FEDERAL COURT OF AUSTRALIA

Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited (No 2) [2017] FCA 1260

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff’s application for leave to replead be refused.

2.    Costs reserved.

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

REASONS FOR JUDGMENT

BEACH J:

1    In these representative proceedings the plaintiff has made a further application for leave to file and serve a proposed further amended statement of claim. This proposed pleading is effectively the seventh version of the statement of claim that the plaintiff has proffered in these proceedings. I propose to refuse the leave sought.

2    These proceedings were originally filed in the Supreme Court of Victoria before being cross-vested by the order of Croft J made on 9 May 2017 given the related ACCC prosecution that I am also case managing.

3    On 25 August 2017 on an application by the defendants for summary dismissal of the proceedings, I struck out the plaintiff’s then version of his statement of claim (Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited [2017] FCA 995). I considered that the pleading in its then form did not properly formulate the allegation that statements in the relevant product disclosure statement (PDS) issued by the second defendant (MGRE) relating to units in the relevant unit trust (MGUT) contained Misleading PDS Representations (as defined) regarding the future financial performance of the first defendant (MG). I refused the defendants’ application for summary dismissal and gave the plaintiff an opportunity to apply to replead.

4    For the reasons that follow, in my view the proposed pleading is not yet in a suitable form such that I should now grant leave to its filing and service.

5    In relation to the principles to apply, leave to replead should not be granted if the proposed pleading or a significant part thereof:

(a)    is unintelligible or vague in material respects;

(b)    does not fulfil the basic function of identifying the issues and disclosing a reasonably arguable cause(s) of action;

(c)    is too general with an absence of sufficient particularity; or

(d)    is otherwise in a form that may prejudice, embarrass or delay the fair trial of the proceedings.

6    Of more specific relevance to the present context, leave to replead a cause of action ought not to be given if there is an absence of proper particulars to support any necessary plea of a condition of mind such as knowledge or belief. Moreover, if it is necessary to plead that a party ought to have known some matter, then particulars of the facts and circumstances from which it is said that party ought to have known that matter must be given. Of course, particularising the knowledge of another person has its difficulties. One does not know what is in the mind of that other person. But there may be an admission or communication that establishes or manifests such a state of mind. Further, such knowledge may also be able to be inferred from other facts and circumstances. In that scenario, particulars identifying the inferences and the facts and circumstances from which such inferences arise may be sufficient, providing that the inferences are reasonably arguable. Now such particulars may shade into evidence that is not usually required to be pleaded or particularised. But the fact that particulars of that type may have that duality is no excuse for not providing them where knowledge is sought to be established inferentially. I would make one other point. Given information asymmetry as between the parties concerning the state of mind of one of them, where the pleadings are at an early stage and before discovery, so long as some particulars of knowledge are given so as to demonstrate that the plea of knowledge is not wholly speculative, it may be appropriate to allow a plea of knowledge to go forward on the basis that full particulars of knowledge will be provided after discovery, reserving to the other party the right to seek a strike out or summary dismissal of the pleaded cause of action relying upon that knowledge at that later stage if that turns out not to be the case.

7    It is convenient to divide the defendants’ latest criticisms of the proposed pleading into the following subject areas:

(a)    First period claims;

(b)    Second period claims; and

(c)    Claims for breach of s 601FC of the Corporations Act 2001 (Cth) and fiduciary duties.

8    I have set out the relevant background in my earlier reasons and the present reasons should be read with the former including the use of defined terms.

first period claims

(a)    Disclosure of assumptions in PDS

9    In paragraph 22(aa)(i), the plaintiff proposes to add a new allegation that because by 29 May 2015 “significant assumptions underlying the ‘Forecast Financial Information’ were not disclosed”, it may be inferred that MGRE did not have or no longer had reasonable grounds for the inclusion of the “Forecast Financial Information” in the PDS. The defendants contend that the allegation that significant assumptions were not disclosed in the PDS involves a “meaningless non sequitur” and is incapable of establishing the conclusion that by 29 May 2015 MGRE did not have or no longer had reasonable grounds for the inclusion of the “Forecast Financial Information”.

10    I do not consider that the defendants’ criticisms have substance.

11    First, both limbs of paragraph 22(aa) are directed to bases upon which it may be inferred that there was an absence of reasonable grounds for the inclusion of the “Forecast Financial Information” in the PDS. The inference which the plaintiff seeks to draw relies upon both bases (i) and (ii) that need to be read together. Both matters are identified in support of ultimately the plaintiff’s reliance upon s 769C of the Corporations Act (paragraphs 22 and 23). And in my view it is reasonably arguable that the pleaded inference in paragraph 22(aa) arises from both matters.

12    Second, the plaintiff particularises that nowhere in the PDS were the assumed FY2015 or FY2016 sale prices of butter, skim milk powder, whole milk powder or cheddar disclosed. Yet, so the plaintiff contends, those assumed prices were of importance to the reasonableness of the grounds for the forecasts embodied in the “Forecast Financial Information” published in the PDS but were not disclosed. In my view the plea in paragraph 22(aa)(i) is reasonably supported by such a proposition.

13    Third, as the plaintiff correctly points out, whilst ASIC’s relevant Regulatory Guide (referred to in the particulars to paragraph 22(aa)(i)) did not have legal force, it does give some guidance as to how an issuer might reasonably be expected to satisfy any obligation to provide all relevant information about forecasts which is reasonably required by a retail client in making a decision whether to acquire units in the MGUT. Again, such particulars in support of paragraph 22(aa)(i) partly support the plea made.

14    Fourth, the defendants say that it is a non-sequitur to assert that the non-disclosure of significant assumptions supports an inference that MGRE did not have reasonable grounds. I disagree. It may not be a sufficient condition to support an inference, but it is arguably not unhelpful. Moreover, it is to be seen in combination with paragraph 22(aa)(ii). Generally, I would reject the criticisms made concerning paragraph 22(aa).

15    Finally, it should be said that paragraph 22(aa) and indeed paragraphs 22(a) and (b) together are said to support the conclusion in paragraph 22(c). In one sense, paragraph 22(c) could have been the material allegation with the earlier paragraphs pleaded as particulars. Further, all of paragraph 22 is used to support the s 769C plea in paragraph 23. Looking at the substance of the plea in paragraph 22 in its totality, in my view sufficient has been pleaded to put the defendants fairly on notice at this stage of the plaintiff’s absence of reasonable grounds plea concerning the financial forecasts and generally the Misleading PDS Representations identified in paragraph 21.

(b)    FY15 inventory

16    The particulars to paragraph 22(a) assert that the forecasts contained in the PDS for MG’s volume of sales, total milk intake and average prices implied a decline in inventory in FY15, but that the actual increase in inventory that eventuated in FY15 indicated that as at 29 May 2015 the forecasts contained in the PDS for MG’s revenue were unlikely to be achieved.

