Lean v Tumut River Orchard Management Ltd

introduction 1 The Court has before it a notice of motion in which the second respondent seeks various orders. Those presently relevant are expressed in the following terms: "1. The Statement of Claim filed and the Injunction sought on behalf of the Applicant be struck out. 2. In the alternative, the Proceedings and the injunction sought against the Second Respondent be dismissed. 3. The Proceedings be transferred to the Sydney Registry."

the factual background 2 At the material times the first respondent was the registered proprietor of land at Coonabarabran in New South Wales and Mundubbera in Queensland on which it carried on and managed orchards of peaches and nectarines for the purposes of investment schemes. Those activities were conducted pursuant to the terms of two investment deeds ("the Investment Deeds") and two prospectuses ("the Prospectuses") which had been issued under the terms of the Investment Deeds. 3 On 28 April 1999, the first respondent went into voluntary liquidation. Messrs Maxwell William Prentice and Vince Christopher Barilla became joint liquidators pursuant to s 446A(4)(a)(ii) of the Corporations Law. 4 On 20 November 2002 I gave leave, under s 500(2) of the Corporations Act 2001 (Cth), to the applicant to commence proceedings against the first respondent - see Lean v Tumut River Orchard Management Ltd [2002] FCA 1419. The principal application in this matter is the proceeding brought pursuant to that leave. 5 The application is brought as a representative action under Part IVA of the Federal Court of Australia Act 1976 (Cth) on behalf of the applicant and as a representative party on behalf of the group members described in paragraph 2 of the application and paragraph 3 of the statement of claim in which latter paragraph seven persons are named as being group members. 6 In summary, the matters pleaded by the applicant in the statement of claim are as follows. The applicant and the other group members entered into contractual arrangements with the first respondent with a view to investing in two schemes (one in respect of the first respondent's New South Wales property and the other in respect of the first respondent's Queensland property - each respectively described as "the Project") to produce and market peaches and nectarines. Those arrangements included: · a licence agreement ("the Licence Deed") under which the first respondent granted a licence to an investor ("the Grower") to occupy a farming allotment; · a farming agreement ("the Farming Agreement") whereby the first respondent undertook to cultivate and harvest the fruit trees; and · Investment Deeds entered into between the first respondent and a trustee company (a different trustee company in relation to each Project) on behalf of the Growers. 7 Some of the Growers ("the Borrowers") took up the offer of a loan ("the Investor Loans") to meet their financial commitments under the Licence Deed and the Farming Agreement. The agreements in respect of those loans are known as "Investor Loan Agreements". 8 The applicant alleges that in brochures (one in respect of each Project) published by the first respondent and in a document described as a "Project Summary", copies of which were distributed on its behalf by the third respondent at "seminars", the first respondent made certain representations to the applicant and the other group members. In the brochures the representations were said to have been as follows: · that the information provided in the brochure gave a summary that exactly reflected the information contained in the Prospectus; · the Growers would be required to pay the operating costs attributable to their allotments out of the gross sale proceeds of the fruit produced by the Project which operating costs included the cost of harvesting and marketing; and · the borrowers would be required to "pay the first two interest payments and the minimum principal repayments" required by the terms of the Investment Loan Agreements but that all other payments would be made from income derived from the investor's orchard. 9 The brochure in relation to the Coonabarabran Project, so it is pleaded, contained a further statement that the Grower's liabilities, apart from the subscription price, would be limited to the income derived from the investor's orchard. The brochure in relation to the Queensland Project, so it is pleaded, contained a further statement that "if these payments are made as and when due" the Grower's liabilities, apart from the subscription price, would be limited to the income from the investor's orchard. 10 The applicant alleges that the Project Summary stated that the investment in the Project was a non-recourse loan and that the investors would have no personal liability for principal or interest payments. 11 The applicant alleges that publication of the statements in the brochures and in the Project Summary constituted conduct which was misleading or deceptive and unconscionable contrary to s 52 of the Trade Practices Act 1974 (Cth) ("the Act"), because contrary to the express and implied representations summarised above, the various agreements exposed the group members to personal liability in respect of Harvesting and Marketing Costs (a defined term) and the loans are recourse loans. 12 In a related, but distinct, claim the applicant sues the first respondent for damages for breaches of the Farming Agreements. Leave to commence proceedings (referred to above), in relation to the breach of contract claims, was confined to the commencement of proceedings with liberty to apply further. 