Morony v Reschke & Ors

Judgment 1HIS HONOUR: This is an application under s 1337H of the Corporations Act 2001 (Cth) for an order transferring the proceedings to the Supreme Court of South Australia. The proceedings were commenced by statement of claim filed on 5 April 2011. There are eleven plaintiffs of whom eight plaintiffs are individuals and three are companies. The proceedings concern the promotion of a managed investment scheme known as the Coonawarra Wine Grape Project Investment. The plaintiffs were interested in the scheme. 2The first defendant is Mr Burke Reschke. He is the managing director or sole director of the second, third and fourth defendants. Mr Reschke is resident in South Australia. The second defendant Coonawarra Property Holdings Pty Limited ("CPH") is a company whose principal place of business is in South Australia. The plaintiffs allege that in a prospectus issued in 1999 it was represented that the land on which the project would be undertaken was being acquired by CPH for the purpose of the project, that investors would have the option of becoming shareholders in CPH, and it would own the vineyard. 3The third defendant is Koonara Management Pty Limited. The company also has its principal place of business in South Australia. The plaintiffs allege that it carried on the business of vineyard manager. 4The fourth defendant is Rocky Castle Finance Pty Limited. Its principal place of business is also in South Australia. The plaintiffs allege that at all material times it has carried on the business of providing finance in connection with the project. 5The fifth defendant is Advanced Horticultural Management Ltd. Between 1999 and 2007 it was the responsible entity for the scheme. The fifth defendant carries on a financial services business involving the operation or management of investment schemes. It has four directors, two of whom reside in South Australia, one of whom resides in Victoria, and the other, a solicitor, resides and practises in Sydney. Its registered office and principal place of business is in Adelaide. 6Of the eight individual plaintiffs, five are resident in New South Wales, two are resident in Victoria, and one is resident in the Australian Capital Territory. 7The defendants submit that the plaintiffs' claim is about the operation and management of the project for conducting the vineyard in Coonawarra in South Australia, that most of the events that are the subject of the proceedings took place in South Australia, that the principal place of business of the corporate defendants is in South Australia, that the bulk of the evidence to be called, other than the evidence concerning reliance by the plaintiffs on two prospectuses, will have to be called from South Australia, that the books and records relating to the project, are at least predominantly in South Australia, and that expert evidence that will need to be called will relate to the value of the land on which the project was carried out, or the rental value of the land, or viticultural practices for the vineyard in question, all of which will require evidence from experts with local knowledge who will come from South Australia. Hence, the defendants submit that the proceedings should be transferred to South Australia. 8On the other hand, the plaintiffs say that most of the witnesses likely to be called in the proceedings will be from New South Wales, including the plaintiffs themselves. They point to the fact that in 2007 the responsible entity for the scheme was changed from the fifth defendant to Huntley Management Pty Limited ("Huntley Management"). It carries on business in Sydney. Meetings in relation to the scheme are convened to be held and have been held in Sydney. The books and records relating to the scheme which will be needed for the litigation are, or should be, in possession of Huntley Management in Sydney. The plaintiffs say that evidence from the current responsible entity is likely to be required and that the witness or witnesses to give evidence will come from Sydney, that other persons proposed to be called, or other documents that will be sought, will be from the auditor, or from the solicitors for the fifth defendant who are in Sydney. 9It is common ground that the law which will be in issue will either be statutes of the Commonwealth or uniform legislation, namely, the Corporations Law (Cth), or the common law of Australia. I think it is common ground that the substantive law applicable to the dispute is a neutral factor on the application. 10The plaintiffs allege that Mr Reschke caused two prospectuses to be issued in 1999 and 2001 for investment in the project. They allege that the prospectuses contained various representations said to be misleading or deceptive, or likely to mislead or deceive. They say that the defendants engaged in misleading or deceptive conduct or unconscionable conduct. It is said that numerous representations said to be contained in the prospectuses were not honoured. 11The plaintiffs allege that two of the defendants, namely, the second and fifth defendants, breached terms of a joint venture agreement with the plaintiffs. It is said that the defendants engaged in unconscionable conduct in contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). The relief sought includes declarations of contravention of the ASIC Act and the Corporations Law , a declaration that certain of the plaintiffs are not liable to pay moneys to the fourth defendant pursuant to a deed of loan each entered into with the fourth defendant, a declaration that the first defendant Mr Reschke is liable to account to Huntley Management for property belonging to the scheme, and damages or an account of profits. 