17    The defendants contend that the allegations are internally inconsistent and embarrassing. They say that the very features of the PDS forecast metrics that are alleged to have implied a decline in FY15 inventory were present in the actual FY15 results which involved an increase in FY15 inventory.

18    The defendants say that the plaintiff pleads no allegation that the FY15 results were incorrect. It is said that to the contrary, he positively relies on them and pleads that MG’s inventory increased in FY15. It is said that the plaintiff will not be entitled at trial to adduce expert evidence seeking to impugn MG’s accounting for inventory in its FY15 audited accounts in circumstances where his pleading raises no such issue and, furthermore, where such evidence would contradict his pleaded case.

19    It is also said that the plaintiff cannot support the inventory allegations by extracts from the 30 August 2015 transcript of the “Preliminary 2015 MG Unit Trust Earnings Presentation”. It is said that such matters external to the pleading (and not identified in the pleading) cannot be relied upon to support the tenability of the plea on an application to replead. It is said that the tenability of the plea must be constrained by reference to the pleading itself and any documents referred to in it. It is also said that, in any event, such extracts are incapable of establishing the allegation that the PDS forecast metrics relied upon implied a decline in inventory in FY15.

20    It is also said that a further defect is the absence of any alleged fact that would establish knowledge on the part of any defendant that the forecasts in the PDS implied a decline in inventory in FY15. I would note at this point that paragraph 22(a) is not in terms a plea of knowledge.

21    Finally, the defendants say that if the allegations concerning the FY15 inventory are permitted to go forward, significant time and expense will be wasted in dealing with allegations that have no reasonable prospect of success.

22    Generally speaking, I would reject the substance of the defendants’ criticisms, although some aspects of the proposed pleading are infelicitous and the particulars will need to be re-drawn, including to make reference to any external material not currently identified in the pleading to support the inferences and conclusions drawn.

23    First, the defendants’ objections are limited to certain particulars of paragraph 22(a), not the central allegation. Moreover, as I have already explained, paragraph 22(a) is also a stepping stone together with paragraphs 22(aa) and 22(b) to support the conclusion in paragraph 22(c). In these circumstances I am inclined to allow the plea to go forward at this stage.

24    Second, although the defendants say that the plaintiff’s analysis of the logical implications of the “Forecast Financial Information” is wrong because MG’s actual FY15 financial results, which included a 39% increase in MG’s inventory, were not materially different to some elements of the Forecast Financial Information disclosed in the PDS, such an observation is more a merits question for trial or a summary judgment application on evidence rather than something to be determined summarily as a pleading point on the basis of some asserted textually based internal inconsistency.

25    Now the defendants have submitted that

changes in total milk intake (in litres) cannot be simplistically compared with changes in sales volumes (in metric tonnes) or average revenue (per metric tonne) where – as the PDS indicates – Murray Goulburn sells a mix of products (e.g. milk, milk powders, butter, cheese) that draw on the milk intake in different ways resulting in different masses of product per litre of milk intake.

26    But the plaintiff in response has pointed to the fact that according to MG’s then chief financial officer, it was just such a change in MG’s product-mix in the final quarter of FY15 (i.e. between 1 April and 30 June 2015) which, along with the “timing of sales”, was responsible for a “strategic build-up of inventory” which was not expected to occur when the Forecast Financial Information in the PDS was originally prepared: see the transcript referred to earlier. Now this has not been identified or particularised by the plaintiff and should be.

27    The plaintiff also says that reference to the relevant transcript for 30 August 2015 shows that the defendants were unlikely to be able to prove at trial their assertion that, on the Forecast Financial Information published in the PDS, MG’s inventory was always expected to increase in FY15. The plaintiff says that the relevant presentation is not a necessary integer of the particulars to paragraph 22(a). It is said that for the purposes of the present application I am required to assume that the plaintiff will be able to prove the underlying allegation at trial. That is true so far as it goes, but in my view I consider it desirable that the plaintiff redraw the particulars given, including to make reference to such matters.

28    Finally, as concerns any deficiency in the pleading of knowledge of an absence of reasonable grounds, I will address this later.

29    In my opinion, the substance of the plaintiff’s plea is viable, but the particulars will need to be amended.

(c)    PDS not “up to date”; new claims for declaratory relief concerning voidability of contracts under s 601MB

30    The plaintiff alleges that the PDS was not up to date as required by ss 1012J and 1013C of the Corporations Act. The defendants say that paragraph 25 fails to adequately plead what the PDS should have said in order to be up to date. They also take issue with what is said to be the vague and circular form of paragraph 25(aa).

31    Now the plaintiff has submitted that its case is that the PDS ought to have disclosed the matters which are particularised under each of paragraphs 22(a) and 22(b). But the defendants contend that this is not what paragraph 25 says. Rather, so the defendants contend, it pleads a vague selection of facts unconnected to any particular respect in which the PDS is said to be deficient. Second, it is said that even if paragraph 25 did adopt the matters particularised in paragraphs 22(a) and (b), this would not answer the question required: what exactly did the PDS say that was “out of date” and what information was required to be disclosed in order to bring it up to date?

32    Further, the defendants say that the proposed new paragraph 25A is a generalised conclusion that, by reason of the matters in paragraph 25, the PDS “failed to comply with Division 2 of Part 7.9 of the [Corporations] Act”, but like paragraph 25 does not say how. It is said that paragraph 25A appears to be nothing more than a “prop” for the proposed new paragraph 25B, where the plaintiff alleges that, by reason of the allegations in paragraph 25 and 25A, “contracts entered into by the plaintiff and Group Members to subscribe for units issued by MGUT pursuant to the PDS are voidable at the election of the plaintiff and Group Members pursuant to s 601MB of the Act”. I would note at this point that in the proposed new paragraph CA of the prayer for relief, the plaintiff seeks a declaration that “a contract entered into by the plaintiff or a Group Member to subscribe for units in MGUT under the PDS is voidable at the option of the plaintiff or Group Member pursuant to section 601MB of the Act”.

33    The defendants also contend that the proposed paragraph 25B is deficient in two respects. First, it does not adequately identify the contracts sought to be voided. It is said that the contracts which arose at the time of subscription for units have likely now been discharged by performance and that it is not clear what other contracts remaining on foot might be the subject of avoidance. It is said that the plaintiff should be required to provide particulars of the relevant contract(s) entered into by the plaintiff and group members, which is the subject of the s 601MB plea. Second, it is said that the plea relying on s 601MB does not disclose the existence of a “matter” which would enliven the Court’s jurisdiction to make the declaration sought. It is said that there is no matter and no jurisdiction to grant declaratory relief if the relief is directed to answering “abstract or hypothetical questions”, or is “claimed in relation to circumstances that have not occurred and might never happen”, or “will produce no foreseeable consequences for the parties”. It is said that the proposed claim, if successful, produces no identifiable consequence. Accordingly it is said to suffer from the vice of being entirely abstract and hypothetical.

