Mark Rodney Bissaker & Ors v Simon George Croft & Ors

No appearance for Third and Fourteenth Defendants Solicitors: D Courtenay (Second Defendant) A McIntyre (Cross Defendant) File Number(s): 2012/388528

Judgment 1By Notice of Motion filed on 17 October 2014 the first defendant in these proceedings jointly with the fourth to thirteenth defendants, seeks orders referring the proceedings to mediation. The cross-defendant supports the Motion. The plaintiffs oppose it. A Brief History of the Proceedings 2On 14 December 2012, the plaintiffs Mark Bissaker, Christopher Donnelly and Margaret Donnelly, commenced proceedings against the partners of a firm of chartered accountants trading as Roberts & Morrow ("the partnership"). After a number of amendments to the claim, a final statement of claim was filed on 12 June 2013. There are 14 defendants in total. 3The basis of the plaintiffs' claim is, briefly, that they separately retained the firm Roberts & Morrow to provide accounting and investment advice. The oral retainer implied a number of terms and warranties and created a professional relationship whereby the defendants owed the plaintiffs a duty of care. 4One such advice was to invest in a liqueur business trading as Flaschengeist ("the Flaschengeist business"). It is unnecessary for the purposes of this judgment to set out the allegations regarding the precise terms of the advice, or the exact sequence of events that followed. Suffice to say that, acting on this advice, the plaintiffs assert that they entered into a joint venture with the second and the third defendants to purchase a number of existing stores and acquire exclusive distribution rights of the Flaschengeist products. 5A company, Liqueurs NSW Pty Limited, was established for the purposes of the venture. The plaintiffs contributed specified funds towards the purchase and operating costs of the business, and became shareholders and guarantors for it. They assert that they continued to rely upon the partnership for financial advice with respect to the conduct of the Flaschengeist business. 6Liqueurs NSW Pty Limited was ultimately wound up on 27 July 2014. The plaintiffs did not receive any financial benefit from the venture, but rather suffered losses to the amount of the initial investment, interest on the initial loans, and other significant amounts. As guarantors of the business, they became liable for, and obliged to pay, outstanding business debts. 7The plaintiffs claim that the positive advice to invest in the Flaschengeist business and a series of failures to advise them on crucial aspects of the business venture amount to breaches of fiduciary duty and of a duty of care owed them by the partnership, as well as a misleading, deceptive and unconscionable conduct. 8The claims against the second and third defendants are alternatively pleaded as breaches of the joint venture agreement. 9The plaintiffs are seeking damages pursuant to sections 68, 72(1) and/or 72(2) of the Fair Trading Act 1987 (NSW); s.99, 100(1) and/or s.100(2) of the Fair Trading Act 1989 (QLD); s.12GF and/or s.12GM of the Australian Securities and Investments Commissions Act 2001(Cth); and/or s.1041I and/or s.1325 of the Corporations Act 12001 (Cth). Alternative relief sought is in the form of equitable compensation. The plaintiffs also seek compound interest, or interest under s.100 Civil Procedure Act 2005 (NSW), and costs. 10In support of the Statement of Claim, the plaintiffs have filed lay evidence in the form of affidavits and documentary material, and an expert report of Mr Peter Blythe. 11The defendants dispute much of that which the plaintiffs advance in support of the claim. 12The first and fourth to thirteenth defendants ("the partnership defendants"), they being the defendants moving the Motion presently before the Court, agree that the partnership was engaged by the plaintiffs at various times, but deny that the partnership provided any advice to the plaintiffs with respect to the Flaschengeist business. Rather, they claim that the second defendant, Keith Charles Saunders, a party to the joint venture, insofar as he engaged in various discussions with the plaintiffs regarding the business, was not acting in his capacity as a partner of Roberts & Morrow, and was not its representative. The partnership denies the existence, and therefore the breaches, of any fiduciary duty or duty of care with respect to the Flaschengeist business. 13In the event the court finds against them, the partnership defendants claim contributory negligence and proportional liability by the plaintiffs. 14The partnership defendants filed a cross-claim against QBE insurance (the cross-defendant), the particulars of which are disputed. The History of the Proceedings in Brief 15The matter has now been before this Court for almost two years. Despite the passage of that not insignificant period of time, it is not yet ready to list for hearing. In that almost two year period, the matter has been before the court on no less than eighteen occasions. A number of motions have been determined and a number of directions and orders made by the Registrar, including orders for the defendants to file expert evidence, which the plaintiffs claim they have failed to do. 16Doubtless the parties have already been put to considerable expenditure, and there are a number of affidavits before the court outlining the costs incurred by the parties in the course of this litigation to date, together with estimates of the anticipated costs likely to be incurred in the course of future litigation. The amounts involved are substantial. 