Lukey v Corporate Investment Australia Funds Management Pty Ltd

Federal Court of Australia|2003-12-08|Before: Emmett J

THE COURT ORDERS THAT: 1. the settlement, on the basis set out in Orders 2 and 3 below, of all claims made against the Sixth Respondent by the Applicant and all persons named in the Schedule to the Third Further Amended Application be approved pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth); 2. by consent and without admission, there be judgment in favour of the Sixth Respondent on all claims made against the Sixth Respondent by the Applicant in her own right and in a representative capacity; 3. there be no order as to costs as between the Applicant and the Sixth Respondent; 4. leave be granted to the Sixth Cross-Claimant to discontinue the Sixth Cross-Claim. 5. the proceeding be stood over, part heard, to 9 December 2003.

the agreement between the Sixth Cross-Claimant and the Cross-Respondents to the Sixth Cross-Claim that each party bear his or its own costs of the proceedings initiated pursuant to the Sixth Cross-Claim. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212)

BETWEEN: CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212)

AND: FINANCE AND PLANNING INSURANCE & SUPERANNUATION CONSULTANTS PTY LIMITED

BETWEEN: CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212)

REASONS FOR JUDGMENT 1 In this proceeding, the applicant sues in a representative capacity on her own behalf and on behalf of other persons who purported to apply for interests in 'The First TrackNet Project' ('the Project'). She brings the proceedings pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) ('the Federal Court Act'). 2 The claim as originally framed was brought against Corporate Investment Australia Funds Management Pty Ltd ('CIAFM'), TrackNet Australia Pty Limited, Cardinal Financial Securities Limited ('Cardinal') and John Charles Kerin ('Mr Kerin') and Garry Martin White ('Mr White'). After the proceeding had been on foot for some time, amendments were made to join as the sixth respondent, Thomas James Valentine ('Professor Valentine'). 3 The proceeding arises out of a prospectus ('the Prospectus') published by CIAFM inviting subscriptions from the public for interests in the Project. The Project was established pursuant to a project deed entered into between CIAFM and Cardinal. Messrs Kerin and White and Professor Valentine were directors of CIAFM at the time of the issue of the Prospectus. Ms Lukey makes complaints on her own behalf and on behalf of other participants in the Project that statements in the Prospectus were misleading and deceptive in various respects. She also makes other complaints in relation to Cardinal and CIAFM. 4 The circumstances of the joinder of Professor Valentine cause considerable disquiet. Professor Valentine had assisted Ms Lukey and members of the group in the formulation of their claims against the other respondents. The evidence before me indicates that Professor Valentine participated in that assistance on the basis of certain assurances that were given to him, although the fact and nature of the assurances is disputed. For purely pragmatic reasons, namely the prospect that a verdict may not be recoverable if one were entered against certain of the respondents, a different course was taken and Professor Valentine was subsequently joined as a respondent. One of the defences that he raised was based on an estoppel having regard to the conduct of those advising Ms Lukey.

APPROVAL OF SETTLEMENT 5 A settlement has now been proposed between Professor Valentine and the applicant on her own behalf and on behalf of all members of the group. I have evidence before me that each of the 154 persons named in the schedule to the application as being members of the group has accepted an offer of settlement made on behalf of Professor Valentine by letter of 24 October 2003. Essentially, the terms of settlement are that judgment be entered in favour of Professor Valentine dismissing the claims against him and that the parties bear their own costs of the proceeding to date. 6 Section 33V(1) of the Federal Court Act, which is contained in Pt IVA, provides that a representative proceeding may not be settled or discontinued without the approval of the Court. Section 33V(2) provides that, if the Court gives such approval, it may make such orders as are just with respect to the distribution of money paid under a settlement or paid into Court. Section 33V(2) has no application in relation to the proposed settlement since, as I have said, there would be a verdict and judgment for Professor Valentine. 7 In an application for approval under s 33V(1), it is incumbent upon the Court to consider whether the proposed settlement is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement. That entails a consideration of the prospects of success, the likelihood of the group members obtaining judgment for an amount in excess of the settlement and other matters, such as the terms of advice received in relation to the issues and the likely duration and cost of the proceeding if continued to judgment. 8 Professor Valentine had commenced the Sixth Cross-Claim in the proceeding seeking indemnity from insurance underwriters in respect of any liability that he may have to the applicant and members of the group. That cross-claim has been settled on the basis that it be dismissed as against the insurance underwriters with no order as to costs. The applicant's solicitors have been furnished with details of Professor Valentine's financial circumstances that indicate that, if there were judgment against him in the amounts claimed, he would not be in a position to satisfy a judgment debt to any significant extent. 9 The claims against the directors are based on alternative assertions. The first is that, by their conduct, the directors adopted the Prospectus as their own, such that they were liable as principals for the contents of the Prospectus. There are, in my view, significant difficulties with that assertion. 10 The second assertion is that the directors are accessorily liable by reason of the operation of provisions of the Corporations Law. Having regard to the provisions of the Corporations Law, that assertion has some substance, subject to possible defences that may be available to the directors under the provisions of the relevant legislation. Professor Valentine also has available to him the estoppel defence to which I briefly adverted a moment ago. 11 The members of the group have been advised that the prospects of success on the accessorial basis are good. Each member of the group has therefore been advised that he, she or it should obtain independent legal advice as to the prospects of Professor Valentine successfully defending the claims against him by reason of the estoppel defences. I have no information as to the advice that has been furnished to the group members, if any, in relation to that matter. 12 Nevertheless, as I have said, the solicitors for the applicant have received instructions from each member of the group to accept the proposed compromise with Professor Valentine. In all of the circumstances, I consider that it is appropriate to give approval to the settlement which has been put forward and I propose to make orders in accordance with pars 1, 2 and 3 of the notice of motion dated 3 December 2003, filed on 4 December 2003.

