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[2015] QSC 80
General information, not legal advice.
Supreme Court of Queensland
2015-04-10
Bond J
Original judgment source is linked above.
[1] In 2010, Tolteca Pty Ltd ("Tolteca") borrowed $1,000,000 from Stacks Managed Investments Limited ("Stacks") in order to acquire and develop land at 33 Richards Street, Loganlea. As part of the security for the loan, Tolteca granted Stacks a mortgage over land at 9847 Mt Lindesay Highway.
[2] Before me there are two proceedings which are related to that original transaction.
[3] In Proceeding 9938 of 2013 ("the Tolteca proceeding") Tolteca sues its former solicitors, Lillas & Loel Lawyers, alleging, amongst other things, that -
- (a) Mr Loel, the principal of the defendant firm, had promoted to the sole director of Tolteca (Ms Pettett), the idea of involvement in a joint venture with a third party to acquire and develop the land at 33 Richards Street, Loganlea;
- (b) Tolteca had retained the defendant firm to act on its behalf in relation to that joint venture;
- (c) Tolteca proceeded with the joint venture and amongst other steps taken in the prosecution of the joint venture, Tolteca borrowed the acquisition price of the land at 33 Richards Street, Loganlea from Stacks on mortgage security;
- (d) the defendant firm failed to provide Tolteca with adequate advice in relation to the joint venture and its conduct should be regarded as in breach of its contract of retainer, its duty of care and fiduciary duties it owed to Tolteca because (amongst other things) -
- (i) Mr Loel promoted the joint venture to Ms Pettett as a transaction which would enable Tolteca to repay another loan agreement and to fund existing litigation in which the defendant firm acted for Ms Pettett's husband;
- (ii) to Mr Loel's actual or constructive knowledge Ms Pettett thought that if Tolteca did not embark on the joint venture the defendant firm might refuse to act further for her husband in that litigation;
- (iii) the defendant firm did not recommend to Tolteca that it obtain independent financial, investment or legal advice when it should have done so;
- (iv) the defendant firm did not inform Tolteca that its proposed joint venture partner was bankrupt;
- (e) but for the various breaches of duty by the defendant firm, Tolteca would have obtained proper advice and would not have proceeded with the joint venture; and
- (f) accordingly, as a result of the various breaches of duty by the defendant firm, Tolteca had suffered loss and damage, the proper measure of which included the debt which it owed to Stacks and another lender less the value which remained in the property acquired by the joint venture.
[4] In Proceeding 1001 of 2014 ("the Stacks proceeding") -
- (a) Stacks sues Tolteca, seeking an order for recovery of possession of the land at 9847 Mt Lindesay Highway;
- (b) Tolteca admits all the material facts pleaded by Stacks (essentially the terms of the loan, mortgage and default), but counterclaims for relief founded on "unconscionable conduct" by Stacks in the giving of the loan in breach of section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) ("the Act");
- (c) Stacks' alleged "unconscionable conduct" was giving the loan to Tolteca in circumstances which justified the conclusion that Stacks' conduct was morally tainted;
- (d) the circumstances said to justify that conclusion are:
- (i) the subject loan was far in excess of the amount which Tolteca had unsuccessfully sought from Stacks in a loan application which Tolteca had made (with the encouragement of Mr Loel and using a Mr Paul Guthrie as a broker) only some 4 months earlier, but there had been no material change in Tolteca's circumstances;
- (ii) Stacks knew that the sole director of Tolteca (Ms Pettett) was not commercially sophisticated and lacked understanding of the detail of the proposed joint venture transaction;
- (iii) Stacks knew that Tolteca's solicitor (Mr Loel) was in control of the direction of the joint venture and that Ms Pettett needed independent advice to enable her to make an informed choice about the subject loan;
- (iv) Stacks failed to enquire into various discrepancies in documentation concerning the loan transaction; information which it had concerning Tolteca's income; and the financial position of Ms Pettett;
- (e) Tolteca says that by reason of Stacks' unconscionable conduct in contravention of section 12CB -
- (i) it has suffered loss and damage in the form of interest, default interest and fees which have been charged and/or paid to date; and
- (ii) it will continue to suffer loss and damage in the form of interest, default interest and fees which will be charged on the loan;
- (f) Tolteca claims the following relief under the Act -
- (i) an order that Stacks pay Tolteca the amount of the loss and damages it has suffered by reason of Stacks' conduct;
- (ii) further or alternatively, an order declaring void ab initio the loan agreement and the mortgage which it had entered into with Stacks;
- (iii) further or alternatively, an order varying the loan agreement and the mortgage so that Tolteca is not liable for unpaid interest due and owing but is only liable for the unpaid principal in the sum of $780,000;
[5] The current status of the Tolteca proceeding is that no notice of intention to defend has been filed, although the time allowed to do so under the UCPR has long since passed. Nothing has occurred in the proceeding save for a request for particulars served 6 months after the claim was filed and the filing of an amended claim in August 2014.
