Plaintiffs v Defendants [2013] VSC 99 | Case summary

Supreme Court of Victoria|2013-03-13|Before: FERGUSON J

PRACTICE AND PROCEDURE - Application to strike out paragraphs of statement of claim - Allegations of unregistered managed investment schemes and loss arising - Matters necessary to be pleaded against accountants for scheme promoters in respect of claims for misleading or deceptive conduct by silence, pure economic loss resulting from negligence and accessorial liability under the Corporations Act 2001 (Cth) - Corporations Act 2001 (Cth) ss 79, 1041H

For the First, Second, Fourth to Seventh Defendants

1 The plaintiffs claim that they entered into managed investment schemes which should have been registered but which were not. They allege that their investments in the schemes are now valueless. They have sued multiple defendants, including the third defendant ("Bentleys"), who it is alleged was retained by the scheme promoters as their accountant. The plaintiffs contend that they have claims against Bentleys for breach of statutory misleading and deceptive conduct provisions, negligence and involvement in breach of the requirement in the Corporations Act 2001 (Cth) that managed investment schemes be registered. In addition to the current proceeding, there are eight other proceedings of a similar nature brought by other investors. Bentleys is a defendant in all of the proceedings.

2 In the present proceeding, Bentleys has applied to strike out part of the claim against it.[1] The application is made pursuant to r 23.02 of the Supreme Court (General Civil Procedure) Rules 2005. That rule provides that where any part of the pleading:

(a) does not disclose a cause of action or defence;

(d) is otherwise an abuse of the process of the Court-

the Court may order that the whole or part of the indorsement or pleading be struck out or amended.

3 A pleading must contain, in summary form, a statement of all the material facts on which the party relies.[2] There are two reasons why material facts must be pleaded. First, such a pleading enables a party's opponent and the Court to know what the case is that is to be met. Secondly, it discloses whether the party has a claim or defence (whichever may be the case) which is known to law.[3] Proper particulars of a pleading must be given.[4] As Harper J (as he then was) said in Downer Connect Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd:[5]

Litigation is sometimes conducted to judgment with barely a glance at the pleadings. It remains generally true that good pleadings are an important, and often crucial, element in the civil justice system. When well drawn, as they always should be, they form the touchstone by which the issues are identified and the relevance of the evidence assessed.

Consistently with this, one of their primary purposes is to reveal to the opposite party how the party pleading puts its case. On reading a well-drawn statement of claim, the defendant to whom it is directed will be able to say: "These are the material facts that will be the subject of the plaintiff's evidence. They tell a coherent, comprehensible story; and, to the extent that any additional evidence is to be called that might cause me to be taken by surprise, here is that evidence outlined in the particulars."

A complaint that the pleadings do not achieve this end is often met with the response that the opposite party knows very well, from documents and perhaps other sources, what the case against it is. This is no answer at all, at least unless the relevant documents are properly incorporated into the pleading. It is, as a general proposition, true to say that each pleading should be sufficient in itself. And although an element in an adversarial process, pleadings are themselves intended to be the opposite of adversarial, at least to the extent that they must, if they are to perform one of their proper functions, inform the opposite party of the case that party will have to meet at trial.

But pleadings have another important audience: the Judge or Magistrate. In most cases, the opposite party will have the assistance of some knowledge of the factual background - some knowledge, in other words, of the facts against which the pleadings can be assessed. The tribunal of fact will never be in that position. The pleadings must therefore be drawn so as to allow the impartial and uninformed reader to know what the case is about. This end cannot be achieved unless the pleadings form a coherent narrative, of material fact, with the necessary detail included as particulars. They must be drawn with a careful eye to the evidence that will necessarily be called if the case is to be made out. If the party pleading does not have that evidence, then the case ought not go to trial. Indeed, it is generally true to say that it ought not to proceed beyond the point at which the party pleading appreciates, perhaps because the very act of pleading reveals it, that there is and will remain a gap in the evidence upon which the cause of action or defence is based and without which that cause of action or defence will fail.[6]

4 When, as in the present case, multiple claims are made against multiple defendants in the one pleading, the pleading should clearly and succinctly set out which pleaded facts in which paragraphs are relied upon to make up each claim against a particular defendant. Transparency in pleadings plays an important role in modern litigation. It is consistent with the object of facilitating the "just, efficient, timely and cost-effective resolution of the real issues in dispute."[7] Bearing this in mind, it is not the task of a defendant to guess at how the case is put against them nor to guess at what facts are relied upon. Those matters should be obvious from the pleading. When there is only one claim against all defendants, the task ought to be relatively straightforward. In more complex matters, the use of headings for each claim can be of assistance, particularly where there are multiple claims. In all likelihood in such cases, there will be some pleaded facts which relate to more than one claim. It is not necessary for the pleader to repeat those facts common to each claim. However, the pleader should make it clear what facts are relied upon for each claim against each defendant and may choose to do so by cross referencing to other parts of the pleading. When the relevant paragraphs are read together, they should form a narrative so that the reader is left in no doubt what case the particular defendant has to meet. Defendants should not be put in the position where they have to guess which paragraphs scattered throughout the pleading make up the allegations said to constitute the cause of action against them.

