JUDGMENT No. sionde2dud 2K." Snenceconere ISTRI FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 397 of 1992 GENERAL DIVISION ) No. NG 620 of 1992 BETWEEN: ROGER JAMES POIGNAND Applicant AND: NZI SECURITIES AUSTRALIA LIMITED & ORS Respondents BETWEEN: NZI CAPITAL CORPORATION LIMITED Applicant AND: ROGER JAMES POIGNAND & ORS Respondents CORAM: SACKVILLE J. PLACE: SYDNEY DATE: 25 OCTOBER 1994 FEDERAL COURT OF AUSTRALIA . The motions of the respondents in proceedings NG 397 of 1992 and of the applicant in proceedings NG 620 of 1992 be dismissed. The hearing of proceedings NG 397 of 1992 should include issues relating to the quantification of damages claimed by the applicant. The applicant in proceedings NG 397 of 1992 file and serve an amended statement of claim, in conformity with the reasons herein, on or before 2 November 1994. All parties to proceedings NG 620 of 1992 who are group members in proceedings NG 397 of 1992 (including the applicant in proceedings NG 397 of 1992) to file and serve any amended pleadings in the guarantee proceedings in consequence of the amended statement of claim in proceedings NG 397 of 1992, on or before 9 November 1994. Stand the matter over for further directions at 9.30 a.m. on 11 November 1994, The parties to proceedings NG 397 of 1992 have liberty to apply on 48 hours notice. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 397 of 1992 GENERAL DIVISION ) No. NG 620 of 1992 BETWEEN: ROGER JAMES POIGNAND Applicant AND: NZI SECURITIES AUSTRALIA LIMITED & ORS Respondents BETWEEN: NZI CAPITAL CORPORATION LIMITED Applicant AND: ROGER JAMES POIGNAND & ORS Respondents CORAM: SACKVILLE J. PLACE: SYDNEY DATE: 25 OCTOBER 1994 REASONS FOR JUDGMENT Background Two sets of proceedings are before the Court, namely NG 397 of 1992 and NG 620 of 1992. A notice of motion has been filed by the respondents in proceedings NG 397 of 1992, namely, NZI Securities ("NZI Securities"), NZI Capital Corporation Ltd ("NZI Capital") and Mr M.E. Wayland, who was appointed as a receiver and manager of certain property of Ripoll Holdings Pty Ltd ("Ripoll"). NZI Capital is the applicant in proceedings NG 620 of 1992. The motion seeks orders, inter alia, that both proceedings be tried at the same time and that evidence in one be evidence in the other. In order to understand what lies behind the motion, some background is necessary. In matter NG 397 of 1992 the applicant, Mr Poignand, claims relief as a representative party, pursuant to the provisions of Part IVA of the Federal Court of Australia Act 1976. I shall refer to this matter as the "representative proceedings". The group members to which these proceedings relate include Ripoll Holdings, which was the trustee of the DYV Unit Trust. It borrowed about $15 million under a facility (ultimately) provided by NZI Capital. Apart from Ripoll and Rosewick Holdings Pty Ltd, which succeeded Ripoll as trustee, the group members in the proceedings are the guarantors of Ripoll's obligations under the facility and the unit holders in the trust. Some guarantors and unit holders have, however, opted out of the proceedings. The relief sought in the representative proceedings is based, inter alia, on claims of misleading and deceptive conduct by the NZI companies in relation to the term of the facility. The remedies claimed include orders varying the finance facility and refusing to enforce the guarantees, as well as damages under the Trade Practices Act 1974. In addition, the applicant seeks orders that the appointment of the receiver to the assets of Ripoll was invalid. Proceedings No. NG 620 of 1992 were originally instituted by NZI Capital in the Supreme Court of New South Wales. In those proceedings ("the guarantee proceedings"), NZI Capital sought to enforce the guarantees given in respect of the facility granted to Ripoll. Ten guarantors were named as defendants. Of these, one (Arthur John Emmett) has not been served and has filed no defence. estate has filed no defence. Another (John Dalton Courtney) has since died and his Two of the defendants (J.D. Courtney and Roger James Poignand) were directors of Ripoll, while a third (Peter William Metcalfe) was the secretary of Ripoll. A large number of cross claims were filed in the guarantee proceedings. Cross Claimant(s) First defendant (R.J. Poignand) Third defendant (P.W. Metcalfe) Fourth defendant (W.L. Hawke Holdings Pty Ltd) Sixth and Seventh defendants (Victor Malcolm Pannikote and Victor Pannikote Holdings Pty Ltd) Eighth defendant (Harold Victor Holden) Ninth and tenth defendants (Margaret Isobel Fulton and Fulton Enterprises Pty Ltd) The parties were as follows: Cross Defendant(s) NZI Capital; NZI Securities M.E. Wayland NZI Capital NZI Capital; R.J. Poignand; J.D. Courtney; P.W. Metcalfe N'.. Capital; J.D Courtney; P.W. Metcalfe NZI Capital NZI Capital; R.J. Poignand; Anthony G. Hawkins It is to be noted that the cross-claim of R.J. Poignand was framed as a representative proceeding under Part IVA of the Federal] Court of Australia Act 1976. similar ground to that now addressed in the representative It covered the same or proceedings. In August 1992 the guarantee proceedings were transferred to this Court by order of the Supreme Court of New South Wales. On 15 October 1992 Lockhart J. ordered that the guarantee proceedings be stood over pending determination of the representative proceedings. The guarantee proceedings have not yet been heard. It is important to note that, on the same date, Lockhart J. also ordered that "the issues arising under paragraph[s] 26A and 42(c) of the amended = statement of claim {in the representative proceedings} and all issues of damages or other relief" be tried separately from, and subsequent to, all other issues arising under the amended statement of claim. These paragraphs allege that each of the guarantors had been induced to enter into their respective guarantees by renresentations relating to the term of the facility. Those representuctions were alleged to have been made by or on behalf of NZI Capital and NZI Securities and communicated to each of the guarantors and relied on by each of them. Such a case necessarily raises factual issues peculiar to each guarantor. The issues in the representative proceedings, as defined by the orders of Lockhart J., were heard before Wilcox J., who gave judgment on 7 January 1994. In that judgment his Honour found that the appointment of M.E. Wayland as receiver of Ripoll by NZI Capital was invalid, at least for a short time until the validity was subsequently cured. Wilcox J. also rejected the claim against NZI Capital and NZI Securities based on alleged misleading and deceptive conduct. The case is reported as ignand v_ NZ ecurities Australia Ltd (1994) 120 ALR 237. An appeal by leave on certain issues was determined by the Full Court on 22 July 1994. The Court held that, assuming there had been a default by Ripoll under the facility, the receiver had been validly appointed from the outset. This appeal is reported as NZI Securities Australia Ltd v Poignand (1994) 123 ALR 11. A second appeal by leave was determined by the Full Court on 21 September 1994. This appeal concerned so much of the trial as involved an allegation that NZI Securities and NZI Capital had contravened s.52 of the Trade Practices Act 1974, by engaging in misleading and deceptive conduct as to the term of the loan facility. The Full Court allowed the appeal and ordered a new trial: Jenkins v NZI Securities Ar stralia Ltd, 21 Sef -ember 1994, unreported. In the judgment the Court made the following observations: "What we have said leads, in our view, inevitably to the conclusion that there must be a new trial. At that trial all issues in the litigation should be disposed of, putting aside only issues of quantification of damages, if the Judge taking the trial is of the view that it is appropriate to defer the hearing of that question." The Court ordered, inter alia, that "(tjhere should be a new trial of all issues other than those dealt with in our judgment delivered 22 July 1994.... That new trial should be held concurrently with the trial of all remaining untried issues between all parties to the proceeding, but subject to such further directions as may be given by a Judge of the Court." The Full Court did not explain in detail why this order had been made and, in particular, why it was thought that the issues raised by paragraphs 26A and 42(c) of the amended statement of claim should be dealt with in the representative proceedings. NZI's Proposed Course This course of events raises some difficult questions for the future conduct of prolonged and complex litigation that has as yet failed to resolve the issues between the many parties. Mr Jacobson QC, who appeared on behalf of the NZI companies and the receiver, urged that all matters in the representative and guarantee proceedings be heard together. The motion on which he moved also sought an order under s.33N(1) of the Federal Court of Australia Act 1976, that the representative proceedings not continue as such under Part IVA of the Act. However, Mr Jacobson