Plaintiff v Defendants

2 TVM is the plaintiff in four separate proceedings and has applied to have the four proceedings consolidated.

3 The first proceeding is a claim against former directors, officers and solicitors of TVM.[2] TVM contends that they failed to act or acted in contravention of their duties as directors and/or solicitors. I will refer to this as the Director Proceeding and the defendants as the Director Defendants.

4 The second proceeding is a claim against TVM's former accountants.[3] TVM makes allegations against the accountants in contract and negligence, for misleading or deceptive conduct and involvement in TVM's alleged breaches of statutory obligations. I will refer to this as the Accountant Proceeding and the defendants as the Accountant Defendants.

5 The third proceeding is a claim against TVM's auditors in contract and negligence and for misleading or deceptive conduct and involvement in TVM's alleged breaches of statutory obligations arising from the conduct of audits of the Blue Diamond Trust and other matters.[4] I will refer to this as the Auditor Proceeding and the defendants as the Auditor Defendants.

6 The last proceeding is a claim against certain unit holders in the Blue Diamond Trust for recovery of payments alleged to have been made by mistake or in breach of trust.[5] The defendants to this proceeding are all companies. It is alleged that each of them had as a director or officer one or more of the defendants in the Director Proceeding or the Accountant Proceeding. I will refer to this as the Unitholder Proceeding and to the defendants as the Unitholder Defendants.

7 Prior to the hearing, TVM prepared and circulated a proposed consolidated statement of claim without the schedules that are referred to in the body of it. I will return to consider this later in these reasons.

When should separate proceedings be consolidated?

8 Consolidation of multiple proceedings is dealt with in r 9.12 of the Supreme Court (General Civil Procedure) Rules 2005 which provides as follows:

(1) Where two or more proceedings are pending in the Court, and -

(a) some common question of law or fact arises in both or all of them;

(b) the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions; or

(c) for any other reason it is desirable to make an order under this Rule -

the Court may order the proceedings to be consolidated, or to be tried at the same time or one immediately after the other, or may order any of them to be stayed until after the determination of any other of them.

(2) Any order for the trial together of two or more proceedings or for the trial of one immediately after the other, shall be subject to the discretion of the trial Judge.

9 In Buckley v The Herald and Weekly Times,[6] Nettle JA (with whom Ashley and Weinberg JJA agreed) said:

Generally speaking, applications for the consolidation of proceedings are governed by two principles. First, as Young CJ said in Bolwell Fibreglass Pty Ltd v Foley consolidating orders should very rarely be made; speaking generally, it is better to confine them to cases where several actions have been brought which might have been joined in one writ. Secondly, as was recognised by Herring CJ in Cameron v McBain, where a consolidation order is likely to expose a plaintiff to a substantial risk of real prejudice, the order should not be made.[7] [citations omitted]

10 Other matters that have been taken into account by courts in considering whether orders for consolidation, concurrent or sequential trials should be made include:

(a) whether the proceedings are broadly of a similar nature;[8]

(b) the level of overlap of witnesses (lay and expert) between the proceedings;[9]

(c) time savings or other efficiencies that might be achieved; [10]

(d) any procedural or evidentiary difficulties that might be encountered; [11]

(e) inconvenience that might be caused to parties to the separate proceedings if they are required to participate in a consolidated proceeding or concurrent trials; [12]

(f) the stage each proceeding has reached; [13]

(g) the number and nature of the issues that are not common to the proceedings;[14]

(h) whether inconsistent findings might result from separate trials;[15]

(i) the effect on the prospects of non-judicial resolution of the dispute through negotiation or mediation.[16]

11 All of these matters are considered in the context of a party's entitlement to a fair trial and the overarching purpose of the Civil Procedure Act 2010 (Vic) and the Court Rules to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[17]

12 In the event that an order for consolidation of proceedings is made and it later turns out that it would be preferable if there were separate trials, a de-consolidation order might be made.[18] In my opinion, not too much weight should be given to this potential protection when considering whether to order consolidation of separate proceedings. Whilst it may be possible to make such an order, as a practical matter and dependent upon the steps that have been taken since the order for consolidation was made, deconstructing the intertwined proceedings may be extremely difficult and could lead to considerable additional expense.