17At least in part because of the mounting costs of the litigation, the defendants have moved the Motion now before the Court, seeking to have the matter referred for mediation. The Present Notice of Motion 18As noted this Motion was filed on 17 October 2014 by the first and fourth to thirteenth defendants, and is supported by the other defendants and cross defendant. The defendants contend that the dispute should be referred to mediation at this stage of the proceedings in an effort to settle the plaintiffs' claim without further expense. The defendants assert that there is no utility in them being put to the considerable costs of putting on expert evidence to meet and address the expert evidence relied upon by the plaintiffs, in circumstances where there is no agreement as to the factual scenario underpinning the plaintiffs' claim. The defendants assert that there must be at least a reasonable prospect of mediation in the hands of a skilled mediator bearing fruit, to the advantage of all. 19The plaintiffs contend that mediation at this point is premature and unlikely to be successful until such time as the defendants have filed their expert evidence, in compliance with earlier orders. They submit that without the defendants' expert evidence mediation would be futile, and the costs to the parties would be needlessly increased. Indeed, the plaintiffs assert that none of the defendants have a defence to the claim, and are deliberately seeking to draw out the proceedings, thereby imposing such a cost burden on the plaintiffs as to cause them to abandon their action. Consideration 20It is not possible or, indeed, desirable for the Court, in determining this Motion, to come to any definitive conclusions about the merits or otherwise of the plaintiffs' claim or, conversely, the respective defences insofar as those defences are presently known. 21What does seem clear is that the plaintiffs have a firm belief in the likelihood of the success of litigation, with that belief founded upon the expert evidence obtained by them in support of their claim. 22The plaintiffs retained Mr. Peter Blyth, a Chartered Accountant, to provide a report as to matters raised by their claim against the defendants. Mr. Blythe's report of January 2013 is adverse to the defendants and, if the facts assumed in the report are capable of proof, it provides cogent evidence in support of the plaintiffs' case. With the benefit of that report, the plaintiff's argue that, in the absence of any evidence adduced by the defendants which is capable of addressing and rebutting Mr. Blythe's opinions and conclusions, their claim appears incontrovertible and mediation would be pointless. 23That view appears, however, to overlook the significant factual disputes which plainly exist between the parties, and of which Mr. Blythe was either unaware or did not acknowledge. 24Although ordered to do so by the Registrar on 25 June 2014, and again on 3 September 2014, the plaintiffs allege that the defendants have not filed and served expert evidence upon which they propose to rely. Whilst there is a large volume of lay evidence and some expert evidence which has been filed and served on behalf of some defendants, no defendant has filed and served evidence which is capable of directly addressing the evidence of Mr. Blythe. 25As I understand the contention of the defendants, expert forensic accounting opinion has not been filed and served to date because of the impossibility of any expert providing an opinion based upon facts which are agreed between the parties. Because of the dispute between the parties as to the underlying facts of this case, it is suggested by the defendants that expert evidence of the nature relied upon by the plaintiffs is incapable of furthering the matter. 26In submission to the Court the cross-defendant characterised the expert accounting evidence as being "like ships in the night", which pass each other and never meet. The other defendants adopted that characterisation. The plaintiffs by contrast insist that mediation is pointless until such time as the defendants obtain and file any expert accounting evidence, with such evidence essential to the resolution of the matter. 27On the documentary evidence currently available to the Court it is plain that there is a very significant factual dispute as to matters fundamental to the plaintiff's claim. Resolution of that dispute probably largely dictates the outcome of these proceedings. 28The plaintiff's assert the factual basis of their claim to be the retainer by them of Roberts & Morrow to advise them including as to their investment in the Flaschengeist business. The defendants assert that there was no such retainer, and thus no duty of care or fiduciary duty owed by the firm to the plaintiffs. 29The report provided by Mr. Blythe and relied upon by the plaintiffs in support of their claim makes a number of assumptions of fact, all of which favour the plaintiffs. The defendants deny the veracity and accuracy of the facts assumed to be correct by Mr. Blythe. There is no guarantee at all that any Court in determining the matter at trial will conclude that the facts are as the plaintiffs assert them to be. 30An example which may be illustrative of the fundamental nature of the factual dispute concerns the basis upon which the plaintiffs provided the sum of five thousand dollars to the second defendant on or about 15 March 2007. In his affidavit of 17 September 2012 the plaintiff, Christopher Peter Donnelly, deposes that the money was paid to Mr. Saunders as payment of a professional fee for due diligence inquiries undertaken by the defendants in relation to the proposed investment in the Flaschengeist business. The defendants dispute that, contending instead that the monies were paid by the plaintiff as his share of the deposit paid towards the purchase of the business. 31Other than the recollection of Mr. Donnelly, the evidence in support of his assertion consists largely of the butt of the cheque for five thousand dollars that was written on 15 March 2007. The cheque butt, which appears to have been lost for some considerable period of time, but then found by the plaintiffs, reads "Professional Fees Due Diligence". The defendants, who have engaged the services of an appropriate forensic expert to examine the document, contend that the description on the cheque butt has been falsified, and originally read "Flaschengeist deposit". The defendants assert that the contemporaneous financial records maintained by the plaintiffs point to the falsification of the document, in that accounting records note that the cheque was issued for "Flaschengeist deposit". The defendants rely upon some other evidence which they suggest is supportive of their position in this regard. 