Plaintiff v Defendants

[2011] VSC 239

PRACTICE AND PROCEDURE - Proceeding commenced by originating motion supported by voluminous affidavits - Heavy burden cast on the Court - Need for efficient use of judicial resources - Trial part-heard - Pleadings required to define issues, provide procedural fairness to defendants and assist the Court - Obligations on legal practitioners to assist the Court - Obligations on model litigant to assist the Court - Order that proceeding continue as if commenced by writ - Pleadings ordered - Supreme Court (General Civil Procedure) Rules 2005 rr 4.05, 4.07(1)(a) - Noone Director of Consumer Affairs Victoria v Operation Smile (Australia) Inc & Ors (No 2) [2011] VSC 153 considered and applied; A Team Diamond Headquarters Pty Ltd v Main Road Property Group Pty Ltd & Ors [2009] VSCA 208; Banque Commerciale SA v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279.

For the First, Third, Fifth, Seventh, Eighth and Ninth Defendants

1 On 10 May 2011, the trial of this proceeding was adjourned, part heard, until 26 July 2011. I have called the parties back because I am concerned at the course which the trial has taken and is proposed to take.

2 At the outset it is necessary to state clearly that the time taken in the trial so far has not been wasted. It has been of great benefit to me, coming late to the case without an opportunity to read anything other than the outline of submissions, so it has given me a great opportunity to understand the issues presented for determination in a global sense and to appreciate the magnitude of the task which the Court has been asked to undertake.

3 The proceeding was commenced by originating motion, supported by voluminous affidavits. Prior to today's hearing, the parties were informed that the Court wished to hear submissions as to whether pleadings should be ordered. In response, the Director filed some submissions dated 27 May opposing that course. I have considered those submissions. However, it has become apparent to me that the proceeding has been commenced by the wrong process, and as a result, and notwithstanding the efforts of the Commissioner and his legal team to assist the court, the proceeding ought to be the subject of pleadings. That course is necessary to avoid possible injustice to the defendants, and to assist the court.

4 In summary, I have decided to adopt this course, which is unusual at this stage of the proceeding, because the effect of the procedures adopted by the Director would require me to decide eight separate and multi-faceted cases in the privacy of my chambers. This task would involve an examination of voluminous material without the benefit of a pleaded case to define the many issues for decision in each case. That is an intolerable burden, and one which is inconsistent with the efficient use of scarce judicial resources. More detailed reasons appear below.

5 The trial of this proceeding commenced on 4 May 2011. It was estimated to take between five and eight days. That estimate was given on the assumption that only one defendant would appear to defend the allegations against him.

6 The plaintiff, who I will refer to as 'the Director', was represented by senior and junior counsel and solicitors. Of the nine defendants, three appeared in person: the second defendant, Mr Gilfillan, the fourth defendant, Ms Otley, and the sixth defendant, Ms Khechen.

7 The trial has so far occupied four hearing days. The evidence filed on behalf of the Director is massive. There is a paginated court book comprising nearly 11,000 pages. That court book includes voluminous affidavits (some over 100 pages in length and others over 50 pages), bulky exhibits including transcripts of compulsory examinations, expert statements and other material. There is duplication.

8 The proceeding relates to two schemes, designed to allow consumers with financial problems to acquire their own home, notwithstanding that they had no deposit and no prospect of obtaining finance from banks or other financial institutions in the short term. I will call these two schemes 'the future owners program' and 'the key home buyers program' respectively. In summary, the Director contends that, by designing, promoting and implementing the programs, some of the defendants engaged in unconscionable conduct, and all of them engaged in conduct which was misleading or deceptive, likely to mislead or deceive, or involved making false representations in relation to services in contravention of one or more of ss 9, 11 and 12 of the Fair Trading Act 1999 (Vic) ('the Act'). The Director brings this proceeding in the public interest and as representing the interests of certain participants in the programs who allege that they have suffered loss by reason of their participation as future owners or home buyers under one or other of the programs ('complainants'). The Director seeks declarations, permanent injunctions, orders for corrective advertising and compensation orders in favour of the complainants.