13 The draft consolidated statement of claim ("CSOC") is lengthy. It contains:

(a) allegations concerning TVM and the Blue Diamond Trust including TVM's incorporation, role as responsible entity, its liquidation, the establishment of the Blue Diamond Trust, its governing constitution and regulatory obligations (alleged to include an obligation on TVM to have a compliance plan), TVM's Australian Financial Services Licence, compliance plans that were lodged with the Australian Securities and Investments Commission, TVM's management policy statement and procedural guidelines (including allegations that the procedural manual required valuations of property offered as security for loans to be obtained and updated in certain circumstances, the procedure to be followed when loans fell into arrears and a bad debts policy);

(b) allegations about each of the Defendants, including their connection with TVM and the Blue Diamond Trust and their connection with any of the other defendants (for example, as a director of one of the Unitholder Defendants as well as being a director of TVM);

(c) a plea about the alleged applicable accounting standards for preparation of the financial reports for TVM and the Blue Diamond Trust (amongst other things in relation to impaired, bad and doubtful debts, recognition of income and disclosure of material information);

(d) a plea about the alleged applicable auditing standards for auditing the financial reports for TVM and the Blue Diamond Trust;

(e) allegations about loans alleged to have been made by the Blue Diamond Trust the recovery of which it is alleged became and remained doubtful (referred to as the "Doubtful Loans");

(f) allegations concerning certain Blue Diamond Trust Financial Reports ("BDT Financial Reports") said to have been prepared and filed with the Australian Securities and Investments Commission;

(g) allegations as to the duties owed by the Director Defendants and additional duties alleged to be owed by those Director Defendants who were also solicitors;

(h) allegations setting out what are pleaded to be contraventions by TVM of the applicable accounting standards and the Corporations Act and failures to comply with the scheme documents (including the scheme compliance plan, trust deed and constitution) (referred to as the "TVM Contraventions"). In this regard, it is alleged that there was:

• a failure to value scheme property;
• a failure to make provision for bad or doubtful debts;
• a failure to disclose material information;
• a failure to record properly expenditure on joint venture activities;
• a failure to account properly for accrued interest on loans in default;
• an improper preferential treatment of certain unitholders (including some of the Unitholder Defendants);
• a failure to obtain adequate security for various loans made by the Blue Diamond Trust;

• the BDT Financial Reports did not comply with the applicable accounting standards and, therefore, the Corporations Act and did not give a true and fair view of the trust's financial position and performance (it is alleged that the Director Defendants breached their statutory duties under the Corporations Act by passing resolutions approving the BDT Financial Reports and making declarations that those reports complied with the regulatory requirements and gave a true and fair view of the financial position and performance of the trust);
• TVM permitted withdrawals inconsistently with the trust's Constitution and/or section 601KA of the Corporations Act.

(i) allegations concerning each of the Director Defendant's acts or omissions said to be in contravention of their duties as directors and/or solicitors in connection with the Doubtful Loans and the TVM Contraventions;

(j) allegations as to the liability of the Accountant Defendants in contract and negligence and for misleading or deceptive conduct and involvement in the TVM Contraventions arising from the preparation of the BDT Financial Reports - these allegations rely in part upon the earlier pleaded allegations about the Doubtful Loans and the TVM Contraventions;

(k) allegations as to the liability of the Auditor Defendants in contract and negligence and for misleading or deceptive conduct and involvement in the TVM Contraventions arising from the conduct of audits of the Blue Diamond Trust and the compliance plan - again, the allegations rely in part upon the earlier pleaded allegations about the Doubtful Loans and the TVM Contraventions.

14 The CSOC concludes with paragraphs containing allegations that the Unitholder Defendants received payments by mistake or payments made in breach of trust. The pleading of the claim for payments by mistake reads as follows:

1. In the period between 2006 and 2009 inclusive, the Unit Holder Defendants:

(a) received payments from the Trust by way of distributions of income; and

(b) received payments from the Trust by way of redemptions of units held by the defendants.

Particulars

Particulars of the payments are contained in Schedule 24.

Payments by mistake

1. The payments made to the Unit Holder Defendants referred to in paragraph 481 above were made by TVM by mistake - namely, that the Unit Holder Defendants were entitled under the Constitution to be paid the amounts they were paid in distributions of income and on redemption of units in the Trust, when in fact the amount that the Unit Holder Defendants would entitled to be paid if the Constitution and the Trust Deed had been complied with was substantially less.

Particulars

Particulars of the difference between the amount of the payments, and the amount of that the Unit Holder Defendants ought to have been paid ("the Excess Payments") are contained in Schedule 25

The mistake was made by Taylor and / or Daniels, who had a belief to the effect alleged.

1. By reason of the matters alleged in paragraph 482:

(a) the Unit Holder Defendants were unjustly enriched at the expense of TVM;

(b) alternatively, the Excess Payments constituted monies had and received by the Unit Holder Defendants to the use of TVM.

15 In respect of the breach of trust claim against the Unitholder Defendants, it is alleged that the payments referred to in paragraph 481 of the CSOC were made contrary to the terms of the trust deed and the trust's constitution and the particulars refer to the matters in paragraphs 482 and 483 of the pleading. It is pleaded that the Unitholder Defendants knew or ought to have known that the payments were received in breach of trust because one or other of the officeholders of the relevant Unitholder was also a director or officer of TVM or was one of the Accountant Defendants.

