Plaintiff v Defendants Third Parties

Plaintiff v Defendants Third Parties - [2011] VSC 427 - VSC 2011 case summary — Zoe

[186]

[17] All the parties before us agreed that in addressing the question whether the risk of serious harm is significant the judge is entitled to balance the probability of harm against the nature of it if it occurs. The harm under consideration must of course be serious harm before the question even arises. But we agree that within the concept of significant risk there is built in a degree of flexibility which enables a judge to conclude that a somewhat lower probability of particularly grave harm may be significant and conversely that a somewhat greater probability of less grave harm may not be.

[18] We do not, however, agree that it follows that there is any justification for attempting a redefinition of the plain English expression "significant risk... of serious harm". There is no occasion to rewrite the statute as Mr Fitzgerald invites us to do. In R v Lang [2005] EWHC 2342; [2006] 1 WLR 2509, para 17(i), this court noted that the dictionary definition of "significant" is "noteworthy, of considerable amount ... or importance". That was not to substitute a different expression for the statute, but was and remains a helpful indication of what kind of risk is in issue.

[19] In particular, it is wholly unhelpful to attempt to redefine "significant risk" in terms of numerical probability, whether as "more probable than not" or by any other percentage of likelihood. We doubt very much that the probability of future harm is capable of numerical evaluation. No attempt should be made by sentencers to attach arithmetical values to the qualitative assessment which the statute requires of them. Such would, moreover, be inconsistent with the degree of flexibility inherent in the word "significant" to which we have adverted in para 17 above. At one stage in his submissions Mr Fitzgerald contended that "significant risk" was being found in cases where there was no more than a 20% probability of serious harm. We are unaware of any sentencer expressing a sentence in any arithmetical terms, never mind those, and very much doubt that it has ever occurred.

[381]

[167] As to concerns about "trial by ambush", the defendants do not contend that ASIC has deliberately concealed its true case or deliberately allowed the defendants to proceed in ignorance of it, but rather that it has not disclosed its true case in a timely fashion through its statement of claim and particulars, and consequently the defendants have been prejudiced because their conduct of the trial has been strictly on the basis of the pleaded case. They have referred to cases in which courts have expressed particular concern about the practice of "leaving footprints to be uncovered later in an attempt to say that a matter was always in issue": White v Overland [2001] FCA 1333, at [4] per Allsop J; Pacific National (ACT) Ltd v Queensland Rail (2005) 215 ALR 544 ; [2005] FCA 535, at [47]-[49] per Jacobson J; Nowlan v Marson Transport Pty Ltd (2003) 53 NSWLR 116 ; [2001] NSWCA 346, at [28] per Heydon JA (with whom Mason P and Young CJ in Eq agreed). Concern about this practice extends to "footprints" in correspondence and also, as Jacobson J indicated in Pacific National at [49], the opening of the case. Presumably it also extends to interpretations of the evidence advanced in final submissions.

[168] In my view this is not case where ASIC can be fairly accused of "leaving footprints" to provide a foundation for subsequently contending that unpleaded matters are in fact in issue. As I have said, ASIC has always relied on the statement of claim as its pleaded case (subject to an application to amend with respect to non-UK European creditors, rejected in ASIC v Rich [2005] NSWSC 940), and the defendants have objected whenever they have detected what they regarded as deviation from the pleaded case. But the case law has a more general relevance: in civil penalty proceedings brought by a model litigant, the court should not allow the case to change shape during the trial without any proper reconsideration of the pleadings, if there is an identifiable risk of prejudice to the defendants in terms of having a fair opportunity to meet the case presented against them. In the words of Allsop J in White v Overland, at [4]: "it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are".

[169] The correct approach to civil litigation is now a "cards on the table" approach and the "ambush theory of litigation" is dead, as Ipp JA said in Glover v Australian Ultra Concrete Floors [2003] NSWCA 80 at [60], observations cited with approval by Jacobson J in Pacific National at [50], and by Bergin J in ASIC v Loiterton [2004] NSWSC 172 at [39]; see also Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2003) 53 NSWLR 116, at [21]-[32] (with which Mason P and Young CJ in Eq agreed). ASIC v Loiterton deserves particular attention in the present case because it is a civil penalty case brought by ASIC, in which Bergin J referred to ASIC's duty of fairness to the defendants and the importance of ensuring that the prosecution case has clarity and is fair, all the more so because the proceedings are civil penalty proceedings (at [38]-[39]).

