Newman v Hold Pty Ltd [2001] VSC 282

5. The appeal is in substance a re-hearing de novo of two summonses filed by the plaintiffs. The first summons, filed 3 May 2001, seeks an order that pursuant to Rule 9.02(b) leave be granted "that the fifth defendant remain joined as a fifth defendant" in the proceeding. The second summons, filed 12 June 2001, seeks the same order in relation to the first, second, third and fourth defendants. Before the Master the plaintiffs also relied upon Rule 9.02(a) but on appeal the argument was confined to Rule 9.02(b), which provides that two or more persons may be joined as plaintiffs or defendants in any proceeding where the court, before or after the joinder, gives leave to do so.

8. In Glenwood Management Group Pty Ltd v Mayo (1990) BC9000705, an unreported decision of Young CJ sitting in the Practice Court, his Honour said:

"In the existing proceedings and in the intended proceedings, that is to say the proceedings intended by way of amendment, there would be no common question of law or fact arising, nor would the existing proceedings and the contemplated proceedings arise out of the same transaction or series of transactions. Accordingly there could be no joinder pursuant to para (a) of the Rule. However, para (b) gives the Court a discretion to grant leave. It is a relatively new Rule not, so far as I am aware, the subject of much judicial discussion. The paragraph gives the Court a wide discretion which is not to be cut down by restrictive interpretation. If, for example, only one of the two criteria in para (a) were satisfied, that might be a case in which it was appropriate for the Court in some circumstances to grant leave to join. That is not this case. Neither criterion in para (a) is satisfied, and I do not think as a matter of convenience that it would be appropriate to grant leave here to join Mrs Mayo as a defendant for the purpose of making the allegations which have been foreshadowed in the draft statement of claim exhibited. It may never be necessary to litigate the issue which the plaintiffs seek in the contemplated proceedings to raise. If the plaintiffs are not successful in their present proceeding, they would not be able to have the transfers set aside for they would not be able to show that they had been prejudiced by those transfers."

12. In Zentahope Pty Ltd v Bellotti (1992) BC9203164, an unreported decision of the Full Court dealing with the then ss. 34 and 35 of the Supreme Court Act 1986, Brooking J said that Rule 9.02(b) had not received the attention it deserved and he referred to what had been said by Young CJ (see above). Tadgell J in the same case said of Rule 9.02(b):

"The rule appears to provide an unexampled opportunity to a group of persons having an appropriate identity of interest to be joined as parties to a proceeding, and this whether or not, as plaintiffs, they claim in any technical or other sense the right to the same relief or sue upon the same cause of action; and whether or not, as defendants, they are sued upon the same or substantially the same cause of action. R9.02(b) gives the Court an ample discretion, restrained only by matters of procedural convenience and fairness, to provide for and manage the very kind of proceeding which s34 and s35 of the Supreme Court Act envisage, with the important reservation that those who are joined as plaintiffs will all be parties to the proceeding. In that capacity all will be potentially liable for costs but that potential liability, given the decision in the case of Bhagat, supra, will be shared by persons represented under s34 and s35. As plaintiffs they will be subject to and have the benefit of all existing procedural rules of Court, and correspondingly the Court itself will be in a position not only to confine the joinder to cases that are appropriate for it but to monitor the litigation, once leave to join is granted, in accordance with conventional principles. Resort to R9.02(b), rather than to s34 and s35, would appear to carry the advantages of an orderly and reasonably predictable procedure once a joinder has been allowed, and to avoid the manifold difficulties which resort to s34 and s35 can attract. The use of R9.023(b) need not be inconsistent with the conduct of litigation by one or more of the plaintiffs on behalf of all plaintiffs. What it will tend to avoid, however, is the prospect that inappropriate claims will be joined for litigation together and that technical requirements of s34 and s35 will perhaps unwittingly (as in this case) be infringed. Moreover, each claimant, being a plaintiff, would be subject to and have the benefit of the usual rules of procedure such as those relating to amendment, counterclaim, discontinuance, withdrawal and compromise."