5 On a strike out application under r 23.02, it is usually assumed that the matters pleaded can be proven.[8] If the case pleaded is arguable, commonly that is all that is required. Its ultimate success or failure is a matter for determination at trial.[9]

6 The plaintiffs contend that Bentleys is well aware of the case made against it by the plaintiffs, which is that, from start to finish, Bentleys was the accountant for the schemes and it knew or ought to have known that they were illegal and placed ignorant investors at great risk, yet it said nothing and did nothing to alert those investors. The plaintiffs submitted that, on the contrary, Bentleys provided the services necessary for the schemes to operate and, at least in respect of some of them, it encouraged investment in the schemes by allowing its name to be associated in the public mind with them. The plaintiffs contend that from the amended statement of claim[10] and the further and better particulars that they have provided,[11] Bentleys knows unequivocally that this is the case it must meet. The plaintiffs say that the application to strike out is no more than an attempt to divert and delay the progress of their claim and, if it succeeds, other defendants are waiting in the wings to multiply the diversion and delay tenfold. In addition, they point to the eight other proceedings which are in similar form and the likely strike out applications that would follow in those proceedings. The plaintiffs submitted that courts should be alert to avoid such interlocutory warfare wherever possible, particularly in the era of aggressive case management and efficient use of court resources.

7 The plaintiffs also contend that some of the complaints of Bentleys are really as to the Particulars provided, rather than as to the pleading of the cause of action. They say that they can provide additional particulars if they are required, but that they should not be required to do so because Bentleys has been able to properly prepare a defence without the particulars.

8 Finally, they contend that there is no substantial objection to the pleadings and no real embarrassment. In those circumstances, the plaintiffs submit that the Court's discretion to compel amendment of the plaintiffs' pleadings should not be exercised.

9 For the reasons which follow, I do not accept that the claims against Bentleys which they seek to strike out have been properly pleaded. Whilst headings have been employed in the pleading so that there are sections headed "Misleading or Deceptive Conduct," "Negligence/Breach of Retainer" and "Involvement in Breach of Section 601ED(5) [Corporations Act]," it is unclear from the pleading which other facts (pleaded under earlier general headings) the plaintiffs rely upon to make out those causes of action. As the pleadings are not in a narrative style in respect of each claim and each defendant, they are confusing. As will be seen from what follows, ultimately the plaintiffs do not plead complete causes of action. Further, in my view, the defects in the pleadings cannot be corrected by further particulars.

10 Whilst I accept that borderline complaints about pleadings might result in a court refusing to exercise its discretion to strike out a pleading, this case does not fall into that category. The complaints about the pleading are of some substance and need to be addressed by the plaintiffs. If a pleading is flawed, it is no answer to that complaint that there will be a knock on effect that will cause delay because other defendants may seek to strike out other parts of the pleading. Contrary to the submissions of the plaintiffs, proper case management and efficient use of court resources should lead to good pleadings at an early stage rather than permitting deficient pleadings to remain until trial. Proper pleadings enable the issues in dispute to be clearly defined. The earlier that they can be provided, the less likely it is that time (both of the parties and the court) will be wasted on issues that are not at the heart of the dispute.

11 It is necessary to consider in some detail Bentleys' complaints about the pleadings against them and the pleadings themselves. I will deal first with the pleading as to misleading or deceptive conduct, next with the negligence pleading and finally with the pleading of accessorial liability.

(a) the relevant schemes were managed investment schemes and were required to be, but were not, registered under s 601EB of the Corporations Act; [12]

(b) they paid money for interests in the schemes and those investments are valueless;[13]

(d) Bentleys were retained by the scheme promoters as their accountant and were responsible for advising the scheme promoters in relation to the establishment and operation of the schemes (or some of them);[15]

(e) Bentleys failed to inform them of a number of matters which are defined in the pleading as the "Omissions".[16] In broad terms, the Omissions are alleged to be that Bentleys did not inform the plaintiffs that the schemes were conducted unlawfully and that the schemes did not provide investors with the safeguards of a registered managed investment scheme;

(f) Bentleys knew or ought to have known of the matters comprising the Omissions;[17]

(g) the plaintiffs made their investments in the schemes by reason of (among other things) Bentley's failure to disclose the matters constituting the Omissions;[18]

(h) the Omissions were conduct in the course of trade or commerce for the purposes of the relevant statutory provisions;[19]

(i) by failing to disclose each of the matters constituting the Omissions, Bentleys breached s 12DA(1) of the Australian Securities and Investments Commission Act, s 1041H of the Corporations Act 2001 (Cth) and/or s 9 of the Fair Trading Act 1999 (Vic);[20]

(j) the plaintiffs have suffered loss or damage as a result of, among other things, Bentleys' contraventions pleaded in the preceding paragraph.[21]

13 I note that only the pleadings as to the matters in (g)-(j) are included under the heading "Misleading or Deceptive Conduct." The other facts relied upon were referred to by the plaintiffs in submissions and are scattered throughout earlier parts of the pleading. This makes it difficult for the uninformed reader to understand what case is put against Bentleys under the misleading or deceptive conduct heading. In any event, as will be seen from what follows, even when the paragraphs are pieced together, in my opinion there is a significant gap in the pleading.

A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

15 The definition of "engaging in conduct" includes refusing to do any act[22] and the reference to "refusing to do an act" includes refraining (otherwise than inadvertently) from doing that act.[23]

16 Section 1041H of the Corporations Act applies to financial products and financial services and is otherwise in similar terms to s 12DA(1) of the Australian Securities and Investments Commission Act. So too was s 9 of the Fair Trading Act which was in force at the time of the alleged conduct.[24]

17 Bentleys contends that as the plaintiffs have not pleaded that they had a reasonable expectation that the matters constituting the Omissions would be disclosed to them, the pleading is flawed. Accordingly, they say that paragraphs 59 and 60 of the amended statement of claim (being that part of the pleading as to (i) and (j) above) do not disclose a cause of action and should be struck out insofar as they contain any allegations against them.

