Larsen v Lynch

REASONS FOR JUDGMENT 1 This an application by the third respondent to strike out the amended statement of claim ('the statement of claim') as against the third respondent pursuant to O 11 r 16 of the Federal Court Rules ('the Rules') on the grounds that the statement of claim as pleaded against the third respondent discloses no reasonable cause of action. 2 Alternatively, the third respondent seeks to have the applicants' claim against him dismissed pursuant to O 20 r 2 of the Rules on the grounds that claim as made against the third respondent discloses no reasonable cause of action, alternatively that the proceedings against the third respondent are frivolous and vexatious. Background 3 In the statement of claim the applicants plead that they are husband and wife who, in partnership, operate a gyprock plastering business known as 'Larsen Interiors'. They sue in their own capacity and in their capacity as trustees of the PP & H Larsen Superannuation Fund, which is referred to in the statement of claim as 'the Fund'. 4 The applicants plead that at the material time the first and second respondents were licensed financial advisers associated with a company, Dultona Pty Ltd ('Dultona') which carried on business providing financial planning advice and services under the name of the Gilpear Group. Dultona was placed in liquidation on 24 April 2002. 5 The applicants allege that they sought financial advice from the first and second respondents. The applicants plead at par 7 of the statement of claim: '7. In or about January 1999, the second respondent was appointed by the applicants as their financial advisor, for the purpose of providing financial, superannuation and investment advice (Financial Services Agreement). Particulars The Financial Services Agreement was oral and is evidenced by a course of conduct, being: 1. the attendance by the applicants at the offices of Dultona for the purpose of meetings regarding their financial planning requirements with the second respondent; 2. the completion by the second respondent of a client profile for the applicants; 3. the provision of instructions to the third respondent to enable the establishment of the Fund; 4. the provision by the applicants of the Capital pleaded in paragraph 12; 5. the rendering of invoices to the applicants by Dultona; 6. the payment of those invoices by the applicants; and 7. further and better particulars will be provided following discovery and inspection.' 6 The applicants allege that the terms of the Financial Services Agreement included implied terms that the second respondent would advise the applicants honestly and in good faith and that the second respondent would exercise all reasonable care, skill and diligence as might be expected of a reasonably competent financial adviser. It is also pleaded that in February 1999, the first respondent took over the duties and obligations under the Financial Services Agreement from the second respondent. 7 Further, the applicants plead that at the time of entering the Financial Services Agreement and, at all material times thereafter, the first and second respondents knew or ought to have known that the applicants were each aged over 60 years, were inexperienced in superannuation and investment matters, were seeking to retire within a period of approximately two years and, therefore, were persons who regarded planning for retirement as of the highest priority in making any investments, were conservative in outlook and, therefore, persons who were unwilling to take significant risks, and, in the case of the second named applicant, was unwell. 8 Importantly for the purposes of this application the applicants plead at par 11 of the statement of claim: '11. On 7 February 1999, and pursuant to advice provided by the first and second respondents under the Financial Services Agreement, the applicants established the Fund, being a self‑managed superannuation fund. Particulars The Fund was established by a Deed dated 7 February 1999 between the applicants as Trustee and Paul Peter Larson [sic] as the Member.' 9 The applicants then plead that the second respondent acted in breach of the Financial Services Agreement because the Fund was not a suitable vehicle for the applicants in light of their investment attributes. 10 The applicants also plead that between February and April 1999 they provided $386 000 to the first respondent to be invested for and on behalf of the Fund. The applicants allege that during the period of April 1999 to June 2001, the first respondent made investments which were inappropriate to their investment attributes and that in so doing these respondents acted in breach of the Financial Services Agreement. It is also alleged that these respondents acted negligently and in breach of fiduciary duty. 11 Further, the applicants allege at par 22 of the statement of claim that: '22. Further and in the alternative, in employing or engaging the first and second respondents and permitting them to enter into the Financial Services Agreement, Dultona, expressly or impliedly, represented that: 22.1 in providing advice to the applicants the first respondent would: 22.1.1 ensure that any investment vehicle recommended to the applicants was a vehicle appropriate to their needs; 22.1.2 make reasonable enquiries into each proposed investment; 22.1.3 form an opinion as to the suitability of any investments recommended to the applicants, having regard to their Investment Attributes; and 22.1.4 only advise the applicants to make investments that he believed were suitable investments having regard to their Investment Attributes, 22.2 in providing advice to the applicants, the second respondent would ensure that any investment vehicle recommended to the applicants was a vehicle appropriate to their needs, (Future Representations).' 