Khoury v Sidhu

REASONS FOR JUDGMENT 1 On 30 November 2010 the primary judge in this proceeding made interlocutory orders in relation to the conduct of the proceeding. The orders included giving the respondents leave "to amend their Defence in terms of the proposed Amended Defence … other than by paras 73 to 81 of the proposed Amended Defence": Khoury v Sidhu (No. 2) [2010] FCA 1320 (interlocutory judgment). On 18 January 2011 the primary judge gave the appellants leave to appeal from those orders. 2 In their notice of appeal filed on 19 January 2011, the appellants have restricted their appeal to the trial judge's order giving the respondents leave to amend their defence. They do not challenge all the amendments permitted by the trial judge but seek to add the amendments in paras 44 to 72 of the proposed Amended Defence to those that are rejected. The amendments sought in these paragraphs are discussed at [56]-[88] of the interlocutory judgment. In order to explain the grounds of the present appeal it is necessary to outline briefly the nature of the claims made in the principal proceeding. 3 The application in the principal proceeding alleges that the first respondent, Mr Sidhu, made representations which were misleading or deceptive or is likely to mislead or deceive in contravention of s 52(1) of the Trade Practices Act 1974 (Cth) (TPA) and s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). It is alleged that Mr Sidhu made those representations as director and agent of the second (ACC) and third (QDF) respondents, respectively. As explained by the trial judge, The applicants contend that those representations are misleading or deceptive or likely to mislead or deceive in contravention of s 52(1) of the Trade Practices Act 1974 (Cth) ("TP Act") and s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the "ASIC Act"). The applicants rely upon the presumption contained in s 51A of the TP Act and s 12BB of the ASIC Act as neither corporation, it is said, had reasonable grounds for making the pleaded representations. Those representations concern the indebtedness of Mr and Mrs Khoury's son, Mr Monty Khoury, to QDF and ACC at 8 September 2008 (the date of the contended representations); a contemplated arrangement between the companies and Monty Khoury to discharge the debt within a short time of that date; and the provision by Mr and Mrs Khoury of a short term mortgage of their property as interim security pending Mr Sidhu completing arrangements for a new loan to Monty Khoury from another company so as to discharge the debt to ACC and QDF. The appellants seek compensation pursuant to ss 87(1), 87(1A) and 87(2)(d) of the TPA and its analogues in the ASIC Act. They have not sought damages pursuant to s 82 of the TPA. 4 In the amendments to which the appellants object, the respondents allege that the appellants contributed to their loss by their failure to take reasonable care in entering into the transaction with ACC and QDF. They also seek leave to plead facts directed to establishing that Monty Khoury is a concurrent wrongdoer in relation to the claims made by his parents. These allegations are made in support of a claim that any damages or compensation awarded against the respondents should take into account these facts. 5 The appellants opposed paras 44 to 72 of the proposed Amended Defence on the ground that, as s 87 has been interpreted by the High Court, the amount of any compensation awarded pursuant to s 87 may not be reduced on the basis of, or having regard to, the contribution to the appellants' loss made by them or by Monty Khoury. 6 The trial judge accepted that the provision of s 82(1B) and Pt VIA of the TPA do not apply in relation to a claim made under s 87. However, at [68]-[70], his Honour said, (emphasis added): These proceedings do not involve any question of a discretionary modification of the right conferred upon Mr and Mrs Khoury by s 82. They have chosen not to exercise a remedial right under s 82 and had they done so, s 82(1B) would be expressly in issue. The question to be determined in the case on the footing of the proposed amendments to the defence at least as to this issue, is what order under the power conferred by s 87 will properly compensate Mr and Mrs Khoury for the economic loss suffered by them by conduct in contravention of s 52, or prevent or reduce the economic loss they say they are continuing to suffer (assuming a contravention is made out). An order under s 87 for compensation less than the full amount of that economic loss may, upon the trial of the action, be thought appropriate by the Court having regard to the statutory purpose, as the full measure of a compensatory order. The statutory purpose may be served by recognising that the amount of compensation a court might direct the respondents to pay ought not exceed the amount of the loss or damage Mr and Mrs Khoury may recover had they sought recovery by way of "damages" under s 82 in the light of the considerations required by s 82(1B), provided those