United Pacific Finance Pty Ltd v Tarrant [2009] NSWSC 630 | Case summary

2495/09 UNITED PACIFIC FINANCE PTY LTD V MERVYN ROSS TARRANT & ANOR JUDGMENT 1 HIS HONOUR: The plaintiff, United Pacific Finance Pty Ltd ("UPF"), commenced proceedings by summons in this court on 23 April 2009 for declaratory and injunctive relief and exemplary damages. The defendants are Mervyn Tarrant ("Mr Tarrant") and Tarrants Financial Consultants Pty Ltd ("TFC"). Mr Tarrant is the director and main beneficial shareholder of TFC. At all material times TFC has held an Australian financial services licence. 2 UPF alleges that Mr Tarrant and/or TFC have interfered with contractual relationships between UPF and its clients, including the clients listed in a schedule to the summons. It also alleges that TFC has engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth), and that it has engaged in unconscionable conduct contrary to s 51AB of the Trade Practices Act, and that Mr Tarrant has accessory liability for those contraventions. I was informed in written submissions that UPF will allege that certain individuals borrowed money either from UPF or Palandri Finance Ltd ("PFL") for the purpose of investing in various Palandri managed investment schemes, and the PFL loans were subsequently assigned by PFL to UPF. UPF will allege that Mr Tarrant and TFC have encouraged those individuals to refrain from making loan repayments to UPF. UPF has not claimed in the summons that Mr Tarrant and TFC are in default on their loans. 3 On 27 April 2009 Mr Tarrant and TFC gave undertakings, noted by the court, that they would not contact or communicate with UPF's clients so as to solicit, encourage or induce those clients to refrain from making any payments to UPF or otherwise refrain from fulfilling their existing contractual obligations to UPF. The First Cross-Claim 4 On 29 May 2009 Mr Tarrant and TFC ("the cross-claimants") filed a cross-claim (the First Cross-Claim) in these proceedings against: UPF; PFL; ACN 091 709 769 Ltd (in liq), previously known as Palandri Investment Management Ltd (PIML"); Palandri Ltd (in liq) ("Palandri"); ACN 084 252 488 Ltd (in liq), formerly known as Palandri Wines Ltd ("PWL"). I shall refer to the second to fifth cross-defendants as "the Palandri companies". 5 In the First Cross-Claim the cross-claimants seek declarations that, inter alia, each of the cross-defendants engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act and an order under s 87 of that Act relieving Mr Tarrant from any further obligation with respect to three loans, as follows: Loan 1 : loan agreement dated 6 June 2006 for $277,355.20 from UPF to Mr Tarrant; Loan 2 : loan agreement dated 15 June 2006 for $541,640 from PFL to Mr Tarrant, of which $275,000 was assigned from PFL to UPF on 4 August 2006; and Loan 3 : loan agreement dated 31 October 2006 for $1,054,010.85 from PFL to Mr Tarrant. 6 The cross-claimants also seek an order under s 87 relieving TFC from guarantees for the obligations of Mr Tarrant under the loans. They also seek orders against each cross-defendant for the payment of damages under, inter alia, s 82 of the Trade Practices Act. 7 The First Cross-Claim relates to six registered Australian managed investment schemes, which it identifies as: Margaret River Wine Business, formed in 1999 and said to have approximately 1978 investors described as "growers" who invested about $91.3 million; Palandri American Wine Business, formed in 2001 and said to have 808 growers who invested approximately $26.5 million; Palandri WineGrape Project, formed in 2005 and said to have 119 growers who invested approximately $19 million; Margaret River Wine Business Trust, formed in 2006 and said to have 1616 members who acquired units in exchange for their interest in Margaret River Wine Business; Palandri Agricultural Property Trust, formed in 2006 and the trust formed to acquire and hold agricultural property; Palandri Global Supply Challenge, formed in 2007 and said to have 62 growers who invested approximately $14.9 million. According to the First Cross-Claim, PWL was the responsible entity for each of these schemes except the Palandri Agricultural Property Trust, in which the responsible entity was PIML. 8 It appears that Stuart Hillier was the chief financial officer, national sales manager or managing director of PIML. The First Cross-Claim alleges that Mr Hillier made presentations promoting certain Palandri products at TFC's offices between April and December 2006, presenting the products as a package together with loans to fund the investment which, through deferred current tax liability, were said to be tax effective. The products said to have been promoted by Mr Hillier in 2006 were interests in the Palandri WineGrape Project, Palandri Agricultural Property Trust and Palandri Global Supply Challenge, and also shares in Palandri Ltd. The loan packages were said to be available to fully fund the investment through UPF and PFL for 7 to 10 year terms, with the only security being the investor's interest in the Palandri products. Mr Hillier provided Mr Tarrant and TFC with product disclosure statements and Australian Taxation Office product rulings, as well as project summaries and loan summaries. 