Meaden v Bell Potter Securities Limited

REASONS FOR JUDGMENT 1 The applicant seeks leave to appeal from an order made by a judge of the Court that proceeding NSD 1310 of 2010 no longer continue under Part IVA of the Federal Court of Australia Act 1976 (Cth) (the Act) as a representative proceeding (see Meaden v Bell Potter Securities Limited (No 2) [2012] FCA 418). That proceeding was brought by the applicant, Ms Jillian Meaden, as a representative applicant pursuant to Part IVA of the Act. In the proceeding it is alleged that the respondent, Bell Potter Securities Limited (Bell Potter), engaged in contraventions of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the Corporations Act 2001 (Cth) (the Corporations Act), and that it breached fiduciary obligations in connection with broking activities concerning the acquisition by Ms Meaden, and other members of the class, of shares in Progen Pharmaceuticals Limited (Progen). 2 On the application of Bell Potter, the primary judge made an order under s 33N of the Act. Section 33N relevantly provides that the Court may, on application by the respondent in a proceeding, order that the proceeding no longer continue under Part IVA, where the Court is satisfied that it is in the interests of justice to do so because the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members, or because it is otherwise inappropriate that the claims be pursued by means of a representative proceeding. 3 The primary judge analysed in some detail the statement of claim filed in the proceeding. First, it is alleged that, by certain "financial product trading account" agreements made with each class member (claimant), Bell Potter agreed to supply financial services to each claimant. While it is alleged that each claimant was a consumer within the meaning of the ASIC Act and a retail client within the meaning of the Corporations Act, it now appears that those allegations could not succeed in relation to all of the members of the proposed class. The statement of claim then alleges that Bell Potter, by entering into those agreements, and by offering to provide, and in fact providing, investment advice, undertook to make recommendations to the claimants regarding investments in shares and to act in the interests of the claimants in acquiring shares in the name of the claimants. It is said that in doing so, Bell Potter owed fiduciary obligations to the claimants. 4 There is then an allegation that Bell Potter stated to each of the claimants that it had valued shares in Progen at a value significantly higher than the price at which the shares were then trading, that Bell Potter had prepared each valuation using a particular valuation model, and that Bell Potter recommended that each claimant buy shares in Progen. Those statements were alleged to have been made partly orally and partly in writing, although it now appears that that assertion relates to some only of the claimants. Those statements are alleged to constitute representations and recommendations, in reliance upon which claimants acquired shares in Progen. Those statements are also said to give rise to further implied representations, on which it is alleged that claimants relied. There is also an allegation of a failure on the part of Bell Potter to disclose to the claimants that there was a material prospect that it would act as an underwriter or co-underwriter for a capital raising proposed to be undertaken by Progen, and an allegation that Bell Potter failed to disclose that it had an interest in the trading price of Progen remaining above a specified price, and interest in the demand for Progen being as high as possible. 5 The statement of claim alleges that the relevant representations were likely to cause the claimants to place orders to buy Progen shares at prices higher than the contemporaneous trading prices of Progen shares. The statement of claim alleges that, by making the representations and placing orders to buy Progen shares on its own behalf and on behalf of clients, Bell Potter carried out transactions that were likely to have the effect of creating or maintaining an artificial price for trading in the shares, being a financial product in a financial market within the meaning of s 764A of the Corporations Act. There are then allegations that the various representations, both express and implied, were misleading and deceptive, in contravention of s 12DA of the ASIC Act and s 1041H of the Corporations Act. Ultimately, there is an allegation that loss and damage were suffered by the members of the class by reason of the conduct which I have briefly described. 6 The general complaint made by Bell Potter against the proceeding continuing as a representative proceeding is that Ms Meaden, because of her particular circumstances, is not an appropriate lead party. Ms Meaden is alleged to have relied upon oral representations made to her husband by her son, who was employed by Bell Potter. Bell Potter submitted to the primary judge that trial of the question of representations made in those circumstances would be incapable of resolving factual matters as to whether different oral representations were made to other claimants, as alleged by those other claimants. The primary judge noted that there were eight Bell Potter representatives who were alleged to have made representations, and that there were 33 individuals, apart from Ms Meaden, who were alleged to have received oral representations. His Honour considered that it was plain that the oral aspects of the representations did not have a high degree of commonality. 7 The written representations are said to have been made by 10 company updates circulated by Bell Potter over the period from 13 December 2006 to 23 August 2007. Whether particular representations were made may depend upon which of those reports had been received and read at any relevant time by any relevant claimant. Ms Meaden submitted to the primary judge that each claimant received the written version of the representations and recommendations impugned in the proceeding, such that there was a degree of commonality, even though there was some variation between the 10 company updates, and even though some claimants additionally received oral representations. The primary judge considered that submissions along those lines elided the difficulties arising out of the number of updates alleged to contain written representations, and the temporal period over which the updates were issued. In any event, his Honour observed, only the first of the company updates could have been received by Ms Meaden prior to her acquisition of Progen shares. 