Layrir Pty Ltd & 44 ors v Jack Jordan & 6 ors [2006] NSWSC 1228

New South Wales Supreme Court

CITATION : Layrir Pty Ltd & 44 ors v Jack Jordan & 6 ors [2006] NSWSC 1228

HEARING DATE(S) : 10/11/06

JUDGMENT DATE : 20 November 2006

JUDGMENT OF : Patten AJ at 1

DECISION : See paragrah 31

Uniform Civil Procedure Rules LEGISLATION CITED : Trades Practices Act 1974 (Cth) Supreme Court Rules

Peter Kent Development Pty Ltd v The Australia and New Zealand Banking Group Ltd (Unreported 6 May 1980 Ritz Hotel Ltd v Charles of the Ritz Ltd (No 20) (1988) 14 NSWLR 124 CASES CITED : Sutton v A J Thompson Pty Ltd (in Liq) (1987) 73 ALR 213 Yorke and Another v Lucas (1985) 55 ALJR 776 Wickstead and Ors v Browne (1992) 30 NSWLR 1

PARTIES : Jack Jordan and ors - Applicants Layrir Pty Limited and ors - Respondents

FILE NUMBER(S) : SC 20395 of 2005

COUNSEL : Mr J Stevenson SC with Mr C Bova - Applicants Mr R Dubler SC with Mr A Harding- Respondents

SOLICITORS : Elliot Tuthill - Applicants Hegarty & Elmgreen Solicitors - Respondents

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PROFESSIONAL NEGLIGENCE LIST