12The application for the transfer of these proceedings is to be determined according to what appears to this Court to be more appropriate having regard to the interests of justice, that is to say, whether having regard to the interests of justice it appears to be more appropriate for the proceeding to be determined in the Supreme Court of South Australia or in this Court. 13Regard is to be had to the matters in s 1337L. Otherwise the application is dealt with taking what has been called " a nuts and bolts management decision " as to which is the more appropriate forum ( Bankinvest AG v Seabrook (1988) 14 NSWLR 711 at 714). 14There is no onus on the defendants to establish that the matter should be transferred to South Australia. Questions of onus do not really arise. The Court has to prognosticate as to which is the more appropriate forum. As Martin CJ said in Resource Equity Limited v Carr [2007] WASC 246 at [9] the decision is very much a "matter of impression ". That is inevitably so given that such applications are to be brought promptly, as this one has been and before it can be known with any certainty what evidence will need to be called by the plaintiffs or the defendants. Whilst there is a detailed statement of claim, there has not yet been a defence. I assume that all of the matters alleged in the statement of claim will be in issue. 15Part of the plaintiffs' allegations relate to the physical operation of the project. However, that appears to be a relatively small part of the plaintiffs' allegations. The plaintiffs allege that the first prospectus contained representations concerning drip irrigation that would be installed to provide protection against frost. 16Similar representations are said to have been conveyed in the second prospectus and it is alleged that the irrigation represented was not installed. Evidence in relation to that can be expected to be provided from Mr Reschke, or perhaps from other employees of the defendants engaged in the project. But the question of what irrigation was or was not installed should not be a contentious matter. The implications of any failure to install the irrigation as represented might be a different question. 17The bulk of the allegations concern representations said to have been made as to the structuring of the project, that is to say, as to who would be participants in the venture, as to what land would be acquired by the second defendant, as to what leases would be given to the fifth defendant or to the custodian for the venture, as to what caveats would be lodged, as to what securities would be provided, as to what finance was required for the venture to be successful, and as to what options would be acquired by the fifth defendant as responsible entity to acquire land. 18Whilst these are all matters that relate to events that were to take place in South Australia, the physical locality has no particular significance in relation to the allegations. The proof or rebuttal of these allegations can be expected to be largely documentary. Again, questions may arise as to the significance of any failure to honour the alleged representations. The defendants say that these allegations will raise issues upon which expert evidence may be required as to the value of the land which the plaintiffs say was represented could be acquired, or the amount of rental payments which the plaintiffs say were to be paid by the responsible entity to the second defendant on the basis of matters that were represented. 19I am not certain that such evidence would necessarily be required, but I am prepared to assume that it is at least on the cards that valuation evidence calling for the opinions of local experts will be required. Similarly, in relation to the earlier allegations concerning the installation or failure to install drip irrigation, I accept it is on the cards that some expert opinion from someone with local knowledge may be required. 20Other allegations of failure to honour the alleged representations would appear to be needed to be addressed primarily by Mr Reschke, but also probably from the other directors of the first defendant and possibly from other employees of the defendants. 21The solicitor for the defendants deposes that the defendants' potential witnesses being Mr Reschke and two directors of the first defendant and also the defendants' employees, are all located in South Australia. However, Mr Morris does not identify which, if any, employees may be required to be called as a witness, or what their evidence is likely to go to, I do not know, and probably Mr Morris does not know at this stage, how many such persons may be required. The bulk of the allegations which will require an answer relate to matters of finance and structure of the project, in respect of which one would expect that the directors, that is, Mr Reschke and the directors of the first defendant, would give evidence. 22The allegations against the first defendant include that it failed to comply with the scheme's constitution and compliance plan. Particulars of that allegation include that the first defendant failed to ensure that it accounted for the proceeds of sale of the harvest and the collection of income. There is evidence in the form of correspondence from Huntley Management that financial statements for the project were not prepared in a timely way, that income tax returns have not been lodged, and that income derived from the project had not been deposited to the account of the custodian as had been required. 23It is likely that evidence will be called by the plaintiffs from one or more officers of Huntley Management to seek to establish the allegations of breach made against the first defendant. 