FEDERAL COURT OF AUSTRALIA Gippsreal Ltd v Hausfeld Johnson Pty Ltd [2012] FCA 956 Citation: Gippsreal Ltd v Hausfeld Johnson Pty Ltd [2012] FCA 956 Parties: GIPPSREAL LTD (ACN 005 443 292) v HAUSFELD JOHNSON PTY LTD (ACN 097 641 122), GREGORY HAUSFELD, NEIL KEITH EVERSON, TREVOR JOHN RICKARD (T/AS OAKLEYS LEGAL) and DAWES & VARY PTY LTD (ACN 005 380 352) File number: VID 243 of 2009 Judge: MURPHY J Date of judgment: 3 September 2012 Catchwords: PRACTICE AND PROCEDURE – Leave to amend defence – filing defence without seeking leave to amend – proportionate liability – requirement for joinder of parties – effect of joinder on trial date Legislation: Civil Liability Act 2002 (NSW) Corporations Act 2001 (Cth) Fair Trading Act 1987 (NSW) Federal Court of Australia Act 1976 (Cth) Trade Practices Act 1974 (Cth) Wrongs Act 1958 (Vic) Cases cited: Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450 Elliott & Tuthill (Mortgages) Pty Ltd v Farrell & Anderson Pty Ltd [2002] FCA 965 O D Transport (Australia) Pty Ltd (in liquidation) v O D Transport Pty Ltd [1998] FCA 1653 Shrimp v Landmark Operations Ltd [2007] FCA 1468 Date of hearing: 28 August 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 42 Counsel for the Applicant: Mr C R Brown Counsel for the First and Second Respondents: Dr T McEvoy Solicitor for the First and Second Respondents: DLA Piper Counsel for the Third, Fourth and Fifth Respondents: The Third, Fourth and Fifth Respondents did not appear IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 243 of 2009 BETWEEN: GIPPSREAL LTD (ACN 005 443 292) Applicant AND: HAUSFELD JOHNSON PTY LTD (ACN 097 641 122) First Respondent GREGORY HAUSFELD Second Respondent NEIL KEITH EVERSON Third Respondent TREVOR JOHN RICKARD (T/AS OAKLEYS LEGAL) Fourth Respondent DAWES & VARY PTY LTD (ACN 005 380 352) Fifth Respondent JUDGE: MURPHY J DATE OF ORDER: 3 SEPTEMBER 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. Leave is granted to the first and second respondents to amend their Defence in the form of the Defence dated 17 August 2012. 2. The following persons be joined as respondents to the proceeding: (a) Colin Andrew McKenzie-McHarg; (b) Kevin John Cousins; and (c) Tristan David Morton-Pederson. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 243 of 2009 BETWEEN: GIPPSREAL LTD (ACN 005 443 292) Applicant AND: HAUSFELD JOHNSON PTY LTD (ACN 097 641 122) First Respondent GREGORY HAUSFELD Second Respondent NEIL KEITH EVERSON Third Respondent TREVOR JOHN RICKARD (T/AS OAKLEYS LEGAL) Fourth Respondent DAWES & VARY PTY LTD (ACN 005 380 352) Fifth Respondent JUDGE: MURPHY J DATE: 3 SEPTEMBER 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This proceeding is a claim for damages brought by the applicant, Gippsreal Pty Ltd , the responsible entity of the Gippsreal Mortgage Investment Scheme ("the Scheme"), against real estate valuers, Hausfeld Johnson Pty Ltd the first respondent, its principal Mr Gregory John Hausfeld the second respondent, and Neil Keith Everson the third respondent. 2 The applicant claims that it made loans to third parties in reliance on valuations performed by the first, second and third respondents on two rural New South Wales properties, the security for which loans were mortgages taken out over the properties. The applicant claims significant losses suffered when the borrowers failed to repay the loans and the properties were seized pursuant to the mortgages. Their value proved much less than the valuations provided by the respondents and much less than the loans. The applicant contends that the respondents' conduct in preparing and providing the valuation reports was misleading or deceptive or likely to mislead or deceive in breach of the Trade Practices Act 1974 (Cth) ("TPA"), the Fair Trading Act 1987 (NSW) ("FTA") and in breach of contractual terms of the valuation agreements ("the Contract Claim"). It claims damages pursuant to the TPA, the FTA (NSW) and at common law. 3 The first and second respondents make two closely related interlocutory applications. The first is for leave to amend their Defence to plead that various persons are concurrent wrongdoers under the proportionate liability regimes in the TPA, the Civil Liability Act 2002 (NSW) ("CLA") and the Wrongs Act 1958 (Vic) ("Wrongs Act"). The second application is to join these people as respondents. 4 For the reasons I set out below, although granting the applications causes me real concern as to whether the trial date will be maintained, I have determined to allow both applications. THE INTERLOCUTORY APPLICATIONS 5 The first and second respondents seek leave to amend the Defence to plead that the following persons are concurrent wrongdoers: (a) Trevor Rickard, the Managing Director and Responsible Officer of Gippsreal; (b) Tristan Morton-Pederson, the Senior Lending Manager of Gippsreal and a member of its Compliance Panel; (c) Colin McKenzie-McHarg, a director of Gippsreal; (d) Kevin Cousins, a director of Gippsreal; and (e) Gippsreal in its capacity as custodian and trustee for the investors in the Scheme. 