FEDERAL COURT OF AUSTRALIA

Larsson v WealthSure Pty Ltd [2013] FCA 926

THE COURT ORDERS THAT:

1.    The proceedings no longer continue as representative proceedings.

2.    The parties submit proposed short minutes of order to give effect to these Reasons for Judgment. In the absence of consent, the respondent submit proposed short minutes of order by 12 October 2013.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Background

1    This interlocutory judgment concerns proceedings which were commenced in this Court as representative proceedings on 5 February 2013.

2    Section 33C of the Federal Court of Australia Act 1976 (Cth) (“the Act”) 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.

(2)    A representative proceeding may be commenced:

(a)    whether or not the relief sought:

(i)    is, or includes, equitable relief; or

(ii)    consists of, or includes, damages; or

(iii)    includes claims for damages that would require individual assessment; or

(iv)    is the same for each person represented; and

(b)    whether or not the proceeding:

(i)    is concerned with separate contracts or transactions between the respondent in the proceeding and individual group members; or

(ii)    involves separate acts or omissions of the respondent done or omitted to be done in relation to individual group members.

3    The proceedings arise from the conduct of Colin James Oberg who, it is pleaded, was authorised by the respondent to provide financial services on its behalf. Mr Oberg is not a party to the proceedings.

4    Members of the group on whose behalf the representative proceedings were commenced were identified by reference to three criteria:

1.    persons who were clients of Mr Oberg and who, between November 2008 and May 2012, provided monies to Mr Oberg to invest on their behalf;

2.    persons who, by reason of matters referred to in the pleadings, suffered loss and damage as a consequence of providing monies to Mr Oberg to invest; and

3.    persons who “have appointed” Maddocks Lawyers to act for them in the proceedings.

5    The respondent has, by its interlocutory application, advanced two contentions concerning the character of the proceedings (as representative proceedings) and the nature of the pleadings having regard to the fact that the proceedings are representative in nature. The first contention by the respondent, on the basis of the matters it has raised, is that the proceedings should not continue as representative proceedings. The second, alternative contention is that the statement of claim should be struck out in part.

6    I propose to deal first with the complaints made about the amended statement of claim on the basis that the proceedings are representative proceedings. That will provide some context in which to then examine some more fundamental concerns about the character of the proceedings themselves. The discussion about the pleadings assumes that the respondent’s first contention may not succeed although, as will be seen, ultimately I conclude that there are good reasons why the proceedings should not continue as representative proceedings.

The amended statement of claim

7    In the interlocutory application, challenges were made to paragraphs 6, 7 and 11 of the amended statement of claim.

8    Paragraph 6 of the amended statement of claim pleads:

6.    Between 15 November 2008 and 18 October 2010, Oberg:

(a)    provided financial product advice to the Applicant and the Sub-Group 1 Members consisting of a recommendation to transfer funds to his account or to the account of Oberg Accountancy Pty Limited or to the account of JRCC Finances Pty Ltd for the purpose of investing the funds (the Advice); and

(b)    represented, either expressly or impliedly, to the Applicant and the Sub-Group 1 Members that the funds so transferred would be invested on their behalf at a rate of interest of 10% per annum for a short period, at the end of which period the principal and interest would be returned in full (the Representations).

9    Particulars are then provided which name the Sub-Group 1 Members. In each case the particulars state whether the representations referred to in paragraph 6(b) were made expressly or impliedly. A significant number of the representations were said by the particulars to have been made impliedly. However, in subsequent negotiations between the parties it has been made clear that in all but three cases the representations will be said to have been express, rather than implied. In one case, the representations did not refer to transactions before 2011 at all. In another case, instructions have not been able to be obtained. In a third case, the group member has died and, it is accepted, evidence will not be available that express representations were made to her.

10    The applicant resists the necessity to further amend the statement of claim on the basis that particulars are not part of the pleadings. However, the present particulars have, in effect, been abandoned in large part and alternative particulars have been provided in their place. I do not think it is satisfactory that the particulars in the amended statement of claim misstate the way in which the applicant’s case, as a representative, will be advanced at the trial. I also think there is difficulty about the notion of an implied representation to the effect suggested by paragraph 6(b). As in no case will it now apparently be asserted that such an implied representation was made but rather that an express representation was made, either orally or in writing (save in the three cases I have mentioned), I would not be prepared to allow the particulars to remain in their present form.