9 The First Cross-Claim deals in detail with written and oral representations alleged to have been made by Mr Hillier. It is asserted that Mr Hillier made specific representations in respect of each of the businesses he was promoting concerning the use to which investors' money would be put, and such matters as forecast cash flows and rates of return. It is alleged that certain matters were not disclosed, including that the interests of members in the old schemes, the Margaret River Wine Business and the Palandri American Wine Business, had become worthless and the members of those schemes owed substantial amounts for unpaid applications, leases and management fees, and that the solvency of each of the companies in the Palandri Group and of the schemes was dependent on intercompany loans to support operating shortfalls. Particulars are given of the cross-claimants' allegation that these representations and non-disclosures were misleading and deceptive, including particulars of the negative financial position of the Margaret River Wine Business and Palandri American Wine Business. 10 The First Cross-Claim alleges that PIML and PFL were agents of the companies in the Palandri Group and also for UPF. PIML marketed investments in the schemes as a package including loans to fully fund the investment. The loans were made through PFL and/or UPF. PIML invited applications and provided application forms for both the investments and the loans, and directed that the completed investment and loan application forms be forwarded to PFL. It is alleged that UPF was knowingly concerned in the misleading and deceptive conduct of the other cross-defendants. 11 The First Cross-Claim alleges that Mr Tarrant, relying on Mr Hillier's representations and his non-disclosure, made investments in the Palandri WineGrape Project, Palandri Agricultural Property Trust and Palandri shares by the three loans identified above, the first two of which were guaranteed by TFC. It alleges that without Mr Tarrant's consent, on 4 August 2006, PFL assigned part of its loan book to UPF including $275,000 which was part of Loan No 2 made on 15 June 2006. 12 Counsel for the Palandri companies gave the court a critique of the pleading in the First Cross-Claim, in the course of oral submissions on the application for leave. It does not seem to me to be necessary to deal with that critique in order to determine the application. The Palandri companies 13 The Palandri companies have been in creditors' voluntary winding up since October 2008, after having been in voluntary administration as from February 2008. The three liquidators of the Palandri companies, members of the accounting firm Deloitte Touche Tohmatsu based in the firm's Perth office, oppose the granting of leave. The grounds of opposition are deposed to by Gary Peter Doran, one of the liquidators. 14 According to Mr Doran's affidavit, Palandri Ltd is the ultimate parent entity of the Palandri companies. Those companies, and other companies registered in the United Kingdom, the United States and Europe, form the Palandri Group. Only the Group's Australian entities have been placed in liquidation and are under the control of liquidators. Prior to the commencement of voluntary administrations, the Palandri Group owned several Vineyards in Margaret River, Frankland River and Harvey in Western Australia. 15 Mr Doran said in his affidavit that the liquidation is substantial and complex due to: the size of the Palandri Group, its complex financing structures and the integrated nature of its businesses; the significant debts owed by the companies in the Palandri Group to numerous secured and unsecured creditors; and investigations and actions required in order to commence recovery proceedings in respect of the Palandri Group's auditors and legal advisers, the operation of managed investment schemes in which Palandri companies were involved, and defaults by borrowers owing debts to PFL. 16 Mr Doran said that PWL was the responsible entity of six managed investment schemes, which were identified in the First Cross-Claim. The schemes involved investors acquiring interests in vineyards and some associated rights. On 24 September 2008 the Supreme Court of Western Australia ordered that the schemes be wound up. PWL holds head leases to the vineyards, which are subleased to the schemes, and holds an Australian financial services licence. 