13 In the statement of claim the applicant pleads that by a series of agreements, dated between 1 September 1997 and 31 August 2001, the rights of the first respondent under the Investor Loan Agreements, the Licence Deed and an amending deed in respect of each Project ("the Amending Deeds") were assigned to the second respondent which is a finance company dealing in debt recovery. The applicant pleads that the second respondent is in the course of suing approximately 30 of the group members in Local Court actions in New South Wales for Harvesting and Marketing Costs, interest and legal costs. 14 The applicant pleads that as a result of the first respondent's misleading or deceptive conduct the group members have incurred or may be likely to incur loss or damage which is particularised as including demands made by the second respondent and the proceedings in the Local Court in New South Wales. There are other particulars of loss, including the possibility of accelerated liability to repay the principal and interest under the Investor Loan Agreements. The applicant also pleads that the first respondent's misleading or deceptive conduct also constituted engaging in unconscionable conduct which has resulted in the group members suffering such loss and damage. 15 The relief which the applicant seeks comprises damages pursuant to s 82 of the Act against the first respondent for contraventions of ss 52 and 51AC of the Act, against the second respondent for unconscionable conduct and against the third respondent for misleading or deceptive conduct. 16 The applicant's claims against the second respondent that if the second respondent acquired the first respondent's rights under the Investor Loan Agreements and the Licence Deeds, those rights are subject to any rights of set-off that are available to the group members against the first respondent. The applicant seeks declarations that the group members are entitled to an equitable set-off against the first respondent and that the second respondent takes its rights under what are described as "the alleged assignments" from the first respondent or intervening parties subject to the group members' equitable set-off or statutory set-off against the first respondent. 17 The claim against the second respondent based on unconscionable conduct is put in the alternative to the basis upon which the declaratory relief is claimed. That is, the applicant pleads that if the second respondent did not acquire the first respondent's rights under the Investor Loan Agreement and the Licence Deed, or if it is not otherwise entitled to enforce those rights "for any reason" then, so the applicant claims, the second respondent's conduct in enforcing or threatening to enforce rights under the Investor Loan Agreement and the Licence Deed constitutes engaging in unconscionable conduct in trade or commerce contrary to s 51AC. 18 In the application and in the statement of claim the applicant sought declarations under s 87 of the Act that: "(i) the Group Members are not personally liable for Harvesting and Marketing Costs; (ii) the Investor Loans are non-recourse loans; (iii) the Group Members have not committed an act of default within the meaning of clause 4.1 of the Investor Loan Agreement by: (1) ceasing to carry on the Farm Business [another defined term]; (2) making default in the observance or performance of any obligation contained in the Investor Loan Agreements or in Any Security (sic) or on any other account or transaction between the Lender and the Borrower under the Investor Loan Agreements as a result of a failure by the Borrowers to pay the Harvesting and Marketing Costs or any instalment of principal and interest apart from the Borrowers' original subscriptions to the Project; or (3) any Security becoming enforceable according to its terms as a result of a failure by the Growers to pay Harvesting and Marketing Costs or any instalment of principal and interest apart from the Borrowers' original subscriptions to the Project. (iv) the Farming Agreement may not be terminated on grounds that the Group Members have failed to pay the Harvesting and Marketing Costs or on other grounds attributable to the First Respondent's breaches of contract …; (v) the Group Members are entitled to an equitable set-off against the First Respondent; and (vi) the Second Respondent takes its rights under the alleged assignments from the First Respondent or intervening parties subject to the Group Members' equitable set-off or statutory set-off against the First Respondent." 19 [At the hearing of the motion the applicant was granted leave to amend its description of the relief sought so that the last two declarations set out above were not expressed as being claimed under s 87 of the Act. The second respondent reserved its position on the question of any costs consequences which might arise out of those amendments.] 20 The applicant seeks orders for certain refunds to be made by the first respondent. He also seeks injunctions against the second respondent restraining it from making demands or instituting or continuing legal process or any enforcement process against the group members under the agreements, restraining it from disposing or dissipating any funds collected by it from group members and from enforcing any Security (another defined term). The applicant also seeks an order for the refund of moneys from the second respondent. 21 I now turn to the orders sought in the notice of motion, starting with the application for the proceedings to be transferred to the "Sydney Registry". Strictly speaking, this should be a reference to the New South Wales District Registry.