6 The allegation against each of the natural persons is one of failure to meet obligations arising under s 601FD of the Corporations Act 2001 (Cth) ("Corporations Act") to ensure that proper lending practices were in place within the Scheme, which failure is argued to have contributed to the loss and damage suffered by Gippsreal. A similar allegation based on s 601FC of the Corporations Act is made against Gippsreal. The general thrust of the allegations is: (a) as against Mr Rickard and Mr Morton-Pederson as officers of the company, who both had operational roles within Gippsreal, that they failed to comply with its risk management guidelines in approving the relevant loans, and failed to read and consider the relevant valuation reports; (b) as against Mr McKenzie-McHarg and Mr Cousins as officers of the company, who were both non-executive directors and did not have operational roles, that they failed in their responsibility to oversee Gippsreal's compliance with its risk management guidelines; (c) as against Gippsreal it is alleged that, as the responsible entity, it failed to comply with its duties under the Corporations Act to exercise a reasonable degree of care and diligence by failing to have proper lending practices in place, and failing to comply with its own Compliance Plan and Compliance Manual. 7 In the joinder application the respondents seek to join each of Mr Rickard, Mr Morton-Pederson, Mr McKenzie-McHarg and Mr Cousins ("the officers") as respondents. No application is made to join Gippsreal as a party as it is already one. In my view it is also unnecessary for the respondents to apply to join Mr Rickard as he is already a party, albeit named as trading as Oakleys Legal. THE PROPORTIONATE LIABILITY PROVISIONS 8 It is uncontroversial that Gippsreal's FTA claim and its Contract Claim are caught either by the proportionate liability provisions in Part IVAA of the Wrongs Act or the proportionate liability provisions in Part 4 of the CLA. It is also uncontroversial that Gippsreal's TPA claim falls within the proportionate liability provisions in Part VIA of the TPA. 9 Pursuant to s 24AH of the Wrongs Act a concurrent wrongdoer is: a person who was one of two or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim. Section 87CB(3) of the TPA and s 34(2) of the CLA are in essentially the same terms. 10 However, unlike the TPA and the CLA, s 24AI(3) of the Wrongs Act provides: In apportioning responsibility between defendants in the proceeding the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up. The effect of s 24AI(3) is that, subject to certain exceptions that are not presently relevant, the Court is not permitted to have regard to the comparative responsibility of that person unless the person is a party. There is no similar requirement in either the TPA or the CLA, that is, in apportioning liability under those Acts there is no necessity that the concurrent wrongdoer be joined as a party. 11 Of course, each of s 24AL(1) of the Wrongs Act, s 87CH of the TPA and s 38 of the CLA allow the joinder of a concurrent wrongdoer as a party. The difference is that only the Wrongs Act requires that a concurrent wrongdoer be joined before the court can have regard to that person's comparative responsibility. 12 In my view it follows that if leave is granted to the first and second respondents to plead allegations of concurrent wrongdoing against Gippsreal's officers, s 24AI(3) of the Wrongs Act means that I should also order that the officers be joined as parties. Unless I do so, in relation to the Contract Claim and the FTA claim, s 24AI(3) operates to prohibit the Court from considering their comparative responsibility. This point was conceded by counsel for the applicant in an earlier application for the joinder of Mr Rickard trading as Oakleys Legal. Should leave be granted to the first and second respondents to amend their Defence 13 On 17 July 2012, in response to a grant of leave to the applicant to amend its. Amended Statement of Claim to make claims against the solicitors Dawes and Vary, I made an order allowing all respondents to amend their Defence. The order was accordingly limited in its effect to an amendment in response to the new claim: O D Transport (Australia) Pty Ltd (in liquidation) v O D Transport Pty Ltd [1998] FCA 1653 per Finkelstein J at 9. In my view, without obtaining leave to do so, the first and second respondents were not entitled to file the amended Defence dated 17 August 2012, in which they set out new defences of proportionate liability against new alleged concurrent wrongdoers. 14 The applicant argues that leave should not be granted to amend the Defence so as to allow claims of proportionate liability to be pleaded against each of the named Gippsreal officers. They did not argue that leave should not be granted to amend the Defence to plead a defence of proportionate liability against Gippsreal itself. 