17 PFL was established to provide loans to investors to fund their investments in the schemes. It raised money through the issue of notes and debentures to the public. Mr Doran gave evidence that at the time of his appointment as voluntary administrator of PFL on 15 February 2008, the company had lent $20.1 million to 146 investors in the schemes, including Mr Tarrant. 18 PIML was established to produce prospectuses and to manage the marketing of the schemes. It held an Australian financial services licence, which has recently been terminated. 19 Palandri was the ultimate holding company of the Palandri Group. It appears that for some time it was listed on the Alternative Investment Market in London. 20 In their report to creditors under s 439A dated 26 September 2008, the liquidators (then administrators) expressed the opinion that liquidation of the Palandri companies might produce a return to unsecured creditors of between zero and $0.26 in the dollar depending upon successful recoveries as a result of the administrators' investigations. In his affidavit filed in opposition to the present application, Mr Doran said nothing has happened since 26 September 2008 to alter that opinion. The Western Australian proceedings 21 Mr Doran said that after his appointment he investigated PFL's books and records and discovered that Mr Tarrant had entered into the two loan deeds with PFL, one on 15 June 2006 and the other on 31 October 2006, and he was in default in repayments of both loans. He caused PFL's solicitors to serve notices of demand on Mr Tarrant and TFC. Mr Doran said that the only responses he has received are two letters from Mr Tarrant and a letter from TFC, each dated 1 May 2009 and headed "without prejudice", simply saying that Mr Tarrant and TFC were seeking legal advice and would make reasonable endeavours to reply to the notices of demand as soon as possible. As Mr Doran pointed out, those letters did not foreshadow any proceedings against the Palandri companies. 22 On the instructions of the liquidators, on 1 May 2009 PFL (in liq) commenced proceedings in the Supreme Court of Western Australia against Mr Tarrant and TFC. In those proceedings PFL seeks, against Mr Tarrant as borrower and TFC as guarantor, recovery of the principal and interest on a loan of $266,640 allegedly made pursuant to a deed dated 15 June 2006, and against Mr Tarrant (but not TFC) it seeks recovery of principal and interest on a loan of $1,054,907 allegedly made pursuant to a deed dated 31 October 2006. PFL also seeks rectification of the 15 June 2006 loan deed by inserting $266,640 into the schedule of the deed where the amount of the loan was omitted. 23 It appears from PFL's statement of claim that, apart from the claim for rectification of the first loan deed, the action is a straightforward action for recovery of principal and interest on loan after the borrower's default. The figures and dates of the loan deeds indicate that the loan for $266,640 is the unassigned portion of Loan 2 in Mr Tarrant and TFC's First Cross-Claim, and the loan for $1,054,907 is Loan 3. 24 PFL's writ of summons and statement of claim were served on 12 May, and on 20 May Mr Tarrant and TFC filed a memorandum of appearance in the Supreme Court of Western Australia. As noted above, the First Cross-Claim in the present proceedings was filed on 29 May 2009. 25 On 11 June 2009, Sydney solicitors acting for Mr Tarrant and TFC wrote to PFL's Perth solicitors seeking PFL's consent to an order transferring the Western Australian proceedings to the Supreme Court of New South Wales under s 5 of the Jurisdiction of Courts (Cross Vesting) Act 1987. On 12 June 2009 the Perth solicitors replied. It is clear from their letter that they had received the First Cross-Claim in the present proceedings. 26 In their letter the Perth solicitors said that PFL did not agree to the proposed transfer of the proceedings on the following grounds: (i) the loan deeds that are the subject of the Western Australian proceedings are governed by the law of Western Australia and there is a non-exclusive submission to jurisdiction of the courts of Western Australia; (ii) there is a factual nexus with Western Australia in that PFL and its related entities operated from Western Australia, and the Vineyard properties the subject of several representations of which Mr Tarrant and TFC complain are located in Western Australia; (iii) PFL's registered office is in Western Australia; (iv) the liquidators of PFL and its related entities reside and work in Western Australia; and (v) the previous directors of PFL, Mr Jarvis and Mr Brown, reside in Western Australia and may be called as witnesses in the proceedings. The letter claimed that the First Cross-Claim in the New South Wales proceedings is an abuse of process and has a sufficient connection with the Western Australian proceedings for it to be determined in that jurisdiction. 