FEDERAL COURT OF AUSTRALIA

Perazzoli v BankSA (No 5) [2018] FCA 1187

ORDERS

THE COURT ORDERS THAT:

1.    The Applicants have leave to:

(a)    join Antonietta Perazzoli, Susan Ferluga and Renato Ferluga as Fourth, Fifth and Sixth Applicants respectively;

(b)    disjoin William Johnson as the Third Applicant;

(c)    disjoin Michael Christopher Samra as the Second Respondent;

(d)    disjoin Michael Christopher Samra as trustee of the Michael Christopher Samra Family Trust trading as Adelaide Lending Centre ABN 69 787 153 821 as the Third Respondent.

2.    Leave to the Applicants to amend the Second Amended Originating Application and Second Amended Statement of Claim in the proposed form is refused.

3.    There be liberty to the Applicants to propose amendments to the Second Amended Originating Application and Second Amended Statement of Claim in a different form.

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

REASONS FOR JUDGMENT

WHITE J:

1    This judgment concerns an application to amend the originating application and statement of claim in a representative action under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the FCA Act).

2    The proceedings were commenced on 14 November 2014 but their progress has been delayed by interlocutory activity arising from subpoenas issued by the First Respondent (BankSA) for the production of documents in relation to its application for the permanent stay or striking out of the proceedings (Perazzoli v BankSA [2015] FCA 373), claims for client legal privilege with respect to documents produced on subpoena (Perazzoli v BankSA (No 2) [2016] FCA 260), an application for leave to appeal (Perazzoli v BankSA (No 3) [2016] FCA 677; Perazzoli v BankSA (No 4) [2016] FCA 725), and the subsequent appeal (Perazzoli v BankSA, a Division of Westpac Banking Corporation Limited [2017] FCAFC 204).

3    The Applicants now seek, pursuant to rr 9.03 and 9.08 of the Federal Court Rules 2011 (Cth) (the FCR), leave to join further applicants, to disjoin one Applicant, and to disjoin two Respondents. The grant of leave for those purposes is not controversial.

4    In addition, the Applicants seek leave to amend their originating application in the form of a document entitled “Second Amended Originating Application” (2AOA) and to amend their statement of claim in the form of a document entitled “Second Amended Statement of Claim” (2ASOC).

5    BankSA opposes the grant of leave to amend both documents. Its objection is based on the form of the proposed pleadings and their sufficiency. It does not object on discretionary grounds, such as delay.

6    The only other respondent continuing in the proceedings is the Fourth Respondent, ALC Group Pty Ltd (ALC Group). It was wound up and deregistered. The Court was told that ALC Group has recently been re-registered pursuant to an order of the Supreme Court of South Australia on 11 May 2018. The Applicants propose an amendment to the 2ASOC to reflect this circumstance. There has not been a grant of leave for the proceedings to continue against ALC Group and it did not take any part in the hearing of the Applicants’ amendment applications.

Pleadings – general principles

7    It is not necessary to address in any detail the principles which are generally applicable to pleadings. There was no issue about them at the hearing. It is sufficient to refer to Young Investments Group Pty v Mann [2012] FCAFC 107; (2012) 293 ALR 537 in which the Full Court said:

[7]    A statement of claim must allege a cause of action with sufficient particularity and not simply make allegations in general terms. The adequacy of a statement of claim is to be assessed by reference to whether the cause of action is pleaded at a level of particularity that is sufficient to define the issues and inform the other party of the case that it has to meet, in the context of the particular allegations. A respondent or defendant is entitled to know the factual foundation for the case that is being alleged, so that the respondent or defendant can prepare to meet that case at trial. In order to disclose a reasonable cause of action, a statement of claim must contain an allegation of all of the relevant facts necessary to support any allegation made in it. A pleading that simply pleads a conclusion is embarrassing and should not be permitted to stand.

8    Reference may also be made to rr 16.42 and 16.43 of the FCR. The former requires a pleading of fraud or breach of trust to include particulars of the facts on which the party relies. The latter requires a party pleading knowledge or fraudulent intention to include in the pleading particulars of the facts on which the party relies. When a party alleges that another ought to have known some fact or circumstance, the party must give particulars of the facts and circumstances from which the party ought to have acquired the knowledge.

Overview of the 2ASOC

9    The 2ASOC is divided into 11 parts. In Parts A, B and in [11A] to [11E] of Part C, the Applicants plead matters concerning the identity, roles and relationships of the parties and identify the Group Members. The remaining paragraphs in Part C ([11] to [15A]) and Parts D to I contain allegations with respect to the Applicants’ own claims. Some of these pleas also support the Group Members’ claims as the later pleading of their claims contains cross referencing to these allegations. The Group Members’ claims are pleaded in Part J and the 2ASOC then concludes with an allegation of loss or damage in Part K and the prayer for relief.

10    This means that the greater part of the 2ASOC is concerned with the Applicants’ own claims. It is convenient therefore to address the proposed pleading of these claims before turning to the pleading of the Group Members’ claims.

The general nature of the Applicants’ claims

11    The following summary of the Applicants’ claims is drawn from the 2ASOC. Accordingly, for the most part it records matters which at this stage are allegations only.

12    The Second Respondent in the proceedings was a Mr Samra. He operated and controlled, at least ostensibly, a finance brokering and financial advisory business as trustee for the Michael Christopher Samra Family Trust which traded as Adelaide Lending Centre (ALC). In addition, he controlled ALC Group. It conducted, or at least purported to conduct, a business of providing short term loans, principally to builders and property developers secured by mortgage. ALC and ALC Group received monies invested by the Applicants and group members by way of loans, deposits or investments. However, instead of the monies so invested being used for their intended purpose of short terms loans by ALC Group to builders and property developers, they were provided to others and/or misappropriated.

