Plaintiff v Defendants

(b) The Trust Company (Nominees) Ltd (the trustee for the Banksia debentureholders under a trust deed entered into with Banksia) ("Trust Co");[3]

(c) RSD Chartered Accountants (who were the auditors of Banksia) ("RSD");[4]

(d) Patrick John Godfrey (a director of Banksia);[5]

(e) Nicholas Livingstone Carr, Peter William Keating, Neil Stewart Mathison and Geoffrey Grenville Skewes (directors of Banksia) ("the NonExecutive Directors").[6]

2 In broad terms, Mr Bolitho submitted that the claim fundamentally arises out of nondisclosure of highly material and adverse matters in three prospectuses which resulted in the loss and damage sustained by him and Banksia Group Members.

3 Mr Bolitho seeks leave to amend the statement of claim.[7] The application is opposed by all defendants other than Banksia ("the Defendants"). There are a number of objections taken by the Defendants to the proposed pleading, their common complaint being that there is no proper pleading of causation. Trust Co also complains that there is no proper pleading of its knowledge of certain matters.

4 Whilst I do not accept all of the Defendants' criticisms, some of them are valid. Mr Bolitho's application for leave to amend will be refused. He will be permitted to recast his pleading and make a subsequent application for leave to amend.

5 My reasons for this conclusion are set out below. I deal first with the pleading principles, next with the proposed pleading of causation, then the pleading of Trust Co's knowledge and finally with whether Mr Bolitho must plead the basis for the obligations to disclose that he alleges were imposed on Banksia.

6 The principles for pleading are well known and need not be rehearsed in detail. Suffice to say, a pleading must contain, in summary form, a statement of all the material facts on which the party relies.[8] There are good reasons why material facts must be pleaded.[9] Among other things, such a pleading enables a party's opponent and the Court to know what the case is that is to be met. Further, it discloses whether the party has a claim or defence (whichever may be the case) which is known to law. Ordinarily, leave to amend a pleading will not be granted where the pleading would be liable to be struck out. So, for example, leave to amend a statement of claim is unlikely to be granted where the proposed pleading does not disclose a cause of action or may prejudice, embarrass or delay the fair trial of the proceeding.[10]

7 Mr Bolitho provided his proposed form of further amended statement of claim dated 18 October 2013 to the Court and the Defendants ("PFASOC"). In that document, he alleges that between 6 October 2009 and 25 October 2012, Banksia offered debentures to the public. He alleges that it did this by accepting new monies which were deposited in Banksia for fixed terms and at call by members of the public and by automatically rolling over the fixedterm deposits when they matured. In this regard, Mr Bolitho pleads that Banksia did this by using Product Disclosure Statements and supplementary Product Disclosure Statements ("PDS Documents") which invited members of the public to deposit monies with Banksia and thereby take up Banksia debentures.[11] The relevant prospectuses are Prospectus No. 16 (6 October 2009), Prospectus No. 17 (15 October 2010) and Prospectus No. 18 (17 October 2011).[12] So far as the facts concern him personally, Mr Bolitho has provided particulars that:

(a) he initially invested $8,000 on 1 April 2005 to acquire Banksia debentures to be held for a term of six months at an interest rate of 6.25 per cent;

(b) on 3 October 2005, the amount of $8,255.43 was 'rolled over' for a further period of six months at 6 per cent;

(c) the pattern of 'rollover' continued thereafter on a six monthly basis,[13] with the final 'rollover' occurring on 10 April 2012 when the amount of $11,662.10 was invested for a period of six months at 4.9 per cent;

(d) Mr Bolitho does not know what Banksia did in respect of his investment in Banksia debentures when it matured on 10 October 2012, but it has not been repaid to him in full.[14]

8 Mr Bolitho alleges that each of the PDS documents contravened s 728 of the Corporations Act 2001 (Cth). In part, that section provides:

(1) A person must not offer securities under a disclosure document if there is:

(a) a misleading or deceptive statement in:

(b) an omission from the disclosure document of material required by section 710, 711, 712, 713, 714 or 715...

9 If this section is contravened, there is a right to recover under s 729(1) which is in the following terms:

(1) A person who suffers loss or damage because an offer of securities under a disclosure document contravenes subsection 728(1) may recover the amount of the loss or damage from a person referred to in the following table if the loss or damage is one that the table makes the person liable for. This is so even if the person did not commit, and was not involved in, the contravention.

any contravention of subsection 728(1) in relation to the disclosure document

each director of the body making the offer if the offer is made by a body

any contravention of subsection 728(1) in relation to the disclosure document

a person named in the disclosure document with their consent as a proposed director of the body whose securities are being offered

any contravention of subsection 728(1) in relation to the disclosure document

an underwriter (but not a subunderwriter) to the issue or sale named in the disclosure document with their consent

any contravention of subsection 728(1) in relation to the disclosure document

a person named in the disclosure document with their consent as having made a statement:

(a) that is included in the disclosure document; or

(b) on which a statement made in the disclosure document is based

the inclusion of the statement in the disclosure document

a person who contravenes, or is involved in the contravention of, subsection 728(1)

10 In respect of Prospectus 16 (2009), Mr Bolitho alleges that each of the following statements was a misleading or deceptive statement in a disclosure document in breach of s 728[15]

(a) Page 2: "About the Banksia Financial Group

The Company predominantly invests funds in registered mortgages over real estate throughout Australia and more particularly mortgage loans managed by Banksia Mortgages Limited (BML), a member Company of Banksia. The remaining funds are invested in Australian banks and other investments as permitted under the Trust Deed....

(b) We expect the company should continue to demonstrate a high ability and efficiency in managing and servicing its asset portfolio The `Stable' outlook on Banksia's servicer ranking reflects our expectation that the company will continue to operate in an effectively controlled and stable servicing environment. The company's operations are managed by an industry-experienced management team, with clearly defined business strategies that respond to current market conditions. Banksia's management expects to continue to focus on meeting high-quality loan-servicing standards by implementing conservative lending policies and prudent underwriting standards.

(c) Page 4: "BENCHMARK 2 - Liquidity

"The relativity of maturing investments and loans is a daily risk management exercise. Projections are made out to 24 months into the future to monitor the liquidity position based on maturing loans. Because investments and loans mature at different times the asset and liability mismatch is the focus of careful analysis and management."

(d) Page 6: "As at 30 June 2009 the Company has 21 mortgage investments totalling $12,686,143 where arrears of interest payments are more than 90 days overdue. Recovery proceedings have commenced. This represents 3.2% of the total debenture holder funds in the Company. Where appropriate, the Company has made loans non-interest accruing.

(e) The Company has made provision for bad and doubtful debts of $1,947,000 in the event of non-recovery of the full amount of an investment.

(f) The Company also has Net Tangible Assets exceeding $20.6 million, as at 30 June 2009....

(g) Page 8: "4.3 Risk Management

Market risk is managed via daily monitoring of the Company's asset/liability position and through continuous monitoring of changes in general economic and market conditions. Credit risk is managed through BML's loan assessment and management procedures (see Section 7.2).

The Company operates in accordance with Banksia's comprehensive risk management program, which is based on the standards set in AS/NZS 4360 and is central to Banksia's policy of continuous improvement.

Ongoing review of all identified risks to the operations of the group as a whole is maintained by select committees appointed from responsible personnel to develop and apply risk management covering:

• Finance and security;
• Legal and regulatory requirements;
• Comprehensive insurance;
• Market and economic conditions;

In managing risk to investors, Banksia operates in accordance with practices and procedures which include:

• appropriate due diligence during the loan assessment and credit approval process;
• a Compliance Plan;
• a Compliance Committee comprising a majority of external members;
• Statutory external audits;
• a Board Credit Committee;
• a Board Audit & Corporate Governance Committee.

The program requires regular meetings of all committees at which sources of risk are identified and managed. The action which results flows to policy and procedure adjustments throughout Banksia's operations. The Managing Director is involved in all facets of the program and reports to the Board twice yearly on the operation and detail of the risk management program."

Loan Management:

BML has a professional and experienced team administering its mortgage loans.

BML operates a dedicated default management department. A Default Management Committee comprised of senior personnel meets weekly to review arrears. Discretion is applied in deciding the action to be taken and the timetable to apply to a default situation.

(i) Page 20: "Balance Sheet as at 30 June 2009:

(j) Page 25: "Independent Accountant's Report"

"... The audit reports for the financial years ended 30 June 2008 and 30 June 2009 were unqualified.

1. In our opinion, there have been no material items, transactions or events subsequent to the balance date which relate to conditions existing at the balance date and which require comment on, or adjustment to, the figures dealt with in our report. To the best of our knowledge and belief, there have been no material items, transactions or events subsequent to the balance date which, although they do not relate to the conditions existing at balance date, would cause reliance on the figures shown in this report to be misleading...

RICHMOND SINNOTT & DELAHUNTY

Chartered Accountants."

"The Directors report that for the period 30 June 2009 to the date of this prospectus they have not become aware of any other circumstances which have or will materially affect the trading and profitability of the Company.

The Directors are of the view that having regard to the Company's past performance and current market activities, the Company will continue to trade successfully in the coming year.

