Morony & Ors v Reschke & Ors

Judgment 1By Notice of Motion filed on 21 June 2012, the Plaintiffs seek an order: "That the claims by the Second, Ninth, Eleventh and Fifteenth Plaintiffs against the Defendants and the claims by the Fourth Defendant/Cross Claimant against the Second, Ninth, Eleventh and Fifteenth Plaintiffs (as Cross Defendants) be heard first on the basis that: 1.1 judgment given on those claims bind each party to these proceedings on all common questions of law and fact in relation to liability; 1.2 the quantification of all claims for damages be separately determined after judgment is given on all common questions of law and fact in relation to liability." That order would, so far as the Second, Ninth, Eleventh and Fifteenth Plaintiffs are concerned, separate the question of liability (or at least common questions of law and fact in relation to liability) and the determination of damages. The order would also have the result that the determination of the claims brought by the Second, Ninth, Eleventh and Fifteenth Plaintiffs would determine the claims brought by other Plaintiffs, so far as the "common questions of law and fact" in relation to liability are concerned. 2By way of background, these proceedings were commenced by Statement of Claim filed on 5 April 2011 and an Amended Statement of Claim was filed and served on 7 February 2012. The proceedings seek declarations that a prospectus dated 11 June 1999 ("Prospectus 1") and a prospectus dated 29 May 2001 ("Prospectus 2") in relation to the Coonawarra Wine-Grape Project ("Project") contained misleading or deceptive statements in contravention of s 728 of the Corporations Law. The proceedings also seek declarations that the Defendants have engaged in unconscionable conduct in relation to the Project; that several Defendants have engaged in conduct in relation to financial services involving accepting payment without intending or being able to supply the relevant services in contravention of s 12DI of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act"); and that joint venture agreements between the Plaintiffs, the Second Defendant ("CPH") and the Fifth Defendant ("AHM") are void or unenforceable and that loan agreements between the Fourth Defendant ("Rocky Castle Finance") and various Plaintiffs are also void or unenforceable. 3Each prospectus contained a pro forma joint venture agreement between AHM, CPH and the person who would invest in the Project; a pro forma Loan Deed between Rocky Castle Finance and a borrower; a participation form and power of attorney; and an application form for an equity investment in CPH. With the exception of two corporate entities that are associated with individual Plaintiffs, all Plaintiffs are party to joint venture agreements, several Plaintiffs took out loans from Rocky Castle Finance and some Plaintiffs also applied for equity in CPH. The substance of the Plaintiffs' complaint is that, inter alia, both Prospectus 1 and Prospectus 2 and associated documentation represented that CPH would acquire the land used in the Project and that did not occur. The orders sought in this application 4The Plaintiffs do not seek to convert these proceedings to representative proceedings under Pt 10 of the Civil Procedure Act 2005 (NSW). The proceedings might well satisfy the requirements of s 157 of the Civil Procedure Act - namely that seven or more persons have claims against the same person; the claims of all of those persons are in respect of, or arise out of, the same, similar or related circumstances; and the claims of all of those persons give rise to a substantial common question of law or fact - so as to continue as representative proceedings under that Act. However, the Plaintiffs do not seek to take the steps which would likely need to be taken in order to convert the proceedings into a representative proceeding under Pt 10 including, in particular, specifying the questions of law or fact common to the claims of the Plaintiff and group members in the pleading as required by s 161 of the Civil Procedure Act or identifying the constitution of any sub-groups who might be represented by particular plaintiffs. 5Several decisions in respect of the corresponding provisions in Pt IVA of the Federal Court of Australia Act 1976 (Cth) suggests that it is open to the Court to permit the conversion of a proceeding into a representative proceeding: Finance Sector Union of Australia v Commonwealth Bank of Australia [1999] FCA 59; (1999) 89 FCR 417; Sreika v Cardinal Financial Securities Ltd [2000] FCA 1647. Those authorities were questioned but followed in Watson v AWB Ltd [2007] FCA 1367 and were not reconsidered in Wingecarribee Shire Council v Lehman Brothers Australia Ltd (No 3) [2010] FCA 747. Mr Sulan, who appeared for the First-Fourth Defendants, contended that the Court did not have the power to convert the proceedings to representative proceedings under Civil Procedure Act Pt 10, or at least did not have that power in the present case so as to have four representative plaintiffs within the one proceeding. It is not necessary for me to determine that question where the Plaintiffs do not seek to take that course. 