15 The applicant contends that the amendment ought not be allowed as it does not advance the first and second respondents' case. Mr Brown, counsel for the applicant, notes that the first and second respondents have pleaded contributory negligence against Gippsreal, and points to the fact that where a director or employee by his actions is representing a company, the company is responsible for any wrongdoing. Accordingly, he says that any wrongdoing by Gippsreal's officers is merely a subset of the contributory negligence claim. He argues that there are no conceivable circumstances where any wrongdoing by one of the officers would not be included within the first and second respondents' defence of contributory negligence, and therefore no utility to allowing the defence of proportionate liability to be made. 16 While this submission has some initial attraction, I do not accept it. First, I note that in Gippsreal's Reply it denies that a claim of contributory negligence is available to the respondents, contending that the State contributory negligence laws have no application to the breaches of contractual terms pleaded. Because the respondents' claim of contributory negligence fails if the applicant is able to make out this argument, it is hard to see how the argument can be maintained that there is no utility for the respondents in their proportionate liability defence. 17 Second, the essence of the various proportionate liability regimes is that persons, in this case the first and second respondent valuers, are only liable for the proportion of economic loss caused by their own conduct. As Besanko J noted in Shrimp v Landmark Operations Ltd [2007] FCA 1468 at [58]: The claimant can recover from each wrongdoer only that proportion of the loss and damage claimed that the court considers just having regard to the particular wrongdoer's responsibility for the damage or loss. 18 It is at this stage of the proceeding very difficult for the Court to know whether the conduct of one or other of the officers amounts to a breach of s 601FD of the Corporations Act. The obligations owed by the officers under s 601FD are different to those owed by Gippsreal under s 601FC. At least in relation to the FTA claim and the Contract Claim, to refuse leave for the amendment will deny the respondents the opportunity, after the evidence has been heard, of taking the benefit of the proportionate liability regime as against the officers. I am very loathe to shut out the respondents from pleading these defences on the basis that they lack utility or are hopeless when I do not know the facts: see Elliott & Tuthill (Mortgages) Pty Ltd v Farrell & Anderson Pty Ltd [2002] FCA 965 at [24]. 19 Third, Mr Brown argues that the proportionate liability defences pleaded claiming breaches of s 601FD of the Corporations Act are not apportionable claims. He contends that if this proceeding was brought by Gippsreal against the officers for breach of s 601FD the officers would be unable to join the respondents as concurrent wrongdoers. As he put it: "what is good for the goose is good for the gander", and the respondents should not be able to plead these provisions against the officers. 20 I have no difficulty accepting the submission that a breach of s 601FD of the Corporations Act is not an apportionable claim. I agree with the analysis of Middleton J at [32] to [36] in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450. His Honour held that the proportionate liability provisions of Pt IVAA of the Wrongs Act do not apply to the Corporations Act. Although he was dealing with different sections of the Corporations Act his analysis at [33] is equally applicable to this case. 21 However, while a claim under s 601FD is not apportionable, Gippsreal's claims under the FTA (NSW) and for breach of contractual terms are. The first and second respondent are at liberty to plead that the officers' breaches of s 601FD (and Gippsreal's breach of s 601FC) caused or contributed to the loss or damage suffered by Gippsreal which is the subject of its claim against the valuers. 22 Fourth, the applicant argues that the officers are not concurrent wrongdoers because any loss and damage suffered by Gippsreal resulting from a breach of s 601FD is different to the loss and damage which is the subject of Gippsreal's claim. I cannot accept this submission. The loss or damage that is the subject of Gippsreal's claim may be said to be the economic loss arising from the failure of the mortgages to provide proper security for the loans. This is the same loss or damage which the respondents argued was contributed to by the officers through their alleged breaches of s 601FD, which involved failure to take reasonable care in relation to the loans. 