FEDERAL COURT OF AUSTRALIA

Milfull v Terranora Lakes Country Club Limited [2002] FCA 178

PRACTICE & PROCEDURE - application to further amend statement of claim - whether a representative proceeding - where applicant unable to represent group members in claims against all respondents - whether additional applicants could be joined

PRACTICE & PROCEDURE - deficiency in pleading - whether no causative link shown between loss and alleged breach

CORPORATIONS LAW  - derivative actions - whether company or shareholder is proper plaintiff - whether shareholders’ loss separate from company loss -  characterisation of the loss in value of redeemable preference shares - whether loss caused by breach of duty owed to shareholders or company

Statutes

Federal Court of Australia Act 1976 (Cth) Part IVA; ss 33C, 33Q, 33R, 33S

Federal Court Rules O 6 r 2

Cases

Batten v CTMS Ltd [2000] FCA 915 Discussed

Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 Referred to

Christensen v Scott [1996] 1 NZLR 273 Not Followed

Foss v Harbottle (1843) 2 Hare 461 Applied

Gould v Vaggelas (1985) 157 CLR 215 Followed

Johnson v Gore Wood & Co [2001] 2 WLR 72 Discussed

King v GIO Australia Holdings Ltd (2000) 100 FCR 209 Referred to

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Applied

Milfull v Terranora Lakes Country Club Limited [1999] FCA 963 Referred to

Perre v Apand Pty Ltd (1999) 198 CLR 180 Applied

Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487 Applied

Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)  [1982] 1 Ch 204 Followed

Rosenberg v Percival  [2001] HCA 18 Discussed

Hunter Valley Community Investments Pty Ltd v Bell [2001] FCA 201 Referred to

Other Authorities

McPherson, The Law of Company Liquidation 4^th ed 1999

TERENCE JOHN MILFULL v TERRANORA LAKES COUNTRY CLUB LIMITED, ERNEST GEORGE HARRIS AND WILSON JOSEPH WILDE, ALAN JACK PANTLIN, IAN KELLETT COOK AND BARBARA ECKHARDT, THOMAS EVAN DOOKER, JAMES GEORGE EVANS, DAPHNE PEARL FOSTER, JAMES KEVIN LYNCH, JOHN WILLIAM HADDOW, JOHN FRANCIS MAKEPEACE, JOHN WILLIAM CHESHER, HARRY EDMUNDSON, PETER THOMAS JONES, STEPHEN AMOS, ALAN MCGREGOR, LEONARD JOHNSTON, JAMES RAILEY LAWRIE, CHARLES RONALD SWAIN, LAWRENCE JAMES KELLETT, PETER MARTIN MCDOWELL AND WILLIAM ARMITAGE COE

QG 131 OF 1995

KIEFEL J

BRISBANE

1 MARCH 2002

THE COURT ORDERS THAT:

1.         Leave to further amend the statement of claim in terms of Exhibit PGB1 filed 20 November 2001 berefused.

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

REASONS FOR JUDGMENT

1                     The applicant seeks leave to deliver a further amended statement of claim in proceedings which were commenced as representative proceedings.  The proceedings concern the sale of redeemable preference shares in Terranora Leisuretime Resort Management Limited (“Management”) and the later loss of a lease held by Management of the land upon which a resort was to be developed.  The shares had attached to them certain rights of accommodation and of the use of the resort on a “timeshare” basis.  The grant of leave is opposed on a number of bases by all respondents, including the ground that the proceedings are not representative proceedings pursuant to Part IVA Federal Court of Australia Act 1976 (Cth) (“the Act”) as between to the parties.  Other issues raised concern the loss claimed by the applicant.  It is contended that it is a mere reflection of Management’s loss, for which Management’s liquidator should sue.  It is also submitted that no cause of action is disclosed against the fifth respondent, Coopers, for breach of duty owed to the applicant.  A further contention concerns the question as to whether a duty may be owed by Management’s receivers to shareholders or creditors.

PROPOSED STATEMENT OF CLAIM

2                     The group members, whom the applicant is said to represent, are persons who acquired redeemable preference shares in the capital of Management and whose claims depend upon a contract between them, Management and Terranora Lakes Country Club Limited (“Club”) (“the RPS holders”).  In each case the RPS holders had been given a prospectus issued by Club.  There were three such prospectuses issued over a period between December 1987 and March 1994.  The proposed pleading goes on to identify sub-groups.  Of relevance to this application are the sub-groups identified by reference to the prospectus issued to them and the directors current at the time of issue.