conceded in argument that I was precluded by the terms of the orders of the Full Court from making an order pursuant to s.33N(1). Those orders require a new trial to be held, concurrently with all remaining untried issues between the parties to the proceedings, subject only to the qualifications specified in the judgment. The qualifications do not appear to contemplate the course proposed by Mr Jacobson under s.33N(1). The other parties represented at the directions hearing either expressly supported Mr Jacobson's interpretation of the Full Court's orders or did not dissent from that interpretation. The course proposed by Mr Jacobson was opposed by all other parties represented at the hearing of the motion. The difficulties of that course are well illustrated by the position of Hawke Holdings Pty Ltd ("Hawke"), one of the guarantors and (now) a respondent to the guarantee proceedings. Hawke has opted out of the representative proceedings, as it is entitled to do under Part IVA of the Federal Court of Australia Act. In its defence in the guarantee proceedings, Hawke does not plead that it was induced to execute the guarantee by misrepresentations. Rather, it pleads that the guarantee was never executed under its authority. The defence alleges that the resolutions purporting to authorise the execution of the guarantee by Hawke were passed at a meeting which was not a true directors' meeting, but was one orchestrated by Mr Poignand, Mr Courtney and Mr Metcalfe. According to affidavit evidence which was not' seriously challenged, the effect of the orders sought by Mr Jacobson would be to require the legal representatives of Hawke to attend proceedings that could last from six to twelve weeks at a cost to Hawke of perhaps $25,000 per week. Yet the issues relating to Hawke, if tried separately, might be expected to take no more than a week. Depending on the result of the representative proceedings, it may not be necessary for the separate proceedings involving Hawke to be resolved by a hearing. A similar problem affects the ninth and tenth respondents to the guarantee proceedings, who might be described as the Fulton interests. They, too, have opted out of the representative proceedings. Unlike the other guarantors, whose guarantees, if valid, would extend to the whole of the amounts due by Ripoll, the Fulton interests apparently executed guarantees limited to $250,000. The Fulton interests have cross claimed against NZI Capital, R.J. Poignand and A.G. Hawkins, a solicitor. The litigation between the Fulton interests and the cross-respondents to the cross-claims raises a number of issues that are quite distinct from those raised in the representative proceedings. More to the point, if the course urged by Mr Jacobson were adopted, those representing the Fulton interests and Mr Hawkins would be required to participate in a case likely to last over six weeks in order to litigate claims and cross-claims limited to $250,000. The costs of litigating would be likely to approach or exceed the amount in dispute. When these difficulties were aired, Mr Jacobson was asked whether he persisted with the application that both sets of proceedings be heard together, at least in relat on to 'iawke and the Fulton interests. He replied that the reason for the application was essentially that all matters should be resolved finally in the one proceedings. It followed in his submission that the whole of the guarantee proceedings should be heard together. Mr Jacobson acknowledged frankly that there would be unfortunate consequences for Hawke, the Fulton interests and, perhaps, Mr Hawkins. But he submitted that this was, in effect, the price that had to be paid to achieve a final resolution of all issues in the complex litigation. Mr_Hamilton's Proposal Mr Hamilton QC, who appeared for the applicant in the representative proceedings proposed a different course. He started with the proposition that the directions of the Full Court had to be followed. Those directions meant that the allegations raised by paragraphs 26A and 42(c) of the amended statement of claim had to be dealt with, even though separate factual issues were necessarily raised in relation to each of the guarantors. In view of this he submitted that the sensible course was to incorporate in the representative proceedings all issues pleaded in the guarantee proceedings that were closely related to those already raised in the representative proceedings. He identified these as follows: "1. All issues as to whether NZI engaged in misleading or deceptive conduct as alleged in the amended statement of claim so as to contravene s.52 of the Trade Practices Act. 2. All issues as to whether Ripoll or any of the guarantors suffered damage or is likely to suffer dar .ge by reason of hat conduct so a_ to be entitled to damages under s.82 or relief under s.87 of the Act (save only for the issue of the quantification of damages). 