34    In summary and accordingly, the defendants contend that paragraphs 25 to 25B, and paragraph CA of the prayer for relief, should not be allowed in their present form.

35    In my view, some of the defendants’ criticisms have some force. Let me elaborate.

36    First, in my view the proposed pleading in paragraph 25(aa) is conceptually incoherent. The “matters alleged in paragraph 22(aa) above” refers back to a plea of an absence of reasonable grounds. But it became clear during the course of argument that what the plaintiff was really seeking to pick up was certain facts set out in the particulars to paragraph 22(aa). If that is the case, the plaintiff will need to properly plead out paragraph 25(aa) to identify the facts it is relying upon.

37    Second, in terms of the defendants’ criticism that the plaintiff has failed to adequately plead what the PDS should have said in order to be “up to date”, in my view the plaintiff should be more precise and clearer in the pleading that his case is that:

(a)    the PDS should have disclosed the matters particularised under each of paragraphs 22(a) and 22(b) (and precisely what); and

(b)    the PDS should also have disclosed “Forecast Financial Information” which was based upon the directors’ “best estimate assumptions” as of 29 May 2015, not 1 May 2015 or some earlier date.

38    Now I accept that it is not possible prior to discovery for the plaintiff to furnish the defendants with the precise disclosures which MGRE might have made in the PDS based on MG’s financial performance up to 29 May 2015 and reasonable estimates of future performance at that date. And I accept that there is some force in the plaintiff’s consolidated submissions at [62] to the following effect:

If paragraph 92 of the defendants’ submission is to be understood as demanding that the plaintiff in effect redraft the PDS for them as it should have appeared on 29 May 2015, that is plainly an unreasonable request and goes far beyond what the rules of pleading require. It will only be after judgment is delivered (or, possibly, appeals decided) that the plaintiff will be in a position to say with certainty what the PDS ought to have said in order to bring it properly up-to-date as at 29 May 2015. As it stands at present, the plaintiff has, it is submitted, adequately pleaded and particularised to the maximum extent that he can on the basis of the limited information and documents to which he has had access to date (including recently the documents referred to in the ACCC SOC) to satisfy the rules of pleading.

39    But in my view the plaintiff should do more in his pleading to properly plead in paragraph 25 what he says as to how the PDS was out of date and in substance what he says ought to have been included to avoid this vice; the latter may be relevant to causation, damages and other questions of relief, although I accept that the plaintiff is not required to plead out how a redrafted PDS may have looked.

40    Let me turn to the point concerning s 601MB, which relevantly provides as follows:

(1)    If:

(a)    a managed investment scheme is being operated in contravention of subsection 601ED(5) and a person (the offeror) offers an interest in the scheme for subscription, or issues an invitation to subscribe for an interest in the scheme; or

(b)    a person (the offeror) fails to comply with Division 2 of Part 7.9 when offering an interest in a registered scheme for subscription or issuing an invitation to subscribe for an interest in a registered scheme;

a contract entered into by a person (other than the offeror) to subscribe for the interest as a result of the person accepting the offer, or of the acceptance of an offer made by the person in response to the invitation, is voidable at the option of that person by notice in writing to the offeror.

(2)    If the person gives a notice under subsection (1), the obligations of the parties to the contract are suspended:

(a)    during the period of 21 days after the notice is given; and

(b)    during the period beginning when an application is made under subsection (4) in relation to the notice and ending when the application, and any appeals arising out of it, have been finally determined or otherwise disposed of.

(3)    Subject to subsection (6), the notice takes effect to void the contract:

(a)    at the end of 21 days after the notice is given; or

(b)    if, within that 21 days, the offeror applies under subsection (4) – at the end of the period when the obligations of the parties are suspended under paragraph (2)(b).

(4)    Within 21 days after the notice is given, the offeror may apply to the Court for an order declaring the notice to have had no effect.

(5)    The Court may extend the period within which the offeror may apply under subsection (4), even if the notice has taken effect.

(6)    On application under subsection (4), the Court may declare the notice to have had no effect if it is satisfied that, in all the circumstances, it is just and equitable to make the declaration.

41    To the defendants’ submission that the plaintiff has not adequately identified the contracts sought to be avoided in paragraph 25B, the plaintiff says that the relevant contracts are those entered into by unitholders to subscribe for units under the Offer described in part 9 of the PDS. But I agree with the defendants that on any view there should be a proper identification of the plaintiff’s specific contract and more identification, although not at an individual level, of the group members’ contracts that are the subject of the claim whether fully performed or not; one is of course referring only to a sub-group of unitholders who subscribed rather than acquired on the secondary market.

42    As to the defendants’ contention that s 601MB cannot now apply to any contract already discharged by performance, the plaintiff says that the complete performance of a contract for subscription by the issue and allotment of interests in a managed investment scheme to subscribers does not have the effect that there is no contract now capable of avoidance under s 601MB. It is said that the operation of s 601MB was explained in Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358 at [47], where it was said:

If the conditions mentioned in s 601MB(1) are satisfied the contract to subscribe for the interest in the managed investments scheme is “voidable” at the option of the investor. If the investor wishes to exercise that option he must give a notice to that effect to the offeror. The offeror may within 21 days apply to the court to have the notice declared invalid (s 601MB(4)). Such a declaration will be made if “in all the circumstances it is just as [sic] equitable to make the declaration” (s 601MB(6)). If no application is made then at the end of 21 days, or if an application is made and no declaration is made after the application and any appeals have been determined, “the notice takes effect to void the contract” (s 601MB(3)). I take this to mean that the contract is void ab initio, with the consequence that the investor can recover what he paid for his investment. In other words, the parties to the contract are to be restored as far as may be possible to the position they were in before the contract was made. The alternative and unconventional meaning of “void” is that the contract is only dissolved as regards to future performance. That construction would run counter to the plain object of the section.

43    The plaintiff says that the right given to group members who, like the plaintiff, acquired units pursuant to the offer made in the PDS, is that s 601MB makes the contract voidable at their election even if now discharged by performance. It is said that the proposed pleading is in the terms contemplated by s 601MB(1) which requires notice to be given. It is said that the declaration sought by way of paragraphs 25A and 25B and the prayer for relief is in the precise terms of s 601MB(1). It is said that the determination of this question is not abstract or hypothetical because the plaintiff and affected group members will be entitled to be restored as far as possible to the positions that they were in before the relevant contracts were made. It is said that it may be assumed that this would involve the return of their subscription money and the payment of interest by MGRE to those group members who opt to and do avoid their contracts.