3.         The RPS Holders are each members of one or more of the following groups, namely:

(a)       a sub-group (hereinafter the “First Prospectus Purchasers”), comprising those of the RPS Holders who purchased shares in Management relying on the First Prospectus dated 23 December 1987;

(b)       a sub-group (hereinafter the “Second Prospectus Purchasers”), comprising those of the RPS Holders who purchased shares in Management relying on the Second Prospectus dated 23 June 1989; and

(c)        a sub-group of the Second Prospectus Purchasers, being those Second Prospectus Purchasers who purchased RPS between 27 September 1990 and 14 December 1990 (“Ongoing Second Prospectus Purchasers”);

(d)       a sub-group (hereinafter the “Third Prospectus Purchasers”), comprising those of the RPS Holders who purchased shares in Management based on the Third Prospectus dated 14 December 1990;

(e)        a sub-group of the Third Prospectus Purchasers being those Third Prospectus Purchasers who purchased RPS between 21 October 1991 and June 1992 (“Ongoing Third Prospectus Purchasers”).”

3                     It is alleged that the third respondents were directors of both Club and Management during various periods, and each of the third and fourth respondents were directors of Club at various times between 23 December 1987 and March 1994.  Not all of those respondents were directors at the time each of the three prospectuses issued.  What was said, and not said, in those documents forms the basis for the applicant’s claim.  The directors current at the date of their issue, and who are sought to be held liable, are identified as the “First Prospectus Directors”,the “Second Prospectus Directors” and the “Third Prospectus Directors”.  Other groups of directors are identified as the “Second Prospectus Issue Directors” and the “Ongoing Second Prospectus Directors”, the “Third Prospectus Issue Directors” and the “Ongoing Third Prospectus Directors”.  Additionally, two of the third respondents are identified as the “Lease Termination Directors”, which signifies their involvement in the termination of the lease, to which further reference is made.

4                     At relevant times Management held a lease of land from Club.  It was for a term of forty years and contained a provision that the lease would come to an end if an order was made winding up Management.  Another company, Terranora Timeshare Developments Pty Limited, (“Developments”) was to be the developer of apartment blocks on the land.  Club held fifty-four per cent of the shares in Developments.  Club also owned seventy-four  per cent of the ordinary shares in Management and it is alleged that it was able to exercise control over Management.  There was an agreement between Management and Developments about the development.

5                     An offer was made by Club to the public of redeemable preference shares in Management at $1.00 per share together with a premium ranging between $4,000 and $10,000.  The level of the premium depended upon the type of timeshare rights acquired by the purchaser.  The prospectuses referred to the timeshare rights as a right to occupation of accommodation units in the resort in each year until 2027; a right to exchange for accommodation in other resorts worldwide, through membership of the RCI Spacebank;  a right to accrue accommodation rights from year to year;  and a right to deposit the accommodation rights in a rental pool and thereby generate rental income.  I shall refer to the Articles of Association of Management in connexion with the timeshare rights at a later point in these reasons.  It may be observed at this point that there is a direct connexion between those rights and the lease being held by the company. With respect to the lease, the Articles provided that Management’s Board of Directors was not competent to deal with the lease without a special resolution of the RPS holders.

6                     It is alleged that a bank advanced monies to Developments and that Management provided a guarantee with respect to Development’s obligations under the facility.  At the same time Management gave to the bank a bill of sale, an equitable mortgage and a floating charge over its assets.  Later, on 25 July 1988, it granted a mortgage over its interest in the lease.  Neither the charge nor the mortgage were sanctioned or approved by the RPS holders.

7                     Management was wound up on the application of Club on 16 March 1994 and the lease was terminated.  In about August 1992 Club had paid out the amount Developments owed to the Bank ($4,530,948.78) and claimed to be subrogated to the security held by the bank over the assets of Management, including the lease.  The bank then transferred the charge and bill of mortgage to Club.