12 In par 25 of the statement of claim the applicants plead that the future representations were misleading and deceptive or likely to mislead or deceive contrary to 'section 12DA of the 1989 ASIC Act and section 12DA of the 2001 ASIC Act'. It is then alleged in par 27 that the first and second respondents were 'persons involved in Dultona's contraventions pleaded in paragraph 25 within the meaning of section 12GF of the 1989 ASIC Act and section 12DA of the 2001 ASIC Act'. 13 The applicants claim damages. The applicants allege that had they been properly advised they would have invested with an alternative fund suitable to their needs. The claim against the third respondent 14 The claim against the third respondent is pleaded as follows: '28. At all material times the third respondent was a legal practitioner who held himself out to be competent to take instructions and carry on legal practice in the area of superannuation law. 29. At all material times the third respondent had an arrangement or agreement with Dultona, pursuant to which the employees or agents of Dultona, including the first and second respondents, would refer clients of Dultona to the third respondent for the provision of legal services necessary for the putting into effect of the financial advice provided by Dultona, its agents or employees (Legal Services Agreement). Particulars Full particulars will be provided following discovery and inspection. 30. In or about February 1999, and pursuant to the terms of the Legal Services Agreement, the third respondent was engaged by the first or second respondent, as agent for the applicants, in respect to the drafting of the necessary documents and attending to the legal requirements for the establishment of the Fund (Retainer). Particulars The Retainer is to be implied by reason of the third respondent, in the course of his practice, receiving instructions from Dultona to undertake the drafting of a deed and other necessary documents establishing the Fund. 31. The terms of the Retainer include a term implied by law that the third respondent would act at all times with reasonable skill, care and diligence. 32. In breach of the implied term pleaded in paragraph 31, the third respondent, in carrying out the Retainer, failed to exercise reasonable skill, care and diligence. Particulars The third respondent: 1. failed to ascertain whether the establishment of the Fund was in accordance with the instructions given to the first and second respondents by the applicants; 2. undertook the work required under the Retainer without meeting with or speaking to the applicants; 3. failed to provide the applicants with any advice as to the appropriateness of the Fund in meeting their investment needs; 4. failed to explain to the applicants their legal and other obligations involved in compliance with the law applying to the Fund following its establishment; and 5. failed to explain to the applicants the financial implications of establishing the Fund, being the costs arising from complying with the legal and other obligations involved in compliance with the Fund. 33. Further and in the alternative, in undertaking the Retainer, the third respondent owed a duty to the applicants to act at all times with reasonable skill, care and diligence. 34. Negligently, and in breach of the duty pleaded in paragraph 33, the third respondent failed to act with reasonable skill, care and diligence in carrying out the Retainer. Particulars The applicants repeat the particulars to paragraph 32. 35. Further and in the alternative, by reason of the Retainer, the applicants were in a fiduciary relationship with the third respondent as a result of which the third respondent owed a duty to the applicants to not act in his own or another person's interests in conflict with the interests of the applicants. 36. In breach of the duty pleaded in paragraph 35, the third respondent, in conducting the work required by the Retainer, placed the interests of himself or the interests of Dultona, above the interests of the applicants. Particulars The applicants repeat the particulars to paragraph 32. 37. Further and in the alternative, by reason of the matters pleaded at paragraphs 2, 5, 6 and 22, Dultona engaged in conduct which was misleading and deceptive or likely to mislead or deceive, contrary to section 52 of the Trade Practices Act. 38. By reason of the Legal Services Agreement and the Retainer, the third respondent was knowingly concerned in or a party to the misleading or deceptive conduct pleaded in paragraph 37. 