orders) within 7 days and liberty to approach my associate for that purpose (after consideration of which, or failing any such submissions within that time), I will make final orders in these proceedings. For that purpose I direct Investec to forward to my associate a draft form of the orders.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 18 July 2012
Tropical Fruits Project Loan
33By application dated 17 May 2004, Mr Colley subscribed for 13 retail groves in this Project, electing to have a 7 year term payment option. His application for finance in relation to the acquisition formed part of the application for the investment itself.
34That application was in due course accepted, as appears from the Tropical Fruits Project 2004 Terms Agreement dated 31 May 2004 between RPL and each several applicant whose application under an Offer Document has been accepted (defined as the Grower). Mr Colley was identified in Schedule 3 to the agreement as an applicant whose application for terms had been accepted (in an amount corresponding to his initial application). By letter dated 31 May 2004, Mr Colley was advised by RPL that his application for subscription had been accepted.
35Recital A to the Terms Agreement records that RPL has established the managed investment scheme called Rewards Group Tropical Fruits Project 2004 (identifying its ARSN) and has issued the Offer Documents to invite applications for Retail Groves and Wholesale Groves in that Scheme.
36Recital E to the Terms Agreement acknowledges that RPL has accepted the Grower's (ie, here, Mr Colley's) application for a terms payment option. Clause 2.1 provides that:
The Grower will pay to RPL the Principal Amount plus interest in the amount and manner set out in the terms payment option selected on the Application Form and as further set out in this Agreement.
Interest will be calculated at the rate referred to in the terms payment option selected on the Application form on the Principal Amount outstanding calculated on the daily balance for the actual number of days elapsed from and including the Commencement Date to, but excluding, the day on which the Principal Amount has been repaid in full.
37The terms payment option selected by Mr Colley for this investment was the 7 year term payment option (3 year interest only and 4 year principal and interest) being 36 equal monthly instalments of a stated amount inclusive of interest and then a further 48 equal monthly instalments of a higher amount again inclusive of interest. (The loan was thus nearing maturity when the first default in repayment occurred.)
38Clause 2.3 of the terms agreement makes provision for interest on overdue payments at a higher rate and for such interest to be capitalised. (As noted earlier, Investec does not press for interest at any penalty rate but simply at the rate provided for at the time of application for the loan.)
39Clause 6, headed Default, specifies those events that amount to an event of default and the rights of the parties on such default. Clause 6.2 provides that if the Grower is in default due to one of the events in clause 6.1 (and provided that RPL has given 14 days' written notice to remedy the default and it remains unremedied by the end of that time) then (among other things) the Outstanding Amount becomes immediately due and payable by the Grower to RPL and the Security is immediately enforceable. Clause 6.5 obliges the Grower, on demand, to pay or reimburse RPL for all costs and expenses incurred by RPL in enforcing its rights under the agreement and that any amount so demanded is a debt forming part of the Outstanding Amount. It provides that "RPL's right to recover such a debt is an express right under this Agreement".
40Clause 7 deals with Costs and Charges and sub-clause (b) relevantly provides that:
(b) The Grower will also pay to RPL on demand the costs and expenses incurred by RPL in relation to and incidental to:
...
(ii) the enforcement of any rights under this Agreement ...
41Clause 8.1 permits notice to be given to the Grower by personal delivery, post, facsimile or email transmission at the address or number on the register of the Scheme in respect of that Grower.
42Clause 8.3 deals with assignment and provides, relevantly, that:
(a) RPL may transfer, assign or novate any of its rights or obligations under this Agreement without the consent of the Grower.
43The Terms Agreement is expressly governed by and to be construed in accordance with the laws of Western Australia and the parties submit to the non-exclusive jurisdiction of the courts of that State (Clause 8.8).
44The Terms Agreement was signed pursuant to a Power of Attorney granted by Mr Colley at the time of the investment application, the terms of which were summarised in the Product Disclosure Statement. In particular, the attorney (a director for the time being of RPL) was authorised in the name of the applicant and on the applicant's behalf to do everything necessary or expedient, inter alia, to execute the Agreements and Terms Agreements summarised in the Produce Disclosure Statement and to complete blanks and make amendments alterations or additions to the Agreements, terms Agreement or Loan Agreement as considered necessary or desirable by the attorney.
Sandalwood Project 5 Release 1
45There is similar documentation in relation to the Terms Agreement entered into by Mr Colley (again, pursuant to a Power of Attorney granted to RPL) with RPL in relation to the Sandalwood Project 5 Release 1. In evidence there was an (admittedly incomplete) copy of the investment application lodged by Mr Colley. The form is signed by Mr Colley and again nominates a term of 7 years (3 year interest and 4 year principal plus interest). It is dated 7 June 2005. By an undated letter, Mr Colley was advised that his terms application had been accepted and the details of that investment were confirmed.
46The Terms Agreement in connection with this loan is, in substance, in the same terms as that for the Tropical Fruit Project investment. Mr Colley is identified as a Grower whose application has been accepted (consistent with the application form). The relevant clauses are the same as those summarised above.
Sandalwood Project 5 Release 3
47Again, a copy of Mr Colley's application for this investment was in evidence before me. That application was dated 27 June 2006 and was for the purchase of 20 woodlots (for the sum of $90,000). Mr Colley elected to apply for a loan on the basis that it would be 3 years interest only and then 7 years principal and interest. Part 5 of that application document is headed Finance Agreement. The Lender is defined as Arrow Funding Pty Limited (which later became Experien Nominees).
48Clause 2 obliges the Borrower to pay each instalment amount in accordance with the schedule of monthly payments set out in the written confirmation sent by the lender pursuant to item 2.1 of the Finance Application.
49Item 2.1 of the Finance Application provides that if the borrower's application is accepted the lender will write to confirm acceptance of the application and to advise as to the instalment amounts payable. Mr White notes that by letter dated 30 June 2006, RPL confirmed Mr Colley's acceptance into this Project, setting out details of the investment and noting the date of acceptance as 30 June 2006 and the number of woodlots as 20. There was no specific reference to acceptance of the finance application.
50Clause 2.7 provides that if the Borrower fails to pay an amount due under the Loan Documents on time then interest on the late payment is payable for every day that the relevant payment is outstanding and permits the lender, in effect, to capitalise the unpaid interest amounts.
51Clause 10 sets out the Events of Default including the failure by the borrower to pay when payable any Secured Money or any other money which the borrower is liable to pay to the lender (10.1(a)). Clause 11 sets out the consequences of an Event of Default, including the obligation of the borrower (if the lender so demands) immediately to pay the whole of the Secured Money (11.1(a)).
Assignment of the RPL loans to Arrow (now Experien) and then Investec
52By the Loan Acquisition Agreement dated 9 November 2005 (now Exhibit 1), (to which each of Arrow, each originator, Rewards Group and Arrow Capital Ltd was party), the parties agreed the terms upon which Arrow was to be entitled to purchase Loan Rights from each Originator. The term "Loan Rights" is defined as meaning, in relation to a Loan, all of the rights, entitlements and benefits of the relevant Originator under and in connection with the respective Loan Records. Originator is defined as including, relevantly, RPL.
53Clause 3 contains provision whereby the Originator might offer Loans to Arrow. Clause 3.1 provides that:
From time to time an Originator may deliver to the Purchaser a Loan Offer complying with, and accompanied by the materials required by, the terms of this Agreement.
54Pursuant to clause 3.2, a Loan Offer is to be substantially in the form in schedule 4. Clause 3.3, headed Nature of Loan Offer, provides that:
The delivery to the Purchaser of a Loan Offer constitutes an irrevocable offer by the relevant Originator to sell to the Purchaser all of the Originator's beneficial right, title and interest in the Loans specified in that Loan Offer and in the respective Loan Records and Loan Rights in consideration of the payment by the Purchaser of the aggregate Purchase Price for those Loans. (my emphasis)
55Clause 3.4 provides for the acceptance of a Loan Offer. Relevantly, the Purchaser is only permitted to accept a Loan Offer, and the Loan Offer is stated only to be capable of acceptance, by payment to the relevant Originator of the Purchase Price referred to in clause 3.3 of the Loan specified in that Loan Offer in accordance with the terms of the Loan Acquisition Agreement. Clause 3.4(b) makes it clear that nothing else done by the Purchaser (including without limitation the signing or execution of the Loan Acquisition Agreement) "shall be capable of being construed as an acceptance of any Loan Offer" and that no one was authorised on behalf of the Purchaser to accept any Loan Offer other than in accordance with clause 3.4(b).
56Clause 3.5 provides that:
Upon acceptance of a Loan Offer and without any further act or instrument by any person, the Originator's entire beneficial right, title and interest in the Loans specified in that Loan Offer and the respective Loan Records and Loan Rights shall be transferred and assigned absolutely to the Purchaser free from all Encumbrances, Adverse Claims and other third party rights and interests whatsoever, whereupon the Loans shall constitute Purchased Loans. (my emphasis)
57Relevantly, clause 3.6, headed "Transfer in equity only", provides that:
(a) The transfer and assignment of a Loan and the respective Loan Records and Loan Rights to the Purchaser as contemplated by this Agreement shall be equitable only, unless and until the Purchaser perfects its legal title thereto in accordance with clause 12. Pending such perfection, and subject to this Agreement, any remaining interest that the relevant Originator holds in any Purchased Loan and the respective Loan Records and Loan Rights shall be held by the Originator on trust for the Purchaser.
(b) The relevant Originator shall not give notice (in any form) to any Obligor that a Loan owed by that Obligor has been transferred and assigned to the Purchaser, without the written consent of the Purchaser.
(c) The Purchaser shall not give notice (in any form) to any Obligor that a Loan owed by that Obligor has been transferred and assigned to the Purchase [sic] except in accordance with this Agreement.
58Clause 12 deals with perfection of the Purchaser's title and irrevocably authorises the Purchaser at any time after the occurrence of a Perfection of Title Event to do certain things (including to notify each obligor under a Purchased Loan acquired pursuant to clause 3.4(a) of the purchase by the Purchaser of the Originator's right title and interest in the Purchased Loan and that payment of all amounts thereunder in respect of the Purchased Loan shall be made direct to the Purchaser or its nominee.
59The Loan Acquisition Agreement is governed by and to be construed in accordance with New South Wales law.
60By letter dated 10 November 2005, Rewards Group wrote to Arrow and notified it that, pursuant to clause 3.1 of the Loan Acquisition Agreement, Rewards Group offered to sell to Arrow (on the terms set forth in the Loan Acquisition Agreement) the Loans referred to in an attached spreadsheet. Rewards Group certified, inter alia, that each Loan listed in the spreadsheet was an eligible loan and that no Perfection of Title Event had occurred. Itemised in the schedule to that letter were the Tropical Fruits Project loan of $77,659.40 to Mr Colley and the Sandalwood Project 5 Release 1 loan of $150,750.80 to Mr Colley. As noted earlier, pursuant to clause 3.4 of the Loan Acquisition Agreement, acceptance of that offer could only be made by payment of the relevant price. Further, the provisions recorded above make it clear that, on acceptance of that offer, only a beneficial interest in the loan rights would be transferred to Arrow.
61I interpose to note that there is a potential issue arising from the fact that the offer (although substantially in the form of that in Schedule 4 as required under the agreement) was made in its terms by Rewards Group as offeror, when RPL was the relevant Originator. Nevertheless, having regard to the recitals contained in the agreement by which RPL later assigned to Investec the legal interest in the said loans, whereby RPL expressly acknowledged the holding by Investec of beneficial title in the said loans, it would not be open to RPL now to dispute that the full title in the loans had passed to Investec (presumably by reason of RPL having adopted the purported offer by Rewards Group to Arrow as having been made on its behalf and having adopted the assignment constituted by the latter's acceptance of that offer.)
62By agreement dated 23 March 2007 and headed "Sale of Purchased Loans and Receivables" to which Investec (as buyer) and Target (as seller) were party (Exhibit 2), the beneficial rights the subject of the 2005 agreement were assigned to Investec.