[6] The current status of the Stacks proceeding is as follows.
[7] Stacks contends that the proceeding is ready for trial. It has advanced that contention since 20 October 2014, when its solicitors first wrote to Tolteca's solicitors asking to have them sign a request for trial date. Pleadings have closed, disclosure has been completed and Stacks has prepared witness summaries for the witnesses it would propose to call at trial. Before me Stacks now applies for an order dispensing with the need for Tolteca's signature on the request for trial date or alternatively an order that the matter be set down for trial. The estimate which it gives (which is not disputed) is 3 to 4 days.
[8] Inquiries made with the registry at the time of argument suggested that the matter could be set down for a trial of 4 days in late July 2015.
[9] Tolteca disputes the proposition that the Stacks proceeding, as currently constituted, is completely ready for trial.
[10] It wishes to obtain non-party disclosure from the broker, Mr Guthrie and from its former solicitors who are the defendants in the Tolteca proceeding. During oral argument Counsel for Tolteca - properly in my view - conceded that if the Stacks proceeding stayed as it was currently constituted it was not likely that the need for non-party disclosure would pose any obstacle to Tolteca being ready for a trial, in that the Stacks proceeding, in late July 2015. I mention parenthetically that Stacks sought to persuade me that the evidence suggested that non-party disclosure was either not necessary or likely to be futile, however given the timing considerations it seems to me to be unnecessary to consider that argument further.
[11] Initially Tolteca took the position that it wished to obtain expert opinion evidence from a handwriting expert to support its pleaded case concerning discrepancies in one of the documents which it had provided to Stacks for the purpose of the loan transaction. However it resiled from that position during argument after Stacks gave it the opportunity to inspect the original of the relevant document. Counsel, on behalf of Tolteca, flagged the possibility that expert evidence might still be sought in relation to that document, but acknowledged that taking that course would not provide any obstacle to Tolteca being ready for a trial in late July 2015.
The resolution of the application to join Mr Guthrie to the Stacks proceeding
[20] Rule 69 provides that a party may be joined to a proceeding where it "would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding".
[21] It is common ground that in resolving the application I should apply the approach taken by the Court of Appeal in MGM Containers Pty Ltd v Wockner [2006] QCA 502 in relation to a late application to introduce a third party notice. In Wockner the Court of Appeal held (Chesterman J, with who Williams JA and Keane JA agreed) that:
"[27] The applications called into question two conflicting principles. The first is that there are good reasons why a third party should be joined in an action where a defendant has an arguable case for contribution or indemnity from the third party against a plaintiff's claim. Such a joinder ensures finality in litigation, avoids multiple proceedings with associated extra cost, and obviates the possibility that there might be different decisions given on the same issues if tried by different courts. The second principle is that a plaintiff should be allowed to prosecute its action and obtain judgment without being delayed or inconvenienced by the defendant's endeavours to offset its liability."
[22] It seems to me, therefore, that the Court must balance two competing considerations:
- (a) the desirability of avoiding multiple proceedings, excessive costs and the possibility of divergent findings in separate proceedings traversing the same subject matter;
- (b) the interest of Stacks in being allowed to prosecute its action and obtain judgment without being delayed or inconvenienced by Tolteca's endeavours to obtain a remedy against a further party.
