Oztech Pty Ltd v Public Trustee of Queensland

The scope of the trial 3 At a case management conference on 2 November 2015, the respondent raised the question of whether there should be a split trial, with the question of damages being deferred until there had been a determination on liability. At that time, the applicant expressed its desire to consider its position in relation to that matter. Nevertheless, the directions made on that day, and at subsequent directions hearings, have proceeded on the assumption that there will be a split trial, along those broad lines. 4 At a directions hearing on 11 February 2016, I reminded the parties of the need to make an appropriate order defining the issues which would fall for determination at the trial to commence on 27 June 2016: see, in that connection, the general observations of the Full Court in Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [2009] FCAFC 26 in the context of representative proceedings. I expressed the view that the scope of the trial to commence on 27 June 2016 should be defined by reference to relevant paragraphs in the amended statement of claim. In the period 9 to 11 March 2016, correspondence passed between the parties on this matter. No agreement as to the appropriate form of the order was reached. 5 The issue that divides the parties is where the "split" should occur. This disagreement was first raised at a directions hearing on 16 March 2016. The disagreement is about whether the trial to commence on 27 June 2016 should resolve the question of whether the applicant suffered some loss or damage by reason of the respondent's alleged breaches. The respondent says it should; the applicant says it should not. 6 The respondent now seeks an order to the effect that the trial to commence on 27 June 2016 should determine all of the issues raised by the pleadings, except for the quantum of any loss or damage suffered by the applicant and group members. More specifically, the respondent seeks an order that the issues to be determined shall not include paragraph 10 of the amended statement of claim or the quantum of the loss or damage alleged in paragraph 99. 7 The respondent advances three reasons why an order to this effect should be made. 8 First, leaving aside the applicant's claims in relation to the respondent's alleged breaches of equitable duties as a trustee (for which equitable compensation is claimed), the causes of action brought against the respondent for breach of s 283DA of the Corporations Act 2001 (Cth) and in negligence, require proof of damage as an element of the cause of action that is pleaded. Thus, a determination on liability in respect of these causes of action would require a finding of some loss or damage. The respondent submits that it "would be entirely unsatisfactory for weeks of Court time to be invested in resolving charges of misconduct that may go nowhere, because no attention was paid to whether any loss or damage flowed from the alleged misconduct". The respondent submits that a trial at which loss and damage were excluded as issues would not resolve liability at all. 9 Secondly, the respondent has raised a number of limitation defences in its amended defence, filed 1 March 2016. This will require the Court to determine the date of accrual of any cause of action that is established. The respondent submits that a trial at which loss and damage were excluded as issues "would disable the Court from adjudicating the [respondent's] limitation defences, and leave this key aspect of liability unresolved". 10 Thirdly, the respondent submits that, at a practical level, the Court and the applicant would wish to know whether any material loss in fact flowed from any breaches that could be established. The respondent submits that a two to three week trial devoted to argument about what would be the return to group members in a hypothetical earlier liquidation makes no sense if the costs of that exercise dwarf any realistic increased return. Relatedly, the respondent submits that, as a general principle, no separate quantum trial will be ordered unless an applicant has first demonstrated a prima facie case of some material loss or damage. 11 I do not think that these considerations are determinative of the present issue. By its amended defence, the respondent advances a substantial case that he has not breached his duties, as alleged. If this is found to be so, the applicant's claim will be dismissed, without the need to consider further issues on liability. But, whatever result ensues, it will be necessary to hear and determine the question of whether the respondent breached his duties, as alleged. I do not accept, therefore, that a split trial which does not determine, at the first stage, whether loss or damage has been suffered will mean that weeks of court time invested in resolving allegations of misconduct may go "nowhere", in the sense that such court time could be avoided by adopting the respondent's preferred approach. Certainly, the parties do not suggest that I should determine the question of the existence of loss or damage as a preliminary question which, if resolved in favour of the respondent, would avoid the need to determine whether the alleged breaches of duty had occurred. 