The Directors of the Company are of the opinion that the Company will be in a position to meet, as they fall due, interest and principal payments on investments accepted under this prospectus."[16]

11 These statements are defined in the PFASOC as 'the 2009 Banksia Prospectus statements'.

12 Mr Bolitho also alleges that there are a number of matters (defined as the 'Banksia undisclosed matters'[17] and the '2009 Banksia Financial Matters'[18]) that ought to have been, but were not, disclosed by Banksia and which broadly concern:

(b) loans in respect of which possession of the underlying security had been taken;

(d) inadequacies of Banksia's Risk Management program;

(e) the value and condition of a loan portfolio acquired in and after March 2009 from Statewide Secured Investments Ltd ("Statewide");[19]

(f) other matters concerning Statewide's business and financial position in March 2009;[20]

(g) the directors' resolution to proceed with the acquisition of Statewide's assets and liabilities with limited due diligence and without taking independent accounting, legal or other external advice and on the basis of information Mr Godfrey provided as to Statewide's bad and doubtful debts;[21]

(h) payment by Statewide of a dividend of $1 million on 25 June 2009 to Banksia's parent company, Securities Holdco Ltd;[22]

(i) the 'rollover' of Statewide debentures into Banksia debentures or, where that did not happen, payment to Statewide debentureholders in cash at the full face value of their Statewide debentures;[23]

(j) the transfer of Statewide loans to Banksia (at a higher than permitted loan to value ratio created by the inclusion of nonperforming or impaired loans) to 'match' the liabilities which were being incurred by Banksia by the issue of the new rollover Banksia debentures to former Statewide debentureholders;[24] and

(k) the nontransfer of Statewide loans to Banksia which the directors considered to be excessively impaired.[25]

13 The alleged misleading or deceptive statements and the omissions of the Banksia undisclosed matters and the 2009 Banksia Financial matters are defined in the PFASOC as the '2009 Banksia Prospectus Contraventions'.

14 Mr Bolitho pleads that following the publication of Prospectus 16 (6 October 2009), Banksia Group Members purchased Banksia debentures and rolled over their existing Banksia debentures when they matured and did not withdraw or seek to withdraw their investments.[26] He then pleads:

1. If the 2009 Banksia Prospectus Contraventions had not occurred, Banksia's poor financial position and its poor financial prospects following the Statewide Acquisition would have been publicly revealed in October 2009 and one or more of the following things would then have occurred:

(a) Bolitho and many of the Banksia Group Members would have taken steps to withdraw their investments from Banksia immediately;

(b) Banksia would have disclosed breaches, alternatively impending breaches, of the Banksia AFSL Solvency and Liquidity Requirements;[27]

(c) Banksia would have been obliged to notify ASIC[28] of the breaches of the Banksia AFSL Solvency and Liquidity Requirements;

(d) Banksia would have been obliged to notify Trust Co (which would in turn have been obliged to notify ASIC) of the breaches of the Banksia AFSL[29] Solvency and Liquidity Requirements;

(e) had Banksia or Trust Co notified ASIC of Banksia's breaches of the Banksia AFSL Solvency and Liquidity Requirements, the Banksia AFSL would have been revoked by ASIC;

(f) Banksia would have ceased to accept further deposits or issue or roll over debentures and its business would have ceased immediately; and

(g) Bolitho and many Banksia Group Members would have suffered no loss, alternatively less loss than they have in fact suffered as a consequence of Banksia continuing to trade until 25 October 2012.

1. By reason of the 2009 Banksia Prospectus Contraventions, Bolitho and some Banksia Group Members (being those who were adversely affected by the 2009 Banksia Prospectus Contraventions in the manner alleged in paragraph 34 above):

The loss is the unpaid principal and interest in respect of the Banksia debentures since 25 October 2012.

(b) are entitled, pursuant to section 729 of the Corporations Act, to recover the loss or damage suffered by them from each of:

(i) Banksia;

(ii) RSD; and

(iii) the Directors.

RSD were persons named in Prospectus 16, having given their consent to being named as the auditor and the provider of an expert report relating to Banksia and having signed the Independent Accountant's Report on page 25 of Prospectus 16.

The Directors were persons named in Prospectus 16, having given their consent to making all of the statements included in Prospectus 16, other than those made by RSD.

15 In relation to prospectuses 17 (2010) and 18 (2011), Mr Bolitho makes analogous allegations of misleading or deceptive statements and omissions[30] said to be in breach of s 728 of the Corporations Act. The pleading includes paragraphs in respect of those prospectuses in substantially the same form as paragraphs 34 and 35 (which I have set out in the preceding paragraph).

16 Mr Bolitho makes additional allegations that Banksia failed to carry on its business in a proper and efficient manner in breach of the requirement to do so in s 283BB(a) of the Corporations Act by:

(a) failing to disclose the matters alleged to have been omitted from the PDS documents;

(b) failing to account properly for the true state of its own financial position and its financial prospects and circumstances;

(c) failing to account properly for or report to the public the level of impairment of its loan assets;

(d) failing to institute or maintain a proper or adequate risk management program;

(e) failing to consider properly or properly account for the level of bad and doubtful debts within the Statewide loan portfolio;

(f) failing to inform ASIC or Trust Co or any other person of any of the matters alleged in paragraphs (a) to (e) above, or that as a consequence of those or any other matters, any of the provisions of the Banksia Trust Deed might not or would not be fulfilled.[31]

17 These alleged breaches are defined in the PFASOC as the 's 283BB(a) Banksia Contraventions'. Mr Bolitho alleges that the directors were persons involved in those contraventions within the meaning of s 79 of the Corporations Act.[32] He pleads that if the directors had not been involved in those contraventions:

(a) the 2009 Banksia Financial Matters would have been disclosed to the public;

(b) the 2010 Banksia Financial Matters would have been disclosed to the public;

(c) the 2011 Banksia Financial Matters would have been disclosed to the public;

(d) the Banksia undisclosed matters would have been disclosed to the public;

(e) the 2010 Banksia Accounting Changes would have been disclosed to the public;

and following disclosure of the matters alleged in paragraphs (a) to (e) above:

(f) Bolitho and many of the Banksia Group Members would have taken steps to withdraw their investments from Banksia;

(g) Banksia would have disclosed breaches, alternatively impending breaches, of the Banksia AFSL Solvency and Liquidity Requirements;

(h) Banksia would have been obliged to notify ASIC of the breaches of the Banksia AFSL Solvency and Liquidity Requirements;

(i) Banksia would have been obliged to notify Trust Co (which would in turn have been obliged to notify ASIC) of the breaches of the Banksia AFSL Solvency and Liquidity Requirements;

(j) had Banksia or Trust Co notified ASIC of Banksia's breaches of the Banksia AFSL Solvency and Liquidity Requirements, the Banksia AFSL would have been revoked by ASIC;

(k) Banksia would have ceased to accept further deposits or issue or roll over debentures and its business would have ceased; and

(l) Bolitho and many Banksia Group Members would have suffered no loss or alternatively less loss than they have in fact suffered as a consequence of Banksia continuing to trade until 25 October 2012. [33]

18 Mr Bolitho pleads that by reason of the s 283BB(a) Banksia Contraventions, he and the Banksia Group Members have suffered loss and damage and may recover that loss from the directors and Banksia pursuant to section 283F of the Corporations Act.[34] Relevantly, s 283F(1) provides:

A person who suffers loss or damage because a person contravenes a provision of this Chapter [which includes s 283BB(a)] may recover the amount of the loss or damage from:

(a) the person who contravened the provision; or

(b) a person involved in the contravention.

This is so even if the person did not commit, and was not involved in, the contravention.

19 As against Trust Co, Mr Bolitho alleges that it was trustee for the Banksia debentureholders pursuant to a trust deed with Banksia dated 12 December 1994.[35] He also alleges that Trust Co was the trustee for the Statewide debentureholders and in that capacity had full knowledge, or the means of full knowledge and ought to have known of the circumstances and financial position of Statewide, including the nature and true value of the Statewide loan portfolio both before and after it was acquired by Banksia.[36] Mr Bolitho alleges that Trust Co breached its obligations under s 283DA of the Corporations Act by:

(a) failing to exercise reasonable diligence to ascertain whether the property of Banksia was likely to be sufficient to repay the amounts deposited with or lent to Banksia when they became due in the following respects:

(i) as a result of its knowledge of Statewide, it knew or ought to have known but took no steps to ascertain whether Banksia's property was likely to be sufficient to repay the amounts deposited with or lent to Banksia when they became due;

(ii) having regard to its knowledge of Statewide, it ought to have procured the appointment of a firm of accountants to confirm the auditor's report, to make necessary adjustments to the audited balance sheet and/or to make a proper determination of the total tangible assets of Banksia, but Trust Co failed or neglected to do so;[37]

(b) failing to exercise reasonable diligence to ascertain whether Banksia had committed any breach of the Banksia Trust Deed;[38]

(c) failing to exercise reasonable diligence to ascertain whether Banksia had committed any breach of its obligation to carry on and conduct its business in a proper and efficient manner in accordance with Banksia's obligations under s 283BB of the Corporations Act;[39]