9 There is no allegation in the proceeding that the Act was contravened in relation to dealings with investors.

10 There are no pleadings.[1] The Director's allegations are contained in a variety of documents. First, an originating motion comprising some 50 pages, which asserts in broad terms that each of the defendants engaged in conduct in contravention of the Act. Second, some further and better particulars of those assertions, given in response to requests from some of the defendants, at times when they were represented by solicitors. Third, in the affidavits and exhibits contained in the 26 volumes. Fourth, in a written outline of submissions filed on behalf of the Director and signed by his counsel. However, that outline is at a high level of generality as to factual allegations concerning individual cases. In particular, it does not identify the facts said to constitute each alleged contravention of the Act and does not identify the evidence relied upon.

11 In these circumstances, the Court is heavily reliant upon the Director and his legal team to guide it through the morass of evidentiary material and to precisely identify his case. Regrettably, that has not occurred and, in the absence of directions from the Court, is not intended to occur. Instead, I was informed by counsel for the Director that they intended to take the Court through example transactions only, by reference to a 'narrative' prepared in respect of one participant couple in the key home buyers program (Mr and Mrs Opalic) and aspects of the affidavit material in respect of another couple, who participated in the future owners program (Mr and Mrs Butcher). Further, I have been taken to some schedules of admissions, prepared on behalf of the Director in relation to compulsory examinations of some of the defendants, had the broad nature of the two programs explained and heard general submissions as to why the design and implementation of each relevant program involved contraventions of the Act in respect of consumers other than the identified complainants.

12 In addition, the Director has prepared a form of draft declarations, injunctions and monetary orders sought against each of the defendants. Although this may be thought to provide a useful summary of the Director's case in respect of each defendant, the draft declarations amount to no more than assertions at a reasonably high level of generality. For this reason, I was informed by counsel that the Director was intending to provide, at an unspecified time after the conclusion of the trial, annotated draft declarations (cross-referenced to the evidence relied upon to support the making of each declaration). In my view, such a document will be no substitute for a pleaded case.

13 Having regard to the volume of material, counsel for the Director acknowledged that the way they intended to conduct the case would impose a significant burden on the Court, requiring me to read and consider all of the evidence in respect of the involvement of the defendants in the general design, marketing and monitoring of the programs, and also the evidence specifically relating to each of the six complainant groups. That task would require me to read much if not all of the 26 volumes of material. To that end, the Director and his legal team provided the Court with a number of useful aids to assist the Court in understanding and analysing the materials. Further, in order to assist the Court to understand the evidence, the Director offered to assist the Court by answering any questions the court may wish to put to the Director during the course of the Court's deliberations.

14 Over the four days of the hearing to date, counsel for the Director have proceeded in the manner indicated. The further hearing of the trial has been adjourned until 26 July in order to allow the unrepresented defendants who have appeared to file documents indicating what aspects of the evidence they challenge and to enable an evidentiary hearing to then be conducted. That hearing will include the calling of witnesses whose evidence is challenged, for both some evidence-in-chief and cross-examination, and evidence from the defendants who have appeared to resist the claims against them.

15 Since the trial was adjourned, I have, subject to other Court commitments, commenced considering the vast array of materials. In the course of doing so, it has become apparent to me that the Director has not provided the Court with the assistance which is entitled to expect in a case involving an evidentiary inquiry of the kind necessary here, especially in circumstances where there have been, to date, three unrepresented defendants who have appeared at trial and wish to defend themselves. In these circumstances, the Court requires significantly greater assistance from the Director than has been provided to date.

16 I note that there is now some representation for the three defendants who have appeared. The extent of that representation is a matter of which I am presently unsure and I will proceed to refer, in any event, to what has transpired to date.

17 In Noone Director of Consumer Affairs Victoria v Operation Smile (Australia) Inc & Ors (No 2),[2] Pagone J considered claims made by the Director that unrepresented defendants, who appeared at trial, contravened the Act in numerous respects. Judgment in the case was delivered as recently 19 April this year. However, for reasons which were unexplained, the Court was not referred to this decision by the Director in this case. In circumstances where the Director intended to proceed as described above, the Court ought to have been informed of the decision. Further, the decision is relevant in at least one other respect, as to the availability of declaratory relief in circumstances where, as here, the conduct complained of has ceased to exist or be threatened.