44    Now at this stage I do not need to comment upon the observations in Re York Street Mezzanine (a case to be read in its context of providing a suggested solution(s) (see at [43]) under a liquidator’s summons for directions), and whether s 601MB can apply to a contract fully performed and discharged, or whether it only applies to a contract still in whole or in part to be performed. Nor do I need to comment upon the voidable and void distinction and whether void in the present context is to be taken as being void ab initio or only to operate prospectively to discharge future performance. For present purposes I am prepared to assume that any of the competing constructions are reasonably arguable, including the plaintiff’s version.

45    Subject to some qualifications that I will come to in a moment, the defendants’ submissions concerning whether there is a “matter” and the hypothetical nature of any declaration sought are too broad. Given the breadth of the concept of “matter”, including the impressionistic boundaries and content of the relevant controversy between the parties, and given that the relevant question is not whether something is hypothetical per se but whether it is too hypothetical to be appropriate for the making of a declaration, I would not accept the generality of the defendants’ criticisms but there are some legitimate points that they have made.

46    But before proceeding further, I would make some observations concerning any perceived bar to making a declaration that is hypothetical.

47    First, the primary question is whether there is a justiciable controversy such as to constitute a “matter” and therefore found jurisdiction to grant a declaration. The controversy must be real. Moreover, it must be appropriate to and susceptible of judicial determination.

48    Second, the power to grant declaratory relief is circumscribed by the boundaries of judicial power. Further, such relief must be productive of foreseeable consequences. Relatedly, declaratory relief will not ordinarily be granted in relation to circumstances that have not occurred and might never occur (see generally Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582 and CGU Insurance Ltd v Blakeley (2016) 327 ALR 564; [2016] HCA 2 at [100] per Nettle J).

49    Third, on the issue of whether a declaration sought is hypothetical, the correct focus is on whether the question is too hypothetical or at too high a level of abstraction or purely hypothetical. Relatedly, purely advisory opinions are to be eschewed. The use of these expressions suggests that no absolute or binary approach should be taken. In other words, one must consider the degree of hypothetication. As Ormiston JA said in CE Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256 at 262 (albeit not expressly referring to federal jurisdiction):

… merely because relief is sought upon what might in certain respects be described as hypothetical facts does not necessarily lead to the conclusion that the case will not be heard or relief refused. But there must be a true legal controversy …

Further, at 271 he said:

The authorities show that it is not all hypothetical questions which a court will refuse to answer. If it is hypothetical in the sense that a specified set of facts has not yet come to pass but might reasonably be expected to occur if certain conditions are fulfilled, then a court will consider and make appropriate declarations if it be appropriate.

I would also note the observations of Nettle J in CGU Insurance Ltd at [102] that:

… the court does not lack jurisdiction to make a declaration concerning a theoretical issue, in the sense of an issue that does not presently exist but which is likely to arise in future, where the issue is productive of a real and pressing dispute, is of real practical importance or is one in which the claimant has a real commercial interest.

50    Fourth, generally speaking it is preferable to deal with the hypothetical circumstance or such a characterisation in the context of whether as an exercise of discretion a declaration ought to be made, rather than as one of the existence of jurisdiction.

51    Now what has concerned me about the proposed paragraph 25B and the associated relief are three points:

(a)    First, as matters presently stand, there is no allegation of any “notice in writing to the offeror” having been given.

(b)    Second, an individual seeking to give such a notice and endeavouring to void the subscription contract would be acting in tension, arguably, with that group member’s characterisation as a group member and the damages sought in that capacity.

(c)    Third, the triggering of any rights under s 601MB and any response would be wholly an individual question.

52    Let me deal with each of these points but making an assumption in favour of the plaintiff that s 601MB can apply to a subscription contract fully performed and discharged. And let me also assume for the moment that the plaintiff rectifies the concern regarding an absence of identification of his contract and, generally, the relevant subset of group members’ contracts.

53    First, s 601MB(1) makes it plain that in relation to a subscriber a contract “is voidable at the option of that person by notice in writing to the offeror”. More generally, the mechanisms set out in s 601MB have to first be triggered by a notice. The plaintiff’s proposed pleas overlook this matter. The operation of s 601MB is hypothetical until a notice is given. And even then, the contract only becomes voidable. Further and relevantly to the present context, the condition in s 601MB(1)(b) must be made good. But even then, the contract may not be avoided if MGRE successfully triggers ss 601MB(4) and (6). In other words there are compounding hypothetical layers before an entitlement to avoid or the actual voiding arises. But in my view the plea in paragraph 25B does not get off the ground as it does not identify any notice having been given.

54    Second, if a person was to give a notice and seek to avoid ab initio, they would be acting in tension with their group member description and also may have to elect between inconsistent rights. Do they persist with a damages claim as the relevant holder of units? Or do they get the subscription money back as ceasing to be a unitholder if the subscription contract is void ab initio? But I agree that at the moment a person giving notice (or prior to even that) is nevertheless now a group member as the holder or acquirer of units at the relevant time(s) or over the relevant period(s). But all of this points out the hypothetical nature of the debate presently as to when and how s 601MB is to be triggered and by whom.

55    Third, on any view, the triggering of rights under s 601MB will be an individual question depending upon:

(a)    the individual group member;

(b)    the contract;

(c)    the notice given;

(d)    whether that person elects to avoid and recover the subscription money or does not seek to avoid ab initio but presses the damages claim;

(e)    the response of MGRE under s 601MB(4); and

(f)    the Court’s consideration under s 601MB(6) referable to the individual circumstances of each case.

56    In my view, the plaintiff’s advisors have not properly thought through any of these concerns. I will not allow paragraph 25B (and related paragraphs) to go through in the present form.

57    I will allow a proper plea even if the relief sought is presently hypothetical. But of course until any notice is given and the condition under s 601MB(1) satisfied and established, no declaration should go. And even then, in the exercise of discretion it may be inappropriate to grant a broad ranging declaration given that the elements of ss 601MB(4) and (6) will need to be considered in the individual case. On the question of “matter” and federal jurisdiction, the defendants’ contentions are not without merit, but at this stage on what is in substance a pleading summons and given that the s 601MB claim is a second order issue, I would prefer not to finally rule on the point on such a basis at this stage.