13    The Applicants allege that this occurred as part of the operation by Mr Samra, ALC and ALC Group of a fraudulent and dishonest scheme. The elements of the scheme are particularised in 2ASOC [23]:

At all material times each of Samra as a director of ALC Group and ALC Group was operating a fraudulent and dishonest scheme which involved:

(a)    procuring funds by way of short term high interest loans to ALC Group for the purported purpose of being on-lent to private borrowers engaged in building and construction or property development for short terms at high rates of interest on appropriate security;

(b)    not in fact using the loan funds for loans to borrowers;

(c)    using the loan funds to variously make repayments and interest payments to other private individuals or their associated entities that had previously loaned monies to ALC Group;

(d)    representing to individuals and/or their associated entities that the funds loaned to ALC Group had been on-lent to borrowers as stated by Samra for short terms at high interest on an appropriately secured basis; and

(e)    misappropriating funds loaned to ALC Group, including by:

(i)    applying the funds to the payment of expenses incurred or existing debts owed by it or Samra; or

(ii)    applying the funds toward the reduction of overdrafts or other debts owed by ALC Group to BankSA; or

(iii)    applying the funds as pleaded in paragraph 23(c) above,

being a scheme of the kind known as a “Ponzi Scheme”.

14    As can be seen, the Applicants’ allegation is that Mr Samra and ALC Group were conducting a Ponzi Scheme.

15    ALC Group collapsed in August 2009 and the monies invested by the Applicants and group members have been wholly lost.

16    Following the joinder and dis-joinder of parties, there will be five Applicants in the proceedings. They are Mr and Mrs Perazzoli (the Perazzoli Applicants) and three members of the Ferluga family (the Ferluga Applicants).

17    BankSA was the banker to Mr Samra, ALC and ALC Group. Mr Finch at BankSA’s Norwood Branch was its primary “relationship manager” with Mr Samra, ALC and ALC Group. The Applicants allege that, in its capacity as banker and through Mr Finch, BankSA acquired knowledge of the operation of the business of Mr Samra, ALC and ALC Group and, in particular, of the monies which they received and outlaid.

18    BankSA was also the banker to the Perazzoli Applicants and the Ferluga Applicants but not to all Group Members.

19    The Applicants allege first that nine representations made to them by Mr Samra were fraudulent, at 2ASOC [11], [25C].

20    Secondly, the Applicants allege that Mr Samra, as a principal of ALC and as a director of ALC Group, owed fiduciary duties to them (2ASOC [14K], [39E]). These duties are alleged to arise from the retention by the Applicants of ALC to provide advice and services to them (2ASOC [14A], [14D]), the trust and confidence which the Applicants had reposed in Mr Samra (2ASOC [14I]), the Applicants’ vulnerability vis-à-vis Mr Samra ([14J]), their reliance on him “to provide accurate, honest and competent advice, services and disclosures to them concerning their proposed financial investments and in their best interests” (2ASOC [14J(c)]), their expectation (said to be a reasonable expectation) that they could rely on Mr Samra to act in their interests ([14JJ]), and the circumstance that Mr Samra had undertaken to act on their behalf and in their interests, at 2ASOC [14JJ].

21    The matters said to give rise to the expectation, undertaking and reasonable reliance are pleaded to be:

(a)    the nine representations alleged to have been made by Mr Samra;

(b)    the engagement by the Applicants of ALC to provide advice and services to them; and

(c)    the provision to the Applicants of particular services (the services pleaded to have been provided to the Perazzoli Applicants do not match in every respect the services pleaded to have been provided to the Ferluga Applicants).

22    The Applicants allege that Mr Samra, in his capacity as principal of ALC and as director of ALC Group, breached his fiduciary duties to them in the following respects, at 2ASOC [25A]:

(a)    by providing advice to the Applicants to make loans to ALC Group at a time when there was an actual conflict between his interest as a Director of, and shareholder in, ALC Group in maintaining the pretence and facade of a legitimate private lending business, on the one hand, and their interests on the other;

(b)    by failing to act in good faith and in the best interests of the Applicants, and, in fact, perpetrating a deliberate fraud; and

(c)    by advising the Applicants to make loans to ALC Group knowing that the funds would not be used for the purposes he had stated, namely, to on-lend to borrowers engaged in construction and property development.

23    The third claim which the Applicants make is that, by reason of Mr Samra’s frauds, ALC Group did not obtain lawful title to the loaned funds which they invested, but instead held them on a resulting trust or, alternatively, on a constructive trust, at 2ASOC [25D].

24    The liability which the Applicants assert against BankSA derives in part from the breaches of duty alleged against Mr Samra. They allege that BankSA had actual knowledge of the elements of the business conducted by Mr Samra and ALC Group, of its financial position from time to time, of the manner in which it conducted its accounts and dealt with the funds which had been deposited into them, at 2ASOC [39B]. In the alternative, the Applicants allege that BankSA “wilfully and recklessly failed to make [the] enquiries that an honest and reasonable person would make in the light of the facts and circumstances known to it”, which the Applicants assert indicated that Mr Samra, on behalf of ALC and ALC Group, was engaged in a dishonest and fraudulent design or was acting in breach of trust, at 2ASOC [39S].

25    On the basis of that knowledge or wilful blindness, the Applicants assert:

(a)    BankSA assisted the dishonest and fraudulent breach of the fiduciary duty of Mr Samra and the breach by Mr Samra of the resulting constructive trusts which they allege, at 2ASOC [39T]; and

(b)    BankSA permitted Mr Samra to pay out his own indebtedness to it from funds obtained from the breaches of fiduciary duty to the Applicants and the breaches of trust, at 2ASOC [48] to [48B].

As is apparent, the Applicants rely on the second limb of Barnes v Addy (1874) 9 Ch App 244 for this claim against BankSA.

26    On this basis, the Applicants claim equitable compensation for their losses. There is an alternative claim that BankSA should account to them for the money received into the accounts which it held with Mr Samra and ALC Group but for present purposes this not need be mentioned further.

27    The Applicants also bring claims for damages against BankSA, on three bases.

28    They allege that credit references provided to them by BankSA’s Branch Manager were made negligently or, alternatively, constituted misleading or deceptive conduct in contravention of s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), at 2ASOC [62E]-[62J].

29    Next, the Applicants (who were themselves customers of BankSA) allege that it had owed them a contractual duty of care in carrying out their instructions, which duty of care BankSA is said to have breached, at 2ASOC [76] to [77D].

30    Finally, the Applicants allege conversion by BankSA of cheques which they had provided to Mr Samra and/or ALC, at 2ASOC [82A] to [82O].

The pleading of the Applicants’ own claims

31    It convenient to address the application for leave to amend the two documents by reference to BankSA’s grounds of opposition.

