FEDERAL COURT OF AUSTRALIA

Murphy v Overton Investments Pty Ltd [1999] FCA 1673

PRACTICE & PROCEDURE – representative proceeding under Pt IVA Federal Court of Australia Act 1976 – application to vary orders made that proceeding no longer continue as representative proceeding - whether proceeding properly commenced as representative proceeding - whether “substantial common issue of fact or law” – whether order should be made that proceeding no longer continue as representative proceeding

WORDS & PHRASES – “substantial”

Federal Court of Australia Act 1976 (Cth), s 33C(1)(c), s 33N

Wong v Silkfield Pty Ltd [1999] HCA 48, followed

Silkfield Pty Ltd v Wong (1998) 159 ALR 329, not followed

JOHN JAMES MURPHY v OVERTON INVESTMENTS PTY LTD

N159 OF 1999

EMMETT J

25 NOVEMBER 1999

SYDNEY

THE COURT ORDERS THAT:

1.         The application made on behalf of the applicant for the orders made on 17 August 1999 by Emmett J to be varied be dismissed.

2.         The applicant pay one-third of the respondent’s costs of the notice of motion filed on 18 April 1999 as amended on 18 May 1999 and 25 June 1999.

3.         The applicant pay the respondent’s costs of the notice of motion filed on 16 September 1999.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     On 17 August 1999, I published my reasons for making orders that proceedings which had begun under Part IVA of the Federal Court of Australia Act 1976 (Cth) (“the Act”) no longer continue under Part IVA – see Murphy v Overton Investments Pty Ltd [1999] FCA 1123.  In the course of my reasons, I referred to the decision of the Full Court in Silkfield Pty Ltd v Wong (1998) 159 ALR 329as to the criteria for determining whether an issue fell within section 33C(1)(c) of the Act.  I indicated, in the course of my reasons, that the Full Court's decision in Silkfield was the subject of an appeal to the High Court.  At that stage, the appeal had been argued but no decision had been given. 

2                     I indicated that the outcome of that appeal could have an effect on this proceeding if the High Court were to cast doubt on the correctness of the reasoning of the Full Court.  I indicated, however, that I would approach the task then before me on the basis that the Full Court’s reasoning was correct.  In particular, I adopted as criteria for determining whether an issue fell within section 33C(1)(c) whether the resolution of the issue would have a major impact on the litigation because it was an issue at the core of the dispute between the respondent and each group member.

3                     On 9 September 1999, the High Court allowed the appeal in Wong v Silkfield Pty Ltd [1999] HCA 48 and set aside orders made by the Full Court.  The High Court published its reasons for so doing.  In the course of those reasons, the High Court indicated that Part IVA is not to be read by making implications or imposing limitations not found in the words used - para 11.  What is required is that the claims give rise to a common issue of law or fact which is “substantial” - para 12.  Their Honours observed that the phrase “a substantial common issue of law or fact” in section 33C(1)(c) gives rise to issues of construction which reflect the disparate interests that the practice which grew up in Chancery in respect of representative proceedings had sought to accommodate.

4                     The High Court indicated that the purpose of the enactment of Part IVA was not to narrow access to the new form of representative proceedings beyond that which applied under regimes considered in cases such as Carnie v Esanda Finance Corp Ltd (1995) 182 CLR 398.  Thus, when used to identify the threshold requirements of section 33C(1), “substantial” does not indicate that which is “large” or “of special significance” or would “have a major impact on the litigation”, but rather is directed to issues which are real or of substance - para 28.

5                     The High Court considered that the issues of fact that had been identified as common in Wong v Silkfield were substantial because the allegations involved were “serious and significant”.  Detrimental misrepresentations were claimed.  It was not necessary to show that litigation of the common issue would be likely to resolve wholly or to any significant degree the claims of all group members - para 30.  Thus, with the benefit of hindsight, it is now clear that I misdirected myself in the reasons that I published on 17 August 1999. 