63The Background recorded in that agreement is that:
The Seller [Target] has applied for finance to the Buyer [Investec] and the Buyer has agreed to finance the Seller by way of a debt factoring arrangement.
The Seller has agreed to assign and the Buyer has agreed to accept an assignment of all right, title and interest of the Seller in the Assets on the terms contained in this agreement.
64Clause 2.1 of the agreement provides, relevantly, that:
2.1 Sale of Assets
(a) On the Commencement Date [defined as the date of the agreement], the Seller must sell and the Buyer must buy the Seller's right, title and interest in:
(1) the Assets ...
(b) On each target Date, the Seller must sell and the Buyer must buy the Seller's right, title and interest in the Debtor Contracts nominated by the Buyer in a Notice given in the form set out in schedule 2 on that Transfer Date and all related Receivables and Related Security pursuant to the terms of this agreement.
(c) The Buyer agrees to pay the Purchase Price to the Seller on the Commencement Date.
(d) The Seller and the Buyer acknowledge that each sale of Assets in this clause 2.1 constitutes a transfer and assignment by the Seller to the Buyer of all of the Seller's right and interest in the Assets including, but not limited to, the right to receive, as beneficial owner, all moneys otherwise payable to the Seller under any Receivable.
65The term "Assets" is defined as including all the rights, title and interest of the Seller under the Loan Acquisition Agreement, each other Transaction Document and any Purchased Loan Receivable and Related Security, located in or taken for the purposes of any stamp duty legislation to be locater in the Nominated Jurisdictions (that term including New South Wales).
66The term "Purchased Loan" is defined as having the meaning under the Loan Acquisition Agreement but excluded any Purchased Loan that had been repurchased by an Originator under the Loan Acquisition Agreement. (There is nothing to suggest that by this time either of Mr Colley's loans had been repurchased by RPL.)
67Pursuant to clause 7.2, the Buyer (Investec) is liable to pay any duty in respect of the delivery and performance of the agreement and any document entered into, signed or effected under the terms of this agreement.
68In its terms, this agreement therefore operated to transfer to Investec the beneficial rights under the first two loan agreements then held by Arrow (with RPL still retaining the legal title until such time as there was a perfection of title).
69Subsequently, by an Assignment Agreement made on 24 August 2010, (Exhibit 3) (entered into following the appointment of administrators to RPL pursuant to s 436A of the Corporations Act 2001 (Cth)), RPL agreed to transfer and assign its entire legal right, title and interest in and to the Loans, the Loan Rights and Loan Records to Investec for the sum of $1 on the terms and conditions of that agreement. Relevantly, the agreement contained an acknowledgment by the parties that the Assignors (including RPL) held legal title to the Loans, Loan Rights and Loan Records and that the Assignee (Investec) held the entire beneficial right, title and interest thereto.
70The term "Loan" or "Loans" is defined, relevantly, as meaning each debt owing by an Obligor to an Assignor under a Loan Agreement from time to time and which was the subject of a loan offer contemplated by a Loan Acquisition Agreement (clause 1.1). (Relevantly, therefore, the loans the subject of the assignment covered by this agreement are described by reference to the loan offers made under the Loan Acquisition Agreement.)
71Clause 2.1 provides for the assignment with effect on and from the Assignment Date, by each assignor of its entire legal right title and interest in and to each Loan and its respective Loan Rights and Loan Records. Clause 2.2 contains an agreement by the parties that the Assignee would, as soon as reasonably practicable thereafter, deliver to each Obligor a duly executed Assignment Notice.
72Mr White submits that since (under the Loan Acquisition Agreement) a loan offer was capable of acceptance only by payment, the inference should be drawn (by reference to the definition of "Loan or Loans" in the Assignment Agreement read together with the acknowledgement in Recital C and the fact that only a dollar was paid in 2007 for the loans), that the beneficial interest in those loans had in fact been purchased by Arrow pursuant to the 2005 Loan Offer (ie that the requisite payment of monies had been made to the assignor) and hence that as at 2007 RPL held the legal interest and Arrow the beneficial in relation to the loans. I accept that such an inference should be drawn.
Assignment by Arrow to Investec
73As to the third of the loan agreements (in respect of which Experien was the original financier), Investec relies on a Sale Agreement dated 22 March 2007 between it and Target (Exhibit 4).
74The Background section to the Sale Agreement is the same as contained in the Sale of Purchased Loans and Receivables Agreement (to which RPL was a party). In the Sale Agreement, the term "Assets" is defined in clause 1.1 as being the interest of the Seller in the Debtor Contract; Receivable; and Related Security (each as defined in the agreement).
75The Sandalwood Project 5 Release 3 loan (of $90,000) to Mr Colley is listed in Schedule 1 to the agreement.
76Clause 2, providing for the Sale of the Assets, is in similar terms to that in the Sale of Purchased Loans and Receivables Agreement. It requires the Buyer to nominate the loans to be sold by the issue of one or more notices in the terms contained in Schedule 3. A notice was issued to Target, for and on behalf the "Buyer" (Investec), expressly pursuant to 2.1 of the Sale Agreement, listing the Assets the Seller must sell on the Commencement Date (that being 22 March 2007) by reference to attached spreadsheets. The relevant spreadsheet again identifies Mr Colley's loan.
77The Default Notice and Demand ultimately issued to Mr Colley on 14 March 2011 in relation to the outstanding repayments was accompanied by a Notice of Assignment to Investec of the various loan facilities therein specified. The Lenders were defined as RPL (by then subject to a deed of company arrangement), Investec and Arrow (by then known as Experien Nominees). The notice informed Mr Colley that the Lenders "have assigned to Investec, among other things, their right to recover the outstanding balances of the respective facilities set out in the attached notice".
78The Default Notice and Demand contains a schedule identifying each of the outstanding loans. The amounts there identified as outstanding in respect of the loans for which summary judgment is now claimed are the Tropical Fruits Project 2004 loan by RPL (with an overdue amount of $1,997.32 and total due as at 11 March 2011 of $10,339); the Sandalwood Project 5 Release 1 loan by RPL (with an overdue amount of $3,877.17 and total due as at 11 March 2011 of $62,364.44); and the Sandalwood Project 5 Release 3 loan by Arrow (with an overdue amount of $1,538.60 and total due as at 11 March 2011 of $76,105.53);
79The evidence discloses that the Demand and Notice of Assignment was sent in the same form to various addresses. Mr White notes that on 23 March 2011 Mr Colley forwarded an email to Investec, copied to its lawyers, advising that he and his wife were cancelling the direct debit arrangements (for payments in relation to the loans). From the timing and content of that communication I am asked to (and do) infer, that Mr Colley has implicitly acknowledged receipt of the demand from at least one of the addresses to which the letters were sent.
Evidence of defaults
80As to the evidence of the defaults (those having been denied by Mr Colley), Investec relies on loan statements issued in relation to the respective projects (copies of which were in evidence).
81Mr Westgarth has deposed (at [45]-[53]) to his review of the loan statements for the respective projects for the relevant period up to 31 July 2011 and as to Investec's records from 31 July 2011, on the basis of which review he deposes that Mr Colley has failed to make:
(i) the scheduled monthly repayments due between 28 February 2011 and 31 July 2011 in respect of the Tropical Fruits Project loan (at which point the loan matured);
(ii) the scheduled monthly repayments due between 28 February 2011 and 31 January 2012 in respect of the 2005 Sandalwood loan (and to the fact that it has remained in arrears as from 31 January 2012 with no further payments having been made thereon); and
(iii) the scheduled monthly repayments due between 28 February 2011 and 31 July 2011 in respect of the 2006 Sandalwood loan and again that it has remained in arrears as from 31 January 2012 with no further payments having been made thereon).
82Mr Westgarth's evidence was not challenged in this respect. Mr White notes that the loan statements up to February 2011 for the Tropical Fruits Project loan show that the loan was within terms at that time but that the loan management system statements from 28 February 2011 indicate a series of dishonours of the monthly direct debit amounts (perhaps not surprisingly in light of the communication by Mr Colley in March 2011 of his intention to cancel those debit arrangement). Similar documents are exhibited for the 2005 Sandalwood loan and for the 2006 Sandalwood loan.
83The outstanding amounts (updated as at 15 June 2012 for the three loans as set out in Mr Westgarth's 15 June 2012 affidavit) total just under $170,000 (as evidenced by further extracts from the project loan statements).
84Mr Westgarth has deposed (in compliance with Part 13 Rule 1) that in respect of these particular loans he believes that Mr Colley has no defence.
Applicable principles
85Mr White accepts that the test generally applied on applications for summary disposal of part of all of proceedings is that set out in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 128-9. In General Steel, Barwick CJ, in considering the circumstances in which a party ought be denied access to a final hearing on the claims made in the proceedings, noted the various descriptions given in the authorities of the test to be applied in identifying whether there is a real cause of action (or, as applied to the present case, whether there is a real defence to the claim):
... 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".
86The power summarily to dispose of a claim should be exercised with the utmost caution and only in very clear cases (General Steel; see also Webster v Lampard (1993) 170 CLR 598 at 602-3 and Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937 at 942). In Dey v Victorian Railways Commissioner (1949) 78 CLR 62 at 91 it was said that it must be clear that there is no real question to be tried. Mr White accepts that there is a high burden on Investec on its summary judgment application.
87On the evidence before me, I am satisfied that Investec has met that burden in relation to the claims made against Mr Colley for the monies payable under each of the three loans identified and that summary judgment should be entered in the sums claimed in favour of Investec.
88Mr White also accepts that Part 13 Rule 2 empowers the Court to stay enforcement of such a judgment if there is a cross-claim pending. Mr Colley indicated that if there were to be summary judgment entered against him on the three loans referred to above, he would seek a stay of enforcement pending the determination of his cross-claim. I consider this to be warranted (assuming that a reasonably arguable cause of action is able to be pleaded by way of cross-claim).
(ii) Mr Colley's application for leave to amend his Defence and Cross-Claim (Investec's application to strike out existing cross-claim)
89Mr Colley's application for leave to amend both his Defence and his Cross-Claim is brought pursuant to s 64 of the Civil Procedure Act 2005 (NSW) which permits the making of all necessary amendments for the purpose of determining the real issues in dispute in proceedings.
90It is noted for Mr Colley that the proceedings are at an early interlocutory stage (Mr Colley's cross-claim having been filed on 16 August 2011). It is said that the proposed amendments to the pleadings arise from the production (after the filing of the existing Cross-Claim) of the Origination Deed dated 16 February 2007, between Investec and RPL, which resulted in the identification of a new agency relationship between Investec and Rewards for the purposes of origination of loans. For Mr Colley, it is said that this deed had not been produced by Investec at the time he filed his original defence and cross-claim on 16 August 2011, and that Mr Colley was not aware of the existence of this deed at that time (this being the explanation for the subsequent need for the amendment).
91Mr White notes (and I do not understand this to be disputed) that s 64 is expressly made subject to s 58, which requires the Court to follow the dictates of justice. The Court must have regard to the just, quick and cheap resolution of the real issues in the proceedings (s 56) and the efficient disposal of Court business and the efficient use of judicial resources (s 57). As made clear in Hans Constructions Pty Ltd v Cassar [2009] NSWCA 230, compliance with these requirements is mandatory.
92Insofar as case management principles need to be taken into account when deciding whether to allow a party to amend its pleadings, in the submissions filed for Mr Colley reference is made to what was said by Young JA in Karuah Local Aboriginal Land Council v Mymurra Pty Ltd (No 2) [2008] NSWCA 700 at [12]:
...when reassessing the submissions, and even bearing in mind what the Court of Appeal said in Dennis' case, one must bear in mind that even though there is an overriding purpose that proceedings be dealt with justly, quickly and cheaply, this does not completely trump the principles which have been laid down for many years that unless there has been unacceptable prejudice to other parties, all amendments which can be met should be allowed.