16. In Bishop v Bridgelands Securities (1990) 25 FCR 311, Wilcox J had to consider the application of O. 6 r. 2(b) of the Federal Court Rules which was in similar terms to Rule 9.02(b) of the Victorian Supreme Court Rules. In that case there were 116 claimants in relation to alleged misleading conduct involving the "Estate Mortgage" trusts. His Honour said that as the discretion conferred by r. 2(b) was unconfined it would be inappropriate to specify circumstances in which it might be applied. He went on to say:

"Everything must depend upon the facts of the particular case. But it is appropriate to consider what principles ought to guide the exercise of such a discretion. The basic principle, as it seems to me, is that the Court should take whatever course seems to be most conducive to a just resolution of the disputes between the parties, but having regard to the desirability of limiting, so far as practicable, the costs and delay of the litigation. Considerations of costs and delay may often support the grant of leave under subr (b); but, in my opinion, leave ought not be granted unless the Court is affirmatively satisfied that joinder is unlikely to result in unfairness to any party. Secondly, regard must be had to practical matters. For example, it would normally be inappropriate to grant leave for the joinder of applicants who were represented by different solicitors. There must be a single solicitor, or firm of solicitors, who is accountable for the conduct of the proceeding on the applicants' side of the case. Similarly, although all applicants might propose to rely upon some common, or similar facts, there may be such differences between the evidence intended to be relied upon in support of the claims of particular applicants as to make it inexpedient to join the claims. The discrete material may overbear that which is common to all the claims. Again, there may be cases in which the sheer number of the claims, if joinder is permitted, will impose an undue burden on the respondent; although it seems to me unlikely that this will be so except in cases where separate evidence is proposed to be adduced in support of individual claims. When the present matter was argued, a point which troubled me was Mr Clay's reference to some oral representations. Depending, perhaps, upon the number of such conversations, it seemed to me that these conversations might result in joinder proving unduly burdensome to the respondents. It might be one thing to require respondents to meet 114 claims which all depend upon the contents of three particular letters; it might be another thing altogether to require them to deal with a host of separate conversations involving individual applicants. However, when this question was raised, counsel for the applicant informed me that, if joinder was permitted, each of the applicants would be prepared to forgo any reliance upon the oral communications."

20. Wilcox J went on to deal with the circumstances of the particular case, emphasising that the discretion should be exercised cautiously. The passages quoted have been referred to with approval in other cases. I would respectfully agree with them insofar as they refer to a number of considerations relevant to the Court's exercise of discretion, but they should not be taken, and I do not think that they were intended to be taken, as fettering the exercise of the Court's discretion. For example, it cannot be a rule of law that leave ought not to be granted unless the Court is "affirmatively satisfied that joinder is unlikely to result in unfairness to any party". There may be competing considerations of relative inconvenience and relative fairness or unfairness which need to be resolved.

23. In A. & J. Partitions Pty Ltd v Jolly (1993) BC9300648, an unreported decision of Beach J sitting in the Practice Court, some 4,488 persons holding shares in the Pyramid Building Society group sought leave to be joined in one proceeding against certain "government defendants" and also certain auditors. Leave was granted where the misrepresentations alleged were written and not oral and were much the same for each plaintiff and the cases against the auditors involved the investigation of the same series of allegations. Beach J emphasised, among other things, that in considering questions of fairness and unfairness regard should be had to the interests of the plaintiffs as well as the defendants and that it would impose a harsh burden on the plaintiffs to require each of them to initiate a separate proceeding.

26. I turn to the circumstances of this proceeding. First to some numbers. There are 193 plaintiffs but, if couples are treated as one plaintiff, there are effectively 174 plaintiffs. There are 504 claims brought in respect of a total of 19 separate "tax-driven" investment schemes. Each plaintiff invested money in at least one of those schemes but a number of plaintiffs invested in from two to seven of the schemes, hence the 504 claims. They invested upon the advice of one or more of nine individuals, "intermediaries" or "advisers", who are not joined as defendants but who, it is said, were the authorised representatives of one or more of the five defendants. The first and second defendants are sued by 61 plaintiffs in relation to schemes lettered, for convenience, B, C, D, E and F (five schemes). The third and fourth defendants are sued by 162 plaintiffs in relation to schemes K to S (more accurately, schemes K to S in relation to the fourth defendant and K to S, except for R, in relation to the third defendant) - thus nine schemes in relation to the fourth defendant and eight schemes in relation to the third defendant. In addition, the third defendant is sued alone by 70 plaintiffs in relation to schemes H, I and J (three schemes). Finally the fifth defendant is sued by three plaintiffs in relation to two schemes.

29. Clearly there is a very large number of claims (the nature of which is outlined below) and, as the foregoing analysis makes clear, there are distinct groups of claims by some plaintiffs in respect of particular schemes and in respect of particular defendants. On the other hand, there are significant overlapping factors not made fully apparent by the above numbers. Some of the nine intermediaries or advisers were involved, as pleaded, with a considerable number of the schemes. One adviser was involved with 17 of the 19 schemes; one adviser with 16 schemes; one adviser with 15 schemes; the other advisers with anything from one to eight of the 19 schemes. Nearly all of the 61 plaintiffs who have claims against the first and second defendants also have claims against either the third defendant or the fourth defendant and about half of them have claims against both the third defendant and the fourth defendant. As against that, there are about 110 plaintiffs who have claims against either the third defendant or the fourth defendant who have no claims at all against the first and second defendants.

