James Shipley and Patricia Shipley v Masu Financial Management Pty Ltd

CATCHWORDS : PRACTICE AND PROCEDURE - Pleading - application to strike out - Civil Procedure Act 2005 (NSW) s 56(2) - necessity to give effect to the overriding purpose to facilitate just, quick and cheap resolution of the real issues in the proceedings - CORPORATIONS - Australian Securities and Investments Commission Act 2001 (Cth) s 12BC(4) - presumption that a person was a consumer - sufficiency of asssertion

Corporations Act 2001 (Cth) LEGISLATION CITED : Civil Procedure Act 2005 (NSW) Australian Securities and Investments Commission Act 2001 (Cth)

CASES CITED : Dennis v Australian Broadcasting Corporation [2008] NSWCA 37 McKone v Johnson [1966] 2 NSWR 471

PARTIES : James Shipley and Patricia Shipley in their own right and as representative for the person in Schedule A of the Originating Process Masu Financial Management Pty Ltd

COUNSEL : A.J. Abadee (Plaintiffs) G. Curtin (Defendant)

SOLICITORS : Slater & Gordon Lawyers (Plaintiffs) Thomson Playford (Defendant)

• 8 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1817/2007 JAMES SHIPLEY AND PATRICIA SHIPLEY IN THEIR OWN RIGHT AND AS REPRESENTATIVE FOR THE PERSONS IN SCHEDULE A OF THE ORIGINATING PROCESS -V- MASU FINANCIAL MANAGEMENT PTY LTD. JUDGMENT 1 HIS HONOUR: On 3 April this year I gave judgment in a contest between the parties to these proceedings which concerned, amongst others, aspects of both parties' pleadings upon which the other or others made an attack. I gave the plaintiffs (I use that term to denote the two personal plaintiffs as well as the group members) leave to amend their Statement of Claim. That brought forth a second further Amended Statement of Claim which was filed on 24 April 2008.

2 The defendant, by Amended Interlocutory Process of 21 May 2008, has moved to strike out paragraphs in the Second Further Amended Statement of Claim. In addition, the plaintiffs seek leave to make certain further amendments to plead breach of contract, which amendments are contained in a proposed third further amended statement of claim. 3 As on the first contest, Mr Abadee of counsel appears for the plaintiffs and Mr Curtin of counsel for the defendant. 4 The attack first made on the Second Further Amended Statement of Claim was on matters pleaded in pars 15(c) to (q), which form part of the plaintiffs' claim that the defendant breached its obligations to them under s 945A of the Corporations Act 2001 (Cth) ("the Act"). This section provides that a private entity must provide advice to a client only if certain requirements, including the conduct of a reasonable investigation into the subject matter of the advice, is carried out and the further requirement that the advice must be appropriate to the client having regard to that consideration and investigation. 5 In par 15, above subpar (c), the following heading appears, "Particulars of breach of obligation to investigate". The following words then follow: "If they conducted any investigation at all (which is a matter within the knowledge of the agents and/or the defendant) the agents did not discover that:

(c) the promissory notes issued by the Mezzanine Companies were an investment offered in 'Information Memoranda' and not a prospectus; and therefore had not passed the scrutiny of ASIC; …"

