PROCEDURE - civil - application for summary dismissal - whether failure to prosecute with due despatch - whether claim doomed to failure
Source
Original judgment source is linked above.
Catchwords
PROCEDURE - civil - application for summary dismissal - whether failure to prosecute with due despatch - whether claim doomed to failure
Judgment (2 paragraphs)
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Judgment
Introduction
By way of a notice of motion filed as long ago as 31 May 2016, GHR Accounting Group Pty Ltd (the defendant in the substantive proceedings) seeks the following orders with regard to a claim brought by Mr Richard Sutherland (the plaintiff). The first, pursuant to r 12.7(1) of the Uniform Civil Procedure Rules 2005 (NSW) (the Rules), is an order that the latest iteration of the statement of claim of the plaintiff be struck out. The second, pursuant to r 13.4(1)(b) of the same Rules, is an order that the proceedings be dismissed. At a hearing conducted before me on 15 February 2017, the plaintiff, who is unrepresented, resisted both orders.
Background
The background of this matter is dealt with extensively in the judgment of Hall J in Sutherland v GHR Accounting and Anor [2015] NSWSC 1946, and concisely in my judgment of Sutherland v GHR Accounting [2017] NSWSC 100. I shall set out the background yet again, albeit very briefly.
The plaintiff was the controlling mind of a company called Quadratus Pty Limited (Quadratus). He derived a significant income from the company; at the hearing he did not call into question the submission of counsel for the defendant that the income is to be understood as dividends on shares in the company.
In 2006, the plaintiff sought advice from the defendant (a firm of accountants) with regard to credit proposed to be supplied by Macquarie Bank Limited (Macquarie) to Quadratus. The defendant provided that advice. Macquarie advanced funds to Quadratus. The debt of Quadratus was secured by a personal guarantee of the plaintiff, itself secured by a third party mortgage over real property held in his own name.
I interpolate that there is a question as to whether the defendant provided advice to the plaintiff in his role as the director of Quadratus, or to him personally, or both.
Due chiefly to the failure to find a tenant for commercial premises purchased by Quadratus, Quadratus defaulted on the loan. Macquarie called the loan up. Quadratus failed, went into liquidation, has been deregistered, and therefore no longer exists.
The income that the plaintiff derived from Quadratus disappeared, and he went from being a wealthy man to being impecunious.
By the end of the hearing before me, there was a dispute between the parties about whether the guarantee over the real property of the plaintiff was also called up, pursuant to the third party mortgage granted to Macquarie.
On the one hand, the plaintiff asserted from the Bar table that it had been. On the other hand, counsel for the defendant relied upon the affidavit of Brendan John Miller of 10 September 2016 to say that it certainly had not. Counsel drew a contrast between unsupported assertions from the Bar table and sworn evidence that had been admitted without objection and was the subject of no formal dispute. He also noted that the judgment of Hall J at [51] refers explicitly to the affidavit of Mr Miller (separately read before his Honour as well as me), and adopts its contents. Finally, counsel noted, at the commencement of the hearing the plaintiff informed me that there was no dispute about the summary of background to be found in the judgment of Hall J at [5]-[19].
I shall explain my approach to that extant dispute later in this judgment.
The latest iteration of the statement of claim of the plaintiff is entitled the Further Amended Statement of Claim. For clarity, I marked it Exhibit 1 in the hearing of the proceedings before me. Counsel for the defendant accepted that, for the hearing to have any utility, that latest attempt by the unrepresented plaintiff to state his claim was the relevant one.
Its contentions may be summarised very briefly, as follows. The defendant owed the plaintiff and Quadratus a specific contractual duty to provide prudent financial advice to the plaintiff and Quadratus. The defendant also bore a general duty to exercise due care and skill upon entering into a contract to provide financial advice to the plaintiff and Quadratus.
In providing financial advice, the defendant was negligent in recommending that Quadratus enter into a revolving loan facility offered by Macquarie in January 2006, and in failing to warn the plaintiff of the relevant risks associated with the transaction.
As a consequence, the defendant breached the duties in contract and at common law that it owed to the plaintiff and Quadratus. Acting in reliance on the advice of the defendant substantially caused the economic loss suffered by the plaintiff and Quadratus in 2008. The loss claimed is loss of income of the plaintiff from Quadratus, "anxiety stress inconvenience and the like", "loss of opportunity/chance", and legal costs.