32. I turn to the background to the proceeding as deposed to on behalf of the plaintiffs by Annette Kaitinis, a solicitor employed by the plaintiffs' solicitors. Each of the plaintiffs was a client of Sentinel Financial Management Pty Ltd ("Sentinel"). All of the plaintiffs retained Sentinel for reward to provide investment, financial and taxation advice. Through Sentinel, each of the plaintiffs was provided with such advice by one or more of the advisers to whom I have referred. In reliance on that advice the plaintiffs invested in one or more of the 19 schemes. The investments were made at different times. Scheme B was in 1992-3; schemes C, D and E in the 1993-4 financial year; schemes F and H in the 1994-5 financial year; schemes I to S broadly spanned the period from 1995 to 1997 and schemes T and U operated in the 1997-1998 financial year.

35. The advisers were all registered securities industry representatives at the relevant times and held proper authorities from one or more of the defendants, each of which was a licensed securities dealer under the Corporations Law.

38. The plaintiffs seek to establish the liability of the defendants for damages or other relief flowing from the conduct of the advisers. To that end, they rely upon common law agency principles and upon ss. 817 and 819 of the Corporations Law. The causes of action pleaded include misleading and deceptive conduct (mainly misrepresentations), negligence, breach of fiduciary duty, contraventions of the Corporations Law and, in some instances only, fraudulent misrepresentation. A substantial statement of claim has been filed. It is 485 pages long. The statement of claim has a well-ordered format. Each scheme is dealt with in a separate section and in a similar fashion. The scheme is described, various recommendations and representations are alleged, and all of the causes of action mentioned above (apart from fraud) are pleaded in relation to nearly every scheme. The recommendations and representations are generally alleged to be in writing and oral, through the advisers, and to be implied. There are variations in the representations pleaded in relation to different schemes but substantially similar types of falsity are alleged in relation to each scheme.

41. Most of the plaintiffs are said to have suffered significant financial and personal hardship as a result of losses sustained through their investments in these schemes. Life savings have been lost. Bankruptcies and family breakdowns have occurred. Tax liabilities have been incurred as a result of the disallowance of tax deductions allegedly promised.

44. Although it is not for the Court to determine what is the appropriate procedure for individual plaintiffs or groups of plaintiffs to adopt if the joinder adopted in this proceeding is inappropriate, the question of leave in this proceeding cannot in my opinion be dealt with in a vacuum or without bearing in mind the alternatives which are open to the plaintiffs if this proceeding is prevented from going ahead by the refusal of leave.

47. I do not think that it would be sensible for each individual plaintiff to bring his or her claims in a separate proceeding or proceedings in respect of one or more schemes - at least 174 proceedings and, potentially, up to 504 proceedings. Many plaintiffs and four defendants could be involved in a multiplicity of proceedings, probably in different jurisdictions and possibly in different States. The costs for individual plaintiffs would be likely to be high. The defendants would also be inconvenienced. There would be a real possibility of inconsistent findings in relation to the same scheme. In my opinion, that route would be an affront to commonsense, if not to justice itself. An obvious alternative would be the bringing of one proceeding in respect of each scheme, a total of 19 proceedings. In each proceeding only those plaintiffs who invested in that scheme would be joined. The first and second defendant would be joined in five proceedings. The third defendant would be joined in 11 proceedings. The fourth defendant would be joined in nine proceedings. However the consequence for many individual plaintiffs would be particularly unfair and inconvenient. Fifty-five plaintiffs would be joined in anything from four to nine proceedings. Seventy-five plaintiffs would be joined in two or three proceedings.

50. A more satisfactory, efficient and natural grouping, it seems to me, would result in two proceedings. I put to one side the fifth defendant. In the first such proceeding there would be joined 61 plaintiffs suing the first and second defendants in relation to five schemes. In the second such proceeding there would be joined 169 plaintiffs suing the third and fourth defendants, the third defendant in relation to 11 schemes and the fourth defendant in relation to nine schemes (those defendants both being sued in respect of eight of those schemes). As indicated earlier, nearly all of the plaintiffs in the first proceeding would still have to be joined in the second proceeding.