venue 22 The second respondent advanced many factors in support of its submission that this application should be conducted at the Federal Court in Sydney. It filed extensive written submissions. The factors upon which it relied included the following: · that it will call numerous witnesses (a list was provided), all but one of whom live in New South Wales, in which State "the majority" of documents were located; · the subject matter of the proceedings, so the second respondent asserts, is in the form of deeds and agreements entered into in New South Wales on behalf of the Growers in relation to properties situated in New South Wales and Queensland; · that it already is plaintiff in numerous proceedings in New South Wales in relation to the same subject matter; · that the Farming Agreements contain a clause in the following terms: "26. Governing Law This Farming Agreement … shall be governed by and construed in accordance with the laws in force for the time being in the State of New South Wales and each party submits to the jurisdiction of all Courts exercising jurisdiction in the State of New South Wales". · any future claims by it against the group members will be commenced in the courts of New South Wales; · if the proceedings were to remain in Western Australia it would either incur an unfair financial burden by having its current counsel in these matters travel to Perth for each hearing, or suffer prejudice by having separate counsel represented on these matters involving similar facts; · the cost of video conferencing would be similarly onerous to it; · the case for the group members, so the second respondent asserted, could be proved simply by calling Mr Lean who could present himself for cross-examination in Sydney.

my reasoning in relation to venue 23 Section 48 of the Federal Court Act provides as follows: "The Court or a Judge may, at any stage of a proceeding in the Court, direct that the proceeding or a part of the proceeding be conducted or continued at a place specified in the order, subject to such conditions (if any) as the Court or Judge imposes." 24 The second respondent conceded that the applicant, in choosing to file this application in Perth, had not done so capriciously. 25 Perhaps the leading authority in this area is National Mutual Holdings Pty Ltd v The Sentry Corporation (1988) 19 FCR 155, a decision of a Full Court. At p 162 the Full Court said this: "The power conferred on the Court or a judge by s 48 is in terms wholly unfettered. It should be exercised flexibly having regard to the circumstances of the particular case. It would be regrettable and unwise if the Court were to circumscribe the general power conferred by s 48 with inflexible rules or impose inelastic constraints upon its exercise. As the power may be exercised subject to conditions, the Court or a judge is in a position to mould orders under the section to take account of the many and varied circumstances that arise in particular cases. The power conferred by s 48 recognises the national character of this Court. The factors which the Court is entitled to take into account in considering whether one city is more appropriate than another for interlocutory hearings or for the trial itself are numerous. The Court must weigh those factors in each case. Residence of parties and of witnesses, expense to parties, the place where the cause of action arose and the convenience of the Court itself are some of the factors that may be relevant in particular circumstances. The balance of convenience will generally be a relevant consideration, but not necessarily determinative of each case. A party commences a proceeding by filing an application in a particular registry of the Court. If that party or another party wishes to have the proceeding conducted or continued in another place he may apply to the Court for an order under s 48 or O 10, r 1(2)(f) or O 30, r 6 as the case may be. There is no onus of proof in the strict sense to be discharged by the party seeking to conduct or continue the proceedings elsewhere. It should be noted that the Court may exercise its powers under O 30, r 6 either on the application of a party or of its own motion. The Court must, however, be satisfied, after considering all relevant matters, that there is sound reason to direct that the proceeding be conducted or continued elsewhere. Its starting point is that the proceeding has been commenced at a particular place. Why should it be changed? On the one hand, if the party who commenced the proceeding chose that place capriciously the Court would be justified in giving no weight to the choice of place. At the other end of the scale, a proceeding may have continued for some time at the place of commencement with many steps having been taken there, for example, filing of pleadings and affidavits, discovery and inspection. Due weight would be given by the Court to such matters before directing that the proceeding should continue at a different place. The balance of convenience is important, but its weight must vary from case to case. Ultimately the test is: where can the case be conducted or continued most suitably bearing in mind the interests of all the parties, the ends of justice in the determination of the issues between them, and the most efficient administration of the Court. It cannot and should not, in our opinion, be defined more closely or precisely." 26 I take into account that the applicant's case is based upon conduct by or on behalf of the first respondent which took place in Western Australia and which is alleged to be misleading or deceptive and unconscionable. I also take into account the fact that all but one of the group members are resident in Western Australia. I am inclined, at this stage, to disagree with the second respondent's submission that only Mr Lean is likely to be required to give evidence from that group. I note that the third respondent and its controller are also resident in Western Australia. The third respondent opposes the removal of the proceeding to Sydney. The first respondent is neutral on that matter unless it is ordered to file a defence. 27 I note also that the second respondent has filed this motion at a very early stage of the proceedings. I give due weight to that factor in its favour. 28 But it seems to me that a lot of the witnesses referred to by the second respondent in its list will not need to be called unless the applicant is given leave to proceed with his contract claims against the first respondent. In view of the evidence to the effect that any dividend payable to creditors by the first respondent is unlikely to exceed 0.05 cents in the dollar, my assessment at present is that it is unlikely that the contract claims will be pressed. 29 I have considered the matter of the proceedings brought in the Local Court in New South Wales and the evidence and submissions on the second respondent's behalf concerning actions commenced by it in the District Court of New South Wales. Two judges of that court have overruled objections to jurisdiction filed by some of the defendants in those proceedings. However, while I give some weight to those factors, I consider that they are not of substantial weight. The issue whether the courts in New South Wales should or should not exercise jurisdiction in respect of the second respondent's debt recovery proceedings is, I think, significantly different to the present issue in these proceedings. There is no suggestion that the group members are abusing the process of this Court by bringing this application. 30 Counsel for the second respondent asked me to take into account that his client has already been put to the expense of having him travel from Sydney to Perth on two occasions, namely for the first directions day and for the hearing of these motions. I do so, but I do not give that factor very much weight. The parties were informed in advance that no substantial matters would be dealt with on the first occasion and counsel could have attended by video-link at the hearing of the motion. 31 I acknowledge that, from the second respondent's viewpoint, this matter has many hallmarks of being a New South Wales case. But I also acknowledge that from the applicant's viewpoint (and from the viewpoint of the group members) the conduct of or on behalf of the first respondent about which they complain, i.e. misleading or deceptive or unconscionable conduct, took place in Western Australia. 32 In relation to the "Governing Law" clause in the Farming Agreement, the second respondent submits that under the law of New South Wales no statutory set-off is available to the applicant. That is not a question which I have to decide at this stage. In any event the applicant relies upon equitable set-off. Questions as to the effect of the relevant clause and the proper law to be applied to the determination of this application can await the trial of the matter. At this stage I am not convinced that there is a risk of benefit to one party, and consequent detriment to the other party, in terms of the applicable law, being a benefit or detriment which may depend upon where the Court conducts the interlocutory proceedings, the hearing, or where it hands down judgment in this matter. In relation to section 79 of the Judiciary Act 1903 (Cth), questions might conceivably arise about the State in which the Court may be said to be exercising federal jurisdiction, particularly in view of the possibilities to which I refer immediately below. Those possibilities include conducting the interlocutory processes in Western Australia for the time being and then conducting part of the hearing in Western Australia with the balance in New South Wales. The likelihood is that a reserved judgment would be delivered in one or other of those States, or possibly both States simultaneously by video-link from one to the other. At this stage, as I say, I do not need to resolve those issues because what the second respondent seeks in its motion is that the proceedings be transferred immediately to the New South Wales District Registry. Nothing in the "Governing Law" clause, in my view, has a bearing on that part of the second respondent's motion. Subject to the operation of the Act, that clause will take effect according to its terms. The submission to the jurisdiction expressed in the clause would extend to this Court, and in any event is not expressed exclusively. 33 In my view, applying the test referred to by the Full Court in National Mutual Pty Ltd v Sentry Corporation, this case can be conducted for the time being most suitably (bearing in mind the interests of all the parties, the ends of justice in the determination of the issues between them, and the most efficient administration of the Court) in Western Australia. I shall see to it that the interlocutory steps will not require personal or video conference attendance by counsel for the second respondent. Counsel's attendance can be by telephone. When the matter gets nearer to trial, I shall revisit the question of where the evidence is to be taken. At this stage, what I have in mind is that the evidence of the Western Australian witnesses might be taken in Perth and that the witnesses resident in New South Wales and Victoria would give their evidence in Sydney. In that way any inconvenience or expense with counsel travelling between those cities would be distributed more evenly between the parties than would be the case if the whole of the trial were conducted in one city. 34 For those reasons, that part of the motion in which the second respondent seeks a transfer of the proceeding will be stood over, with liberty to apply further at a later date.

