"62. Acting in reliance on the express and implied representations and, in the alternative, the future representations, the Group Members:
(a) completed the form of application and the application for investor loan included in the Prospectus;
(b) authorised the Representative to enter into the Investment Deed, the Licence Deed and the Farming Agreement as their agent; and
(c) invested money in the Project.
63. As a result of the First Respondent's express and implied representations and, in the alternative, future representations, the Group Members have incurred or may incur loss or damage:
(a) by incurring liabilities under the Agreements;
(b) by incurring legal expenses in obtaining advice about their rights and obligations under the Agreements;
(c) as a result of the demands made by the First Respondent or the Second Respondent for payment of the Harvesting and Marketing Costs; and
(d) as a result of the possible termination of the Farming Agreement and an accelerated liability to repay the Principal Sum and interest under the Agreements."
28 So far as sufficiency of the pleadings is concerned, I have regard first to the draft originating application, paragraph 2 of which describes the Group Members as being all of the persons who signed the form of application in the Prospectus and who, amongst other things, applied for an Investor Loan and who have suffered or may suffer loss or damage referred to in paragraph 64 of the statement of claim (that is an obvious reference to paragraph 63). There are similar descriptions of the Group Members in paragraph 3 of the draft statement of claim, but seven Group Members are also identified by name. It is worth remembering that relief may be obtained under s 87 of the Trade Practices Act if it appears to the Court that a party is likely to suffer loss or damage by the relevant conduct.
29 Ms Cahill submitted that there was no serious question to be tried as to whether the Group Members had any liabilities under the Investor Loan Agreements. There was, so she submitted, no evidence of any threatened claim for repayment of loan moneys (as contrasted with the claims arising out of Harvesting and Marketing Costs). The respondent did not want its resources depleted in litigation on what counsel described as a hypothetical and ultimately useless point.
30 Then I was taken to the terms of the Farming Agreements and, in relation to each Project, a document described as a "Second Farming Agreement". It was put, on behalf of the respondent, that it was apparent from perusing those Agreements that only those Group Members who invested before 1995 might have a personal liability because the Second Farming Agreement, so it was submitted, precluded such personal liability.
31 In reply Professor J O'Donovan drew my attention to paragraphs 29 of the Farming Agreement and paragraph 28 of the Second Farming Agreement, which provided that each of those Agreements was subject in all respects to the terms and conditions of the Investment Deed and that, in the event of any inconsistency, the terms and conditions of the Investment Deed should prevail until the date of termination. Counsel submitted that if there were any inconsistency then the terms of the original Investment Deed were to prevail.
32 This is not the place in which to resolve that point of construction. It is a matter for the trial judge in the proposed application. It is sufficient for me at this stage to form the view (as I have) that a serious question arises as to whether the various amending deeds have the effect of protecting later subscribers in the manner in which the first respondent claims.
33 Ms Cahill said that "at best" the evidence was that only 30 Group Members were at risk of being sued. There was no means of discovering whether the balance of the Group Members had any real issue as to their personal liability for Harvesting and Marketing Costs. That may well be true, but in my opinion, a clearer picture as to the composition of the Group will emerge as the representative proceeding takes its course. If there are no more than 30 such Group Members, then any expenditure on the respondent's part will be confined to those claims.
34 Next the respondent complained that there was no evidence as to what had been happening in respect of the Local Court proceedings in New South Wales and what would be the likely course of those proceedings. In my opinion, in an application of this type, that sort of evidence is not needed. It is sufficient, to demonstrate a serious question to be tried, that there are in train some 30 Local Court proceedings in New South Wales in which HP Mercantile is seeking to recover debts which have their origin in the incurring by the proposed Group Members of Harvesting and Marketing Costs. It is not necessary for an applicant for leave to prove all the elements of the proposed claim: see Vagrand at 414.
35 In my view, the applicant has shown that the proposed claims in respect of the alleged misleading or deceptive and (perhaps to a lesser extent) unconscionable conduct on the respondent's part have a solid foundation and give rise to a serious dispute, which is much the same as saying that there is a serious question to be tried: see Vagrand at 417. Vagrand was a unanimous decision of a Full Court of this Court.
36 The respondent contended that the applicant had not demonstrated a serious question to be tried in respect of the breach of contract claims, because no attempt has been made to identify specifically any alleged breaches of contract arising during the course of the respondent's management of the orchards prior to 1998. The respondent relies on evidence that it ceased to be the manager of the Projects in 1998 pursuant to a deed of appointment, dated 30 June 1998, of a new manager.