53. In my opinion, the fifth defendant is in a special position. The fifth defendant is sued only by three plaintiffs in respect of two schemes. No other defendant is sued in respect of those schemes. It would in my opinion be unfair to the fifth defendant for it to be compelled to participate in a large and costly proceeding with such marginal involvement. In addition, it would appear from evidence provided by the fifth defendant that there is a real question whether the fifth defendant ever had any connection with the two schemes in respect of which it is sued. Its liability may apparently depend upon a certain interpretation of s. 819 of the Corporations Law which was adverted to, but not explained, in the course of argument. The potential injustice to the fifth defendant outweighs any question of cost and inconvenience to the three plaintiffs affected. There will be an order that leave to join the fifth defendant is refused and the allegations and claims against the fifth defendant be struck out of the statement of claim and the plaintiffs have leave to amend the title to the proceeding and the statement of claim accordingly.

56. I turn to consider some matters raised by the first four defendants in opposition to leave being granted. If the present proceeding goes ahead by leave and is judicially managed, as it must be, I see little disadvantage to the first four defendants in the interlocutory stages of this proceeding compared with any feasible alternative. The question remains whether the trial of this proceeding would in the circumstances be likely to be unfair or unjust to any of those defendants. It is an obvious and significant consideration that there are a very large number of disparate and separate transactions and consequent claims involved in this proceeding extending over a substantial period of time, not involving identical questions of fact (albeit that there may be many fact questions of a similar nature). Against that all the claims relate to "tax driven" schemes promoted to many plaintiffs by Sentinel and the same Sentinel advisers and those plaintiffs invested in a number of such schemes. The schemes and the causes of action all have a similar factual substratum. One matter raised by the defendants was the likelihood, possibly overstated but based on the unparticularised pleading, that each plaintiff would be relying upon his or her own evidence of particular oral representations by an adviser or advisers, evidence which would be of no relevance to any other claim. However the same complaint might justly be made if there were two proceedings, as outlined above, or one proceeding in respect of each of the 19 schemes.

59. A more significant objection, I think, was that raised by the first and second defendants, namely, that their interests were restricted to five of the 19 schemes and in an earlier time span and that it would be oppressive and unfair for them to be involved in a trial involving numerous plaintiffs and 14 schemes in respect of which they had no interest. The first and second defendants were prepared to undertake, if leave to join them was refused, not to object to their joinder in one proceeding by all plaintiffs suing in respect of those five schemes, and not to rely against those plaintiffs upon any interval of time from 26 June 2000 until the date of issue by those plaintiffs of any such future proceeding.

62. The third and fourth defendants, separately represented, echoed a similar point about being involved in a trial involving such claims against the first and second defendants. They placed less emphasis, I think, upon the degree to which the claims against each of them did not totally coincide.

65. On the other hand, the plaintiffs emphasised the obvious benefits to them of one proceeding and trial and submitted that any prejudice or inconvenience to the defendants could be addressed by appropriate case management and trial management by one judge familiar with the whole proceeding.

68. The plaintiffs referred to the possibility of the trial being split into "blocks" of evidence. They also contended that it was feasible to select nine or 10 plaintiffs who covered all 19 schemes and to go forward in the first instance with a "test case" involving those plaintiffs. Most of the issues covering all schemes might be answered in this fashion, it was submitted, leaving aside separate questions only, such as reliance and loss. I think that it would be premature to reach any firm views about such possibilities but there is substance in the wider contention, I think, that much prejudice and inconvenience to the defendants can be alleviated by appropriate case and trial management, although probably not eliminated.

71. In the end I am not satisfied that it would, on balance, be just, convenient or economical to grant leave for the first and second defendants to be joined in this proceeding, having regard to the undertakings which they are prepared to give. I will order that, upon the said undertakings, leave to join the first and second defendants be refused and like consequential orders be made as for the fifth defendant.

74. Turning to the claims against the third and fourth defendants, in my opinion the cost inconvenience and prejudice which would affect many of the plaintiffs by the refusal of leave far outweighs any prejudice and inconvenience to those two defendants by the grant of leave. I think that judicial management can alleviate any unfairness to those two defendants such that they would be not materially worse off in one proceeding than they would be in two or more proceedings. Appropriate directions, the use of witness statements and of imaged documents and of the electronic aids which have been used in recent long trials should render the trial manageable. Any feasible alternative would involve much the same logistical and forensic problems.

77. Accordingly, the appeal is allowed; the Master's orders on the plaintiffs' summonses are set aside; leave is granted to the relevant plaintiffs to join the third and fourth defendants in this proceeding; and I will make the orders which I have mentioned in relation to the first, second and fifth defendants. I will hear submissions as to the orders to be made on the defendants' summonses and as to costs.