(d)    Knowledge of absence of reasonable grounds

58    The plaintiff alleges that MG and the directors knew that MGRE had no reasonable grounds for making the “Misleading PDS Representations” in the PDS. But the defendants contend that the particulars to that allegation are circular and illogical. It is said that such particulars focus exclusively on the directors’ supposed knowledge that MGRE was, independently of its directors, unable to assess whether the “Misleading PDS Representations” had reasonable grounds (see especially particulars (ix) and (x) to paragraph 27C). Further, it is contended that no particulars of the knowledge actually alleged are given. It is said that there is no connection between the particulars of knowledge given in paragraph 27C and the matters pleaded in paragraph 22 as demonstrating an absence of reasonable grounds. It is said that paragraph 27C does not allege that MG or any director knew the matters actually relied on in paragraph 22 to establish a lack of reasonable grounds for the pleaded representations. It is said that the matters particularised in paragraph 27C do not themselves demonstrate an absence of reasonable grounds for the pleaded representations. For example, the defendants say that none of the particulars in paragraph 27C is capable of establishing knowledge on the part of MG or any director of the matters particularised in paragraph 22(a) concerning the FY15 inventory, namely that certain forecast metrics in the PDS supposedly implied a decline in inventory in FY15.

59    Further, it is said that if paragraph 27C has no reasonable prospects of success or fails to disclose a reasonable cause of action, then the same conclusion follows for paragraphs 27E and 27G which both refer back to paragraph 27C to plead respectively that MG and the directors were knowingly concerned in the PDS being defective.

60    I do not accept the defendants’ criticisms.

61    First and generally, I consider that enough has presently been particularised given that discovery is yet to occur.

62    Second, given that the directors were common to both MG and MGRE, enough has been particularised to support a reasonable inference that both MG and the directors had the knowledge that MGRE had of no reasonable grounds.

63    Now it may be accepted as said in Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 at [15] (per Heerey, Sundberg and Dowsett JJ) that:

… as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that:

•    the representation was made and

•    it was misleading or

•    the corporation had no reasonable grounds for making it.

64    But I tend to agree with the plaintiff that he need not show knowledge on the part of the relevant defendants of each of the particular matters alleged in paragraph 22. The plaintiff need only properly allege and particularise that the relevant defendants knew that MGRE had no reasonable grounds for making the representations. Particulars have been given to paragraph 27C concerning MG’s and the directors’ knowledge that MGRE did not have reasonable grounds for making the relevant representations. In my view, at this early stage and before discovery they are adequate. More specifically, the inferences particularised in sub-paragraphs (ix) and (x) are open.

65    There is an air of unreality to the defendants’ submissions in some respects. MGRE was a wholly owned subsidiary of MG and could only act through its directors. If MGRE had no reasonable grounds, it is a small step to the proposition or inference that its directors had the requisite awareness based upon the matters particularised in sub-paragraphs (i) to (x). Moreover, these directors were also common to MG. Of course, a director’s knowledge in one capacity is not necessarily taken to be his knowledge in another capacity and thereby to be attributed to MG. But in my view the particulars given to paragraph 27C at this stage, and before discovery, are adequate both as against the directors and MG.

66    In summary, I reject the defendants’ criticisms of paragraph 27C and consequently paragraphs 27E and 27G. I would also make one other point. Given the alternative basis upon which the case is put against MG and the directors concerning the consent question (paragraphs 26A to 27), which pleas have not been challenged in the present context, there may be little advantage or utility in drilling down further at this stage on the “involvement” limb of the pleas against MG and the directors.

second period claims

67    In the proposed pleading, the plaintiff seeks to pursue claims against MGRE concerning the period on and after 27 April 2016 under ss 674(2) and 1041H of the Corporations Act relating to the accounting treatment of the Milk Supply Support Package (MSSP) and what is said to be the Misleading MSSP Representations, and to a failure to disclose information correcting the same.

68    The defendants contend that the plaintiff should be refused leave to make these proposed amendments for two substantive reasons. First, it is said that the plaintiff cannot bring the proposed claims because he does not have the relevant cause of action. Second, it is said that the proposed claims do not satisfy the threshold requirements for a group proceeding stipulated in ss 33C(1) and 33H(1) of the Federal Court of Australia Act 1976 (Cth).

69    Further, it is also said that the amendments fail to disclose a reasonable cause of action and are likely to prejudice, embarrass and delay the proceedings because of the absence of proper particulars to support the allegation that MGRE was aware of the “Information Correcting the Misleading MSSP Representations”.

70    It is appropriate to deal with each of these complaints in turn. But as a preliminary matter I would note that neither the plaintiff nor other group members who acquired units before the publication of the relevant ASX release on 27 April 2016 can bring such claims in reliance on their prior purchase of those units; they acquired those units before any of the alleged second period contravening conduct.

(a)    Whether the plaintiff can bring claims and whether they satisfy ss 33C and 33H

71    The defendants contend that the plaintiff cannot bring such claims in reliance on his purchase of a further 10,000 units on-market on 25 October 2016 because he knew of the alleged contravening conduct when he acquired those units.

72    Further, it is said more formally that the proposed claims do not satisfy the threshold requirements under Pt IVA. It is said that the plaintiff is not one of 7 or more persons who have the proposed claims (s 33C(1)(a)), the existing and proposed claims are not in respect of and do not arise out of the same, similar or related circumstances (s 33C(1)(b)), the existing and proposed claims do not give rise to a substantial common question of law or fact (s 33C(1)(c)), and the proposed pleading does not specify questions of law or fact common to such claims of the group members (s 33H(1)(c)).

73    The defendants contend that the plaintiff in his proposed pleading has sought to disguise the discrete nature of the first and second period claims (as compared with a prior version of the pleading) by deleting references to the first and second period sub-groups and then rolling up the pleading of those sub-groups’ claims into a single claim for loss and damage covering both periods. The defendants submit that the discrete nature of each sub-group’s claims is manifested by the following matters. First, the amended group definition distinguishes between those sub­groups, the former being persons who acquired units on or before 26 April 2016 and held any of those units at the commencement of trading on 27 April 2016, and the latter being persons who acquired units on or after 27 April 2016 and held any of those units at the commencement of trading on 2 May 2017. Second, the particulars to the rolled-up claim for loss and damage make clear that the first sub-group members only claim loss and damage in respect of alleged overpayment for units purchased at an inflated price prior to 27 April 2016, and the second sub-group members only claim in respect of alleged overpayment for units purchased at an inflated price on and after 27 April 2016. Third, the proposed pleas assert that the market releases on 29 February 2016 and 27 April 2016 were fully corrective of the prior misrepresentations.

74    The defendants contend that the plaintiff continues to attempt to link the first and second period claims with an allegation that by reason of the alleged Misleading MSSP Representations, the market price of units held by first period sub-group members remained inflated on and after 27 April 2016. But the defendants say that there is no link between the claims of the sub-groups. The defendants also say that given that the pre-27 April 2016 disclosure failure is said by the plaintiff to have been fully corrected by the ASX release on that date, no inflation relating to these alleged first period disclosure failures could have remained in the shares after the opening of trading on that date. I would note at this point that the defendants’ proposition is intuitively attractive, although I suspect that this will need to be the subject of expert evidence as to the efficiency of the market in assimilating and processing the correcting information and whether such efficiency was affected by other confounding information or circumstances.