6The Plaintiffs contend that the Court has power to make the orders they seek under s 58 of the Civil Procedure Act which provides that, in making any order for the management of proceedings, the Court must act in accordance with the dictates of justice, and must have regard to the provisions of ss 56 and 57 of the Civil Procedure Act and may have regard to specified matters. Section 56 of the Civil Procedure Act in turn refers to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the dispute or proceedings. Section 57 requires that any proceedings in the Court are to be managed having regard to the just determination of the proceedings; the efficient disposal of the Court's business; the efficient use of available judicial and administrative resources; and the timely disposal of the proceedings, and all other proceedings in the Court, at a cost affordable by the respective parties. Section 58(2) in turn specifies matters to which the Court may have regard, including the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction. 7Mr Lee, who appears for the Fifth-Eighth Defendants, identified a question as to whether the Court may properly make orders under s 58 of the Civil Procedure Act to fashion an "ad hoc" representative procedure, where Pt 10 of the Civil Procedure Act contains a structured regime for such proceedings which indicates the legislature's intention as to the balancing of the competing considerations. There is a risk that ad hoc orders allowing a representative proceeding to proceed in that manner would deprive both Plaintiffs and Defendants of the procedural safeguards which Pt 10 of the Civil Procedure Act introduces, in respect of matters such as the termination of representative proceedings after their commencement, adequacy of representation for group members, settlement of the proceedings and provisions as to costs and substitution of the representative party. Even if it were open to the Court to fashion such a procedure in a particular case, I am not satisfied that that would be an appropriate exercise of the Court's discretion to do so in this case having regard to the matters specified in ss 56-58 of the Civil Procedure Act for the reasons noted below. Whether common questions of fact and law are properly identified 8As Mr Newton, who appears for the Plaintiffs, accepted during the course of submissions, the Notice of Motion contemplates separate determinations of all common questions of law and fact in relation to liability and then the quantification of all claims for damages. The order sought assumes that all questions in the proceedings fall in one or other of those two categories, being either common questions of law and fact in relation to liability or questions as to quantification, and does not allow for determination of a third category of question, namely non-common or individual questions of law or fact in relation to liability. The order also does not provide any precise identification of what the Plaintiffs contend are the common questions of law and fact in relation to liability, presumably because of the assumption that all questions other than questions of quantification fall within that category. 9It is apparent that some but not all questions of liability in these proceedings are common questions of law and fact, in the sense that the determination of the issue in respect of one or several Plaintiffs would give rise to results common to the Plaintiffs generally. A document filed by the Plaintiffs dated 20 July 2012 headed "Plaintiffs' Statement of Facts Admitted or not Seriously in Dispute and Common Questions of Fact and Law" identifies a number of facts as not seriously in dispute that appear to be common to all Plaintiffs in the proceedings and also identifies a number of matters which are disputed and are common to the Plaintiffs. For example, the issues identified in paragraphs 39 and 41 of that document, whether Prospectus 1 and Prospectus 2 respectively contained misleading or deceptive statements within the meaning of ss 724 and 728 of the Corporations Law and s 12DA of the ASIC Act may well be a common question. Similarly, paragraphs 43-45 of that document relating to the knowledge of the Defendants and their obligations may well be common questions. 