37 In response to this, the applicant has filed an affidavit sworn by his solicitor to which is annexed what is said to be an expert's report. The expert's report includes some observations in relation to the two Projects. It appears to compare what was promised in the relevant Prospectuses and what the writer of the report observed on inspection of the properties. It also, to some extent, underpins the allegations of breach of contract made in paragraphs 66-71 of the proposed statement of claim. It is true that those allegations are not confined at this stage to the period prior to 30 June 1998. But the nature of some of the obligations said to have been breached by the respondent, and particularised in paragraphs 66 and 68 of the draft statement of claim, suggests breaches at an early stage of the Project - e.g. failure to plant the required number of trees and not designing or adequately designing the field layout and pegging of the rows of the trees. In my view, there is sufficient material in those paragraphs when read with the expert's report to raise a serious question to be tried about whether the respondent breached the Farming Agreements during the period before 30 June 1998. There may also be issues as to the extent to which the respondent has been released from its contractual obligations with effect from 30 June 1998.
38 The respondent submitted that the "appropriate compensation" for any losses arising from the alleged misleading or unconscionable conduct or breach of contract was in the form of damages and not the declaratory relief articulated in the proposed statement of claim. The respondent contended that no declaratory relief of that type would be available as a "right of set-off" against the respondent or HP Mercantile.
39 The final resolution of those issues would, of course, be a matter for the trial judge hearing the proposed application.
40 At this stage I see no reason why the applicant should be confined to a remedy in damages alone. The practical realities of the situation are that some at least of the proposed Group Members (in about 30 Local Court actions) are being pursued by HP Mercantile as assignee of the respondent's contractual entitlements. Any award of damages to the applicant against the first respondent would, on the evidence before me, eventually result in a payment by way of dividend of something less than 0.05 cents in the dollar. I infer from that evidence that the applicant is unlikely to be interested in pursuing his damages claims against the respondent in the hope of obtaining a substantial dividend. In fact Professor O'Donovan explained, during argument, that the applicant's real interest was to set off these damages claims against the claims being made by HP Mercantile.
41 Ms Cahill then took me to the relief sought by the applicant and the Group Members as reflected in paragraph 87 of the draft statement of claim. First she submitted that, based on the authority of Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 a court would not order declaratory relief which would have the effect of re-writing the relevant contract. In my view, Marks is not authority for that proposition. The width and extent of the remedies available under s 87 of the Trade Practices Act have not been finally determined. I think that it is clearly arguable that if the applicant is able to demonstrate misleading or deceptive conduct on the part of the respondent, he may be able to persuade a court to grant declaratory relief to the effect that the Group Members are not personally liable for the Harvesting and Marketing Costs.
42 The respondent submitted that there was no utility in the proposed declaratory relief to the effect that the Investor Loans are non-recourse loans. As I have mentioned above, the utility or otherwise of obtaining such a declaration will emerge as the proposed representative application proceeds.
43 Then there were submissions about whether there could be relief against HP Mercantile. An argument was advanced on behalf of the respondent that HP Mercantile was not the original assignee from the respondent, and that this would weigh against the grant of the relief sought. Once again, I think that it is sufficient to show that there is a serious question to be tried, namely, whether one effect of the respondent's misleading or deceptive conduct (if proved) is that HP Mercantile takes whatever rights have been assigned to it subject to any remedies which may be available under the various sections of the Trade Practices Act, including s 87.
44 In my view, on the basis of a serious question to be tried, it seems quite appropriate that the Group Members should be able to ask for declarations and other orders under s 87 of the Trade Practices Act which would have the effect of relieving themselves from those obligations which HP Mercantile is apparently seeking to enforce.
45 I shall not attempt to summarise the remainder of the respondent's objections. Rather, I shall refer to the matters to which I have had regard in deciding whether leave should be granted.
46 I take into account that the declaratory orders and orders varying what would otherwise be the applicant's contractual obligations, constitute relief which the applicant would not be able to obtain otherwise than by a successful application to the Court. That is a significant factor in favour of leave - see Vagrand again at 414.
47 I think that the fact that the proposed proceedings have not yet been commenced is a neutral factor in the circumstances of this matter. However, I infer from the form and detail of the draft application and statement of claim that a considerable amount of preparatory work has been carried out.
48 My assessment is that if the applicant and the proposed Group Members were confined to lodging proofs of debt and such proofs were rejected then there would be a strong likelihood of an appeal against such rejection, if only to establish and maintain rights of set-off against the claims from HP Mercantile. I take into account also that the proposed proceedings are complex in nature. They involve fairly complex issues of fact and law. I was told from the bar table that the total claims for Harvesting and Marketing Costs are in the vicinity of $3.4 million. In my view, these factors weigh in favour of leave being granted.
49 I take note of the possibility that there may be a multitude of similar actions by the balance of approximately 2600 Growers. But the liquidation commenced well over three years ago and only 29 Growers have lodged proofs of debt. I acknowledge that proofs of debt have not been called for, and other Growers may become interested in suing. But to the extent that they are not among the proposed Group Members, those persons would have to apply for leave to proceed and the situation could be reviewed if and when such applications are made.
