Oasis Fund Management v ABN Amro [2009] NSWSC 967 | Case summary

1 HIS HONOUR: The plaintiffs seek an order pursuant to s 26 of the Civil Procedure Act 2005 that these proceedings be referred to mediation. The first defendant opposes mediation at this time. The second defendant neither consents to nor opposes mediation at this time. Likewise, those of the cross-defendants who are not otherwise parties neither consent to nor oppose mediation at this time. 2 The plaintiff seeks early mediation for a number of reasons. One is that, if there is no early or successful mediation, the costs of giving discovery and of putting on evidence will be high, and will of themselves be an obstacle to successful mediation at a later time. Another reason is that those who stand to benefit by success in the proceedings, and therefore by a fruitful mediation, are investors many of whom are old, many of whom relied on the investments in question to fund their retirement, and some of whom are suffering from financial distress because of the difficulties with the investment in question. 3 The first defendant opposes mediation at the present time for three reasons. One is that, absent discovery and evidence, it cannot make a realistic assessment of the strength and weaknesses of the case against it and its defence to that case. Another, perhaps somewhat inconsistent reason, is that even with no formal mediation, the parties could in any event engage in informal negotiations. The third, which in my view goes no further than the first, is that its "considered preference to continue the proceeding", is of itself a factor to take into account. The quotation comes, and the submission is based upon, the judgment of Brereton J in Dimento v Dimento [2007] NSWSC 420 at [1]. 4 It is necessary to know a little about the case. The first plaintiff is the current trustee, and the second plaintiff was the trustee, of two trusts. Those trusts were in effect master trusts which offered a smorgasbord of superannuation products to members of the public. Two of the products that were offered were known by the engaging but entirely misleading title of "Safety PINS". The plaintiff says that the information memorandum and other documentation prepared in relation to the two series of Safety PINS in question (issued in 2003 and 2004) were misleading or deceptive. They say that, had those documents disclosed accurately the weaknesses and other relevant aspects of the products, they would not have been listed among the products available to investors through the plaintiffs' platform. 5 For reasons that I have to confess I do not entirely understand there are also two individual plaintiffs. One was an investor in the 2003 Safety PINS. The other was an investor in the 2004 Safety PINS. They sue in their own capacities and claim also to sue as representatives of other investors who invested in the relevant Safety Pins through the plaintiffs' platform. 6 Mr M J Darke of counsel, for the first defendant, has said that it is no part of his client's case that if (contrary to his client's case) there were misleading or deceptive conduct for which his client is liable or in which his client was involved, and if loss of damage were sustained by that misleading or deceptive conduct, the loss or damage was sustained in law by individual investors rather than by the relevant plaintiff as trustee. As I understand it, the first defendant accepts that if the hurdles to which I have referred are jumped, then the trustee is entitled to recover, on behalf of the trusts and for the recoupment of individual investors, such loss or damage as is proved. 7 As I have said, I am not entirely sure why there are individual plaintiffs, let alone why they seek to sue in a representative capacity. 8 The amounts of money at stake are large: of the order of $60 million for the 2003 Safety PINS, and over a million dollars for the 2004 Safety PINS (in each case inclusive of interest). In addition, the plaintiffs claim some amount of expenses (not yet particularised) which they say that they incurred in respect of the promoter of the Safety PINS, a company now in liquidation known by the acronym ACIL. 9 It is always difficult to pick, and in my view never possible to state a priori, the ideal time for mediation. In some cases, where the issues are clear and where the parties' positions can be ascertained without a great deal of difficulty, early mediation is often a good idea because the parties have not spent vast amounts on costs and their positions have not become psychologically entrenched. In other cases, notwithstanding those possible obstacles, early mediation is not really useful because the parties simply do not know enough to make a considered choice as to where they are prepared to go in terms of mediated settlement. 10 Another factor of some significance is that although the second defendant (who is said to have been involved in the preparation of the information memoranda that are said to be misleading or deceptive) has the benefit of insurance, that insurance has a fixed limit of indemnity and that limit of indemnity applies to "loss" which, for the purposes of the policy, is defined to include defence costs. It follows, as between the plaintiffs and the second defendant, that the later mediation takes place, the less there will be available from the policy to apply towards an offer of settlement of the plaintiffs' claim. 11 As I have said, I think that the principal issue is whether there is enough information at present for the parties to make a realistic assessment of their respective positions, so as to mediate not only in good faith but successfully. Of course, I accept that if an order is made - even over the objections of the first defendant - it will participate in good faith, mindful of its obligations under s 56 of the Civil Procedure Act. 12 I say that this is the principal issue because it seems to me that the "considered preference" to which respect must be given is a considered preference based entirely on that consideration. 13 The causation case that is alleged is that the trustee put the products on its platform and that, but for the misleading or deceptive conduct, it would not have done so. Alternatively, it is said, had it been told the real situation after the products had been put on their platform, it would have removed the products. Thus, it is said, the individual investors would not have been able to invest in the products - at least, through the trustee. 14 The causation case for the individual plaintiffs is in effect that they relied on the information memorandum through their "agent", some form of financial adviser who apparently steered them towards the products in question. Alternatively, they rely on some sort of indirect causation case: but for the misleading or deceptive conduct, they would not have invested because there would have been no opportunity; the trustee would not have offered the products. 15 The first way in which the individual investors put their case, and the way that the trustees put their case, seems to me to be relatively straightforward. However, the second way that the individual plaintiffs put their case seems to me to involve both legal difficulties and some prospect that there will be significant evidence, from individual to individual, dealing with the question of causation. 16 Having said that, the first defendant's position in relation to causation or loss, as I have outlined it above, suggests that this is more of a legal than a practical impediment to successful mediation. 17 Of more concern is the first defendant's submission, based on the list response of the second defendant, that the trustee was involved in the development of the product - that is to say, the 2003 and 2004 Safety PINS. The first defendant says that it is impossible to assess the case based on misleading or deceptive conduct until it knows the full extent of the trustee's involvement. It is not however part of the first defendant's case that the trustee was involved in the development of the relevant information memorandum or other documents said to be misleading or deceptive. 18 If that issue is to be understood before the matter goes to mediation, it means of necessity that mediation would not take place until after the evidence is complete and, I would think, until after discovery has been given. 19 In any event, Mr Darke submits, the position of the individual investors cuts both ways. He submits that their age and financial circumstances in fact dictate that the preparation of the proceedings should not be held up by a mediation that is unlikely to succeed.