39. By reason of: 39.1 the breaches of the Retainer, pleaded in paragraph 32, alternatively 39.2 the breach of duty pleaded in paragraph 34, alternatively 39.3 the breaches of fiduciary duty pleaded in paragraph 36, alternatively 39.4 the misleading and deceptive conduct pleaded in paragraph 37, the applicants have suffered loss and damage. Particulars Full particulars will be provided prior to trial.' 15 Further, in support of the application that the substantive application against the third respondent should be dismissed on the grounds that it does not disclose a reasonable cause of action or alternatively is frivolous and vexatious, the third respondent relied upon his affidavit sworn 19 May 2005. In the affidavit the third respondent deposed that in the early to mid 1990s, he began advising on the structure of superannuation investments and preparing superannuation deeds, amendments to superannuation deeds and related documents for clients of the Gilpear Group, depending upon Gilpear Group's express instructions to him. The third respondent deposed that the Gilpear Group never instructed him to advise whether a self managed superannuation fund was a suitable vehicle for a particular client and that he never gave that advice to the Gilpear Group or its clients. He said that he always regard that as the Gilpear Group's area of expertise. 16 The third respondent deposed that he received a memorandum dated 11 January 1999 from Ms Enza Scurria of the Gilpear Group to the following effect: 'Dear Chris, Re: ESTABLISHMENT OF SUPERANNUATION FUND Details are as follows:‑ Name of Superannuation Fund: P P & H LARSEN SUPERANNUATION FUND Name of Trustee (s): (1) PAUL PETER LARSEN (2) HELEN LARSEN Name of Member (s): (1) PAUL PETER LARSEN …' 17 On 19 January 1999, the third respondent wrote the following letter addressed to Ms E Scurria: 'Dear Enza PP & H Larsen Superannuation Fund Thank you for your recent instructions. Here is a trust deed (in triplicate) and draft trustee minutes to establish the fund. If the documents are in order, please arrange for the bound copies of the deed to be signed (or sealed). There are a number of administrative matters that must be attended to in order for the fund to qualify for the available tax concessions. In particular, they include electing for the fund to become a "regulated superannuation fund" under the Superannuation Industry (Supervision) Act (which must be done immediately). I confirm that you will arrange for these aspects to be dealt with separately. Also, the fund's investment strategy must be formulated and implemented immediately, in accordance with regulation 4.09. When returning the documents to me, please pay my enclosed account. …' 18 The 'account' referred to by the third respondent was an account for professional services addressed to 'The Trustee PP & H Larsen Superannuation Fund' dated 19 January 1999 in the sum of $310. 19 Counsel for the third respondent said that the third respondent accepted that, notwithstanding that his instructions came from the Gilpear Group, the applicants were his clients. However, counsel submitted that there was no need to obtain instructions from the clients directly because there was no doubt about the scope of the retainer, which has been accurately pleaded by the applicants. Counsel also submitted that, on the basis of the terms of the retainer pleaded in par 30 of the statement of claim, there was no arguable obligation on the third respondent to provide the advice pleaded at pars 32.3, 32.4 and 32.5 of the statement of claim. There was, therefore, said counsel, no arguable case that should go to trial. The third respondent also relied upon the memorandum dated 11 January 1999 from the Gilpear Group as demonstrating that the terms of the retainer were clear and were not such as to impose obligations of advice on the third respondent in the terms pleaded by the applicants in pars 32.3, 32.4 and 32.5 of the statement of claim. Counsel also referred to the fact that the third respondent had only charged $310 for the provision of his services and that that was a relevant factor in determining the extent of the third respondent's obligation under the retainer. The third respondent also submitted that it was relevant that the instructions were obtained from a professional financial adviser and this also limited the extent of the obligation on the third respondent to give advice to the applicants. The third respondent submitted that he had discharged his duty by drafting the documents and forwarding them under cover of his letter to Dultona. 20 Counsel for the third respondent submitted that the duties which were owed by a solicitor were ascertained by reference to the scope of the retainer. Counsel relied in particular upon the following observations of Sheller JA in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418: 'The solicitor's duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon.' 21 Further, counsel for the third respondent also relied upon observations in a number of authorities in support of a submission that, unless specifically retained to do so, a solicitor was not responsible for giving financial advice, advising about investments or, when retained to advise on or prepare a document, the commercial merits or wisdom of the underlying transaction. 