93Mr White in effect concedes that, although the matter commenced some time ago (by the filing in the District Court on 9 May 2011 of a Statement of Claim), responsibility for the time taken to date cannot solely be sheeted home to the defendant and ultimately he did not submit that the matter had reached such a stage that no further leave ought to be granted in relation to the pleadings at this stage (assuming a reasonably arguable cause of action could be properly pleaded).
94I turn to the respective amendments.
Defence
95While Investec also opposed the filing of the proposed Amended Defence, its principal complaint, as I understand it, is as to the proposed amendments to the Cross-Claim. As to the Defence, the changes sought to be made to the defence are relatively minor: in paragraphs [12(c)] and [15(c)] the verb "admits" is sought to be amended to "says"; there is some change to the wording of particulars, and there is a reference to the Amended Cross-Claim in place of reference to the Cross-Claim. As to the change in terminology from "admits" to "says", if this were to be taken as a withdrawal of an admission, then compliance with the test in Drabsch v Switzerland General Insurance Co Ltd (Unreported, NSWSC, Santow J, 16 September 1996) would be necessary. However, as the pleading would seem equally to be an admission if worded as "says", I see no material change in that proposed amendment (rather I assume it reflects closer attention to the pleading to which it responds).
96I consider that leave should be given for the filing of the Amended Defence.
Cross-Claim
97In essence, the real complaint made is as to the proposed amendment to the Cross-Claim. For Mr Colley, the nub of that claim is said to be the misleading and deceptive conduct (by silence) of RPL as Investec's agent for which it is contended that Investec is liable. Mr White concedes that (on the submissions filed for Mr Colley) a basis has been identified on which a claim could arguably be pleaded that Investec is liable as principal in respect of conduct by RPL (to the extent that the relevant conduct was in RPL's capacity as agent for Investec). Nevertheless, it is submitted by Mr White that the proposed Amended Cross-Claim does not clearly identify the basis on which any vicarious liability is said to have arisen and, in particular, what (if any) knowledge on the part of RPL is said to be attributed to Investec and how that is said to give rise to such liability on the part of Investec.
Existing cross-claim
98The proposed Amended Cross-Claim can perhaps most conveniently be seen in the context of the existing pleadings (which Investec moves to strike out if leave to amend is not granted on Mr Colley's application). (I note that in this section of my reasons and when dealing with the allegations contained in the proposed Amended Cross-Claim, I have in places emboldened the name of the relevant entity (RPL or Investec) as the case may be in order to highlight the particular entity in respect of whom the allegations are made.)
99Under the Cross-Claim as initially filed, Mr Colley seeks orders that Investec: was "involved" in a contravention of s 601FC(5) of the Corporations Act; contravened or was "involved" in a contravention of s 1041H of that Act; and contravened s 12DA of the ASIC Act.
100An order is sought under s 1325 of the Corporations Act and s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) that Mr Colley is not liable for any loans, fees or costs in connection with the Teak Project 2006 Scheme and the Sandalwood Project 2007 Scheme or the funding agreements entered into with Investec relating to those projects "which as a result of a breach of statutory duty are void or otherwise unenforceable". Damages are sought pursuant to ss 1041I of the Corporations Act and 12GF of the ASIC Act.
101The proposed Amended Cross-Claim in its terms does not seek to maintain the claims as to the alleged contraventions (or involvement in contraventions) by Investec of s 601FC(5) or s 1041H of the Corporations Act; but continues to allege a contravention by Investec of s 12DA of the ASIC Act (though now seeking not an order but a declaration in relation to that contravention). The claim for orders under s 1325 of the Corporations Act and s 12GM of the ASIC Act is maintained. There is also included a claim for a declaration as to contravention by Investec of s 12CC of the ASIC Act. Claims for damages are made pursuant to s 1041I (as before) but also there is a claim for damages at common law. No claim for damages under s 12GF of the ASIC Act is still made.
102The application to strike out the existing Cross-Claim (pressed only if leave to amend is not granted) is made pursuant to Part 14 Rule 2(8)(1)(a) and (b). Part 14.28(1) provides:
14.28 Circumstances in which court may strike out pleadings
(1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading:
(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or
(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or
(c) is otherwise an abuse of the process of the court.
103The generally applicable test on a strike-out application is again that set out in General Steel. The General Steel test was recently endorsed and applied by the Court of Appeal in Shaw v State of New South Wales [2012] NSWCA 102 at [32], where Barrett JA (with whom Beazley, McColl, Macfarlan JJA and McClellan CJ at CL agreed) stated:
The question is...whether the claims in question are so obviously untenable or groundless that there is "a high degree of certainty" that they will fail if allowed to go to trial; and whether this is one of the "clearest of cases" in which the court may accordingly intervene to prevent the claims being litigated.
104There is a suggestion that this test has been modified by the current legislative regime in relation to the conduct of litigation in this Court. Hammerschlag J, in Simmons v Protective Commissioner of NSW also known as NSW Trustee and Guardian [2012] NSWSC 455, expressed the view, in obiter, that a reasonable cause of action was one giving rise to real issues requiring resolution by the Court (such that proceedings need not be hopeless or bound to fail in order to be struck out as disclosing no reasonable cause of action), referring to the approach in Spencer v Commonwealth of Australia (2010) 241 CLR 118.
105For present purposes, it is sufficient to note that Mr White accepts that there is a high test to be met by Investec in order for a strike-out application to succeed.
106Under the existing Cross-Claim, there are three broad bases for the relief claimed against Investec:
(i) a claim that it is vicariously liable for conduct of its agent (RPL) (pleaded in [2]-[7]);
(ii) a claim (no longer pressed) that Investec contravened s 601FC(5) of the Corporations Act by reason of RPL's breach of its statutory duties as responsible entity for the schemes ([8]-[18]); and
(iii) a misleading and deceptive conduct claim against Investec based on RPL's failure to inform Mr Colley of certain matters ([19]-[28]).
(i) Vicarious Liability
107The vicarious liability allegation in the existing Cross-Claim is based on an agency alleging arising out of the alleged authorisation by Investec for RPL to represent it (or alternatively to act for or on its behalf) in procuring Mr Colley (and other investors) to make investments in the two projects for which Investec was the financier (as opposed to the projects in which it was the assignee of rights under the earlier loan agreements) (the Teak 2006 and Sandalwood 2007 projects) and to enter into the funding agreements in relation to those investments ([2] of the Cross-Claim). The agency relationship is particularised by reference, inter alia, to the Project Disclosure Statements and applications for finance in relation to each of the projects and, in relation to the Teak project, the identification of Investec as the "preferred lender". It is alleged that the finance offered by Investec was "specifically tied to and contingent upon" Mr Colley making application to RPL to become an investor in the projects ([4]).
108The Cross-Claim then alleges matters that it is said that Investec knew (such knowledge said to be inferred from the agency) including that RPL owed statutory duties to potential investors ([5]); alleges that Investec had a commercial interest in investors making application to invest in the projects and utilising the offer made by Investec through the agency of RPL to provide finance for the investment ([6]); and alleges that "[i]n the premises" the conduct of RPL (alleged in [9], [16], [19] and [20]) was engaged in by RPL within the scope of the agency and in the course of the execution of the agency "in consequence whereof Investec is vicariously liable" for RPL's conduct. (As will be seen from the summary below, the reference to the conduct of RPL in [9], [16], [19] and [20], encompasses a mixture of the breach of statutory duty allegations made against RPL and the misleading and deceptive conduct allegations against both RPL and Investec.)
109The four paragraphs identified as constituting the "conduct" for which Investec as principal is said to be vicariously liable are:
[9], which alleges that RPL in the Product Disclosure Statements represented to Mr Colley that significant tax deductions were available for expenditure incurred by those investing in the projects (Growers) and that such tax deductions were supported by an Australian Taxation Office Product Ruling;
[16], which alleges that, in breach of the duties allegedly owed to Mr Colley (pleaded in [15]), RPL failed to inform Mr Colley of the tax decision (being the matter alleged in [10]) and, in circumstances where there was a conflict of interest on the part of RPL, RPL failed to give priority to the interests of Mr Colley by failing to inform him of the tax decision;
[19], which alleges the knowledge (or constructive knowledge) of RPL (and Investec) that an announcement on 6 February 2007 by the Commonwealth Government (that upfront deductions would no longer be allowed in respect of the investments of that kind) would be material to Mr Colley's decision to enter into the funding agreement, would have an immediate material and negative impact on RPL's cash flow revenue and profits and would be a matter of material consideration in assessing RPL's ability to continue the projects for their contemplated duration; and
[20], which alleges that, despite the duties alleged in [15], RPL took no steps to inform Mr Colley of, and remained silent about the matters set out in [11] (ie the likely consequences or effect of the tax decision).
110As to the vicarious liability claim based on the existence of the authorisation of RPL to procure investors, Mr White points to the terms of the Origination Deed dated 16 February 2007 between RPL, Rewards Group and Investec, among others. This deed (a copy of which Mr Colley had not obtained at the time the existing Cross-Claim was filed) recites the fact that RPL as responsible entity was proposing to issue managed investment scheme offerings in respect of the defined Projects before 30 April 2007 and that Investec had agreed to be the preferred financier to RPL and, in that capacity, to provide loan products to loan applicants that apply to invest in a Project on the terms and conditions set out in the deed.
111Mr White submits that it is evident from the Origination Deed itself that Investec had no role in the procurement or origination of the investments themselves. It is thus submitted that the allegation (no longer sought to be maintained by Mr Colley) that Investec had authorised RPL to act on its behalf in procuring investors to enter into the investments is misconceived.
112In any event, Mr White contends that the fallacy in the existing pleading (which he says is also the flaw in the proposed amended pleading) is that it proceeds on the basis that, it is sufficient to establish that there was an agency relationship between Investec and RPL for a particular purpose in order for there to be a conclusion that the conduct of RPL as agent binds the principal for liability irrespective of whatever allegations may be made against the agent (and whether or not they fall within the scope of the agency relationship).
113I consider that there is force to the submission that the existing pleading does not sufficiently identify the basis on which the vicarious liability claim is made. However, that is a matter that could be remedied by amendment to the pleading and would not at this stage warrant a complete dismissal of the claim.
(ii) Alleged contravention of s 601FC(5) by Investec
114Paragraphs [8] - [18] of the existing Cross-Claim plead that RPL breached statutory duties it owed under s 601FC(5) of the Corporations Act and that "in the premises" Investec itself contravened that subsection. I note that the allegation as to breach of statutory duties by RPL in [16] is based on the failure of RPL to inform Mr Colley of the making of the tax announcement alleged in [10] (not the matters set out in [11]) as to the likely effect of that decision and the failure of RPL (in circumstances where it is alleged that there was a conflict of interest) to give priority to the interests of Mr Colley by failing to inform him of that tax announcement. (Though there is a separate allegation in [20] of silence in relation to the matters in [11].)
115The allegation that RPL was, in effect, acting in a position of conflict of interest in making representations to Mr Colley in relation to the availability of significant tax deductions (and in failing correct that representation in circumstances where, by the time Mr Colley invested, the Commonwealth had announced its intention to withdraw those tax concessions) is pleaded in the existing cross-claim as amounting to a contravention by Investec of the statutory provision without express reference to the agency relationship pleaded earlier in the cross-claim (since [18] is predicated on the matters in [8] to [16]). Even if the allegation in [18] can be read as based on the earlier allegation of agency, Mr White notes that no attempt is made to plead the basis on which the breach of statutory duty is a breach that causes Investec itself to have contravened s 601FC(5).
116As Mr White notes, s 601FC of the Corporations Act (headed Duties of responsible entity) imposes duties on responsible entities (not on third parties). Investec could not on any view of the matter have breached s 601FC in its own right unless it was "involved in" a contravention by RPL as the responsible entity. Section 601FC, relevantly, provides:
601FC Duties of responsible entity
(1) In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:
(a) act honestly; and
(b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity's position; and
(c) act in the best interests of the members and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests; and
(d) treat the members who hold interests of the same class equally and members who hold interests of different classes fairly; and
(e) not make use of information acquired through being the responsible entity in order to:
(i) gain an improper advantage for itself or another person; or
(ii) cause detriment to the members of the scheme; and
...