18 In support of their contention, Bentleys relies on Clifford v Vegas Enterprises Pty Ltd[25] and Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited.[26] In the first of those cases, Mr Clifford alleged that the respondents were guilty of misleading or deceptive conduct in connection with the purchase of shares in a company. Part of the claim was based on non-disclosure of information about the company's sales, the loans to the company by shareholders and movements in the company's overdraft facility. Mr Clifford alleged that that information should have been, but was not, disclosed to him by the respondents. Besanko J (with whom North and Jessup JJ agreed) said:

In order to determine whether a failure to disclose a matter is misleading or deceptive conduct all of the circumstances must be examined. If having regard to the circumstances assessed objectively a person in the appellant's position would be entitled to expect or infer (has a reasonable expectation) that a particular matter would be disclosed and the respondent does not disclose that matter then that may well constitute misleading or deceptive conduct or conduct likely to mislead or deceive. It is true that it is important not to overlook the fact that the ultimate question is whether the respondent's conduct is misleading or deceptive or likely to mislead or deceive.[27]

19 In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited,[28] one issue was whether an insurance broker had engaged in misleading or deceptive conduct by failing to disclose that an insurance policy was neither assignable nor cancellable. French CJ and Keifel J considered what is required for the pleading of misleading or deceptive conduct and said:

The cause of action for contravention of statutory provisions against conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive has become a staple of civil litigation in Australian courts at all levels. Its frequent invocation, in cases to which it is applicable, reflects its simplicity relative to the torts of negligence, deceit and passing off. Its pleading, however, requires consideration of the words of the relevant statute and their judicial exposition since the cause of action first entered Australian law in 1974. It requires a clear identification of the conduct said to be misleading or deceptive. Where silence or non-disclosure is relied upon, the pleading should identify whether it is alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or whether it is an element of conduct, including other acts or omissions, said to be misleading or deceptive.[29]

20 Their Honours then referred to the pleading which included a plea of reasonable expectation. Later in their judgment, their Honours said:

The language of reasonable expectation is not statutory. It indicates an approach which can be taken to the characterisation, for the purposes of s 52, of conduct consisting of, or including, non-disclosure of information. That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiations. An example in the former category is non-disclosure of material facts in a prospectus.

In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered. The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52.

To invoke the existence of a reasonable expectation that if a fact exists it will be disclosed is to do no more than direct attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs or high moral expectations held by one person of another which exceed the requirements of the general law and the prohibition imposed by the statute.[30]

21 The plaintiffs relied on The Shell Company of Australia Ltd v Esso Australia Limited[31] in which one issue was as to the sufficiency of a pleading about an implied term in a contract. The pleading stated that there was an implied term of the agreement and set out what the term was alleged to be. The pleading did not address why it was alleged that the term should be implied. Murphy and Nathan JJ (Brooking J dissenting on this issue) held that the claim based on implied terms should not be struck out. In considering this issue, Nathan J stated:

To my mind it is not necessary to test whether the implied term referred to in para. 6(i) and allegedly breached as pleaded in paras. 9 and 18 needs to be tested against the criteria for implying terms into contracts as recited in B.P. Refinery (Westernport) Pty. Ltd. V Hastings Shire Council [1977] HCA 40; (1977) 16 A.L.R. 363; 52 A.L.J.R. 20. This is a matter for the trial Judge. However, a preliminary examination indicates the pleading would satisfy them.[32]

22 In effect, the plaintiffs contended that pleading reasonable expectation is analogous to pleading the criteria for implying terms into a contract with that level of detail not required. I do not find the observations of Nathan J of assistance in this case. The pleading in the case that his Honour was considering concerned a completely different cause of action and his Honour did not set out a pleading principle that might be applied in this case.

23 The plaintiffs also submitted that the decision in Miller[33] makes it clear that it is not necessary to plead reasonable expectation and that there are other ways in which a claim for misleading or deceptive conduct by non-disclosure may be made.

24 I accept that it may not be necessary in all cases to plead that a plaintiff had a reasonable expectation that a particular matter would be disclosed in order to plead an arguable claim for misleading or deceptive conduct by way of non-disclosure. As the cases make clear, what must be established is that in all of the circumstances, not to have disclosed a particular matter was misleading or deceptive.

25 However, as I have said, a defendant is entitled to know how the case is put against them. To this end, a plaintiff must specify in its pleading what particular conduct is alleged to be misleading or deceptive and it must also plead facts which constitute the circumstances in which the conduct occurred such that it is alleged that the statutory provisions have been contravened. If a plaintiff intends to argue that in the circumstances it was reasonable to expect the defendant to have made the disclosure, then it should plead this as a fact - that is that a person in the plaintiffs' position would be entitled to expect or infer in the circumstances that a particular matter would be disclosed. If a plaintiff intends to run a misleading or deceptive conduct non-disclosure case on a different basis, then any additional facts relevant to that other case should be pleaded.

26 Here, the plaintiffs have made clear that they want to rely on a case based on reasonable expectation. In their written and oral submissions, they contended that the circumstances of this case are such that it was reasonable to expect Bentleys to inform the public, or potential investors, or actual investors of very relevant facts which are alleged to be within their knowledge - the schemes with which they were intimately involved were illegal and placed investors at serious risk of losing all their funds. They contend that the pleadings provide several alleged reasons why this duty to inform existed:

(a) Bentleys was the accountant for all the scheme promoters;[34]

(b) Bentleys was fully aware of each scheme's financial dealings;[35]

(c) Bentleys knew it was promoting an illegal managed investment scheme which had no safeguards such as a responsible entity, which is a public company with an Australian Financial Services licence, compulsory insurance, a requirement to hold investor property separately and on trust for investors, and a compulsory audit.[36]