3. All issues as to whether NZI is estopped by its acts or omissions or by convention from treating the finance facility as expired in April 1991. 4. All issues as to: (a) whether or not NZI were obliged to conduct a review of the finance facility at the end of the third year and whether or not they were obliged to conduct such review bona fide; (b) whether or not any such review was conducted and whether it was conducted bona fide; (c) whether or not Ripoll passed or failed to pass that review if conducted; (d) whether or not Ripoll is entitled to any damages arising out of (a), (b) and (c) above (save only for the aussue of quantification of damages). 5. All the defences arising from para.15 of NZI's defence insofar as these are still maintained." The reference to paragraph 15 of NZI's defence is to an allegation that NZI Capital was in any event entitled to require payment of the facility and to appoint a receiver, by virtue of defaults on the part of Ripoll under the tacility. It should also be said that the matters referred to in paragraph 4 of Mr Hamilton's document would appear to require some further amendment to the statement of claim, although they are related to issues already pleaded. Mr Hamilton helpfully attached a summary of defences and cross claims in the guarantee proceedings and used that summary to identify the issues that would be embraced by his proposal. Procedurally, Mr Hamilton proposed that the issues he had identified could be incorporated into an amended statement of claim filed in the representative proceedings. One set of legal representatives would act on behalf of the representative applicant in those proceedings, although of course all group members would be bound. Mr Hamilton's proposal had been circulated to the representatives of other parties prior to the directions hearing. As I understand it, the position of each of the individual guarantors who were parties to the guarantee proceedings was as follows in relation to Mr Hamilton's proposal: First Respondent (R.J. Poignand) Second Respondent (Estate of J.D. Courtney) Third Respondent (P.W. Metcalfe) Fourth Respondent (W.L. Hawke Holdings Pty Ltd) Fifth Respondent (Arthur John Emmett) Sixth and Seventh Respondents (V.M. Pannikote, Victor Pannikote Holdings Pty Ltd) Eighth Respondent (H.V. Holden) Ninth and Tenth Respondents (M.I. Fulton, Margaret Fulton Enterprises Pty Ltd) Not opposed to the proposal. The legal representatives were excused and did not participate. As noted, no defence has been filed in the guarantee proceedings. A letter from the legal representatives supported the proposal but requested that the third respondent not be bound by findings regarding misleading conduct through NZI's_= agents, J.D. Courtney and R.J.Poignand. Did not oppose the proposal, on the basis that Hawke had opted out of the representative proceedings and the proposed amendments to the statement of claim did not affect it. Not served. No defence filed. Supported the proposal. Did not appear at the directions hearing. Did not oppose the proposal, on the basis that the Fulton interests had opted out of the representative proceedings and the proposed amendments to the statement of claim would not affect them. I should add that Mr Hawkins, the cross respondent to the cross claim by the Fulton interests, was represented at the directions hearing by Mr Churches. Mr Churches supported the approach proposed by Mr Hamilton. I also note that the nature or purpose of the qualification in the letter from the third respondent's solicitors, to which I have referred, is not altogether easy to follow. The defence filed by the third respondent in the guarantee proceedings alleges that the NZI companies engaged in misleading or deceptive conduct by representations to Mr Courtney and Mr Poignand, which were in turn communicated to the third respondent. There are also allegations of misleading and deceptive conduct by NZI Capital through representations made by Ms Middleton, then an officer of the company, to Mr Poignand as an agent of the third vespondent. It is a little difficult to understand what course the representatives have in mind. The course proposed