23 Finally, the applicant contends that there are strong public policy reasons for refusing the application for leave to amend. It argues that the result of this approach is that a defendant claiming that a corporate plaintiff is a concurrent wrongdoer is forced to make a claim of proportionate liability against the directors of the company. I do not accept this. It is a matter for the defendant based on the facts of the case to decide whether an individual director is likely to be a concurrent wrongdoer, and to determine whether to join him or her. Other considerations may also play a part. For example, it is not uncommon for directors to be joined as parties in part because of concerns about the solvency of the corporation, or to involve the Directors and Officers Liability insurer in the proceeding. 24 Leaving aside the question of the lateness of the application and case management considerations, I consider that leave should be granted to the first and second respondents to amend their Defence in the terms of the Defence dated 17 August 2012. That is, the respondents should be permitted to plead proportionate liability defences against Mr Rickard, Mr Morton-Pederson, Mr McKenzie-McHarg, Mr Cousins and Gippsreal. Is it too late to allow joinder of the officers? 25 As I have already indicated, if leave to amend is granted it follows that Mr Morton-Pederson, Mr McKenzie-McHarg and Mr Cousins should be joined as parties. There is no need to join Mr Rickard or Gippsreal as they are already parties. However, it is necessary to consider whether the lateness of the application and the pending trial date means that the application to amend ought be refused. 26 The proceeding has not progressed at an appropriate rate, having been commenced on 17 April 2009. At that time it was only brought against the first respondent and in relation to a valuation performed on one of the two rural properties. Between October 2009 and July 2011 the matter was repeatedly adjourned by consent as the parties apparently waited for advice as to rezoning of the property, as this may have had a significant impact on the loss claimed. 27 On 12 July 2011 the applicant was given leave to file an Amended Application and Statement of Claim joining the second and third respondents, and making a claim in relation to the second rural property. On 9 September 2011 the applicant was given leave to file a Further Amended Application and Statement of Claim and a timetable which ran until mid-December was fixed for finalisation of the pleadings. 28 On 10 February 2012 the case was listed for hearing on 27 August 2012. By 5 April 2012 there were already failures to meet the timetable and following discussions with the parties at a directions hearing I made further orders setting a tight but manageable timetable for pleadings and evidence. Compliance with the timetable is complicated by the fact that two of the respondents are self represented. 29 On 24 April 2012 the first and second respondents sought and were granted leave to file an Amended Defence in which they pleaded that the solicitor Mr Rickard, trading as Oakleys Legal of Leongatha, Victoria was a concurrent wrongdoer. The general thrust of the defence is that he had contributed to Gippsreal's losses because he failed to properly perform the legal services necessary to ensure that the mortgages obtained were valid and enforceable security in respect of the loans. On 29 May 2012 Mr Rickard was joined as a fourth respondent. 30 On 8 June 2012 the first and second respondents sought and were granted leave to file a Further Amended Defence in which they pleaded that the solicitors Dawes and Vary were also concurrent wrongdoers. This legal firm practiced in NSW and had been engaged by Oakleys Legal to prepare documents in relation to the first property as it was in NSW. On 14 June 2012 Dawes and Vary were joined as the fifth respondent. 31 Although Mr Rickard trading as Oakleys Legal has not taken an active role in the proceeding since a few months after joinder, the joinder nevertheless had an effect on the timetable as Oakleys Legal was the solicitor for Gippsreal. On 12 July 2012 Gippsreal retained new solicitors, Messrs Oakleys McKenzie-McHarg of Korumburra, Victoria. Although I have no information in this regard, I assume that Mr Rickard ceased acting out of concern about a potential conflict of interest arising from his being made a party. 32 The joinder of Dawes and Vary also had an effect on the timetable as on 17 July 2012 the applicant sought and obtained leave to file a Second Further Amended Statement of Claim to bring a claim against Dawes and Vary. 33 Accordingly, on 17 July 2012 the trial date of 27 August 2012 was vacated and a tight but manageable timetable was fixed to enable the trial to proceed on 19 November 2012. 34 On 20 August 2012 the application to join the officers was filed. Ms Carmen Elder, the solicitor for the first and second respondents, swore an affidavit on 20 August 2012 in which she set out the reasons why the applications were not made until this late stage. 