18 In Operation Smile, Pagone J made the following statements about what a Court is entitled to expect of the Director, as a model litigant, in a case which involves a large volume of material and unrepresented defendants. Relevantly, Pagone J stated:

(1) Circumstances such as the present place the Court and the parties in a difficult position. The Court has an obligation to assist unrepresented litigants. Further, the represented party may have a common interest with the Court in co-operating to achieve the correct result and, in every case, the legal practitioners for the represented party have duties to assist the Court in the discharge of its functions.[3]

(2) The Court's duty to assist unrepresented litigants must be balanced against the requirement that the judge preserve his or her neutrality between the parties. However, the Court must ensure a fair trial for the unrepresented litigant.[4]

(3) A public official such as the Director has an obligation to act as a model litigant. In that capacity, the Director shares a common interest with the Court in co-operating to achieve the correct result. Where one party has a burden to discharge, it is in the interests of justice to ensure that the burden is adequately and reliably discharged.[5]

(4) In some cases, the represented party must assist the Court by drawing attention to matters which, if the unrepresented party was represented, would likely be brought to the Court's attention by opposing practitioners. This includes matters which might be adverse to the interests of the represented party, 'but which the Court ought fairly to consider even if only to reject'. It is particularly important for a model litigant, such as the Director, to bring such matters to the attention of the Court.[6]

19 Further, as Pagone J repeatedly stressed, whether a statement or conduct is false and misleading depends not only on the text of the statement or nature of the conduct, but upon the context in which it occurred. In this case, that means that each case made in respect of each complainant group must be examined individually by the Court, after hearing comprehensive submissions as to the effect of the evidence as a whole and whether, as a matter of law, the facts contended for constitute one or more contraventions of the Act and, if so, justify some or all of the relief sought.

20 As will be apparent, I agree with the statements made by Pagone J. They are particularly germane to this proceeding to date.

21 Further, even putting the Director's status as a model litigant to one side, the Director is nevertheless subject to the overarching obligations contained in the Civil Procedure Act 2010. Accordingly, the Director has a paramount duty to the Court to further the administration of justice.[7] These obligations include obligations to co-operate with the other parties to the proceeding,[8] to narrow the issues in dispute,[9] to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the proceeding are reasonable and proportionate to (among other things) the amount in dispute,[10] and to use reasonable endeavours in connection with the proceeding to minimise delay.[11]

22 Obligations of this kind have always existed. They did not only arise on the commencement of the Civil Procedure Act this year. For example, in A Team Diamond Headquarters Pty Ltd v Main Road Property Group Pty Ltd & Ors,[12] Redlich JA and Beach AJA stated:

There is a significant public interest in the timely resolution of disputes and the most efficient utilisation of scarce court resources. We doubt whether the legal representatives of the applicants, as officers of the Court, gave any sufficient consideration in preparing or presenting their case as to how they might best assist the Court in the use of its limited resources. Because of the complexity and increased length of litigation in this age, the obligation which rests upon legal practitioners to give the courts such assistance has become increasingly important. Practitioners must ensure that the course chosen in the interests of the client is compatible with this overarching duty. It is a responsibility which should be at the forefront of every practitioner's considerations throughout the pre-trial and trial process. Without such assistance from the legal profession, the courts are unlikely to succeed in their endeavour to administer justice in a timely and efficient manner.[13]

23 The conduct by the Director calls each of his obligations into question. There have been examples of him not co-operating with the unrepresented parties; not bringing matters adverse to the Director's case to the attention of the Court; not acting so as to narrow the scope of the issues in dispute; and not acting so as to ensure that the costs incurred are both reasonable and proportionate to the amount in dispute. Further, the volume of material presented by the Director to the Court (which appears to include much irrelevancy) serves only to maximise delay in both the duration of the trial and the time for delivery of judgment.

24 An example of the Director not co-operating with the unrepresented parties includes taking a difficult approach to requests by Mr Gilfillan to enable him to access electronic copies of relevant documents.

25 An example of the Director not bringing matters adverse to the Director's case to the attention of the Court is to be found in the factual narrative prepared by the Director in respect of Mr and Mrs Opalic. That narrative does not refer to material facts contained in their affidavits which might be adverse to the Director's case, including:

(1) that they had the assistance of two 'business friends' to assist them in understanding the future home owners program (before their subsequent participation in the key home buyers program);

(2) the full circumstances in which the initial budget put forward by the Opalics was altered at their instigation;

(3) the fact that the Opalics appear to have made expenditures well outside of their agreed budget for discretionary expenditure, including on Mrs Opalic's increased alcohol consumption and on various improvements to their home;

(4) the fact that it was Mr and Mrs Opalic who instigated the increase in the value of their 'furniture pack'; and

(5) the testimonial given by Mr and Mrs Opalic in respect of the key home buyers program.