(l) report to ASIC any breach of this Act that:
(i) relates to the scheme; and
(ii) has had, or is likely to have, a materially adverse effect on the interests of members;
as soon as practicable after it becomes aware of the breach; and
(m) carry out or comply with any other duty, not inconsistent with this Act, that is conferred on the responsible entity by the scheme's constitution.
...
(5) A responsible entity who contravenes subsection (1), and any person who is involved in a responsible entity's contravention of that subsection, contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: Subsection (5) is a civil penalty provision (see section 1317E).
(6) A person must not intentionally or recklessly be involved in a responsible entity's contravention of subsection (1).
117As noted in the annotations to the section, the Corporations Act prescribes what amounts to "involvement" for the purposes of s 601FC. Section 79 of the Act, headed "Involvement in Contraventions" provides as follows:
Involvement in contraventions
A person is involved in a contravention if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced, whether by threats or promises or otherwise, the contravention; or
(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
118Mr White notes that the existing pleading does not allege how it is said that Investec was "involved" within the meaning of that definition.
119Mr White submits (and I accept) that since the legislature has prescribed what "involvement" means, and has expressly excluded anything that falls outside that definition, then it is incumbent on a party alleging seeking to invoke subsection (5) to set out with precision what it is that is said to amount to involvement in the alleged contravention. (I note that the section is a civil penalty provision and therefore the Briginshaw standard of proof would be required in relation to any alleged contravention. This supports the conclusion that the alleged contravention should be precisely articulated in the pleading.)
120I consider the criticisms of this part of the existing pleading to be well founded and that at least this part of the existing pleading is liable to be struck out.
(iii) Misleading and Deceptive Conduct Claim against Investec
121The misleading and deceptive conduct claim is based on the alleged (or constructive) knowledge of Investec "and its agent RPL" as to the materiality of the relevant tax announcement on Mr Colley's decision to make the investments and enter the funding agreements; that it would have an immediate, material and negative impact on RPL's cash flow, revenues and profits; and that it would be matter of material consideration in assessing RPL's ability to continue the projects for their contemplated duration ([19]). It is alleged that by the "RPL Silence" (ie the fact that RPL took no steps to inform Mr Colley of, and remained silent about the matters in [11]), RPL as agent for Investec impliedly represented various matters to Mr Colley in relation to the tax decision ([21]); that those were representations as to future matters (ss 769(c) and 12BB of the respective legislation being expressly invoked) ([22]); and that, by making those representations by silence, RPL "as agent for Investec" engaged in conduct within the meaning of ss 1041H of the Corporations Act and 12DA(1) of the ASIC Act ([23]) and that was misleading and/or deceptive in contravention of those sections ([24]-[25]).
122Mr Colley alleges that he acted in reliance on the silence (and the representation by silence) in acquiring his interest in the projects, making the investments and entering the funding agreements ([26]-[27]) and has suffered loss and damage ([28] by reason thereof).
123As to the misleading and deceptive conduct claims that are pleaded from [19] of the existing Cross-Claim, Mr White notes that these form a discrete part of the allegations made against Investec and that they are based on a failure by RPL to inform Mr Colley (and that RPL remained silent about) the matters in [11] (ie, the likely effect of the tax decision on, inter alia, RPL's position) not the matter in [10] (ie, the tax decision itself), in circumstances where RPL had the duties alleged in [15]). Mr White notes that [11] sets out very broad allegations about what it is that Investec (and its agent RPL) knew or ought to have known as to the materiality or effect of the tax decision (including matters as to RPL's own financial position).
124Mr White submits that it is of significance that this allegation is not directed to a failure to disclose knowledge of the tax decision itself (that being the matter in [10]). He submits that in a misleading and deceptive conduct by silence case there is no obligation on the party making the relevant representation to provide pertinent advice in relation to matters arising in relation to the subject matter of a representation that has become incorrect by the relevant date; rather that there is at most an obligation to correct that representation (which in this case he submits would be done by drawing attention to the making of the relevant tax decision).
125Thus it is submitted that the pleading of the misleading and deceptive conduct claim in the existing (cross-claim) is flawed.
126In principle that seems to me to be correct. It would arguably only be if the alleged representation were as to matters the subject of the disclosure said to have been required to be given that a misleading and deceptive conduct claim by silence would arise (such as if there had been advice given as to, for example, RPL's likely ability to perform its obligations that might require later correction in light of the tax decision). Nevertheless, while that may well be the ultimate conclusion reached at a final hearing, I am not persuaded that a claim of this kind could not be maintained at all (particularly where this may turn on the content of the alleged implied representation).
127That said, I consider that any such claim would need to be more precisely pleaded in order to make clear what knowledge was alleged on the part of each of Investec and RPL and how any such knowledge on the part of RPL was to be imputed to Investec so as to give rise to liability of this kind (and to make clear whether what was pleaded as direct liability on the part of Investec for misleading and deceptive conduct as opposed to vicarious liability of Investec in respect of misleading and deceptive conduct by RPL).
Conclusion re existing Cross-Claim
128The susceptibility of the existing Cross-Claim to a whole or partial strike-out is, to a large extent, a moot point (and Mr White did not seek to persuade me otherwise) in that if leave is granted to amend the Cross-Claim as presently proposed by Mr Colley or otherwise, then the issue as to the existing cross-claim will not arise. On the other hand if leave is not granted to amend in the terms presently proposed it must presumably remain the case that, properly advised, Mr Colley would not seek to press at least those parts of the existing claim that he has already indicated by the amendment application that he does not wish to pursue at all or in that form.
129As this part of Investec's Amended Notice of Motion is pressed only if leave is not granted to amend the Cross-Claim (and for the reasons set out below I propose to grant some leave in that respect) it is not necessary to consider further the existing Cross-Claim.
Proposed Amended Cross-claim
130The nub of Investec's complaint is that the proposed Amended Cross-Claim pleads a number of discrete causes of action against RPL, which was the responsible entity for the managed investment scheme, and then simply pleads that Investec is vicariously liable therefor, without making it clear the basis on which that vicarious liability is said to have arisen.
131Investec accepts that where there is an agency relationship then the knowledge of the agent to be imputed to the principal for certain purposes and therefore accepts that, if RPL was acting as Investec's agent for particular purposes, then Mr Colley may be able to plead a claim that Investec has some liability as a consequence of knowledge imputed to it in the course of that agency arrangement. However, it is said the proposed pleading is deficient (and embarrassing) because it does not make clear how Investec is said to be liable for the causes of action that lie against RPL as the responsible entity. (Mr White also emphasises the distinction between RPL and its holding company, Rewards Group, noting that certain matters that are alleged concern Rewards Group but not RPL.)
132It is necessary to set out in detail the pertinent parts of the proposed new amended pleading.
Breach by RPL of s 1022A Corporation Act
133Paragraphs [5]-[13] of the proposed Amended Cross-Claim allege, in summary, a failure by RPL to disclose, in the relevant Product Disclosure Statements, information about significant risks associated with investment in the Sandalwood 2007 and Teak Projects as at 30 June 2007 and/or matters that might reasonably be expected to have a material influence on the decision of a reasonable person (including Mr Colley), as a retail client, whether to acquire an interest in the said Projects (those matters being defined as "adverse matters").
134As to the risks allegedly known to RPL as at 30 June 2007 (when Mr Colley entered into the projects and took out the loans), which suggested it might not be able to meet its obligations under the scheme, Mr White notes that reliance is placed in the pleading on a report by the administrators of the Rewards Group in August 2010. Mr White emphasises that the report in question refers to the Rewards Group not RPL. It is submitted that to state in the general way (as the report does) that there was a problem with the management of risks associated with its reliance on managed investment fund sales does not support the allegation, that there was a significant risk that RPL would be unable to continue to fund the necessary work without continuing funding from investors or from funds taken from other managed investment schemes to be offered in the future. Further, it is noted that this is a standpoint taken by an administrator several years after the event with no allegation that this problem was apparent in or before June 2007.
135The particulars to paragraph 5(a) are also drawn from Reward Group's 30 June 2009 annual financial report (not that of RPL) and there is again a timing issue. Mr White submits that there is nothing in the statement to which the particulars refer which says that RPL required continuing funding from investors in the project, nor that it required funds from investors in other schemes in order to sustain its position.
136Insofar as there is reference to the auditor's report dated 26 February 2010, Mr White accepts it raises serious questions in relation to Rewards Group but again notes that it relates to Rewards Group not RPL and that it was written several years after the relevant time.
137Similar criticism is made as to the reliance on Reward Group's financial reports ending 2007, 2008 and 2009, respectively, and it is apparent that such criticism can be made of other parts of the particulars contained in the proposed Amended Cross-Claim.
138Pausing there, the fact that there may be difficulty for Mr Colley to establish that particular risks were known or appreciated by RPL at the relevant time (by reference to later documents of the kind referred to above) does not mean that a claim based on non disclosure of those alleged risks might not be able to be sustained at a final hearing, depending on the whole of the evidence at that time.
139It is alleged (at [6]) that, prior to accepting Mr Colley's applications to invest in the said Projects, RPL knew of the adverse matters and knew that each adverse matter was information about a significant risk associated with an investment in the Projects within the meaning of s1013D(1)(c) of the Corporations Act and that might reasonably be expected to have a material influence on the decision of a reasonable person, as a retail client, including Mr Colley to invest in the Projects within the meaning of s1013E of the Corporations Act.
140As a consequence, it is said that RPL was required to take certain steps including disclosure of the adverse matters ([7]) and, by reason of the fact that it did not take those steps, the relevant product disclosure statements were defective within the meaning of s 1022A(1) of the Corporations Act ([8]).
141It is alleged that Mr Colley acted in reliance on the relevant product disclosure statements in entering into the various agreements and suffered loss and damage by reason thereof.
142Those matters therefore go to the alleged defective nature of the Product Disclosure Statements and a breach by RPL (not Investec) of obligations in that regard. The relevance of these allegations to the claim against Investec is not made clear (though I note that the alleged duty of disclosure in [7] may supply the foundation for a misleading and deceptive conduct by silence claim).
Breach by RPL of s 104E(1) of the Corporation Act
143In paragraphs [14]-[20], under the heading Misleading or Deceptive Conduct, it is alleged that in the Product Disclosure Statements RPL (knowingly or recklessly) made false or misleading representations as to various matters (namely, the disclosure of any significant risks associated with acquisition of an interest in the Projects; that the Product Disclosure Statements contained all information that might reasonably be expected to a have a material influence on the decision of a reasonable person, as a retail client, whether to acquire an interest in the Projects; and as to RPL's compliance with its obligations under the Corporations Act in the preparation and issuing of the Product Disclosure Statements) each of which is said to be implied from RPL's obligations under the Act as responsible entity for the Projects; and that, as a consequence, RPL contravened s 1041E(1) of the Corporations Act. It is alleged that Mr Colley relied on the said representations and has suffered loss and damage by reason thereof.
144Again, to this point, the allegations focus on RPL's knowledge and its conduct alone and the cause of action is one directed to RPL alone.
Breach by RPL of duties as responsible entity
145By the next set of allegations (in [21]-[28] under the heading "Conflict of Interest - s 601FC"), it is alleged that RPL owed various duties under s 601FC of the Corporations Act in exercising its powers and carrying out its duties as the responsible entity for the Projects and that it breached those duties by failing to disclose the "adverse matters" in circumstances where it had a conflict of interest. (The conflict of interest is said to arise by reason of the fact that it was in the best interests of Mr Colley to be informed of the adverse matters prior to him applying to acquire interests in the Projects and/or prior to RPL accepting his applications whereas the "full and timely disclosure" of the adverse matters (that it is said was likely to have resulted in Mr Colley deciding not to acquire interests in the Projects) was contrary to RPL's commercial interests and was likely to have affected the level of investor interest in the Projects.)
146By reason of the matters alleged in [21] to [24], it is alleged that RPL has contravened s 601FC(1)(a), (b), (c) and (i) of the Corporations Act and that, as a consequence, Mr Colley has suffered loss and damage.
