Plaintiff v Defendants

Maurice Blackburn Cashman Pty Ltd & Goldman Partners

Introduction

1 This is a group proceeding commenced pursuant to Part 4A of the Supreme Court Act 1986 ("the Act"). The proceeding was commenced in January by the filing of a writ bearing a general indorsement. There are nine defendants. I now have for determination applications brought by a summons filed by the first, fifth, sixth and ninth defendants and a summons filed by the eighth defendant. The summonses were filed in the following circumstances, briefly stated.

2 Following the commencement of the proceeding the defendants raised with the plaintiff's solicitor whether it was appropriate for the then plaintiff to be the plaintiff in the proceeding and other matters concerning the proceeding. Following some toing and froing, on 5 August 2005 I ordered that Rod Investments (Vic) Pty Ltd ("Rod Investments") be substituted as the plaintiff, and gave the plaintiff leave to amend the definition of the group and to file an amended statement of claim. The plaintiff filed an amended statement of claim later that day. I shall refer to this as "the statement of claim".

3 In the Other Matters section of the order made on 5 August it was noted, as the parties requested, that the order was made without determination of the appropriateness of the statement of claim or the definition of the group, and reserving the right of the defendants to challenge the statement of claim and the definition of the group. The order also provided for the defendants, no later than 26 August 2005, to file any summons in relation to the form of the proceeding or the pleadings. Pursuant to that leave, the summonses were issued which are now before me for determination.

The Issues

4 Although the applicant defendants had separate summonses, were separately represented and their counsel presented independent submissions, they effectively made common cause in their attack upon the proceeding and the statement of claim. Briefly summarised, and without overlooking the full content of their written and oral submissions, it was submitted that:

(a) The group on whose behalf the proceeding is brought is inappropriate for a group proceeding.

(b) The requirements of s. 33C(1)(a)(b) and (c) were not satisfied.

(c) In the circumstances it was appropriate to order under s. 33N or s. 33ZF that the proceeding not continue as a group proceeding. There was also an alternative submission that the proceeding be struck out or stayed.

(d) Finally, the statement of claim should be struck out or amended pursuant to r. 23.02 on the ground that the statement of claim may prejudice, embarrass or delay the fair trial of the proceeding, the first, fifth, sixth and ninth defendants also contending that the pleading was otherwise an abuse of the process of the Court, and the eighth defendant adding that the pleading disclosed no reasonable cause of action.

5 To be fair to counsel, and to put the submissions in context, the argument concentrated on points (a), (b) and (c) above, with the point in (d) being subsidiary and not developed as it would on a pleading summons. That is, the concentration was on the threshold or gateway points in (a) and (b) in which context the structure of the statement of claim was addressed to the extent necessary. I approach these reasons in the same way. The statement of claim can be considered in a pleading sense if and when it is necessary to do so.

6 The issues raised concerning the definition of the group proceeding and whether the allegations in the statement of claim satisfy the requirements of s. 33C(1) are issues that arise at the threshold of the case. While it is plain that the proceeding could not continue as a group proceeding if the requirements of s. 33C(1) are not satisfied, the definition of the group contained in the statement of claim also raises an issue that must be considered at the threshold or outset of the proceeding. The issue is whether the group is so limited that it is contrary to the opt out policy contained in, and fundamental to, Part 4A of the Act.

7 I note that the second, third and seventh defendants supported the submissions put by the applicants but did not file a summons or otherwise address submissions. The fourth defendant took no part in the application.

The Group: as stated in the statement of claim

8 Paragraph 2 of the statement of claim states that the proceeding "is commenced by the plaintiff on its own behalf and on behalf of the other persons identified in Schedule 1 hereto ('the Group Members')". The schedule lists 127 persons or companies.

9 That is all that the statement of claim says by way of description or identification of the group. The group is the 127 persons named in the list in the Schedule to the statement of claim.