27 The plaintiffs contend that if these facts are established, it would be open to a court to find that the circumstances of the case involve a firm of accountants which knew that its client was promoting illegal managed investment activities, which itself knowingly performed the accounting services required to make those activities possible, and which knew that members of the public were being put at risk of losing their savings and their homes. These are circumstances, so they contend, such that there is a reasonable expectation that the accountants would or should disclose these facts either by contacting investors directly, through its access to the scheme books, or by requiring the scheme promoters to do so, or by making a public announcement such as a newspaper advertisement, or by reporting the facts constituting the Omissions to the Australian Securities and Investments Commission. However, the difficulty is that the pleading as presently drafted does not include this last allegation, that is that in the circumstances a person in the plaintiffs' position would have a reasonable expectation of disclosure. It misses that step and jumps straight to an allegation that the non-disclosure constitutes misleading or deceptive conduct in contravention of the statutory provisions. The pleading of reasonable expectation is a material factual link in the chain leading to the conclusion which is alleged by the plaintiffs that the Omissions constitute misleading or deceptive conduct. If reasonable expectation was not intended to be part of the plaintiffs' case, then that would be another matter, but in light of the submissions made and with no other basis put for why any non-disclosure is allegedly misleading or deceptive, the pleading in paragraphs 59 and 60 against Bentleys should be struck out.

28 The plaintiffs also submitted that whilst there might be a debate about whether as a matter of law a duty to inform exists in the circumstances of this case, that does not mean that the pleading should be struck out. They contended that the strike out application should only succeed if no cause of action had been pleaded. For the reasons which I have already set out, no complete cause of action has been pleaded and paragraphs 59 and 60 should be struck out.

29 Under the heading "Negligence/Breach of Retainer," the plaintiffs plead that Bentleys owed duties of care to persons investing in the schemes[37] and breached those duties.[38] Particulars of the duties are said to be:

(a) Bentleys had a duty to take care to avoid causing harm where harm would be reasonably foreseeable if care was not taken;

(b) it was reasonably foreseeable, when the schemes were conducted unlawfully and in breach of the Corporations Act and did not provide investors with the safeguards of a registered managed investment scheme, that harm would be caused to investors if care was not taken to advise that the schemes should be registered as required; and

(c) the duty of care owed to the investors included a duty to advise the scheme promoters that the schemes should be operated in accordance with the Corporations Act.[39]

30 The plaintiffs' claim is one of pure economic loss. Bentleys contends that as the plaintiffs have failed to plead the "special circumstances" or "control mechanisms" giving rise to the duties as pleaded, the plea should be struck out. Bentleys relies on Perre v Apand Pty Ltd.[40] In that case, Gaudron J stated:

It is clear that foreseeability does not, of itself, suffice to render a defendant liable for negligently inflicted economic loss. This notwithstanding, the notion of proximity, which has generally been adopted by this Court to describe the special feature or features that attract a duty of care in economic loss cases, has been criticised as being incapable of constituting a universal criterion of liability and, also, as having only limited utility in determining whether there exists a duty of care in a particular case. It may well be that, at this stage, the notion of proximity can serve no purpose beyond signifying that it is necessary to identify a factor or factors of special significance in addition to the foreseeability of harm before the law will impose liability for the negligent infliction of economic loss.[41]

31 A little further on in her reasons, her Honour considered negligent misstatement as a category of case and stated:

So far as concerns negligent misstatement, the circumstances which attract a duty of care are 'known reliance (or dependence) or the assumption of responsibility or a combination of the two', the word 'known' including circumstances in which reliance or dependence ought to be known. And in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, it was not pleaded that the auditors in question knew or ought to have known that a finance provider would rely on their audited statement of accounts and, thus, it was held, on the pleadings, that no duty of care was owed by the auditors to the finance provider.[42]

32 Her Honour also discussed protection of legal rights as a second category of case and said:

Where a person is in a position to control the exercise or enjoyment by another of a legal right, that position of control and, by corollary, the other's dependence on the person with control are, in my view, special factors or, which is the same thing, give rise to a special relationship of "proximity" or "neighbourhood" such that the law will impose liability upon the person with control if his or her negligent act or omission results in the loss or impairment of that right and is, thereby, productive of economic loss.[43]

33 The circumstances in which a duty of care to avoid economic loss will be imposed was considered in Woolcock Street Investments Pty Ltd v CDG Pty Ltd.[44] In the joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ they observed:

Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company.

In other cases of pure economic loss (Bryan v Maloney is an example) reference has been made to notions of assumption of responsibility and known reliance. The negligent misstatement cases like Mutual Life & Citizens' Assurance Co Ltd v Evatt and Shaddock & Associates Pty Ltd v Parramatta City Council [No 1] can be seen as cases in which a central plank in the plaintiff's allegation that the defendant owed it a duty of care is the contention that the defendant knew that the plaintiff would rely on the accuracy of the information the defendant provided. And it may be, as Professor Stapleton has suggested, that these cases, too, can be explained by reference to notions of vulnerability. (The reference in Caltex Oil to economic loss being "inherently likely" can also be seen as consistent with the importance of notions of vulnerability.) It is not necessary in this case, however, to attempt to identify or articulate the breadth of any general proposition about the importance of vulnerability. This case can be decided without doing so.[45]

34 The plaintiffs contend that they have done enough in the pleading because they have alleged facts which show that there was a duty to take care and that the duty was breached. They argue that there are no special pleading rules for allegations of pure economic loss. However, as can be seen from [29] above, the allegation of breach of duty does not extend beyond pleading reasonable foreseeability. The authorities to which I have referred make it clear that reasonable foreseeability alone is not sufficient for a claim in negligence for pure economic loss. On this basis, the pleading is flawed.