6                     After the publication of my reasons and the making of the orders that I then made, the applicants sought leave to appeal.  That matter came before me but has not yet been resolved.  I indicated when it came before me that, having regard to the circumstances whereby the High Court had overturned the decision of the Full Court that bound me at the time, I would be prepared to consider any application made to vary the orders that I had made.  Accordingly, the applicants filed a notice of motion on 16 September 1999 seeking an order that my orders of 17 August 1999 be varied. 

7                     I have now heard argument from both sides on that motion.  Clearly, in the light of the reasons of the High Court it is necessary to revisit the conclusion that I expressed that I was not satisfied, on the material that I then had, that common issues that will arise could properly be characterised as “substantial” within the meaning of section 33C(1)(c) - para 109.

8                     I set out, in paras 40-47 of my earlier reasons, the general content of the allegations made by the applicants in the proceedings.  Relevantly, four of the five causes of action relied on by the applicants were based on representations alleged to have been made in connection with the granting of leases by Overton to the lessees.  In relation to the causes of actions based on the Trade Practices Act 1974, common law negligence, fraudulent misrepresentation and estoppel, the representations relied on are the same.  As I indicated, there are questions as to whether representations were made and whether there was, indeed, reliance upon those representations.  Those matters, generally for the reasons that I indicated, could not involve common issues.  Each lessee must establish that, in the particular circumstances relating to that lessee, the conduct of Overton was misleading in the sense that a representation was made that was false.

9                     The first issue is whether a representation was made in particular terms.  There may, as I have indicated, be some question of the proper construction to be given to words used either in writing or in oral communications.  But the real question as to whether or not a representation was made will be determined by the circumstances of each case. 

10                  A further question that will arise in relation to all four causes of action is whether any damage was suffered.  Clearly, that could not give rise to a common issue.  In substance, I held in my earlier reasons that, to the extent that there were common issues, they would generally be restricted to issues as to falsity of the representations.  In Wong v Silkfield, the issue that was considered by the High Court to be a substantial common issue was whether or not the representation there relied upon was, in fact, false. 

11                  The circumstances that gave rise to the claims in Wong v Silkfield were, at least at a superficial level, similar to those in the present proceedings.  The members of the group claiming to be represented by the applicant were persons who entered into contracts to purchase lots in a building from Silkfield Pty Ltd.   Those persons were provided by SilkfieldPty Ltd with a statement purportedly made pursuant to section 49 of the Building Units and Group Titles Act 1980 (Qld).  Section 49 requires an original proprietor of land to give to the purchaser a written statement setting out certain information.  The appellants complained that SilkfieldPty Ltd represented that the written statements, delivered pursuant to section 49, were accurate whereas, in truth, they were inaccurate.  It was alleged that each section 49 statement failed to disclose certain agreements.

“SUBSTANTIAL” COMMON ISSUES

12                  As I indicated in my earlier reasons, the applicants in the proceedings before me had prepared a schedule setting out supposed common questions of law or fact.  That schedule was appendix 1 to my reasons of 17 August 1999.  As I then indicated, it was conceded that issues 18 to 23 were not common issues within the meaning of section 33C(1)(c).  Further, it was conceded on behalf of the applicants today that, in the light of the reasons of the High Court in Wong v Silkfield,issues 28 and 29 could not be substantial common issues for the purpose of section 33C(1)(c).

13                  I considered each of the issues seriatim.  In relation to some issues, I concluded that they were not, on proper analysis, “common” issues.  In any event, I concluded that, on the basis of the reasons of the Full Court in Silkfield v Wong, those issues to the extent that they were common were not relevantly “substantial”.  I shall now revisit my examination of the issues. 

14                  Issues 1 to 3 raise the question of the construction of the leases and the information booklets.  I indicated that there could be a question as to whether the documents are capable of giving rise to the particular representations.  However, I observed that that is not alleged in terms.  In any event, that question would not take very long to resolve.  My conclusion was, in relation to the issues, that the only question is whether the words alleged were used and how they were understood and acted upon by the relevant lessee, if at all.  In other words, I did not consider that those issues were in fact “common” issues on proper analysis. 