22 It was also submitted that if there was a duty on the third respondent, it was no more extensive than a duty to ask the applicants whether they wanted to instruct him to give the sort of advice described in the impugned paragraphs of the statement of claim (McNamara v Commonwealth Trading Bank (1984) 37 SASR 232 at 241). 23 Further, counsel for the third respondent submitted that, even if it was arguable that the third respondent was under the obligation to provide advice of the nature alleged, the statement of claim should still be struck out because the causation plea was defective. This is because there was no plea that had the applicants received the advice pleaded in pars 32.3, 32.4 and 32.5 of the statement of claim from the third respondent, the applicants would not have established the self managed superannuation fund. Further, counsel submitted that a self managed fund did not preclude the applicants from using it as a vehicle to invest in a 'retail' superannuation fund. 24 The third respondent also submitted that the claim in par 38 of the statement of claim brought under the Trade Practices Act 1974 (Cth) ('the TP Act') should be struck out on the basis that there was not a proper pleading of facts in support of the allegation that the third respondent was 'knowingly concerned in or a party to' the misleading or deceptive conduct of Dultona. 25 Counsel for the applicants submitted that it was necessary for the third respondent to demonstrate that the allegations made against the third respondent were so untenable that the matter should not be sent to trial. Counsel submitted that it was arguable that the implied duty on a solicitor to take reasonable care in the drafting of the documents for, and attending to, the establishment of a self managed superannuation fund would include a duty to take instructions from the clients. Counsel submitted that once that proposition was accepted, it could not be said that there was no arguable case that the duties pleaded in pars 32.3, 32.4 and 32.5 were also incidental to the implied duty to take reasonable care in carrying out the terms of the retainer. This was because had the instructions been taken from the applicants, in the circumstances of this case it was at least arguable that the advice duties would have arisen out of the taking of the instructions. 26 Counsel for the applicants distinguished the cases relied upon by the third respondent for the proposition that it was not part of the solicitor's duty to provide financial advice, investment advice and commercial advice unless expressly retained to do so. Counsel submitted that none of the cases relied upon by the third respondent related to the situation of a solicitor holding himself out as a specialist superannuation lawyer being instructed to establish a self managed superannuation fund for individual inexperienced clients, by financial advisers, who may have a financial interest in the establishment of the self managed fund. Counsel submitted that each case should be considered in the context of its own facts, and the extent of the retainer and the scope of the incidental duty to take reasonable care was a matter for trial. 27 The submissions of counsel for the applicants are to be accepted. The scope of any retainer and the scope of the implied duty to carry out the retainer with reasonable care, depends upon the facts peculiar to the relationship between the solicitor and the client in each case. As Oliver J said in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (A Firm) [1979] 1 Ch 384 at 402: 'There is no such thing as a general retainer in that sense. The expression "my solicitor" is as meaningless as the expression "my tailor" or "my bookmaker" in establishing any general duty apart from that arising out of a particular matter in which his services are retained.' 28 The applicants' proposition is that a solicitor, acting reasonably, would obtain instructions directly from a client, when that solicitor is retained by an agent of the client, and the carrying out of retainer has the propensity to benefit that agent. In my view, it cannot be said that the applicants' proposition is so untenable as to result in their application being summarily terminated. In my view, it is arguable that there was a duty on the third respondent to obtain instructions directly from the applicants, as an incident of the implied duty to carry out his retainer with reasonable care and skill. Further, in my view, it is also arguable that, in the circumstances of this case, had that duty been carried out, the advice duties pleaded at pars 32.3, 32.4 and 32.5 could also have arisen (Dalleagles v Australian Securities Commission (1991) 4 WAR 325 at 332‑333; Hawkins v Clayton (1988) 164 CLR 539 at 574). It follows that I do not accept that the claim against the third respondent should be struck out on the grounds that no reasonable cause of action is disclosed, or that the claim is frivolous or vexatious. 