11    Paragraph 6 and the Sub-Group 1 Members to whom it relates affects only some, but not all, of the group members. The significance of that fact will emerge shortly.

12    Paragraph 7 of the amended statement of claim is as follows:

7.    In the premises, Oberg represented to the Applicant and to the Sub-Group 1 Members that he had reasonable grounds for making the Representations.

13    That paragraph is not now pressed and if the proceedings did go ahead as representative proceedings it should not appear in the statement of claim.

14    Paragraph 11 of the amended statement of claim is as follows:

11.    In reliance on the Representations and induced thereby, and/or in accordance with the Advice, referred to in paragraph 6 hereof, and prior to the Respondent’s revocation of Oberg’s authority to provide a financial service or financial services on its behalf, the Applicant and the Sub-Group 1 Members transferred to Oberg, or to Oberg Accountancy Pty Limited, or to JRCC Finance Pty Limited funds to be invested.

15    Particulars are then given of the individual amounts transferred, and the dates on which those amounts are said to have been transferred, for each of the Sub-Group 1 Members. It seems to me inescapable that in order to establish reliance by each of the Sub-Group 1 Members it will be necessary for some evidence to be given about the individual circumstances of that member. The respondent objects to paragraph 11 being advanced by reference to the circumstances of the three members to whom I referred earlier. I take it that the opposition is based upon the fact that the applicant is not able to advance any evidence of representations upon which those particular Sub-Group 1 Members are said to have relied.

16    The concern of the respondent is to narrow the scope of the allegations with which it must deal in this part of the case. It is attempting to do so by limiting the number of members in the group. I understand why that approach is being taken but it seems to me to descend into an attempt to forecast the nature and quality of the evidentiary case which might be available at trial. If a case with respect to those particular group members fails at trial, then the respondent may expect a verdict to that extent. However, it does draw attention to another issue – namely the level of protection that the respondent might expect if it is forced to meet claims in respect of individuals which do not succeed and, perhaps, had no real chance of success. That is a matter to which I will return a little later.

17    Except to the extent that I have identified, the respondent took no objection in principle to the issues raised by paragraphs 6 and 11 being advanced in representative proceedings, if the proceedings remain of that character, although it is apparent from the way in which the pleadings are framed that the cases for relief will in each instance require attention to the individual circumstances of Sub-Group 1 Members.

18    Apart from the case which is based on representations and advice, the amended statement of claim sets up a case of breach of statutory duty of care and of negligence. Speaking quite generally, it is alleged that the respondent owed a duty of care to clients of its authorised representatives (including Mr Oberg) to take reasonable steps to prevent those clients from sustaining economic loss. Amongst the steps it is alleged were required were a certain level of supervision and control of Mr Oberg and, after he ceased to be the respondent’s representative, a duty to convey advice to his clients that he was no longer an authorised representative of the respondent. The alleged failure to comply with the pleaded duty is alleged to have caused consequential loss and damage to identified people. Some of the alleged loss and damage relates to a period when Mr Oberg was the respondent’s authorised representative and some relates to the period after he ceased to be an authorised representative. Claims made on behalf of group members with respect to the second period extend to persons who are not members of Sub-Group 1 and not the subject of paragraphs 6 and 11.

19    The respondent therefore asserts that in fact there are three groups of persons whose interests are to be examined in the representative proceedings. First, there are persons who are the subject of paragraphs 6 and 11 whose case for breach of statutory duty or in negligence is confined to the period when Mr Oberg was an authorised representative. Secondly, there are persons who are dealt with in paragraphs 6 and 11 who continued to provide money to Mr Oberg after he ceased to be an authorised representative. Those persons are referred to with respect to both limbs of the negligence case. Thirdly, there are persons who are only identified by the pleading as persons who provided money to Mr Oberg after he ceased to be an authorised representative. In the case of those persons, nothing is said in the pleadings about any advice or representations provided to them by Mr Oberg. Paragraphs 6 and 11 do not apply to them. The respondent’s assertion is that those persons should be removed from the representative proceedings if they remain representative proceedings.

20    In view of the course which I propose to take it is not necessary to say a great deal about this issue. My view is that there is sufficient commonality with the position of other group members that this third group should not be excluded from the proceedings on the basis of lack of commonality. The matters discussed below provide some further explanation for that view.

Whether the proceedings should continue as representative proceedings

21    Now that the general nature of the allegations and the causes of action have been broadly identified, it is possible to give more direct attention to the respondent’s primary contention that the proceedings not continue as representative proceedings.