(d) failing to exercise reasonable diligence to ascertain whether Banksia had complied with its obligations to provide quarterly reports, as required by s 283BF of the Corporations Act;[40]

(e) failing to notify ASIC as soon as practicable (or at all) of Banksia's failure to comply with s 283BF of the Corporations Act.[41]

20 Mr Bolitho alleges that if Trust Co had performed its obligations under s 283DA of the Corporations Act then:

(a) an independent accountant would have ascertained:

(i) the Banksia undisclosed matters, the Banksia Financial Matters[42] and that an underwriting arrangement had been entered into between Banksia and its related company, Banksia Mortgages Ltd ("BML");

(ii) the manner in which Banksia calculated its margin (liabilities as a percentage of assets);

(iii) the manner in which Banksia valued security property (not as at the current date, but at some unspecified point in the future);

(b) Trust Co would have notified Banksia that Prospectus 16 did not disclose the 2009 Banksia Financial Matters, that Prospectus 17 did not disclose the 2010 Banksia Financial Matters and that Prospectus 18 did not disclose the 2011 Banksia Financial Matters;

(c) Trust Co would have notified Banksia that none of Prospectuses 16, 17 or 18 disclosed the Banksia undisclosed matters;

(d) Trust Co would have notified Banksia that none of Prospectuses 16, 17 or 18 disclosed the BML underwriting arrangement;

(e) Trust Co would have insisted that the Banksia Financial Matters[43] were disclosed to the public;

(f) Trust Co would have insisted that the Banksia undisclosed matters were disclosed to the public;

(g) Trust Co would have insisted that the BML underwriting arrangement was disclosed to the public;

(h) if any of the matters alleged in sub-paragraphs (e)-(g) above had been disclosed to the public (as they would have been, had Trust Co insisted that they be disclosed), then:

(i) Bolitho and many of the Banksia Group Members would have taken steps to withdraw their investments from Banksia immediately;

(ii) Banksia would have disclosed breaches, alternatively impending breaches, of the Banksia AFSL Solvency and Liquidity Requirements;

(iii) Banksia would have been obliged to notify ASIC of the breaches of the Banksia AFSL Solvency and Liquidity Requirements;

(iv) Banksia would have been obliged to notify Trust Co (which would in turn have been obliged to notify ASIC) of the breaches of the Banksia AFSL Solvency and Liquidity Requirements;

(k) had Banksia or Trust Co notified ASIC of Banksia's breaches of the Banksia AFSL Solvency and Liquidity Requirements, the Banksia AFSL would have been revoked by ASIC;

(l) consequently, Banksia would have ceased to accept further deposits or issue or roll over debentures and its business would have ceased; and

(m) Bolitho and many Banksia Group Members would have suffered no loss, alternatively less loss than they have in fact suffered as a consequence of Banksia continuing to trade until 25 October 2012.[44]

21 Mr Bolitho concludes his pleading by alleging that by reason of Trust Co's breaches of its obligations, he and the Banksia Group Members have suffered loss and damage and are entitled to recover that loss from Trust Co pursuant to s 283F of the Corporations Act.[45]

22 In addition to declaratory relief, Mr Bolitho seeks damages against all Defendants (other than RSD) pursuant to s 283F of the Corporations Act and against all Defendants (other than Trust Co) pursuant to s 729 of the Corporations Act. He also seeks interest and costs.

23 As noted at the start of these reasons, the primary complaint made by the Defendants is that Mr Bolitho has not properly pleaded that part of his case concerning causation. In essence, to succeed under s 729(1), Mr Bolitho needs to plead facts establishing that he suffered loss 'because' an offer of securities under a PDS document contravened s 728(1) such that the relevant defendant is liable for the loss or damage 'caused by' the contravention. Similarly, to obtain relief under s 283F(1) Mr Bolitho must plead facts establishing that he suffered loss 'because' one or more of the Defendants contravened s 283BB(a) or s 283DA.

24 In Woodcroft-Brown v Timbercorp Securities Ltd & Ors,[46] ("Timbercorp") the Court of Appeal recently considered provisions with some similarities: ss 1022B(2)(c) and 1041I Corporations Act. Section 1022B(2)(c) provides that if a person suffers loss or damage 'because' a disclosure document is 'defective' in that it contains a misleading statement,[47] that person may recover the amount of the loss or damage from persons specified in s 1022B(3). Section 1041I provides that if a person suffers loss or damage 'by' conduct in contravention of s 1041H (for example, by misleading or deceptive conduct in relation to a financial product), the person may recover the amount of the loss or damage from the person engaged in the contravening conduct. In Timbercorp, the plaintiff had invested in managed investment schemes which collapsed. Part of his case was that he had read the product disclosure statements ("Timbercorp PDS"); that in contravention of the Corporations Act certain matters had been omitted from the Timbercorp PDS that should have been included and that certain statements in the Timbercorp PDS were false or misleading. The plaintiff claimed that if the correct information had been provided, he would not have invested nor borrowed money to do so. However, the trial judge was not persuaded that the plaintiff read any of the Timbercorp PDS in any detail and found that what was contained in or omitted from them was not what induced the plaintiff to invest. That finding was not disturbed on appeal. The Court of Appeal observed that:

In order to make out both the non-disclosure and the misrepresentation case, it was necessary for the [plaintiff] to establish that there was reliance placed upon the non-disclosures and the misleading conduct so as to cause entry into the investment product and, therefore, subsequently to cause loss.[48]

In order to recover damages pursuant to s.1022B(2)(c) or s 1041I(1) for breach of s 1022A or s 1041H, a plaintiff "must establish that he relied on the misleading or deceptive conduct, or the false or misleading statement or that he would have acted differently if the material omission had been disclosed", in other words, the vice aimed at by the legislation "is not issuing misleading prospectuses, but misleading investors by issuing misleading prospectuses."[49]

26 In Janssen-Cilag Pty Limited v Pfizer Pty Limited,[50] ("Janssen-Cilag") Pfizer had made certain misleading and deceptive representations to consumers through its advertising campaign that contravened s 52 of the Trade Practices Act 1974 (Cth). A competitor, Janssen-Cilag, claimed that under s 82 of the Trade Practices Act 1974 (Cth) it was entitled to recover loss and damage sustained because, as a result of the representations, the public and pharmacists purchased Pfizer's drug instead of a Janssen-Cilag drug. Relevantly, s 82 provided that a person who suffered loss and damage 'by conduct of another person' that contravened s 52 could recover that loss. Lockhart J held that it was not necessary for Janssen-Cilag to have relied upon the representations to succeed in its claim. Rather, an entitlement to compensation arises in circumstances where the contravener's conduct causes other persons to act in a way that leads to loss or damage to the claimant.[51] His Honour found that there must be a sufficient link between the contravening conduct and the recoverable loss and the loss must directly result from or be caused by the contravening conduct.[52] His Honour observed that those requirements are satisfied where consumers are misled by a company such that they purchase less of a rival trader's product.[53]

27 Janssen-Cilag was considered by the New South Wales Court of Appeal in Digi-Tech (Australia) Ltd v Brand[54] ("Digi-Tech"). In that case, Digi-Tech (Australia) Ltd was sued by the plaintiffs who had invested in a scheme concerning telecommunications products owned by Digi-Tech Australia. Digi-Tech Australia gave misleading projections of revenue and gross margin to Deloitte. Deloitte used those projections to prepare a valuation which supported the price to be paid by the investors. Part of the plaintiffs' case was that if the financial forecasts had been accurate, Deloitte would not have produced a valuation to support the price that they were to pay, the investment scheme would not have gone ahead, therefore, they could not have entered into the scheme and would not have suffered any loss. The NSW Court of Appeal said:

The Janssen-Cilag and Stockland category of claim is materially different to that which occurs when plaintiffs suffer loss because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced. The difference lies in the fact that in the first category of case no conduct on the part of the plaintiff forms a link in the causation chain. In the second category, the inducement of the plaintiff and his or her act or omission causing loss is an essential part of the chain. Without such inducement and a consequential act or omission on the part of the plaintiff there is indeed no linking chain between the misleading conduct and the plaintiff's loss...

On the assumption that Digi-Tech's forecasts as to the revenue and gross margin of the products were misleading and deceptive, that misleading and deceptive conduct resulted in Deloitte producing, in essence, a misleading and deceptive valuation to support the price of $72.5m. That valuation enabled the investment scheme to be put together and proposed by Urwin to the appellants. But to complete the chain of causation, there must be something linking the appellants' loss to their entry into the investment scheme. That link is the inducement of the appellants and their consequential act of entering into the transaction to their prejudice. Without that link, there is no proof that the misleading conduct caused the loss.

We accept Mr Sheahan's submission that, whatever might be the position in other contexts, in cases of this kind (misrepresentation inducing a transaction) the courts have required reliance by or on behalf of the plaintiff on the misrepresentation as being essential to the proof of causation as required by s 82(1) of the Trade Practices Act 1974. Persons who claim damages under s 82(1) on the ground that they entered into transactions induced by the misrepresentations of other persons must prove that they relied on such misrepresentations and, therefore, "by" that conduct, they suffered loss or damage. As Mr Sheahan pointed out, were it otherwise, representees could succeed even though they knew the truth, or were indifferent to the subject matter of the representation.