12 Further, contrary to the respondent's submission, a trial that is split so that, at the first stage, the question of loss or damage is not determined, would not "disable" the Court from determining the respondent's limitation defences. It would only defer that question. Further, as events may transpire, it may not be necessary to decide the limitation defences at all. 13 As to the third matter, I accept that, in some cases, such as where an enquiry as to damages is sought, a court might not order such an enquiry unless the applicant has first demonstrated the existence of some loss or damage that would warrant further resources being committed to the enquiry: see, for example, McDonald's Hamburgers Ltd v Burgerking (UK) Ltd [1987] FSR 112 at 117-118. I do not think, however, that this is a guiding consideration in the present case; nor do I think that, in the present case, other appropriate steps cannot be taken to ensure that a hearing to determine the quantum of any loss or damage is not a waste of time and resources. 14 I also accept the general proposition that it would be helpful to know now whether any material loss or damage did in fact flow from the alleged breaches. But, in order to gain a true appreciation of that fact, it would also be necessary to appreciate the likely quantum of the loss or damage that might have been suffered. The parties do not suggest that the first stage of a split trial in the present case should deal with that question. Indeed, the complexity of that question has led to the view that there should be a split trial, with the quantification of loss or damage as the last step. 15 The applicant raises other considerations in opposition. The applicant submits that the order sought is imprecise and would cause uncertainty. In this connection, the applicant submits that it is unclear as to what the respondent means when he says, in submissions, that the applicant should establish "some" or "prima facie" loss or damage. The applicant developed this submission in a number of ways that need not be summarised in these reasons. The applicant also submits that, by the respondent's proposed order, there will be no clear delineation between what is proposed to be determined at each stage of the split trial, with the consequence that there may well be consequent possible procedural difficulties, including the duplication of evidence and hearing time, and the risk that findings made at the first stage of a split trial might disqualify me, as the trial judge, from presiding at a subsequent stage. 16 Further, the applicant submits, correctly in my view, that the question of loss or damage is inextricably connected with the contested issue in this proceeding concerning the date when a hypothetical liquidation would have commenced. The applicant submits, cogently, that this question should be determined first, before evidence is adduced as to the loss or damage that occurred on the applicant's theory that the liquidation should have commenced earlier. 17 This submission is, in my view, determinative of the present issue. I am persuaded to the view that the question of whether loss or damage was suffered is inextricably linked with the debate about when a hypothetical liquidation would have commenced. That date cannot be known with any reasonable precision in advance of a finding that there has been a breach of duty as alleged and, if so, a further finding as to when that breach occurred. The applicant's case is that, had the respondent not breached his duties, he would have applied for and obtained winding up orders against OL, OA and OIN by no later than 29 February 2008. So pleaded, this case covers a finding that such orders should have been applied for and made on or at some time before 29 February 2008. 18 Taking all these matters into consideration, I am not persuaded that the order sought by the respondent should be made. 19 The applicant advances an alternative order, as follows: The hearing commencing on 27 June 2016 determine all issues in the proceedings except for paragraphs 10, 91, 92, 92E, 92F, 92K, 92L, 92R, 92S, 92U, 92Z, 92AA and 92AH of the Amended Statement of Claim and paragraphs 10, 147, 148, 148E, 148F, 148K, 148L, 148R, 148S, 148U, 148Z, 148AA, 148AG and 151 to 160 of the Amended Defence. 20 The applicant says that the effect of making such an order would be to postpone the question of damage and limitation periods to a subsequent hearing, assuming the applicant to be successful at the hearing commencing on 27 June 2016. Whilst not supporting such an order, the respondent has not challenged or commented on its form. 21 I am not satisfied that the applicant's proposed order accurately reflects the matters that should be determined at the first stage of a split trial in this proceeding. For example, it seems to me that a reference to paragraph 92AG of the amended statement of claim should be included. Further, it seems to me that greater refinement might be necessary in relation to the identified paragraphs of the amended defence. I query, for example, the inclusion of paragraph 10 of the amended defence and the exclusion of paragraph 148AH. Thus, whilst I accept the general position advanced by the applicant, the parties should confer on the form of the order that is proposed by the applicant and bring in an agreed form of order by 4.00 pm on 26 April 2016. 22 The respondent seeks an additional order that the trial commencing on 27 June 2016 should determine the claim for relief of a group member who sold notes after 29 February 2008. The respondent argues that such an order could be made under s 33Q of the Federal Court of Australia Act 1976 (Cth). 23 I do not understand the utility of this proposed order, particularly in light of the applicant's submission that group members who sold notes after 29 February 2008 would have done so at different times and in different circumstances. If this is so, and I have no reason to doubt what the applicant has said, then I can see no point in making such an order.