the strike-out or dismissal motions 35 The first basis upon which the second respondent seeks to have the proceedings against it either struck out or dismissed is that it contends that it was not proper or appropriate to join it in these proceedings. 36 The applicant relies on Order 6, r 2 of the Federal Court Rules for such joinder. Order 6 rule 2 is in the following terms: "2. Two or more persons may be joined as applicants or respondents in any proceeding - (a) where - (i) if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do." 37 The second respondent has filed some 12 pages of written submissions to the effect that it should not have been joined as a party. I will not attempt to summarise them. Basically it submits that no common question of law or fact arises in the claims brought by the applicant against it on the one hand and against the first and third respondents on the other. 38 In relation to the Harvesting and Marketing Costs claim, the second respondent says that it is the assignee of debts owed to Treetop Projects Ltd (in liquidation) ("Treetop") in relation to management of the orchards whilst Treetop was the manager of the Project. It points out that Treetop is not a party to the proceedings nor is there any allegation of contravention of the Act by Treetop. 39 The second respondent argues that Treetop was appointed under a Deed of Appointment on 30 June 1998 and the first respondent did not assign its rights to Treetop. The second respondent has never claimed any interest in moneys owing to the first respondent under the Farming Agreements for Harvesting and Marketing Costs whilst the first respondent was the manager of the Projects. Accordingly, so the second respondent submits, no question of law or fact relating to it "bears any resemblance to the questions of law or fact relating to the first and third respondents, the issues for whom revolve around misleading and deceptive conduct in respect to the Harvesting and Marketing Costs". 40 In relation to the Investor Loans, the second respondent submits that the only issues are whether there was a valid assignment of the rights under the Investor Loan Agreements to the second respondent and whether the applicant has an equitable set-off against it. It submits that both those questions are "unique" to the second respondent. 41 The second respondent further submits that even if the Court were to grant relief under ss 82 and 87 of the Act against the first and third respondents for breach of s 52, it could not make orders under those sections against the second respondent because no contravention of s 52 has been pleaded against it, it is not a person involved in the contraventions by the other respondents, and no order could be made under s 87 affecting its rights as assignee. 42 There was a considerable overlap between the submissions made by the second respondent in relation to joinder and the submissions that the statement of claim disclosed no cause of action against it. I propose to deal with the pleading point in detail separately and later in these reasons.