On this ground alone we would not uphold this argument.[55]

28 Digi-Tech was followed by the NSW Court of Appeal in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd,[56] ("Ingot"). In that case, among other things, the court was called upon to consider ss 995 and 1005 of the Corporations Law (Cth). Section 995 prohibited misleading or deceptive conduct in connection with dealings in securities. Section 1005 provided a means for recovery of loss suffered by conduct of another person in contravention of that (and other) provisions. The case concerned loss sustained by investors who had participated in a converting note issue. Part of the plaintiffs' claim was based upon a proposition that if s 995 had not been contravened, the note issue would not have taken place and, in that event, they would not have acquired any of the notes and would not have suffered loss. Ipp JA explained the court's reasoning in Digi-Tech as follows:

[The court in Digi-Tech] held that the relief so claimed was based on a flawed 'but for' test for causation. The Court held that, under s 82(1) of the Trade Practices Act (Cth), persons who claim damages on the ground of misleading or deceptive conduct in contravention of s 52, and who allege that they incurred those damages by acquiring something in consequence of such conduct, must prove that they were misled by that conduct. If that is not proved, the plaintiffs fail to establish that the damages claimed were suffered 'by' that conduct....

The rationale of Digi-Tech (Australia) is that loss incurred by plaintiffs in acting (or refraining from acting) to their prejudice can only be loss caused 'by' conduct contravening s 52 if the plaintiffs are misled by that conduct. Likewise, in my view, such plaintiffs can only succeed in cases based on a contravention of s 995 [of the Corporations Law] if, in fact, they are misled. I stress that by 'such plaintiffs' I mean plaintiffs who claim to have suffered loss brought about by their own actions or omissions coupled with misleading conduct by the defendants.[57]

Where there is a decision by the plaintiff whether or not to enter into a transaction, any resulting loss or damage is not dictated by the laws of nature. That is not the first class of case, but the second. If the plaintiff would not have had the opportunity to enter into the transaction, that "but for" element does not go beyond a reason why the plaintiff entered into it. Conduct which merely provides the opportunity for the plaintiff to enter into the transaction will not suffice, unless the purpose of s 995 and s 1005 is to provide recompense for loss or damage suffered only because there was the opportunity to enter into the transaction and without regard to materiality of the representation to the plaintiff's decision to enter into the transaction....

Section 1005 should be applied in a way that promotes provision of correct information to investors and protects them in making investment decisions. But this does not warrant compensating investors regardless of the effect on their decision making of the misleading conduct. Once provided with correct information, the investors must make their investment decisions. Perhaps in some circumstances a plaintiff enters into a transaction simply because the opportunity to do so is available, when it would not have been available had there not been the misleading conduct and that plaintiff can be regarded as in like position to the passive sufferer from another's act. That will not be so as a matter of course, and was not so in the present case.[58]

30 In the same case, Hodgson JA reserved his position in relation to indirect causation and Digi-Tech but did make the following observations:

I am inclined to think that investors may be able to claim damages on the basis of misleading conduct where:

(1) Because of misleading conduct that misleads people involved in putting together an investment opportunity, an investment opportunity is made available to investors which would not have been made available at all but for the misleading conduct;

(2) Investors invest in it; and

(3) The investors lose money because the investments are, by reason of matters concealed by the misleading conduct, worth less than the investors paid for them.

I accept that, if the investors actually know the truth concealed by the misleading conduct, it would be difficult if not impossible to characterise their loss as being loss or damage suffered "by" the misleading conduct, within the meaning of provisions such as s 1005 of the Corporations Law 1991 (Cth) or s 82 of the Trade Practices Act 1974 (Cth). However, I do not think the investors would need to prove that they themselves relied on and were misled by the misleading conduct, except possibly to the extent of showing they did not know the truth concealed by the misleading conduct. As to where the onus of proof would lie in relation to that matter, I note that, in relation to claims based on s 996 of the Corporations Law (Cth), s 1007 appears to place the onus on a defendant to prove that the plaintiff did know.

To require investors to prove also that they actually relied on the misleading conduct, or even that if they had known the truth they would not have invested, seems to me possibly superfluous. But for the misleading conduct, there would have been nothing to invest in...[59]

31 In Gardiner v Agricultural & Rural Finance Pty Ltd[60] ("Gardiner") Handley AJA stated that a plaintiff relying on a contravention of s 995 of the Corporations Law (and other analogous provisions) 'must establish that he relied on the misleading or deceptive conduct, or the false or misleading statement, or that he would have acted differently if the material omission had been disclosed.'[61]

32 Both Ingot and Gardiner were cited with approval by the Court of Appeal in Timbercorp.[62] The reasoning in those cases and Digi-Tech has been applied in subsequent decisions, including those where orders were sought to strike out a pleading and to enter summary judgment.[63] However, in other cases, courts have refused to dismiss comparable claims summarily, instead leaving them to be determined at trial.[64]

33 In the case of Campbell v Backoffice Investments Pty Ltd[65] (which came after Digi-Tech, Ingot and Gardiner but before Timbercorp), the High Court considered a misleading or deceptive conduct provision in the Fair Trading Act 1987 (NSW). In the decision from which the appeal was brought, Giles JA said:

Reliance can itself be a difficult concept, and is not a substitute for the essential question of causation. It may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known.... Of particular significance to the present case, causation may be found notwithstanding that any belief in a representation is qualified by doubt, and even when the representee seeks to protect itself against the possibility that the doubt is justified. If the representation still operates on the representee's action or inaction which occasions loss or damage, the loss or damage is suffered by the misleading or deceptive conduct, notwithstanding that the label of reliance may not appropriately describe what occurred.[66]

34 On appeal in the High Court, Gummow, Hayne, Heydon and Kiefel JJ relevantly stated:

Giles JA was right to point out that reliance is not a substitute in the context of the Fair Trading Act for the essential question of causation. Moreover, it is also right to observe, as Giles JA said, that "[i]t may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known_._"[67]

35 In the context of a claim for loss and damage under s 82 of the Trade Practices Act, it was well established that the conduct about which complaint was made need not be the sole cause of the loss suffered provided that it materially contributed to the loss.[68]

36 Mr Bolitho submitted that the Defendants' complaints are aptly described as 'pedantic and pettifogging in nature'[69] and have the hallmarks of 'opportunistic, selfserving incomprehension.'[70] He urged the Court to adopt the approach of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority.[71] In that case, his Honour described the contemporary purpose of pleadings and their role in modern litigation as follows:

In my view, the contemporary role of pleadings has to be viewed in the context of contemporary case management techniques and pre-trial directions. In this Court, those pre-trial directions will almost invariably include; first, a direction for the preparation of a trial bundle identifying the documents that are to be adduced in evidence in the course of the trial; second, the exchange well prior to trial of non-expert witness statements so that non-expert witnesses will customarily give their evidence-in-chief only by the adoption of that written statement; third, the exchange of expert reports well in advance of trial and a direction that those experts confer prior to trial; fourth, the exchange of chronologies; and fifth the exchange of written submissions.

Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and appraising the parties to the proceedings of the case that has to be met.

In my view, it follows that provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence, as the case may be, and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleadings rules that evolved in and derive from a very different case management environment.[72]

37 Turning then to the complaints made, some of the Defendants focused attention on the words in s 728(1) that prohibit an '... offer [of] securities under a disclosure document' if there is a misleading or deceptive statement in that document or a relevant omission from it. They submitted that the word 'under' directs attention to the source of the offer of securities, namely the specific disclosure document concerned.

38 Those Defendants contended that the loss Mr Bolitho pleads is loss of part of his investment in October 2012 with the relevant debenture being offered by Banksia under Prospectus 18 (2011), Prospectuses 16 (2009) and 17 (2010) having expired previously. So their argument is that Banksia did not offer the relevant debenture 'under' Prospectus 16 or 17 and Mr Bolitho cannot plead a cause of action under s 729(1) in respect of those prospectuses.

39 Mr Bolitho submitted that this contention is misconceived or, at best, is a matter for argument at trial. Senior Counsel for Mr Bolitho submitted that the norm of conduct prohibited by s 728 is an offer if any of three things have occurred, only the first two of which are relevant in this proceeding - (a) a misleading or deceptive statement in a disclosure document, or (b) an omission of material that is required to be included. He contended that the norm of conduct is not the offering of securities but fundamentally the misleading or deceptive statement or omission in that context. Further, Mr Bolitho contends (and some of the Defendants dispute) that he had a single investment and single account with Banksia and that if any of prospectuses 16, 17 or 18 had revealed the true state of affairs, and had not contravened s 728, then he would not have done nothing - he would have recovered his investment.

40 In my view, on this point, the case that Mr Bolitho seeks to run is not one that should be classified as having no reasonable prospect of success. I accept his submission that the issue raised by some of the Defendants is a matter best left for argument at a later time, particularly in circumstances where ss 728 and 729 have not yet been the subject of judicial consideration. Whilst those sections are akin to other provisions that have been considered judicially, there are some differences. As the matter is one for later determination, I do not propose to say more about it.