20 As I have said, it is always a difficult exercise to fix the ideal time for mediation, and this case fully exemplifies the extent of that difficulty. It is necessary to take into account the circumstance that one of the parties is of the view that it needs to know more before it can consider whether to participate and if so how to formulate its negotiating position. I accept that what has been put as to the first defendant's position is put in good faith (and I note that no submission was made to the contrary). Thus, I accept that the concern that the first defendant has expressed through Mr Darke is of itself a matter that bears on the desirability of mediation at this stage. 21 Nonetheless, I think, in the hands of a skilled mediator, it may be possible for that difficulty to be overcome. I think it possible that through appropriate position statements and other steps (which the mediator can direct) the first defendant may be given a sufficient understanding of the case that it has to meet to enable it to formulate a considered position on settlement. 22 This is a matter of conjecture. The real question is whether to risk the costs of mediation, and the delay that will necessarily be entailed, upon the basis of the conjecture. In this context, I think, the age and personal situations of the individual investors assumes very considerable importance. Whilst I accept the principle behind Mr Darke's submission that this cuts both ways, I think that the reality is that a mediation in the near future - and it seems that the preferred date is at the end of this month - is unlikely to cause such significant delay that, if the mediation is unsuccessful, any receipt of fruits through success in litigation will be unduly postponed. 23 I also think that the impediment of costs, and the obstacle of what I have called psychological entrenchment, are likely to become more significant as this case proceeds if there is no early mediation; and of course, in relation to the second defendant, costs are a particular obstacle. 24 Balancing all those considerations, and acknowledging that the decision is not one capable of detailed and rational explanation, I have come to the view that the prospects of success of early mediation sufficiently outweigh the acknowledged disadvantages of it to justify the making of an order notwithstanding the considered position of the first defendant. 25 Accordingly, I think it appropriate to make an order in terms of s 26 of the Civil Procedure Act. It appears that there is a mediator who is acceptable to the parties, and who can conduct the mediation within a time that is suitable to them all. One of the matters to be attended to before the mediation is that the plaintiffs should give adequate particulars of the expenses to which I have referred above. I have assumed that this can be accommodated before the mediation takes place. 26 In those circumstances, I think, having expressed the view that I will order mediation, the appropriate course is to stand the matter down so that the parties can prepare short minutes of order to give effect to the steps that will need to be taken to enable the mediation to proceed before the Honourable Roger Gyles AO QC on 29 and if necessary 30 September 2009. 27 It will also be necessary to deal with the question of costs. Although there has been an application over opposition and the application has been successful, my strong, although tentative view, is that there should be no order as to costs at this stage. I say that because I think that to make an order for costs now is unlikely to improve the frame of mind for mediation.

Oasis Fund Management v ABN Amro

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