matters are made out by the respondents. If the recoverable amount of loss and damage under s 82 is to be reduced by what is demonstrated to be just and equitable having regard to the share of the claimants in the responsibility for their loss, is it appropriate in all the circumstances that the applicants recover a greater amount by order under s 87? In exercising the broad discretion conferred by s 87(1) or s 87(1A) to make an order contemplated by s 87(2)(d) directing the respondents to pay the applicants the amount of the economic loss suffered by reason of conduct in contravention of s 52 "as [the Court] thinks appropriate", it is arguably relevant, it seems to me, to have regard to the consideration that had the applicants' claim for recovery of the full amount of the economic loss they suffered by conduct of the respondents in contravention of s 52 been made under s 82, the amount they may recover would be reduced to the extent the Court thinks just and equitable having regard to their share in the responsibility for that economic loss (provided the statutory integers at s 82(1B)(b) and (c) are satisfied). In determining what order might be appropriate under s 87 to compensate the applicants for the amount of the economic loss they suffered (and might further suffer), it is relevant to consider whether the same claim (that is, the substantive elements of the claim notwithstanding that the claim is not made under s 82) if framed under s 82 would be susceptible of just and equitable reduction having regard to Mr and Mrs Khoury's share in the responsibility for the loss. 7 His Honour stated his conclusion in relation to paras [44]-[47] of the proposed defence at [72]: For present purposes, on an application for leave to amend the defence, the question is simply whether the contention that the exercise of the discretion under s 87 is to be informed by the factors discussed, is an arguable contention. I am satisfied that the matter is arguable and that leave ought to be given to plead the facts relevant to that matter. In relation to paras [48]-[72] of the proposed defence, his Honour said at [78]-[80] and [82]-[83]: If the amount of the loss or damage recoverable under s 82 (concerning the relevant class of claim) cannot exceed a proportionate determination of what is just having regard to the respondent's proportionate responsibility for the loss, is it appropriate, in all the circumstances, in the exercise of the discretion in making compensatory orders under s 87, that the applicants recover a greater amount from the relevant respondent than the proportionate limitation had the same claim been made under s 82? A consideration of all the factors going to the exercise of the discretion may result in such an order. However, the limitations upon the power of the Court to give judgment for an amount greater than the just proportion attributable to a relevant defendant in a claim constituting an apportionable claim is, it seems to me, a relevant consideration in exercising the discretion under s 87 in making compensatory orders in respect of the same claim, in substance, although the applicants have chosen to frame that claim other than under s 82 of the TP Act. His Honour concluded at [87] that leave should be given in relation to paras [48] - [72] "in order that all issues raised by the controversy might properly be resolved". His Honour emphasised at [88] that the question to be determined at this stage was whether there was an arguable basis for the proposed amendments. He was satisfied that the proposed amendments gave rise to an arguable basis upon which the discretion under s 87 might take account of the matters pleaded. 8 In their Notice of Appeal filed on 19 January 2011 the appellants contend that his Honour erred in finding that an order for compensation under s 87 "may be reduced having regard to the consideration in s 82(1B)". This assertion is not correct. His Honour made no such finding as the above extracts from the interlocutory judgment show. Similarly the assertion in ground 3 of the Notice of Appeal that his Honour found that "an order for compensation under section 87 … may be reduced having regard to the considerations in Part VIA" is also incorrect. Again his Honour made no such finding. 9 The appellants also allege that his Honour was in error in finding that the above propositions were arguable. They submit that such an argument is foreclosed by clear and unequivocal statements of the High Court in regard to s 82 and s 87. 