41 The Defendants' next criticism arises because Mr Bolitho does not claim that he read the PDS documents and his claim is not based on reliance. Some of the Defendants submitted that he cannot succeed on that basis as the claim is bad in law. They submitted that the claim is the same as that sought to be prosecuted by the investors in Digi-Tech with the consequence that the claim is flawed. In this regard, they argued that the pleading of what Mr Bolitho would have done if the contravening conduct had not occurred (that is, the counterfactual in paragraph 34 of the PFASOC)[73] is not the same as pleading the necessary link between Prospectus 16, published in October 2009, and loss of the investment in October 2012 made two prospectuses later. They contend that Mr Bolitho would still need to plead that he relied on Prospectus 16 for omissions from it to matter. The same arguments are made in relation to the later PDS documents. The Defendants submitted that the reasoning in Janssen-Cilag cannot assist Mr Bolitho, because he does not contend that he was a passive sufferer of loss as a result of another's act, that is, in the absence of any act by him. Further they submitted that if Mr Bolitho's case were permitted to proceed, it would mean that he would make out the chain of causation even if the circumstances were such that he knew the truth and invested because on his case the investment would never have come to pass if the truth had been disclosed.

42 Mr Bolitho submitted that reliance is not a necessary condition of causation in his case. He says that his claim fundamentally arises out of nondisclosure of highly material and adverse matters in the PDS documents and that like all cases of misrepresentation by omission, it makes no sense to suggest that a necessary component of the cause of action under s 729 is that he must have read and relied upon the PDS documents. Senior Counsel for Mr Bolitho submitted that it is no answer for the Defendants to suggest that because he does not allege that he read the PDS documents that it follows that he would not have learned about the poor financial position and poor financial prospects of Banksia in 2009 - counsel's proposition is that if Banksia had told the truth about itself, that information would have been in the public domain very quickly. He contends that the authorities state clearly that he need show only that he would have acted differently if those material adverse matters had been disclosed and that is what he has alleged.

43 Mr Bolitho submitted that at trial all that he will need to establish is that, on the balance of probabilities, any of the alleged contraventions by the Defendants of ss 728 and 729 materially contributed to his loss. Mr Bolitho submitted that questions of causation are quintessentially matters of fact which are to be determined at trial and if any of the causation issues raised by the Defendants have any substance at all, they raise factual issues for the trial. On no view, he contends, could it be said that the s 729 case brought by him is bound to fail or unmaintainable in law or in fact.

44 Mr Bolitho developed his submission that reliance is not necessary by reference to the line of authorities that support the proposition that specific evidence of reliance is not essential for proof of causation. In this regard, Wilson J said in Gould v Vaggelas:[74]

Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into that contract and thereby suffered damage and nothing more appears, common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract. However, it is open to the defendant to obstruct the drawing of that natural inference of fact by showing that there were other relevant circumstances. Examples commonly given of such circumstances are that the plaintiff not only actually knew the true facts but knew them to be the truth or that the plaintiff either by his words or conduct disavowed any reliance on the fraudulent representations. It is entirely accurate to speak of an onus resting on a defendant to draw attention to the presence of circumstances such as those I have described in order to show that the inference of the fact of inducement which would ordinarily be drawn from the fraudulent making of a false statement calculated to induce a person to enter into a contract followed by entry into that contract should not in all the circumstances be drawn. But it is no more than an evidentiary onus - an obligation to point to the existence of circumstances which tend to rebut the inference which would ordinarily be drawn from the primary facts. When all the facts are in, the fact-finding tribunal must determine whether or not it is satisfied on the balance of probabilities that the misrepresentations in question contributed to the plaintiff's entry into the contract.[75]

45 In my view, this line of authorities does not assist Mr Bolitho. True it is that an inference may be drawn that false representations induced a person to enter into a contract where those statements were made with the intention of inducement. However, as Wilson J recognised, that inference may be rebutted. So here, if Mr Bolitho were able to establish that false or misleading statements were made in the PDS documents, any inference of inducement would be rebutted because his case is that he did not read the documents. Therefore, he cannot have been induced by anything in the PDS documents. His conduct shows that he 'disavowed any reliance' on the representations.

46 Nevertheless, Mr Bolitho submitted that his case is entirely consistent with the DigiTech line of authorities. He submitted that the reasoning in that case has nothing to do with the present case. Mr Bolitho contended that he does not allege that any indirect form of causation occurred in this case. Rather, he says that he alleges quite clearly and distinctly that if, instead of the misleading positive picture of Banksia that was painted in the prospectuses, the material adverse matters about Banksia had been published, Banksia would have been very shortly afterwards closed down and he would not have invested at all, or alternatively he would have taken steps to recover his investment at the earliest opportunity. Further, he says that had those adverse matters been disclosed timeously (that is in Prospectus 16 (2009)), Trust Co would have been obliged to inform ASIC of the parlous state of Banksia's finances, and ASIC would undoubtedly have revoked Banksia's AFSL and it would have gone out of business immediately. Mr Bolitho submitted that that is not an indirect causation theory; it is direct causation. It does not depend upon reliance, but instead Mr Bolitho says that it depends upon the proposition that had disclosure occurred of the matters which Banksia was obliged to reveal, noone (including him) would have invested in Banksia and everyone who was invested in Banksia would have sought to recover their investments.

47 Mr Bolitho drew on the passages from the judgments of Ipp and Hodgson JJA in Ingot set out in [29] and [30] above. He submitted that this is precisely the situation alleged by him and the Banksia Group Members here:

(a) an investment offer was made to him (namely to purchase debentures and/or to rollover his investment as a result of the automatic rollover process), which could not and would not have been offered at all but for the misleading nature of the PDS documents;

(b) Mr Bolitho and the Banksia Group Members accepted the offer (and invested or rolled over their investments accordingly);

(c) the PDS documents presented an entirely misleading picture of Banksia's supposed financial health and bright future;

(d) Mr Bolitho and the Banksia Group Members were not informed about and did not know the material adverse matters about Banksia, which were not disclosed to anybody, despite the Defendants' legal obligations to do so;

(e) Mr Bolitho and the Banksia Group Members lost money because they were investing and leaving their investments in Banksia, which was insolvent and likely to go into administration, as it eventually did; and

(f) in those circumstances, Mr Bolitho and the Banksia Group Members do not have to allege or prove that they themselves read or personally relied on the PDS documents. Even if they had, they would not have been informed about the material adverse matters that were not disclosed in any event because the positive picture of Banksia that was portrayed in the PDS documents was wholly misleading.

48 Mr Bolitho submitted that Timbercorp adds nothing to Ingot and Gardiner. As he correctly observed, in Timbercorp the plaintiff's case was that he had read the product disclosure statements and had relied upon them. That is distinguishable from his case which is not based on that type of allegation. He also drew a distinction between s 1022B(2)(c) of the Corporations Act (which was relevant in Timbercorp) and s 729. In relation to a defective product disclosure statement, s 1022B(2)(c) provides:

...if a person suffers loss or damage ... because the disclosure document or statement the client was given or sent was defective ... the person may recover the amount of the loss or damage by action against the, or a, liable person.

49 So, Mr Bolitho submitted, that section only operates in situations where the product disclosure statement is actually given or sent but this is not one of the requirements for a claim under s 729.

50 In any event, Senior Counsel for Mr Bolitho submitted that there must be some doubt about the reasoning in Digi-Tech and Ingot in view of the High Court's decision in Campbell v Backoffice.

51 I do not think that the state of the law is so settled that Mr Bolitho's case outlined in [47] above has no reasonable prospect of success. Despite the passage of some time since this proceeding was commenced, it is still at a very early stage. I do accept that caution should be exercised in permitting a case to run to trial if ultimately it will fail. Reasons for such caution include the time (of both the parties and the Court) and cost that would be wasted. However, I do not see this case as being as clear cut as the Defendants would have it (assuming, of course, for the purposes of this application that Mr Bolitho can establish the necessary facts). In addition, the case raises significant issues on which there is no direct authority and involves significant sums of money. Hence, I would not refuse Mr Bolitho's application for leave on the basis that it will necessarily fail.

52 In any event, some of the Defendants submitted that even if the type of claim Mr Bolitho says he brings may be brought, the PFASOC misses a material factual link in the causation chain. In this regard they observed that as part of Mr Bolitho's pleaded counterfactual scenario, paragraphs 34(c) and 34(d) allege that Banksia 'would have been obliged to notify' ASIC and Trust Co of certain matters.[76] Paragraph 34(e) then makes the allegation that, 'had Banksia or Trust Co notified' ASIC of certain matters, particular consequences would have followed.[77] They argued that as there is no allegation that Banksia or Trust Co would have given the notifications in question, Mr Bolitho's counterfactual causation case is incomplete. Other Defendants complained that Mr Bolitho has not set out what steps he and the Banksia Group Members would have taken to withdraw their investments nor does he allege that if he had taken steps to withdraw his investment, those steps would have been successful such that he would have recovered all of his principal and interest.