29 As to the question of the pleading of causation, I accept that the causation plea in par 39 of the statement of claim is in general terms and does not allege that, had the third respondent provided the advice which it is alleged he ought have, the applicants would not have undertaken a self managed fund and would have made alternative superannuation arrangements. However, the applicants have given particulars of loss and damage in respect of the claim made against the first and second respondents. Those particulars do contain a statement to the effect that had the applicants been given proper advice they would have invested with an alternative fund suitable to their needs. Thus, although such a plea is not made specifically as part of the pleading of the claim against the third respondent, it is apparent that this is not because such a plea would not be able to be made. In the circumstances, I would not strike out the claim against the third respondent on the grounds that there is no reasonable cause of action because of the lack of causation between the alleged loss and the alleged breach. The absence of the specific plea by the applicants in relation to causation against the third respondent can be remedied either by amendment or the provision of particulars. 30 The third respondent also submitted that had he given the advice, the applicants would have rejected it, but that is a matter of fact for trial. Likewise, the third respondent's observation that it would have been possible for the applicants to have used the self managed superannuation fund structure to invest in 'retail' superannuation funds, is also a matter of fact to be explored at trial. 31 I now deal with the complaint by the third respondent in relation to the pleading that the third respondent was 'knowingly concerned or a party to' the misleading or deceptive conduct of Dultona. In par 38 of the statement of claim the applicants allege that it is the misleading or deceptive conduct of Dultona that is pleaded at par 37 in which the third respondent was knowingly concerned, and to which he was a party. 32 In par 37 of the statement of claim the applicants identify the matters pleaded at pars 2, 5, 6 and 22 of the statement of claim as comprising the conduct of Dultona which allegedly breaches s 52 of the TP Act. The gravamen of that conduct is pleaded at par 22 of the statement of claim. It is, that Dultona made certain representations to the applicants as to the future. No other paragraphs of the statement of claim are relied upon as comprising the offending conduct. 33 The matters relied upon in par 38 for the allegation that the third respondent was knowingly concerned in, or a party to, Dultona's breaches of the TP Act, are that the third respondent had an arrangement with Dultona whereby Dultona referred clients to the third respondent 'for the provision of legal services necessary for the putting into effect of the financial advice provided by Dultona' and the retainer pleaded at par 30 of the statement of claim. 34 In my view, the following observations of Dowsett J at [303] in Australian Competition & Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439 are relevant in this context: 'It is quite possible that the act of a natural person respondent on behalf of a corporation will constitute a contravention of the Act by that corporation, and yet the natural person respondent will be found not to have been knowingly concerned in that contravention. In the case of representations as to existing facts, this is because it is not necessary to show that the respondent corporation knew of the misleading nature of the statement in question, but knowing involvement predicates such knowledge on the part of the relevant natural person. The matter is even more complex in the case of representations as to future matters. A representation on behalf of a corporation will constitute a contravention if the corporation fails to show reasonable grounds for it. However a natural person respondent bears no onus of proof. It will be necessary for ACCC to demonstrate that such a person: s knew that the representation was made; and either: s knew that it was misleading; or s knew that the corporation had no reasonable grounds for it.' 35 The applicants have in par 37 of the statement of claim only relied upon the making by Dultona of future representations as the conduct comprising the breach of the TP Act. There is no pleading in par 37 of there being any absence of reasonable grounds for Dultona making the representations as to the future. 36 There is no plea in par 38 that the third respondent knew of the future representations and, also, importantly there is no plea that the third respondent knew that there were no reasonable grounds for the making of those representations. The absence of pleas to that effect are fatal to any attempt to plead a claim against the third respondent based on an allegation that the third respondent was knowingly concerned in, or a party to, the misleading or deceptive conduct of Dultona (Yorke v Lucas (1985) 158 CLR 661 at 670). 37 It follows that par 37 and par 38 of the statement of claim will be struck out as disclosing no reasonable cause of action, but I will give the applicants leave to amend the statement of claim. The third respondent's motion will otherwise be dismissed. I will hear the parties on the question of costs. I certify that the preceding thirty‑seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.