8                     Club is said to have received advices from the accountants Coopers from about July 1991.  By the end of April 1992 it is alleged that three options had been put by Coopers to Club.  Relevantly, Option A would involve winding up Management, terminating the lease and Club taking over the resort free of any timeshare rights.  Option C involved a sale of the timeshare resort, but in a way which preserved the rights of existing timeshare holders.  It is alleged that steps were taken by Club towards Option C.  An offer was received for the timeshare resort for $3.5M together with a twenty-five per cent interest in a new project.  However, it is alleged that Coopers recommended to Club that its best course was Option A.

9                     On 24 August 1992 Club appointed receivers to Management.  The receivers, the second respondents, were members of Coopers.  The value of the resort business owned by Management is alleged to have been at least $3.5M between August and November 1992.  The offer of purchase, referred to above, was rejected by the receivers for the reason that it was insufficient to pay out Club’s debts.  It is alleged that at that time the debt secured by the bill of mortgage and charge over the lease was only $566,368.59. 

10                  The receivers are alleged to have advised the RPS holders that the amount required to pay out the secured debt to Club was in excess of $5M and sought their attitude to raising that sum from RPS Holders by way of contribution.  It is alleged that the RPS holders were led to believe that only the payment of $5M would discharge the debt.  That was not a sum they could raise, whereas they could have raised the $566,368.59. 

11                  Against Club it is alleged that its conduct in promoting the sale of the shares was, in the circumstances pleaded, misleading and deceptive.  Paragraph 29 details the loss the RPS holders are alleged to have suffered:

“Particulars

Each of the RPS Holders subscribed and paid for RPS between December 1987 and June 1992. 

As a result of the winding up of Management on 16 March 1994, the Lease was terminated and each of the RPS Holders has therefore lost:

(i)        the entirety of the sum paid by way of issue price and premium for each RPS and interest which would have been earned on that sum had each RPS Holder not purchased a RPS;  or alternatively;

(ii)       from March 1994, the Timeshare Rights.”

12                  Club is also alleged to have contravened s 107 Companies (NSW) Code  in respect of acts prior to 1 January 1991 and s 1005 Corporations Law for subsequent acts and to be liable under those provisions for compensation.  Alternatively, it is alleged that Club owed prospective purchasers a duty of care concerning the prospectuses and that disclosures ought to have been made.  Further, Club is alleged to have breached a contract between it and the RPS holders.  The loss alleged to have been suffered on either cause of action is the same, that set out in para 29 of the proposed Statement of Claim.

13                  Against the directors, it is alleged that they were knowingly concerned in the misleading and deceptive conduct, and compensation is also sought against them under s 107.  They too are alleged to have breached a duty of care they owed to the purchasers.  Further claims are made against the “Lease Termination Directors”.

14                  The cause of action pleaded against Coopers, arising from the advice it gave Club, is for breach of duty to the RPS holders.  It is alleged that Coopers had knowledge of all relevant facts, including that the lease termination would cause the RPS holders to lose their timeshare rights, and that Coopers was “in a position to have an effect” upon those rights.  In breach of the duty said to arise, Coopers represented, or advised, Club to take Option C and took no steps to progress the negotiations for sale of the resort.  The loss here identified (par 82) is the loss of the timeshare rights.

15                  The first claim against the receivers is based upon the existence of a duty to act in good faith towards the RPS holders, as a class of persons affected by the exercise of their powers, and to act in the interests of Management. It is this claim which is in contention.  A claim for misleading and deceptive conduct is also brought against them.  The representations in question are said to be contained in the letters sent by Coopers to RPS holders concerning the secured debt owed by Management and the amount necessary to pay it.  Alternatively, it is alleged that the receivers are liable for negligently misstating the amount of the secured debt.  It is alleged that the receivers owed a duty to accurately state the options available to them.  The loss arising is that pleaded in par 82.

whether a representative proceeding

16                  The applicant purchased his shares after having received the second prospectus.  He is able to represent group members in that category as against Mr Cook, one of the third respondents, and as against those directors identified as Second Prospectus Directors.  He is also able to represent all group members in the claims against the two persons named as the directors involved in the termination of the lease and against the second and fifth respondents.   He cannot however bring a claim against the other directors.