53 Senior Counsel for Mr Bolitho submitted that there are a very wide range of possible counterfactuals that might have eventuated had the truth (or some part of it) been told and that in the context of a group proceeding where common questions are to be determined, it is not necessary nor desirable to plead a case solely for Mr Bolitho's purposes which sets out a range of permutations and combinations of counterfactuals. So he says, to do so would result in a statement of claim of unmanageable proportions. He also submitted that there is not a dichotomy between what was stated in the PDS documents and what was omitted from them. Rather, he says that it is all of the various statements and omissions together that give rise to and inform what is complained of in this case as the misleading or deceptive statements in the PDS documents - essentially, he says that it was the combination of statements and omissions that resulted in the truth not being told about Banksia's financial position and its prospects after the Statewide acquisition. Somewhat in tension with Mr Bolitho's written submissions[78] (but in line with the PFASOC pleading), Senior Counsel observed that it is incorrect to classify this case as one of omission only.

54 It seems to me that Mr Bolitho wants to allege two strands to his causation case. Senior Counsel for Mr Bolitho said as much in oral submissions. Overall though, I am not satisfied that the two strands of the causation case have been properly pleaded. That does not mean that I accept all of the Defendants' criticisms, but there is merit in some of them.

55 Both strands of Mr Bolitho's proposed causation case rest on the allegation that Banksia's poor financial position and prospects following the Statewide Acquisition would have been publicly revealed if the misleading statements had not been made in the PDS documents and there had been no omissions from them. This is set out in the introductory words in paragraph 34 and equivalent paragraphs of the PFASOC.[79] The PFASOC could be better drafted to expressly allege that Mr Bolitho would have become aware of the true position, although that might be implicit in the allegation that Banksia's poor financial position would have been publicly revealed.

56 More importantly though, the next part of the second strand of the causation case is not sufficiently articulated in the PFASOC. In general terms, it seems from Mr Bolitho's submissions that he wants to claim that if the poor financial position of Banksia had been publicly revealed, one or more things would have happened[80] which ultimately would have resulted in Banksia's licence being revoked[81] and Mr Bolitho and the Banksia Group Members would have suffered less or no loss.[82] However, the pleading does not make it clear how these last two matters are linked. While the paragraph in the pleading which follows the allegation of revocation of the license provides:

Banksia would have ceased to accept further deposits or issue or roll over debentures and its business would have ceased immediately[83]

there is a gap as to how that would have led to less loss being suffered. Further, it became apparent during oral submissions that this paragraph is not necessarily one of the links in the causation chain that Mr Bolitho wishes to rely upon. What then is the link? Both the Defendants and the Court should know how the case is put. The lack of clarity in the causation case intended to be pursued was highlighted during the course of oral submissions by Senior Counsel for Mr Bolitho. As an example, counsel hypothesised that if Trust Co had told the directors that Statewide was insolvent (before it was acquired by Banksia) and told them that therefore Banksia could not acquire Statewide, it does not follow that Banksia would have collapsed and more likely it would have paid out the debenture holders in full. I do not understand how the Defendants can be expected to know from the pleading that that is part of the case that they have to meet. Nor could the Court anticipate that this is intended to be part of Mr Bolitho's case. This is not the type of unwarranted criticism of a pleading that Martin CJ spoke of in Barclay Mowlem Construction Ltd v Dampier Port Authority.[84] Indeed_,_ his Honour recognised that a pleading must fulfil its basic functions which include apprising the parties of the case that has to be met.[85] The PFASOC does not achieve that.

57 Mr Bolitho must do more than he has in the PFASOC if he is to pursue his claim although, I do accept, that it is not necessary, nor desirable to plead every last minute detail of a counterfactual. There must, however, be sufficient precision so that neither the Defendants nor the Court are taken by surprise. Not only is this important for trial, but it is essential for management of the proceeding to trial, including in respect of discovery. In oral submissions, Senior Counsel was able to articulate (at least in general terms) the two strands of causation case. If that can be done, then it ought to be possible to plead the case in an intelligible, straightforward fashion. In this regard, I am less concerned about the contention that there is a gap in the pleading because there is no allegation that Banksia and Trust Co would have notified ASIC of certain matters.[86] Whilst that might improve the pleading, in my view, the allegation is implicit in what has been pleaded and it does not present any difficulty for the Defendants, nor the Court, in understanding how the case is put.

58 Similarly, I have less concern about the pleading of the first causation case (although it might be better and more explicitly expressed). The first causation case is the proposition that Mr Bolitho (and other Banksia Group Members) would have taken steps to recover their investments if the alleged true position had been revealed.[87] It seems to me that the criticism that the steps that would have been taken have not been spelled out may be addressed by particulars, to the extent that is necessary. As I do not propose to grant Mr Bolitho's application to amend for other reasons, this may be addressed in a revised pleading.

59 Next, it is true that there is no explicit pleading that if Mr Bolitho had taken steps to withdraw his investment that he would have recovered it. The proposed pleading would be improved by being more precise and explicit, although I accept that the pleading that he would have suffered less or no loss in paragraph 34(g)[88] perhaps sufficiently discloses his case that he would have got all or part of his money back. Whether he can establish that at trial is not relevant on this application.

60 Whilst it may not be essential, the PFASOC would also benefit if each causation case were separately pleaded. Regardless, the pleading needs to make clear each building block of causation that is alleged. At present, it does not do so.

61 Complaint is also made in relation to the claim against the directors under s 283F(1) concerning the alleged s 283BB(a) Banksia Contraventions.[89] Taking the allegation that Banksia failed to institute or maintain a proper or adequate risk management program, counsel for one of the directors, Mr Godfrey, submitted that although it is alleged that the inadequacies of Banksia's Risk Management program (and the other failures alleged) would have become disclosed to the public, no facts are alleged as to how or why this would have occurred - there is no connection alleged. Counsel submitted that the difficulty is compounded because the pleading rolls up all the alleged failures in the definition 's 283BB(a) Banksia Contraventions' and follows this with a pleading that if there had been no breach, all of those matters would have been disclosed to the public with the consequences being set out in paragraph 63(f)-(l) of the PFASOC.[90] Counsel contended that the manner in which the alleged consequences are pleaded with use of the word 'and' means that all of the consequences are alleged would have happened, not just one or more of them. He submitted that each allegation should be split out.

62 In my opinion, those submissions have some force. As to the last of counsel's contentions, whilst there are similarities between paragraphs 34 and 63(f)-(l), the structure of the latter does not include the introductory words to paragraph 34 that 'one or more' things would have happened.

63 RSD raised an additional issue in respect of the causation pleading so far as it is concerned. RSD contends that s 729(1) limits the potential liability of a person in RSD's position to loss or damage caused by the inclusion of a statement in a disclosure document with consent. Here, RSD says that it consented to the inclusion of its Independent Accountant's Report and nothing else. RSD submitted that here, however, Mr Bolitho has not pleaded that any of the matters set out in paragraph 34 of the PFASOC was caused by reliance on a statement by RSD which was included in the PDS documents. RSD submitted that as against it, Mr Bolitho cannot bring a claim based on alleged omissions or non-disclosures, because this is not within the scope of s 729(1) so far as it is concerned. Consequently it says that the proposed claim against it under s 729 must be untenable.

64 Mr Bolitho submitted that RSD's contentions are flawed. In particular, he submitted that RSD fails to recognise that s 729 makes RSD liable not only for express statements made by it in Banksia's PDS documents but also makes it liable for the inclusion of those statements in the PDS documents. Consequently, he submitted, RSD will be liable if the inclusion of any statement by it rendered any part of the PDS documents (whether that part is itself a statement by RSD or not) misleading or deceptive. In other words, the misleading or deceptive character of RSD's statements is to be assessed in the context of the PDS documents as a whole and not merely by reference to those parts which contain the statements made by RSD.

65 In my opinion, what Mr Bolitho seeks to argue cannot be said to have no reasonable prospect of success. However, the difficulty is that the PFASOC does not identify, as against RSD, what statement(s) by RSD rendered which part of the PDS documents misleading or deceptive. RSD must have this information if it is to be in a position to respond to the PFASOC.

66 Another flaw in RSD's submissions, according to Mr Bolitho, is that it does not identify what it says were the statements that it made in any of the PDS documents nor what it did in connection with the publication of any of the PDS documents. It seems to me that Mr Bolitho's argument on this point must fail - it is not for RSD at this stage to identify the statements that it made; rather, Mr Bolitho must take responsibility for pleading his case.

67 Mr Bolitho also submitted that RSD is potentially liable for everything that was said (and left unsaid) in the PDS documents because s 729 makes it liable not only for its own statements but also for any statements which were based on its statements. However, if Mr Bolitho wishes to pursue such a claim against RSD, then the onus is on him to plead it. He would at least have to identify both the underlying RSD statements and the statements said to be based on them. In his written submissions on this application, Mr Bolitho referred to RSD's 2011-2012 audit plan stating that it vetted all the financial information in prospectus 18 and contended that this makes RSD responsible for anything in the PDS documents which constitutes financial information or is a statement based upon that financial information. It seems to me that there are a number of difficulties with that submission. For present purposes, the most significant of those difficulties is that there is no reference to any of this in the PFASOC - it is simply not pleaded. The same is true of a submission by Mr Bolitho about 'detailed financial information' provided in the Independent Accountant's Reports prepared by RSD for inclusion in the PDS documents. Whilst, as set out in [10] above, the PFASOC refers to the audit reports being unqualified with no material matters arising after the balance date, there is no reference to the ten express and implied representations that Mr Bolitho contended in his written submissions were made in the Independent Accountant's Reports. Two of the representations asserted by him in those submissions suffice to illustrate the point:

(a) RSD had conducted its audit in accordance with Australian auditing standards in all respects;

(b) RSD's audit involved it performing appropriate procedures to obtain adequate audit evidence about all of the amounts and all of the disclosures in the relevant financial reports of BSL. Those procedures had been undertaken and that evidence had been obtained by RSD in order to obtain that assurance.