10 Before considering the substance of the appellants' submissions two points must be made. First the interlocutory judgment involved the exercise of discretion on a matter of practice and procedure. An appellate court will not lightly interfere with the exercise of discretion in such circumstances. It must be shown that the exercise of discretion was infected by error. The well-known principle expounded in House v R (1936) 55 CLR 499 by Dixon, Evatt & McTiernan JJ applies. Their Honours said at 505: If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed … While this is a high threshold it is even higher where an issue of practice or procedure is involved: see Brambles Holdings Ltd v Trade Practices Commission (1979) 28 ALR 191 at 193 per Bowen CJ. 11 Secondly, in giving leave to amend his Honour did not decide the issue raised by the proposed amendments. It was only necessary to decide that the issues raised by the proposed amendments were "arguable" or warranted consideration. For the appellants to succeed in their appeal it would be necessary to persuade this Court that the arguments raised by the proposed amendments were so entirely without merit as to warrant summary dismissal. 12 The appellants submit that in Henville v Walker (2001) 206 CLR 459 and in I&L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited [2002] HCA 41; (2002) 210 CLR 109 the High Court conclusively rejected the propositions inherent in the proposed amendments. In their written submissions, and in oral submissions made at the hearing of the appeal, the appellants drew attention to the following comment of Gaudron, Gummow and Hayne JJ in I&L Securities at [53]: But the words "in whole or in part" do not suggest that the combination of orders that a court makes should do less than provide for full compensation for all loss and damage that is not prevented by the making of the court's order. Similarly at [120] McHugh J said: As I&L submits, nothing in s 87 suggests that the amount of a compensable loss may be reduced. Nor does anything in the section suggest the grounds upon which such a reduction might be made. Rather, the insertion of the words, "in whole or in part for the loss" emphasises the availability of the remedies under s 87 in situations where those available under ss 80 and 82 are not appropriate, or are not sufficient, to remedy the loss or damage brought about or that may be brought about by the contravening conduct. 13 The first point to be made about Henville v Walker and I&L Securities is that both cases were decided before s 82(1B) and Pt VIA were inserted into the TPA by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth). As previously mentioned s 82(1B) requires the reduction of damages with reference to "the claimant's share in the responsibility for the loss or damage". Part VIA concerns the liability of a concurrent wrongdoer in relation to an apportionable claim. 14 Secondly, both cases were primarily concerned with the measure of damages under s 82 as it then was, not with the measure of compensation under s 87. In Henville v Walker the High Court unequivocally rejected the argument that s 82, as it then was, did not entitle full recovery of the loss or damage caused by contravening conduct. Justice Gaudron commented at [68]: Just as the relief available under s 82(1) is not to be confined by analogy either with the actions in tort or in contract, it should not be confined by imposing an unduly strict burden of proof on the claimant. As already indicated, s 82 provides for the recovery of loss or damage that a person suffers by contravening conduct. To require a claimant to prove which component of his or her loss or damage is referable to the contravening conduct would be to impose limitations or relief which the terms of that subsection do not require. 15 In I&L Securities the High Court similarly held that a loss suffered by a financier relying on the negligent overvaluation of a property was an indivisible loss which, under s 82(1), could not be apportioned between contributing causes. The Court held that s 87(1) did not confer a discretion on the Court to reduce or modify an award of damages made pursuant to s 82(1). In their joint judgment Gaudron, Gummow and Hayne JJ said, at [60]: In the light of what was held in Henville v Walker about the operation of s 82, it would at least be anomalous if s 87 were to be read in such a way as would permit the claimant's carelessness (not in contravention of the Act) to be taken into account to reduce the amount of the loss or damage caused by the contravenor's conduct which is to be compensated or prevented by the making of orders under s 87. 16 The above comment shows how important to the construction of s 87 was the context of the remedial provisions of the TPA. Since the amendments referred to at [13] above, the context has changed. Whether or not this change in the landscape of the Act should lead to a different approach to s 87 is not for us to say at this stage. The only question is whether his Honour erred in allowing that the interpretation for which the respondents contend is arguable and should be considered. 17 In our view his Honour did not act on a wrong principle, or make any of the errors referred to in House v R. It follows that the appeal should be dismissed. We see no reason why the usual rule that costs follow the event should not apply and therefore the appellants should bear the respondents' costs of this appeal. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Stone, Jacobson & Collier.