Pico Holdings Inc v Voss [2002] VSC 119

11. In December 2000 Dominion borrowed US$1,200,000 from Pico repayable on 5 January 2001 with interest at 12% p.a. The loan was again evidenced by a promissory note. By agreement Pico extended the term of the loan first to 30 April 2001 and then to 31 May 2001. That loan has never been repaid nor has interest ever been paid on it.

14. In proceeding No. 6630 of 2001 filed in this Court, Pico sought to recover the two loans from Dominion.

17. In due course Pico brought an application in the Court seeking summary judgment in respect of the two loans.

20. On 30 August 2001 Bongiorno, J. entered final judgment against Dominion for US$1,200,000 with interest at 12% p.a. from 22 December 2000 to the date of payment of the judgment, in respect of the December loan.

23. However, his Honour gave Dominion unconditional leave to defend in respect of the September loan of $1,000,000 on the ground that it had an arguable defence to that aspect of the claim.

26. The defence which Dominion raised in respect of the September loan, and which his Honour described in his reasons for judgment as "somewhat remarkable" was that there was never a loan to it of US$1,000,000 in September 2000, the promissory note relating to such a loan was created by agreement between the parties solely to mislead Pico's auditors. Although a sum of US$1,000,000 was paid by Pico to Dominion it was a fee to be paid by Pico to Dominion in respect of totally different transactions.

29. It was shortly after the judgment for US$1,200,000 was entered against Dominion that it went into liquidation.

32. On 29 August 2001 Pico filed a further writ in the Court naming Voss as defendant and by which it seeks to recover from him damages in respect of the December 2000 loan of US$1,200,000 to Dominion on the ground that Dominion was guilty of misleading or deceptive conduct in respect of the December loan contrary to s.52 of the Trade Practices Act 1974 (Cth.) whereby Pico has suffered loss and damage, namely the loss of US$1,200,000 and interest, and that Voss was equally liable for such loss as an accessory under s.75B of that Act.

35. The conduct relied upon by Pico was the representations made by Voss on behalf of Dominion that shares held by Dominion in an associated company Dominion Wines Ltd. (Dominion Wines), which shares were to be given as security for the loan, were unencumbered.

38. That conduct, so it is said, was misleading or deceptive because at all material times the shares in Dominion Wines were subject to a debenture charge in favour of the National Australia Bank Ltd.

41. When the application for summary judgment against Voss came before a Master of the Court on 20 December counsel for Voss objected to the plaintiff relying on the principal affidavits filed in support of the application, namely the affidavit of John R. Hart sworn 27 November 2001 and the affidavit of Maxim Webb sworn that same day on the ground that the affidavits had been sworn before an employee of Pico, its general counsel, James F. Mosier, contrary to the provisions of r.43.10 of the Supreme Court Rules.

"43.10 (1) An affidavit sworn before - (a) a party (b) a partner in a firm which is a partner; or (c) an employee of a party - shall not be used in evidence by or on behalf of the party."

48. The Master upheld the defendant's objection and dismissed the application. Pico now appeals to a Judge of the Court against the Master's order.

51. The first point taken by counsel for the defendant on the hearing of the appeal before me was that Pico through its counsel consented to the dismissal of its application and that in that situation could only appeal to a Judge of the Court with leave. See r.77.05(2) of the Rules.

54. That if I may say so was one of a number of spurious points taken by counsel for the defendant during the course of the lengthy hearing of this appeal. In my opinion such point taking does little credit to counsel, adding as it does to the length and thus the costs of the appeal.

57. I consider that there is no substance whatsoever to the point.

60. When the Master ruled that the two affidavits in question could not be relied upon he offered to adjourn the further hearing of the application to enable Pico to rectify the matter by having the affidavits re-sworn. Counsel for Pico declined the offer saying:

"Master, I don't seek an adjournment. I'm content for the application to be dismissed."

64. In my opinion that could not be construed as a consent to the Master's order. Pico's counsel had sought to resist the defendant's application and failed. There were then two courses open to him; to seek an adjournment of the application, or to appeal and seek leave upon the hearing of the appeal to rely upon additional affidavits namely the re-sworn affidavits of Hart and Webb. Counsel chose the latter alternative.

67. Upon the hearing of the appeal counsel for Pico sought special leave to rely upon two further affidavits in support of the appeal namely the re-sworn affidavits of Hart and Webb.

70. The application was opposed by counsel for Voss.

73. In Murphy & Another v. Doherty & Others[1] Gobbo, J. held that it is appropriate to grant special leave to rely upon additional affidavits if the further affidavits are designed to correct a technical defect in the affidavits sought to be relied upon before the Master. I agree with his Honour's view in that regard.

76. The merits of Pico's application were never canvassed before the Master. In my opinion the interests of justice are such in the circumstances of this case, as to require that Pico be given an opportunity to do so. Accordingly I give special leave to Pico to rely upon the affidavits of John R. Hart and Maxim Webb re-sworn 3 January 2002.