Patten AJ

20 November 2006

20395 of 2005

Layrir Pty Ltd & 44 ors v Jack Jordan & 6 ors

JUDGMENT: 1 Before the court is a motion dated 6 July 2006, filed on behalf of the Fourth, Seventh and Eighth Defendants, wherein the following relief is claimed: 1. The claims made against the Fourth, Seventh and Eighth Defendants in paragraphs 65 (b) and 95 (b) of the Amended Statement of Claim be struck out pursuant to Pt 14.28 of the Uniform Civil Procedure Rules 2005 (NSW). 2. The proceedings against the Fourth, Seventh and Eighth Defendants be dismissed. 3. The Plaintiffs pay the Fourth, Seventh and Eighth Defendant's costs of the motion and the proceedings." 2 Mr J Stevenson SC with Mr C Bova appeared to support the motion and Mr R Dubler SC with Mr A Harding for the Plaintiff, to oppose it. 3 The motion is framed pursuant to Pt 14 rule 28 of the Uniform Civil Procedure Rules. Its terms draw attention to the fact that the Amended Statement of Claim is irregular, in that it names Mr J L Jordan and Mr D. A. Jordan as defendants, twice. Although it is pleaded that they are joined in separate capacities, once as members of the firm Elliot Tuthill Solicitors and once as directors of the Third Defendant, Elliot Tuthill Mortgages Ltd (ETML), it is plain that they are sued both as solicitors and as directors of ETML in their personal capacities. If they were, in truth, sued in separate capacities, the leave of the Court would be required (See Uniform Civil Procedure Rules 6.18 (d)). 4 The Defendants take no objection to the irregularity which, so I am informed, may be convenient because of the interests of different insurers. However, it is important to record that whatever the fate of the motion, Messrs J L Jordan and D A Jordan will remain defendants as members of Elliot Tuthill. 5 The other defendant for whom the motion seeks relief is the Fourth Defendant, Ms Madeleine Reid who, although employed by or an Associate of Elliot Tuthill at relevant times, was not sued as such. She is only sued as a director of ETML. 6 Rule 14.28 focuses on a pleading which may be struck out in contrast to the somewhat complementary provisions of rule13.4, which enables the court to dismiss proceedings. However, as Hunt J pointed out in Peter Kent Development Pty Ltd v The Australia and New Zealand Banking Group Ltd (Unreported 6 May 1980), in relation to Pt 15 rule 26 of the Supreme Court Rules (the predecessor of rule 14.28), an application under the rule differs from a demurrer in that evidence may be received. Even so, in the light of any such evidence, it is the pleading under challenge as opposed to the proceedings themselves, which must withstand an attack based on all or some of the three paragraphs (a), (b) and (c) of rule 14.28(1), namely that the pleading: "(a) disclose no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings or (c) is otherwise an abuse of the process of the court." 7 The action involves some 45 plaintiffs and originally 7 defendants. One of those defendants, upon going into liquidation was removed from the proceedings and as I have said 2 defendants have been named twice. The Statement of Claim was lengthy and complicated. It pleaded a number of separate causes of action against the various defendants, all said to arise out of the same factual matrix. In its most recently amended form, the text of the pleading contains 109 paragraphs and runs to some 45 pages, aside from its formal parts. 8 As the motion concerns only relief sought by Messrs J L and DA Jordan and Ms Reid, (hereafter as in the Statement of Claim "the directors"), it is unnecessary to refer to the pleading in any detail. However, in order to put that part of the Statement of Claim, to which it is necessary to refer in context, I will need to provide an outline of the Plaintiffs' claim. They assert that at various times in 1999 and 2000 they advanced monies to a contributing mortgage scheme at first conducted by Elliott Tuthill and later by ETML. Monies were advanced against a mortgage over property at Castle Cove (the property), in reliance upon valuations provided by one of the defendants, Rex G McDonald Pty Ltd, an expert in property valuations. 9 They further contend that for a number of reasons involving negligence by the valuer, the valuations considerably overstated the true value of the property. As a consequence, when the mortgagors defaulted and the property was sold there was a large shortfall, which the Plaintiffs sue to recover. 10 Against ETML, inter alia, causes of action were pleaded under s82 of the Trade Practices Act alleging misleading or deceptive conduct contrary to s52. Against the directors, it was pleaded in respect of those causes of action that they were "directly or indirectly knowingly concerned in or party to the conduct of ETML ………". 11 I pause to observe that the pleading against the directors, as above, would not technically be demurrable as facts are alleged, which support a cause of action. Upon the test propounded by McLelland J in Ritz Hotel Ltd v Charles of the Ritz Ltd (No20) (1988) 14 NSWLR 124 at 126, the claim would relevantly be made out if the pleaded allegations were admitted. 12 However, the bare allegation that the director "were directly or indirectly knowingly concerned in or party to the conduct of ETML" which simply follows the wording of s75B (i) (c) of the Trade Practices Act may obviously be the subject of a request for particulars (see for example Sutton v A J Thompson Pty Ltd (in Liq) & Ors (1987) 73 ALR 213. To this end ETML wrote to the Plaintiffs' solicitors Messrs Hegarty Elmgreen on 6 June 2006 in these terms (omitting formal parts): We refer to the Amended Statement of Claim (ASC) filed in this matter and our letter dated 31 May 2006. As we understand the ASC, the only claims made against the fourth, seventh and eighth defendants are made pursuant to s75 of the Trade Practices Act 1974 (Cth) TP ACT: see paras 65(b) and 95(b) of the ASC. With respect, your allegation that the fourth, seventh and eighth defendants were "knowingly concerned in or party to " the alleged conduct of the fourth defendant (sic–third defendant) is embarrassing and liable to be struck out. This is at least because you have not pleaded any material facts which would constitute the fourth, seventh and eighth defendants being "knowingly concerned in or party to" the alleged conduct of the fourth defendant (sic). The allegation is simply made in terms of the section. As the Full Court of the Federal Court (Forster, Woodward and Wilcox JJ) said in Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 at 242, the fourth, seventh and eighth defendants are "entitled to have the details of (their) alleged involvement, amounting as it does to something akin to fraudulent conduct, spelt out". Moreover, it is clear from the authorities that actual knowledge that conduct was misleading or deceptive is required before an accessory is liable under s75B of the TP Act: see Yorke v Lucas (1985) 158 CLR 661 at 667-668, 670 and 677 and Sutton v AJ Thompson at 243. No such actual knowledge has been pleaded in the ASC. It appears to us that the reason why no material facts to support the mere allegations in terms of s75B of the TP Act have been pleaded is because no such material facts exist. It further appears that you have no basis upon which to plead actual knowledge of misleading or deceptive conduct on the part of the fourth, seventh and eighth defendants. We therefore invite you to discontinue the proceedings as against the fourth, seventh and eighth defendants as a matter of urgency. In the event that you are of the view that such material facts or knowledge exists to support the allegations underlying paragraphs 65(b) and 95(b) of the ASC, we invite you to forward to us a draft further amended statement of claim within seven (7) days which addresses our concerns. Should you fail to discontinue against the fourth, seventh and eighth defendants or amend the ASC so as to correct its current defective form we shall forthwith proceed to move the Court for summary judgment and associated orders in favour of the fourth, seventh and eighth defendants without further notice."