32    BankSA critiques 11 of the paragraphs in 2ASOC containing the Applicants’ pleading of their own claim. I proceed on the basis that, whatever be the position with respect to the pleading of the Group Members’ claims (as to which see Philip Morris (Australia) Ltd v Nixon [2000] FCA 229; (2000) 170 ALR 487 at [131]-[136]), there is no reason why the pleading of the Applicants’ own claims should not meet the Court’s usual pleading requirements: Peter Hanne & Associates Pty Ltd v Village Life Ltd [2008] FCA 719 at [41].

33    It is sufficient to address BankSA’s critique of the proposed pleading of the claims of the Perazzoli Applicants only. The proposed pleading of the claims of the Ferluga Applicants raises the same issues, so that its fate will be determined by the outcome in respect of the Perazzoli Applicants’ pleading.

The pleading of the fiduciary duties owed by Mr Samra, ALC and ALC Group

34    BankSA’s first objection to the form of pleading in 2ASOC concerns the plea that Mr Samra owed each of the Applicants fiduciary duties. It makes five distinct criticisms of these pleadings.

Paragraph [14A] – the pleading of the “Perazzoli Engagement”

35    Paragraph [14A] is a pleading of a contract of engagement in a rather generalised form. The plea is as follows:

[14A]    The Perazzoli Applicants engaged ALC to provide advice and services in relation to:

(a)    between about May and October 2008;

(i)    their existing banking facilities and a potential refinancing of them from Westpac Banking Corporation to BankSA; and

(ii)    additional finance for investment purposes;

(b)    subsequently, from about November 2008;

(i)    negotiating with BankSA in relation to the return of funds to the Perazzoli Applicants from their sale of an investment property; and

(ii)    the investment of the proceeds of the sale of their investment property by way of loans to ALC Group,

(the Perazzoli Engagement).

Particulars

(i)    The Perazzoli Engagement was oral and comprised in discussions between the Perazzoli Applicants and Samra;

(A)    between about May and October 2008 both by telephone and at meetings at the offices of ALC and ALC Group and at their home in relation to refinancing their existing facilities and additional finance for investment purposes; and

(B)    from about October 2008, both by telephone and at meetings at the offices of ALC and ALC Group in relation to the return of funds to the Perazzoli Applicants from their sale of an investment property and advice as to the investment of those funds by way of loans to ALC Group.

36    As can be seen, the Perazzoli Applicants allege that they “engaged” ALC to provide “advice and services”. The pleading alleges that this occurred in two periods, between May and October 2008 and from about November 2008, and pleads in a generalised way the subject matter of the advice and services which ALC was engaged to provide in each period. Particulars of the engagement (defined as the “Perazzoli Engagement”) are then given. The Perazzoli Applicants identify the means by which the engagement was made (oral discussions), the places at which the discussions occurred (meetings at the offices of ALC and ALC Group and at the Perazzoli family’s home and by telephone), and, in a very general way, the occasions when nominated subject matters were discussed.

37    Paragraphs [14B] and [14C] plead express and implied terms respectively of the Perazzoli Engagement.

38    BankSA submits that these pleadings are inadequate for the following reasons:

(a)    the allegations are a pleading of a contract of retainer to provide professional services, but no particulars of the formation of the contract are given;

(b)    there is no pleading of any engagement to provide advice as distinct from “the functions of a mortgage broker engaged to procure offers of finance”;

(c)    the allegation that the Perazzoli Applicants engaged ALC to provide advice and services in relation to “the investment of the proceeds of the sale of their investment property by way of loans to ALC Group” is devoid of relevant particulars and thereby embarrassing; and

(d)    the allegations of a contract of retainer to provide “advice” between about May and October 2008 in relation to their existing banking facilities and a potential refinancing of them from Westpac Banking Corporation (Westpac) to BankSA and additional finance for investment purposes is causally irrelevant given the absence of any pleading that Mr Samra did give advice on those matters.

39    There is undoubtedly some awkwardness in the Applicants’ pleading of “the Perazzoli Engagement”. Some of that awkwardness arises from the fact that a single engagement is said to have been made in two different periods, the engagement is alleged to have a different subject matter in each period, and the single engagement is said to be comprised in different discussions. Although it is apparent that the Applicants are alleging a contract or contracts, the pleading does not allege the formation of the contract(s). The pleading leaves unclear whether the Applicants are alleging that a contract was made at some time between about May and October 2008 (although they cannot particularise when) and that a further contract was made at some time after “about November 2008” (again without the Applicants being able to particularise when); whether there was one contract the terms of which were varied at some time after “about November 2008”; or whether they are alleging that, while they cannot particularise when a contract or contracts was or were made or the time or times at which they were made, the contract or contracts are to be inferred from the conduct of Mr Samra and themselves occurring over a period of time, in one or other of the manners discussed by McHugh JA (with whom Hope and Mahoney JJA agreed) in Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118 and by Allsop J in Branir v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833, (2001) 117 FCR 424 at [368]-[370].

40    The Applicants do allege in a general way the subject matter of the engagement, identify the periods in which it was made, and say that it was comprised in oral discussions at particular places or over the telephone. Nonetheless, it is also unsatisfactory that they do not allege, even in general terms, the words used (or the substance of those words) said to give rise to the engagement. Nor do the Applicants identify the persons using those words.

41    These matters indicate the inadequacy of the pleading of the Perazzoli Engagement in the 2ASOC. Given the apparent importance of the Perazolli Engagement to the fiduciary duties said to be owed by Mr Samra, and in turn to the liability of BankSA, I consider that the pleading is likely to cause prejudice, embarrassment or delay in the proceedings. Accordingly, leave to the Applicants to file and serve the 2ASOC containing [14A] to [14C] (and, in the case of the Ferluga Applicants, [14D] to [14F]) is refused. The Applicants should be given the opportunity to present a revised pleading of the Perazzoli and Ferluga Engagements.

42    As things stand, I do not regard BankSA’s objection that “there is no pleading of any engagement to provide advice as to distinct from the functions of a mortgage broker engaged to procure offers of advice” as being significant. It is BankSA which introduces the characterisation of Mr Samra as a “mortgage broker engaged to procure offers of finance”. This does not seem to be the Applicants’ own allegation.

43    I expect that some of the other objections of BankSA to [14A] of 2ASOC will be addressed by the Applicants in the re-pleading of the Perazzoli and Ferluga Engagements.

Causally irrelevant allegations

44    BankSA contends that the plea in [14A] of a retainer of Mr Samra to provide “advice” in the period between May 2008 and October 2008 concerning the matters pleaded in [14A(a)] is causally irrelevant because the Applicants do not make any later plea that Mr Samra had given advice about those matters.