6 It is not necessary to set out in full subpars (d) to (q). They each specify a matter or thing it is alleged the defendant did not discover. 7 Paragraph 16 pleads that: as a consequence of not having conducted a reasonable investigation into the merits of investment in the Mezzanine Companies having regard to the relevant personal circumstances of the plaintiffs and group members, the agents did not (a) give advice that was appropriate to the plaintiffs and group members for the purposes of s 945A(1)(c) of the Act; or (b) have a reasonable basis for recommending the investment to one of the named group members. 8 It is then pleaded that, in reliance upon that advice, the plaintiffs and group members decided to acquire promissory notes and thereby suffered damage. 9 Very recently, in Dennis v Australian Broadcasting Corporation [2008] NSWCA 37, Spigelman CJ emphasised the importance of the statutory duty imposed upon the Courts by s 56(2) of the Civil Procedure Act 2005 (Cth) which requires the Court, in mandatory terms, to give effect to the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in the proceedings. In my view the manner in which the s 945 claim is pleaded in pars 15(c) to (q) is productive of delay, expense and injustice in the sense that the plaintiffs have not made clear the breach or breaches which they assert with respect to s 945A. 10 There is no obligation in that section to conduct an investigation per se. What the section requires is that advice must be given only if it meets certain qualities. The particulars refer to a failure to discover. What perhaps is sought to be pleaded is that advice was given in circumstances where an investigation was either not carried out or such investigation as was carried out was not reasonable in all the circumstances. If that is the case which is sought to be made, it should be pleaded. 11 In those circumstances pars 15(c) to (q) of the Second Further Amended Statement of Claim should be struck out and I so order. However, the plaintiffs should be given leave and will be given an opportunity to replead that claim. That leave will extend to making such amendments to replead the claim for breach of s 945A in its entirety. 12 The next attack was with respect to the damages asserted in pars 16A and B of the Second Further Amended Statement of Claim. During submission Mr Abadee of counsel made it clear that the loss or damage there being claimed is the same as is articulated in par 28 of the pleading which, in my view, was tolerably clear in any event and which in my view also suffices at this stage of the pleading to inform the defendant what case it is that it has to meet. 13 Next there was an attack on pars 17 to 24 on the basis that the claim discloses no cause of action and also because it was said to be beyond the leave I gave in my earlier judgment on 3 April 2008. Very little was put by Mr Curtin (properly so) with respect to exceeding the leave. Ultimately he urged on me that the paragraphs should be struck out because they disclose no cause of action. This was based on a submission that traversed a number of complex provisions in the Act as to what the respective obligations of a responsible person and a regulated person were pursuant to s 1012A and other sections within Pt 7.9 of the Act. 14 As was made clear in submission by Mr Abadee, the plaintiffs' case is and may henceforth be understood by the defendant and sought to be met by it on the following basis: the defendant or the defendant's agents, as regulated persons providing financial advice, were obliged to give to each of the plaintiffs to whom such advice was provided a product disclosure statement which complied with the matters which are the subject of paras 21A and B and 22A of the Second Further Amended Statement of Claim. 15 Mr Curtin's submission was that nowhere does the Act require a licensee or its agent in the position of the defendant or its agents to give a purchaser a product disclosure statement that the issuer of the financial product concerned may have to give to such a purchaser. Here the Mezzanine Companies were required to give it and not the defendant or its agents. 16 At this stage of proceedings it is neither possible nor appropriate for me to determine that matter finally. It may ultimately involve disputed questions of fact, and in any event involves a complex question of construction of a series of interrelated and complex statutory provisions. The defendant has not persuaded me that the plaintiffs' case is hopeless to the point that it should be nipped in the bud now. For those reasons the application to strike out pars 17 to 24 of the second further amended statement of claim fails. 17 Leave to amend by filing the third amended further statement of claim so far as it seeks to plead a case in contract was also opposed. It emerged during debate with counsel that a reference in par 27(e) to s 12BC(1) of the Australian Securities and Investments Act 2001 (Cth) ("the ASIC Act") should be s 12BC(4). That section provides that: "If it is alleged in a proceeding under Division 2 of the ASIC Act that a person was a consumer in relation to particular services, it is presumed that the person was a consumer in relation to those services unless the contrary is established." 18 In par 27(e) of the proposed third further amended statement of claim the plaintiffs plead that the plaintiffs and group members were "consumers" for the purposes of s 12BC(1)(a) of the ASIC Act. They then particularise it by an assertion that the defendant did not receive more than $40,000 in commissions in respect to the supply of financial services to each or any of the plaintiffs and/or group members and said further that they rely on the presumption in s 12BC(4) (sic) of the ASIC Act.

19 Section 12BC(3)(a) of the ASIC Act provides that: "For the purposes of subsection (1): (a) the prescribed amount is (i) $40,000; or (ii) if a greater amount is prescribed for the purposes of this paragraph - that greater amount; and (b) subject to paragraph (c), the price for services purchased by a person is taken to have been the amount paid or payable by the person for the services;" 20 Mr Curtin's submission was that the plaintiffs were not entitled to take advantage of the presumption and the pleading was excipiable because the second leg of prescribed amount requires the purchasers to be liable to pay the amount required to the provider of the services and such an allegation was not made. The submission was that an allegation that satisfied the requirement for the fees to be $40,000 was asserted so that the plaintiffs thereby abrogated their right to take advantage of the presumption in s 12BC(4). 21 That submission is, in my view, without substance. The plaintiffs have asserted that s 12BC(4) requires only that it be alleged that they were consumers and the presumption then operates as a matter of law. This is correct. The addition of a particular does not in my view in any way diminish their right to, nor the operation of, the presumption in that section. 22 Objection was taken to the use of the words "and/or" in par 27(g). In my view the use of those words in that paragraph is productive of delay and additional cost by reason of the number of plaintiffs, but as I understood it that will be repleaded to remove that conjugation. 23 Finally, Mr Curtin put that par 27(g) and the particulars there provided did not comply with UCPR 14.9 and 14.14(1) in that the effect of words relied upon has not been stated. I do not agree. The pleading puts the effect of what is asserted to have been communicated to the defendant and further detail would properly be the subject of further particulars, insofar as the plaintiffs are able to provide it, or evidence at a later stage. 24 Finally an attack was made on par 27(h) of the proposed third further amended statement of claim on the basis that the warranty there pleaded did not match the breach of it asserted. During submissions Mr Abadee made it clear - and it may be noted - that what is asserted is that the warranty was to the effect that the product being sold would, as a certainty, result in the receipt by the investors of their capital upon a future redemption or upon expiry of the term of the investment and the product which they received did not have that quality. He drew attention to the decision of the Court of Appeal in McKone v Johnson [1966] 2 NSWR 471 to illustrate the point. On the basis of that clarification I am satisfied that the pleading sufficiently communicates to the reader the case that the plaintiffs seek to make. 25 The orders of the Court will be that pars 15(c) to (q) of the Second Further Amended Statement of Claim are struck out. The plaintiffs have leave to replead those particulars within 14 days. 26 Paragraphs 1 and 2 of the Amended Interlocutory Process are dismissed and the plaintiffs have leave to file a third amended statement of claim containing, with the modifications I have referred to, pars 25 to 27I, pleading a claim for breach of contract. Leave will include the subsidiary averments necessary to sustain the breach of contract claim.

27 I stand the matter over to 28 July 2008 before the Corporations List Judge for further directions. The defendant is to file and serve its defence by 11 July 2008. 28 The defendant should pay 50% of the plaintiffs' costs of the motion, but the plaintiffs are to pay the costs thrown away by the amendment. **********

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