Have the conditions of leave to amend been satisfied? 48 This question focuses on two aspects of the amended statement of claim. 49 The first aspect concerns paragraphs 92C.1 and 92I.3. These paragraphs are materially the same. Paragraph 92I.3 makes the same allegation and repeats the particulars given with respect to paragraph 92C.1. It is convenient, therefore, to focus attention on the pleading of paragraph 92C.1. 50 In that paragraph, the applicant pleads that if the respondent had taken "any or all" of certain "actions", said to be pleaded in paragraph 92B, it would have formed the view that an Insolvency Event and an Event of Default under the Terms of Issue of the notes had occurred, and was continuing, in respect of OL and OIN. The applicant provides particulars of 11 alleged events occurring in the period (on or about) 31 July 2007 to 12 February 2008, each of which is said to be an Event of Default. The respondent makes no complaint about the particularisation of two of those events. However, as to the balance, he says that the particulars do not identify the circumstances that would have led him to form the view that each event had occurred. 51 The applicant disagrees. It says that the circumstances are stated in paragraph 92B. 52 Paragraph 92B is a catalogue of "actions" which, it is said, the respondent, in breach of his duty, failed to do from the time he gave notice of his resignation as trustee (6 July 2007) until on or after 18 January 2008. 53 It is necessary to set out paragraph 92B: 92B. The Respondent breached the said duty by failing to take any or all of the following actions from 6 July 2007 (the date of its notice of resignation as Trustee) until on or after 18 January 2008: 92B.1 failing to act on the advice in the Second PwC Report as more particularly pleaded at paragraph 48F.1 above (make inquiries as to how OL proposed to utilise the proceeds from assets held for sale); 92B.2 failing to act on the advice in the Second PwC Report as more particularly pleaded at paragraph 48F.2 above (request further analysis and explanations of OL's cash flows and how the sale of assets currently held for sale will impact those cash flows); 92B.3 failing to properly respond to the Third PwC Report as more particularly pleaded at paragraph 48I above (PwC unable to form an opinion as to whether OL would have the ability to meet scheduled debt repayments); Particulars The Respondent failed to take the following steps: (a) request PwC to continue to provide regular reports on the ability of OL to meet the scheduled debt repayments and whether there had been any breach by OIN and/or the Guarantors of the Trust Deed, the Terms of Issue and/or the Act until after 18 January 2008; (c) appoint a delegate pursuant to clause 10.5 of the Trust Deed to carry out the Respondent's duties as Trustee prior to its notice of resignation taking effect whilst the Respondent dedicated its efforts to finding a replacement trustee instead of performing its obligations as trustee; (d) notify Noteholders that PwC was unable to form an opinion as to whether OL would have the ability to meet scheduled debt repayments. 92B.4 failing to review and understand OL's Financial Statement as more particularly pleaded at paragraphs 48V and 48W above; 92B.5 failing to exercise its rights under clauses 5.4(a), 6.2 and 6.6 of the Trust Deed to require OIN to provide information regarding the financial position and solvency of OIN; 92B.6 failing to exercise its rights under clause 7.3 of the Trust Deed to require OL and any Material Subsidiary to provide financial information regarding the financial position and solvency of OL and any Material Subsidiary; 92B.7 failing to assess whether the information provided by OIN to the Respondent was true and correct and was not (by omission or otherwise) misleading; Particulars The Respondent failed to assess the following information: (a) the quarterly report dated 31 July 2007; (b) the quarterly report dated 29 October 2007; and/or (c) the quarterly report dated 16 January 2008 (Quarterly Reports). The Quarterly Reports were misleading because they failed to: (a) notify the Respondent of the fixed and floating charges as more particularly pleaded in paragraphs 48AX.2 and 48AX.3 above which were a breach of s 283CC of the Act and clauses 7.2 and 7.3 of the Trust Deed; (b) notify the Respondent of the following matters which were materially prejudicial: (i) the tax debt owing to the Australian Taxation Office as more particularly pleaded at paragraph 48BL above; (ii) the extension of the date for repayment under the Fortress Facility Agreement and the inability to repay the amounts owing as more particularly pleaded at paragraphs 48AV to 48BC and 48BI above; (iii) the difficulties in obtaining the Commercial Banking Facility and its ultimate cancellation and suspension as more particularly pleaded at paragraphs 48BD to 48BH above; (iv) the UBS loan facility as more particularly pleaded at paragraphs 48AN to 48AT above; and (v) the decision not to sell Stella as more particularly pleaded at paragraph 48AU above. 