45    The premise for this submission of BankSA appears to be correct, and I note that the Applicants did not contest its accuracy. However, the fact that the plea may be causally irrelevant, in the sense that no loss is said to result from Mr Samra’s advice concerning those matters, does not mean that the plea of the retainer is irrelevant. On my understanding, it is a plea of one of the matters which the Applicants assert gave rise to the fiduciary duties of Mr Samra which they allege.

46    This objection fails.

The plea of advice and services

47    In [14G(d)], the Applicants plead:

Pursuant to the Perazzoli Engagement, from approximately May 2008 Samra, on behalf of ALC and otherwise in his capacity as director for and on behalf of ALC Group:

…

(d)    provided the Perazzoli Applicants with information, advice and investment recommendations in respect of investing a portion of the proceeds of the sale of their investment property by way of loans to ALC Group.

Particulars

(i)    Paragraphs 11 and 14A to 14C above are repeated.

48    I uphold the submission of BankSA that this pleading is embarrassing. That is so because [11] does not provide any particulars of information, advice and investment recommendations given by Mr Samra to the Perazzoli Applicants with respect to the investment of a portion of the proceeds of the sale of their investment property by way of loans to ALC Group. Paragraphs [14A] to[14C] cannot be regarded as providing those particulars. As already seen, they are the pleas concerning the Perazzoli Engagement and its terms. They do not provide particulars of conduct of Mr Samra pursuant to the Perazzoli Engagement.

49    Counsel for the Applicants said that they would make “minor amendments [to [14G]] to clarify the dates from which Samra provided advice to the Applicants concerning investing with ALC Group”. Particulars of that kind may address another shortcoming in [14G] but they will not remove the deficiency which is the subject of BankSA’s current objection.

The plea of the fiduciary duty

50    Paragraph [14K] of 2ASOC is as follows:

[14K]    By reason of the matters set out in paragraphs 14I to 14JJ, Samra both in his capacity as principal of ALC and as director (and hereby the directing mind and will) of ALC Group, and thereby the ALC Group, owed to the Applicants fiduciary duties:

(a)    to act honestly and in good faith;

(b)    without informed consent of the Applicants not to derive a profit from his position as principal of ALC and director and shareholder of ALC Group;

(c)    not to act in circumstances where there was a conflict between his/ALC Group’s personal interests and those of the Applicants.

51    Paragraph [14K] is a composite pleading with respect to both the Perazzoli and Ferluga Applicants because, of the paragraphs to which it refers, [14A] to [14C] and [14G] concern the Perazzoli Applicants, [14D] to [14F] and [14H] concern the Ferluga Applicants, and [14I] to [14JJ] concern both.

52    BankSA contends that the pleading in [14K] is vague and embarrassing because it does not plead “the scope of the activities superimposed with a fiduciary duty”.

53    To my mind, when [14K] is read in the context of 2ASOC as a whole, this objection is of a more formal than substantive kind. I expect, however, that the Applicants will address the objection in a re-pleading of the 2ASOC.

The plea of reliance

54    In [14] of 2ASOC, the Applicants plead:

In reliance upon:

(a)    …

(b)    the advice provided by Samra on behalf of ALC as particularised in paragraphs 14A to 14C;

(c)    …

(d)    the information, advice and investment recommendations that the Perazzoli Applicants make the loan set out in 14G and paragraph 1 of Schedule 2,

the Perazzoli Applicants loaned monies to ALC Group.

55    I uphold the submission of BankSA that the plea in [14(b)] is embarrassing because [14A] to [14C] of the 2ASOC do not contain any particulars of advice provided to the Perazzoli Applicants by Mr Samra. Instead, as already noted, those pleas concern the making of the Perazzoli Engagement and its terms. Counsel for the Applicants recognised the shortcoming in the pleading and said that the Applicants would revise their plea.

56    BankSA’s submission with respect to [14(d)] is, in my opinion, misplaced. Counsel submitted that the pleading was deficient because [1] of Sch 2 does not contain any allegation of advice. However, on my understanding, the reference in [14(d)] to para [1] of Sch 2 is for the purpose of providing particulars of the loan (in fact one loan) which Mr Samra advised the Perazzoli Applicants to make. Understood in that way, the pleading is adequate. However, it is not necessary to address that further as counsel said that the Applicants would withdraw that pleading.

The plea of fraudulent representations

57    In [25C] of the 2ASOC, the Applicants plead:

Further and in the alternative, ALC Group and Samra on behalf of himself and ALC Group made the representations set out in paragraph 11 above knowing that those representations were untruthful so as to fraudulently deceive the Applicants and thereby induce them to lend moneys to ALC Group for the purposes of it maintaining the pretence and façade of a legitimate business by accessing the loan funds for the purposes of payment to other lenders to ALC Group.

58    BankSA submitted that this wrapped-up pleading of fraudulent conduct is deficient. It emphasised the requirement for specificity in the pleading of an allegation of fraud. In addition to the principles to which reference was made at the commencement of these reasons, BankSA referred to the statement of French CJ, Gummow, Hayne and Kiefel JJ in Forest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486, at [26]:

It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. A pleading of fraud will necessarily focus attention upon what it was that the person making the statement intended to convey by its making. And the pleading must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity.

(Citation omitted)

59    BankSA submits that the 2ASOC does not meet this standard in that it does not plead the parts of the representations said to be false, the facts relied upon as indicating the falsity of the representations, nor that Mr Samra intended the representations to be false or was recklessly indifferent as to their truth. In addition, 2ASOC does not allege that the monies raised by Mr Samra from loans by the Perazzoli Applicants and Ferluga Applicants were not deployed in the manner he is said to have represented.

60    I uphold those submissions. I note that the Applicants’ counsel conceded that the Applicants should provide further particulars of the plea in [25C].

The pleading of BankSA’s knowledge

61    By [39B], the Applicants plead that by reason of and through the relationship which BankSA had with Mr Samra, Mr Samra’s wife, ALC and ALC Group, it had acquired knowledge of certain facts and circumstances. Some of those facts and circumstances are pleaded in [39E]:

Samra both as principal of ALC and a director of ALC Group, and thereby ALC Group, acted on behalf of the Applicants and provided advice to them as to investments by way of making loans to ALC Group and thereby owed them fiduciary duties as set out in paragraphs 14I to 14K.