Neither of those matters appear anywhere in the PFASOC.

68 However, I do not accept RSD's submission that there is no pleaded allegation of why what is alleged in the PFASOC in respect of the Independent Accountant's Report (broadly that the audit reports were unqualified and that there were no material matters arising after the balance date)[91], was misleading or deceptive. On this point, Mr Bolitho pleads that there did exist 'material items, transactions or events subsequent to' the balance date 'which required comment on, or adjustment to, the figures dealt with' in the RSD report.

69 Mr Bolitho submitted that the 'consent' referred to in the table to s 729 is consent not to the inclusion of a statement (as contended by RSD) but rather consent to the naming of the person in the disclosure document. In my view, whether that is correct and whether any representations by RSD were statements of fact (as contended for by Mr Bolitho) or simply opinions (as contended for by RSD) and whether that distinction has any relevance when the claim is brought under s 729 are matters that ought be left for determination at a later stage. Again I would note that this provision has not yet been the subject of any reported judicial consideration and what Mr Bolitho contends for is not in the category of having no reasonable prospect of success. The issue is not sufficiently clear cut to put an end to it at the pleading stage of the proceeding.

70 Similar submissions to those made in respect of the s 729 claim and the s 283F(1) claim against the directors were made by Trust Co in relation to the pleading of the claim against it also said to arise under s 283F.[92] Trust Co submitted that the gravamen of the apparent case against it is that Mr Bolitho's loss was caused by Banksia 'continuing to trade until 25 October 2012'. Significantly, Trust Co says, the PFASOC does not include material facts that explain how continuing to trade until 25 October 2012 resulted in Mr Bolitho:

(a) recovering less of his principal than he would have recovered if Banksia had ceased trading at an earlier time; or

(b) how Banksia ceasing to trade at an earlier point in time would have resulted in him recovering interest due on his debentures since 25 October 2012.

71 Trust Co submitted that given that Mr Bolitho was a 'rollover' investor, who first invested in Banksia in 2005, establishing that if Banksia ceased to accept further deposits or issue or roll debentures and its business ceased, at some time after 6 October 2009 but before 25 October 2012 (when the Receivers were appointed), plainly requires Mr Bolitho to allege (and prove) additional material facts.

72 For the reasons I have given above in relation to the s 729 pleading, I accept this argument.

73 In a similar vein, Trust Co submitted that the PFASOC is silent as to what would have happened had an independent accountant ascertained the existence of the BMF underwriting agreement, the Banksia Financial Matters[93] and the Banksia undisclosed matters. Consequently Trust Co argued, there is no pleaded link between those matters and the loss alleged. Trust Co makes a similar complaint about the pleaded allegations that Trust Co would have notified Banksia that the relevant PDS document did not contain the Banksia Financial Matters.[94]

74 Again, for the reasons already given, these points have merit.

75 Trust Co submitted that there are further difficulties with paragraph 75 of the PFASOC.[95] It submitted that it is unclear whether Mr Bolitho alleges that the consequences set out in paragraph 75 would have flowed as a result of all of the breaches of s 283DA, or as a result of each of them, or as a result of some combination of them. Trust Co says that it is entitled to know whether it is Mr Bolitho's case that any one of the breaches in paragraph 74[96] would have led to the loss claimed, or whether he intends to advance a case that it is those breaches cumulatively that led to the loss (thereby requiring him to succeed in proving each breach).

76 Moreover, Trust Co submitted that no material facts (or particulars) are identified that indicate how Trust Co's performance of particular obligations would have led to the consequences set out in paragraph 75. Trust Co says that this is significant, given that in many instances there appears to be an obvious disconnect between the breach alleged, and the putative consequence identified in paragraph 75. One example that Trust Co gave is that subparagraph (a) alleges that an independent accountant would have ascertained various matters. How, Trust Co asks, is it said that:

(a) if Trust Co had notified ASIC of Banksia's failure to comply with s 283BF (in relation to quarterly reports), being the breach alleged at paragraph 74(e), this would have led to an independent accountant ascertaining the existence of the identified matters?

(b) Trust Co properly reviewing and taking into account the Quarterly Directors' Certificates, being the breach alleged at paragraph 74(d), would have led to an independent accountant ascertaining the existence of the identified matters?

77 In my opinion, these complaints are well founded. The pleading in paragraph 75 is structured in a similar fashion to that in paragraph 63 in respect of the alleged s 283BB(a) Banksia Contraventions. It is simply not possible to discern with clarity what case Mr Bolitho wishes to pursue against Trust Co.

78 Trust Co's final complaint in respect of causation is that the claim for interest is untenable. To recap, Mr Bolitho pleads that he has suffered loss or damage including 'unpaid ...interest due in respect of the Banksia debentures since 25 October 2012.' As Trust Co observed, this is a claim for interest from the date of receivership and assumes continuing and successful investment in Banksia. Senior Counsel for Mr Bolitho conceded that he would not pursue such a claim and that the only claim for interest that he would make would be one for interest pursuant to statute. This will necessitate a change to the particulars of loss and damage in the PFASOC because at present the particulars (on each occasion where they appear)[97] refer to interest of a different kind.

Has Mr Bolitho adequately pleaded Trust Co's knowledge?

79 Trust Co submitted that the pleading of its knowledge of various matters is vague and uncertain and is pleaded in such a way that it is extremely difficult for Trust Co to work out what is alleged against it, let alone for Trust Co to respond to such allegations.

80 To illustrate its point, Trust Co referred to the pleading in paragraph 74(c) of the PFASOC. To recap, that is an allegation that Trust Co breached its obligations under s 283DA by failing to exercise reasonable diligence to ascertain whether Banksia had committed any breach of its obligation to carry on and conduct its business in a proper and efficient manner in accordance with Banksia's obligations under s 283BB. The particulars of that allegation (in part) read as follows:

Trust Co had knowledge (alternatively it had the means of knowledge and ought to have known) of each of the matters alleged in paragraph 59(a)-(i) above, which constituted the s.283BB(a) Banksia Contravention/s. Despite this, Trust Co did nothing to ascertain whether Banksia had committed any breach of its obligation to carry on and conduct its business in a proper and efficient manner in accordance with Banksia's obligations under section 283BB of the Corporations Act.

During the Banksia Relevant Period [6 October 2009 and 25 October 2012], Banksia failed to carry on or conduct the Banksia business in a proper and efficient manner in the following respects, each of which individually (and all of which collectively, or any combination of which), constituted a breach, alternatively breaches of section 283BB(a) of the Corporations Act:

(a) Banksia failed to disclose the 2009 Banksia Financial Matters to the public at any time;

(b) Banksia failed to disclose the 2010 Banksia Financial Matters to the public at any time;

(c) Banksia failed to disclose the 2011 Banksia Financial Matters to the public at any time;

(d) Banksia failed to disclose the Banksia undisclosed matters to the public at any time;

(e) Banksia failed to disclose the 2010 Banksia Accounting Changes to the public at any time;

(f) Banksia failed to properly account for the true state of its own financial position and its financial prospects and circumstances, having regard to the 2009 Banksia Financial Matters, the 2010 Banksia Financial Matters, the 2011 Banksia Financial Matters, the Banksia undisclosed matters and the 2010 Banksia Accounting Changes;

(g) Banksia failed to properly account for or report to the public the level of impairment of its loan assets;

(h) Banksia failed to institute or maintain a proper or adequate risk management program;

(i) following the Statewide Acquisition, Banksia took over the Statewide loan portfolio at its book value, and in the process failed to properly consider or properly account for the level of bad and doubtful debts within the Statewide loan portfolio;

(j) Banksia failed to inform ASIC or Trust Co or any other person of any of the matters alleged in paragraphs (a) to (i) above, or that as a consequence of those or any other matters, any of the provisions of the Banksia Trust Deed might not or would not be fulfilled.

(the s.283BB(a) Banksia Contravention/s)

82 If instead of using defined terms, the full text of the allegations had been set out, the pleading would run for many pages. The summary of the 2009 Banksia Financial Matters and Banksia undisclosed matters set out in [12] above serves as an example.

83 Consequently, Trust Co submits that despite being tucked into one sentence in the particulars to paragraph 74(c), the allegation being made is a very large one. There are pages and pages of matters that Trust Co is alleged to have known. When all of the crossreferences in the PFASOC are followed through, Trust Co says that it is unclear precisely what it is alleged Trust Co knew.