92B.8 failing to brief an independent expert to provide a report to the Respondent on the solvency of OL or OIN; Particulars The Respondent's Claim in Supreme Court of Queensland Proceedings S 546 of 2014 at [159]. 54 Thus, in terms of the current pleading, the applicant says that had the respondent taken "any or all" of these "actions" (that is, had the respondent not failed to do one or more of the things referred to in paragraph 92B), he would have formed the view that each of the events, identified in paragraph 92C, constituted an Event of Default 55 One of the difficulties presented by this pleading can be illustrated by the first alleged Event of Default particularised in paragraph 92C.1: Particulars An Event of Default occurred on or about 31 July 2007 and was continuing because of the breach of clause 6.5(b) of the Trust Deed by the provision of the quarterly report by OIN to the Respondent. … 56 The reference in this particular to a breach of clause 6.5(b) of the Trust Deed is to the breach of a covenant by OIN to ensure that all information provided to the respondent (here, the quarterly report dated 31 July 2007) was true and correct and not (by omission or otherwise) misleading. 57 In paragraph 92B.7 of the amended statement of claim, the applicant pleads that the respondent failed to assess whether the information provided by OIN was true and correct and was not (by omission or otherwise) misleading. The particulars to paragraph 92B.7 state that the quarterly report dated 31 July 2007, amongst other quarterly reports provided by OIN, was misleading because it did not refer to certain particularised matters that are said to have been "materially prejudicial". However, on further analysis (with reference to other paragraphs of the amended statement of claim), a number of these matters significantly post-date the quarterly report dated 31 July 2007, and, if correctly pleaded in other paragraphs of the amended statement of claim, cannot rationally have been circumstances that would have led the respondent to form the view that an Event of Default occurred on or about 31 July 2007. Further, one of the particularised matters said to be "materially prejudicial" is "the decision not to sell Stella as more particularly pleaded at paragraph 48AU above". When one goes to paragraph 48AU, there is no allegation concerning a decision not to sell Stella. Moreover, paragraph 48AU pleads that, by the end of 2007, a sale of Stella had not occurred. 58 In light of these matters, one is left to conclude, by a process of elimination, that at least some of the alleged failures by the respondent to assess the information provided by OIN could not have led the respondent to conclude that the quarterly report dated 31 July 2007 was misleading and that an Event of Default had thereby occurred. But, after undertaking that process of elimination, one is left to ask what "action" or combination of "actions" in the pleaded catalogue of actions in paragraph 92B, if the respondent had not failed to do it or them, would have led the respondent to conclude that an Event of Default had occurred on 31 July 2007? The respondent is required to trawl through the catalogue and make guesses as to which subparagraphs of paragraph 92B might provide this answer. That, however, is only part of the problem. As is apparent, the catalogue of "failures" is expressed at a relatively high level of generality. When one reads paragraph 92C against the backdrop of paragraph 92B, one is not told what specific step or steps, if taken, would have avoided the more generally expressed failures catalogued in paragraph 92B. Without pleading the step or steps to be taken, it is impossible to know from the pleading how, then, the respondent would have formed the view that each particularised Event of Default had occurred at about the time the event is said to have occurred. 59 This example is illustrative of a general problem with the pleading of paragraph 92C.1 of the amended statement of claim. The same general problem exists with the pleading of paragraph 92I.3 read against the backdrop of paragraph 92H (which is pleaded in terms similar to paragraph 92B). 60 I am satisfied that in no true sense has the applicant given particulars of the circumstances that would have led the respondent to form the view that each event, pleaded as an Event of Default, had occurred, other than in respect of an Event of Default that is alleged to have occurred by 23 January 2008. The respondent accepts that the knowledge attributed to him of this Event of Default has been particularised in accordance with the leave granted on 23 December 2015. The respondent does not seek to impugn, for want of particulars, another alleged Event of Default identified in paragraph 92C.1, although I have reservations that the knowledge attributed to the respondent of this event has been properly particularised. Be that as it may, I am satisfied that the respondent has demonstrated that, save in these two respects, the applicant has not complied with the conditions on which leave to plead paragraphs 92C.1 and 92I.3 of the amended statement of claim was given. 