CATCHWORDS
PRACTICE AND PROCEDURE - pleading - application for leave to amend - whether proposed pleading "futile" - pleading of causation under s 82 of Trade Practices Act 1974 (Cth) - reliance on representation - whether reliance must be by loss sufferer - accessorial liability of party "involved in" contravention of s 52 of Act - whether knowledge by alleged accessory of all essential elements of contravention pleaded.
TRADE PRACTICES - pleading - application for leave to amend - whether proposed pleading "futile" - pleading of causation under s 82 of Trade Practices Act 1974 (Cth) - reliance on representation - whether reliance must be by loss sufferer - accessorial liability of party "involved in" contravention of s 52 of Act - whether knowledge by alleged accessory of all essential elements of contravention pleaded.
Trade Practices Act 1974 (Cth) ss 52, 75B, 82.
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 (Lockhart J).
Pacific Coal Pty Ltd v Idemitsu Queensland Pty Ltd (1992) ATPR 46-094.
Haynes v Top Slice Deli Pty Ltd, unreported, FCA/Einfeld J, 2 June 1995.
ALLSTATE LIFE INSURANCE CO & ORS v AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS (No 17)
No NG 381 of 1994
Lindgren J
Sydney
28 September 1995
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) No NG 381 of 1994
GENERAL DIVISION )
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the second further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the second further amended statement of claim.
Respondents
CORAM: Lindgren J
PLACE: Sydney
DATE: 28 September 1995
MINUTE OF ORDERS
THE COURT ORDERS:
1. THAT the applicants have leave to amend by filing third amended statement of claim in the form handed up on the hearing and incorporating the amendments referred to in the Reasons for Judgment of Lindgren J dated 28 September 1995.
2. THAT the proceedings stand over to 29 September 1995 at 12.00 noon for the hearing of submissions on costs.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) No NG 381 of 1994
GENERAL DIVISION )
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the second further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the second further amended statement of claim.
Respondents
CORAM: Lindgren J
PLACE: Sydney
DATE: 28 September 1995
REASONS FOR JUDGMENT (No 17)
(Applicants' motion for leave to amend by filing third further amended statement of claim)
INTRODUCTION
By notice of motion filed on 8 September 1995 the applicants seek leave
to amend by filing a third further amended statement of claim. The form of pleading the subject of the
notice of motion was annexure "A" to an affidavit of John Frederick
Warburton sworn on 8 September 1995 but on the hearing a revised form of
pleading was relied on by the
applicants.
BACKGROUND FACTS AND LEGISLATION
As this is the seventeenth judgment which has been delivered in this litigation and accounts of the background facts as alleged by the applicants have been given previously, I will not embark upon that exercise again.
Order 13 sub-r 2 (1) of the Federal Court Rules gives the Court power at any stage of any proceeding to order that any party have leave to amend any document in the proceeding as the Court think fits. This judicial discretion must be read in the light of sub-r 2 (2) which provides as follows:
"2(2)All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings."
A ground on which leave to amend is properly refused is that a proposed amendment is "obviously futile" or "plainly demurrable": Dennis v Brownlee (1963) 80 WN (NSW) 1239 (FC); Abela v Giew (1964) 81 WN (Pt 1) (NSW) 344 (Taylor J). This is the ground on which the respondents rely.
Sub-rule 16 (a) of O 11 of the Rules provides as follows:
"16 Where a pleading--
(a)discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;
(b)..........................................
(c)..........................................
the Court may at any stage of the proceeding order that whole or any part of the pleading be struck out".
Clearly, the terms of sub-r 16 (a) are related to the "obvious futility" ground on which leave to amend may be refused: it would be futile to allow an amendment which "discloses no reasonable cause of action".
The amendments sought to be made should be allowed unless they are obviously futile in the sense that they do not disclose a reasonable cause of action.
REASONS
I now proceed to the issues which were left for my determination on the hearing.
1. Paragraphs 25A, 25B, 60A, 62A and 63(c) of the proposed third further amended statement of claim
Paragraph 25A pleads that by letter dated 29 September 1988, Skadden Arps, US attorneys retained by Linter Textiles Corporation Limited (in liq), ("Linter Textiles") wrote to the Securities Exchange Commission ("SEC") forwarding an amended registration statement (including prospectus) and representing to the SEC that the amended registration statement reflected Linter Textiles' then current plans with regard to senior indebtedness. Paragraph 25B pleads that in reliance on that representation SEC registered the prospectus effective 6 October 1988. Paragraphs 60A, 62A and 63(c) plead that if the prospectus had not been registered with the SEC, certain persons would not have purchased beneficial interests in the debentures.