my reasoning on joinder 43 In my opinion, if a separate proceeding were brought against the first and third respondents on the one hand and against the second respondent on the other hand, common questions of law and fact would arise in both proceedings. There might be other common questions, but it is sufficient for me to identify three. A common question of fact would be whether the conduct alleged to have been engaged in by the first and third respondents was in fact engaged in. Two common questions of law would be, first, whether that conduct is appropriately characterised as misleading or deceptive conduct and, secondly, whether a consequence of that characterisation is that the second respondent takes its rights, as the applicant asserts, subject to any rights of equitable set-off to which the applicant and the group members are entitled. 44 The applicant claims against the first respondent that it contravened s 52 of the Act when it misled him and the other group members into thinking that there would be no recourse to them in relation to Harvesting and Marketing Costs and only limited recourse under the Investor Loan Agreements, but that otherwise these costs and debts would be paid or repayable only out of the proceeds of sale of the fruit. Those claims, in my view, have a close connection with the question whether Treetop as the manager appointed to replace the first respondent would, as the applicant argues, be found to be disentitled by the first respondent's wrongdoing to recover moneys payable to it under the Licence Deeds and the Amending Deeds from the group members personally. Similar questions arise in relation to the moneys otherwise payable originally to the first respondent under the Investor Loan Agreements. That in turn would, on the applicant's case, affect the second respondent as assignee of those debts. That is, the answers to those questions, which in turn involve questions of fact and law, are common to the question whether the applicant is entitled to the relief which it claims against the second respondent. 45 Furthermore, in my view, on the materials before the Court to date, all rights to relief claimed by the applicant in this matter arise out of the same series of transactions. The series can be seen to start with the alleged misrepresentations and unconscionable conduct on the part of the first respondent, followed by entry into the various agreements relating to the Projects and the succession of Treetop to whatever contractual rights the first respondent may have had under the Farming Agreements. The series continues with the assignment to the second respondent of rights under the Licence Deeds and the Amending Deeds, and the assignment of debts said to be owing under the Investor Loan Agreements. 46 The applicant's claim, in essence, is that the second respondent's entitlement to sue him and the other group members personally is encumbered, or extinguished completely, by the statutory contraventions which would have precluded the first respondent from recovering those moneys. 47 If I am wrong in my assessment that this matter falls within both sub-paragraphs of Order 6 rule 2(a), I would have granted leave for such joinder under paragraph (b) because there is, in my view, a sufficient connection between the claims made by the applicant against the first and third respondents and the relief which it seeks as against the second respondent. 48 To the extent that the second respondent submitted that it should not have been joined because no relief can, as a matter of law, be granted against it, I refer to my reasons below where I reach a conclusion that the contrary is reasonably arguable. 49 I reject the second respondent's contention that the group members concerned, by bringing these proceedings based on a set-off, were attempting to "cover a hole" in their pleadings in the New South Wales proceedings in which apparently they have not pleaded any such set-off. The fact that the second respondent has instituted separate proceedings against some of the group members does not, in my view, constitute a bar on the group members in this application joining the second respondent as a party, if it would be otherwise appropriate. 50 The second respondent submitted that such a joinder was "inconvenient" in that it may complicate or delay the resolution of the proceedings against the first and third respondents. This was said to arise because issues were raised which were not federal in nature and in which the first and third respondents had no interest. The second respondent submitted that "to keep them [the first and third respondents] in proceedings where the matters in dispute and causing delay are essentially between the applicant and the second respondent is inconvenient". I disagree. The whole of the entitlement of the second respondent, if any, arises out of transactions which were initiated by the first and third respondents (the latter on behalf of the first respondent) in which the group members claim to have been misled in a serious respect concerning their personal liability. In any event the issue is not whether the first and third respondents should be parties. The issue is whether the second respondent was properly joined. For the reasons given above, I think that it was properly joined.

pleading issues 51 The second respondent contended that as no complaint is made against it that it contravened s 52 of the Act, the Court had no power to grant relief under s 87. There was no suggestion that it was a person involved in any such contravention. 52 In oral argument, Professor J O'Donovan, counsel for the applicant, said that his client was not claiming relief under s 87 of the Act. When it was pointed out to him that the application and the statement of claim expressly stated otherwise, he obtained leave to amend both those documents. 53 Next, the second respondent submitted that the applicant's claim for a declaration that the group members are entitled to an equitable set-off as against the first respondent and that the second respondent takes its title subject to all prior equities was simply not maintainable. The second respondent went so far as to submit that the Court did not have jurisdiction to make such a declaration. 54 As to the relief claimed by the applicant on the basis of the second respondent's alternative plea of alleged contravention by it of s 51AC, the second respondent submitted that for the Court to find that the second respondent had acted unconscionably, it must first find that there were no valid assignments. In that event, so it was put, the second respondent would hold no interest for which there could be a set-off and the applicant would not need a declaration.

my reasoning on the jurisdiction point 55 I consider that the claims against the first and third respondents, and the claims against the second respondent for declarations in the terms referred to in paragraph 18 above, arise out of a common substratum of facts. Thus the applicant's claim against the second respondent falls within the Court's accrued or associated jurisdiction: Phillip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 512; Fencott v Muller (1983) 152 CLR 570 at 607; Re Wakim; Ex parte McNally (1999) 198 CLR 511. Furthermore, there is the claim against the second respondent for contravention of s 51AC of the Act. That is clearly a federal claim within this Court's jurisdiction.