10 It is to be noted that the group was defined differently in the original indorsement on the writ. In para 2 of that indorsement the group was stated to comprise persons who:

(a) by themselves, their agents or trustees instruct the solicitors for the plaintiff; and

(b) at sometime during the period between 26 October 2000 and 1 September 2004 acquired an interest in shares in Media World Communications Ltd ("MWC"); and

(c) suffered, or are trustees for persons who suffered, loss and damage by or resulting from the conduct of the defendants referred to in the indorsement.

11 As mentioned, the plaintiff has filed a statement of claim. No defence has been filed .

The Statement of Claim

12 The statement of claim is complex and runs to 66 pages. I now give a bare summary, being, at least for the moment, sufficient for the purpose of the present applications.

13 The plaintiff and the group members are alleged to have suffered loss as the result of acquiring shares in MWC. It is alleged that a cause of their investing was representations made in the period early 2000 to September 2004. These representations are said to have been made to investors in Adams Platform Technology ('APT'). The representations were made by the first to seventh and ninth defendants expressly, by silence and by implication at various times. They were not all made directly to the plaintiff or group members as some were made to other defendants who made representations to the plaintiff and group members. Counsel for the plaintiff described the several allegations of representations as being an accumulating series of representations. They concerned the development of and investment in what is called APT technology being technology concerned with the compression, storage, transmission and reproduction of data. The representations were made to persons who were investing or considering investing in ventures for the commercial development of APT. The representations are alleged to have been false and misleading in contravention of various statutory provisions, and there are allegations of aiding and abetting. In para 71 it is alleged that "some or all of" the several sets of alleged representations were a cause of the plaintiff and group members acquiring and retaining interests in shares in MWC in the period from 26 October 2000 to September 2004. In para 71A it is alleged, further or in the alternative, that "some or all of" those representations were a cause of the prices at which the plaintiff and each group member acquired shares in MWC being higher than those prices otherwise would have been. In effect the plea in para 71A is that the market was inflated by the false representations concerning APT.

14 The eighth defendant is alleged to have published a misleading report as to the capabilities of APT in October 2003. It is alleged that the report contained express representations as to APT and that by reason of those representations and that the eighth defendant remained silent on certain matters, it made certain further representations by implication. In all, the representations were false, in breach of several statutory provisions and were negligently made. It is alleged that the conduct of the eighth defendant was a cause of the plaintiff and each group member acquiring or retaining his, her or its interest in shares in MWC in the period from about September 2003 to September 2004 and suffering loss.

15 The statement of claim then refers to a 2003 prospectus and to a 2004 prospectus issued by MWC each of which is alleged to have contained false statements concerning APT which again are a route to liability. The 2003 prospectus is alleged to have been a cause of the plaintiff and each group member acquiring or retaining shares in MWC, and suffering loss. However, in the case of the 2004 prospectus it is alleged that the prospectus was a cause of "some or all of" the group members acquiring or retaining MWC shares, but the plaintiff is not included in that allegation. There is, finally, a pleading in relation to the eighth defendant concerning the 2004 prospectus but, consistently, it is only alleged that "some or all of" the group members, but not the plaintiff, acquired or retained shares in MWC and suffered loss as a result of the eighth defendant's statements in the prospectus.

16 The statement of claim then proceeds to list 22 issues of law or fact common to the claims of the plaintiff and the group members. That is followed by a statement of the claims made by the plaintiff on its behalf and on behalf of group members, in the way of a prayer for relief. This runs over three pages setting out various forms of relief against the defendants under headings of misleading and deceptive conduct, negligence and prospectuses.

17 This is a simple overview of the statement of claim, not intended to be exhaustive as to the content of the pleading, but to be sufficient for present purposes.