[23] On the evidence before me, the considerations affecting that balance may be analysed under the following heads:
- (a) The prejudice which Stacks might suffer in the form of delay to and increased cost incurred in relation to the resolution of its claim;
- (b) The risk that the delay and associated increased costs might result in a situation where Stacks claim became partially unsecured because the value of the subject land would be insufficient to cover the increased debt;
- (c) The strength or weakness of the proposed case against Mr Guthrie;
- (d) The adequacy of the explanation for the lateness of the application to join Mr Guthrie; and
- (e) The extent of the risk that there might be multiple proceedings, excessive costs and divergent findings in separate proceedings traversing the same subject matter.
[24] I consider each of those matters below.
[25] As to the prejudice which Stacks might suffer in the form of delay to and increased cost incurred in relation to the resolution of its claim:
- (a) I have mentioned that as the Stacks proceeding is currently constituted it could be heard in late July 2015.
- (b) Joinder of Mr Guthrie as a defendant to the counterclaim would essentially represent the commencement of new litigation against Mr Guthrie. He would have to be afforded the time to plead, conduct disclosure, and prepare his case. I have already said that I accepted the evidence of the Stacks' solicitor that the joinder of Mr Guthrie would delay the trial of the Stacks proceeding by up to 12 months.
- (c) The evidence of Stacks' solicitor - which I accept - was that he estimated that joining Mr Guthrie would add further costs of between about $29,000 and $42,000.
The resolution of the application to join the broker Mr Guthrie as a second defendant to its claim in the Tolteca proceeding.
[31] Mr Guthrie was represented before me and did not seek to advance any submissions against this application, and accordingly, I allow it.
The resolution of the application to consolidate the two proceedings.
[32] I have already mentioned that in the event that I decided not to join Mr Guthrie to the Stacks proceeding, the case for consolidation is unpersuasive. I should expand on my reasons for reaching that view.
[33] Rule 78 of the Uniform Civil Procedure Rules 1999 (Qld) provides:
"The court may order that 2 or more proceedings be consolidated if -
(a) the same or substantially the same question is involved in all the proceedings; or
(b) the decision in 1 proceeding will decide or affect the other proceeding or proceedings."
[34] Senior Counsel for Stacks submitted that the discretion to order consolidation could not arise unless I was first satisfied that the circumstances described in either r 78(a) or r 78(b) apply. If I were so satisfied, a discretion would arise.
[35] Counsel for Tolteca, on the other hand, contended that in considering whether the circumstances described in either rr 78(a) or 78(b) apply, I would address myself to a "post-consolidation" scenario. As I understood his submission, the discretion to order consolidation could not arise unless I was first satisfied that if I did order consolidation the circumstances described in either rr 78(a) or 78(b) would apply. In other words, given that Tolteca relied on the "affect" part of r 78(b) Tolteca's argument was that I should order the 2 proceedings to be consolidated if I formed the view that after consolidation, the decision in 1 proceeding would affect the other proceeding.
[36] I do not accept this argument. I do not find any support for it in the case to which my attention was directed, namely Pacific Century Productions Pty Ltd v Taylors Contracting Services Pty Ltd [2003] QSC 289 at [24]. I accept the argument put on behalf of Stacks. In my view, my attention is first directed to the relationship between two or more separate proceedings. If that relationship is as described in either rr 78(a) or 78(b), then a discretion will arise.
[37] Tolteca eschewed reliance on r 78(a). Nor did it contend that a decision in one proceeding would "decide" the other. Rather, counsel for Tolteca contended that I should be persuaded that the decision in the Stacks proceeding might "affect" the decision in the Tolteca proceeding, or vice versa, within the meaning of r 78(b). I am not persuaded of that proposition for the following reasons:
- (a) The Stacks proceeding involves the question whether Stacks engaged in unconscionable conduct as alleged and what remedy should be granted as a result. It is a comparatively narrow case.
- (b) The Tolteca proceeding will (assuming there is eventually a defence filed by the defendant firm) involve the questions whether the defendant firm and the defendant broker breached relevant duties in bringing about the involvement of Tolteca in the loan transaction.
[40] It follows from my reasons that:
- (a) I dismiss Tolteca's application for the joinder of Mr Guthrie as a defendant to its counterclaim in the Stacks proceeding.