147Again, to this point the allegations made are allegations as to a contravention by RPL (which is not a party to the proceedings) alone.
148It is further alleged in [28] that "in the premises" Mr Colley is entitled to the orders sought pursuant to s 1325(5)(a) to (e) of the Corporations Act for a declaration that the Funding Agreements (being collateral arrangements relating to his investment in the Projects) entered into with Investec are void or otherwise unenforceable and an order that Investec repay all money paid by him under the Funding Agreements. (Mr White notes that the relief claimed in [28], consequent upon the second discrete causes of action arising against RPL (not as against Investec), is relief focused on the funding agreement.)
149It is not made clear how it is alleged that, because of a contravention by RPL of s 1041E of the Corporations Act or its duties as responsible entity for the schemes, the finance agreements entered into directly between Mr Colley and Investec are unenforceable, nor how Investec is obliged to repay money to Mr Colley.
Agency allegations
150Paragraphs [29]-[33] then broadly repeat the agency allegations in the present Cross-Claim, although relevantly the authorisation now sought to be pleaded in the proposed amended Cross-Claim is that at all material times Investec authorised RPL "to originate loans for and on its behalf" in relation to the particular investments and to enter into the respective funding agreements (rather than the allegation in the current pleading that it authorised RPL to procure investors to make the investments).
151Paragraph 29 of the proposed Amended Cross-Claim relies upon clauses 5(j) and 8.1 of the Origination Deed for the allegation that there is an actual agency relationship between RPL and Investec. Those clauses provide as follows:
Clause 5(j)
The Loan Product was originated by the Servicer [RPL] in compliance with the procedures set out in the Operational Procedures Manual.
Clause 8.1 Appointment of Servicer
Rewards and Investec agree that Rewards shall be appointed as the servicer ("Servicer") of the Qualifying Loan Products as agent for Investec under the terms of the Servicing Deed. (my emphasis)
152Mr White submits that clause 5(j) of the origination agreement makes it clear that Investec undertakes to the Rewards companies that it will accept the relevant loan applications provided they meet certain criteria, one of which is that RPL complied with certain operational procedures.
153There is clearly an express agency appointment acknowledged in clause 8.1 the Origination Deed but in its terms it appears to be an agency for a specific purpose (namely 'servicing' the Qualifying Loan Products under the terms of the Servicing Agreement), which arguably suggests that any agency arrangement does not come into existence until after entry into the loan products. In any event, it is an agency for a particular purpose by reference to which the scope of any conduct for which the principal might vicariously be liable (or the actions in which the agent was put in a position to take) would fall to be tested.
154(As to the question of agency, Investec's submission is that there is no agency of the kind pleaded (ie, to originate loans for and on behalf of Investec in relation to the schemes that were being promoted by RPL) but for the purposes of this application it is accepted that on a summary judgment basis there is an arguable basis upon which that could be asserted.)
155Paragraph 29 of the proposed Amended Cross-Claim also pleads an implied agency relationship, the facts matters and circumstances alleged to give rise to the implication of agency being pleaded as follows:
(a) the statements at p 10 of the Product Disclosure Statement for the Sandalwood Project 2007 ("Sandalwood PDS") that:
The Initial Fee may be paid in full by cheque or credit card on application or using one of the finance options in the Rewards Group Sandalwood Project 2007 Finance Package...
To apply for finance complete the application form in the Rewards Group Sandalwood Project 2007 Finance Package and submit it to Rewards Projects Ltd with your Woodlot application form... The relevant finance provider will obtain security for the finance facility by a mortgage over the Grower's Woodlot(s), the management agreement and any other contractual or other rights of the Grower in respect of the Project (the Lender's Security").
(b) the specific reference, in the Application for Finance accompanying the Sandalwood PDS, to Investec as a "Finance Provider".
(c) the statement in the letter dated 4 July 2007 from RPL to Mr Colley in relation to the Sandalwood Project that:
Thankyou for your Finance Application seeking finance for the acquisition of 22 Woodlot(s) in the Rewards Group Sandalwood Project 2007 (Project). We act as the agent for Investec Bank (Australia) Ltd ACN 071 292 594 (Lender). (my emphasis)
Please note that prior to the 1st April 2007 the preferred lender for Rewards Group Sandalwood Project 2007 was Target Funding Pty Limited ACN 003 825 107 (a subsidiary of Investec Bank Australia Ltd).
Investec Bank (Australia) Ltd ACN 071 292 594 is now the preferred lender.
On behalf of the Lender, we advise that your application has been successful and the Lender has approved the following, finance facility..."
(e) the specific reference in the Application for Finance accompanying the Teak PDS to Investec, as a "Finance Provider'.
(f) the statement in the letter dated on or about 4 July 2001 from RPL to Mr Colley in relation to the Teak Project similar to that set out in (c) above.
(g) that Target [alleged to be a subsidiary of Investec] and/or Investec assisted with and/or was party to RPL's application of a product ruling with the Australian Taxation Office for the Projects;
(h) that Target and/or Investec was RPL's preferred lender for the purpose of the ATO product ruling;
(i) that Target and/or Investec knew or ought to have known that the ATO product ruling only applied to the deductibility of interest and/or fees arising from the Funding Agreements with Target and/or Investec;
(j) that Investment was engaged in a commercial enterprise with RPL to originate loans in the Projects (the commercial enterprise being particularised as arising from: the terms of the Origination Deed between Investec and RPL; that Investec had a financial interest in the Defendant (and other investors) in taking out loans with Investec for investment in the Projects; that the application for an interest in the Projects was packaged with loan facilities offered by Investec; and that Investec was the preferred financier and preferred lender for the purpose of the ATO product ruling);
(k) that Investec (and formerly Target) had no direct communication with Mr Colley and authorised RPL to communicate acceptance of the Funding Agreements and Issue statements relating to the Funding Agreements.
156There is thus an expansion in the proposed Amended Cross-Claim of the allegations on which the agency relationship is pleaded, to include reference to the Origination Deed (and particularly clauses 5(j) and 8.1 thereof) as well as the inclusion of additional matters by reference to which the implied agency is said to arise (including the matters pleaded in 29(g), (h), (i), (j) and (k)).
157Pausing there, Mr White points to particular difficulties in the proposed amended pleading on which Mr Colley seeks to rely for the implication of an agency relationship, as follows.
158As to the allegation in [29(g)], Mr White submits that an allegation that a subsidiary may have done something to attract an agency relationship, does not permit the (unstated) allegation that the parent company was itself privy to the agency relationship. It is said that, in effect, this paragraph is an allegation that one or both of two entities (only one of which is a party to the proceeding) was a party to or assisted with (or both) an application made for a product ruling. It is submitted that the allegation is so vague as to be embarrassing but that, in any event, even if made against Investec on a definitive basis, it would not advance the allegation that RPL was acting on Investec's behalf to procure investment in either of the two relevant schemes.
159In response to this, it is said for Mr Colley that while a subsidiary's agency relationship may not "transfer" to its parent it can do so in certain circumstances. Nevertheless, the circumstances in which that might occur are not identified in the submissions (nor are they pleaded in [29(g)].
160I consider that this sub-paragraph is an embarrassing pleading for the reasons identified by Mr White.
161As to [29(h)], it is said that the allegation that one or both of two entities (only one of which is a party to the proceeding) was RPL's preferred lender for the purpose of an ATO product ruling is again so vague as to be embarrassing. As to [29(i)], knowledge of the applicability of the product ruling only to the funding agreement, a similar criticism to that in relation to (h) is made. For Mr Colley it is said, in relation to [29(h)] (and [(i)]), that since the proceedings are at an early interlocutory stage Mr Colley unable at this stage to confirm whether it was Target or Investec (or both) that was RPL's "preferred lender" for the purposes of the ATO product ruling (such information, it is said, can only be definitively confirmed once documents are obtained through discovery/subpoenas). That submission seems in its terms to acknowledge that there is no proper basis at this stage for an allegation that Investec was the "preferred lender" for the purposes of the product ruling or had the alleged knowledge as to its applicability. In any event, it is not clear how the status of preferred lender is said to give rise to an implied agency to originate loans. Again, I consider the criticisms of this part of the pleading to have force.
162As to [29(j)], the allegation of a common 'commercial enterprise' is said to beg the question since the term "commercial enterprise" is not defined, has no particular meaning at law and does not support a finding that one party was acting on behalf of another. Mr White submits that since an allegation appears to be inconsistent with a relationship of principal and agent (by reference to what was said in Premier Building and Consulting Pty Ltd (recs apptd) v Spotless Group Ltd [2007] VSC 377; (2007) 64 ACSR 114). There, Byrne J said at [341] and [342]:
... In order to discover the existence of a principal and agent relationship between the holding company and the operator in this case I must first establish whether there is a parent and wholly-owned subsidiary company relationship between them, the extent of the power of the holding company to exercise control and its exercise of such control, and any further indication that the subsidiary has so abandoned its independent commercial existence that I might conclude that it has no independent commercial existence; it is but the tool of the parent and labouring for the benefit only of the parent. If this were to be the case, it might be said that agency has been found to exist. (my emphasis)
163His Honour concluded there that there was nothing to show a relationship beyond that of a parent and subsidiary within a corporate group and went on to say "Nor am I satisfied that there is sufficient evidence to support a conclusion of common enterprise so as to attach liability for any polluting acts or omissions of Spotless Supply to its parents ... ."
164For Mr Colley, it is said in relation to [29(j)] that the commercial relationship between Investec and RPL is clearly established through the 16 February 2007 Deed and that what the commercial relationship establishes is that RPL had a commercial interest in originating loans. It is further submitted that the fact that RPL and Investec were engaged in a commercial enterprise in relation to the origination of the loans does not mean that their relationship is inconsistent with that of principal and agent; rather, that the agency is of a commercial nature and involved RPL taking all necessary steps to attract investors to acquire interests in the projects and to borrow funds to acquire interests in the projects from Investec. (In this regard, the observations made in Tonto Home Loans Australia Pty Ltd v Tavares; Firstmac Ltd v Di Benedetto; Firstmac Ltd v O'Donnell [2011] NSWCA 389, to which I refer later, would seem to be apposite. However, I accept that at this stage there would be an argument open to Mr Colley that there was a common commercial enterprise that gave rise to an implied agency.)
165As to this sub-paragraph, subject to the proper particularisation of the alleged commercial relationship, its consistency or otherwise with an agency relationship seems to me to be a matter for submission in due course.
166As to [29(k)], it is submitted by Mr White that, whatever Target may have done, is of no significance in determining the existence of an agency relationship to which Investec was allegedly a party and that, as against Investec, the allegation, if correct, potentially demonstrates nothing more than that RPL acted as Investec's agent for the purposes of communicating acceptance to the funding arrangements to the investor, and issuing statements. I agree.
167At [31] there follow allegations as to what Investec knew at the time: that Investec knew that RPL was promoting the scheme and originating loans (which is conceded) and that there were investors, including Mr Colley, that would rely upon the contents of the Product Disclosure Statements. At [32] it is alleged that Investec had a commercial interest in investors, including Mr Colley, making its applications.
168In paragraph [33], there is, in substance, the same vicarious liability allegation as in [32] of the existing cross-claim, namely that the conduct of RPL (identified in [39] of the proposed Amended Cross-Claim) was engaged in by RPL within the scope of the RPL Agency and in the course of the execution of the RPL Agency and that as a consequence Investec is vicariously liable for RPL's conduct "as referred to in" [37] to [51] (my emphasis).
169The pleading is criticised as unclear on this aspect. In particular, it is said that, while there is no dispute that RPL originated loans for and on behalf of Investec (and did so by attaching loan applications to its Product Disclosure Statements), it is not clear how Investec is said to become liable for the conduct of RPL pleaded in the discrete causes of action preceding the agency allegations.