Evidence

18 The summons of the first, fifth, sixth and ninth defendants was supported by an affidavit of their solicitor, Mini Menon Vandepol. She deposed to having advised the plaintiff's solicitor of deficiencies in a statement of claim which the plaintiff had provided in May. In particular, she specified defects and inadequacies in relation to s. 33C and s. 33D of the Act. The central point was that the statement of claim attempted to roll into one group proceeding what were in reality multiple group proceedings. There were multiple claims against multiple defendants. A further difficulty concerned the named plaintiff who, it was said, was not appropriate to be the plaintiff. There was correspondence in the course of which Ms Vandepol threatened a summons to bring these matters to the Court for determination. Ultimately, on 1 August the plaintiff's solicitor filed a summons and an affidavit in support sworn by Juliana Tang for orders including that Rod Investments be substituted as the plaintiff, for leave (pursuant to s. 33K(1)) to amend the group definition to comprise the persons named in a Schedule to Ms Tang's affidavit, and for leave to file an amended statement of claim in the form exhibited to her affidavit. As mentioned earlier, I made those orders on 5 August. The amended statement of claim is stated to be an amendment as it made changes to the draft statement of claim provided in May. In her affidavit Ms Vandepol stated that the defects in and inadequacies in the earlier statement of claim subsisted in the amended statement of claim which thus failed to comply with Part 4A of the Act.

19 Subsequently, on 10 August Bernard Michael Murphy, the principal of the firm Maurice Blackman Cashman Pty Ltd ("MBC"), one of the firms acting for the plaintiff in this proceeding, swore two affidavits. In the first affidavit he deposed as to his experience in representative or group proceedings and as to the likely course and cost of the proceeding if, on the one hand, it continues as a group proceeding under Part 4A and if, on the other hand, the plaintiff and the 127 group members pursue their claims separately. Considerations of practicality and cost to which he referred favoured continuation of the proceeding under Part 4A.

20 In his second affidavit Mr Murphy addressed the matter of the definition of the group in para. 2 of the statement of claim. He stated that as at 1 August 2005 the 127 persons in the Schedule to the statement of claim satisfied the criteria contained in the original group definition, that is the definition in para. 2 of the original indorsement on the writ. He proceeded by reference to matters within his experience in group proceeding cases (or representative proceedings as they are called in the Federal Court of Australia pursuant to Part IVA of the Federal Court of Australia Act 1976[1]) ("the Federal Act") , to, in effect, argue that the Act permitted a group to be limited to the clients of a plaintiff's solicitor, and that for reasons of economy and efficiency it was proper to do so in this case, and that the Court should allow the case to proceed with a group so limited. An advantage of the group being limited to the clients of the plaintiff's solicitor is that all members of the group are known which would avoid lengthy and costly complexities that can arise in attempting to ascertain the persons who comprise a group. And, as Mr Murphy states, a group can be so large that it can be, and in some cases has been, adjudged appropriate to impose a qualification that reduces the number of persons who might otherwise be within the group. Taking the present case as an example, if the group included all persons who met the criteria in s. 33C, putting aside the MBC client criterion for this purpose, the group could comprise all registered shareholders in MWC which appeared to be over 2000 persons. Further, the share register records only the legal title to shares and not the beneficial interest in shares. Mr Murphy was not aware of any record of persons who held a beneficial interest in MWC shares in the relevant period and who might have suffered loss. Then, there might also be persons who had acquired shares in MWC but who had not become the registered holder before MWC entered into administration. Hence, if the group were expanded to include all persons who were, or were entitled to be, on the share register and persons beneficially entitled to shares on the register, there would need to be a deal of time consuming and costly processes to ascertain who might be a group member. Mr Murphy estimated several hundred thousand dollars worth of additional costs to the point of creating a final list of group members. His opinion was that it would not be in the interests of the plaintiff, the group members or the defendants for the client list of group members to be disallowed because such disallowance:

(a) would be likely to expand the number of group members and the quantum of the claims,

(b) would cause increased costs, and

(c) would cause delay and complexity as work is done to re-confine the group and create a final list of group members.

21 In concluding the affidavit, Mr Murphy said that his firm could not require group members to retain his firm. He had only the normal right of a solicitor to decline to act for a client who did not agree to the terms of the retainer. Further, persons who could be group members were free to commence their own proceeding.