10On the other hand, a number of the matters characterised in the "Plaintiffs' Statement of Facts Admitted or not Seriously in Dispute and Common Questions of Fact and Law" as "common questions of fact and law" appear to involve questions that are likely to be resolved by reference to the individual circumstances of particular Plaintiffs. For example, paragraph 37 of that document relates to whether several Plaintiffs relied on the Prospectus 1 statements (as defined) by completing specified documents. Whether particular Plaintiffs relied on the Prospectus 1 statements in order to do so is at least potentially a matter as to which individual evidence of the Plaintiffs would be required, since they were not passive sufferers of a loss but made a positive decision to enter into a transaction to which a misrepresentation is said to be material: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653; De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28 at [63]. A similar issue arises in relation to paragraph 38 of that document which alleges reliance on the Prospectus 2 statements by other Plaintiffs in order to complete other documents. 11Paragraphs 40 and 41 of the "Plaintiffs' Statement of Facts Admitted or not Seriously in Dispute and Common Questions of Fact and Law" raise questions of reliance, or alternatively causation, whether, "by reason of" the allegedly misleading or deceptive statements within Prospectus 1 and Prospectus 2, particular Plaintiffs have suffered loss or damage and are entitled to recover that loss or damage from the Defendants. While the form of order sought by the Plaintiffs defers the question of quantification to a second stage, it treats the question of reliance or causation as a matter as to which a determination in respect of the claims of the four nominated Plaintiffs should bind other Plaintiffs. That course seems to me to have the difficulties that it would be unreasonable and disadvantageous to the Defendants to conclude that, because four nominated Plaintiffs relied on a prospectus, the other Plaintiffs also did so; and equally unreasonable, and disadvantageous to the other Plaintiffs to conclude that, because the four nominated Plaintiffs did not rely on a prospectus, then the other Plaintiffs did not do so. A further difficulty is that it is possible that the Court may find that, for example, one or more of the nominated Plaintiffs did rely on the prospectus and other of the nominated Plaintiffs did not. In that case, an order in the form sought by the Plaintiffs would leave unclear which finding bound the other Plaintiffs in the proceedings. These difficulties are matters of substance, reflecting the obvious possibility that some plaintiffs relied on the prospectuses and others did not. 12Paragraph 46 of the "Plaintiffs' Statement of Facts Admitted or not Seriously in Dispute and Common Questions of Fact and Law" deals with "whether acting on the faith of the Prospectus 1 statements" certain Plaintiffs took certain steps and again raises individual questions of reliance. Similarly, paragraph 54 of that document deals with "whether acting on the faith of the Prospectus 2 statements" other Plaintiffs took other steps and raises individual questions. Parts of the Plaintiffs' pleaded unconscionability case appear to turn on the objective features of the transaction, which may be common to the Plaintiffs, whereas other parts of the case (for example, paragraph 60.3 of the "Plaintiffs' Statement of Facts Admitted or not Seriously in Dispute and Common Questions of Fact and Law") turn on what particular Plaintiffs would have done had they become aware of particular matters. 13In my view, it would not be an appropriate exercise of the Court's power under s 58 of the Civil Procedure Act to make the order sought in the absence of clearer identification of truly common questions to be determined in the manner proposed by the Plaintiffs. I raised with Mr Newton, in the course of submissions, whether the Plaintiffs wished to identify a sub-class of questions which could properly be treated as common questions, but the Plaintiffs did not seek to take up that opportunity. I do not consider I can make the order sought, although this would not prevent the Plaintiffs making a further application in which such questions were identified in the manner commonly undertaken in representative proceedings. Separation of questions of liability and quantum 14As I noted above, the Plaintiffs' application also seeks to separate the question of liability and quantum. The difficulties with that course are well known. In Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 at [168]-[170], Kirby and Callinan JJ observed that the attractions of trials of issues are often chimerical than real; that savings in time and expense are often illusory; and that there is an additional potential for further appeals to which trials on separate issues may give rise. Substantially the same view was taken in Tallglen v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 142; Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 at [436]; Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 and Pioneer Park Pty Ltd (in liq) v ANZ Banking Group Ltd [2005] NSWSC 832 at [6]. In particular, in a claim for misleading and deceptive conduct, the boundaries between liability, reliance, causation and quantification are not necessarily clear, and there is a real risk that issues of credit arising in respect of the liability stage of the proceeding may arise, which would potentially prevent the same judicial officer from dealing with matters going to the credit of the relevant witness in the quantification stage of the proceedings. 