McIntyre v Southern Cross Equities Ltd [2011] FCA 455 | Case summary

SCHEDULE B 1 All of the categories of documents requested by the respondent which are in its possession custody or control. 2 All contractual documents, portfolio summaries, statements of account, correspondence, communications and records of communications passing between SCE and the McIntyres (but excluding contract notes, research reports and other documents recording or evidencing the buying and selling of shares or any recommendation in relation to the buying and selling of shares) relating to SCE acting as stockbroker of the McIntyres between October 2002 and April 2008. 3 [Not used.] 4 All documents recording the telephone conversations referred to in paragraphs 5 and 6 of the statement of claim and defence and any tapes of such conversations. 5 All documents recording the inquiries made by SCE of Opes Prime as to the facilities it may or would be prepared to provide to SCE's clients and/or the McIntyres. 6 All documents recording communications or presentations made in the period 1 October 2002 to 27 March 2008 to or by Opes Prime to or by SCE in relation to the facilities Opes Prime may or would be prepared to provide to SCE's clients including the McIntyres. 7 All documents recording commissions or fees payable by Opes Prime to SCE or Keogh in relation to any Opes Prime facility between 2005 and 2008. 8 All documents relating to the facilitation by SCE of its clients to be introduced to or to take up an Opes Prime facility between 2005 and 2008 including all Opes Prime brochures, application forms and/or agreements provided by Opes Prime to SCE for the purposes of the McIntyres or any other client of SCE taking up an Opes Prime facility, together with any communications relating thereto. 9 [Not used.] 10 [Not used.] 11 All documents relating to the facilities offered by Tricom in the period 1 October 2002 to 27 March 2008. 12 All documents relating to the request by the McIntyres referred to in the particulars to paragraph 10(e) of the defence, including the request itself and any response by SCE and/or by Opes Prime 13 All documents relating to any assessment by SCE or by any third party as to the financial position, creditworthiness, or financial arrangements of Opes Prime between October 2002 and April 2008 14 [Not used.] 15 All communications between SCE and Opes Prime relating to the collapse of Opes Prime 16 All communications between SCE and the McIntyres relating to the collapse of Opes Prime 17 Not granted 18 Any sharelending agreement or documents recording any sharelending arrangement entered into by SCE with any person in the period from 2000 to 2008.

REASONS FOR JUDGMENT 1 The applicant's claim against the respondent as appears from his application is for damages based upon three causes of action: (1) for misleading and deceptive conduct, contrary to s 1041I of the Corporations Act 2001 (Cth), and s 12GF of the Australian Securities & Investment Commission Act 2001 (Cth); (2) for breach of contract; and (3) for negligent advice. 2 I shall refer to the applicant in the singular, for convenience, even though the claim is made by the applicant on behalf of himself, and the estate of his late wife. 3 The application was supported by a statement of claim. The statement of claim has been the subject of quite extensive communication between solicitors and counsel for the parties, because the respondent has complained that the statement of claim is deficient in some significant respects. The parties are to be commended for their efforts to address the concerns of the respondent to date. The point has been reached, however, where the applicant is no longer prepared to make further amendments to the statement of claim, but the respondent continues to assert that it is deficient in significant respects. 4 Hence, the present application by the respondent, by motion of 31 March 2011. It is desirable to resolve the motion promptly, because the matter has been listed for hearing commencing on 29 August 2011. 5 By the motion, the respondent has applied for an order that the amended statement of claim be struck out, and that the applicant be required to file and serve a further amended statement of claim, which meets the respondents concerns, as identified in correspondence, and now in submissions. It is agreed that the proposed further amended statement of claim, which is part of exhibit MT-3 to the affidavit of Michael Tandora, affirmed on 31 March 2011, is the version of the statement of claim which is to be considered on this application (the proposed further amended statement of claim). That is a sensible course to adopt. The consequence will be that if the respondent succeeds on its motion, the present amended statement of claim will be struck out, and the applicant will be given leave, within a specified time, to file and serve a further amended statement of claim which accommodates the rulings of the Court in relation to the matters now in issue. On the other hand, if the applicant succeeds in sustaining the proposed amended statement of claim as a sufficient pleading, the applicant will be given leave to file and serve that document as its further amended statement of claim. 6 There is no dispute about the relevant principles, having regard to O 11 of the Federal Court Rules. They are discussed at length by Weinberg J in McKellar v the Container Terminal Management Services Ltd (1999) 165 ALR 409; [1999] FCA 1101 at [20]-[33]. I shall not repeat them. 7 Pleadings, like all Court processes, are intended to ensure a fair and efficient trial of the issues between the parties. One critical element of pleadings, therefore, is to ensure that the other side knows the case which is being advanced, and what it has to meet. That element has been the focus of the present submissions. It is accepted on both sides that it is appropriate that the Court, in ruling on the issues between the parties as to the adequacy or otherwise of the proposed amended statement of claim, should look to substance over form, and that substantial compliance with the Rules as to pleading should be regarded as sufficient compliance, provided of course in this instance that the respondent knows the case it has to meet, so that it gets a fair trial. 