FIFTH CROSS-CLAIM 13 By the Fifth Cross-Claim, Cardinal claimed against Mr Kerin and Professor Valentine contribution or indemnity in equity for any liability which Cardinal may be held to have to the applicant. Having regard to the proposed judgment in favour of Professor Valentine on the claim made by the applicant in her representative capacity, Professor Valentine contends that Cardinal cannot now succeed on its cross-claim against him. Cardinal, while not consenting to any dismissal of its cross-claim, did not wish to be heard in opposition to its dismissal. It is certainly arguable that, upon the dismissal of the claim as against Professor Valentine, there would no longer be any co-ordinate liability that could give rise to an equitable right to contribution. In the absence of any contention to the contrary, I consider that it is appropriate to accede to the application made on behalf of Professor Valentine. 14 Accordingly, I propose to order that the Fifth Cross-Claim be dismissed as against Professor Valentine. There being no application for costs in relation to that cross-claim, I propose to make no order as to the costs of the Fifth Cross-Claim as between Cardinal and Professor Valentine.

THIRD CROSS-CLAIM 15 Senior Counsel appearing for Professor Valentine has also made an application to dismiss the Third Cross-Claim, by which Mr Kerin seeks, as against Professor Valentine, contribution or indemnity in equity for any liability which Mr Kerin may be held to have to the applicant. While Mr Kerin is a party to the proceeding, he is not present today, for reasons disclosed in an affidavit relating to his financial position and his state of health. I have no evidence before me as to whether Mr Kerin has an attitude one way or the other to the present application. In the circumstances, I declined to entertain the application for dismissal of the Third Cross-Claim at this stage. However, in the absence of any intimation on behalf of Mr Kerin prior to next Thursday, 10 December 2003 that he wishes to be heard in relation to the application on behalf of Professor Valentine, I propose to order that the Third Cross-Claim be dismissed and to make no order as to the costs of the Third Cross-Claim.

FOURTH CROSS-CLAIM 16 Professor Valentine had also filed the Fourth Cross-Claim against Messrs Kerin and White. The claim for indemnity made in the Fourth Cross-Claim was on the basis that Professor Valentine may be adjudged liable to the applicant. In the light of the proposed entry of judgment for Professor Valentine on the applicant's claim, it is clear that there is no utility in pursuing the Fourth Cross-Claim and that it should be dismissed. Mr White seeks no order as to the costs of the Fourth Cross-Claim and I do not propose to make an order in his favour. Unless Mr Kerin indicates prior to next Thursday, 10 December 2003 that he wishes to be heard in relation to the question of costs of the Fourth Cross-Claim, I do not propose to make any order for the costs of Mr Kerin. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 22 January 2004 Counsel for Ms Lukey: A Leopold

Solicitor for Ms Lukey: Maurice Blackburn Cashman

Counsel for CIAFM: G M White (with leave)

Counsel for Cardinal: T G R Parker with R E Steele

Solicitor for Cardinal: Allens Arthur Robinson

Counsel for Mr Kerin: R B O'Hair (until 21 November 2003)

Solicitor for Mr Kerin: Pappas J Attorney (until 21 November 2003)

Counsel for Mr White: Mr White appeared in person

Counsel for Professor Valentine: D J Fagan SC and G O Blake SC

Solicitor for Professor Valentine: Colin Biggers & Paisley

Counsel for the Insurers: S R Donaldson SC with M T McCulloch

Counsel for Ms Ibrahim: Ms Ibrahim appeared in person

Date of Hearing: 8, 9, 10, 11, 12, 15, 16, 17, 18, 22, 23, 24, 25, 26, 29, 30 September, 1, 2, 3, 20, 21, 22, 23, 24, 28, 29, 30 October, 8 December 2003

Date of Judgment: 8 December 2003

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