27 On 16 June 2009 Registrar Dixon in the Supreme Court of Western Australia directed Mr Tarrant and TFC to file and serve any application and supporting affidavit for transfer of the proceedings to the Supreme Court of New South Wales by 23 June 2009. I was informed from the bar table that such an application has been filed but not yet served. The present application 28 The First Cross-Claim is a proceeding commenced against companies in liquidation (except UPF). Consequently, by notice of motion filed on 11 June 2009, the cross-claimants have sought leave to proceed against the Palandri companies as cross-defendants. The application, as filed, seeks leave under s 417B of the Corporations Act, evidently meaning s 471B, but since the relevant companies are in voluntary winding up rather than court-ordered winding up, the appropriate section is s 500(2). Section 500(2) says: "After the passing of the resolution for voluntary winding up, no action or civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes". 29 Counsel for the cross-claimants submitted that leave should be granted on the basis that there was logic in having both the New South Wales and Western Australian proceedings heard together in this court. He emphasised that the loans obtained by Mr Tarrant were all through a single agent, though the lenders were two different companies, UPF and PFL. They were all packaged loans as part of investments in Palandri projects. He said, without pointing to any evidence or decision, that leave was recently granted in Victoria to proceed against PFL in respect of loans made by it. 30 Notwithstanding those submissions, I have decided that the application for leave should be denied, for two reasons: that the First Cross-Claim constitutes an abuse of process; and that the criteria to be established for the grant of leave under s 500(2) have not been established in this case. Abuse of process 31 It seems to me that the First Cross-Claim is in substance a defence to the Western Australian proceedings: PFL seeks to recover the borrowings by Mr Tarrant guaranteed by TFC made for the purpose of investing in Palandri schemes, and Mr Tarrant says that PFL and other Palandri companies through Mr Hillier misrepresented the investments and engaged in misleading and deceptive conduct, and that the loan contracts should therefore be set aside. Indeed, the cross-claimants' solicitor said in his affidavit that the defence to the Western Australian proceedings would involve the same facts and legal issues as the First Cross-Claim. As counsel for UPF asked the court to note, there is no allegation in the First Cross-Claim of any misrepresentation or misleading or deceptive conduct by UPF. 32 The cross-claimants' case may have little or nothing to do with UPF's claim in the New South Wales proceedings that they unlawfully interfered with the borrowing contracts of UPF's clients and engaged in misleading and deceptive conduct in that respect, though at this stage it is too early to be sure. If UPF's allegations are pleaded, it may become evident that the subject matter of the allegedly misleading and deceptive conduct is representations by Mr Tarrant to UPF's clients along the lines of his claims in the First Cross-Claim. In the meantime it is plain that Mr Tarrant's allegations are directly relevant to the defence of the Western Australian proceedings. 33 The commencement of proceedings which create duplicity of proceedings is an abuse of process: Moore v Inglis (1976) 9 ALR 509 at 514, 516 per Mason J; Commonwealth v Cockatoo Dockyard Pty Ltd [2003] NSWCA 192 at [56]-[63] per McColl JA; see also Slough Estates Ltd v Slough Borough Council [1968] Ch 299 at 314-5 per Ungoed-Thomas J. The principle was explained by Buckley J in Thames Launches Ltd v Trinity House Corporation of Deptford Strond [1961] Ch 197 at 209, as follows: "[Counsel for the defendant] says that the principle is that a man should not pursue a remedy in respect of the same matter in more than one court. In my judgment, the principle is rather wider than that. It is that no man should be allowed to institute proceedings in any court if the circumstances are such that to do so would really be vexatious. In my judgment it is vexatious if somebody institutes proceedings to obtain relief in respect of a particular subject-matter where exactly the same issue is raised by his opponent in proceedings already instituted in another court to which he is not the plaintiff but the defendant." 