[509]

So the company, in order to keep itself going had lots of relatively small and short-term borrowing facilities with the banks? --- As part of overall model of selling the assets on.

And it was being recommended to you that you have a long term facility to overcome the refinancing risk? --- Yes.

And you understood when you got the risk profile, exhibit TFL5, that the treasury risk was much more than just the ordinary risk of being in business and needing cash, didn't you? --- I understood what the consequence of running out of money was.

That wasn't my question, was it? You understood that the treasury risk identified in the risk profile was more than just the ordinary risk that any business faces of running out of cash? --- Inasmuch as there would be an impact on the growers, is that what you are saying?

No, because the point about the treasury risk was that you constantly needed access to debt or equity in order to keep the business going in the way that it operated, do you agree with that? --- No. You constantly forget to put the part of the model as being the end sale process which you would expect to happen within the three to five year period.

That's the sale of assets? --- Yes.

And of course the sale of assets was indeed another source of cash? --- It was an intrinsic part of the business model.

But of course if the sales didn't occur as intended, then you had to look to other sources of cash? --- Yes.

And your business model was a relatively unusual one, you would agree? --- Unusual but certainly not unique.

You will recall that the particular problems that were identified as treasury risks were access to debt or capital, that was one of them? --- Two of them.

Pardon? --- Yes, debt capital, that's two.

It's identified as one of them actually, access to debt or capital? --- Yes.

And you agree access to debt was something that was important to you? --- Yes.

And access to capital was important to you? --- Yes.

If either of those failed then you would have a problem? --- Yes.

And that problem was catastrophic? --- I think - I saw the risk, the treasury risk as also not being able to sell the assets.

So that's a third element of it? --- Yes.

And if one or more of those failed, the result could be catastrophic? --- Yes.

And that result would have a major impact on your growers as well as everyone else? --- Yes.

You agree that those risks in particular were an aspect of the way you did business because of the nature of your business model? --- Yes.

So this was not just the ordinary risk that any company has of running out of cash, was it? --- No, but many companies have the same model.

And it's because it was specific to the peculiar model or the unusual model of your business that it wouldn't have been terribly easy for someone on the due diligence committee just to work out for themselves that as a matter of risk analysis, this would be a major risk, do you agree with that? --- They would have seen it as major risk by use of just common knowledge, if the company goes broke and it's the manager, it's got to be a major risk.

[785]

Issues

In December 2006 the Federal Government announced it would provide a statutory provision to entitle investors in forestry managed investment schemes (MIS) to claim an upfront deduction for all direct forestry expenditure. This announcement provides certainty to the forest industry and will help underpin the Government's support for the Plantation 2020 policy, which seeks to expand the area under plantation over the next 13 years.

Unfortunately, a detailed review was not afforded to the non-forestry MIS sector and in February the Government announced that the Australian Taxation Office (ATO) would reinterpret the taxation treatment of non-forestry schemes.

The announcement was made with little warning or consultation with industry and caused much angst in rural and regional Australia. Subsequently, the Government announced that the ATO would conduct a test case in the Federal Court to examine its new interpretation and that the existing arrangements would be maintained until 30 June 2008. Industry is supportive of a test case and we have a positive outlook on the outcome.

These activities negatively impacted the sales environment for agribusiness MIS, a situation that was exacerbated by drought and the one off opportunity for individuals to make large undeducted contributions to superannuation. This opportunity held the focus of much of the financial planning and investment market during May and June 2007. Despite this, Timbercorp achieved new sales of $102.3 million for horticulture and $40.7 million for forestry.

The past year has also been marked by substantially below average rainfall in the Murray-Darling Basin, where Timbercorp's almond, olive, citrus and table grape projects are located.

The Future

Timbercorp's twentieth year marks a turning point for the company as we move into a phase of consolidation followed by growth into the medium term.