75    As to the plaintiff’s contention that if he were not permitted to bring the second period claims in this proceeding, his and the first sub-group members’ losses could not be quantified because any event study evidence he adduces could not consider the period after 27 April 2016, the defendants say that this proposition is erroneous. It is said that event study evidence has never been confined to considering movements in the price of a security and the market within the period of an alleged contravention, but can consider movements over a longer or different period to identify statistically significant movements in price and any alleged price inflation attributable to the contravention within the period. I would note at this point that the defendants’ proposition is clearly correct in my experience. I observed in Earglow Pty Ltd v Newcrest Mining Ltd (2015) 230 FCR 469; [2015] FCA 328 at [88(a)]:

What “relevant period” does one use? Some methods would use an index for a period before the announcement and look at the relationship of the movement in that index against the movement in the company’s share price over that time. So, for example, and perhaps usually, one might use an estimation window of one year. Other methods would actually also include data after the corrective disclosure to anchor the index with the company’s “true” share price; at that time the share price will have the inflation or deflation removed. Another aspect to consider is whether one uses any data at all for the period of the contravention. Some models use only data for the index and data for the company’s share price before the contravening non-disclosure period. Other models would also include within period data.

76    Further, the defendants contend that the possibility that the plaintiff might wish to adduce event study evidence which considers the period after 27 April 2016 does not establish that the proposed second period claims meet the requirements of s 33C(1). That latter question depends upon whether there are “claims”, “circumstances” and “an issue” in respect of the second period which meet the conditions in s 33C(1), not on whether there might be evidence that incidentally overlaps with the second period to assess alleged price inflation arising from acquisitions in the first period.

77    As to the plaintiff’s reliance on Dillon v RBS Group (Australia) Pty Ltd [2017] FCA 896 at [43] and [44] per Lee J to support the proposition that the proposed new claims satisfy the criteria in s 33C(1) even though the first and second period sub-group members have different claims, the defendants contend that Dillon is distinguishable. The parties before me have also referred to Hall v Australian Finance Direct Ltd (No 3) [2007] VSC 366 but I do not consider that this takes the matter further beyond my own views concerning s 33C and Lee J’s synthesis of the key themes in Dillon at [42] to [60]. At this point it is useful to summarise his analysis, which I accept. First, the concept of “claim” as used in s 33C has a wide meaning and is broader and different to the concept of a cause of action. Second, the claim of one person does not need to be based upon the same conduct as the claim of another person and, moreover, may arise out of a separate and different transaction, as long as the threshold elements of s 33C(1)(b) and (c) are satisfied. Third, the fact that the plaintiff’s individual case may ultimately fail does not mean that the plaintiff does not have a claim per se in terms of satisfying the threshold elements at this point. Fourth, a claim of a member say of sub-group A and a claim of a member say of sub-group B can both be together undifferentiated “claims” within the statutory term as used in s 33C(1); the very idea of sub-groups entails that they are part of a broader set i.e. a group having and making claims through the representative party. And if one appreciates that proposition, then the real focus must be on the conditions in s 33C(1)(b) and (c).

78    The defendants say that Dillon concerned claimants who had acquired an interest from the respondents in various claim warrants. The relevant issue was whether claims by persons who had invested in a claim warrant called “NRFUZA”, which the applicants had not invested in, could be represented by the applicants. Lee J explained at [44] and [45] why the claims in that case satisfied s 33C(1):

The “claims” of all persons referred to in this “gateway” provision are only required to be in respect of, or arise out of, similar or related circumstances and give rise to one substantial common issue of law or fact. It necessarily follows that the claims of the applicants (who represent the group) and group members (represented persons) can be quite different. As Gordon J explained in Timbercorp at [104], the legislative scheme:

…expressly contemplates and provides for the individuality of claims within a group proceeding. For example, a group proceeding may be commenced “whether or not the relief sought ... is the same for each person represented” and whether or not the proceeding “is concerned with separate contracts or transactions between the [respondent] and individual group members”, or “involves separate acts or omissions of the [respondent] done or omitted to be done in relation to individual group members”. (citations omitted)

As noted in [5] above, the relevant claims arose in similar or related circumstances in that all those with claims were clients of Navra, all invested (it is asserted on Navra’s advice), in a specified time period, in warrants created or issued by RBS, where the underlying reference assets were comprised directly or indirectly of shares or units in one of a number of “Navra Managed Funds”. As s 33C(1)(c) makes plain, one or more of the persons with such a claim was entitled to commence a proceeding as representing some or all of the others.

79    The defendants contend that it is understandable why in Dillon the claims satisfied s 33C(1). Contrastingly, in the case before me it is said that the claims relating to the first and second periods are discrete and not related in the way identified in Dillon.

80    I would reject the defendants’ contention that s 33C has not been satisfied, irrespective of whether Dillon is relevantly distinguishable.

81    First, it seems to me that the Misleading MSSP Representations and the claims based thereon arose out of related circumstances to the claims made in respect of the Misleading PDS Representations, the Misleading PDS FY2016 Representations and the non-disclosure of MG’s Milk Powder Exposure. Moreover, the making of the Misleading MSSP Representations occurred on 27 April 2016, simultaneously with the making of a purportedly corrective disclosure in respect of the prior representations and the prior non-disclosure of the Milk Powder Exposure. That combined conduct, so the plaintiff alleges, caused the unit price to remain inflated despite the corrective disclosures.

82    The Misleading MSSP Representations and their effect on the market are arguably relevant (I put it no higher than that) to the proof of the quantification of loss for the first period group members, including the plaintiff, who continued to hold their units on and after 27 April 2016. Arguably the losses sustained by those unitholders who purchased units on or after 27 April 2016 and who continued to hold those units at the commencement of trading on 2 May 2017 arose out of related circumstances to those referable to the group members’ claims who acquired their units prior to 27 April 2016, particularly where the corrective disclosure may not have had immediate effect on the price of units because of market inefficiencies in responding to the corrective information.

83    Second, the plaintiff is also a group member in respect of those additional units that he bought on 25 October 2016 prior to the corrective disclosure being made on 2 May 2017. Now the defendants have challenged whether the plaintiff on the merits has a personal claim in relation to the second period conduct, but I cannot decide against the plaintiff on this question on a summary basis at this stage. But in any event, even if the plaintiff does not have a personal claim on this aspect, that does not entail that s 33C has not been satisfied in relation to the second period claimants if it be correct that a first period claim and a second period claim can both be treated as “claims” under s 33C(1). On any view the plaintiff has a first period claim, and as I have said, s 33C(1) envisages that claims can be different.