35 However, the plaintiffs say that the claim in negligence is properly pleaded when regard is had to facts alleged in other parts of the pleading that do not appear under the "Negligence/Breach of Retainer" heading. In this regard, they submitted that the factors required to establish a claim for economic loss are not fixed, although various indicia are suggested in the authorities with no one factor being critical. They referred to the judgment of Callinan J in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[46] in which his Honour said:

"Perre v Apand Pty Ltd was referred to extensively in argument. The respondents' submission in relation to it is generally correct. The plaintiffs there were in a very exceptional and vulnerable position in which they had no opportunity of protecting themselves by a contractual term or condition. It was the combination of foresight of the likelihood of harm, knowledge of an ascertainable class of vulnerable persons, the latter's helplessness in the circumstances, the control exercised by the defendant, and the causal link between the control and the damage that proved decisive there."[47]

36 The plaintiffs contend that the facts that they have alleged will support the finding of those indicia:

(a) the plaintiffs were in an exceptional and vulnerable position because (among other things) they were not appraised of the facts comprising the Omissions;[48]

(b) as accounting professionals, Bentleys ought to have had foresight of the harm that is likely to occur when people invest in an unregistered managed investment scheme;[49]

(c) as accounting professionals, Bentleys knew of an ascertainable class of vulnerable persons, that is, the scheme investors;[50]

(d) by their ignorance of the facts comprising the Omissions, that class was rendered helpless;[51]

(e) Bentleys controlled, at the least, the flow of knowledge which would have protected the plaintiffs - knowledge of the facts constituting the Omissions. In its accounting role, Bentleys also controlled, to a degree that will be established at trial, the conduct of the scheme promoters;[52]

(f) Bentleys could have prevented the damage claimed by the plaintiffs had it made the facts comprising the Omissions known to investors and potential investors, and had it given appropriate accounting advice to the scheme promoters.[53]

37 Whilst that may be the case that the plaintiffs wish to propound, they have not pleaded it. They have not pleaded anything other than that the duty arises because of reasonable foreseeability of harm. They have not gone beyond that to allege any special features that would attract a duty of care in their claim for economic loss. If, for example, they want to rely on an allegation that the plaintiffs were in a vulnerable position, then that should be pleaded. It is not to the point to say that it would be open to the Court to find on the facts that the plaintiffs were in such a position because that allegation has not been made.

38 Further, even if (contrary to my view) it were not necessary to plead anything beyond reasonable foreseeability, in many instances, the paragraphs of the amended statement of claim to which the plaintiffs referred in submissions to articulate their claim simply do not set out facts which would support the proposition as stated by them. For example, in relation to (e) above, which relates to control, the plaintiffs rely on paragraph 24 of the Particulars. That paragraph reads:

As to the allegation that Bentleys was, at all relevant times, responsible for advising the Scheme Promoters in relation to the establishment and operation of the Schemes and/or the HLP Schemes and the Pareto Scheme, Bentleys was responsible for providing such advice in its capacity as accountant, at all relevant times, of the Scheme Promoters. The Plaintiffs refer to and repeat paragraphs 21 and 22 above in relation to this allegation.

39 Paragraphs 21 and 22 of the Particulars relate to allegations that Bentleys and/or another defendant (Mr Fine) (who it is alleged was an employee of or contractor to Bentleys) was retained by the Scheme Promoters as their accountant.

40 Moreover, the pleading suffers from the vice to which I have referred in [4] above in that it is unclear as to which alleged facts (other than those included beneath the negligence heading) are said to found the claim in negligence against Bentleys.

41 As against Bentleys, paragraphs 65, 66, 68 and 69 of the amended statement of claim (in which the plaintiffs state that Bentleys owed duties of care to persons investing in the schemes and breached those duties) should be struck out because they do not disclose a cause of action.

42 Under the heading "Involvement in breach of section 601ED(5) of the [Corporations Act]," the plaintiffs plead that:

(a) Bentleys was involved in operating the schemes because it was the scheme promoters' accountant and was retained to provide advice in relation to the schemes;[54]

(b) as a result of their involvement, Bentleys are for the purposes of ss1325(1) and (2) of the Corporations Act, persons involved in contravention of s 601ED(5) of that Act;[55] and

43 Section 601ED(5) of the Corporations Act prohibits a person from operating an unregistered managed investment scheme that is required to be registered under s 601EB.

44 Bentleys contends that the plaintiffs have failed to plead that the defendant was involved in the contraventions within the meaning of s 79 of the Corporations Act. That section provides:

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.

45 As can be seen from [42], the plaintiffs have not spelt out in terms whether the alleged involvement of Bentleys arises under paragraph (a), (b), (c) or (d) of s 79.

46 The plaintiffs contend that the allegation that Bentleys was involved in operating the schemes because it was the scheme promoters' accountant and was retained to provide advice in relation to the schemes,[57] in conjunction with an allegation that Bentleys were at all relevant times retained by the scheme promoters as their accountant and responsible for advising the scheme promoters in relation to the establishment and operation of the schemes,[58] directly alleges the necessary facts to establish they either aided the creation and operation of the schemes or that they were knowingly concerned, directly or indirectly, in the schemes for the purposes of s 79(a) or (c). In addition, the plaintiffs contend that, by lending its name to a prospectus, Bentleys made positive representations about the scheme,[59] Bentleys omitted to inform the plaintiffs of matters elsewhere pleaded as matters which would have prevented them from investing in the scheme[60] and the Particulars amply particularise the allegations.[61]

47 In my opinion, the matters specified in s 79 have not been addressed in the pleading. The section is specific about when a person will be taken to be "involved in a contravention" for the purposes of the Corporations Act. In this regard, a more general meaning that might be given to the words is not available. Bentleys is entitled to know from the pleading itself that what is alleged, for example, is that they aided the contravention. Again, it is not to the point to say that the Court could make such a finding of fact if an allegation that they aided the contravention has not been made. The accessorial liability pleading in paragraphs 73-75 against Bentleys does not include an allegation that Bentleys was involved in the contravention within the meaning of s 79 and those paragraphs should be struck out.