22    In part that contention was based on the argument that the amended statement of claim fails in material respects to satisfactorily identify real common issues based on the same or similar or related circumstances, as required by s 33C of the Act. The argument was illustrated and supported by particular reference to the allegedly disparate circumstances of those who entrusted money to Mr Oberg after he ceased to be an authorised representative and to whose circumstances only the action for breach of statutory duty and negligence can relate i.e. the third group identified above, compared to those whose claims are based also on allegedly misleading and deceptive representations (e.g. of 10% p.a. returns on short term investments) i.e. the first two groups identified above. Reference was made to the judgment of Drummond J in Connell v Nevada Financial Group Pty Ltd (1996) 139 ALR 723, especially at 731-732.

23    In response, the applicant referred to Wong v Silkfield Pty Ltd (1999) 199 CLR 255 (“Wong”), where the High Court regarded it as sufficient to identify a real or substantial issue in which group members had a common interest.

24    In the present case there is, in my view, a sufficient connection between the two categories of causes of action, and the interest of the group members in the results of Mr Oberg’s conduct, that I would not on this ground direct that the proceedings not continue as representative proceedings. Neither would I, if they were to continue as representative proceedings, exclude members of the third group I indentified earlier, as I have already said.

25    However, there are more fundamental objections to the proceedings continuing as representative proceedings.

26    I referred earlier to the three conditions to be satisfied by group members. Counsel for the respondent drew my attention to two important judgments concerning the use of the third criterion.

27    In Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394 (“Dorajay”), Stone J held on two separate grounds that a definition of group members which depended upon them becoming clients of a particular solicitor was contrary to the arrangements for representative proceedings in Part IVA of the Act (see [125] and [126]). The first difficulty was that definition of the group by reference to instructing particular solicitors was seen as a mechanism to “opt in” to the proceedings. The second difficulty was that the definition of group members was seen to dictate who should represent group members.

28    In Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd (2007) 164 FCR 275 (“Multiplex Funds”), a Full Court considered the circumstances of a class identified by criteria which included “that all members had, at the commencement of the proceedings, entered into a litigation funding agreement”. The Full Court distinguished Dorajay in part. Jacobson J (with whom French J, when his Honour was a judge of this Court, agreed) said at [142]-[144]:

142    Part IVA does not use the expression “opt in”. But a group definition that allowed a person to take a positive step of “opting in” after the commencement of the proceeding would be inconsistent with one or more of ss 33C, 33H, 33J and 33K. Senior Counsel for Dawson accepted that a post-commencement right to opt in was not permissible. However, no such question arises in the present case because the third element of the definition restricts the class to persons who have entered into the funding agreement at the commencement of the proceeding.

143    Dorajay 147 FCR 394 is distinguishable because group membership could change after the commencement of the proceedings. Stone J found that the provision for group members to opt into the proceeding was contrary to the terms and policy of Pt IVA: see Dorajay 147 FCR 394 at [125]. However, the opting in that was allowed in that case extended to include persons who retained MBC after the date of commencement of the proceeding.

144    It seems to me that her Honour’s reasons in Dorajay 147 FCR 394 at [125] are explicable in that way. …

29    Although Dorajay was distinguished, therefore, on the basis that in Multiplex Funds the class was closed at the time the proceedings were commenced, and no-one could “opt in”, the Full Court upheld the position taken by Stone J in Dorajay that it was impermissible to allow “opting in”.

30    One issue which requires resolution on the present application is whether the third criterion in the present proceedings, properly construed, operates as an “opt in” arrangement.

31    Counsel for the applicant submitted that the third criterion should be read as a reference to persons who had, at the date of commencement of the proceedings, directly appointed Maddocks Lawyers to act for them so that the reasoning in Multiplex Funds applied and the reasoning in Dorajay did not. However, there are difficulties about the attempt to construe the third criterion in that way.

32    One difficulty is that one of the persons identified as a group member by the amended statement of claim did not appoint Maddocks Lawyers to act until after the proceedings were commenced.

33    Furthermore, it seems to me to be clear that the language by which the group is defined at present allows the possibility of joining the group by appointing Maddocks Lawyers to act, even after the proceedings were commenced. I therefore do not accept the argument that the third criterion should be construed in the way suggested on behalf of the applicant, and it may be inferred that the applicant and his advisors did not act on that view when the group member was added who appointed Maddocks Lawyers only after the proceedings had commenced. Unlike the condition which was considered in Multiplex Funds, membership of the group was not confined to those who had appointed Maddocks Lawyers at the commencement of the proceeding. That is a fatal criticism of the proceedings as presently constituted.