Particulars

(a)    The Applicants refer to and repeat the particulars to paragraph 39D.

(b)    Finch knew that in or about late October or November 2008, Samra as principal of ALC was acting on behalf of the Perazzoli Applicants in connection with their financial affairs and negotiated with Finch on their behalf the terms on which funds would be released to them from the settlement of an investment property.

(c)    In or about November 2008, in a telephone call between Antonietta and Finch, Finch was informed that Samra had recommended to the Perazzoli Applicants that they make an investment by way of a loan to ALC Group in an amount of up to $500,000. Finch was further informed by Antonietta that the Perazzoli Applicants did not have $500,000 available, but that the Perazzoli Applicants were considering acting on Samra’s recommendation and investing $230,000 with ALC Group by way of a loan, which monies would be sourced from the remainder of the funds released to them from the settlement of their investment property.

(d)    On or about 1 July 2009, Samra as agent for the Ferluga Applicants offered to Finch on their behalf that they would make a loan to ALC Group of $450,000, which Finch knew was to cover excesses on the ALC Group Account.

(e)    On or about 2 July 2009, Samra acting on behalf of the Ferluga Applicants spoke to Finch and arranged the extension of the Ferluga Applicants’ commercial line of credit facility and the loan of $450,000 to ALC Group.

(f)    By reason of the matters referred to in paragraphs 39E(a) to 39E(e) above, BankSA was aware that Samra was acting for and on behalf of the Perazzoli Applicants and Ferluga Applicants, and thereby owed them fiduciary duties.

(g)    Further particulars will be provided after the provision and inspection of BankSA’s discovery.

62    In substance, the Applicants allege that BankSA had acquired knowledge that Mr Samra, ALC and ALC Group had acted on behalf the Applicants, had provided advice to them as to investments in ALC Group and that it thereby owed them fiduciary duties. As is apparent, [39E] is an important plea in the Applicants’ claim that BankSA assisted Mr Samra with knowledge in his dishonest scheme.

63    BankSA contends that this pleading is inadequate because the relationship of financial advisor and client is not one of the recognised categories giving rise to fiduciary duties. Accordingly, even if it had been aware that Mr Samra provided financial advice to the Applicants, it would not follow that it was aware that he owed fiduciary duties to them. It is the absence of a pleading of the matters by which BankSA knew that fiduciary duties were owed which BankSA contends makes this pleading in the 2ASOC deficient.

64    The Applicants referred to the five categories of knowledge identified by Peter Gibson J in Baden v Société Générale pour Favoriser Le Développement Du Commerce et De L’Industrie en France S.A. [1993] 1 WLR 509 at 575-6:

(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.

65    In Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [174]-[175] the High Court said with respect to this analysis and with reference to Consul Development Pty Ltd v D.P.C. Estates Pty Ltd (1975) 132 CLR 373:

[176]    Thus, support in Consul can be found for categories (i), (ii) and (iii). Further, Consul also indicates that category (iv) suffices. However, in Consul, Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Gibbs J left open the possibility that constructive notice of this description would suffice. Barwick CJ agreed with Stephen J.

[177]    The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the second limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. In this way, there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons.

(Citations omitted)

See also Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [262]-[270].

66    The Applicants then submitted that the particulars in [39E] were sufficient to support a claim based on the first four of the Baden categories. They drew attention to the particulars alleging that Mr Samra was not only acting as financial adviser to them but was also acting as their agent, this being one of the recognised categories in which a fiduciary duty may arise. I uphold that submission.

67    Further, the 2ASOC indicates that further particulars will be provided after discovery. In that context, the observation of Beach J in Webster (Trustee) v Murray Goulburn Co-Operative Co Ltd (No 2) [2017] FCA 1260 is apposite:

[6]    [L]eave 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.

(Emphasis added)

68    Accordingly, BankSA’s objection to [39E] is rejected.

The pleading that BankSA knew that Mr Samra and ALC Group were operating illegally

69    In [39F], the Applicants plead that none of Mr Samra, ALC or ALC Group held an Australian Financial Services Licence (AFSL) under s 911A of the Corporations Act and none of them was an authorised representative of an AFSL holder. They allege that Mr Samra, ALC and ALC Group were thereby acting illegally. The effect of [39B] is that BankSA is alleged to have had knowledge of those circumstances.

70    BankSA object to this pleading on the basis that the particulars to [39F] do not support actual knowledge, only (at best) constructive knowledge.

71    I consider this objection to be well made. However, I do not consider that it should result in the disallowance of the pleading in [39F]. First, I accept the Applicants’ submission that the particulars to [39F] do plead a basis upon which the Baden category four constructive knowledge can be found. Secondly, the Applicants have indicated that further particulars will be provided after BankSA has provided discovery.

72    Accordingly, I do not up hold this objection.

The pleading concerning Mr Samra’s engagement in “a dishonest and fraudulent design”

73    In [39S] of the 2ASOC, the Applicants plead:

Further to the matters referred to in paragraphs 39A to 39R above, BankSA:

(a)    wilfully and recklessly failed to make enquiries that an honest and reasonable person would make in light of the facts and circumstances known to it which indicated that Samra on behalf of ALC and ALC Group, was:

(i)    engaged in a dishonest and fraudulent design; further or alternatively

(ii)    acting in a way which:

(A)    gave rise to the trust set out in paragraph 25D above; and

(B)    was in breach of the trust set out in paragraph 25D above.

…

…

(b)    in the alternative, was aware of facts and circumstances which would indicate to an honest and reasonable person that Samra on behalf of ALC and ALC Group was:

(i)    engaged in a dishonest and fraudulent design in furtherance of the purported business of ALC Group; further or alternatively

(ii)    acting in a way which:

(A)    gave rise to the trust set out in paragraph 25D above; and

(B)    was in breach of the trust set out in paragraph 25D above.

Particulars

(C)    The Applicants repeat the matters set out in paragraphs 39C to 39R.

(D)    Further particulars will be provided after the provision and inspection of BankSA’s discovery.

74    The Applicants propose further amendments to [39R] to which cross reference is made in [39S], but it is not necessary for present purposes to address them.

75    BankSA raises two objections to the pleading in [39S]. The first is that the Applicant had not identified the “dishonest and fraudulent design” referred to in [39S(a)(i)] and [(b)(i)] and that they had thereby not complied with the obligation to give detailed particularisation of their objection of fraud.