48 The pleadings in paragraphs 59, 60, 65, 66, 68, 69, 73 and 75 should be struck out with leave to replead claims of misleading or deceptive conduct, negligence and accessorial liability against Bentleys.

ANNEXURE - EXTRACTS FROM AMENDED STATEMENT OF CLAIM and PARTICULARS

(a) a company incorporated under the Corporations Act 2001 (Cth) (CA);

(b) in the business of providing accounting services to the public; and

(i) employed Fine[62] as an employee and/or contractor; or

(ii) held out to the public that it so employed Fine.

19. The HLP Schemes, the Pareto Scheme and the Contango Scheme (collectively, the Schemes) were managed investment schemes as defined in section 9 of the CA by reason that they involved:

(a) participants contributing money to the persons operating the schemes, in return for rights to some part of the income which the schemes purported to produce;

(b) participants' contributions being pooled or used I a common enterprise to produce the said income; and

(i) The document "HLP Mortgage Private Investment Opportunity" referred to in the particulars to paragraph 8(e) states at page 7 that "[b]y investing into the appropriate subtrust, an investor becomes a unit holder of the entity which owns part of the HLP Mortgage Holdings Unit Trust. This entitles the investor to share in the distribution of income derived from earnings received from the HLP Mortgage Company's business detailed in this memorandum".

(ii) The Pareto Prospectus states at page 8 that "[t]he capital within Meloka Pty Ltd is invested into different asset classes, businesses and investments ... Greater diversification is able to be achieved through pooling money from clients to gain access to a broad range of investments ...".

(iii) Van de Steeg represented in or around June 2008 to the Plaintiffs that Contango would invest moneys provided by the Plaintiffs' superannuation fund into investments that would generate returns sufficient to cover the Plaintiffs' earlier losses.

20. Each of the Schemes was required to be registered as a managed investment scheme under section 601EB of the CA pursuant to either of or both:

(a) section 601ED(1)(b) of the CA, because:

(i) each managed investment scheme was promoted by Berlowitz, Ezzy and/or van de Steeg; and

The HLP Schemes were promoted by Berlowitz.

The Pareto Scheme was promoted by Ezzy and van de Steeg.

The Contango Scheme was promoted by van de Steeg.

(ii) Berlowitz, Ezzy and van de Steeg were all in the business of promoting managed investment schemes; and

(b) section 601ED(1)(a) of the CA, because each managed investment scheme had more than 20 members.

Particulars as to the number of members in each managed investment scheme will be provided in due course.

21. In breach of section 601ED(5) of the CA, none of the Schemes were registered as managed investment schemes under section 601EB of the CA.

23. Fine and/or Bentleys were at all relevant times:

(a) retained by the Scheme Promoters as their accountant; and

(b) responsible for advising the Scheme Promoters in relation to the establishment and operation of either:

29. The Plaintiffs and/or Janemy paid $260,000 as consideration for interests in schemes constituting part of the HLP Schemes (HLP Investments).

$80,000 paid to Inverness channel on about 26 July 2004;

$40,000 paid to Karap on about 28 July 2004;

$50,000 paid to HLP One on about 15 September 2004;

$40,000 paid to Karap on about 27 October 2004; and

$50,000 paid to Leaberl on about 9 March 2005.

Inverness Channel was deregistered by the Australian Securities and Investments Commission (ASIC) on 1 November 2009.

Karap was deregistered by ASIC on 21 April 2012.

HLP One was placed into liquidation on 19 February 2007. It did not pay a dividend to creditors and was deregistered by ASIC on 25 March 2011.

Leaberl was placed into liquidation on 19 February 2007. There has been no dividend paid to creditors and there is no prospect of such dividend being paid.

32. Under the heading "Directory of Associated Professionals" on page 4 of the Pareto Prospectus[63]:

(a) the name "Ledermans Barristers and Solicitors" and the Ledermans logo was set out, to the knowledge and with the consent of Lederman[64];

(b) the name "Bentleys MRI" and the Bentleys logo was set out, to the knowledge and with the consent of:

33. The Pareto Prospectus contained a representation that "Peter [van de Steeg] provides reliable, ethical and astute guidance and service to help his clients achieve their goals and manage the risks along the way". (page 6)

34. By lending their name and logo to the Pareto Prospectus, Lederman and/or Fine and/or Bentleys represented that:

(a) the representations made in the Pareto Prospectus, including but not limited to, the representation pleaded in the preceding paragraph, were true; and

(b) the Pareto Scheme as described in the Pareto Prospectus:

(ii) complied with the requirements of the CA, including that:

1. the scheme was registered under s 601ED of the CA and/or otherwise lawful;

2. Meloka was a public company with an Australian Financial Services Licence authorising it to operate a managed investment scheme, as required by section 601FA of the CA;

3. Meloka, as a Financial Service Licensee, had compulsory insurance pursuant to section 912B of the CA, which ensured retail managed investment scheme investors were effectively covered for a range of risks including negligence of the responsible entity, to which such investors could be exposed;

4. Meloka and/or van de Steeg would comply with section 601FC(1)(i) of the CA for investor property to be clearly marked and held separate from other property of the Schemes and held on trust for investors; and

5. Meloka would comply with Part 5C.4 of the CA.

44. Further, neither Lederman nor Fine and/or Bentleys at any time informed the Plaintiffs that:

(a) the Schemes were conducted unlawfully and in breach of section 601ED(5) of the CA; and

(b) the Schemes did not provide investors with the safeguards which investors in lawful managed investment schemes would enjoy, including:

(i) a responsible entity which pursuant to section 601FA of the CA was a public company with an Australian financial services licence authorising it to operate a managed investment scheme;

(ii) compulsory insurance pursuant to section 912B of the CA, ensuring retail managed investment scheme investors were effectively covered for a range of risks including negligence of the responsible entity, to which such investors could be exposed;

(iii) a requirement by section 601FC(1)(i) of the CA for investor property to be clearly marked and held separate from other property of the Schemes and held on trust for investors; and

(iv) implementation and independent audit of a compliance plan pursuant to Part 5C.4 of the CA providing various protections for investors,

46. Fine and/or Bentleys at all relevant times knew or ought to have known of all the matters comprising the Omissions.

(ii) by reason of Lederman's failure to disclose matters constituting the HLP Omissions; and/or

(iii) by reason of Ledermans' and/or Fine's and/or Bentleys' failure to disclose the matters constituting the Omissions;

(i) in reliance on the Pareto Representations; and/or

(ii) by reason of Lederman's and/or Fine's and/or Bentleys' failure to disclose the matters constituting the Omissions; and

(c) the Contango investments by reason of Lederman's and/or Fine's and/or Bentleys' failure to disclose the matters constituting the Omissions.

was conduct[ed] in the course of trade or commerce for the purposes of:

59. By making the HLP Representations and/or the Pareto Representations and/or by failing to disclose each of the matters constituting the HLP Omissions and/or the Omissions, Lederman and/or Fine and/or Bentleys breached:

60. The Plaintiffs have suffered loss or damage as a result of Lederman's and/or Fine's and/or Bentley's contraventions pleaded in the preceding paragraphs.

65. Further or alternatively, as the Scheme Promoters' accountants, Fine and/or Bentleys:

(a) owed a duty of care to persons investing in the Schemes; and

(b) breached that duty of care by failing to advise the Scheme Promoters not to operate the Schemes in breach of section 601ED(5) of the CA.

66. Further or alternatively, in consenting to Lederman's and Bentley's names and logos being set out in the Pareto Prospectus, as pleaded in paragraph 32 above, Lederman and/or Fine and/or Bentleys:

(a) owed a duty of care to persons who invested in the Pareto Scheme; and

(ii) failing to disclose the matters constituting the Omissions.

68. But for Lederman's and/or Fine's and/or Bentley's breach of duty, the Plaintiffs would not have made:

69. In the premises, Lederman's and/or Fine's and/or Bentley's breach of duty has caused the Plaintiffs to suffer loss and damage.

73. Further, or alternatively, Bentleys was involved in operating the Schemes because it was the Scheme Promoters' accountant and was retained to provide advice in relation to the Schemes.

74. As a result of their involvement, Lederman and/or Fine and/or Bentleys are for the purposes of sections 1325(1) and 1325(2) of the CA, persons involved in contraventions of section 601ED(5) of the CA.

75. The said contravention of section 601ED(5) of the CA caused the Plaintiffs loss and damage.

EXTRACTS FROM FURTHER AND BETTER PARTICULARS OF THE PLAINTIFFS' AMENDED STATEMENT OF CLAIM

21. As to the allegation that Fine, at all relevant times, was retained by the Scheme Promoters as their accountant:

a. At paragraph 2 of Fine's defence in the current matter, he admits to being employed by Bentleys as an accountant during the period from November 2000 until June 2004. A[t] paragraph 2 and again at paragraph 3(c) of Bentley's defence in the current matter, it admits to employing Fine as an accountant during the period from November 2000 until 30 June 2004;

b. At paragraph 23(a) of his defence in the current matter, Fine admits to providing some accounting services to entities associated with Berlowitz and HLP Mortgage Company Pty Ltd solely in his capacity as an employee of Bentleys between November 2000 and June 2004. At paragraph 23(a) of its defence in the current matter, Bentleys admits to providing some accounting services to entities associated with HLP Mortgage Company Pty Ltd at various times;

c. Fine was a director of Bentleys between 9 May 2003 and 1 July 2004. Details of Fine's directorship are recorded on the relevant extract from ASIC's national database. A copy of the extract is available for inspection at the Plaintiffs' solicitors' office by prior appointment. At paragraph 2 of Bentley's defence in the current matter, it admits that Fine was a director of Bentleys between 29 May 2003 and 1 July 2004;

d. The July Newsletter says that Fine was a "chartered accountant - Bentleys MRI";

e. The HLPFP Prospectus states, at page 12, that Fine "has been an external advisor to Peter Berlowitz and HLP Group Investments Pty Ltd since its inception". As stated in paragraph 16(a)(i) above, HLP Group Investments is the former name of HLP Financial Planning and the company was established on 25 November 2002.

f. Further particulars may be provided in due course.

22. As to the allegation that Bentleys, at all relevant times, was retained by the Scheme Promoters as their accountant:

a. Fine provided accounting services to entities associated with Berlowitz and HLP Mortgage Company as an employee of Bentleys between November 2000 and June 2004. The Plaintiffs refer to and repeat the previous paragraph in relation to this allegation;

i. every company comprising the HLPMC Scheme at all relevant times. The Plaintiffs refer to and repeat paragraph 11 above in relation to this allegation;

ii. the trustee companies of the HLPFP Subtrusts at all relevant times from either November 2004 or March 2005. The Plaintiffs refer to and repeat paragraph 16(b) above in relation to this allegation;

iii. Leaberl between 24 February 2004 and 19 February 2007;

iv. Meloka between 29 April 2006 and 12 September 2007;

v. Contango between 22 February 2008 and 22 May 2008; and

vi. Teronte between 1 March 2006 and 12 September 2007;

c. Bentleys' Address was the principal place of business of the trustee companies of the HLPMC Subtrusts at all relevant times;