34    Another circumstance to be taken into account is that the applicant (and, I was told, all other group members) have changed solicitors. Maddocks Lawyers are no longer appointed to act for them. On the view of the third criterion advanced on behalf of the applicant, the third criterion was nevertheless satisfied by all but one of the group members at the time the proceedings were commenced, even though Maddocks Lawyers no longer act. However, arguably, the condition required by the third criterion has now ceased to be satisfied. That criterion appears to me, on its face, to represent not only an entitling condition but one which was anticipated to remain of more than simply historical relevance and application. On that view, no member of the group now satisfies the third criterion.

35    Faced with these difficulties, counsel for the applicant made it plain at the hearing of the interlocutory application that, if necessary, the pleadings would be amended so that the third criterion satisfied the approach in Multiplex Funds – namely, it would be a criterion which identified the fact that members of the group had appointed Maddocks Lawyers as at the date of commencement of the proceeding. I take it that the applicant would also add to an amended version of the third criterion words to the effect “whether or not Maddocks Lawyers remain retained thereafter”.

36    However, there are other considerations which make the suggestion insufficiently attractive in the context of the present case.

37    It is relevant to note that in Wong the High Court observed (at [29]) that one reason the entitlement to commence a representative proceeding should be broadly construed was the existence of the discretion under s 33N of the Act to terminate the representative character of the proceedings. In the present case, ss 33N(1)(b) and 33P(b) of the Act are particularly relevant.

38    Section 33N of the Act provides:

33N    Order that proceeding not continue as representative proceeding where costs excessive etc.

(1)    The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because:

(a)    the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or

(b)    all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or

(c)    the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or

(d)    it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.

(2)    If the Court dismisses an application under this section, the Court may order that no further application under this section be made by the respondent except with the leave of the Court.

(3)    Leave for the purposes of subsection (2) may be granted subject to such conditions as to costs as the Court considers just.

39    Section 33P of the Act provides:

33P    Consequences of order that proceeding not continue under this Part

Where the Court makes an order under section 33L, 33M or 33N that a proceeding no longer continue under this Part:

(a)    the proceeding may be continued as a proceeding by the representative party on his or her own behalf against the respondent; and

(b)    on the application of a person who was a group member for the purposes of the proceeding, the Court may order that the person be joined as an applicant in the proceeding.

40    It is apparent from the amended statement of claim that it will be necessary to examine the circumstances of each of the identified group members. Relief is sought based on individual calculations of loss. Each of the identified group members could seek relief in their own right. If the proceedings do not continue as representative proceedings, each may apply to be joined as an applicant in the present proceedings.

41    Some of the cases for relief are apparently weak in an evidentiary sense. The only significance that has been identified of the proceedings going forward as representative proceedings is that group members other than the applicant will be immunised from the possibility of a costs order in favour of the respondent if the case with respect to that group member does not succeed. That is not a matter which I regard as favouring continuation of the proceedings as representative proceedings.

Conclusion

42    In my view, the proceedings in their present form are flawed. I have given consideration to whether I should permit them to be amended to overcome those flaws but, ultimately, I think that the proceedings are not by their nature proceedings which are innately suitable to proceed as representative proceedings. It is a striking feature of the proceedings that there is no suggestion that group members should share in any respect from a common pool. In every instance, individual orders are sought for individually calculated amounts to address individual losses. The proceedings are, in reality, proceedings which seek to vindicate the individual interests of a limited and known group of persons who might ordinarily be expected to advance their claims as applicants in their own right. They will be under no obligation to make an application to join the proceedings, but if they do so they may be expected to advance their own interests and take responsibility for what is said and done about their particular personal circumstances and transactions.

Orders

43    I will order that the proceeding no longer continue as a representative proceeding. It will be necessary for group members to have an opportunity to apply to be joined as applicants in their own right and it seems inevitable that significant attention will be necessary to the pleadings once those decisions have been made. The parties should discuss a form of orders which will impose a suitable time frame in which those matters might be attended to and bring in short minutes of order (if possible by consent). In the absence of consent, the respondent should propose the orders to be made by 12 October 2013.

Associate:

Dated:    16 September 2013