76    However, I think it reasonably plain that the “dishonest and fraudulent design” pleaded in [39S] is the scheme pleaded in 2ASOC [23], set out earlier in these reasons. I note in this respect that [23] appears immediately under the heading “Samra dishonest and fraudulent design”. Accordingly, I consider this objection of BankSA to be without substance.

77    BankSA’s second objection is that the particulars to [39S] support only a claim of constructive knowledge of the Baden fifth category kind which is not sufficient to establish the second limb of Barnes v Addy.

78    I consider that this objection should not be sustained. The 2ASOC particularises subpara (a) and (b) in [39S] by reference to the earlier pleadings in [39A] to [39R] and, in particular, [39C] to [39R]. Paragraph [39D], read in conjunction with [39B], is an allegation that Mr Finch had been told, separately, by the Perazzoli Applicants and by the Ferluga Applicants that they had been advised by Mr Samra to invest (or consider investing) with ALC Group, and that Mr Finch had been told the purpose given to them for which their investments would be used. Paragraph [39G], in conjunction with [39B], alleges that BankSA knew that ALC Group was using the funds from new private lenders to repay existing private lenders or to reduce the excesses on its own account with BankSA (and not to on-lend to private borrowers). Read together, these paragraphs contain an allegation that BankSA knew that Mr Samra was not applying invested funds for the purposes represented to the Perazzoli Applicants and the Ferluga Applicants, and for which they had made their investments.

79    In addition, on my understanding, the pleas in [39A] to [39R] constitute elements in a circumstantial case. That is to say, it is the combined effect which has to be considered. I accept the Applicants’ submission in that respect.

80    Counsel for BankSA submits that there was nothing inherently wrong in Mr Samra using the funds of one investor to discharge ALC or ALC Group’s liability to another investor, or to reduce its own indebtedness to BankSA. He likened their position in this respect to the activities of a trading bank. I take the view that it is unnecessary and inappropriate for the Court presently to express a view about the merit or otherwise of that comparison. It will be a matter for trial. What is significant for present purposes is that the Applicants’ pleading does not, in my view, suffer from the deficiency which BankSA imputes to it.

The pleading of the claims of the Ferluga Applicants

81    For the reasons given earlier, it is not necessary to address BankSA’s objections to the pleading of the claims of the Ferluga Applicants. My rulings with respect to the Perazzoli Applicants’ pleading apply to the counterpart pleading of the claims of the Ferluga Applicants.

Summary of rulings concerning the pleading of the Applicants’ claims

82    In summary, I uphold the submissions of BankSA with respect to the proposed pleadings in [14A] to [14G], [14] and [25C]. Leave to amend in the form of these paragraphs is refused. Leave to amend in the form of other paragraphs which are based on, or contain cross references to, these paragraphs, including [14I], [14K], [25A], [25D], [39E], [48A] to [48B] is refused. These paragraphs are so significant to the Applicants’ claims that leave to amend in the form of the 2ASOC with respect to the pleading of their claims should be refused. As will be seen, this also has implications for the pleading of the Group Members’ claims.

The Group Members’ claims

83    BankSA objects to a number of aspects of the Applicants’ pleading of the claims of the Group Members. In considering these objections, it is appropriate to refer first to the scheme for representative actions contained in Pt IVA of the FCA Act.

84    Section 33C of the FCA 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.

85    Section 33C(1) has been described as being central to the scheme in Pt IVA for the bringing of representative proceedings: Timbercorp Finance Pty Ltd (in liquidation) v Collins [2016] HCA 44; (2016) 259 CLR 212 at [105]. The requirements in subs (1) were described in Wong v Silkfield Pty Ltd [1999] HCA 48; (1999) 199 CLR 255 at [28] as “threshold requirements”. Earlier, at [26], the High Court had said:

In terms, s 33C(1) looks to the claims made by seven or more persons against the same person, being claims which are in respect of, or arise out of, the same, similar or related circumstances, and asks whether claims so understood give rise to a substantial common issue of law or fact.

The Court went on to confirm, at [28], that there will be a substantial common issue of law or fact for the purposes of s 33C(1) if there is an issue which is “real or of substance” and, at [30], that it is not necessary for an applicant to show that litigation of the common issue is likely to resolve wholly, or to any significant degree, the claims of all group members.

86    Section 33H contains requirements for the pleading of a representative action:

33H Originating process

(1)    An application commencing a representative proceeding, or a document filed in support of such an application, must, in addition to any other matters required to be included:

(a)    describe or otherwise identify the group members to whom the proceeding relates; and

(b)    specify the nature of the claims made on behalf of the group members and the relief claimed; and

(c)    specify the questions of law or fact common to the claims of the group members.

(2)    In describing or otherwise identifying group members for the purposes of subsection (1), it is not necessary to name, or specify the number of, the group members.

87    Although each group member must have a claim against the respondent, it is not necessary that each member have the same claim as all other group members: Guglielmin v Trescowthick (No 2) [2005] FCA 138; (2005) 220 ALR 515 at [30].

88    The entitlement of a respondent to a Pt IVA action to know the case it has to meet is well recognised. In Melbourne City Investments Pty Ltd v Leighton Holdings Limited [2014] VSC 7, Judd J said:

[23]    It is not to the point to contend that the amended statement of claim complied with Pt 4A, because the group is comprised of seven or more persons, including the plaintiff, with claims against the defendant arising out of one or more alleged non-disclosure events. Something more than technical compliance is necessary. In Harrison v Lidoform Pty Ltd, Hely J said:

A representative party may be able to enforce the rights of others in a proceeding brought under Part IVA, but the statement of claim needs to identify what the rights of those represented are claimed to be, and how they are said to arise. In my view this is necessary in order to give definition to the proceedings, and to expose the issues for determination in the proceedings. It is also necessary that class members know with some precision the nature of the case which the applicant seeks to bring on their behalf so that they can decide, in terms of s 33J, whether to opt out of a claim formulated in that way. A judgment given in a representative proceeding binds all group members other than persons who have opted out. Section 33ZB Federal Court of Australia Act 1976. Whilst the amended statement of claim remains in its present form, one simply does not know to what it is that group members are bound.