22 I note that counsel for the defendants did not press objections to the admissibility of Mr Murphy's affidavit. Doubtless that was to ensure expedition in the hearing, which was concluded in the day but with an early start and late finish, and because that which, for example, was argumentative, was obviously so and would be treated as such. I note also that none of the deponents was cross-examined.

The Group Issue

23 Section 33H(1) requires that a group proceeding be commenced by writ and sub-s. (2) provides that the indorsement on the writ must, among other things, describe or otherwise identify the group members to whom the proceeding relates. It is provided in sub-s. (3) that it is not necessary to name, or specify the number of group members. In this case, as mentioned earlier, the original indorsement on the writ described the group members. That description, or identification, has been replaced by that now stated in para. 2 of the statement of claim. As it presently stands the group members are those 127 persons or companies in the Schedule to the statement of claim. The common link between them is, as Mr Murphy has disclosed, that as at 1 August 2005 each of those persons had retained his firm to act for them as their solicitor in the proceeding. That continued retainer is a condition of their being in the group. Hence, the group is confined to that limited group of MBC clients.

24 It is apparent that together the plaintiff and the group members constitute a numerically small portion of the registered shareholders in MWC, without taking account of persons not on the register who might have suffered loss such as persons with a beneficial interest or whose acquisition of shares was not registered or otherwise recorded.

25 The question is whether a group may be so limited under Part 4A. More particularly, the question is whether it is contrary to the opt out policy in Part 4A to so limit a group and, if a group is so limited, whether the proceeding may continue.

26 As it happens, the point was considered by Stone J in Dorajay Pty Ltd v Aristocrat Leisure Ltd[2] the judgment in which was delivered as recently as 20 October, only eight days before the argument before me.

27 Dorajay concerned a group proceeding brought under Part 4A but cross-vested to the Federal Court of Australia, since when it continued as a representative proceeding under Part IVA of the Federal Court of Australia Act. The solicitors for the plaintiff were MBC and the plaintiff's counsel were counsel for the plaintiff before me. The representative group was defined in a further amended statement of claim as follows:

"This proceeding is commenced by the Applicant on its own behalf and on behalf of the other persons for whom the solicitors for the Applicant have instructions to act at any particular time, who at some time during the period between 20 September 2002 and 26 May 2003 inclusive... acquired an interest in shares in Aristocrat and who suffered loss and damage by or resulting from the conduct of Aristocrat referred to below."[3]

28 In her judgment Stone J records that she raised with the parties her concern about the way in which this definition limited the representative group to persons who had retained a certain firm of solicitors and whether, having regard to this aspect of the group definition, the proceeding should continue as a representative proceeding. The defendant indicated that, in addition, it was concerned with the arrangements for the funding of the proceeding. Stone J therefore convened a hearing to determine, pursuant to s. 33N, if the proceeding should continue as a representative proceeding.

29 In her judgment Stone J first dealt with submissions of the defendant concerning the provision of funding for the proceeding, and the terms and arrangements therefor between the litigation funder, the plaintiff's solicitor and group members. That involved consideration of the retainer agreement and the funding agreement. This led to a submission as to maintenance and champerty. Among the issues noted by Stone J as arising for consideration[4] were issues whether:

(a) it was in the interests of justice that the proceeding not continue as a representative proceeding pursuant to s. 33N(1)(d) because to qualify as a group member a person had to:

• instruct and continue to instruct MBC to act on that person's behalf (the 'group definition' issue),

• enter into the retainer and funding agreements (the 'funding and retainer' issue).

(b) The requirement that members enter into both the retainer and funding agreements meant that the proceeding was an abuse of process.

30 Stone J first considered the funding and retainer issue, including the defendant's submission concerning maintenance and champerty, and concluded[5] that the funding arrangement did not amount to an abuse of the representative proceeding process.

31 Stone J then[6] turned to the question whether the proceeding should no longer continue as a representative proceeding pursuant to s. 33N(1)(c) and (d), noting that there was no complaint that the proceeding did not fall within s. 33C. Her Honour then proceeded to consider the issue under s. 33N(1)(c) and (d) which concerned respectively the existence of common questions and the requirement to engage MBC.