32If the cheque butt has in fact been falsified, that is likely to be (adversely) determinative of the plaintiff's claim. If it is a genuine record, the case against the defendants takes on a stronger character. 33Although the Court cannot determine that question at this stage, what is significant about it is the starkly opposed positions of the parties concerning this critical piece of evidence, and the fact that Mr. Blythe has prepared his report and formed his opinion on the basis that the evidence is uncontrovertibly as the plaintiffs assert it to be. 34Although the plaintiffs complain that they are disadvantaged in being required to attend mediation in the absence of any corresponding evidence from an expert retained by the defendants, one wonders at the utility of a report from an expert with the same or similar qualifications and expertise as Mr. Blythe, but who formulates his or her opinion on the basis of factual material completely at odds with that made available to the plaintiffs' expert. 35It is difficult to see how the matter can be advanced without some resolution of the facts which found the plaintiffs' claim. 36The Court's power to direct the parties to attend mediation is found in s.26(1) of the Civil Procedure Act 2005. The power is very wide, and the opposition of one or even all parties to litigation to a referral to mediation is no bar to its exercise: Idoport Pty Limited v National Australia Bank Limited [2001] NSWSC 427; Higgins v Higgins [2002] NSWSC 455; Oasis Fund Management v ABN Amro [2009] NSWSC 967. 37The consent of the parties to referral to mediation is not necessary. The only precondition for the exercise of the power bestowed on the Court by s.26(1) is that the Court "considers the circumstances appropriate" to refer the proceedings or any part thereof to mediation. 38The Court must have regard to the plaintiffs' opposition to the course sought by the defendants, but that opposition seems to me to be based at least in part in the confidence in their case which Mr. Blythe's report has instilled. Although the merits of the case may be undetermined, it is clear to the Court that the present value of Mr. Blythe's opinion is at a level which corresponds more or less precisely to the reliability of the evidence of the facts of the dispute. That evidence is untested, but I observe that there is documentary material which appears to contradict one of the most fundamental of the plaintiffs' assertions, that the cheque drawn in the sum of five thousand dollars was for professional fees payable to the defendants. 39I do not agree with the plaintiffs' contention that it is not possible to conduct meaningful mediation in the absence of the expert forensic evidence upon which the defendants may ultimately seek to rely. At this stage, any such evidence can only reflect the defendants' assertions as to fact, as Mr. Blythe's evidence reflects the factual assertions of the plaintiffs. It can do nothing to advance a settlement of the matter. 40Despite the apparent conviction of the plaintiffs that they have right on their side, the real possibility that the matter can be settled through skilled mediation cannot be excluded. Given the uncertainty attaching to the factual basis of the plaintiffs' claim, the parties may be brought to see that no particular outcome can be said to be certain where a cause of action is disputed and must be determined by a court. The facts may be held by a court to be as the plaintiffs assert they are, but equally, they may not. 41Prolonged litigation is costly to all concerned, both financially and personally. It is to be avoided if at all possible, as is contemplated by s.56(1) of the Civil Procedure Act 2005. 42Here, I consider there to be sufficient evidence available to the parties without further expert forensic evidence for them to make a realistic assessment of their respective prospects. If conducted with good faith, as is required of the parties by s.56, there must be at least a reasonable prospect that mediation will resolve what will otherwise be protracted and costly litigation. If mediation is in fact successful, the benefit to the plaintiffs and the defendants is very significant indeed. The possibility of such an outcome is not lightly to be set aside. 43Having had regard to the evidence before the Court, and taking into account the positions and submissions of the parties, I consider it appropriate in all of the circumstances to refer the proceedings to a mediator. I propose to grant the Notice of Motion. Orders 44The orders the Court makes are these: (1)Paragraph 2 of the orders made by the Registrar on 3 September 2014 are vacated. (2)Pursuant to s.26(1) of the Civil Procedure Act 2005 the proceedings are referred for mediation, such mediation to take place before 13 February 2015. (3)If the parties are unable to agree on a mediator prior to the close of business on 1 December 2014, the Joint Protocol set out in Practice Note SC Gen 6 will apply and the mediator will be the individual appointed under the Joint Protocol. (4)Each party is to be represented at mediation by a person empowered to settle the matter. (5)Pursuant to s.28(a) of the Civil Procedure Act 2005 one third of the costs of the mediation are to be paid by the plaintiffs, one third by the defendants, and one third by the cross-defendant. (6)The costs of the Notice of Motion are to be costs in the proceedings. (7)The matter is to be listed before the Registrar for a directions hearing on 20 February 2015. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 November 2014