Submissions of the defendant
The primary submission of counsel for the defendant was that this claim is doomed to failure. Even assuming that the defendant was negligent (an assumption that I infer is firmly denied), it was said that the plaintiff suffered no compensable loss, for the following reasons.
The evidence placed before me was that his guarantees were not called upon by Macquarie. Assuming (again, for the sake of argument only) that the plaintiff suffered a loss by way of the diminution in the value of his shares in Quadratus, to be followed by the extinguishment of them and the dividends derived from them, the prohibition on recovery for reflective loss (the prohibition) applies to any claim made by the plaintiff personally as a shareholder. Whatever may have been the vagaries of the parameters of that prohibition in the past, a recent judgment of the New South Wales Court of Appeal has concisely and authoritatively clarified the law. That clarification, it was said, dooms the claim of the plaintiff to failure.
Separately, counsel submitted that the forensic history of the matter shows that the plaintiff has been either unable or unwilling to prosecute it with due despatch. On the separate basis that the proceedings had not been properly pursued, counsel submitted that the claim should also be struck out.
In the alternative, and if I were not prepared to dismiss the proceedings in their entirety, counsel submitted that Exhibit 1 is seriously deficient as a pleading. In particular, it was said that it does not adequately set out the case that the defendant must answer with respect to the questions of causation, reliance, and the quantum of loss suffered by the plaintiff.
Submissions of the plaintiff
In response, the plaintiff placed before me evidence that, in answer to the prohibition relied upon by the defendant, he is in the process of attempting to revive Quadratus by way of proceedings in the Equity Division of this Court.
As I have said, he also stated from the Bar table - when it became clear at the hearing that the question of the application of the prohibition was a significant one - that he was not merely claiming reflective loss. Rather, he told me that he was also claiming for a personal loss to himself. That was said to be by way of the defendant allegedly providing negligent advice to him personally, as a result of which he suffered a loss personally, by way of his personal guarantee being called up, leading to the loss of real property of which he was the registered proprietor.
Finally, he emphasised that he is appearing for himself, and has had bouts of illness that have deflected him from prosecuting the claim.
In short, for a number of reasons, he submitted that I should not make either of the orders sought by the defendant, at least at this stage.
Determination
Legal principle
Turning to my determination, it is convenient first to set out very briefly my understanding of the chronological development of relevant legal principle.
In Foss v Harbottle (1843) 67 ER 189, it was established that natural and corporate persons are separate, whatever the degree of practical connection between them. In particular, the first rule in Foss v Harbottle is that a shareholder in a company who is aggrieved by the loss of value of his or her shares in that company has (subject to certain strict exceptions) no right to commence proceedings against an alleged tortfeasor against the company who is said to have caused that diminution in value.
In Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 the House of Lords emphasised the importance of the distinction, and maintained it.
In Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 a claim made by directors of a company against a tortfeasor in deceit was permitted to stand by the High Court of Australia, despite the fact that the tortfeasor had committed deceit against a company associated with the claimants, leading to loss to it and to them.
The important point of distinction in that case, however, was that the claim permitted to stand was founded upon a deceit having been committed against the plaintiffs personally, with the result that they suffered loss personally, quite apart from the tort committed against the company that led to diminution in the value of the shares of the claimants in the company.
In other words, in my opinion Gould v Vaggelas did not call into question the existence of the prohibition; it merely demonstrated that one can succeed on related claims that fall outside the prohibition.
In the rejected strike-out application of Christensen v Scott [1996] 1 NZLR 273, the New Zealand Court of Appeal expressed the view that, when each of a natural person and a company has been separately the subject of a tort, but the loss of the natural person is limited to reflective loss, then the prohibition may not apply to the claim of the natural person.
In the subsequent decision of the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1, a loud note of caution was sounded about the possible weakening of the prohibition that had been countenanced in New Zealand.
As I understand it, the High Court of Australia has not spoken subsequently with regard to this topic. However, the Court of Appeal of this State has recently done so.