17                  In Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487 a Full Court held that s 33C(1)(a) of the Act requires that every applicant and represented party must have a claim against all respondents (see also King v GIO Australia Holdings Ltd (2000) 100 FCR 209 and Hunter Valley Community Investments Pty Ltd v Bell [2001] FCA 201). Section 33C(1)(a) provides:

“33C   Commencement of proceeding

            (1)        Subject to this Part, where:

(a)        7 or more persons have claims against the same person;  and

(b)        the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances;  and

(c)        the claims of all those persons give rise to a substantial common issue of law or fact;

a proceeding may be commenced by one or more of those persons as representing some or all of them.”

18                  This proceeding cannot satisfy the requirements of s 33C(1)(a).  The applicant does not have claims against all respondents.  The sub-groups identify group members who have claims against other respondents.

19                  It was first submitted for the applicant that the problem could be got around by joining four other persons as additional applicants to these proceedings, to represent the sub-groups.  This was suggested to be a type of partial substitution.  Alternatively it was submitted that the proceedings to be continued by the applicant, and those to be carried forward by the four additional persons, could be regarded as joined proceedings under O 6 r 2(a) and (b).  Those rules provide:

“Two or more persons may be joined as applicants or respondents in any proceeding -

(a)       where:

(i)         if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and

(ii)        all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or

(b)       where the Court gives leave so to do.”

20                  With respect to joinder, the applicant placed reliance upon my decision in Batten v CTMS Ltd [2000] FCA 915, where I ordered two separate representative proceedings be treated as joined proceedings, on the basis that they shared a common question of fact.  That order was set aside by a Full Court, with the consent of the parties.  The proceedings were later ordered to be heard together.

21                  The first, third and fourth respondents submit that the procedure proposed would not effect a true substitution for the present applicant and that the problem would remain that there was not the necessary correspondence between all persons represented and the respondents. 

22                  Upon further reflection, it would not seem appropriate to apply the rule for joinder, given that Part IVA of the Act makes express provision for the circumstances in which claims, other than those constituting the representative proceeding itself, may be added to the proceeding and for the procedures which are to be followed.  I refer in particular to ss 33Q, 33R and 33S. 

23                  Section 33Q provides for the situation where the determination of the issue common to all group members will not finally determine the claims of all group members.  It provides that the Court may give directions as to these outstanding or additional claims.  Subsection 33Q(2) then provides:

“In the case of issues common to the claims of some only of the group members, the directions given by the Court may include directions establishing a sub-group consisting of those group members and appointing a person to be the sub-group representative party on behalf of the sub-group members.”

24                  Section 33R also allows the Court to make directions permitting an individual group member to appear in a representative proceeding to pursue an individual claim.  Section 33S provides further power in the Court to give directions where an issue cannot properly or conveniently be dealt with under the two preceding subsections.  It is not necessary, for present purposes, to consider the circumstances to which s 33S might be applied.

25                  The proceedings are at present not properly constituted as a representative proceeding.  Leave to amend must be refused at least on that account.  I will not make orders at this point striking out claims made by the applicant in the pleadings filed to date against some of the third and fourth respondents.  During submissions it was indicated that the applicant may bring an application for directions concerning the sub-groups already identified and as to their representation.  If such an application is not made, those respondents may apply to have the claim against them struck out.

no causative link

26                  The first, third and fourth respondents point out that the loss of each RPS holder is alleged to flow from the representations or non-disclosures.  The loss is said to be the sum paid for the share, and interest which would have been earned on that sum had the purchase not been made.  The deficiency identified in the pleading is said to be the lack of a causative link between the alleged breach and the loss.  In this connexion par 29 simply alleges that :

“By reason of that conduct the RPS Holders have suffered loss.”

27                  The first, third and fourth respondents contend that the pleading is deficient and that the applicant must show that, had the charge and mortgage of the lease been disclosed, the applicant would not have purchased the shares.  The requirement for proof of that kind, in cases involving misleading and deceptive conduct was referred to in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 504, 511, 513;  and in connexion generally with a breach of duty constituted by a failure to warn:  Rosenberg v Percival  [2001] HCA 18.  In the lastmentioned case Gummow J observed at [86] that it is necessary for a plaintiff suing a medical practitioner for negligence to satisfy the court that had the warning been given the injury in question would have been averted.