170It is submitted that either an attempt is being made to make Investec per se liable on a cause of action pleaded against another entity or else the claims set out at the commencement of the pleading (being the conflict of interest and the misleading and deceptive conduct claims) are redundant and unnecessary to the claim that, in effect, Investec was acting through its alleged agent, RPL, in a misleading or deceptive manner.
171Before turning to the alleged conduct said to give rise to the vicarious liability, there is a further or alternative allegation of apparent or ostensible authority contained in [34]-[36] [that arising by reason of one or more of the matters alleged in [29] to [33] and [39]] whereby it is said that Investec held out to prospective investors that RPL acted for and on behalf of Investec in originating loans with investors in the Projects. It is alleged that Investec knew or ought to have known that RPL originated loans on behalf of Investec by using the respective Product Disclosure Statements.
172At [36] it is alleged that RPL's conduct in relation to the origination of loans as alleged in [37] to [51] was within the scope of the alleged apparent or ostensible agency.
Conduct for which Investec is alleged to be vicariously liable
173Under the heading "Origination of Loans - Vicarious Liability", appear the allegations of the conduct for which Investec is said to be vicariously liable by reference to the alleged agency relationship.
174It is alleged (at [37]) that, by the Origination Deed, Investec engaged and/or authorised RPL to originate loans on its behalf with respect, inter alia, to the Projects and agreed to be the preferred financier to RPL and to provide loans to applicants who apply to invest in the Projects. Reference is made at [38] to particular terms and/or conditions of the Origination Deed; at [39] to the origination of loans by RPL for Investec; and at [40] to the making by Mr Colley of an application, in accordance with Loan Applications, to Investec to finance his investment in the Projects and entered into the Funding Agreements.
175At [41] it is alleged that, in the premises, RPL originated the said loans as agent for Investec, within the scope of the actual or ostensible authority granted to it by Investec under the Origination Deed.
176Pausing there, [37]-[41] appear to me to proceed on the premise that, if RPL was Investec's agent for the origination of loans, then Investec is vicariously liable for any liability on the part of RPL in relation to the origination of the loans. Such liability might well arise in respect of conduct within the scope of an agency relationship between Investec and RPL (depending on what the scope of such a relationship may ultimately be found to be) or by reason of the position in which Investec placed RPL in order to carry out certain actions. However, when read in the context of the earlier sections of the pleading (which focus on the conduct of, and alleged breach by, RPL alone, as responsible entity in relation to the documents issued in relation to the schemes, and the later allegations in [42]-[44] considered below, there seems to be a blurring in the pleading as to the distinction between conduct of RPL in the course of the origination of investment in the projects (in its capacity as responsible entity of the schemes) and conduct of RPL in the course of the origination of loans to fund those investments (which it is said it did as agent for Investec). To that extent, the broad pleading in [33] that Investec is vicariously liable for the conduct referred to in [37] to [51] is embarrassing insofar as it does not make clear what liability is said to flow from the earlier breaches pleaded against RPL.
177At [42]-[44], the Amended Cross-Claim sets out the matters on which Mr Colley relies for the allegation that, by originating the loans engaged in trade or commerce within the meaning of Part 2 Division 2 of the ASIC Act, RPL: arranged for Mr Colley to apply for or acquire a financial product within the meaning of s12BAB(7) and (8) of the ASIC Act; provided a financial service within the meaning of s 12BAB(1) of the ASIC Act; engaged in conduct in relation to financial services within the meaning of s12DA(1) of the ASIC Act; and supplied a financial service within the meaning of s12CC(1) and (6) of the ASIC Act; on the basis of which it is alleged that, at the time RPL originated the loans, RPL owed duties under s 601FC(1)(b) and s 601FC(1)(c) of the Corporations Act.
178At [47], it is alleged that, by reason of the matters outlined in [37] to [46], RPL, by not disclosing the adverse matters and by making the alleged Product Disclosure Statement representations before originating the loans, engaged in conduct that is in all the circumstances unconscionable in breach of s12CC of the ASIC Act.
179Section 12CC(1) of the ASIC Act provides as follows:
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of financial services (see subsection (6)) to another person (other than a listed public company); or
(b) the acquisition or possible acquisition of financial services (see subsection (7)) from another person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
180Again, pausing there, as to the allegation of breach by RPL of the statutory prohibition on unconscionable conduct in business transactions (contained in prohibition in s 12CC of the ASIC Act) (see [47] and [51]-[54]), Mr White submits that there has not been an adequate pleading of the matters required to be established under that section (in particular, that the "supply of financial services" is or would be for the purpose of trade or commerce). In response to this, it is submitted for Mr Colley, that [43(a)] of the proposed Amended Cross-Claim sufficiently pleads that RPL engaged in trade or commerce within the meaning of 2 of Division 2 of the ASIC Act and that [43(e)] it is clearly alleged that RPL supplied a financial service within the meaning of s 12CC(1) and (6) of the ASIC Act. Read together with those paragraphs, it seems to me that [47] and [51]-[54] do sufficiently plead the elements of an allegation of a breach of s 12CC. If further particulars are required of that allegation, they can be sought in due course.
181At [50] of the proposed pleading, it is then alleged that "[a]s a consequence" (presumably a reference to the foregoing allegation of unconscionable conduct on the part of RPL and/or the allegations of breach by it of provisions in the Corporations Act), and by reason of the matters referred to in [5] to [11], [14], [44] and [45], the failure [presumably by RPL] to disclose the adverse matters (before RPL engaged in the conduct pleaded at [39] and before Mr Colley applied for the loans and entered into the funding agreements) constituted conduct that was misleading or deceptive, or was likely to mislead or deceive, in breach of s 12DA of the ASIC Act. Again, this seems to be an allegation of a failure to disclose (and hence breach of the relevant statutory provision) by RPL itself not Investec.
182Section 12DA provides as follows:
12DA Misleading or deceptive conduct
(1) A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
(1A) Conduct:
(a) that contravenes:
(i) section 670A of the Corporations Act (misleading or deceptive takeover document); or
(ii) section 728 of the Corporations Act (misleading or deceptive fundraising document); or
(b) in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or
(c) in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act;
does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.
(2) Nothing in sections 12DB to 12DN limits by implication the generality of subsection (1).
183For liability to arise under s 12DA(1) of the ASIC Act, the conduct in question must be in relation to financial services. Financial services are defined by s 12BAB of the ASIC Act. It is submitted for Mr Colley that, relevantly, arranging for a person to apply for or acquire a 'financial product' is a 'dealing in a financial product' and therefore is the provision of a 'financial service' for the purposes of s 12DA(1) of the ASIC Act. The conduct in relation to the origination of the loans and the alleged contravention of s 12DA(1) of the Act is said to be framed in the pleading with express reference to conduct in relation to the origination of the loans.
184(I interpose to note that Mr White submits that Mr Colley should not be permitted to rely upon any separate cause of action for misleading or deceptive conduct under s 12DA of the ASIC Act (as pleaded at [50]-[54]) since that cause of action is based upon alleged defects in the respective Product Disclosure Statements, and the appropriate cause of action for such allegations is separately pleaded. I deal with this later.)
185At [52] it is alleged that, by reason of the matters pleaded at [29] to [36] and [37] to [45], Investec is vicariously liable for the breaches by RPL of both ss 12CC and 12DA of the ASIC Act. It is then pleaded that Investec is liable under ss 12GF and 12GM of the ASIC Act to compensate Mr Colley for his loss and damage and that, further or alternatively, Mr Colley is entitled to an order pursuant to s 12GM(7) of the ASIC Act.
Overview of claims against Investec
186In his submissions, Mr White has identified two key components to the proposed Amended Cross Claim:
(i) the allegations that RPL failed in its statutory obligations to bring to Mr Colley's attention the "adverse matters", by reason of which the relevant Product Disclosure Statements are said to have been defective within the meaning of s 1022A(1) of the Corporations Act, and that RPL acted in breach of its obligations to avoid a conflict of interest (s 601FC(5) of the Act) and, in disseminating the Product Disclosure Statements, engaged in misleading and deceptive conduct (in breach of s 104IE) (by reference to [1]-[28] of the proposed pleading); and
(ii) the allegation that RPL was acting as Investec's agent (actual or ostensible) when RPL procured investment in each of the schemes, and that Investec is therefore vicariously liable to Mr Colley (by reference it seems to the broad allegation of vicarious liability in [33] but with a specific allegation of vicarious liability in relation to the ASIC Act breaches in [52]).
187In the submissions earlier filed for Mr Colley, and on which he relies for the present application, it is accepted that the first is a correct characterisation but it is submitted that the agency claim (identified by reference to [29] to [41] of the proposed Amended Cross-Claim) is not as has been characterised by Investec. (The claim for vicarious liability in respect of RPL's breaches of the ASIC Act is addressed separately.) Relevantly, it is submitted for Mr Colley that the agency claim against Investec is as follows:
(i) that RPL was originating loans as an agent for and on behalf of Investec and that this was within the scope of RPL's actual or ostensible authority;
(ii) that RPL failed to disclose to Mr Colley the significant risks relating to the projects before it originated the loans on behalf of Investec and that, as a result of this failure, Mr Colley applied to invest in the projects and entered into loan agreements with Investec, thereby suffering loss and damage; and
(iii) that, because the actions of RPL were within the scope of its authority, Investec is vicariously liable for the conduct of RPL.
188As to the allegation of breach of s 12DA of the ASIC Act, which seems to be separate from the broad allegation of vicarious liability in [33]. Though the a 12DA allegations fall within the definition of "conduct" referred to in the general agency allegations, it is submitted by Mr White that liability for misleading or deceptive representations in a disclosure document or statement within the meaning of s 1022A of the Corporations Act is a matter regulated exclusively by Part 7.9 of the Corporations Act, (in particular by ss 1022B and 1022C); and that those sections limit the orders that can be made to orders against a 'liable person' as defined in s 1022B(3) (citing Bendigo and Adelaide Bank Ltd v Cairncross [2011] NSWSC 610; extracted with approval by Judd J in Woodcroft-Brown v Timbercorp Securities Ltd (No 2) [2011] VSC 526 (at [15]) - as to the latter there being an appeal still pending).
189I deal first with that issue.
Allegation of breach of s 12DA
190Any claim for vicarious liability in respect of a breach by RPL of s 12DA would, of course, require it to be established that RPL was itself liable for a breach of that section. In Bendigo and Adelaide Bank Ltd v Cairncross [2011] NSWSC 610, at [53] and [54] Einstein J considered the relevant provisions in the context of the overall legislative provisions relating to false and misleading conduct and said:
Nor do the provisions of the repealed s 52 of the Trade Practices Act or Australian Consumer Law apply to misleading representations in product disclosure statements. To the extent that the Australian Consumer Law is part of the law of the Commonwealth, it does not apply to conduct in relation to financial services or financial products (see s 131 and 131A of the Competition and Consumer Act 2010). To the extent that the Australian Consumer Law is part of the law of the States, by the Fair Trading Acts, it does not apply to conduct in relation to product disclosure statements by virtues of s 1041K and 1041H(3) of the Corporations Act.
The effect of all of those provisions is that misleading or deceptive representations in a disclosure document or statement within the meaning of s 1022A of the Corporations Act are regulated exclusively by Part 7.9 of the Corporations Act, in particular section 1022B and 1022C. Those sections limit the orders that can be made to orders against a "liable person" as defined in s 1022B(3).
191In Woodcroft-Brown v Timbercorp Securities (No 2) [2011] VSC 526, Judd J said (at [14]):
The Act contains a comprehensive scheme to prescribe and regulate the disclosure obligations of a responsible entity ... 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 [citing Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 225] 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 104lH(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(l). Section 104IK 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". (my emphasis)
192Judd J concluded at [16] that:
In my opinion the liability of the defendants in relation to their disclosure obligations, to potential and existing investors in relevant schemes, fell to be determined by reference to their compliance with the statutory disclosure obligations in Pt 7.9 of the Act. The plaintiff specified what he contended were the particular risks, information and events requiring disclosure. They were the structural risk as pleaded, the financing risk advanced at trial, and the various iterations of the adverse matters, as risks, information and events.