In Ekes v Commonwealth Bank of Australia [2014] NSWCA 336, the learned Chief Justice (with the agreement of Ward J and Emmett AJA) said the following at [150]-[151]:
[150] …When a company suffers loss caused by a breach of duty owed to the company, no action lies at the suit of a shareholder to make good a diminution of the value of the shareholder's shareholding where that loss merely reflects the loss suffered by the company: [Prudential Assurance Co Ltd v Newman Industries Ltd] at 222-223, [Johnson v Gore Wood & Co] at 35 and 62 and [Gould v Vaggelas] at 221-222. That principle extends to include losses suffered as a result of diminution in the value of a person's shareholding, loss of dividends and other amounts which the shareholder might have obtained from the company had it not been deprived of its funds: [Johnson v Gore Wood & Co] at 66. The principle extends to a case where both the company and the shareholder have a claim for breach of duty which caused the loss: [Johnson v Gore Wood & Co] at 62.
[151] However, the principle does not prevent the shareholder suing for a loss suffered from a breach of duty owed to him or her where the loss is separate and distinct from the loss suffered by the company: [Gould v Vaggelas] at 220, 241 and 257-258 and [Johnson v Gore Wood & Co] at 35 and 62.
My understanding of that passage is as follows.
At one end of the spectrum, a plaintiff that claims only for reflective loss is prohibited from succeeding.
At the other end of the spectrum, a plaintiff who points to a loss suffered by him or her separately and distinctly as a result of a tort committed against him or her personally, and who also claims for reflective loss, will be prohibited from succeeding in the latter claim, but not the former.
In the middle of the spectrum, a plaintiff who has suffered a tort personally, but who claims only for reflective loss, is prohibited from succeeding. In other words, with respect, Christensen v Scott is not good law in New South Wales.
Application of principle to claim
Applying the pellucid summary of the Chief Justice to this claim, it can be seen that Exhibit 1 does claim that negligent advice was given by the defendant to the plaintiff personally. It does not claim, however, that the plaintiff suffered loss above and beyond reflective loss (that is, it does not make the disputed claim of the plaintiff from the Bar table).
In other words, the claim of the plaintiff as currently pleaded sits at the middle of my putative spectrum; in accordance with the analysis of the Chief Justice, it is doomed to failure. For that reason, I propose at the very least to make the ancillary order sought by counsel for the defendant.
I have reflected upon whether I should go further and dismiss the claim in its entirety. Ultimately, I have decided that that step should not be taken at this stage, for two reasons.
First, I accept that the plaintiff is impecunious, has been unrepresented for the vast majority of the proceedings, and has suffered from bouts of illness. I also accept that he is doing his best to formulate a valid claim. At this stage, the proceedings should not be struck out for want of prosecution.
Separately, in the circumstances not only of there being sworn evidence to the contrary, but also of the plaintiff not raising the matter until the end of the hearing before me, one may seriously doubt whether it is truly the case that the third party mortgage of the plaintiff was indeed called up, thereby directly occasioning to the plaintiff a distinct and personal loss. Nevertheless, because the resolution of that is (in my mind) determinative of whether this claim could have a valid foundation or not, I do not think the claim should be dismissed in its entirety whilst that dispute remains unresolved.
The better course, I think, is to strike out the current iteration of the claim, order the plaintiff to file and serve any further claim within four weeks of today, insist that that claim be verified on oath (the documents filed by the unrepresented plaintiff have understandably lacked formality in the past), and then have the matter return to the Common Law Registrar's list shortly thereafter. If my timetable is not complied with, or the claim is not verified, or the claim as pleaded is doomed to failure (because of the prohibition, or for any other basal reason), then the defendant would surely be in a position to move promptly to seek to have the proceedings dismissed. My orders reflect that way forward.
Costs
The plaintiff did not resist the proposition that, if he were to fail on the motion, the defendant should have its costs. Although the defendant did not succeed entirely, I consider that to be the appropriate order.
Orders
I make the following orders:
1. The Further Amended Statement of Claim of the plaintiff that became Exhibit 1 on 31 March 2017 is struck out.
2. The plaintiff must file and serve any further statement of claim upon which he relies by 5 May 2017.
3. Any such statement of claim must be verified on oath by the plaintiff, in accordance with rule 14.24 of the Uniform Civil Procedure Rules 2005 (NSW).
4. The matter is listed before the Common Law Registrar at 9 am on 10 May 2017.
5. The plaintiff must pay the costs of the proceedings before me.
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Decision last updated: 12 May 2017