28                  The proposed pleading does not contain such an allegation, although it would seem to me that the respondents could hardly be said to be left to wonder about that aspect of the applicant’s case.  The proposed pleading would seem to me to imply, that had the disclosures or warnings alleged as necessary to be given been given,  it is unlikely that members of the public would have been interested in the shares.  This appears from the advices which Club and Management are alleged to have received from their lawyers concerning the first prospectus.  In any further pleading it would however be preferable for the applicant to state its case in connexion with what would, or more likely, what would not have been done.

LOSS - THE SHAREHOLDERS OR THE Companies

29                  The second and fifth respondents, the receivers and Coopers, submit that the wrongful conduct which is alleged against them was that done to Management.  The loss and damage claimed by the applicant is merely a reflection of the loss suffered by that company.  The applicant, they submit, is seeking to bring a derivative action which should only be made by way of intervention in the proceedings commenced in the Supreme Court of Queensland by the company’s liquidator.  The loss there claimed is the loss of the lease and consequential damages.

30                  The rule in Foss v Harbottle (1843) 2 Hare 461 is that prima facie a company should sue in its own name for injury to it.  In Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)  [1982] 1 Ch 204 the Court of Appeal held that, where fraud has been practised upon a company, it should bring the action.  It was only in a special circumstance, such as where the board was under the control of the fraudsters, that a derivative action could be brought.  Shareholders could not recover a sum equal to the diminution in the market value of their shares, because such a “loss” is merely a reflection of the loss suffered by the company.

31                  In Gould v Vaggelas (1985) 157 CLR 215, 245 the views stated in Prudential were cited with apparent approval by Wilson J (at 245) and Brennan J (at 253).  Gibbs CJ (at 219-220) considered that it was “elementary” to say that A cannot, as a rule, bring an action against B to recover damages on behalf of C for an injury done by B to C.  C is the proper plaintiff, because C is the party injured and therefore the person in whom the cause of action is vested.  His Honour agreed that the Gouldscould not recover damages which merely reflected the loss suffered by the company.  They could however recover damages for the loss which they personally had suffered and which was separate and distinct from the loss suffered by the company.  Prudential was authority for such a principle.  Some such loss was identified in that case.

32                  In Christensen v Scott [1996] 1 NZLR 273, 279-280 the New Zealand Court of Appeal considered that it was not necessary to deny shareholders the opportunity to recover their loss in order to prevent double recovery.  The Court expressed the view that where a separate duty was owed, the rule in Foss v Harbottle is irrelevant.  The fact that a loss is also suffered by the company does not mean that there is not also a personal loss to the individual.  There the loss suffered by the company was a lease and the profit from crops.  The plaintiffs claimed the diminution of the value of their shares arose from the same professional advisers’ breach of duty towards them.  In their Honours’ view, whilst double recovery could not be permitted, the situation where a defendant owed a duty to two persons who suffer a common loss is not unknown.  It was possible to develop principles to determine which parties are able to seek recovery.

33                  The House of Lords has more recently confirmed the principles stated in Prudential and in so doing declined to take up the course suggested in Christensen v Scott.  In Johnson v Gore Wood & Co [2001] 2 WLR 72 the shareholders brought proceedings based upon professional negligence regarding the exercise of an option to purchase land for the company.  It was accepted, for the purposes of the application to strike out the claim that the shareholder and the company might sue for distinct loss.  In the view of Lord Bingham (at 95) the propositions established by the cases, including that which recognises that each party may sue for its loss provided neither recovers the loss caused to the other, do not resolve the decision which has to be made by a court on a strike-out application, as to whether a claim can be pursued.  Rather, what must be ascertained is “whether the loss claimed appears to be or is one which would be made good if the company had enforced its full rights against the party responsible” or, according to the language in Prudential, whether the loss claimed was merely a reflection of that suffered by the company.  Lord Millett (at 125) was also of the view that it was not to the point that the diminution in the value of the shares could also be viewed as personal loss.  Lord Cooke, who had presided in the Court of Appeal in Christensen v Scott, maintained the view that, subject to questions such as causation, there was no reason in principle to deny personal relief, provided there was no double recovery and that creditors were protected.