my reasoning in relation to the strike out issues 56 There are, as I see it, four issues. The first is whether the applicant has a reasonably arguable case for declarations that the group members are entitled to an equitable set-off against the first respondent arising out of its misleading, deceptive or unconscionable conduct. I use the expression "reasonably arguable" to refer to and distinguish the circumstances from those in which it can fairly be said that the case is so hopeless that it should not be allowed to go to trial. The second is whether, in those circumstances, it is reasonably arguable that the second respondent takes its rights as assignee from the first respondent or intervening parties subject to the group members' equitable set-off against the first respondent. 57 The third issue is whether the first respondent has a reasonably arguable case against the second respondent based upon alleged unconscionable conduct under s 51AC of the Act. The fourth issue is whether the whole or any part of the pleading of the unconscionability case should be struck out. 58 I approach the resolution of these four issues (other than the pure pleading point embodied in part of the fourth issue) by applying the well-known principles explained in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129. 59 In respect of the first issue, the second respondent submitted that the applicant's statement of claim disclosed no cause of action against it. It contended that there was "clear doubt" as to whether misleading or deceptive conduct contrary to s 52 of the Act can give rise to an equitable set-off. 60 The applicant submitted that it was quite clear that its claim against the first respondent for damages for breach of contract was a classic example of an equitable set-off. It conceded that it was not so clear that a claim for damages for misleading or deceptive conduct can support an equitable set-off. However, it relied upon three cases in which it appears to have been assumed that a claim for a compensatory remedy for misleading or deceptive conduct can amount to an equitable set-off: Tomlinson v Cut Price Deli Pty Ltd (1992) 38 FCR 490 at 494; Ferro Corporation (Aust) Pty Ltd v International Pools Aust Pty Ltd (1993) 30 NSWLR 539; and Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436 at 440-441. It claimed that equitable set off is still available under the laws of New South Wales even though the Statutes of Set-Off have been repealed in that State. It relied on two of those cases and four other cases, namely AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 712; AMP Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326 at 329; Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 at 465, 468 and Doherty v Murphy [1996] 2 VR 553 for the proposition that such an equitable set-off may be asserted against a plaintiff particularly if the plaintiff has induced entry into the agreement giving rise to the obligation which the plaintiff is seeking to enforce. 61 In my opinion, the state of the authorities is such that it is reasonably arguable that relief under the Act by way of damages for contraventions of s 52 may give rise to an equitable set-off as against a party said to have engaged in that conduct - in this case the first respondent. I refer to the authorities set out in paragraph 60 above. In my view, a reading of those authorities puts the applicant's case in respect of the first of the four issues identified above at a much higher level than simply being "reasonably arguable". 62 The second issue is, as I have mentioned above, whether it is reasonably arguable that the second respondent takes its rights as assignee from the first respondent or intervening parties subject to the group members' equitable set-off against the first respondent. 63 The applicant relied upon an observation made by Anderson J, sitting as a member of a Full Court of the Supreme Court of Western Australia, in Ghirardi v Allregal Corp Pty Ltd [2001] WASCA 366. The question in that case was whether the appellants had raised a sufficiently arguable defence to resist an application for summary judgment by an assignee of a security, on the basis that they had been induced to execute the security by misleading or deceptive conduct. 64 The Full Court upheld a decision by Groves DCJ that, on the facts pleaded, there was no arguable defence. At paragraphs [20] and [21] Anderson J said this: "… It may be at least arguable that where one co-surety tells the lender that he agrees to execute a guarantee only if another person also agrees to do so, and the security which is presented for execution provides that the lender may release any co-surety without affecting the obligations of the other co-surety, failure to draw the attention of the first co-surety to that provision may be a misleading or deceptive non-disclosure. . . . [21] The appellants must be taken to have been made fully aware of the terms of the guarantee and indemnity, that the benefit of it could be assigned free of all equities to Mr and Mrs Chapman at any time and that the bank could, at any time, release Mr and Mrs Chapman from their obligations as guarantors without affecting the obligations of the other guarantors." 65 Steytler and Templeman JJ agreed with Anderson J. 66 The point which Professor O'Donovan, counsel for the applicant, sought to make was that although their Honours had found in Ghirardi that there was insufficient evidence to give rise to a finding of misleading or deceptive conduct, they did not rule out as unarguable the proposition that if there had been such misleading or deceptive conduct on the part of the lender in that case, then that might form the basis for a set-off. 67 The second respondent submitted that the Full Court in Ghirardi did not in fact decide "… whether an assignee was subject to the misleading and deceptive conduct of the assignor." By way of interposition I would say that that is true, but implicit in their Honours' consideration of the point was that if there had been sufficient evidence of misleading or deceptive conduct on the part of the lender, it might be reasonably arguable that the assignees took subject to equities arising out of a contravention of s 52 of the Act. 68 The second respondent cited Oraka Pty Ltd v Leda Holdings Ltd (1997) ATPR 41-558 and Krambousanos v Jedda Investments Pty Ltd [1996] FCA 144 at paras 37 to 41 as authority for the proposition that the applicant could not claim relief against it as assignee, on the basis of the alleged conduct of the first respondent (the assignor) in contravention of s 52 of the Act. 69 The applicant relied upon a line of authority for the proposition that an assignee takes subject to all prior equities, including an equitable set-off. Those authorities include Young v Kitchin (1878) 3 Ex D 127. In that case, on a demurrer, Cleasby B. held that a building owner was entitled to an equitable set-off, against an assignee from the builder of moneys owing under the building contract, in respect of damages for breach of contract. Similarly, in Sun Candies Pty Ltd v Polites [1939] VLR 132 an assignee for value of the purchase price of a business was held, by Mann CJ, to take subject to an equitable set-off comprising an unliquidated claim by the purchaser of the business for breach of warranty. Mann CJ applied the Privy Council advice in Government of Newfoundland v Newfoundland Railway Co [1888] 13 App Cas 199 at p 212-213: "It would be a lamentable thing if it were found to be the law that a party to a contract may assign a portion of it, perhaps a beneficial portion, so that the assignee shall take the benefit, wholly discharged of any counter-claim by the other party in respect of the rest of the contract, which may be burdensome. There is no universal rule that claims arising out of the same contract may be set against one another in all circumstances. But their Lordships have no hesitation in saying that in this contract the claims for subsidy and for non-construction ought to be set against one another." 70 To like effect is the decision of a Divisional Court in Lawrence v Hayes [1927] 2 KB 111. 71 The applicant's submission was that the second respondent, when it took an assignment of the debts allegedly owing by the applicant and the other group members, purchased "flawed assets". It was immaterial, so the applicant submitted, that the assignment was not directly from the first respondent because all assignees took their assignment subject to any equitable set-off. The principle was that it would be unfair or unconscionable for an assignee to be paid without allowing such a set-off.