193In Investec Bank (Australia) Ltd v Burge (No 2) [2011] NSWSC 1557, Black J cited those comments of Judd J in Woodcroft-Brown with apparent approval, dismissing a claim for misleading and deceptive conduct arising out of non-disclosure in the relevant disclosure documents "consistent with the reasoning in Woodcroft-Brown v Timbercorp Securities Ltd (No 2)".
194Thus, Mr White argues that Mr Colley should not be permitted to rely upon s 12DA of the ASIC Act in support of a misleading and deceptive conduct claim against Investec (vicariously or otherwise, it would seem).
195While both Bendigo and Adelaide Bank v Cairncross and Woodcroft-Brown concerned misleading and deceptive conduct in relation to Product Disclosure Statements rather than misleading and deceptive conduct during origination of loans (as was pointed out for Mr Colley), I note that what fell to be considered by Black J in Investec v Burge (No 2) was a claim alleging contravention of s 1041H of the Corporations Act, s 12DA of the ASIC Act and s 42 of the Fair Trading Act 1987 (NSW) which was not expressly pleaded by reference to the content of any disclosure documents there issued by the responsible entity (in that case also RPL and also being alleged to act as an agent for Investec). His Honour considered (at [13]) that (despite the way in which the claim was pleaded):
...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.
196Relevantly, in this regard, the proposed Amended Cross-Claim alleges failure to disclose the adverse matters in the Product Disclosure Statements themselves ([5]), that being the basis on which it is alleged that the Product Disclosure Statements were defective ([8]). Similarly, the alleged contravention by RPL of s 1041E is predicated on false and misleading representations in the Product Disclosure Statements (whether by omission or otherwise).
197Insofar as the proposed Amended Cross-Claim has alleged misleading and deceptive conduct, for which Investec is said to be vicariously liable, due to RPL's failure to disclosure information before the origination of the loans, it is relevant to note that the pleadings do not disclose any other sources or opportunities by which such information could or should have been disclosed other than by reference to the Product Disclosure Statements. Therefore the observations of Black J (in Investec v Burge) would appear to be equally apposite here.
198It is said for Mr Colley that the objection raised to the s 12DA pleading (based on the reasoning in Woodcroft-Brown) fails to distinguish between the two separate allegations: namely the allegation of breach by RPL of s 1041E Corporations Act, which is said to arise out of its failure to disclose significant risks in the Product Disclosure Statements, and the allegation of breaches by RPL of ss 12DA and 12CC ASIC Act, which are said to arise out of RPL's origination of loans on behalf of Investec.
199Nevertheless, the matters that it is alleged were required to be disclosed in both contexts seem to be the same. In other words, there seems to be no relevant distinction as to what it is said should have been disclosed; rather, the distinction drawn for Mr Colley seems to be as to the context in which the disclosure should have been made. If the relevant loan origination documentation was part of the same material provided in relation to the investment opportunities, it may be difficult to sustain such a distinction.
200In the submissions for Mr Colley, it is emphatically stated that there is no allegation in the pleading that Investec is vicariously liable for RPL's breaches of the Corporations Act that arise out of the defective Product Disclosure Statements or RPL's duties as a responsible entity of the schemes. Rather, it is said that RPL is liable for misleading and deceptive conduct committed by it during the course of originating loans and that Investec is liable therefor because the act of origination was within the scope of the agency between RPL and Investec. In other words, it is said that the vicarious liability arises out of RPL's origination of loans on behalf of Investec, through its provision of loan applications inviting investors to borrow funds from Investec, and that those actions were within the scope of the agency between RPL and Investec.
201The misleading and deceptive conduct claim under s 12DA of the ASIC Act is said, in effect, to be the kind of claim considered in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 claim (described in the submissions filed for Mr Colley as a claim that RPL had information that was likely to have influenced Mr Colley whether or not to enter into the loans and that Mr Colley had a legitimate expectation that, if that information had been known to RPL before it originated the loans, the information would have been disclosed (giving rise to a duty of disclosure).
202The failure of RPL to disclose the information before it engaged in the conduct pleaded in [39] of the draft amended cross-claim and before Mr Colley entered into the loans is what is said to constitute misleading and deceptive conduct in breach of s 12DA(1) ASIC Act.
203In this regard, in the submissions for Mr Colley it is contended that, as a Product Disclosure Statement was not required to be issued by RPL when it provided financial services (by arranging for persons to apply for or acquire the loans), ie, in the origination of loans for and on behalf of Investec (because, it is said, credit facilities are expressly excluded from the definition of financial products under the Corporations Act), Part 7.9 of Chapter 7 of the Corporations Act and in particular s 1022A of the Corporations Act does not apply to the offer of the loans.
204Insofar as "credit facilities" are expressly included in the definition of "financial products" under the ASIC Act 2001, it is submitted that conduct in relation to the funding agreement in question here are caught under the misleading or deceptive conduct prohibitions found in s 12DA(1) of the ASIC Act (and that otherwise there would be a gap in the consumer protection provisions created by the carve-out of credit facilities from the definition of financial products in the Corporations Act.
205For Mr Colley, it is thus said that the relevant allegation against Investec relates to conduct by RPL in breach of s 12DA of the ASIC Act not in relation to the interests in the underlying managed investments schemes (being a different financial product in respect of which Part 7.9 of Chapter 7 of the Corporations Act broadly applies) but in relation to the origination of loans in relation to the offer of interests in the relevant managed investment schemes.
206As I understand it, Mr Colley expressly disavows the proposition that conduct by RPL as responsible entity in relation to the Product Disclosure Statements is the subject of complaint in the proposed Amended Cross-Claim (though this seems to disregard the allegations squarely pleaded as to breach by RPL in the earlier sections of the pleading) and that is the basis on which it is submitted that the carve-out contained in s12DA(1A)(c) of the ASIC Act has no application to the current version of the pleadings.
207It is submitted for Mr Colley that there is a debateable question of law as to the meaning and extent of the carve-out in s 12DA and that it is not appropriate to decide on a strike out/summary judgment application.
208Whether the distinction between non-disclosure (or misleading and deceptive conduct by silence) in relation to the invitation for investment in the schemes (and the Product Disclosure Statements issued in connection therewith) and non-disclosure at that or some later point in relation to the loan applications entered into in respect of such investments can be maintained (particularly in light of the recent observations of Black J), in circumstances where the focus of the conduct by RPL seems to lie on the failure to correct representations in the product Disclosure Statements themselves, is a matter on which it seems to me there may be room for debate. If so, then arguments of that kind are arguments that need to be considered and determined at a final hearing and not on an interlocutory application of this kind.
209However, what is of concern is that the amended pleading should articulate clearly the basis of the claim so that Investec knows the case that it must meet. The very fact that there is uncertainty on the pleading as to how the earlier allegations of breach by RPL relate to a claim that Investec is vicariously or otherwise liable for a breach of either s 12CC or s 12DA of the ASIC Act, seems to me to indicate that the proposed amended pleading is embarrassing in its present form.
Broader vicarious liability allegations
210As to the broader allegations of vicarious liability against Investec, which are dependent upon the existence of an actual or apparent/ostensible agency relationship relating exclusively to the origination (by RPL) of loans on behalf of Investec, Mr White submits that the pleading is fundamentally flawed, for two overlapping reasons.
211First, it is said that nowhere is it pleaded that the conduct of RPL complained of fell within the scope of the relationship whereby Investec was acting as a principal (though Mr White accepts that there is an allegation at [41] that the Investec loans were originated by RPL within the scope of Investec's authority, he submits that the complaint here made is not as to the origination of loans per se but rather that the gravamen of the complaint is as to the defective nature of the Product Disclosure Statement and the associated allegation of conflict of interest in RPL as the responsible entity of the schemes.
212The failure to specify with particularity the conduct that falls within the scope of the principal's authority (and that is alleged gives rise to the alleged liability), is relied upon as sufficient of itself to warrant the refusal of leave to amend the pleading in the manner proposed.
213The second flaw identified by Mr White in the vicarious liability claim against Investec is that it is said that RPL was never, and could not have been, acting as Investec's agent at the time of the acts and omissions now complained of by Mr Colley, since those things were necessarily done (or not done) in its capacity as the scheme's responsible entity. It is noted that Investec was not involved in any capacity in the promotion of the relevant investment schemes.
214For Mr Colley, reliance is placed on what was said in Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 by Gavan Duffy CJ and Starke J as to the scope of an agent's authority, and that for which a principal will be vicariously liable. It is noted that such liability is not confined to that which has been specifically authorised (nor does it exclude that which has been specifically prohibited) but also may extend to conduct which the principal put the agent in a position to do (here, the origination of loans). (Reference is also made to the decision of Forrest J in Perpetual Trustees Australia Limited v Schmidt & Anor [2010] VSC 67, involving the question as to vicarious liability of a lender for conduct of a loan originator.)
215Therefore, to the extent that the submissions filed for Mr Colley in January 2012 describe the misleading and deceptive conduct claim in the draft amended pleading as a claim in the nature of that considered in Demagogue v Ramensky (whereby it is alleged that RPL had certain information that would have influenced Mr Colley and others as to whether they should have entered into the loan and, in effect, RPL remained silent when it had an obligation to disclose that information or where Mr Colley had a legitimate expectation that if that information had been known to RPL then it would have been disclosed to him), if such a claim is to be made against Investec the draft amended pleading must make clear how it is said that the knowledge held by RPL as agent is a component of the cause of action pleaded against Investec.
216Mr White relied on what was said by Allsop P in Tonto as to the principles of agency (in the context of the use by a lender of "mortgage originators", which in turn used "sub-introducers" to identify potential borrowers, and where one of those sub-introducers had engaged in dishonest conduct). His Honour referred to the discussions of the conception and central elements of agency by Finn J in South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; 177 ALR 611 at 645-647 [131]-[137], in P Watts and F M B Reynolds, Bowstead and Reynolds on Agency (19th edn, Sweet & Maxwell, 2010) at 1-10, in G E Dal Pont Law of Agency (2nd edn, LexisNexis, 2008) at 4-8 and 26-28 (and referred also to W A Seavey "The Rationale of Agency" (1919-1920) 29 Yale Law Journal 859). His Honour emphasised that the concept of agency is not merely functional but is a consensual arrangement or relationship, whereby the agent is to be taken as, or as representing, the principal ([175]).
217At [176], Allsop P noted Article 1 as posited in Bowstead and Reynolds on Agency (19th edn) at 1 [1-001]:
(1) Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation. The one on whose behalf the act or acts are to be done is called the principal. The one who is to act is called the agent. Any person other than the principal and the agent may be referred to as a third party.
(2) In respect of the acts to which the principal so assents, the agent is said to have authority to act; and this authority constitutes a power to affect the principal's legal relations with third parties.
(3) Where the agent's authority results from a manifestation of assent that he should represent or act for the principal expressly or impliedly made by the principal to the agent himself, the authority is called actual authority, express or implied. But the agent may also have authority resulting from such a manifestation made by the principal to a third party; such authority is called apparent authority.
(4) A person may have the same fiduciary relationship with a principal where he acts on behalf of that principal but has no authority, and hence no power, to affect the principal's relations with third parties. Because of the fiduciary relationship such a person may also be called an agent.