84    Third, the elements of s 33C(1) are satisfied. The claims must be in respect of, or arise out of, similar or related circumstances and give rise to at least one substantial common issue of law or fact. That is established in the present case.

85    The first and second period claims all arise out of circumstances which are closely related with one another. The end of the first period and the commencement of the second period occurred on the same day on which MG simultaneously announced how it was performing financially in FY2016 and also announced the introduction of the MSSP as a means by which it proposed to claw back from the milk suppliers the excessive amounts which had been paid since the commencement of FY2016 and which it recognised were overpayments. In effect, as the plaintiff contended, the announcement of 27 April 2016 was a partial disclosure affecting the extent of inflation in the MGUT unit prices leading up to that date, but was coupled with the announcement of a mechanism which purported to effect a recovery of the overpayments that MG had made to suppliers up to that point and thereby restore some of the losses which MG would otherwise experience. The relevant events and circumstances and the claims springing therefrom are related with each other both factually and legally.

86    Further, quantification of loss by way of an event study will ordinarily take into account trading over a reasonable time period before and after the making of a corrective disclosure. Now where there is confounding news which coincides with a corrective disclosure, an event study analysis will often be able to separate the effect of the confounding news from the effect of the corrective disclosure. But in this case the situation is more complicated. The announcement of the MSSP and its implications is confounding news to be backed out of the calculation of the plaintiff’s and group members’ loss referable to the first period claims. This will be a complex question for expert analysis. To suggest that the one representative proceeding should not deal with such a question is unpalatable. Moreover, depending upon the level at which the question is asked, the s 33C(1)(c) element is satisfied by questions such as:

(a)    what caused the unit price inflation over the entire period (covering its subdivisions) until 2 May 2017?; or

(b)    what factors were still in play to cause unit price inflation after 27 April 2016?

87    In summary, I consider s 33C to be satisfied. But in my view the particulars to paragraph 62 are inadequate, particularly the second last paragraph thereof being:

For the avoidance of doubt, and in respect of the quantification of the losses suffered by Group Members who acquired units pursuant to the PDS or on-market after 3 July 2015 and prior to 27 April 2016, it is alleged that the market price of units remained inflated on and after 27 April 2016 by reason of the second defendant’s failure to disclose Information Correcting the Misleading MSSP Representations until 2 May 2017.

This will need to be repleaded.

88    Further, as to the defendants’ submission that the proposed pleading does not comply with s 33H(1)(c), I am inclined to agree. The stipulation of the common issues at the end of the proposed pleading are at too high a level of abstraction.

(b)    Absence of proper particulars of awareness

89    The defendants contend that paragraphs 53 and 54-56 of the proposed pleading should not be permitted to go forward in the absence of proper particulars of the allegation of awareness of the “Information Correcting the Misleading MSSP Representations”. In relation to the plaintiff’s statement, “The plaintiff may give further particulars after discovery”, it is said that the plaintiff is not entitled to fish through discovery to try to find some basis for his speculative allegation. It is said that the need for such particulars is further underscored by the plaintiff’s specific redefinition in paragraph 52 of the “Information Correcting the Misleading MSSP Representations” by reference to the ASX release of 2 May 2017. It is said that an allegation that MGRE was aware of this specific information on 27 April 2016 cannot reasonably be made or responded to unless the plaintiff properly particularises the basis on which MGRE is said to have had that awareness.

90    As to the plaintiff’s reliance on the decision of Ferguson J (as her Honour then was) in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd [2014] VSC 181 at [17] to try to justify the purported inadequacy of the particulars of awareness in paragraph 53, the defendants say that that reliance is misplaced. It is said that there is no comparison between the particulars that were held by her Honour to be sufficient in the circumstances of that case and those contained in paragraph 53 of the proposed pleading.

91    Accordingly it is said that even if the plaintiff can overcome the problems with his standing and with ss 33C and 33H, the second period claims should not be permitted to go forward in their current form.

92    I would reject the defendants’ criticisms at this stage. Enough has been said to be able to be pleaded to, although I will review this matter further in due course after discovery.

claims for breach of section 601fc and fiduciary duties

93    The plaintiff proposes to add a claim that MGRE breached s 601FC and its fiduciary duties to the plaintiff and group members. For convenience, s 601FC(1)(a) to (e) should be set out as follows:

In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:

(a)    act honestly; and

(b)    exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity’s position; and

(c)    act in the best interests of the members and, if there is a conflict between the members’ interests and its own interests, give priority to the members’ interests; and

(d)    treat the members who hold interests of the same class equally and members who hold interests of different classes fairly; and

(e)    not make use of information acquired through being the responsible entity in order to:

(i)    gain an improper advantage for itself or another person; or

(ii)    cause detriment to the members of the scheme; and

…

94    The defendants contend that the proposed claim has no reasonable prospect of success, fails to disclose a reasonable cause of action, and is likely to cause prejudice, embarrassment and delay in the proceedings. It is said that it is an ill-conceived attempt to contrive a claim covering both proposed periods in an endeavour to support the plaintiff’s attempt to expand the proceedings into the second period. More specifically, it is said that the allegations on which the proposed claim depends seek to construct a conflict of duty and interest for common directors of both MGRE and MG by positing that they were unable to discharge their duties to MGRE because in their capacity as directors of MG, their duty was to ensure that MG did not disclose information about MG’s business that might have a negative impact on the price for units.

95    To be clear at this point, the proposed pleading alleges that “it was not in [MG’s] interests to disclose information about [MG’s] business [that] would be expected to have a materially negative effect on the price or value of [MGRE’s] securities” (par 65(h)) and “[MGRE’s] interests were the same as [MG’s]” (par 65(j)(i)). It also alleges that MGRE’s directors were “personally in a position of unmanaged conflict and could not be expected to ensure that [MG] disclosed all information about [MG’s] business which would have a material effect on the price or value of [MGRE’s] securities when it was contrary to [MG’s] interests to disclose such information which would be expected to have a materially negative effect on the price or value of [MGRE’s] securities” (par 65(j)(iii)).

96    The defendants contend that these allegations are logically absurd, and have no prospects of success. It is said that in essence the plaintiff alleges that the directors were in a position of conflict because it was in MGRE’s interests that MG comply with its disclosure obligations, both under the contractual disclosure arrangements pleaded in paragraph 65(i) and under the Corporations Act, but that it was in MG’s interests to fail to do so. It is contended that it cannot be said that MG had an interest in withholding information that MGRE was obliged to disclose pursuant to MGRE’s continuous disclosure obligations when MG itself had obligations to disclose that information pursuant to its own continuous disclosure obligations, and pursuant to the pleaded contractual arrangements with MGRE. It is said that for the same reasons it cannot be said that the directors, in their capacity as directors of MG, had an interest in MG withholding such information. It is also submitted that it cannot be said that MGRE had an interest in MG withholding information from MGRE that MGRE was obliged to disclose to the market pursuant to its continuous disclosure obligations, or that the directors, in their capacity as directors of MGRE, had an interest in MG not disclosing such information. Accordingly, the defendants contend that the pleaded claim is bound to fail.