my further reasoning on the second issue 72 In Oraka, Burchett J having found a contravention of s 52 of the Act by the assignor of a lease, made orders under s 87 setting aside any obligation of Oraka to pay rent or make any other payment whatever under the lease to the respondent during the period prior to the assignment. His Honour also ordered the respondent to indemnify Oraka in respect of such liabilities thereafter. On appeal, the majority of the Full Court held that there was insufficient evidence of reliance by Oraka on the allegedly misleading statements and insufficient evidence that any loss had been suffered by conduct of the appellant. They allowed the appeal on those bases. Their Honours did not have to consider the question of the extent of the power to grant relief under s 87 of the Act. Beaumont J, in dissent, considered the extent of the Court's power to grant indemnity relief under s 87(1A) of the Act and would not have been prepared to interfere with the exercise of Burchett J's discretion. 73 I accept Professor O'Donovan's submission that nothing in Oraka stands in the way of the applicant's claim to be entitled to set up an equitable set-off against the second respondent as assignee. There was no discussion in Oraka about equitable set-off. All of the argument appears to have centred upon s 87 of the Act. 74 In Krambousanos the applicants sought relief under s 52 of the Act in respect of conduct by a company called New Imperial Pty Ltd. It is clear from the report of that case (see paragraph [35]) that no attempt was made in the pleadings or otherwise to link the first respondent in that matter with the conduct of New Imperial sought to be impugned, or to establish a basis upon which the first respondent should assume responsibility for New Imperial's conduct. 75 New Imperial was not a party to those proceedings and her Honour, having cited ss 82 and 87(1) of the Act, with respect uncontroversially, dismissed that part of the applicant's claim for relief against the first respondent which was based upon the alleged conduct of New Imperial in contravention of s 52. 76 Once again, there was no mention in that case of any claim to an equitable set-off. 77 Krambousanos went on appeal on another point - see Jedda Investments Pty Ltd v Krambousanos (1997) 72 FCR 138. The appeal concerned her Honour's conclusion that the appellant took a transfer of a mortgage with notice of the respondents' special disability affecting it. New Imperial was held to have acted unconscionably in accepting the applicant's assent to the mortgage. The mortgage (which was subsequently transferred to the first respondent) was set aside by her Honour. The appeal to the Full Court in respect of that order was unanimously dismissed. 78 In my view, there is nothing in Krambousanos which makes the applicant's case in this matter not reasonably arguable. The question of equitable set-off did not arise and the Court was prepared to grant relief against the assignee based upon the prior unconscionable conduct of the assignor. 79 On the present state of the authorities, I think that the applicant has shown that it has a reasonably arguable case, sufficient for the matter to go to trial, that the second respondent takes its rights as assignee from the first respondent and others subject to an equitable set-off arising from any misleading or deceptive conduct on the part of the first respondent. 80 The second respondent contended that an equitable set-off cannot be pleaded against an assignee making no claim against the applicant in these proceedings. Accordingly the pleading was bad and should be struck out. 81 The second respondent relied upon Southern Textile Converters Pty Ltd v Stehar Knitting Mills Pty Ltd [1979] 1 NSWLR 692 at 700. In my view, there is nothing in Southern Textile Converters which would render the applicant's claim in this matter as being one that is not reasonably arguable. The relevant portion of Sheppard J's judgment in that matter was concerned with the time at which the set-off claimed in that case came into existence. His Honour held that there could be no set-off until it was raised by the defendant in a pleading. There was no claim in that matter to an equitable set-off arising out of a claim for damages for contravention of a provision of the Act. 82 The second respondent also relied upon the decision of Jacobs J in Mitchell v Purnell Motors Pty Ltd [1961] NSWR 165 as authority for the proposition that the applicant is not entitled to claim a set-off in these proceedings of the type upon which he relies, nor to plead a set-off "as a sword" against an assignee. Once again, I do not see anything in Mitchell which renders the applicant's claims not reasonably arguable. What his Honour held in that case was that a building owner could, in arbitration proceedings brought by an assignee of the builders, assert by way of equitable set-off deductions in respect of the builders' failure to perform the contract. 83 In my view, the second respondent's submissions overlook the fact that it is proceeding in numerous cases in New South Wales to assert its rights as against various group members, and others, to payment of the moneys assigned to it arising out of various aspects of the Projects. 84 In my view, it is reasonably arguable that in those circumstances the applicant is entitled in these proceedings to seek the declaratory relief described above. As I have mentioned, this is coupled with an application for interim and final injunctions restraining the second respondent from enforcing its rights in the New South Wales proceedings. The fact that the second respondent has not, as yet, made any claim against the applicant in these proceedings does not, in my opinion, preclude the applicant from taking this course.