8 The primary judge considered that the fundamental problem with the proceeding continuing under Part IVA was that it was impossible to see how the trial of an action based on evidence from and concerning only Ms Meaden would determine any issue of sufficient significance to render it a process that had any real utility. His Honour considered that there was such a lack of commonality that any determination of Ms Meaden's claim would offer no real guide as to how the balance of the claims made by the claimants would be determined, were they to proceed to be determined individually. His Honour observed that there are 282 separate alleged share transactions for all claimants, which may fall to 268 after claimants not falling within the relevant definition are excluded. 9 Against those findings and conclusions, the primary judge determined that the proceeding would not provide an efficient and effective means of dealing with the claims of the claimants and that it would be inappropriate for those claims to be pursued by means of a representative proceeding under Part IVA. 10 In her proposed notice of appeal, which she would file if leave to appeal were granted, Ms Meaden raises eight grounds. The first two simply assert that the primary judge erred in the conclusion that he reached. The third ground is that his Honour erred in holding that there was not true commonality of issues. The fourth ground is that his Honour erred in holding that the fact that Mrs Meaden only received the first company update did not provide a representative context. Grounds 5 to 8 are then concerned with an allegation that his Honour failed to take into account or adequately take into account the matters pleaded in paragraphs 43(a) and (b) of the statement of claim concerning damage. Paragraph 43(a) is, in effect, an assertion that alleged contraventions by Bell Potter of s 1041H of the Corporations Act, by reason of alleged market manipulation, were a cause of each of the claimants acquiring shares in Progen and retaining shares already acquired in Progen. Paragraph 43(b), in effect, asserts that the contraventions of s 12DA of the ASIC Act and s 1041H of the Corporations Act, done by engaging in misleading or deceptive conduct, were also a cause of each claimant acquiring shares in Progen or retaining shares in Progen already acquired. 11 The draft notice of appeal asserts that his Honour ought to have considered that there were such issues of commonality as to Ms Meaden and each claimant, involving common issues as to the making of the several representations over a considerable period of time, that representative proceedings were the best mechanism for providing an efficient and effective means of dealing with the claims of group members. Similarly, it asserts that the primary judge should have considered that there were issues of commonality, such that it was not otherwise inappropriate that the claims continue to be pursued by means of a representative proceeding. Ground 8 asserts that his Honour ought to have considered that each of the matters pleaded in paragraphs 43(a) and (b) were such that the provisions of s 33N of the Act were not satisfied. That ground is in the same category as grounds 1 and 2, in simply stating that there was a failure to satisfy the relevant provisions of the Act. 12 It is common ground that, before Ms Meaden could succeed in obtaining a grant of leave to appeal, it is necessary for her to demonstrate that the primary judge's decision is attended with sufficient doubt to warrant its being reconsidered by a Full Court. There is some question as to whether, and to what extent, Ms Meaden must also establish that she, and perhaps other claimants, will suffer substantial injustice if leave to appeal is not granted. The injustice pointed to is the fact that some members of the class, if required to pursue their claims on an individual basis, will be unable to obtain funding from the present litigation funder, and, accordingly, they may be deprived of the protection against exposure to a costs order that would be afforded by a continuation of the proceeding as a representative proceeding. 13 That does not seem to me to constitute the insubstantial injustice that is contemplated in considering an application for leave to appeal. None of the members of the class will be deprived of the opportunity of pursuing a claim against Bell Potter by the order made by the primary judge. Of course, there is entailed in the conclusion reached by the primary judge a consideration of the justice of the matter proceeding as a representative proceeding as against the inappropriateness of the matter proceeding in that way. This is a relatively complex proceeding. It has been managed by the primary judge since its commencement in 2010. 14 It appears to be common ground that the pleading in its present form cannot stand, insofar as particulars have been furnished that are inconsistent with the precise pleading. Clearly, amendments will have to be made to the pleading. 15 I am not persuaded that the primary judge made any error in the assessment that he made as to whether or not a representative proceeding will provide an efficient and effective means of dealing with the claims of all of the claimants. Nor am I persuaded that his Honour made any error in his assessment of whether it was otherwise inappropriate that the claims be pursued by means of a representative proceeding. In any event, having regard to the present state of the pleading, there appears to me to be little utility in the Full Court considering the proceeding with the pleading in that state. It will always be open to the applicant, or to another claimant, to seek to have the proceeding reconstituted as a proceeding under Part IVA after the criticisms that have been made of the statement of claim and the present constitution of the proceeding have been addressed. In all of the circumstances, I consider that the application for leave should be refused. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.