34                  It does not seem to me possible for an intermediate court in Australia to follow Christensen v Scott.  In my view it is not consistent with the principles stated in Gould v Vaggelas.  It is only where personal loss may be seen as separate and distinct from the company’s loss that it may be claimed.  That would appear to necessitate the enquiry posed by Lord Bingham and referred to (at par [33]).

35                  I have previously considered this question in connexion with the amended statement of claim which is now sought to be superseded (see Milfull v Terranora Lakes Country Club Limited [1999] FCA 963).  So far as concerned a loss in the value of the shares themselves, the requirement that the company bring an action for loss of its assets was not in contention. At issue was whether the loss of the timeshare rights could be claimed by the RPS holders.  I then expressed the view that these rights might have their own value, but it was not necessary to conclude that question, given that these proceedings were then to be deferred to those commenced in the Supreme Court by the liquidator.  In any event I did not understand the applicant to have pressed his submission that the respondents were estopped from seeking a determination of the question.  

36                  It does not of course automatically follow that, because a company can be seen to have suffered loss, a shareholder’s loss is confined to what is lost by way of participation in the company’s assets.  In Gould v Vaggelas the trial judge had rejected claims for losses suffered by the company.  However, the Goulds were also held to have suffered loss, by reference to the properties they had transferred to pay the vendors on behalf of the company and the value of the property mortgaged by them and later sold by the mortgagees.

37                  The holders of redeemable preference shares are usually accorded the same rights as ordinary shareholders to participate in the distribution of company assets, unless there is an express exclusion:  see McPherson, The Law of Company Liquidation 4^th ed 1999 at p 617.  Article 114.1 of Management’s Articles refers to ordinary shareholders receiving distribution, but this would not seem to me to exclude that right.  It would follow that the loss in the value of the redeemable preference shares might be made good, to an extent, by Management recovering damages for loss of the lease and consequential losses and subject also to the rights of creditors. 

38                  The loss pleaded in par 29(i) of the proposed pleading would seem to me to be caught by the application of the rule.  Although the loss is expressed to be the amount of the investment in the shares, that would not seem to be an accurate description of it.  In the circumstances pleaded loss could not be said to have occurred immediately upon the purchase of the shares.  There was then only a risk of loss. Loss occurred when Management was wound up and the lease terminated.  The loss is therefore a reflection of the company’s loss.

39                  The real issue as between the parties remained that concerning the loss of the timeshare rights.  The second and fifth respondents contended that timeshare rights were a mere incident of the shareholding.  A money value on the right of occupancy could only be ascribed by reference to the life of the lease.

40                  Under the Articles of Management an RPS holder has an “entitlement” to occupy an apartment and use the resort facilities for the period to which the shares relate.  These rights are said to be by way of licence, so that no relationship of landlord and tenant arises. An RPS holder is able to sub-licence, allow others to use the accommodation, and charge for it.  So stated it would seem to me that the rights might be valued separately from the shares themselves.  Whilst it is necessary that redeemable preference shares be held, the rights may be seen to arise by virtue of a contract with Management or a licence granted by it.  Either approach would seem to me to be arguable.

41                  It does not follow that the rights are to be valued by reference to the lease.  They do not arise under a sub-lease.  The contractual or other right permits enjoyment of accommodation for which a rental would otherwise be payable, or rental being earned for the accommodation right.  I therefore adhere to my earlier view that timeshare rights might be valued apart from the shares or the assets of the company.  This is highlighted by a reference to what the company might recover in its action.  It is not apparent to me that any valuation of the lease would include the timeshare rights.   In my view therefore the applicant may pursue the claim referred to in par 29(ii).

CLAIMs for breach of duty AGAINST COOPERS

42                  I have previously considered the claim against the receivers and the contention that the relationship between them and the shareholder was sufficient to give rise to a duty of care (see the judgment referred to at par [35]).  I considered that, absent expectation or reliance on the part of the shareholders, the plea was insufficient.  Although the circumstances were said to be special, the basis for that claim was then unclear.

43                  It is now alleged that the RPS holders were vulnerable to the conduct of Coopers and Coopers knew, or it was reasonably foreseeable, that if they did not take reasonable care the RPS holders would suffer loss. 