[24]    A statement of claim must plead a cause of action against the defendant with sufficient clarity to enable the defendant and the court to assess the viability of each cause of action, and the defendant to plead a responsive case that will expose the real issues for trial. The potential scope of the ‘limited’ early discovery sought by the plaintiff is testimony to the magnitude of the task that lies ahead for the defendant, if discovery is not aggressively managed by the court. Responsible limits must be placed upon the discovery obligation. That will not be possible in the absence of a much more precise definition of issues. The amended statement of claim does not satisfy those minimum requirements. The plaintiff is not relieved of those requirements, because the proceeding has been commenced under Pt 4A.

(Citation omitted and emphasis in the original)

Overview of the Group Members’ claims

89    The allegations concerning the Group Members’ claims are contained in 2ASOC [88] to [107]. In general, the allegations in these paragraphs replicate those made by the Perazzoli and Ferluga Applicants:

    [88] and [89] allege that Mr Samra made to the Group Members the same nine representations pleaded in [11] which are alleged to have been made to the Perazzoli and Fergula Applicants, and that these were made in trade and commerce and were in relation to a financial product or financial service;

    [90] and [91] allege that “[m]ore than seven Group Members” engaged ALC to provide the same advice and services alleged by the Perazzoli and Ferluga Applicants in [14A] to [14F], and that Mr Samra, ALC and ALC Group had provided them with information, advice and investment recommendations;

    [92] to [95] contain allegations that Mr Samra, ALC and ALC Group owed to Group Members fiduciary duties (these are the same duties as are alleged in [14K] to have been owed to the Perazzoli and Ferluga Applicants). Significantly, the 2ASOC alleges that the fiduciary duties were owed to the “more than seven Group Members” referred to in [90]. It does not allege that fiduciary duties were owed to all Group Members;

    [96] incorporates by reference the allegations made in [23] concerning the dishonest and fraudulent scheme;

    [97] incorporates by reference the pleadings in [39A] to [39T] of the Applicants’ own pleading concerning BankSA’s knowing assistance in Mr Samra’s scheme;

    [98] incorporates by reference to [48A] the pleading that BankSA had, with knowledge, received the monies paid to it by ALC Group which had been obtained by Mr Samra, ALC and ALC Group in dishonest breach of their fiduciary duties or in breach of trust. This allegation is also made as a free standing allegation in [99];

    [100] alleges by reference to [48] to [48A] that BankSA is liable to account to Group Members for the monies provided to it by ALC Group or, alternatively, to compensate them for their losses suffered by reason of the payment by ALC Group to it of the monies; and

    [101] to [107] contain an allegation of conversion by BankSA of the cheques drawn by “more than seven Group Members”.

90    During the hearing, the Applicants foreshadowed the inclusion of further pleadings concerning the Group Members’ claims, including further pleading of the fiduciary and fraud claims, and claims of a breach of a contractual duty of care owed to “more than seven Group Members” who were customers of BankSA. The adequacy or otherwise of these foreshadowed pleadings was not the subject of detailed submissions, and I have taken the view that it is not necessary to consider them.

Pleadings which fail by cross reference

91    Those pleadings of the Group Members’ claims which are based on the disallowed pleas of the Applicants’ own claims should also be disallowed. These include the proposed pleadings in [90] to [95] and [98] to [100].

92    This is sufficient to indicate that leave to amend in the form of the 2ASOC with respect to the Group Members’ claims should be refused generally, but with liberty to the Applicants to re-plead.

93    This conclusion makes it unnecessary to consider the remaining aspects of the 2AOA and the 2ASOC in detail. The form of those documents is likely to change and the Court should not give, in effect, an advisory opinion. It is, however, necessary to mention some further matters.

Do all Group Members have a claim against BankSA?

94    BankSA also contends that both the 2AOA and 2ASOC are deficient because their description of the Group Members includes persons who do not have any pleaded claim against either respondent.

95    Paragraphs [4.2] of the 2AOA and [4] of the 2ASOC define the Group Members as all persons who:

(a)    between 1 June 2007 and 6 August 2009 advanced money (whether described as loan, a deposit or an investment) to ALC Group; and

(b)    as at 6 August 2009 had some or all of the said advances still on loan to, or deposited or invested with, ALC Group; and

(c)    suffered loss of the amounts owing to them as at 6 August 2009 by reason of its insolvency and the fact that there has been no return to creditors from its winding up.

96    In short, the class comprises those persons who lent money to ALC Group in the period 1 June 2007 to 6 August 2009 who still had monies advanced at 6 August 2009 and who have not been repaid.

97    BankSA submitted, correctly, that it is necessary to have regard to the claims made against it, rather than ALC Group, for the purposes of determining whether each group member has at least one claim against one respondent. That is because the only relief sought against ALC Group is declaratory and the proposed declarations concern only the claims of the Applicants. This makes it necessary for each Group Member to have a claim against BankSA.

98    In [88], the Applicants allege:

Samra made representations to Group Members to the effect of those pleaded at paragraph 11 above.

BankSA’s first complaint is that it is unclear whether [88] is intended to encompass all Group Members, or only some.

99    Prima facie, this seems to involve an unduly narrow reading of the pleading. It overlooks the identification of Group Members contained in 2ASOC [4]. In my view, read fairly, [88] is reasonably capable of being understood as an allegation that representations to the effect pleaded in [11] of 2ASOC were made to all Group Members.

100    BankSA submitted that the Applicants’ legal representative “cannot have present instructions” to allege that Mr Samra made fraudulent representations to all Group Members to the effect alleged at [11], and suggested that the Court should conclude that it is “highly unlikely” that Mr Samra had made oral representations in identical, or substantially identical, terms to each Group Member over the course of a period of more than two years. At one level, this submission invited an evaluation of the instructions on which the Applicants’ legal representatives are proceeding. At another level, it invited the Court to speculate as to the prospects of the Applicants and the Group Members making out the allegations. I consider both courses to be inappropriate. The Court is entitled to proceed on the basis that the Applicants’ legal representatives have satisfied themselves that there is a proper foundation for the allegations made. The prospect of the Applicants making good their allegation does not bear on the issue of whether the Group Members have been properly identified. This ground of objection, considered by itself, fails.