32 From this point, Stone J referred to various provisions in Part IVA to obtain an overview of their operation and thus the context in which to consider the submission under s. 33N. At [92] she observed that the opt out mechanism in the legislative scheme was crucial to the case. Section 33J of the Federal Act provided.

"33J Right of group member to opt out

(1) The Court must fix a date before which a group member may opt out of a representative proceeding.

(2) A group member may opt out of the representative proceeding by written notice given under the Rules of Court before the date so fixed.

(3) The Court, on the application of a group member, the representative party or the respondent in the proceeding, may fix another date so as to extend the period during which a group member may opt out of the representative proceeding.

(4) Except with the leave of the Court, the hearing of a representative proceeding must not commence earlier than the date before which a group member may opt out of the proceeding."[7]

33 Stone J then referred to the Second Reading Speech of the Attorney-General in relation to the Bill which introduced the representative procedure in the Federal Act, the Explanatory Memorandum to the Bill, and the report of the Australian Law Reform Commission entitled Group Proceedings in the Federal Court and concluded[8] "that Parliament made a deliberate policy choice in adopting the opt out procedure", although with the limitations expressed in s. 33J.

34 From this point Stone J turned to consider whether the criterion of being a client of MBC "has the effect of implementing an opt in procedure or otherwise subverting the process that the legislature has adopted"[9]. After referring to several provisions in the Federal Act in which the opt out procedure found expression[10], her Honour noted the defendant's submission that an element of the opt out procedure is that a person does not need to take a positive step to become a group member, does not incur a liability in becoming a group member and had no need to retain a lawyer[11], and stated that in her view "the inclusion of the MBC criterion injects a fatal flaw into the definition of the representative group in this proceeding"[12].

35 Stone J then[13] noted the submission of the plaintiff that the minimum elements required to be satisfied to commence the proceeding were those expressed in s. 33C(1), and that no additional criteria can be imported in the definition of the group. Further, it was submitted, the concluding expression in s. 33C(1) of "representing some or all of them" authorised the narrowing of the group by additional criteria. That is, it authorised the narrowing to "some" of them. Stone J acknowledged that additional criteria may be used to narrow the scope of a group and referred to cases in which that had been done. But, Stone J observed[14], that did not address the key issue of the MBC criterion to which there were valid grounds of objection[15]. Rather than being able to be a member of the group without taking any positive step a person is required to opt in to the group by retaining MBC. That was inconsistent with the opt out policy. Further, none of the cases in which a group had been confined required the members of the group to opt in. What was done in those cases was merely to narrow the representative description of the group which persons either did or did not fall within.

36 Stone J concluded her reasons on this aspect as follows:

"[125] In summary, I find that the requirement that group members opt in to the proceeding to be inconsistent with [the] terms and policy of Pt IVA. It is inappropriate that the proceeding continue under Pt IVA while the MBC criterion is part of the description of the representative group. I also find that, in the way in which the MBC criterion subverts the opt out process, it is an abuse of the Court's processes as established by Pt IVA.

[126] The second, perhaps even more fundamental, objection to the MBC criterion is that it dictates who should represent group members. I find it an extraordinary proposition that the definition of the representative group should be used to confine a representative group to the clients of one solicitor, however narrowly the group is otherwise defined. In my view there is no support in principle or authority for this proposition and it is repugnant to the policy of the Act."

37 Her Honour then considered the common issues question[16] and concluded that she was not satisfied that separate cases would be more efficient and effective than a common determination of the common issues. Her Honour then considered what "the interests of justice" required under s. 33N(1) and concluded[17] that it was inappropriate for the proceeding to continue under Part IVA in its present form. Indeed, her Honour said[18] that:

"... it would be inappropriate and not in the interests of justice to permit a proceeding to continue under Pt IVA in circumstances where the clear legislative intention is subverted in the manner described above[19]."

Hence the proceeding could not continue as a representative proceeding while retaining a particular firm of solicitors was a criterion of membership of the representative group.