8 As discerned from the original statement of claim, and the defence, much of the primary factual material is not in dispute. 9 It is alleged, and admitted, that between October 2002 and April 2008, the applicant retained the respondent to be its stockbroker, and that the respondent owed a duty to the applicant to exercise reasonable care and skill in the services it provided as a stockbroker. It is also pleaded, and admitted, that the applicant asked Mr Keogh of the respondent, in about April 2005, if he could assist in obtaining a lending facility for use in the share trading undertaken by the applicant through the respondent. It is also alleged, and accepted, that Mr Keogh, on behalf of the respondent, informed the applicant of the availability of a lending facility with or through Opes Prime (OP), and arranged for the OP paperwork to be sent to the applicant to open an OP account. It is also alleged and admitted that OP duly sent some papers to the applicant, which in April 2005 the applicant signed, and thereby entered into what has been called in the pleading the OP facility. It is further admitted that thereafter the applicant continued to use the respondent as his stockbroker, and that he purchased shares through the respondent, in part using funds advanced under the OP facility. Finally, it appears to be accepted by the respondent that it did not give any advice to the applicant about the nature of the OP facility, or the risks associated with it. 10 The issues in the case in my view are properly identified by senior counsel for the applicant in the written submission. They are broadly as follows: (a) whether the respondent was under a duty to advise the applicant as to the true nature of, and risks associated with, the OP facility, in the circumstances in which the OP facility came about and was conducted, and if so, whether that duty was breached; (b) arising from the defence, whether there was in fact any other type of finance facility, which would have been available to the applicant as a lending facility in connection with his particular share trading operations; (c) whether the respondent was guilty of misleading and deceptive conduct, in its dealing with the applicant, arising from the circumstances in which the applicant came to enter into the arrangement with OP, and thereafter, in conducting its dealings with OP; (d) whether the applicant has suffered any, and if so, what loss and damage as a result; (e) if the applicant has suffered any loss and damage, whether the liability of the respondent should be reduced for contributory negligence on the part of the applicant, or by proportionate liability on the part of OP. 11 It is within that context that the respondent now says that it has serious difficulties in identifying the real issues to be determined at trial, so that it cannot decide what evidence might be required in defence of the claim, or the scope of the expert advice or other evidence to be procured in preparation for the trial. 12 The parties focused their submissions about individual paragraphs of the proposed further amended statement of claim for the purposes of their submissions. I shall adopt that course. 13 Before turning to them, it is helpful to note the applicant's general allegations about the matters in dispute, which emerge from the proposed further amended statement of claim. 14 It is pleaded that, in the course of trading in shares through the respondent, between 2002 and 2008 the share portfolio of the applicant increased very significantly, and that, to a substantial degree in and after 2005, that additional share trading was financed through the OP facility. It is also pleaded, that OP, as part of the OP corporate empire, collapsed in early 2008, and that the applicant then discovered that the arrangement which he had entered into with OP involved not simply what the applicant describes in the pleading as a marginal lending facility, but as a facility under which the applicant transferred all his shares to OP, and any new shares which he "acquired" were in fact acquired in the name of OP. This meant that on OP's collapse, the applicant did not have any title to the shares which he believed had at all material times remained in his name. 15 He asserts that the agreement with OP was (what is called in the pleading) a share lending facility, under which the shares in his existing portfolio, were transferred to OP, leaving him simply as an unsecured creditor of OP, and exposing him to the risk of OP using his (and others) share portfolios as security for OP's own debts. He claims that such a share lending facility involved a high level of risk to himself and others, which would not have been present if a more conventional lending facility had been entered into, such as a margin lending facility. He describes a margin lending facility as one under which a finance company advances funds to a share trader for the purposes of share trading, but so that the level of the advance should not exceed a specified percentage of the current value of the shares held by the share trader from time to time. In the event of the margin being exceeded, the lender is entitled to require the share trader to maintain the margin between share value and lending level at material times by putting in further funds and otherwise entitling the lender to sell such of the shares as necessary to bring the margin back to the agreed margin level. Under such a facility, it is alleged that the share trader retains ownership of the share portfolio. 