15                  Issues 4 and 5 and 7 to 16 are all concerned generally with the truth or falsity of the alleged representations.  It was conceded by Overton that issues 7 to 16 are common issues, although it was not conceded that 4 and 5 were common.  I indicated earlier that, in the light of the material before me, I did not consider that there was, in fact, a real issue as to the truth or falsity of the representations.  I have no particular knowledge of the background to the proceedings in Wong v Silkfield Pty Ltd.  However, I summarised in my earlier reasons the substantial background of litigation between the parties to these proceedings that must be taken into account in considering not only the question of the exercise of discretion under section 33N, but also, in my view, the application of section 33C(1)(c).  That is to say, the High Court now instructs me that an issue will be substantial if it is “real” or “of substance” or if the allegations involved are “serious and significant”. 

16                  In one sense, the High Court has simply substituted different words for the words of the statute.  Be that as it may, in determining whether or not there is a “real” issue, regard must be had to the particular circumstances of the parties. 

17                  The fact that an allegation is made in a statement of claim does not necessarily mean that there will be a “real” issue or an issue “of substance”.  The circumstances of the parties may make it perfectly clear that the allegation is not fairly to be disputed.  Of course, I accept that whether or not it is disputed in the formal sense will depend upon a defence.  A respondent may well, in fact, put in issue an allegation about which there can be no real dispute.  In such a circumstance, of course, an applicant would be entitled to move to dismiss a denial which clearly could not succeed. 

18                  Having regard to the background of these proceedings and the litigation which has already taken place in the Supreme Court, I do not consider that there is, in substance, any issue as to the falsity of the representations alleged against Overton.  As I indicated in my earlier reasons, issues 7 to 16 are essentially matters of accounting analysis and detail.  Issues 4 and 5 raise questions that, to a substantial extent, have been resolved by the Supreme Court.  I am mindful of the fact that the Supreme Court proceedings dealt with only some categories of members of the group who comprised lessees.  However, in a practical sense, the Supreme Court has resolved issues between other parties as well.  While there may not strictly be a res judicata or issue estoppel in relation to some lessees, it would be vexatious and an abuse of process for those issues to be relitigated either in the Supreme Court or here.

19                  It may well be that there will be details that need to be sorted out before there is common ground as to the matters that are raised by issues 4 and 5 and issues 7 to 16.  However, I do not consider in the light of the background that they are “real” issues or that they are matters of “significance and seriousness” that are raised.

20                  The essence of the complaint is that Overton represented to lessees that the outgoings for which they were responsible would be in the vicinity of a particular sum.  There is no real dispute but that that sum was calculated without taking into account many outgoings that the Supreme Court has now held can in fact be passed on to lessees.  The thrust of the lessees’ complaint is that they were not told that they would be liable for a share of outgoings for which they are now liable.  In other words, the lessees themselves are saying that they have a liability.  If they do not have the liability, then of course the whole proceedings would fail.  For that reason, I am not satisfied that issues 4 and 5 or 7 to 16 are “substantial common issues” within the concept as explained by the High Court.

21                  Issue 6 is concerned with an allegation that failure on the part of Overton to disclose certain matters was conduct that was misleading or deceptive.  I held previously that that was not a “common” issue.  There is no reason to change my view in the light of the decision of the High Court. 

22                  Issue 17 concerns an allegation relevant to the negligent advice count.  I concluded that that was not a “common” issue.  Again, there is nothing in the decision of the High Court that would compel me to reach a different conclusion. 

23                  Issues 24 and 25 relate to the allegation that the representations alleged were made fraudulently in so far as they were made after 10 March 1994.  I indicated that there may well be a common element in the factual inquiry that will be undertaken in order to determine whether the allegation was made out.  However, I concluded that the only common issue that arises in relation to the fraud issue is whether or not Overton received a letter of 10 March 1994 and understood its contents.  I do not regard that as an issue “of substance”.  It is a matter which can be dealt with and established without any difficulty at all.  I am not persuaded, at present, that it falls within the description of “substantial common issue” as explained by the High Court.  However, even if it were within that concept, that is also a relevant factor for the purpose of the exercise of discretion under section 33N. 