34 Although at the time of the First Cross-Claim there was no defence in equivalent terms to the Western Australian proceedings, it seems to me inevitable that there will be a defence and cross-claim in those proceedings substantially identical to the allegations pleaded in the First Cross-Claim. That conclusion is reinforced by the evidence which shows that notices of demand were served on Mr Tarrant and TFC on 8 April 2009, and they responded on 1 May, saying they were seeking legal advice, but without adverting to claims of the nature subsequently made in the First Cross-Claim. At the time when the First Cross-Claim was filed, the cross-claimants were aware of the Western Australian proceedings and they must have realised that the matters they wished to allege were most appropriately in the nature of defences and perhaps a cross-claim in those proceedings. In my view it was an abuse of process for them to make those allegations in a cross-claim in the New South Wales proceedings in answer to claims to which they will only become relevant if UPF alleges that the misleading conduct upon which it relies relates to the subject matter of the First Cross-Claim. 35 No good reason has been advanced at the hearing of the s 500(2) application as to why the First Cross-Claim, at least so far as relates to the Palandri companies, should be brought in the New South Wales proceedings instead of as a defence in the Western Australian proceedings. The facts before me (including, in particular, the temporal sequence of notices of demand, UPF proceedings, undertakings and responses to the demands, Western Australian proceedings, and First Cross-Claim) warrant the inference that the dominant purpose of bringing the cross-claim against the Palandri companies in the New South Wales proceedings is to assist the foreshadowed application to cross-vest the Western Australian proceedings to New South Wales. That also points to the conclusion that the First Cross-Claim constitutes an abuse of process: Surfing Hardware International Holdings Pty Ltd v McCausland (2008) 171 FCR 533 at [86] per Foster J. 36 Additionally the principal relief sought in the First Cross-Claim is closely analogous to a negative declaration. In substance the cross-claimants seek an order that they are not liable to the Palandri companies under their loan agreements. In Kolden Holdings Ltd v Rodette Commerce Ltd [2008] 3 All ER 612 at [7], Lawrence Collins LJ made the following observations about such claims: "About 20 years ago Kerr LJ said that claims for negative declarations, in particular, 'must be viewed with great caution in all situations involving possible conflicts of jurisdictions, since they obviously lend themselves to improper attempts at forum shopping': see Saipem SpA v Dredging VO2 BV and Geosite Surveys Ltd, The Volvox Hollandia [1988] 2 Lloyd's Rep 361 at 371. Although that is not always the case (see Messier-Dowty Ltd v Sabena SA (No 2) [2000] 1 All ER (Comm) 833 at 842, [2000] 1 WLR 2040 at 2049 (para 36)), it is hard to resist the conclusion that the present case is one of the use of a claim for negative declarations to wrest jurisdiction from the natural forum." 37 Counsel for the Palandri companies submitted that the negative nature of the declaratory relief sought in the First Cross-Claim brought it into the class of proceedings that were to be "viewed with great caution" as "they obviously lend themselves to improper attempts at forum shopping". I agree. Satisfaction of criteria for leave under s 500(2) 38 It has been said that the purpose of requiring leave to proceed against a company in liquidation is to prevent multiplicity of actions against the company, which would be expensive, time-consuming and sometimes unnecessary: Ogilvie-Grant v East (1983) 7 ACLR 669 at 671-2 per McPherson J; Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373 at 379 per Wilcox, Burchett and Beazley JJ. In determining whether leave should be granted, the court considers, in the exercise its discretion, whether it is more convenient to allow the applicant for leave to pursue the claim in the proceedings or to lodge a proof of debt for the claim with the liquidator. 39 Counsel for the Palandri companies submitted that leave should be refused for three reasons: (a) the cross-claimants have not established that there is a serious question to be tried; (b) there is no evidence to suggest that there is any reason to depart from the ordinary course of the liquidation process, that is the lodgment of a proof of debt for the claims that are the subject of the First Cross-Claim; and (c) the cross-claimants would not suffer any prejudice if leave were to be refused, and therefore there is no reason to elevate their interests above those of the cross-defendants' unsecured creditors.

United Pacific Finance Pty Ltd v Tarrant

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