97    The defendants also submit that the claim suffers from the following additional defects which deprive it of any reasonable prospect of success.

98    First, paragraphs 65(f) and (g) allege that because MGRE was established to enable MG to fund investment in capital projects, it was in MG’s interests to maximise the value of MGRE units. The defendants say that those circumstances are incapable of supporting the allegation in paragraph 65(h) that MG thereby had an interest in not disclosing information that would have a materially negative effect on the price or value of MGRE units. It is said that any listed or unlisted entity might issue securities to fund investment in capital projects and have an interest in maximising the value of those securities. But it does not thereby have an interest in breaching any disclosure obligations it may have.

99    Second, paragraphs 65(j)(ii) and (v) respectively plead allegations that MG “was to determine what information about [MG’s] business would be expected to have a material effect on the price or value of [MGRE’s] securities” and MGRE was “subject to [MG’s] direction in respect of [MGRE’s] manner of obtaining and disclosing information to permit the fair valuation of units in the MGUT and the operation of a fair market for those units”. The defendants say that those allegations are not supported by and are inconsistent with the material allegations of fact concerning the arrangement between MG and MGRE for the disclosure of information. These were to the effect that MG was obliged to provide information to MGRE to enable it to meet its disclosure obligations, to provide information to MGRE that would have a material effect on the price or value of units in MGRE, and to give MGRE all assistance reasonably required by MGRE to meet its disclosure obligations. Further, pursuant to the contractual arrangements between MG and MGRE, MG agreed to provide to MGRE information that would have a material effect on the price or value of MGRE’s securities (paragraph 65(i)).

100    Third, paragraphs 67 to 69 allege that MGRE’s breaches of s 601FC and its fiduciary duties caused loss and damage to the plaintiff and group members and that they are entitled to recovery under s 601MA and by way of equitable compensation. The particulars of loss and damage refer back to the alleged contraventions and particulars of loss alleged in earlier parts of the pleading (paragraph 67) and to expert evidence of price inflation (paragraph 69). The defendants say that even if the plaintiff could establish the breaches alleged in paragraphs 64 to 66, there is no pleaded allegation or particulars that would support the conclusion that the plaintiff and group members have suffered any loss or damage attributable to those breaches. That is, there is no allegation or particulars which would demonstrate that any loss or damage was attributable to the conflicts of interests and duties alleged in paragraphs 64 to 66.

101    Generally, the defendants contend that the proposed amendments relating to this new case in paragraphs 63 to 69, including in the prayer for relief, should not be allowed. The defendants also challenge the addition of the claim for compensation under s 1325 to paragraph D of the prayer for relief (as opposed to the separate s 1325 claim at paragraph H concerning contraventions of ss 674(2) and 1041H). It is said that compensation under s 1325 is only available in relation to conduct in contravention of specified parts or provisions of the Corporations Act. It is said that if the allegation of a contravention of s 601FC is not maintainable, then there is no other contravention alleged against MGRE in relation to the PDS to which s 1325 could apply. The only other contraventions alleged against MGRE in respect of the PDS concern provisions of Part 7.9, which are not covered by s 1325.

102    Let me address each of these arguments in turn.

103    The plaintiff alleges that MG and MGRE have different and conflicting interests. MGRE is obliged as the trustee and responsible entity to act in the interests of the unitholders. MG must advance the interests of its shareholders, who are also its milk suppliers. But the interests of the unitholders and the interests of MG’s shareholders do not coincide. Only suppliers can be shareholders. The plaintiff alleges that as MG and MGRE had the same directors, so the directors were required to sometimes act as directors of MG solely to advance its and its shareholders’ interests, and to sometimes act as directors of MGRE solely to advance the interests of the unitholders. The plaintiff says that as identified in the proposed pleading and in the PDS itself, those roles had an inherent conflict. As to this, I am inclined to the view that the plaintiff’s position is reasonably arguable.

104    To the defendants’ argument that the imposition of a continuous disclosure obligation entails that MG’s interests were aligned with compliance with MGRE’s continuous disclosure obligations, the plaintiff submits that continuous disclosure obligations exist as a corrective to the self-interest which may otherwise exist in permitting a false market to prevail. The plaintiff contends that the continuous disclosure requirements are intended to prioritise the public interest over the private interest of the particular listed company. It is said that the defendants’ argument that because MG was subject to a continuous disclosure requirement it must be deemed to have behaved in perfect compliance with that obligation ought not to be accepted. I am inclined to agree.

105    Further, the plaintiff says that the defendants’ contention that there was no conflict is a matter for their defences and is a triable issue. It is said that there is nothing unusual in MGRE having fiduciary and statutory duties to unitholders which are inconsistent with the interests of MG, even if MGRE and MG have the same directors. It is said that there are many examples in which conflicts of interest can arise where companies in the same group have common directors, even without the overlay of one of those companies having explicit fiduciary and statutory obligations as trustee (and responsible entity) to unitholders. The plaintiff submits that it cannot be said that the plaintiff’s claim is bound to fail. I agree.

106    In my view the plaintiff’s claims are reasonably arguable, but there are some structural flaws such that I will not grant leave to replead in the form of the proposed pleading.

107    First, paragraphs 64 to 66 only focus on the second part of s 601FC(1)(c), yet it became clear during the course of argument that the plaintiff would also wish to rely upon the first part of s 601FC(1)(c) as well as other limbs of s 601FC(1). The proposed plea in paragraph 64 is expressed broadly, yet paragraph 65 and accordingly paragraph 66 only deal with the second part of s 601FC(1)(c). The pleading will need to be recast to properly plead out the breaches of each limb of the duties asserted in paragraph 64. Alternatively, some elements of paragraph 64 will need to be deleted.

108    Second, the pleading and particularisation of causation and loss and damage in paragraph 67 is unsatisfactory. For each duty breached (i.e. each specific element of s 601FC(1) relied upon), material allegations (with particulars) of causation and loss and damage will need to be pleaded referable to each specific duty breached.

conclusion

109    Currently, aspects of the proposed pleading are embarrassing as being opaque, vague or too general, although most of it is unobjectionable. Rather than grant leave to replead in the present proposed form, I will decline the plaintiff’s present application but I will give him a further opportunity to submit a revised proposed pleading taking into account these reasons. If it substantially addresses my concerns I will grant leave to replead.

110    I will hear further from counsel as to any necessary consequential directions.

Associate:

Dated:    27 October 2017

SCHEDULE OF PARTIES