24                  Issue 26 is related to issues 24 and 25 in that it raises the involvement of Mr James, the second respondent, in the context of the allegation that Mr James was involved in any contravention by Overton of the Trade Practices Act.   The allegation against Mr James is also based on knowledge of the contents of the letter of 10 March 1994.  For that reason, I consider that it falls within the same category as issues 24 and 25. 

25                  The final issue that is presently relevant is issue 27.  Issue 27 arises out of the claim based on the Contracts Review Act 1980 (NSW).  I concluded that, while the question of whether a provision such as that relied on by the lessees was reasonably necessary for the protection of the legitimate interests of Overton may well arise in relation to each claim, on the basis of the Full Court’s decision, it was not a substantial common issue.  My view, in light of the High Court’s decision, is that it probably is a “real” issue or an issue “of substance”.  It, of course, is not connected with the question of the misrepresentations.  In that sense, it is in a different category altogether. 

26                  The end result of my reconsideration is that there is but one issue which I would conclude is a “substantial common issue”.  The question is whether that has any bearing on my exercise of discretion under section 33N. 

SECTION 33N

27                  In Silkfield, the High Court was not called on to consider the operation of section 33N.  While at first instance, Spender J dismissed the motion before him in so far as it sought an order pursuant to section 33N, there is some doubt as to the extent to which that was an issue before the Full Court.  The High Court observed that, in the Full Court, SilkfieldPty Ltd renewed its claim for an order pursuant to section 33N, but that the majority of the Full Court did not deal with that matter in view of the approach that their Honours took with respect to section 33C(1)(c).

28                  Foster J, who was in the minority in the Full Court, observed that at that stage it was too early to make any of the decisions provided for by section 33N.  His Honour said that, even if he had some doubt in that regard, he would not be disposed to disturb Spender J’s decision since it was made in the exercise of a discretion and nothing had been shown to indicate that there was any miscarriage in its exercise.

29                  Spender J, himself, had observed that there will always be a large degree of evaluation concerning commonality and non-commonality of issues and ultimately, if because of the extent of non-common issues, representative proceedings in the assessment of the Court, are not the preferable means of dealing efficiently and effectively with the claims, the Court would no doubt terminate the representative nature of the proceedings, in the exercise of the discretion conferred by section 33N(1)(d) – Wong v Silkfield Pty Ltd (1998) ATPR 41-613 at 40,726.

30                  I set out in my earlier reasons the basis upon which I concluded that, whether or not there was a substantial common issue, I would make an order under section 33N.  The only difference, it seems to me, that has arisen concerns my conclusion that there may well be at lease one substantial common issue.  However, I do not consider that that bears on the matters which I took into account in reaching the conclusion that I did in August.  Clearly, before exercising the discretion conferred by section 33N, it is desirable for the proceedings to continue beyond the mere filing of a statement of claim or affidavits in support of an application.

31                  It was suggested that, prima facie, once it has been established that substantial common issues are raised within section 33C(1)(c), proceedings should be allowed to continue under Part IVA.  I do not consider that that can be stated unequivocally.  I would expect that there would be some circumstances where, notwithstanding that there were substantial common issues thrown up by an application and statement of claim or affidavits in support, the Court may nevertheless, having regard to the proportionality involved between the common issues and other issues, conclude that it was not appropriate that a proceeding continue under Part IVA.

32                  However, in this case, the matter has proceeded further than the mere commencement of the proceedings.  In addition, I have the advantage of knowledge of the determination of issues by the Supreme Court between the same parties.  I have already, for reasons previously indicated, struck out pleadings.  There has also been an indicative defence filed to the further amended statement of claim.  In addition, Overton has itself prepared a schedule of issues which are said to be non-common issues.  While the indicative defence does not contain clear admissions, I consider that I am in an advantageous position for determining what the “real” issues are going to be between the parties, having regard to my examination of the proceedings in the Supreme Court.  At an early stage in the proceedings, I was taken in some considerable detail through those proceedings.

33                  In the course of argument today, counsel for the applicants raised again two matters which had been the subject of argument earlier and upon which I touched briefly in my reasons of 17 August 1999.  They concern, first of all, the incidence of filing fees in the event that, as has happened, lessees commence their own separate proceedings.  As I indicated earlier, I do not consider that a saving in filing fees is, of itself, one of the considerations that need be taken into account in the exercise of a discretion under section 33N.