101    BankSA is correct in submitting that the claims for Group Members may be of disparate form. Some (“more than seven”) will have claims for breach of fiduciary duty; some (“more than seven”) will have claims for conversion and, on my understanding, most, if not all, will have claims with respect to the alleged fraudulent representations. However, it is not necessary that all Group Members have the same causes of action or claim the same relief. In Dillion v RBS Group (Australia) Pty Ltd [2017] FCA 896; (2017) 252 FCR 150, Lee J said in this respect:

[43]    [Section 33C] directs attention to the notion of a ‘claim’ – a fundamental concept in Part IVA proceedings. It is critical to understand that a ‘claim’ is not the cause of action pleaded: King v GIO Australia Holdings Limited [2000] FCA 617; (2000) 100 FCR 209 at 219 [23]-[24] and at 222-223 [34]-[35] per Moore J. It is a term to be given a wide meaning (Allphones Retail Ltd v Weimann [2009] FCAFC 135 at [80] per Tracey and McKerracher JJ) and need not be based on the same conduct and may arise out of quite disparate transactions. The breadth of the concept was explained by Lindgren J in Australian Competition and Consumer Commission v Giraffe World Australia Pty Limited [1998] FCA 819; (1998) 84 FCR 512 at 523:

As to the meaning of “claims” in s 33C(1)(a), certain matters are tolerably clear.

First, the claims must be claims recognised by the law.

Second, s 33C(2)(a)(i) shows… that the “claims” to which s 33C(1)(a) refers are not confined to claims to relief as of right.

Third, whatever the word “claims” in the provision denotes, they have an existence independent of, and antecedent to, the commencement of the proceeding, since it is only if seven or more persons have claims against the same person that a proceeding under Part IVA may be commenced by one or more of them. Perhaps this signifies that it is not a sufficient condition of the existence of a claim that a claim has been “made”, “asserted” or “threatened”.

Fourth, for obvious reasons, s 33C(1)(a) does not speak of a “right” or “entitlement” to relief — a matter which cannot be known until a final hearing.

Fifth, it is not required that the persons who have the claims be aware that they have them, let alone that they have asserted them.

(original emphasis)

[44]    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)

102    Accordingly, I reject this submission of BankSA.

The adoption for Group Members of the claim made by the Applicants

103    BankSA submits that the technique adopted by the Applicants in [88] to [107] of adopting for Group Members the claims of the Applicants concerning the representations made to them, is impermissible. It referred in this respect to the decision in Connell v Nevada Financial Group Pty Ltd (1996) 139 ALR 723. That decision concerned, amongst other things, a challenge to the pleading of a representative action brought by six persons representing a class of 16 persons. The allegation was that, as a result of misleading or deceptive statements by the respondents, the class members had entered into distributorship agreements with them. In relation to the adequacy of the Applicants’ pleading, Drummond J said at 728:

It is not … an objection to proceedings being brought as representative proceedings and founded upon an oral (or a written) representation made to the various class members that the representation may have been made on different occasions and in a different form of words to each class member, so long as the court can be satisfied that the substance and effect of what was orally represented is the same. But, in such cases, the court must be satisfied that each class member truly does set up a representation to the same substance and effect. … [I]t is incumbent on the applicants who bring a representative proceeding so based to plead with precision the terms in which the representation was made to each to show that, although made in differing words, the substance and effect of the representation made to each class member is truly the same. A pleading alleging in terms that oral representations were made to the different class members on different occasions to the same substance and effect will plainly not be sufficient to answer a challenge to the inappropriateness of the proceedings being brought as representative proceedings: it would generally be necessary for the applicants facing such a challenge to put in evidence setting out precisely as possible the statements made that are said to contain each oral (or written) representation, if the pleading does not particularise the precise words said to contain the representation to each group member.

(Emphasis added)

104    The approach in Connell v Nevada was followed by Emmett J in Murphy v Overton Investments Pty Ltd [1999] FCA 689 at [22]-[23] and in a later decision in the same action, [1999] FCA 1123 at [50]-[52]. Edmonds J followed a similar approach in Meaden v Bell Potter Securities [2011] FCA 136 at [41]-[43].

105    However, in my view, some care is required in applying Connell v Nevada in the present case. In the first place, regard must be had to the particular issue which arose for consideration in Connell v Nevada. It did not concern the adequacy of the Applicants’ pleading but instead an application under s 33N of the FCA Act for an order that the proceeding no longer continue as a representative action. Moreover, that was in the context that the questions of law and fact said to be common to the claims of group members were identified as the falsity, deceitful or misleading nature of various representations made by the respondents. It is understandable that in that context Drummond J was concerned to see that the substance and effect of the representations to each class member were the same.

106    Secondly, as Mansfield J noted in Guglielmin at [60], the views of Drummond J in Connell v Nevada, as to the proper construction of s 33(1)(c), which were adopted by his Honour and O’Loughlin J in Silkfield Pty Ltd v Wong (1998) 90 FCR 152 at 168, were not accepted by the High Court in Wong v Silkfield. Those views may have influenced his Honour’s approach to the necessity for detailed pleadings.

107    In the present case, the 2ASOC identifies eight questions said to be common to all Group Members. Only one of these concerns directly the representations made by Mr Samra. That is sufficient by itself for Connell v Nevada to be distinguished. The question concerning the representations is:

(e)    whether the representations made by Samra referred to in paragraph 11 of the SASOC were fraudulent. …

Consideration of whether this is truly a question common to all Group Members should be deferred until the Applicants finalise their pleadings.

Conclusion

108    The submissions of the parties canvassed a number of further matters. However, as I consider that leave to amend the 2AOA and the 2ASOC should be refused in any event, it is not necessary to address these matters.

109    As noted at the commencement of these reasons, BankSA did not oppose the grant of leave to the Applicants to:

(a)    join Antonietta Perazzoli, Susan Ferluga and Renato Ferluga as the Fourth, Fifth and Sixth Applicants respectively;

(b)    disjoin William Johnson as the Third Applicant;

(c)    disjoin Michael Christopher Samra as the Second Respondent; and

(d)    disjoin Michael Christopher Samra as trustee of the Adelaide Lending Centre ABN 69 787 153 821 as the Third Respondent.

There will be a grant of leave to that effect.

110    Leave to the Applicants to amend the 2AOA and 2ASOC is refused. The Applicants have liberty to propose amended documents in different form. I expect that, when preparing their amendments, the Applicants will take account of the remaining critiques of BankSA.

111    I will hear from the parties as to the time in which the Applicants are to present any further amendments and with respect to costs.

Associate:

Dated:    10 August 2018

SCHEDULE OF PARTIES