16 As noted above, one issue in the proceeding is whether a margin lending facility (as so defined) was available to the applicant, having regard to the nature of his share trading. 17 To address the particular pleading concerns, it is not necessary to refer to the details of what happened to the applicant following the collapse of OP. 18 The first particular concern of the respondent concerns paragraph 3 of the proposed further amended statement of claim. In essence, it is asserted that there is a disconnect between the allegations in paragraphs 3(a) and (b) in respect of the respondent's duties or responsibilities as a stockbroker, and the conduct which is alleged to constitute breach of the relevant duties. It is further claimed that paragraphs 3(c) and (d) of the proposed further amended statement of claim also do not involve properly articulate allegations of breaches of duties tied to the events which are subsequently pleaded. 19 In my view, the connection between the pleaded duties and the pleaded events is an arguable proposition as advanced by senior counsel for the applicant. The applicant argued that the factual foundation which gives rise to such duties and their breach, as pleaded, is from the terms of the retainer. There is an arguable basis for that contention so the pleading should not be struck out. To avoid any misunderstanding about that, the applicant is prepared to add, at the end of paragraph 3 of the proposed further amended statement of claim, after the particulars which there appear, words to the following effect: And alternatively, by reason of the matters alleged in paragraphs 5 and 6 hereof, subparagraphs (c) and (d) became an express, or alternatively, an implied term of the retainer. 20 I propose to direct that addition to the proposed further amended statement of claim. It makes the alternative position clearer. The direction is on the understanding that the applicant's contentions are that it is not necessary. In doing that, I do not need finally to decide whether the respondent's particular complaints about paragraph 3, in its existing form, are warranted. In any event, on a pleadings motion, it is not always appropriate to finally decide what may be finely balanced legal issues. So long as the respondent knows the case it has to meet, it may be better to allow the evidence to unfold. In this instance, that would not prolong the trial. 21 The second complaint of the respondent concerned the use of the term "financial product" in paragraph 4(b) of the proposed further amended statement of claim. It asserted that it is a term pregnant with meaning, the detail of which is not clarified by the pleading, and which may cause it some concern. In my view, the term "financial product" as used in paragraph 4(b) of the proposed further amended statement of claim is simply a generic term, and does not have any more sophisticated meaning than its conventional day to day meaning. I do not see that there is any defect in the statement of claim in that respect. 22 The next concern of the respondent arose from the term of pleading in paragraph 5 of the proposed further amended statement of claim. It was argued that it remains unclear what was precisely said between the applicant and Mr Keogh, in about April 2005 when the question of whether, or how, the applicant might secure some finance to leverage his share trading when that topic, was discussed between them. In my view, the pleading sufficiently identifies the nature of the discussion, to enable the respondent to prepare its defence, and to respond to the case. In any event, the Court has made directions for the exchange of witness statements. Under those directions, the witness statements on the part of the applicant were to have been filed and served by 29 April 2011. That has not occurred. It may be that it has not occurred because of some uncertainty in how the matter will proceed in light of the present notice of motion. Counsel for the applicant has assured the Court that those witness statements will be filed and served by the end of this week. In those circumstances, consistent with the direction which has been given, the applicant will convey to the respondent the substance of those conversations, sufficiently for the respondent to be able to prepare its case on those matters. 23 The next complaint of the respondent, concerned paragraphs 6 and 7 of the proposed further amended statement of claim. Paragraph 7 concerns the allegation of reliance by the applicant upon the introduction of the OP facility to him, by the respondent, and/or the giving of the OP advice (as defined in paragraph 6 of the proposed amended statement of claim) leading to the entering into the OP facility. There are particular matters concerning breach of the duty, more specifically spelled out in paragraph 10 of the further amended statement of claim, which in a way are tied to these allegations. 24 I have regard to what I propose to determine in relation to the complaints about paragraph 10, and also to what is now explicitly clear through submissions, if it was not already clear, that the primary circumstances, giving rise to the breach of the retainer are those which occurred between Mr Keogh and the applicant in April 2005, and then subsequently in the dealings between the applicant and the respondent involving the use of the OP facility. In that light, I do not think the question of reliance is unclear. I propose to allow the existing paragraphs 6 and 7 of the proposed further amended statement of claim to stand. 25 Paragraph 10 of the proposed further amended statement of claim, deals with the breach of the retainer. There were three aspects to it, which were the subject of submissions: firstly, the generality of the allegations of breach in paragraphs (a), (b), (c) and (d) of paragraph 10, and secondly concerns, in particular about subclauses (8) and (10) of the particulars of those alleged breaches; and thirdly particulars (viii) and (x) of the particulars of those breaches. 