At one stage of the debate on the application for leave to amend, it was thought that the applicants were seeking to found accessory liability of the Initial Banks on knowledge by them of the above matters. But senior counsel for the applicants disavowed that intention and, after consideration, said that the words "in particular" were to be deleted in each of sub-paras (a) (b) (c) (d) and (e) of para 74 of the proposed third further amended statement of claim. It was, I think, accepted that this removed any doubt surrounding the matter.
I now deal precisely
and only with the further question raised on the hearing in the present
context, namely, whether investors must be alleged to have known of and relied
on the representation pleaded in para 25A before there can be a liability
because of it under s 52 of the Trade Practices Act 1974 (Cth)
("the Act"). The submission
made is that in all cases where, as here, misleading and deceptive conduct is
said
to consist of a misrepresentation, it must be pleaded and proved that the
applicant for relief relied on that misrepresentation.
I disagree. Section 82 requires that loss or damage be suffered "by" the contravening conduct of another. Clearly, this requires causation as a necessary element in the statutory cause of action and therefore, in the case of a misrepresentation, that someone acted in reliance on the misrepresentation. But it does not follow that causation will be absent in every case where the relier is a person other than the loss sufferer (Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 (Lockhart J); Pacific Coal Pty Ltd v Idemitsu Queensland Pty Ltd (1992) ATPR 46-094 (Qld/Ryan J)) although the chain of causation may present particular difficulty in such cases (cf Haynes v Top Slice Deli Pty Ltd, unreported, FCA/Einfeld J, 2 June 1995).
I would not disallow the amendments proposed on the ground referred to. The questions of causation to arise are appropriately left to the final hearing.
2. Paragraphs 29, 30, 51, 53, 55 and 74 - whether there is a failure to plead "knowledge" of Freehills
Sub-paragraph 74 (d)
pleads that Freehills, by the conduct and with the knowledge alleged in paras
10-25B, 35, 51, 53, 55, 56 and 57, have aided, abetted, counselled or procured
the
contravention of s 52 of the Act by Linter Textiles, or alternatively were
directly or indirectly knowingly concerned in, or a party to, such
contravention. Paragraph 29 pleads that
Linter Textiles made certain representations in the preliminary
prospectus. Paragraph 30 pleads that
Linter Textiles made certain representations in the prospectus. Paragraphs 44, 45, 48 and 49 plead certain
facts which, it was not in issue, falsified the representations. Because there was no issue in this respect,
it is not necessary for me to stay to compare the various representations with
what is alleged in paras 44, 45, 48 and 49.
Sub-paragraph 51 (b) pleads that Freehills knew of the making of the representations pleaded in paras 29 and 30 and of the facts which falsified them pleaded in paras 44, 45, 48 and 49. Paragraphs 53 and 55, incorporating amendments made on the hearing (indicated below), are as follows:
"53. By virtue of the stated knowledge alleged against
them respectively in paragraph 51, each of Freehills and the initial
participant banks knew all was recklessly indifferent as to whether or ought
to have known that the written representations
and/or the similar representations (as alleged in paragraph 51) were being
made.
55. By
virtue of the state of knowledge alleged against them respectively in
paragraph 51 and 53, each of Freehills and the initial participant banks knew or
was recklessly indifferent as to whether or ought to have known that the
written representations and/or the similar representation (as alleged in para
51) were misleading, inaccurate and untrue."
The respondents submit that the "chain" constituted by paras 29, 30, 44, 45, 48, 49, 51, 53 and 55 do not plead the "knowledge" on the part of Freehills necessary to found the accessory liability pleaded in sub-para 74 (d) noted earlier.
The words "aided, abetted, counselled or procured" and "directly or indirectly knowingly concerned in, or a party to," come from sub-s 75B (1) of the Act. That provision is invoked against Freehills in sub-para 76 (a) with a view to their liability in damages under s 82 as parties "involved in" the contravention by Linter Textiles of s 52 of the Act.