79. I do not propose to rehearse the numerous points raised by counsel for Voss in opposition to Pico's application, during the course of the hearing before me. As I have previously observed, many of them were quite spurious and simply wasted the time of the Court.

82. What I propose to do is to have regard only to those matters which I consider to be of substance.

85. The plaintiff's case against Voss is that the representations were false; that the plaintiff relied upon the representations; that the plaintiff suffered loss and damage as a consequence of them, namely the loss of the sum of US$1,2000,000 together with interest; and that the defendant was knowingly concerned in or a party to the conduct.

88. The first point relied upon by the defendant is that by reason of the provisions of r.22.02(2) the plaintiff has no entitlement to make an application against him for summary judgment.

91. It is r.22.02(1) which authorises a plaintiff to make application for summary judgment. However, r.22.02(2) so far as is relevant provides:

"(2) Paragraph (1) shall not apply ... to a claim based on an allegation of fraud."

95. The defendant contends that the plaintiff's claim is based on an allegation of fraud and that in that situation it has no entitlement to make application for summary judgment.

98. In his written submissions filed in reply counsel for Pico has contended that r.22.02(2) has no application in the present case as there is no "claim based on an allegation of fraud" in the statement of claim; that the rule only applies to claims in deceit. See Everett v. Islington Gardens[2]; Barclays Bank Ltd. v. Cole[3].

101. The New Shorter Oxford English Dictionary Volume 1 at p.1021 defines fraud (inter alia) as (1) the use of false representations to gain unjust advantage; (2) the quality of being deceitful.

104. In view of the contention of the plaintiff's counsel it is necessary to have regard to the pleadings in the proceeding, in particular the plaintiff's statement of claim.

107. Paragraphs 6, 8(d), 12(c)(d), 16, 17, 18, 19, 20 of the statement of claim read:

"6. On or about 29 August 2000 Dominion Capital represented to the plaintiff that the Dominion Wines Shares were unencumbered and available to be offered as security to the plaintiff for the loan which Dominion Capital requested (the "Representation"). ... 8. There were terms and conditions of the September Promissory Note as follows: ... (d) Dominion Capital warranted that it was the beneficial owner of the September Mortgaged Shares and was able to mortgage them free of prior encumbrances in the manner required by the September Promissory Note (the "September Warranty"). ... 12. There were terms and conditions of the December Promissory Note as follows: ... (c) Dominion Capital's obligations were to be secured by the delivery to the plaintiff of a certificate or certificates for 400,000 Dominion Wines Shares (the "December Mortgaged Shares").

PARTICULARS

The term was partly express and partly to be implied. To the extent that it was express it was contained in clause 4 and to the extent it was implied it was implied by law to give business efficacy to the transactions. (d) Dominion Capital warranted that it was the beneficial owner of the December Mortgaged Shares and was able to mortgage them free of prior encumbrances in the manner required by the December Promissory Note (the December Warranty).

PARTICULARS

The term was partly express and partly to be implied. To the extent that it was express it was contained in clause 4 and to the extent it was implied it was implied by law to give business efficacy to the transaction. ... 16. On or about 9 October 1996 Dominion Capital had granted a fixed and floating charge over all its assets and undertaking to the National Australia Bank Ltd.

PARTICULARS

The charge (the "NAB Charge") is in writing and was registered with the Australian Securities Commission on or about 19 March 1997. A copy of the charge is held by the plaintiff's solicitors and may be inspected by appointment. 17. The NAB Charge: (a) subjects the Dominion Wines Shares to a fixed charge (cl 4.1(f)); and (b) prohibits the creation of subsequent encumbrances on the Dominion Wines Shares without the chargee's prior written consent (cl 4.3). 18. By virtue of the NAB Charge, the Representation, the September Warranty and the December Warranty were false. 19. The Representation, the September Warranty and the December Warranty were given or made in trade or commerce. 20. Accordingly, by the Representation, the September Warranty and the December Warranty, Dominion Capital engaged in conduct that was false or misleading in contravention of s.52 of the Trade Practices Act 1974 (Cth)."

111. When one has regard to the paragraphs to which I have referred I consider that it is untenable to suggest that Pico's case is not a case based on fraud.

114. Pico's whole case against Voss is based on the fact that the representations made to it in respect of the Dominion Wines Shares were false, that it was deceived by the representations, that as a consequence of the representations it lent first the sum of US$1,000,000 to Dominion then the sum of US$1,200,000; and that as a consequence of such deceit it has now lost if not the whole, certainly a substantial portion of the moneys it lent.

117. In a further submission made by counsel for Pico it is contended that if the facts pleaded would amount to deceit nevertheless the rule does not apply if the claim is confined to some other allegation such as negligent misrepresentation. His authority for that proposition is Newton Chemical Ltd. & Others v. Arsenis[4].