16 As can be seen from the section of the pleading set out above, particulars of the payments that are alleged to have been made are to be contained in a schedule to the CSOC. That schedule was not provided with the CSOC but is in the course of being prepared. The position is the same in respect of schedules of particulars relating to the difference between what it is alleged the Unitholder Defendants received and what they ought to have been paid in relation to both the claim for mistake and for breach of trust.

17 The Auditor Defendants, the Accountant Defendants and all but one of the Director Defendants did not oppose the consolidation of the proceedings to which they are parties. All of these Defendants either did not oppose or took no position in respect of consolidation of the three proceedings with the Unitholder Proceeding. The other Director Defendant submitted that it was premature to consider the application for consolidation because the CSOC was not in final form, and more specifically that the various schedules of particulars were missing. However, her position was that when the final form of pleading was served, it was likely that she would support consolidation of the Director Proceeding, the Accountant Proceeding and the Auditor Proceeding.

18 There are a number of reasons why orders should be made consolidating the Director, Accountant and Auditor Proceedings. First, they could all have been joined in the one proceeding had TVM chosen to proceed that way. Second, there is no suggestion that any party will be prejudiced by consolidation. Third, there are a number of matters that are to be pleaded which are common to all three proceedings and which constitute what might be described as the core of each case. They relate to the allegations concerning loans made by the Blue Diamond Trust, the BDT Financial Reports and the allegations of contravention by TVM of its statutory and other obligations. It is quite likely that these matters will require substantial and possibly lengthy lay and expert evidence to be given. It would be undesirable to have inconsistent findings on these matters resulting from separate trials. It is far preferable to have all parties bound by determination of the common issues in one trial. There may also be some common questions of law; for example, whether the matters alleged constitute contraventions of the Corporations Act. Fourth, consolidation of the three proceedings is not likely to make them more complicated and it is foreseeable that there will be some efficiencies to be gained by consolidation. Most of those efficiencies might also be gained if the proceedings were heard together, for example the time saving in having one trial rather than three separate trials. However, from the plaintiff's point of view, consolidation offers some additional savings; for example, having one pleading (rather than three separate pleadings) to amend, should that be necessary as is so often the case in the course of modern commercial litigation. Consideration of the other matters that I have referred to in [9] and [12] above also favours consolidation of the three proceedings.

19 The remaining question is whether the Unitholder Proceeding should also be consolidated with the three other proceedings. There are 23 Unitholder Defendants. Some of them consented to the consolidation or did not oppose it. However, the majority of the Unitholder Defendants did oppose consolidation. Their main complaint related to the CSOC and, in particular, they complained that it lacked clarity in relation to the claim made against them. They contended that they were only concerned with a very small part of the proposed consolidated proceeding as pleaded in the CSOC limited to some of the formal matters and the paragraphs alleging payment by mistake and payments received in breach of trust. In respect of those matters, they submitted that the proposed pleading included novel claims and was unsatisfactory because, amongst other things, it lacked particulars and was vague. They contended that the Court should wait to see the finalised statement of claim before deciding whether the Unitholder Proceeding should be consolidated with the three other proceedings. Those Unitholder Defendants opposing consolidation accepted that it may be appropriate at a later stage for orders to be made for consolidation of the Unitholder Proceeding with the other proceedings, for parts of the proceedings to be tried at the same time and for orders that some evidence in one trial be taken as evidence in the other. However, they submitted that it would be premature to make such orders now.

20 TVM contended that, in common with the Defendants in the three other proceedings, the Unitholder Defendants would have to deal with the pleadings concerning TVM and the trust, the scheme documents, the accounting standards, the alleged Doubtful Loans, the BDT Financial Reports and the alleged TVM Contraventions. However, it is not obvious from the CSOC as presently drafted that all of these matters are relevant to the claim brought against the Unitholder Defendants. There is a clear overlap in respect of some issues such as TVM and the trust, but the obvious areas of overlap in the CSOC are limited. Unlike the pleadings in respect of the Accountant and Auditor Defendants, the pleading against the Unitholder Defendants is less explicit as to which of the earlier paragraphs of the pleading are relied upon as building blocks for the cause of action. The absence of the schedules of particulars compounds the issue.

21 In my opinion, before orders for consolidation or similar orders are made, there should be more clarity in the way that the claim is put against the Unitholder Defendants and how it relates to the claims made in the three other proceedings. At this stage, that can best be achieved by keeping the Unitholder Proceeding as a separate proceeding with a separate pleading. Once it is clearer what issues are relevant to all proceedings and what issues are not, further consideration might be given to consolidation of all proceedings or orders for joint trials or the like. Counsel for TVM submitted that if the proceedings were not consolidated, then this could lead to inefficiencies where a pleading is challenged in one proceeding and has to be amended in that proceeding but not in another where there has been no challenge. It seems to me that if there are only to be two proceedings going forward (the Director, Auditor and Accountant consolidated proceeding and the separate Unitholder Proceeding) this risk can be minimised with appropriate management of the cases. In my view, any risk of inefficiency is outweighed by the benefit of seeing how the Unitholder Proceeding unfolds and revisiting the question of consolidation at a later point.