by Mr Hamilton ha the considerable advantage that it is intended to bring together, in the one proceedings, all factual and legal issues directly arising out of or connected with the issues already included in the representative proceedings. Furthermore, if the proposed course is implemented, the issues will be canvassed with only one set of legal representatives acting on behalf of the grouped parties. In this connection, Mr Hamilton indicated that the question of possible conflict of interest had been addressed and none had been apparent to him. No other party suggested that there was such a conflict. Finally, the proposed course avoids the expense and waste if the parties who have opted out of the representative proceedings are embroiled in a potentially long case in which they and their representatives would play a relatively minor role. The Arguments Against Mr Jacobson argued against Mr Hamilton's proposal, on the ground that there was a risk that the same or similar issues might be litigated in two separate proceedings. This created a risk of the "scandal", that different findings might be made by different judges on similar issues, He gave the illustration that a finding might be made in the representative proceedings that a particular representation made by an officer of NZI Capital was communicated to Mr Poignand or Mr Courtney, in circumstances where NZI Capital should have been aware that the representation would be conveyed by those persons to one or more of the guarantors. Yet in the guarantee proceedings it might be decided, on the evidence then presented, that a separate representation by an officer of NZI Capital was made to Mr Poignand or Mr Courtney, but not in circumstances where NZI Capital should have been aware that the representation would be conveyed to any of the guarantors. From a perusal of the pleadings in the guarantee proceedings, it would seem that the only case in which the difficulty foreshadowed by Mr Jacobson might occur is in relation to the defences and cross-claims filed on behalf of the Pannikote interests. Their defences allege representations, unrelated to the term of the facility, made by Mr Poignand and Mr Courtney as agents for the NZI companies. Nonetheless, it must be acknowledged that there is a risk of the kind to which Mr Jacobson referred, although it may be necessary in a particular case to take account of s.83 of the Trade Practices Act 1974. (This allows certain findings of fact to be prima facie evidence of that fact in other proceedings involving the person found to have contravened the provisions of the Act). And of course amendments to pleading might give rise to new issues on the guarantee proceedings. I appreciate the force of what Mr Jacobson puts. However, in my view, the risk identified by him is inherent in the conduct of the representative proceedings, once it is accepted (as follows from the directions of the Full Court) that the hearing must consider the allegations of misrepresentation and reliance contained in paragraphs 26A and 42(c) of the amended statement of claim. ideed "he approach adopted by Mr Hamilton may be thought to minimise the risk, since factual and legal issues directly related to the representations pleaded in the amended statement of claim in the representative proceedings will be incorporated in those proceedings. In the absence of such a procedure, difficult questions would arise as to how far findings in the representative proceedings preclude agitation of related but not identical issues in the guarantee proceedings. It is true that the solutions proposed by Mr Jacobson would overcome the risk that inconsistent or apparently inconsistent findings might be made in separate hearings. But it would do so at immense cost to some if not all the parties, particularly those who have chosen to opt out of the representative proceedings. That price, in my judgment, is too high to pay. The Preferred Approach It seems to me that, subject to one matter, the approach proposed by Mr Hamilton, provided it can be accommodated procedurally, should be adopted. The qualification is that I think that questions relating to quantification of damages should be included in the hearing of the representative proceedings. It was common ground among the parties that properties subject to the charges in favour of the NZI companies had been sold. Accordingly, the remedies available to the trustee (assuming the case on its behalf is made out) are, in effect, limited to damages. In my opinion, having regard to the