61 The second aspect concerns paragraph 92AD of the amended statement of claim. In this paragraph, the applicant pleads that the respondent breached a duty to provide accurate information as to the state of the Trust by failing to disclose the matters identified in paragraphs 48A to 48BL of the amended statement of claim. The respondent points to the particulars in paragraph 92AD given with respect to the matters identified in paragraphs 48R and 48S, and paragraphs 48Z to 48BL. Those particulars are, respectively: The Respondent knew or ought to have known of the matters pleaded in paragraphs 48R and 48S by reason of the UBS presentation given on or about 19 April 2007. … The Respondent ought to have known of the matters pleaded at paragraphs 48Z to 48BL by reason of paragraphs 92B and 92H. 62 With respect to paragraphs 48R and 48S, the respondent says that the particulars in paragraph 92AD only identify that OL made a presentation at the "UBS Emerging Companies Conference". The particulars do not explain why the respondent ought to have known that this presentation had occurred or how he would have known the content of the presentation. 63 With respect to paragraphs 48Z to 48BL, the respondent says that the particulars in paragraph 92AD simply allege that he ought to have known each of these facts "by reason of paragraphs 92B and 92H". However, as I have observed above, those paragraphs simply refer, at a relatively high level of generality, to "actions" which, it is alleged, the respondent failed to take. The respondent submits that the allegation that he failed to take "any or all" of certain "actions" simply does not provide the facts and circumstances from which he ought to have known each one of the large number of matters pleaded in paragraphs 48Z to 48BL. The respondent submits that the pleading is still deficient, even if the pleading were construed to mean that, if the respondent had done the things alleged in paragraphs 92B and 92H, he would have acquired knowledge of the matters referred to in paragraphs 48Z to 48BL. He says that this is so because he should be given the relevant facts and circumstances as to how and why, as a consequence, he ought to have acquired the knowledge attributed to him. 64 The applicant's response is simply that the relevant particulars are given by paragraphs 92B and 92H. 65 I do not accept that the particulars quoted in [61] above are proper particulars of the knowledge sought to be attributed to the respondent by reference to paragraphs 48R and 48S, and paragraphs 48Z to 48BL, of the amended statement of claim. I accept the respondent's submissions in this regard. Rule 16.43(2) of the Rules requires the applicant to give particulars of the facts and circumstances from which the respondent ought to have acquired the knowledge which the applicant alleges. I can see no reason why, in the present case, there should be any departure from this rule. It was one of the bases on which I was prepared to grant leave to the applicant to plead paragraph 92AD. 66 There has been a failure to comply with the grant of leave given on 23 December 2015, in the respects which the respondent has identified. The respondent argues that, as a consequence, the amended statement of claim, as a whole, should be struck out. I do not accept that this consequence should follow. However, in the absence of proper particulars having been given, which was a condition of the leave that was granted, the challenged parts of paragraphs 92C.1, 92I.3 and 92AD of the amended statement of claim should be struck out. In coming to this decision I wish to draw attention to the fact that, at the time that the applicant sought leave to amend the statement of claim by introducing paragraphs 92C.1, 92I.3 and 92AD, I had formed the view that those paragraphs had not been properly pleaded, for the reasons given in [82] and [83] of my earlier reasons, quoted at [25] above. One course open to me at that time was to simply refuse these amendments. However, it seemed to me that the better case management option was to permit these amendments, provided the identified particulars were given. The applicant has failed to provide those particulars. I do not regard that failure to be a matter of mere technicality.

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Judgment (7 paragraphs)

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Legislation Cited (2)

Cases Cited (8)