22 In the meantime, both the Unitholder Proceeding and the consolidated proceedings should be managed together. Given that the claims against the Director, Accountant and Auditor defendants rely in part upon on alleged breaches of the Corporations Act, all of the proceedings will be entered into the Corporations List in the Commercial Court.

23 Orders will be made for consolidation of the Director, Accountant and Auditor proceedings, for service of a consolidated statement of claim and for other procedural matters. Timetabling orders will also need to be made in the Unitholder Proceeding. Before making such orders, I will give the parties to that proceeding an opportunity to consider what orders might be appropriate.

TRADITIONAL VALUES MANAGEMENT LIMITED (IN LIQUIDATION)

TRADITIONAL VALUES MANAGEMENT LIMITED (IN LIQUIDATION)

TRADITIONAL VALUES MANAGEMENT LIMITED (IN LIQUIDATION)

PRICE GIBSON PTY LTD (ACN 113 562 744) First Defendant

TRADITIONAL VALUES MANAGEMENT LIMITED (IN LIQUIDATION)

WHO INVESTMENTS PTY LTD (ACN 004 984 972) First Defendant

TOOL PROPERTIES PTY LTD (ACN 005 052 899) Fourth Defendant

AMBERMAZE PTY LTD (ACN 110 059 606) Fifth Defendant

HOLIDAY CONCEPTS CORP PTY LTD (ACN 007 146 367) Ninth Defendant

EIGHTY-SECOND AGENDA PTY LTD (ACN 006 329 326) Tenth Defendant

GJR INVESTMENTS PTY LTD (ACN 059 007 626) Eleventh Defendant

DEVELOPMENTS PTY LTD (ACN 006 191 475) Twelfth Defendant

LEISURETIME CONCEPTS PTY LTD (ACN 059 342 068) Thirteenth Defendant

RESORT SYSTEMS PTY LTD (ACN 086 129 875) Fourteenth Defendant

BELLBRAE COUNTRY CLUB LTD (ACN 071 230 478) Fifteenth Defendant

HOLIDAY CONCEPTS MANAGEMENT LTD (ACN 006 353 180) Sixteenth Defendant

ISLAND BREEZE CLUB LTD (ACN 057 804 118) Seventeenth Defendant

RIVIERA BEACH RESORT LTD (ACN 007 300 923) Nineteenth Defendant

THE BRIGHT RESORT LTD (ACN 006 445 978) Twentieth Defendant

MACLAW NO 331 PTY LTD (ACN 057 723 029) Twenty-first Defendant

WATERS, DACE PARTNERS PTY LTD (ACN 056 459 397) Twenty-second Defendant

WDP FINANCIAL SOLUTIONS PTY LTD (ACN 086 288 306) Twenty-third Defendant

[1] The application to wind up the trust was made by the liquidators and the winding up was ordered in August 2010 pursuant to s 601ND of the Corporations Act 2001 (Cth).

[6] [2009] VSCA 118; (2009) 24 VR 129.

[8] Humphries v Newport Quays Stage 2A Pty Ltd [2009] FCA 699.

[10] Ibid; Countrywide Building Society (In liq) v Day Neilson Jenkins & Sons (1996) ATPR 41-488; Ghose v CX Reinsurance Company Ltd & Ors [2010] NSWSC 110.

[11] Humphries v Newport Quays Stage 2A Pty Ltd [2009] FCA 699.

[12] Ibid; Countrywide Building Society (In liq) v Day Neilson Jenkins & Sons (1996) ATPR 41-488.

[13] Humphries v Newport Quays Stage 2A Pty Ltd [2009] FCA 699.

[14] Thomas v Powercor Australia Ltd (Ruling No. 1) [2010] VSC 489.

[15] Solomon Lew & Ors v Adam Priester & Ors [2012] VSC 57; Countrywide Building Society (In liq) v Day Neilson Jenkins & Sons (1996) ATPR 41-488.

[16] Wilson v Minister for Land and Water Conservation (NSW) [2003] FCA 307; (2003) 126 FCR 500. Cf Pegasus gold Inc v Bateman Project Engineering Pty Ltd [1999] FCA 490.

[17] Civil Procedure Act s 7 and Supreme Court (General Civil Procedure) Rules 2005 r 1.14. See also Practice Note No. 10 of 2011 para 2.1.

[18] Bolwell Fibreglass Pty Ltd v Foley [1984] VicRp 8; [1984] VR 97; Ghose v CX Reinsurance Company Ltd & Ors [2010] NSWSC 110.