unfortunate history of the litigation it is desirable to resolve all questions of relief in the representative proceedings at the same time as issues of liability. The additional heariag time and preparation, although not insignificant, will not be great. If the quantification of damages is dealt with there will be no need for a separate hearing on that issue and possible duplication of effort and hearing time will be avoided. It may be, too, that some issues in the guarantee proceedings cannot be resolved finally until the representative proceedings are concluded. It follows from what I have said that the representative proceedings should continue, but in the manner proposed by Mr Hamilton, provided that any procedural difficulties can be addressed. In my view, this will involve the following steps: (i) (ii) (iii) An amended statement of claim should be filed in the representative proceedings incorporating the issues foreshadowed by Mr Hamilton. This should be done rapidly. The issues so incorporated, where they raise matters presently pleaded in the guarantee proceedings, should be excised from the pleadings in the guarantee proceedings. In other words, as far as possible, there ought to be no duplication between the issues raised in the representative proceedings and those raised in the guarantee proceedings. This will require the parties to the quarantee proceedings who are group members in the representative proceedings to amend their pleadings. Should this not be done by one or more of the parties a*fected, it may be necessary to determine what, if any, further orders of the Court are required. Once the amendments to the statement of claim in the representative proceedings are made, it may be appropriate for guarantors who are group members in those proceedings to have a further opportunity to opt out by reason of the amendments. This opportunity could be afforded by means of an application by a group member pursuant to s.33J3(3) of the Federal Court of Australia Act 1976, or by order of the Court on its own motion under s.332F(1) of the Act. (iv) A timetable for further pleadings and evidence (particularly on the question of damages) will be required. Orders The orders and directions I make are as follows: I dismiss the motions of the respondents in proceedings NG 397 of 1992 and of the applicant in proceedings NG 620 of 1992. I direct that the hearing of proceedings NG 397 of 1992 should include issues relating to the quantification of damages claimed by the applicant. I direct the applicant in proceedings NG 397 of 1992 to file and serve an amended -tatement of claim in conformity with the reasons herein, on or before 2 November 1994. I direct all parties to proceedings NG 620 of 1992 who are group members in proceedings NG 397 of 1992 (including the applicant in proceedings NG 397 of 1992) to file and serve any amended pleadings in the guarantee proceedings in consequence of the amended statement of claim in proceedings NG 397 of 1992, on or before 9 November 1994. I stand the matter over for further directions at 9.30 a.m. on 11 November 1994. 6. I grant liberty to apply on 48 hours notice. I expect that at the directions hearing on 11 November 1994 a timetable for further evidence will be settled. Since the further conduct of the representative proceedings will not involve W.L. Hawke Holdings Pty Ltd and the Fulton interests, they are excused from attendance at further directions hearings until the resolution of the representative proceedings or further notice. The question of any further opportunity to opt out from the representative proceedings will also be dealt with on 11 November 1994. I certify that this and the preceding 17 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: de Fe' Dated: 25 October, 1994 Heard: 21 October 1994 Place: Sydney Decision: 25 October 1994 Appearances: In proceedings No. NG 397 of 1992: Mr Hamilton QC instructed by Blessington Judd appeared for the applicant. Mr Jacobson QC instructed by Holmes and Bevan appeared for the respondents. In proceedings No. NG 620 of 1992: Mr Jacobson QC instructed by Holmes & Bevan appeared for the applicant. Mr Lever with Miss Rusak instructed by Abbott Tout Russell Kennedy appeared for the fourth respondent. Mr C Lee of Christopher Lee & Associates appeared for the sixth and seventh respondents. Mr TT. Alexis instructed by Rockliffs, Solicitors, appeared for the ninth and tenth respondents. Mr Churches instructed by Minter Ellison Morris Fletcher appeared for the cross- respondent to the sixth cross-claim.