24As I have said, two of the directors of the fifth defendant reside in South Australia, but one of them, Mr Jessop, is a solicitor who is a partner with Piper Alderman, the solicitors for the defendants on this application. He practices in Sydney. Another director is resident in Victoria. 25I think it is clear that the individual plaintiffs will have to give evidence at least to establish their reliance on the representations said to be contained in the prospectuses. Other evidence is also likely to be called from at least one adviser to some of the plaintiffs, a Mr Atkinson who is an accountant in Sydney. 26Whilst evidence of reliance will be within a more limited compass than the evidence that the defendant can be expected to call to answer the allegations of breach, there will nonetheless be a comparatively large number of witnesses to be called on the question of reliance. 27Mr Duggan, one of the plaintiffs, also deposes as to the plaintiffs' intention to call other witnesses. One of these is Mr Stan Gawel, a former director of the third defendant. He is a resident in Victoria. He also deposes that the plaintiffs propose to call evidence of some other persons to whom it is said Mr Reschke made statements upon which the defendants will rely in the litigation. They are resident in New South Wales. It is also likely that documents will be required to be produced from the auditors of the fifth defendant who are in Sydney. 28It is said for the defendants that most of the documents which will be needed in the litigation are in South Australia. That is not entirely clear to me. I accept that documents in the possession of the second, the third and fourth defendants will be in South Australia. I do not think that is a factor favouring moving the proceedings to South Australia. Those documents will be available to the defendants wherever the case is litigated and, so far as relevant, presumably will be required to be produced to the plaintiffs on discovery. 29As to the documents of the fifth defendant, I would assume that those documents are now with Huntley Management as the fifth defendant was required to give Huntley Management possession of the books required to be kept in relation to the scheme on the change of responsible entity. 30In my view the matters are quite finely balanced as to where the interests of justice lie. The bulk of evidence on allegations of breach will come from the defendants or from the production of documents. Most of the defendants, although not all the defendants' likely witnesses, are from South Australia. Whilst the plaintiffs' evidence on reliance will be of more limited the scope, there may be a large number of witnesses to be called and that is a factor that favours the proceedings remaining where they are. 31Some expert evidence can be expected to be called from persons having knowledge of local conditions in the Coonawarra area. On the other hand, evidence as to the conduct of the scheme is likely to be given from the officers of the new responsible entity and I think that in so far as other expert evidence may be required, for example in relation to matters of accounting or quantification of loss not requiring local knowledge, that it is on the cards, and perhaps more likely than not, that such evidence would be coming from experts who are not in South Australia. I think the locality of documents is not a consideration of particular significance. 32It is legitimate in asking where the interests of justice lie, to ask on whom would be imposed a greater hardship if the case is litigated in South Australia or in New South Wales. Would it be a greater hardship for the plaintiffs to have to litigate the case in South Australia and to retain South Australian lawyers for that purpose, or else to retain their Sydney lawyers and then engage lawyers in South Australia who would act largely on an agency basis, or would it be a greater hardship to the defendants to be compelled to litigate the case in this state where similar considerations would apply, namely, the defendants could either engage Sydney lawyers or lawyers from Adelaide? Again, the defendants could have cause to do both. 33In this respect I think the balance falls in the plaintiffs' favour because one of the directors of the first defendant, Mr Jessup, is a partner with Piper Alderman, the firm retained by the defendants on this application. 34Considering the matter overall, I think the likelihood is that the greater number of witnesses are more likely to come from New South Wales or from the Australian Capital Territory than would come from South Australia. Coupling that with the matter I last mentioned, that is to say, the situation of one of the directors of the fifth defendant being in Sydney, I consider that the interests of justice are that the matter proceed in this Court and the proceeding not be transferred. 35For these reasons I order that the defendants' notice of motion filed on 17 May 2011 be dismissed. [Parties addressed on costs.] 36The plaintiffs have succeeded in resisting the defendants' application. The plaintiffs seek their costs of the application. I think the appropriate order is that the costs be the plaintiffs' costs in the proceedings. If the plaintiffs fail in the proceedings it would not be just that they obtain their costs of successfully resisting the transfer of the proceedings to South Australia. I order that the cost of the defendants' notice of motion be the plaintiffs' costs in the proceedings. 37The proceedings are adjourned to Monday, 12 September 2011 at 10.00am before the Corporations List Judge. 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: 23 September 2011