15I am also not satisfied that a separation of questions of liability and quantum would be appropriate in these proceedings, at least in the absence of a clear identification of common questions of liability in the manner commonly undertaken in representative proceedings. I should add that the Plaintiffs relied on evidence that two of the Plaintiffs as to whom common questions of law and fact as to liability are sought to be determined first are in relatively poor health. I am not satisfied that a separation of issues of liability and quantum in the manner proposed by the Plaintiffs is likely to lead to an earlier resolution of the proceedings so far as those individual plaintiffs are concerned. Whether "test cases" should be ordered 16Mr Newton also raised a further possibility in the course of his submissions, which was not expressly raised by the Notice of Motion, that the Court should direct that questions of liability be determined in respect of the four nominated Plaintiffs without making a further order that that determination would be binding in respect of the claims by other Plaintiffs, so that the determination of those claims operated as "test cases". I have no doubt that test cases, particularly in proceedings where there are numerous plaintiffs, may be an appropriate means of case management. However, it seems to me that that is most likely to be the case where either there is agreement between the parties, or it is established, that the parties identified for test cases are in fact representative so that there is a reasonable basis to anticipate that the determination of the test cases will determine other cases with similar characteristics. 17There is no agreement between the parties in this case that a determination of the liability claims of the four nominated Plaintiffs would assist in determining the claims of other Plaintiffs. The Plaintiffs also undertook no analysis to seek to demonstrate that the four nominated Plaintiffs were in fact representative of other Plaintiffs, although they share at least some features in common with other Plaintiffs, so far as they were participants in the relevant joint ventures and did, or did not, take out shares in CPH and did, or did not, borrow from Rocky Castle Finance. However, an analysis undertaken by Mr Sulan, who appears for the First-Fourth Defendants, indicates that the claims of the four nominated Plaintiffs are not representative of the claims of a significant number of other Plaintiffs and there is therefore a real risk that the determination of liability in respect of the four nominated Plaintiffs would not advance the position in respect of the determination of the claims of the other Plaintiffs. 18I am also not satisfied that there would be a significant saving of time in respect of an approach involving "test cases" where the Plaintiffs' evidence of reliance is likely to be in relatively narrow scope and, because of the extent of matters which are genuinely common questions of fact and law in the proceedings, the bulk of the hearing time is likely to be directed to those issues rather than to the individual issues relating to Plaintiffs other than the four nominated Plaintiffs. 19A further difficulty arises because, as Mr Sulan points out, defences of conventional estoppel are raised in respect of some Plaintiffs, which are likely to require consideration of issues specific to those Plaintiffs. There are also Cross-Claims filed against some but not other Plaintiffs seeking to recover monies claimed by Rocky Castle Finance and it is by no means clear to me that it would be a proper exercise of the Court's discretion to defer those cross-claims against Plaintiffs other than the four nominated Plaintiffs pending the determination of the Cross-Claims in respect of the four nominated Plaintiffs. 20For these reasons, it seems to me that a determination of the claims of the four nominated Plaintiffs which does not determine any question as to other Plaintiffs is less likely to result in the just, quick or cheap resolution of the matters in dispute, for the purposes of s 56 of the Civil Procedure Act, than either a determination of the whole of the proceedings or a determination of those matters which are genuinely common questions of fact or law. Orders 21In these circumstances, I do not consider that the Plaintiffs have established that either the orders sought in the motion, or the alternative of test cases raised in submissions, should be made. The Notice of Motion should therefore be dismissed with costs.

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