44                  The description of the duty said to be owed by Coopers is drawn from Perre v Apand Pty Ltd (1999) 198 CLR 180, where a seed producer negligently caused a potato disease to be introduced on land nearby the appellant’s land and was held liable to them for their economic loss.  The duty of care was held to arise by reference to the combination of foresight of the likelihood of harm;  knowledge of an ascertainable class of persons who were unable to protect themselves from that harm;  the fact that the implication of the duty would not impair the seed producer’s own commercial interest;  and the fact that the damage flowed from activities within the respondent’s control.

45                  It may be accepted in the present case that the RPS holders were liable to suffer loss if particular advices given by Coopers were acted upon by Club.  In Perre v Apand factors such as these formed part of the overall circumstances which gave rise to the duty, but they were not said to be sufficient themselves to create it.  Indeed the fact that it is not the law that a person owes a duty of care to another merely because that person knows that their act may cause economic loss to the other was reiterated (Gleeson CJ, 192 [4];  McHugh J, 224 [114] -[115]).  It may be otherwise where the act causing loss is intentional or otherwise illegitimate (at 224-225 [116]).  Whilst it was suggested in argument that there may have been some pressure applied to Club with respect to particular advices, the pleading presently falls well short of disclosing a cause of action based upon some intention to harm or fall within the more difficult area identified by McHugh J (at 225 [116]) involving “sharp or ruthless conduct”. 

46                  Further, on the case sought to be pleaded, it was not Coopers’ own actions which caused loss.  The decision, as to which course to take, was Club’s.  Even if Coopers was influential it has not been alleged that they were in a position of control.  That feature in Perre v Apand is absent (see Gaudron J, 201[36]-[38];  Gummow J, 259 [215]-[216]).   Gleeson CJ (at 195 [14]-[15]) emphasised that the fact of control over the activities in question serves to limit the otherwise indeterminate nature of the liability.

47                  In the present case, by analogy with the rights of commercial autonomy of which McHugh J spoke in Perre v Apand (at 223-225, [114] - [117]), Coopers were merely pursuing their role of advisers to Club.  The fact that they already owed a duty to Club, a factor which is sometimes relevant in cases of economic loss (see McHugh J at 223 [113], referring to Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529), would not warrant the imposition of another duty, one which would be inconsistent with that already owed.

48                  The principles relevant to leave to amend are not in doubt.  So long as the applicant has an arguable case he is entitled to pursue it.  The facts pleaded do not in my view go so far.  They could not be said to combine to bring Coopers and the RPS holders “into such close and direct relations as to give rise to a duty of care … for breach of which purely economic loss may be recovered” (Gummow J, 260 [217]).  No special features are present.  What is pleaded is a case involving only foresight and loss.   Leave could not be given with respect to pars 80-82.  The previous paragraphs I take to be part of the narrative.

RECEIVERS - breach of good faith

49                  Receivers owe a duty to the mortgagor to act in good faith in seeking repayment of the monies owed.  Here it is alleged that such a duty was also owed to the RPS holders.  In breach of that duty it is alleged that the receivers wrongfully rejected the offer of purchase and failed to further negotiate with the purchasers.  It is alleged that if the offer had been taken up Management would not have been wound up.  The second and fifth respondents point out that this may be inconsistent with Management being sold and that is what it is alleged the receivers should have pursued.  The question is what would occur to the timeshare rights on a sale.  Earlier references in the statement of claim are to the sale being on terms such as would preserve the rights of the RPS holders.

50                  The basis for the existence of duty of good faith is not further spelled out.  It is not alleged that any fiduciary relationship existed between the receivers and the RPS holders.  During submissions it was put that the receivers acted outside the proper role of receivers.  They did not merely obtain repayment of the secured debt, but went further.  These matters are presently not pleaded.  In any event it would seem to me that it is the company which should be suing the receivers if their actions caused it loss, for the reasons earlier stated.  The same considerations would apply if the duty was recast as one owed to the RPS holders as creditors or potential creditors of the company.  Leave could not be given to plead pars 90-92.

orders

51                  Leave will not be given to file an amended statement of claim in the form of exhibit PGB1 filed on 20 November 2001.  The applicant is at liberty to apply with respect to an amended pleading which takes into account these reasons.  So far as concerns the action as a representative one, steps should be taken in the near future to bring it within Part IVA of the Act.

Associate:

Dated:              1 March 2002