the unconscionability claim against the second respondent 85 The second respondent submitted that the applicant's claim against it under s 51AC of the Act should be struck out as being an abuse of process. The second respondent relied upon s 51AC(5) which relevantly provides that a person is not to be taken to engage in unconscionable conduct by reason only that such person institutes legal proceedings in relation to the supply or possible supply or acquisition or possible acquisition of goods or services. 86 In my view, the answer to that submission is that the applicant is not relying only upon the legal proceedings instituted by the second respondent. He relies cumulatively on other conduct as well i.e. the letters of demand and the inducement to make part-payment and surrender the group members' interests in the Project. This was particularised in the statement of claim as engaging in unfair tactics and not acting in good faith. It was the subject of affidavit evidence filed in opposition to the motion. 87 In my view, the second respondent is on stronger ground when it complains about the manner in which the applicant pleads its claim under s 51AC of the Act. 88 The second respondent contends that the applicant's plea in relation to s 51AC is inconsistent and embarrassing in the technical sense of the latter expression. 89 In paragraph 56 of the statement of claim the applicant pleads that by a series of assignments from the first respondent through intervening parties the second respondent "allegedly became the assignee of the First Respondent's rights under the Investor Loan Agreement, the Licence Deed and the Amending Deed". Particulars of that chain of assignments are given. The claims against the second respondent are pleaded in paragraphs 86 to 88 as follows: "86. Through a series of assignments from the First Respondent through intervening parties as set out in paragraph 56 above, the Second Respondent allegedly acquired the First Respondent's rights under the Investor Loan Agreement and the Licence Deed. 87. If the Second Respondent acquired the said rights they are subject to any rights of set off that are available to the group members against the First Respondent. 88. In the alternative, if the Second Respondent did not acquire the First Respondent's rights under the Investor Loan Agreement and the Licence Deed or if the Second Respondent is not entitled to enforce those rights for any reason, then the Second Respondent's conduct in enforcing or threatening to enforce rights under the Investor Loan Agreement and the Licence Deed constitutes engaging in unconscionable conduct in trade or commerce contrary to the provisions of section 51AC of the Trade Practices Act 1974. PARTICULARS (a) The Second Respondent is engaging in unfair tactics and is not acting in good faith. (b) In proceedings in the Local Court of the Small Claims Division New South Wales the Second Respondent has claimed Harvesting and Marketing Costs, interest and legal costs against approximately 30 Growers who are Group Members." 90 It is to be noted that in relation to paragraph 88 there are no facts pleaded, nor is any legal basis put forward, for the assertion of the possibility that the second respondent did not acquire the rights referred to or was not entitled to enforce those rights. When I raised this matter with Professor O'Donovan on the first return date for the motion he made the following frank concession: "We've not been given the alleged assignment documents. Before we can be in a position to decide whether to press ahead with that cause of action against the third respondent [sic] we need to know if there were valid assignments of the debt from TROM [the First Respondent] to the second respondent, the loans." 91 He repeated this concession three weeks later when the motion was fully argued and said: "Your Honour, as I've conceded throughout, we don't know the true position. That's why we're seeking non-party discovery. That's why we would be grateful to sight even a version of these assignments with relevant portions blocked out, just so we can ascertain whether these assignments are valid. We will know that after discovery, your Honour, but in my respectful submission, it would be an excess of jurisdiction to strike out the pleadings at this threshold stage in the light of what you have before you, in my respectful submission." 92 In my opinion, the plea in paragraph 88, set out above is embarrassing because the second respondent is left in a situation of uncertainty as to the case brought against it. 93 The applicant seeks to raise the possibility that the various assignments were not effective. It should plead the factual or legal basis for that assertion. It has not done so. The reason why he has not done so is because, as his counsel concedes, he does not know the facts relevant to the assignment. 94 It may be that the plea that the second respondent is not entitled to enforce the rights claimed "for any reason" is based upon the equitable set-off argument. If that is so, then it should be properly pleaded. 95 In my opinion, paragraph 88 of the statement of claim should be struck out, but the applicant should have the right to re-plead.

Conclusion 96 For the foregoing reasons there will be orders as follows: 1. Paragraph 88 of the statement of claim be struck out, but the applicant have leave to re-plead his unconscionable conduct claims against the second respondent within 28 days. 2. The second respondent's motion for transfer of the proceedings to the New South Wales District Registry be stood over, with liberty to apply further at a later date. 3. The motion otherwise be dismissed. 97 I will hear the parties on the question of costs of the motion at the next directions hearing. Any submissions as to costs may be made orally but I do not wish the parties to file written submissions in that regard. Some 57 pages of written submissions were filed in respect of the motion. I expect the issue of costs to be dealt with far more briefly. I certify that the preceding ninety-seven (97) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr.

Counsel for the Applicant: Professor J O'Donovan

Solicitor for the Applicant: Messrs Gadens Lawyers

Counsel for the First Respondent: Ms P E Cahill

Solicitor for the First Respondent: Messrs Jackson McDonald

Counsel for the Second Respondent: Mr C Houghton

Solicitor for the Second Respondent: Messrs Versace & Co

Counsel for the Third Respondent: Mr P C Doherty

Solicitor for the Third Respondent: Messrs Minter Ellison

Date of Hearing: 28 February 2003

Date of Judgment: 28 March 2003