According to Freehills'
submission, it is not enough for the applicants to plead that Freehills knew
that particular representations were being made and knew facts which falsified
them: according to the submission it is necessary, as well, that they should
have made expressly an allegation to the effect that Freehills were
"consciously aware" of the falsity of what was being
represented. Freehills referred me to Crocodile
Marketing Ltd v Griffith Vintners Pty Ltd (1989) 28 NSWLR 539 (Cole
J) at 545-546 and Richardson & Wrench (Holdings) Pty Ltd v Ligon
No 174 Pty Ltd (1994) 123 ALR 681 (FCA/Burchett J) at 693-695. These cases and others establish that under
paras 75B (1) (a) ("has aided, abetted, counselled or procured the
contravention") and (c) ("has been in any way, directly or
indirectly, knowingly concerned in, or party to, the contravention") of
the Act, it is required that the person said to be "involved in" the
contravention must have had
actual knowledge of all the essential facts constituting the
contravention.
On the facts of the present case, those essential facts are the making of the representations and their falsity. In my opinion, it is pleaded that Freehills knew both that the relevant representations were being made (paras 29, 30, 51 (b)) and that they were false (paras 44, 45, 48, 49, 51 (b)).
Although I think this amounts to a pleading that Freehills actually knew that what was being represented as true was in fact false and misleading, if there had been any uncertainty in this respect, it would have been eliminated by para 55 noted earlier.
In the result, I am of the view that it is pleaded that Freehills knew the essential elements of the misleading or deceptive conduct pleaded against the principal contravener, Linter Textiles, for the purposes of s 52 of the Act.
3. Paragraph 162 - duty of care
The opening words of para 162 and sub-para (f), incorporating amendments made on the hearing (noted below), are as follows:
"162 By reason of the matters referred to in paragraph 161, Freehills owed a duty to the applicants (other than the Ariel Entities and D H Scheiber) and the Relying Debenture holders, or alternatively to purchasers of the debentures as a class to exercise reasonable skill, care and diligence -
(a).....................................
(e).....................................
(f)not to mislead the SEC."
It will be put on the hearing that Freehills, although retained by Linter Textiles, owed a duty to prospective investors not to mislead the SEC because, to their knowledge, this might well lead to registration of the prospectus and to the investment in debentures pursuant to it. The argument on this point was very short and I was not referred to authorities. I have not been shown that the amendment in this respect is obviously futile.
CONCLUSION
I grant leave to the applicants to file and serve the proposed third further amended statement of claim incorporating the amendments to paras 53, 55 and 74 to which I have referred.
I will stand the matter over to 12.00 noon tomorrow to hear the parties on the question of the costs of the hearing on Monday 25 September 1995 of the applicants' motion for leave to amend.
I certify that this and the preceding 8 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.
Associate:
Dated: 28 September 1995.
Heard: 25 September 1995
Place: Sydney
Decision: 28 September 1995
Appearances: Mr A R Emmett QC with Mr W G Muddle and Mr D Stack of counsel instructed by Deacons Graham & James appeared for the applicants.
Mr L J Aitken of counsel instructed by Minter Ellison appeared for the 2nd respondent ("BNZ").
Mr P Durack of counsel instructed by Clayton Utz appeared for the 3rd respondent ("Barclays").
Mr T Vero, solicitor, of Clayton Utz appeared for the 4th respondent ("Chase").
Mr J Karkar QC with Mr P Anastassiou of counsel instructed by Mallesons Stephen Jaques appeared for the 5th and 6th respondents ("Citibank").
Mr S D Robb QC with Mr J W Stevenson of counsel instructed by Middletons Moore & Bevins appeared for the 10th respondent ("Sumitomo").
Mr P Hayes QC with Mr D Robinson of counsel instructed by Arthur Robinson & Hedderwicks appeared for the 12-28th respondents ("the Subsequent Banks").
Ms R Rana of counsel instructed by Phillips Fox appeared for the 29-47th respondents ("Linter interests").
Mr A Wheeler instructed by Gilbert & Tobin appeared for the 52nd respondent ("Sir Max Dillon").
Mr P Jacobson QC with Mr R M Smith of counsel instructed by Norton Smith & Co appeared for the 54th respondents ("Freehills").