26 In Banque Commerciale SA v Akhil Holdings Ltd,[14] Mason CJ and Gaudron J stated that the function of pleadings is to state with sufficient clarity the case that must be met, so as to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision by the court.[15]

27 In this case, the Director is maintaining a general case against a number of defendants, and six specific cases in respect of individual complainants. Each case raises multiple allegations and seeks various forms of relief. Accordingly, this is a case which requires pleadings to assist the Court and provide procedural fairness to the defendants who seek to defend themselves. This is especially so where the Court is being asked to make a series of very serious findings, to order wide publication of those findings and to make orders for compensation and legal costs which will very likely be largely irrecoverable against the defendants. Bankruptcies or further bankruptcies are the likely result of any monetary judgments.

28 The filing of pleadings will require the Director to consider each of the essential elements of each of the multiple causes of action sought to be established. For example, the materials which I have read concerning Mr and Mrs Opalic raise in my mind some real questions as to reliance on the allegedly misleading statements and also as to causation of the losses claimed by the Director on their behalf. The Court and the affected defendants are entitled to have these essential elements of the case pleaded precisely and with full particulars. Further, resolution of these issues will in all probability be rationally effected by the discovery of contemporaneous documents. There is a real potential for unfairness if affected defendants are required to proceed to trial without any discovery of relevant documents on these issues from persons on whose behalf damages are claimed against them.

29 In all the circumstances, I propose to order under r 4.07(1)(a)[16] that the proceeding continue as if commenced by writ. I will adjourn the further hearing of the trial to a date to be fixed. The trial will not resume until the Director has filed a statement of claim which articulates, in precise form, each of the cases sought to be made in both fact and law. The factual allegations should be fully particularised, with reference to the materials which have already been admitted into evidence at the trial.

30 I would encourage the Director to consider whether it is reasonable and proportionate to maintain all of the present allegations; and whether the claims against the individual employees should, in light of their role, their likely inability to satisfy any monetary judgment (including for costs), their credible statements that they do not wish to participate again in the promotion of any scheme similar to the programs, and the public interest in the effective use of Court resources, be maintained.

31 Once that pleading has been filed, the proceeding will be listed for further directions.

32 In my view, this was a proceeding which ought never to have been commenced by originating motion. The Rules authorise a proceeding to be commenced by originating motion in limited circumstances only; none of them apply to this proceeding. This is not a mere application under an Act as stated in r 4.05, but a multifaceted proceeding raising substantial allegations of both fact and law. This is not a proceeding where, reasonably advised, the Director could have thought that it was appropriate to dispense with pleadings or discovery. If defended, it was obvious that there would be disputes as to facts. If wholly undefended, pleadings were nevertheless necessary to assist the Court in defining the issues for determination.

33 In future, proceedings of this kind ought be commenced by writ with a fully pleaded and particularised statement of claim, and not just by voluminous affidavits from which a case may be gleaned from submissions.

34 I should say this to the defendants who appear, so there is no doubt. The Court's rulings today do no more than provide you with an opportunity to know the cases you respectively have to meet and to meet those cases by evidence, by cross-examination, or both. The Court's findings do not indicate in any way that the Court has reached the view that some or all of the cases should fail. The Director has put forward substantial evidence which, if accepted, may justify some or all of the serious allegations against you. If so, some or all of the orders sought against you, including compensation orders and orders for costs, may be made.

AUSTRALIAN PROPERTY AND FINANCIAL COACHING PTY LTD ACN 097 549 687

[1] An application was apparently made at the first directions hearing for a statement of claim to be ordered. Master Daly, as she then was, did not accede to that application.

[2] [2011] VSC 153 ('Operation Smile').

[12] [2009] VSCA 208.

[14] [1990] HCA 11; (1990) 169 CLR 279.

[16] Supreme Court (General Civil Procedure) Rules 2005 ('the Rules').