35 In summary, Ms Elder deposed that Gippsreal did not discover the Compliance Manual that applied when the relevant loans were made when it provided its List of Documents on 17 August 2009. On 11 May 2012 Ms Elder sought and obtained an order for further discovery. She received a copy of the "November 2004 Compliance Manual" on 16 May 2012 but she did not first see that document until 6 June 2012 because she was on leave. Even then, she was unsure of its significance because in Gippsreal's Reply it described the relevant Compliance Manual as being dated 8 November 2005. Following enquiries of Gippsreal's solicitors she was eventually advised on 12 July 2012 that the "November 2004 Compliance Manual" was the manual that applied when the relevant loans were made. 36 She further deposed that in reviewing the November 2004 Compliance Manual later that month she reached the view that the manual was quite brief and lacking in any substantive direction as to the steps Gippsreal should take in respect of a loan application. She formed the view based upon the document, and on the witness statements of Mr Rickard and Mr Morton-Pederson which by then had been filed, that there was a proper basis for allegations of proportionate liability against the officers and Gippsreal. 37 It is difficult to assess the real importance of the November 2004 Compliance Manual, and whether its late production is the real basis for the respondents' application, or just a convenient "trigger point" for now making an application that they had previously delayed in making. It is clear that concerns about Gippsreal's lending practices and its compliance with its own guidelines have been part of the respondents' thinking for at least 11 months. 38 However, Gippsreal did not file an affidavit disagreeing with the factual matters deposed to by Ms Elder and it seems clear that Gippsreal failed to provide proper discovery. It was not until recently that Gippsreal was ordered to provide further discovery and it then produced a document which the first and second respondents contend is important. Further time was lost because it misdescribed the relevant Compliance Plan in its Reply. These matters militate towards a grant of leave because Gippsreal is to some significant degree responsible for the lateness of the application. 39 I must also have regard to the overarching purpose of facilitating the just resolution of the case quickly, inexpensively and efficiently: s 37M of the Federal Court of Australia Act 1976 (Cth). Given the already slow progress of the case it would be unfortunate if the new trial date was required to be vacated. 40 Dr McEvoy, counsel for the first and second respondents, urges the view that the joinder of the officers is unlikely to require vacation of the trial date. He notes that the officers have not sought to be heard on the application and contends that it is unlikely they will call for Statements of Claim to be filed against them, or seek to formally defend the allegations. He also points to the fact that Gippsreal has not responded to a letter dated 24 August 2012 seeking its advice as to whether it would proceed against the officers if leave to join them was granted. He argues too that, as Gippsreal has elected not to amend its Statement of Claim to include a claim against Mr Rickard trading as Oakleys Legal when he was joined as a party, it is unlikely that it will do so against the other officers. 41 In my view, although it is still two and a half months to the trial date it must be accepted there is a real prospect that joinder of three new respondents has the potential to lead to vacation of the trial date. For example, if joined, Mr Morton-Pederson, Mr McKenzie-McHarg and Mr Cousins or their insurers (if any) may seek an active role in the proceeding. I note too that Mr McKenzie-McHarg's legal firm, Oakleys McKenzie-McHarg, are the new solicitors for Gippsreal. The first and second respondents have advised that if Mr McKenzie-McHarg is joined as a respondent they will apply for an order that his firm no longer act for Gippsreal, presumably on the basis that he has a conflict of interest. There must be a prospect that Oakleys McKenzie-McHarg will be unable to continue to act. 42 If the application had been made in a timely way I would have had little hesitation in granting leave to amend (and allowing joinder) primarily because I am loathe to shut out the respondents from running their proportionate liability defences. The applications by the respondents have been made close to trial and after the case has been on foot for a lengthy period, but the respondents have filed sworn evidence as to the reasons for the lateness. Some significant part of the responsibility can be sheeted home to Gippsreal's failure to meet its discovery obligations. I consider that leave to amend the Defence should be granted and that Mr Morton-Pederson, Mr McKenzie-McHarg and Mr Cousins should be joined as respondents. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy. Associate: Dated: 3 September 2012