- (b) I order that Mr Guthrie be joined as the second defendant to the Tolteca proceeding.
- (c) I dismiss Tolteca's application for consolidation of the Stacks proceeding and the Tolteca proceeding.
- (d) I order that the Stacks proceeding be set down for trial.
[41] I will hear the parties on the question of costs.
[12] As the Stacks proceeding is currently constituted there is no reason why I would not accede to Stacks application to set the Stacks proceeding down for trial.
[13] However, the critical question before me is whether I should accede to applications by Tolteca which would change how the Stacks proceeding is constituted. Tolteca applies -
[14] It was common ground that, if I did so, it would be impossible for the Stacks proceeding to be heard in July 2015 or indeed at all in the short term. The evidence from Stacks' solicitor - which I accept - was that the joinder of Mr Guthrie as a defendant to the Stacks proceeding would delay the trial of that proceeding by up to 12 months and, if that joinder was accompanied by consolidation with the Tolteca proceeding, the delay in bringing the consolidated proceeding to trial would be even longer.
[15] In resolving what essentially seems to me to be the case management issue posed by the competing applications, the proper course is first to consider whether Mr Guthrie should be joined as a second defendant to Tolteca's counterclaim in the Stacks proceeding. I reach that view because:
[16] Before considering the arguments for and against the joinder of Mr Guthrie to the Stacks proceeding it is appropriate briefly to describe the case which Tolteca would seek to advance against Mr Guthrie in each proceeding.
[17] In the Tolteca proceeding, Tolteca would seek to join Mr Guthrie so as to contend that he breached the duty of care and fiduciary duties which he owed to Tolteca by virtue of having been its mortgage broker, and accordingly a damages award should be made against him. The loss claimed from him would be the same loss as that said to have been suffered by reason of the conduct of the defendant firm. The gravamen of the claim would be that Mr Guthrie made no proper inquiries as to Tolteca's circumstances, or Ms Pettett's level of financial acumen. His interest should have been piqued by the fact that the same lender had only recently turned down an application for a loan for $140,000, and by his having notice of (at least) the possibility that Ms Pettett did not appreciate the full effect of the proposed transaction.
[18] In the Stacks proceeding, Tolteca would seek to join Mr Guthrie in order to seek a declaration that Mr Guthrie was involved in Stacks' alleged unconscionable conduct and an order that Mr Guthrie "pay the Defendant the amount of loss or damage suffered by the Defendant by reason of the conduct the Second Defendant by Counterclaim". That loss claimed would be the same loss as that said to have been suffered by reason of the conduct of Stacks. Tolteca would contend that Mr Guthrie was knowingly concerned in the statutory unconscionable conduct of Stacks and acknowledges that it must demonstrate that Mr Guthrie had knowledge of the essential facts constituting the contravention by Stacks.
[19] Against that background it is appropriate to consider the arguments for and against the joinder of Mr Guthrie as a defendant to the Stacks proceeding.
[26] As to the risk that the delay and increased cost might result in a situation where Stacks claim became partially unsecured because the value of the subject land would be insufficient to cover the debt:
[27] As to the strength or weakness of the proposed case against Mr Guthrie:
[28] As to the adequacy of the explanation for the lateness of the application to join Mr Guthrie:
[29] As to the extent of the risk that there might be multiple proceedings, excessive costs and divergent findings in separate proceedings traversing the same subject matter:
[30] In my view the balance of these considerations favours rejecting the application to join Mr Guthrie as a second defendant to the counterclaim in the Stacks proceeding. Accordingly, I dismiss that part of Tolteca's application.
[38] Even if I were minded to find that my discretion under r 78 had arisen, I would not exercise it in favour of consolidation. The issue of delay and increased cost sounds against a consolidation order, just as it did in relation to joinder. Indeed the extent of the delay and the increased cost would be worse in the case of consolidation. The lack of commonality of issues is also a factor sounding against consolidation.
[39] For the reasons which I have expressed above, I do not consider that the circumstances of this case engage the discretion to make a consolidation order, but even if I am wrong in that view, it seems to me that there are powerful discretionary considerations against making the order. Accordingly, I dismiss the application for consolidation.