50 I note that the respondent is not insured for the damages sought by the Group Members, but as I have mentioned above my impression is that the applicant's proposed claim for damages against the respondent (and a consequent dividend) is of secondary interest to him and the proposed Group Members. However, I take into account that any legal costs to be incurred by the respondent will not be borne by an insurer. These are factors weighing against the grant of leave.
51 Subject to the imposition of certain conditions, to which I return below, I consider that the applicant has demonstrated that the balance of convenience (that is the risk of injustice to one or other of the parties) lies in allowing the applicant to proceed by way of the proposed application rather than requiring him to be left to pursue his claim by lodging a proof of debt with the Liquidators, and then appealing if the proof is rejected. In other words, I consider that the applicant has demonstrated good reason for departure from that procedure - see Ogilvie-Grant v East (1983) 1 ACLC 742 at 744.
52 I am concerned to keep to a minimum any diminution of the assets of the respondent available for distribution to other unsecured creditors and any delay and prejudice to the orderly winding up of the respondent.
53 The applicant suggests that one condition should be that, without further leave, the applicant be precluded from taking any action to enforce any monetary judgment obtained against the respondent without further leave of the Court. That is, in my view, almost a standard condition in matters such as these. My concern is to mould other conditions. In Ringfab, Lee J made a direction that the relevant company would not be required to file a defence or participate in those proceedings. That was a convenient order in that case, because his Honour would appear to have been the docket judge in respect of the proceedings which were already in train. However, I think that in the present matter a condition can be fashioned to like effect which would be expressed as being subject to any order of the judge responsible for the application.
54 The applicant suggested that the Court could give directions requiring him to assist the Liquidators to assess the merits of his claims. However, the response when I enquired what directions the applicant had in mind was such that I think any co-operation would be more appropriately left to the parties rather than become the subject of formal directions.
55 Professor O'Donovan said that the applicant's claims for damages were much more contentious than the other claims and difficult to quantify.
56 At this stage, I think that the leave should be confined to commencement of proceedings and prosecuting all claims other than the breach of contract claims to the point at which the issues of liability and relief other than damages have been decided. There should be liberty to apply if the docket judge or other judge responsible for those proceedings considers that the issues of liability and relief other than damages on the one hand and damages on the other hand in respect of those claims should not be split.
57 In relation to the breach of contract claims, the leave should be confined to the institution of proceedings by filing the application and the statement of claim. But, again if the docket judge or other judge responsible for the conduct of the proposed proceedings requires the applicant to take any further steps, there will be liberty to apply.
58 There remains the matter of discovery. In a practical sense (given such a low likely dividend to unsecured creditors) the applicant wishes to proceed against the respondent in order to obtain the relief under the Trade Practices Act and rights of set-off against the claims by HP Mercantile to which I have referred above. The presence of the respondent as a party to the proposed proceedings is thus, to a significant extent, formal.
59 If the respondent were not a party to the proposed proceedings, but were served with a subpoena to produce documents, it would be entitled, under the Federal Court Rules, to apply for reimbursement of its expenses in complying with that subpoena. Those expenses would include obtaining legal advice, examining the documents against the description of the documents in the subpoena and assembling the documents for production to the Court.
60 The respondent submitted that if leave were granted to the applicant, there should be a further condition imposed to the effect that Group Members would be liable to pay all of the costs arising from the joinder of the respondent to the proposed proceedings "in any event", which I took to mean regardless of the result of those proceedings.
61 In Vagrand, a suggestion that a condition be imposed upon the applicants for leave, to the effect that they pay the Liquidators' costs of the principal proceedings regardless of the outcome, was met with short shrift by the Full Court. I can see no justification for imposing such a condition. If in the proposed proceedings it is shown that the first respondent engaged in misleading or deceptive conduct, it would, in my view, be grossly unfair to shoulder, in advance, the Group Members with liability for the respondent's costs in defending those proceedings. However, the condition which I am considering in this matter is significantly different to that sort of condition. The question is whether the applicant should be obliged to fund all or part of the Liquidators' costs in complying with any discovery order.
62 I take into account the fact that the Liquidators would be obliged, to some extent, to incur the cost of inspecting the documents when deciding whether to admit any proofs of debt submitted by the Growers. But the costs of discovery are likely to be much higher.
63 All in all, I consider that it would be equitable for a condition to be imposed to the effect that the applicant undertakes to pay one half of any costs which the Liquidators may incur in complying with their discovery obligations to the applicant in the proposed application, such costs to be agreed or taxed in default of agreement and paid at such time as the docket judge considers appropriate. I think that such an undertaking will have the result of focussing the applicant's discovery demands and thus limit discovery costs. It will be for the trial judge to decide whether those costs can be recovered by the applicant from any other respondent.