The company's business model moving forward is to consolidate our substantial horticulture and forestry assets, investment interests, existing loan book and network of investor relationships, while bringing to market a suite of new innovative agribusiness investment opportunities.

We are excited about the long term growth of the agribusiness sector and the opportunities we have identified for the future.

We would like to thank our staff for their wonderful contribution during the year and look forward to working together to take our company forward for the next twenty years.

[843]

552 The defendants submitted that disclosure of the tax announcement as an event was not required, but if it was, the event was widely disclosed, in the media, on the Timbercorp website, in ASX releases and in subsequent product disclosure statements. What was not disclosed, in terms, was the information concerning the alleged effect of the tax announcement on Timbercorp's cash flows, revenues and profits and the risk that posed to the ability of Timbercorp Securities to manage the projects through to completion. The evidence demonstrated that while the tax announcement may have had a negative impact on the Timbercorp share price, and on forecast performance in the short term, the actual impact did not threaten the ability of Timbercorp Securities to continue to discharges its contractual responsibilities to scheme investors. Furthermore, the nature and extent of the impact on the business of the Group was the subject of reports made to the ASX and the Annual Reports of the Group. In my opinion, Timbercorp Securities was not required to disclose the generalised information of the kind suggested by the plaintiff so as to qualify its disclosure of the performance risk. That information was not in relation to a significant risk to the ability of Timbercorp Securities to discharge its contractual obligations to scheme investors. It was not information that would be reasonably required by a retail client for the purpose of making an investment decision. It was not information that might reasonably be expected to have a material influence on the decision of a reasonable retail client to invest. Because of financial information about the Group available on its website, Annual Reports, ASX announcements and the material prepared by analysts, the information the plaintiff would have had provided to potential and existing investors was not required because of the operation of s 1013F. Finally, the evidence did not support the contention that the directors had actual knowledge of a risk posed by the tax announcement to scheme investors.

[901]

How long was the meeting that you had late on 15 June with Mr Larkin? --- If I recall, it was in the evening and it was about hour and a half to two hours long.

Late on Friday evening? --- That's correct.

Was a bottle of wine opened or a glass of beer or something like that? --- Not that I recall.

And your wife was present at that meeting? --- She was.

Limited opportunity to read the PDS at that meeting? --- That's correct.

And up until that meeting, that was the first time that you had actually received a copy of that product disclosure statement? --- That's correct.

...

the documents I have given you." Is it the position you signed the authority to proceed but you hadn't quite performed that task? --- I would have read the documents. I read the documents but I certainly didn't dissect them or - - -

...

An hour and a quarter's meeting is not really adequate time, is it, to digest the PDS? --- Well, not to drill down into it in great detail.

There were also other investments that Mr Larkin was recommending, was there not? --- There was.

So he was also recommending, if you go back to the statement of advice on page 3, the FEA Plantations Project 2007? --- Yes.

And he was also recommending the Gunns Plantations Project 2007? --- Yes.

And each of those had PDSs associated with them? --- Yes.

So just to give me some form of idea, the volume of material that he was bringing to this meeting late on 15 June which was about an hour and a quarter was several hundreds of pages of material? --- Yes.

You certainly didn't have time to properly analyse that in the timeframe that was given for that meeting of about an hour and a quarter? --- Not in minute detail, no.

I take it Mr Larkin was speaking to his statement of advice, taking you through it? --- Yes.

That would have taken some time, did it? --- I don't recall how long it took.

You had questions of him about various matters in relation to his statement of advice? --- I would have been asking him questions, yes.

Did you also discuss applying for loans to enter into some of these investments? --- As I recall it, Mr Larkin offered to me the fact that I could have a 12 month interest free. I had the funds available and could have paid them in full at that point. However, when he recommended that I actually take the 12 month interest free, he pointed out to me I could keep my funds invested and as I paid monthly, I would be evening interest on the balance.

So part of this hour and a quarter discussion also involved a discussion about the financing arrangements for how these investments would be subscribed for? --- He purely indicated in my case as to the 12 month interest free and if I recall, it wasn't on the document, he actually had to change it to say that it was 12 months interest free on the loan document.