38 However, her Honour did not order under s. 33N(1) that the proceeding not continue as a representative proceeding. Observing that the definition of the group may be able to be amended to meet the problem and thus to allow the applicant to consider the matter, Stone J stood the proceeding over to enable the parties to consider the steps to be taken. As at the time of the hearing before me the parties had not returned to her Honour.

39 Having reflected upon the matter, and considered the submissions of counsel, I am, with respect, in entire agreement with the reasons and decision of Stone J on this aspect of the significance and effect of the requirement that to be a group member a person must retain MBC. There is no relevant distinction in substance or practicality in this regard between the requirement in Dorajay and that in this case. Indeed, the list of 127 persons in this case makes no or little sense without the knowledge of the link constituted by the MBC retainer. Agreeing as I do with the reasons of Stone J I see no reason to myself go over the same ground that her Honour has so comprehensively covered in her judgment.

40 I do not consider that Stone J's conclusion was relevantly affected by the matter of the funding and retainer arrangements and the issue of maintenance and champerty. In any event, no such issues are present in this case and I arrive at the same conclusion as her Honour on the point concerning the group.

41 It was submitted by counsel for the plaintiff that the requirement of retaining MBC did not contravene or subvert the opt out policy in Part IVA. It was the voluntary act of the 127 persons to be members of the group and they were free to opt out if they desired. That is to regard what has happened in the narrowest of ways. What is being done here is that a relatively small number of named persons with the common link of having retained the same solicitor have commenced a group proceeding rather than the alternative of individual cases, or a proceeding with multiple plaintiffs and defendants, or a representative proceeding. The group proceeding has evident advantages of cost and efficiency and it is readily understandable why it is attempted. In my view, that is inappropriate for the reasons stated by Stone J, with which I, with respect, agree. In effect what has been done by this group has been to form a group by engaging in an opt in process, a process that may doubtless be engaged in by other MWC shareholders should they retain MBC thereby opening the door to the group.

42 The convenient course is to stand the case over to enable the parties, but particularly the plaintiff, to consider these reasons, and the orders to be made. I will of course hear the plaintiff on the matter of amendment to the definition if that is desired, and the parties generally as they may be advised.

Section 33C

43 In view of the conclusion I have reached concerning the group definition which, without more, would mean that the proceeding should not continue under Part 4A, it is not necessary to deal with the issues raised concerning s. 33C(1). I do not overlook that the submissions concerning satisfaction of the requirements of s. 33C(1) occupied much time. But in my view the point concerning the group definition also lies at the threshold and, being productive of the consequence mentioned, it is not necessary to engage in a discussion of the s. 33C(1) points which are, at least at present and which may remain, unnecessary to consider. Any consideration of these points would be obiter, the significance of which is emphasised by the plaintiff's submission that I not follow a line of established authority, and further there is the possibility that the plaintiff may restructure the group and alter the statement of claim in light of the argument. The matter is best left for another day.

Other Issues

44 In the circumstances I do not deal with other matters argued including the application under r. 23.02.

Conclusion

45 For these reasons the matter will be stood over and I will hear the parties in due course.

[1] The Federal Act was the forerunner to the Act, which was modelled upon the Federal Act and follows the same order of sections including section numbering. There are some drafting differences but they are not material.

[2] [2005] FCA 1483.

[3] At [3].

[4] At [18].

[5] At [87].

[6] At [88].

[7] The like provision in the Victorian Act, s. 33J, is expressed in somewhat different terms but with no material difference in substance or effect. However, the Victorian Act does contain the following further sub-ss. (5) and (6) as follows:

"(5) Unless the Court otherwise orders, a person who has opted out of a group proceeding

must be taken never to have been a group member.

(6) The Court, on the application of a person who has opted out of a group proceeding,

may reinstate that person as a group member on such terms as the Court thinks fit."

[8] At [110].

[9] At [111].

[10] At [112].

[11] At [113].

[12] At [114].

[13] At [115].

[14] At [116].

[15] At [117].

[16] At [127]-[132].

[17] At [134].

[18] At [135].

[19] At [136].