34                  Reference was made to a claim, apparently asserted by Overton, that it is entitled to recover from lessees under the terms of its arrangements with lessees, costs which it incurs in proceedings such as these.  That does not appear to me to have a bearing one way or the other on the matter.  If that is right, then that question will arise whether the proceedings continue under Part IVA or otherwise.  I am not satisfied, generally for the reasons that I have previously indicated, that it is appropriate for these proceedings to continue as Part IVA proceedings, having regard to the nature of the issues that will be raised individually, on the one hand, and the very limited nature of the common issues that will be raised, on the other.

35                  The second matter pressed again today concerned the possible consequences in respect of lessees who are not capable of giving instructions to commence proceedings.  I now have evidence before me that there are 124 lessees of units in the Heritage Retirement Village.  Ninety-four of the lessees have commenced individual proceedings in the Court and the same legal representation is involved for each of them. 

36                  Of the remaining thirty lessees, some ten lessees have no interest in the litigation and would be likely to opt out of any representative proceedings.  Another two lessees have surrendered their leases and have been replaced as lessee by an incoming lessee since the litigation has commenced.  It is not known whether those two former lessees have a continuing interest in the proceedings.  I have no evidence, one way or the other, as to their capacity to give instructions or otherwise. 

37                  None of the remaining eighteen lessees continues to reside in the retirement village.  Many of them have since died.  I have no evidence as to any difficulty that the legal personal representatives of those deceased lessees would have.  There is no reason to assume that the legal personal representatives of deceased lessees would not be capable of giving instructions, if they so wished, to press claims on behalf of the estates.

38                  Two of the lessees who have ceased to reside are said to lack mental capacity.  I have no evidence before me as to whether there has been a manager or other representative appointed under legislation such as the Guardianship Act 1987 (NSW) or the Protected Estates Act 1983 (NSW) or as to any reason why such an application could not be made. 

39                  Finally, there are some ten persons with whom the legal representatives have no contact.  If anything, the existence of such a category would work against the proceedings continuing under Part IVA.  Those persons would be bound by any determination even though they have no knowledge of the proceedings.  All in all, I do not consider that the matters to which I have just referred are a relevant consideration for the purposes of determining whether or not proceedings should continue under Part IVA. 

40                  I am not satisfied, following my re-examination of the questions that I dealt with in my August reasons, that I should vary the orders that I made in August.  That conclusion has been reached after a re-examination of all of the common issues in the light of the decision of the High Court in Wong v Silkfield.

41                  In the result, I consider that the application made on behalf of the applicants for my orders of 17 August 1990 to be varied should be dismissed. 

42                  I should add that I have, in the meantime, given directions for the continuation of separate proceedings that have been commenced by 94 lessees.  My present view is that that is the most efficient way of proceeding forward to have resolved, in the most expeditious way, the questions that are raised. I have indicated that I propose to retain control of those proceedings.

43                  The advantage of individual proceedings is that each lessee can and will be required to specify precisely what his or her or their claim will be.  That will throw up the real issues between the parties.  There are sufficient and adequate procedures available under the Federal Court Rules to ensure that, to the extent to which there are common issues albeit not substantial issues, they can be resolved in an efficient and expeditious way.

44                  The difficulties which have been experienced in endeavouring to formulate claims on behalf of all of the applicants are also indicative of the reasons why it is appropriate that the proceedings continue in the way that I have determined.  It is not to be critical of those responsible for the pleading to say that the pleading has not yet formulated clearly and precisely the claims on behalf of the individual lessees.  One consequence of commencement of separate proceedings is that minds must be turned to and attention focussed on the precise allegations made by each lessee. 

45                  I have set aside two days in December for the purpose of resolving any further pleading questions that arise in relation to the individual claims that have now been brought.  I propose, at that time, to resolve all of those difficulties so that these claims can be brought on, heard and determined as soon as they are ready for hearing.

Associate:

Dated:              3 December 1999