84 Trust Co submitted that these difficulties become even more acute because what is in truth a material fact (knowledge of various matters) is included in the pleading by way of particulars. It says that the alleged knowledge is not in fact a particular of the allegation in paragraph 74(c), and should not have been included as such. Trust Co correctly observed that it is not required to plead (and should not plead) to such allegations contained in particulars. Accordingly, Trust Co contended, the way that such allegations of knowledge are included in the PFASOC is likely to lead to great uncertainty in identifying issues for trial, including what role this allegation of knowledge plays, and what its status is.

85 Mr Bolitho categorised all of Trust Co's complaints about knowledge as complaints about a lack of particularisation. However, I do not agree that that is how all of the complaints should be categorised. Rather, it seems to me that at present through the use of crossreferencing and defined terms it is very difficult to ascertain exactly what it is that Trust Co is alleged to have known. That is not a matter of particulars - rather, it is a matter for substantive pleading.

86 In addition, Trust Co did criticise the lack of particulars of its knowledge in the PFASOC. Paragraph 5(e) of the PFASOC reads:

pursuant to a Trust Deed dated 12 March 1996, [Trust Co] was also the trustee for the debentureholders of Statewide and in that capacity Trust Co had full knowledge (alternatively it had the means of full knowledge and ought to have known) of the circumstances and financial position of Statewide alleged in paragraphs 13 and 15 - 21 below, including in particular the nature and true value of the Statewide loan portfolio before, during and after the Statewide Acquisition (Trust Co's knowledge of Statewide).

87 For example, Trust Co asks what is the alleged 'nature' and 'true value' of the Statewide loan portfolio before the Statewide Acquisition of which Trust Co is alleged to have had knowledge? Whilst Mr Bolitho engaged with some of the criticisms of Trust Co, he did not respond to this submission. It seems to me that the question that Trust Co poses is a fair one.

88 Had the PFASOC been deficient only in respect of particulars, that might have been cured by the provision of particulars separately. But that is not its only deficiency. Consequently, as the pleading against Trust Co will need to be recast (for the reasons that I have given above), I do not propose to deal with each of Trust Co's other complaints about the lack of particularity in the PFASOC. Suffice to say, that the revised pleading ought to include proper particulars of knowledge as required by the Rules.[98]

89 Mr Bolitho submitted that he has the usual difficulties that any plaintiff has in giving detailed particulars of Trust Co's knowledge of the various matters alleged as he has not had discovery from Trust Co, nor the benefit of information that might have been gleaned from public examinations of the officers of Trust Co. This is in contrast to the position of the directors who have been the subject of public examinations by Banksia's Receivers. Consequently, Mr Bolitho says that all that he has to go on are the inferences that can be drawn from the documents that have been produced to date by Banksia and the statements made by the various Banksia directors and officers, and by the auditors who were examined in the course of the public examinations. During oral submissions, Senior Counsel for Mr Bolitho indicated that if further particulars are required, then Mr Bolitho would make an application for early discovery from Trust Co and provide further particulars once that discovery had been provided. As can be seen from above, Trust Co's complaints relate not just to the inadequacy of the particulars of knowledge but to the actual pleading of knowledge. As such, whether the course proposed by Senior Counsel for Mr Bolitho for early discovery ought be permitted may be in dispute.[99] However, that is not a matter for now, but rather is an issue for determination should such an application be made.

Does Mr Bolitho need to plead the basis for the obligation to disclose?

90 Mr Godfrey also criticised the pleading for failing to specify how the obligations to make disclosure of various matters, such as the Banksia undisclosed matters,[100] arose. He submitted that there are statutory obligations to disclose and also contractual obligations under the trust deed entered into between Banksia and Trust Co. Mr Godfrey says that there ought to be (but is not) a clear allegation of the basis of the obligations to disclose matters to the public. If that were the only criticism of the pleading, I would not think it sufficient to refuse leave to file an amended pleading. However, as the pleading will have to be recast before leave would be granted, Mr Bolitho may wish to address this complaint in any revised proposed pleading put forward by him.

91 For the reasons given, leave to file an amended pleading substantially in the form of the PFASOC will be refused. However, Mr Bolitho ought not be shut out at this time from revising the form of the PFASOC and making a further application to amend. I will hear the parties as to timetabling so that that may occur and as to the costs of this application.

[1] Supreme Court Act 1986 (Vic) pt 4A.

[7] Rule 36.04(1)(b) Supreme Court (General Civil Procedure) Rules 2005 (Vic) provides that a party may amend at any time by leave of the Court or with the consent of all other parties.

[8] Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 13.02(1)(a).

[9] Dare v Pulham (1982) 149 CLR 658, 664.

[10] The grounds for striking out a pleading are described in Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 23.02.

[12] The supplementary prospectuses are alleged to be those dated 11 February 2010 and 8 June 2012.

[13] Mr Bolitho says that he withdrew $1,000 on 20 June 2007, but otherwise the balance of his investment (principal and interest) was 'rolled over' each six months.

[14] PFASOC [1] particulars. Mr Bolitho provided a folder of documents to the Court which contains documents referred to in the PFASOC. Contrary to the allegations made in the PFASOC, there is a document which appears to be a certificate of investment addressed to Mr Bolitho dated 10 October 2012 (not 10 April 2012) for an investment of $11,662.10 with a maturity date of 10 April 2013.

[17] The matters in (a) to (e) that follow in this paragraph.

[18] The matters in (f) to (k) that follow in this paragraph.

[19] The matters in (a) to (e) are alleged in PFASOC [28].

[27] Broadly the solvency and liquidity conditions imposed on Banksia in respect of its licence to operate its business.

[28] Australian Securities and Investments Commission.

[29] Australian Financial Services Licence.

[30] The omissions alleged include the Banksia undisclosed matters which are alleged in the PFASOC in relation to Prospectus 16 (2009) (see [12] above), 2010 Banksia Financial matters (as defined in the PFASOC) and 2011 Financial matters (as defined in the PFASOC).

A person is involved in a contravention if, and only if, the person:

(a) has aided, abetted, counselled or procured the contravention; or

(b) has induced, whether by threats or promises or otherwise, the contravention; or

(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d) has conspired with others to effect the contravention.

[42] As alleged in respect of 2009, 2010 and 2011.

[43] As alleged in respect of 2009, 2010 and 2011.

[45] PFASOC [76]. See [18] where the text of s 283F(1) is set out. Section 283DA is included in the relevant Chapter to which reference is made in s 283F(1).

[46] [2013] VSCA 284.

[47] Corporations Act s 1022A(1)(a). That section specifies other reasons why a disclosure document will be defective, but they are not relevant for present purposes.

[48] Timbercorp [2013] VSCA 284 [68].

[50] [1992] FCA 437; (1992) 37 FCR 526.

[54] [2004] NSWCA 58; (2004) 62 IPR 184.

[55] Ibid 212 [156], 212 [158]-[160].

[56] [2008] NSWCA 206; (2008) 73 NSWLR 653.

1. [60] [2007] NSWCA 235. (Varied on appeal but not in relation to this point: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570).

[62] [2013] VSCA 284 at [227] which is set out at [24] above.

[63] Perpetual Trustee Company Ltd v Kwok [2011] NSWSC 422, [31]-[38]; Manday Investments Pty Ltd v Commonwealth Bank of Australia [2012] FCA 751 [6]-[7], [27]-[36].

[64] Byrne v Cooke [2010] QSC 76, [9]-[22]; HIH Insurance Ltd (in liq) v Adler [2007] NSWSC 633, [13 vi.], [67]-[75]

[65] [2009] HCA 25; (2009) 238 CLR 304.

[66] Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359 [44]( citations omitted).

[67] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [143].

[68] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459.

[69] Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [9].

[70] Australian Securities and Investments Commission v Cassimatis (No.2) 96 ACSR 272, 305 [100].

[71] [2006] WASC 281; (2006) 33 WAR 82.

[73] See above [14].

[74] (1985) 157 CLR 215.

[76] See above [14].

[77] See above [14].

[78] See above [43].

[79] See above [14].

[80] Paragraph 34(b)-(d) PFASOC the text of which is set out above in [14].

[81] Paragraph 34(e) PFASOC the text of which is set out above in [14].

[82] Paragraph 34(g) PFASOC the text of which is set out above in [14].

[83] Paragraph 34(f) PFASOC the text of which is set out above in [14].

[84] [2006] WASC 281; (2006) 33 WAR 82. See above [36].

[86] See above [52].

[87] Paragraph 34(a) of the PFASOC the text of which is set out above in [14].

[88] See above [14].

[89] See above [16]-[17].

[90] See above [17].

[91] See above [10].

[92] See above [19]-[21].

[93] In respect of 2009, 2010 and 2011.

[94] In respect of 2009, 2010 and 2011.

[95] See above [20].

[96] See above [19].

[97] Paragraphs 35(a), 48(a), 58(a), 61(a) (which concerns Banksia and about which no complaint has been made), 64(a) and 76 PFASOC.

[98] Supreme Court (General Civil Procedure) Rules (Vic) r 13.10(1), (3)(b).

[99] Melbourne City Investments Pty Ltd v Leighton Holdings Limited [2014] VSC 7 [43]-[48].

[100] See above [12].