120. The facts in Newton Chemical were totally different from the facts in this case and indeed tend to highlight the fact that the plaintiff's claim is based on an allegation of fraud.

123. In that case the plaintiffs, manufacturers of toiletry products, engaged the defendant in 1984 as a self-employed sales representative, and paid him on a commission basis. In 1987 the plaintiffs discovered that the defendant had been fabricating orders from retail chemists, and commenced proceedings against him for (inter alia) repayment of commissions.

126. The plaintiffs' claim against the defendant was based solely on his breaches of contract and fiduciary duty and his negligence, and did not make any claim for damages for fraud or deceit.

129. The defendant resisted having judgment entered against him on the ground that the plaintiffs' statement of claim was based on an allegation of fraud and was precluded under Order 14 r.1(2)(b) (the English equivalent of r.22.02(2)).

132. The Judge at first instance upheld the objection. On appeal, in reversing the Judge at first instance, the Court of Appeal held:

"... that the exclusion contained in Ord. 14, r.1(2)(b) was directed at and confined to actions based on a claim founded on fraud as strictly defined in Derry v. Peek [1889] UKHL 1; (1889) 14 App.Cas. 337, namely a false representation made knowingly without belief in its truth: that, although the plaintiffs' statement of claim contained an averment of all the essential factual ingredients of such fraud, they had expressly chosen to found their action on breach of contract and fiduciary duty and negligence and not on fraud, and to succeed with the claims as pleaded the plaintiffs did not have to prove that the defendant had acted dishonestly; and that, accordingly, in the circumstances they were not precluded by Ord. 14, r.1(2)(b) from obtaining summary judgment against the defendant."

136. I find therefore that Pico has no entitlement to pursue an application for summary judgment and on that ground alone its appeal must be dismissed.

139. However, there are two further bases on which I would dismiss the appeal.

142. When one is dealing with the calibre of a litigant such as Voss one must be careful not to say to oneself "because you are probably a rogue you cannot possibly have any arguable defence to the plaintiff's claim", for that may not necessarily be the case.

145. One matter which was argued by counsel for Voss during the course of his submissions was that if one has regard to the whole of the conduct of the parties, not only leading up to the time at which the two loans were made, but subsequently, it was strongly arguable that if Voss did make the false representations as alleged, they were never relied upon by Pico.

148. Having considered the evidentiary material relating to that aspect of Pico's claim I am prepared to say no more than that the defence is arguable.

151. My reason for saying that is simply this: if Pico's case is to be accepted it would not have advanced the sum of US$1,000,000 to Voss on or about 8 September 2000 had Voss on behalf of Dominion not represented to it that the shares in Dominion Wines were unencumbered and had the promissory note executed by Voss on behalf of Dominion on or about 8 September 2000 not contained the following provision:

"4. Collateral The obligations under this Note are secured by the delivery by Maker to Payee of 350,000 Common Shares of Dominion Wineries ("Pledged Stock") held by Maker."

Why then did it advance the further sum of US$1,200,000 on or about 22 December 2000 before it had taken possession of the "Pledged Stock" - if I may say so a most unusual action for a prudent lender to take.

156. Finally, I consider that the somewhat bizarre nature of the transactions between these parties warrants a trial of the action between Pico and Voss.

159. Rule 22.06(1)(b) of the Supreme Court Rules provides so far as is relevant that on the hearing of the application (for summary judgment) the Court may give such judgment for the plaintiff against the defendant ... unless the defendant satisfies the Court that in respect of that claim or fact a question ought to be tried or that there ought for some other reason be a trial of that claim or fact. (The emphasis is mine).

162. That aspect of r.22.06 was considered by the Court of Appeal in Hills v. Sklivas[5].

165. It is unnecessary for me to recite the facts in Hills in any detail save to say that it was a case in which the plaintiff travelled to the United States taking with him US$40,000 of his own money and US$10,000 provided to him by the defendant. The purpose of the trip was to purchase precious stones.

168. The plaintiff handed over the US$50,000 to a third party in the United States for a parcel which he believed contained precious stones. However, the parcel did not contain precious stones and the US$50,000 was lost. On his return to Australia the plaintiff sought to recover the sum of US$40,000 he had paid, from the defendant.

171. In due course he made application for summary judgment against the defendant. The Judge at first instance granted the application.

174. The Court of Appeal determined that because of the bizarre nature of the transaction on which the claim was based, it was not an appropriate case for summary judgment and that it should proceed to trial.

177. That is the view I take of the present proceeding.

180. Accordingly the appeal from the Master will be dismissed with costs to be taxed including any reserved costs, and paid by the plaintiff.

[2] (1923) 1 KB 44

[3] (1967) 2 QB 738

[4] (1989) 1 WLR 1297

[5] [1995] VicRp 37; (1995) 1 VR 599