26 In my view, paragraphs 10(a) to (d) are sufficiently clear to enable the respondent to know the case it has to meet. To the extent to which 10(a) and (b) are tied to paragraphs 3(a) and (b) of the proposed further amended statement of claim, they stand or fall with those subparagraphs of paragraph 3, and I have allowed paragraphs 3(a) and (b) to stand in the light of the submissions made. In any event, paragraphs 10(a) and (b), as well as paragraphs 10(c) and (d) can be tied to the allegations now in paragraphs 3(c) and (d), which more specifically relate to the circumstances in which the communications took place in April 2005. In respect of paragraphs 3(d) and 10(d), and to the circumstances in which occurred after April 2005, the respondent is alleged to have been aware of, and therefore to have been responsible to the applicant in respect of the applicants continued use of the OP facility. In my view, that is sufficiently clear to enable the respondent to know the case it has to meet, and to prepare for and to conduct the trial. 27 I turn to the particulars (viii) and (x) of the particulars to paragraph 10 of the proposed further amended statement of claim. Insofar as particular (viii) is concerned, in my view that sufficiently puts the respondent on notice as to the case it has to meet. So too, in my view, does subparagraph (x). They both relate to the asserted ongoing obligation on the part of the respondent to have monitored, in some way, the applicant's exposure to the OP facility, and an awareness on the part of the respondent as to the nature of the OP facility. Whether that existed as a matter of fact is a matter to be determined in the light of the whole of the evidence. At present it is clear enough what the applicant alleges. Moreover, for the reasons which I have already mentioned, the respondent will, within the next few days, know in detail the nature of the evidence which the applicant proposes to rely upon to make out those claims by the applicant filing and serving witness statements. The respondent thus will be in a position to respond to them. Of course, I have no view as to whether the applicant will succeed, either in its claim generally, or with respect to whether the respondent in fact had an ongoing obligation, arising from the terms of the retainer, to do something in relation to the applicants continued use of the OP facility, either from 2002 or specifically, from late 2007 in the light of the circumstances to which reference is made in subparagraph (vi) of paragraph 11 of the proposed further amended statement of claim. 28 The next concern of the respondent related to paragraph 11, and consequently paragraph 18 of the proposed further amended statement of claim. In particular, it is said that the applicant has failed to plead which margin lending facility he would have entered into, and it is also contended that there is no reason why the applicant should not identify in the proposed further amended statement of claim who was the available margin lender. In my view those topics are a matter of evidence. In any event those matters will be identified by the applicant's witness statements within the next few days. 29 There is a challenge to parts of paragraph 17. Paragraph 17(ii) is accepted as flowing from an earlier version of the statement of claim, and the applicant no longer presses it. It is not necessary to deal with it. It will not be allowed. Paragraph 17(iv), about which complaint is made, is in my view sufficiently clear to put the respondent on notice as the case which it has to meet. 30 Finally I turn to the complaints about paragraphs 21 to 23 of the proposed further statement of claim. The applicant no longer presses paragraph 22(i) of the proposed further amended statement of claim, and I will order that it be deleted. In other respects, in my view, the complaints made by the respondent do not persuade me that the proposed further amended statement of claim does not adequately disclose to it the nature of the case it has to meet for it to be able to prepare for the hearing and to respond at the hearing. 31 In light of those rulings, it is my view that subject to the four matters mentioned, the proposed further amended statement of claim should be allowed to stand, or more accurately, should be allowed to be substituted as the Further Amended Statement of Claim. The four matters are firstly, the addition of the words at the end of paragraph 3, to which I have referred in paragraph [19] above. Secondly, as a change initiated by me, the removal of the word "particulars" in paragraph 6. That is simply because a point was made, and understandably so, that the rules of pleading do not require the respondent to plead in response to particulars in a statement of claim, and that the particulars do not strictly speaking constitute part of the pleading of material facts. By removing the word particulars, the respondent need not embark upon an analysis of whether that which is pleaded, is properly particulars or properly material facts. By this amendment, the answer to that question is put beyond doubt. Thirdly, paragraph 17(ii) will be deleted. And fourthly, paragraph 22(i) will be deleted. 32 Subject to those alterations, and any purely typographical alterations, which are necessary, I will give leave to the applicant to file and serve by 10 May 2011 a Further Amended Statement of Claim in terms of the document described in these reasons as the proposed further amended statement of claim. 33 I will hear the parties as to the costs of the notice of motion. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

McIntyre v Southern Cross Equities Ltd

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