Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 (17 December 2008) – summary judgment & strike outs & Barnes v Addy claims
December 21, 2008 |
The Opes Prime collapse is the gift that keeps on giving, litigation and judicial decision wise at least. Finkelstein J, the judge assigned to the proceeding, has handed down a number of decisions involving the initial insolvency and now the class action. Given the “no quarter” approach that seems to be taken by the parties at this early interlocutory stage more decisions are likely in the future, well before trial. This decision arose out of an application by the respondents to strike out the statement of claim or summarily dismiss the proceeding. Finkelstein J took the opportunity to review the general principles.
Strike out application (paragraphs 4 – 5, 8 & 10).
Features of a strike out application are:
- the rule applies to the adequacy of the pleadings only;
- the facts are not under any consideration. In fact the facts are assumed to be true;
- the test as to when to strike out has been variously described but the most common formulation is that the statement of claim does not admit of reasonable argument;
- that it is an interlocutory order from which appeal can’t be taken without leave; and
- where a court determines that a claim should proceed it will hesitate in striking out that portion of the claim whose legal basis may be doubtful or problematical.
Summary judgment application (paragraphs 6 – 10).
Features of this form of application are:
- there is an analysis of the facts outside the pleadings;
- that it is essentially a summary trial;
- the test is that the proceeding has no reasonable prospects of success;
- it is easier to obtain summary judgment than strike out because the applicant in the former need only show that there is no dispute of material fact ; and
- an order granting summary judgment is final and appellable as of right. Where summary judgment is granted for less than the totality of the claim it is arguable that those orders may be interlocutory (see paragraph 9).
Barnes v Addy
Finkelstein J, in his refreshingly crisp prose, summarised the core requirement of a Barnes v Addy claim, knowledge, at paragraph 15 as:
For a knowing receipt claim under Barnes v Addy, there are three elements: (1) receipt by the defendant of (2) trust property with (3) knowledge of the facts that (a) the property was trust property and (b) receipt was pursuant to a breach of fiduciary duty or misapplication of the property: Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285 at [54]-[60] and especially [55]. The banks attack both the second and third elements. The second element of course depends on whether there was a trust over the loaned shares in the first place. The applicant’s claim for the existence of a trust is founded in various causes of action: (1) an equity of redemption based on the allegation that the investors mortgaged rather than sold their securities to Opes; (2) a claim for rescission based on the argument that the investors entered into the securities lending agreements with Opes under the unilateral mistake that they were mortgaging rather than selling the shares; (3) breach of express trust, on the basis that Opes made representations reflecting an intent by Opes to hold the shares on trust for the investors; (4) estoppel, based on the allegation that Opes made representations that the investors remained the beneficial owners of the shares and the investors relied on those representations to their detriment; and (5) breach of fiduciary duty, based on the allegation that Opes had a conflict of interest arising from its on-lending relationship with the banks (pursuant to which it wished to place the investors’ shares in jeopardy) giving rise to a fiduciary duty to disclose to the investors the true nature of the share lending transaction.
At paragraph 27 Finkelstein J states that in pleading knowledge for the purpose of a Barnes v Addy claim it is sufficient to:
to plead and prove knowledge of facts that would put an honest and reasonable person on notice (but not merely inquiry) of a real and not remote risk that the transfer was in breach of trust or fiduciary duty or involved the misapplication of trust property..
As to what constitutes knowledge Finkelstein J said, at paragraph 28:
..In my view, it would be simpler to adopt a uniform approach to Barnes v Addy scienter based on the standard categories of mens rea (in descending order): (1) intent; (2) actual knowledge; (3) recklessness (which I would define in these circumstances as a conscious disregard of a substantial and unjustifiable risk that the property was subject to a trust and was received pursuant to a breach of trust or of fiduciary duty or a misapplication of trust property); (4) negligence (here, a failure to perceive a substantial and unjustifiable risk that the property was so received); and (5) strict liability. Categories (1) and (2) are self-explanatory and clearly sufficient to establish liability; it is also now clear, after Say-Dee, that strict liability (ie an unconscionability or unjust enrichment approach) is not applicable. There is a bit more difficulty with categories (3) and (4), but I think it is also safe to say that negligence is out. In Say-Dee, the High Court suggested (at [175]-[178]) that the fifth Baden category (knowledge of facts sufficient to put an honest and reasonable person on inquiry) would not suffice to establish Barnes v Addy liability in Australia. To my mind, the rejection of a duty of inquiry is effectively the rejection of a negligence standard.
In this case the applicants did not plead facts giving rise to an inference of recklessness in the Barnes v Addy claims.
I am forever grateful to read that his Honour describes the law of constructive trusts as being in a mess! I have 5 turgid tomes on equity evidencing that fact.