d. the particulars provided in the preceding two subparagraphs are found in the relevant extracts from the ASIC national database. Copies of those extracts may be inspected at the Plaintiffs' solicitors' office by prior appointment;

e. Bentleys MRI Melbourne Pty Ltd, ASIC registered agent 2001, was recorded on documents filed with ASIC in relation to companies associated with the HLP Schemes as the entity which ASIC should contact if there was a query in relation to the document. A copy of ASIC Form 484, titled "Change to company details", relating to Galloway Ness Pty Ltd and lodged with ASIC on 22 June 2006, may be inspected at the Plaintiffs' solicitors' office by prior appointment;

f. Bentleys was recorded on documents filed with ASIC as having consented in writing to the use of their premises as the registered office of companies associated with the HLP Schemes. A copy of ASIC Form 484, titled "Change to company details", relating to Galloway Ness Pty Ltd and lodged with ASIC on 22 June 2006, may be inspected at the Plaintiffs' solicitors' office by prior appointment;

g. the HLPFP Prospectus states at page 21 that the register of investors in the HLPFP Scheme:

i. will be kept at the registered office of the accountants, Bentleys;

ii. the registered office is located at Bentleys' address; and

iii. the register will be available for inspection in accordance with proper practice; and

h. Australian Forex Trading Agency Pty Ltd, a company associated with Berlowitz and Fine, listed Bentleys as a creditor, owed $52,227.87, as at 6 November 2008, in a Report as to affairs filed with ASIC on 10 November 2008; and

i. further particulars may be provided in due course.

23. As to the allegation that Fine was, at all relevant times, responsible for advising the Scheme Promoters in relation to the establishment and operation of the Schemes and/or the HLP Schemes and the Pareto Scheme:

a. Fine was an accountant, as he admits in paragraph 2 of his defence in this matter;

b. Fine was responsible for providing such advice in his capacity as accountant for the Scheme Promoters, whether in his own capacity, as employee of Bentleys or as director of Bentleys. The Plaintiffs refer to and repeat paragraphs 21 and 22 above in relation to this allegation;

c. at page 3 of the Creditors' Letter, Georges says that his understanding was that Fine was the Chief Financial Officer of each of the companies comprising the HLPFP Scheme;

d. Fine was the director of all of the trustee companies of the HLPFP Subtrusts since their establishment, and of HLP Planning since 1 July 2004. The Plaintiffs refer to paragraph 16 above in relation to this allegation;

e. Fine was the director of HLP Mortgage Holdings between 13 May 2003 and 28 January 2004. The Plaintiffs refer to paragraph 11(b)(i) above in relation to this allegation;

f. Fine attended and participated in monthly meetings which were joint board meetings of the main companies comprising the HLP Schemes;

g. the July Newsletter stated that Fine was also a member of the Board of Management of the HLP Schemes, which met once a month with the first meeting having taken place on or about April 2003; and

24. As to the allegation that Bentleys was, at all relevant times, responsible for advising the Scheme Promoters in relation to the establishment and operation of the Schemes and/or the HLP Schemes and the Pareto Scheme, Bentleys was responsible for providing such advice in its capacity as accountant, at all relevant times, of the Scheme Promoters. The Plaintiffs refer to and repeat paragraphs 21 and 22 above in relation to this allegation.

25. Fine's and/or Bentleys' knowledge of the contents of the Pareto Prospectus derived from his and/or its role as accountant for Van de Steeg's companies, including Meloka. The Plaintiffs refer to and repeat paragraphs 21 and 22 above in relation to this allegation.

26. In the course of that role the Pareto Prospectus was brought to Fine's and/or Bentleys' notice by Van de Steeg, Van de Steeg's clients and/or prospective clients, or both, at times unknown to the Plaintiffs. Further particulars may be provided in due course.

27. Fine and/or Bentleys consented to the Bentleys MRI logo being set out on page 4 of the Pareto Prospectus by their acquiescence, in that despite their knowledge they made no objection or protest to Van de Steeg and took no step to prevent distribution of the prospectus to potential investors in the Pareto Scheme. No documents available to the Plaintiffs suggest that such objection or protest was made, and neither Bentleys nor Fine allege such objection or protest was made in their defences filed in this proceeding.

28. Fine's and/or Bentleys' knowledge of the matters comprising the Omissions arose, or ought to have arisen, from Fine's and/or Bentleys' knowledge that:

a. the Pareto Scheme was a Managed Investment Scheme as defined in section 9 of the CA and was required to be registered pursuant to s 601ED(1) of the CA;

b. the Pareto Scheme was unregistered or unable to be registered in accordance with the requirements of the CA; and

c. the consequences of the Pareto Scheme being an unregistered Managed Investment Scheme.

29. As to Fine's and/or Bentleys' knowledge that the Pareto Scheme was a Managed Investment Scheme and was required to be registered, that knowledge arose from, ought to have arisen from, or can be imputed from his and/or its retainer to act as accountant for Meloka and, hence, the Pareto Scheme. The Plaintiffs refer to and repeat paragraphs 21 and 22 above in relation to the allegation that Fine and/or Bentley were retained as accountants for Meloka. In the course of his and/or its necessary activities as accountant for Meloka, Fine and/or Bentleys would have or ought to have acquired the knowledge that:

a. at least 34 participants contributed at least $8,092,000 to the Pareto Scheme by making payments to Meloka, according to the Report as to Affairs in relation to Meloka filed with ASIC on 31 August 2010;

b. contributions to the Pareto Scheme were made in return for a right to distribution of profit in proportion to the sum invested in the form of a planned interest return, according to the Pareto prospectus. The planned interest returns were:

Plaintiffs v Defendants

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