Did he give you a loan finance application package? --- Not at that point, he gave that to me later.

But you signed documents dealing with applying for loan finance, did you not? --- As the application for it, yes, I signed them, and he then said it would go off and if I was approved that it would come back and I would then have to sign the loan documents.

Before you signed the loan application form, did you read that carefully? --- I read it.

That's the sort of thing you would want to read carefully, wouldn't it, before committing yourself to take out a loan? --- Well, I had the funds so it was simply a question of getting the 12 month interest free.

Let me ask you this, when did you write out the cheques that were necessary for subscription for these investments? Did you write them out on the evening of 15 June? --- I don't recall but I'm sure there's copies of the cheques with the date on it.

I want to show you a loan application form that was produced by Macpherson & Kelley, your solicitors, to the defendants. This is under tab 25. This is a document but it only has the front page and pages 2, 4, 5, 8 and 9, do you see that? --- Sorry, under 25 I've only got two pages. Sorry, I should have said tab 30. This was discovered as F1.25 by the plaintiff. If I could just take you to page 8, you will see there signatures. They are you and your wife's signatures? --- They are.

It's dated 15 June 2007? --- It is.

So when do you say that you would have signed this? --- I don't recall but if it's dated the 15th, I would assume I signed it on the 15th, but I don't have a memory of that.

But you don't engage in the practice of signing something on one day and dating it on another day? --- No.

So is this something that was likely to have been discussed between you and Mr Larkin on the evening of 15 June? --- Yes - there's where I remember where he had written the 12 months because it had just said the loan terms were 2-4, 5-6 and he had written in that it was interest free for the first 12 months.

This is page 4 of what you are looking at? --- That's correct.

Are you able to explain why this version only has pages 2, 4, 5, 8 and 9? --- I assume that was what I was given at the time because I tend to take everything I've got and file it.

The complete version that was actually sent through to Timbercorp Finance, you will find the version of that appearing at tab 31, do you have that? --- Yes.

If you go to page 1 you will see up the top, "Application check". It says: "Before completing and signing this application form all parties should carefully read this application form", do you see that? --- Yes.

Is that what you did? --- Yes.

...

HIS HONOUR: It's getting a bit argumentative. How many PDSs did you have in front of you on the Friday evening? --- If I recall, Your Honour, I had three.

Do you say you read each of them? --- I would have read through them, Your Honour. I wouldn't have sat down and read every word, I would have skimmed through them, reading them, understanding the gist, picking out important items in them and they very much appeared to be similar type of documents.

You say the meeting was an hour an a quarter to an hour and a half? --- Your Honour, I'm sure it went much longer. I recall offering him a glass of wine, I doubt I would have done that if the meeting was only an hour. I really think it would have gone a lot longer.

MR BEACH: You gave an estimate before lunch to read one PDS properly was three to four, multiple by that three you get nine to 12 hours? --- That's correct.

If you've only got an hour and a quarter you only reading at most about 10 per cent of any one PDS? --- I'm reading through the PDSs, not in exact detail every word for word and probably skimming it because that was the time I had available, whether it was an hour or four hours, at this stage I can't tell you.

Parties

Applicant/Plaintiff:

# Woodcroft-Brown

Respondent/Defendant:

Timbercorp Securities Limited

Legislation Cited (80)

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Financial Services Reform Act 2002(Cth)

Fair Trading Act 1999(Vic)

Managed Investment Act 1998(Cth)

Court Act 1986

Securities and Investments Commission Act 2001

Trading Act 1999

Liability Act 2002

Criminal Justice Act 2003

Procedure Act 2005

Investments Act 1998

Cases Cited (21)

(1992) 175 CLR 479

(1980) 146 CLR 40

(1990) 169 CLR 279

(1982) 148 CLR 658

(2001) 53 NSWLR 116

(1939) 62 CLR 462

(2008) 252 ALR 659

At a glance

Court

Decision date

Before

Source

Judgment (1050 paragraphs)

Parties

Legislation Cited (80)

Cases Cited (21)