218His Honour observed at [177] the closeness of identity required for the agency relationship to exist and that "any arrangement must be understood and characterised by reference to its legal terms in context". His Honour went on to note that:
... the word "agent" has a potentially wide and varying meaning in life and business and that, on some occasions, the business description will be given to someone who is not a fiduciary. See also Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64 ; 156 CLR 41 at 71-72 (per Gibbs CJ), cf at 96-97 (per Mason J), Boardman v Phipps [1967] 2 AC 46 at 127, F E Dowrick "The Relationship of Principal and Agent" (1954) 17 Modern Law Review 24 and R P Meagher, J D Heydon and M J Leeming (eds) Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th Ed, LexisNexis, 2002) at 191-192 [5-195]. It is sufficient to recognise that the essential characteristic is that one party (A) acts on the other's (P's) behalf, and that this will generally be in circumstances of a requirement or duty not to act otherwise than in the interests of P in the performance of the consensual arrangement. Bowstead and Reynolds on Agency , the Restatement and Seavey op cit at 863 include in the conception of agency the characteristic of fiduciary duty. The duty will, of course, conform with the extent and scope of the agency and thus be of potentially varied content, recognising that context (in particular, perhaps, a market or commercial context) may attenuate the rigour or content of the fiduciary duty: Birtchnell v The Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24 ; 42 CLR 384 at 408; In re Goldcorp Exchange Ltd [1995] 1 AC 74 at 98; Meagher, Gummow and Lehane (4th Ed) at 161-162 [5-010]); Finn J in South Sydney v News at [136], and in his text Fiduciary Obligations (LawBook Co, 1977) at 201. The necessary good faith implicit in a fiduciary character in the relationship reflects the character of identity or representation that the relationship essentially carries.
219There, his Honour considered it not to be controversial that the concept of agency may properly extend to canvassers and those seeking to bring business (and noted the reference in 9-10 [1-019] of Bowstead and Reynolds on Agency (19th edn) to Art 1(4) as "incomplete agency" directed in particular to the "canvassing" or "introducing agent").
220What is clear from the analysis in Tonto is that the relationship must be considered and characterised in its commercial context. There, Allsop P considered that the Introduction Deed (and other agreed arrangements) taken as a whole "did not provide for an arrangement under which [the alleged agent] would act on behalf, and in the interests, of [the alleged principal]" ([192]) and emphasised that the task was to ascertain the legal content of the consensual agreement between the parties placed in its commercial context ([193]). There, the arrangement was said to be one "between two entities each of which had its own business. One was to endeavour to introduce business from its own customer base for the mutual commercial advantage of both". No agency relationship was found to have existed.
221In Tonto, consideration was also given to the circumstances in which knowledge of an agent is to be imputed to a principal (though the conclusion that there was no agency relationship strictly made it unnecessary to consider whether, on the assumption that there were an agency relationship, the so-called fraud exception would prevent the imputation of knowledge held by employees of the sub-introducers through to the lenders). Allsop P referred at ([207]) to the statement of principle in Bowstead and Reynolds on Agency (19th edn) in Art 95 at 514 [8-207], as follows:
(1) The law may impute to a principal knowledge relating to the subject-matter of the agency which the agent acquires while acting within the scope of his authority.
(2) Where an agent is authorised to enter into a transaction in which his own knowledge is material, knowledge which he acquired outside the scope of his authority may also be imputed to the principal.
(3) Where the principal has a duty to investigate and make disclosure, he may have imputed to him not only facts which he knows but also material facts of which he might expect to have been told by his agents.
(4) Knowledge is not attributed to the principal where it is acquired by an agent who is defrauding the principal in the same transaction.
222Mr White submits that application of the principle as to imputation of knowledge in the agency relationship (as recognised in Tonto) does not render permissible the pleading of discrete causes of action against another entity followed by the assertion that that entity was an agent and hence that the principal has the same liability as that of the agent.
223For Mr Colley it is accepted that some of the arguments advanced in the proposed amended pleading are novel. It is conceded, for example, that there is no case law which discusses whether origination of loans is caught or carved out under the misleading and deceptive conduct provisions in the ASIC Act 2001. However, it is submitted that the resolution of those issues is not so "plain and obvious" as to permit dismissal at this stage, rather that those issues should be left to be determined at the hearing. For Mr Colley it is submitted that the power to strike out pleadings because they disclose no reasonable cause of action should be exercised in the most obvious cases and that such a power is not to be used in cases of doubt or difficulty or where the pleading raised debatable questions of law.
224While Investec did not accept that a claim based on s 12DA was arguable it did not assert that no reasonably arguable cause of action could be pleaded arising out of the alleged agency relationship (and hence it was not submitted that the existing Cross-Claim could not be saved by legitimate amendment, reference being made in that context to Mutual Life & Citizen Assurance Co Ltd v Evatt (1970) 122 CLR 628). In the Mutual Life & Citizens Assurance case Diplock LJ formulated the test as to whether a pleading disclosed a reasonable cause of action as being "whether it would be open to plaintiffs on the pleadings to prove facts at the trial which would constitute a cause of action".
225I accept that where a reasonably arguable claim might be able properly to be pleaded, it is not appropriate at this stage of the proceedings for Mr Colley to be shut out from the opportunity of pleading such a claim. The present question is whether to allow the filing of a pleading that (even if not fundamentally flawed for one or other of the reasons advanced by Mr White) is nevertheless likely to be the product of uncertainty as to what precisely is contended to be the basis for the allegations made against Investec.
226As noted, for Mr Colley it is submitted that the essence of his allegation relating to Investec's vicarious liability is that RPL knew that the Product Disclosure Statements for the projects were defective (because the Product Disclosure Statements did not disclose the relevant significant risks associated with the projects to the defendant) and that this was information that should have been shared with Mr Colley. However, while it is recognised that RPL's role as Investec's agent and its role as responsible entity of the projects may coincide, any suggestion that Investec is liable for RPL's breaches of the Corporations Act relating to its role as responsible entity has now been expressly disavowed. The fact that such clarification is necessary seems to me to illustrate why a re-pleading of the proposed Amended Cross-Claim (to make quite clear what Investec is alleged to be vicariously liable for, and what it is not) is required.
227Insofar as the proposed Amended Cross-Claim seeks to plead as against Investec discrete causes of action based on liability arising from knowledge of RPL that is to be imputed to it, it is submitted by Mr White, and I agree, that the pleading should plead precisely the relevant knowledge which it is said RPL had and why it is to be imputed to Investec. Apart from the uncertainty to which Investec has pointed in the proposed Amended Cross-Claim, it is inconsistent with the adherence to proper case management principles and the statutory objectives for the just, quick and cheap resolution of the real issues in dispute in the proceedings, for the pleading to encompass (as it appears to do) allegations of breaches by RPL for which Investec is not said to be vicariously liable (such as the allegations of breach in RPL's capacity as responsible entity). While those allegations remain in the pleading, Investec will be required to plead to and meet them (which Mr White notes may involve overly burdensome interlocutory steps in circumstances where it is not Investec's conduct that is directly in issue).
Conclusion as to amendment application
228As I understand it, the essence of the criticism of the proposed Amended Cross-Claim is that (even if an agency relationship between Investec and RPL is assumed to have arisen in relation to the origination of the loans or arising out of any of the matters raised in the proposed amended draft pleading), it is not clear from the proposed pleading how it is said that that particular agency relationship gives rise to the particular liability that is claimed against Investec.
229It is conceded for the purposes of this application that there may be a way in which the knowledge that might be imputed to Investec arising out of whatever agency relationship is ultimately established could give rise to a cause of action against Investec but it is submitted that the proposed amendments to the Cross-Claim do not make it clear how it is said that the agency relationship (either of itself or through particular knowledge imputed as a result of that agency relationship) gives rise to a liability on the part of Investec.
230I accept that there are valid criticisms that have been made in relation to the proposed pleading, as discussed above, and I agree that it is not appropriate for leave to be given for the filing of a document that does not make clear to the cross-defendant how it is said that the alleged liability arises (since such a pleading would either be liable to be struck out wither as not disclosing a reasonably arguable cause of action or as being an embarrassing pleading in the sense that Investec does not know precisely what it is that is being alleged against it in order to be able to plead to it).
231I have particular concern as to the fact that there are various matters pleaded in relation to RPL that will not necessarily be matters to which Investec would be expected to have sufficient knowledge to be able to plead to and yet at present it seems to be suggested form part of the factual matrix in which the alleged vicarious liability arises (though reliance on at least some of them as part of the allegations made against Investec seems to have been disavowed).
232The deficiency to which, as I apprehend it, Investec is pointing is as to how it is alleged (assuming the alleged agency relationship is established) that this gives rise to the particular liability now sought to be visited upon Investec. It does not seem to me to be sufficient simply to allege an agency relationship and then to allege liability (or vicarious liability) on Investec's part for breaches by (on this hypothesis) its agent (without reference to the scope of the particular agency and the facts that lead to the conclusion that the conduct of which complaint is made of the agent is conduct for which the principal would be liable. Insofar as the liability is said to arise from an imputation of knowledge, then the pleading needs to identify with precision what knowledge is said to be attributed to Investec and why it is said (by reference to the particular agency relationship alleged) that such knowledge should be attributed to it.
233On the pleading as it stands, it seems to me that the uncertainty on this issue may give rise to difficulties (and unnecessary expense) in the conduct of the proceedings. I consider that the pleading should make very clear to Investec precisely how it is said that liability on its part arises, whether on the basis of acts or omissions by its agent within the scope of the agency relationship or on the basis that knowledge of its agent is imputed to it (and therefore gives rise to liability directly against Investec).
234The principal difficulty with the present pleading, in my view, is the uncertainty as to whether the allegations of liability derived by reference to the conduct or knowledge of the agent are allegations that Investec is vicariously liable for the conduct of the agent or that, by reason of the imputation of the agent's knowledge to Investec, Investec itself has a primary liability to Mr Colley. This is highlighted by the allegations at the commencement of the proposed Amended Cross-Claim as to breach by RPL of provisions of the Corporations Act. For Mr Colley it is said that there is no claim that Investec is itself in breach of those provisions by reason of the conduct of its (alleged) agent. If so, it is difficult to see why the allegation of breach by RPL of those provisions is a necessary part of the pleading. Similarly, if the allegation is that (by reason of its duties as responsible entity) there was a duty on the part of RPL to disclose certain information and that Investec is vicariously liable for RPL's failure to do so, then strictly speaking an allegation that RPL was in breach of provisions such as s 12CC or 12DA of the ASIC Act would seem to be unnecessary. Where there is scope for confusion on the proposed Amended Cross-Claim is as to what is alleged to be the import of the allegations of breach by RPL.
235If confined to the claims made directly against Investec as a result of knowledge said to be imputed to it (identifying the relevant knowledge and the basis on which it is said that it should be imputed to Investec) and any vicarious liability claimed against Investec for the conduct of RPL as its agent (identifying not simply the facts matters and circumstances on which the allegation of an agency relationship is based by the scope of the particular agency relationship and on which Mr Colley relies for the allegation that the conduct of RPL that is the subject of complaint is conduct that falls within the scope of the agency relationship, then it would seem to me that the pleading would not be embarrassing and would disclose a reasonably arguable cause of action.
236As to the allegations based on s 12DA, I have reservations as to the maintainability of the foreshadowed claim for vicarious liability for a breach by RPL of that section (assuming that this is what Mr Colley is seeking to allege), having regard to the apparent nexus between the representations (or omissions) in the Product Disclosure Statements and the cause of action now sought to be raised and having regard to the authorities as to the comprehensive nature of the code set out in the Corporations Act for misleading and deceptive conduct. Nevertheless, if what is sought to be argued is that this case falls outside the strictures identified in the authorities in this area, or that those authorities should not be followed, it seems to me that it is not so unarguable as to warrant precluding such a claim being raised at this stage.
237Therefore, I consider that the appropriate course is not to permit the filing of the proposed Amended Cross-Claim but to give leave for the filing of an amended Cross-Claim within 28 days. If the amended pleading, as then filed, satisfactorily addresses the pleading issues raised in this application, then the matter will proceed in the normal course. If Investec contends that any new amended Cross-Claim suffers from the same or other deficiencies then it can move to have that pleading struck out. If an Amended Cross-Claim is not filed within 28 days then the existing Cross-Claim will be struck out and the stay on enforcement of the orders for summary judgment will cease to operate.
238The proposed amended defence is not in my view problematic (other than that it refers to an amended cross-claim that, in light of the above orders, has not yet been filed). I will give leave for that to be filed within 28 days (with a view to both documents being filed at the same time).
Orders
239For the reasons set out above, I consider that the appropriate orders will be as follows:
On Investec's Amended Notice of Motion of 2 February 2012, summary judgment be entered against Mr Colley as follows: