Facts

The proceedings relate to two schemes promoted by Scully and others designed to allow consumers with financial problems to acquire their own home without a deposit or finance from banks or financial institutions in the short term [8].  The Director brought an action under sections 9, 11 and 12 of the Fair Trading Act in the public interest and representing the interests of certain individuals who participated in the schemes.  There were no pleadings and Associate Justice Daley dismissed an application to order a statement of claim [10 at footnote 1].

On 10 May 2011 the trial was adjourned, part heard, until 26 July 2011. The court called the parties back because of concerns as to the course the trial was taking.  His Honour was concerned that since the proceedings had been issued the nature of the allegations were contained across and originating motion, numbering 50 pages but drawn in broad terms, voluminous affidavit material, running to 11,000 pages over 26 volumes, and written outline of submissions which was at “..a high level of generality” [10]. As a consequence the court was reliant upon the Director and his legal representatives to identify his case, which the did not occur in the first four days of trial [11]. His Honour was quite critical of the assistance provided by the Director (see [15]) saying “..the Court requires significantly greater assistance from the Director than has been provided to date.”

The court was of the view that pleadings were necessary to define the many issues in the case and avoid possible injustice to the defendants ([3] – [4]).

Decision

Pleadings

At [26] the Court cited Mason and Gauldron’s statement in Banque Commerciale SA v Akhil Holdings Ltd that the function of pleadings “..is to state with sufficient clarity the case that must be met, so as to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision by the court.” Here the Director maintained a general case against “a number of defendants” and a six specific cases, involving multiple allegations and seeking various forms of relief, in respect of individual complainants.

Given the potential consequences of findings by the Court, including publication orders, compensation and legal costs, it was a case which requires pleadings “..to assist the Court and provide procedural fairness to the defendants who seek to defend themselves” [27].  This was not a proceeding which should be commenced by originating motion. It was a multifaceted proceeding raising substantial allegations of fact and law (see [32]). If defended it would involve a dispute over facts and even if undefended, pleadings would define the issues for determination. Properly pleading and particularising the claim would also rationalise the discovery.

At [33] his Honour stated “..proceedings of this kind ought be commenced by writ with a fully pleaded and particularised statement of claim, and not just by voluminous affidavits from which a case may be gleaned from submissions.”

Unrepresented litigants

Hargraves J quoted the recent decision of Noone Director of Consumer Affairs Victoria v Operation Smile (Australia) Inc & Ors (No 2) (“Operation Smile”) addressed what was expected of the Director, as a model litigant.  Hargrave endorsed Pagone’s statements in Operation Smile (see [18]):

(1) Circumstances such as the present place the Court and the parties in a difficult position. The Court has an obligation to assist unrepresented litigants. Further, the represented party may have a common interest with the Court in co-operating to achieve the correct result and, in every case, the legal practitioners for the represented party have duties to assist the Court in the discharge of its functions

(2)The Court’s duty to assist unrepresented litigants must be balanced against the requirement that the judge preserve his or her neutrality between the parties. However, the Court must ensure a fair trial for the unrepresented litigant.

(3) A public official such as the Director has an obligation to act as a model litigant. In that capacity, the Director shares a common interest with the Court in co-operating to achieve the correct result. Where one party has a burden to discharge, it is in the interests of justice to ensure that the burden is adequately and reliably discharged.

(4) In some cases, the represented party must assist the Court by drawing attention to matters which, if the unrepresented party was represented, would likely be brought to the Court’s attention by opposing practitioners. This includes matters which might be adverse to the interests of the represented party, ‘but which the Court ought fairly to consider even if only to reject’. It is particularly important for a model litigant, such as the Director, to bring such matters to the attention of the Court.

In cases involving allegations of falsity or misleading conduct it was necessary that the case with respect of each complainant group must be examined individually after hearing comprehensive submissions regarding the evidence and whether as a matter of law they constitute evidence of contraventions [19].

Overarching obligations under the Civil Procedure Act -unrepresented litigants

His Honour stated, at [21], that the Director had a paramount duty under the Act to further the administration of justice (section 16) which in specific terms in the context of this type of case included obligations:

1. to co-operate with the other parties to the proceeding – section 20;
2. to narrow the issues in dispute – section 23;
3. to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the proceeding are reasonable and proportionate to (among other things) the amount in dispute – section 24; and
4. to use reasonable endeavours in connection with the proceeding to minimise delay – section 25.

Having regard to those obligations the Court was quite critical of the Director in the conduct of the litigation to date (see [23] – [25]).

Issues

In the gradually building jurisprudence of consumer protection law in Victoria this decision is of note in higlighting the complexity of defending a claim brought by originating motion by the Director of Consumer Affairs.  In my experience in Director Consumer Affairs Victoria v  Midas  Trading (Australia) Pty Ltd [2009] VSC 141 (9 April 2009) and Director of Consumer Affairs Victoria v  Abesta  International Pty Ltd & Anor [2009] VSC 639 (16 December 2009) an originating motion is accompanied by a significant number of voluminous affidavits in support.  This poses challenges for a defendant in framing a response.  Scully gives strong and binding guidance as how such cases should be framed by the Director in future and what issues defendants should expect. His Honour did not go so far as to find that all or even most proceedings issued by the Director under the Fair Trading Act should be accompanied by a statement of claim, whether by way of writ or otherwise, however it is a matter that practitioners should consider when dealing with consumer affairs litigation.

His Honour’s statements regarding the operation of the Civil Procedure Act regarding unrepresented litigants are particularly relevant.  They were framed in the context of a model litigant issuing complex proceedings however they are as equally applicable to a plaintiff/defendant opposed to an unrepresented litigant.

Facts

The claim in Matthews arose out of the Black Saturday bush fires.  The firm Oldham Naidoo (“Naidoo”) issued proceedings in the name of a Mr Keane for damages against SPI amongst others. Naidoo did not have instructions from Mr Keanne to issue the proceedings in his name.  Keane asked Naidoo to remove him as a plaintiff, something that did not happen for another year.  Matthews then replaced Keane as representative plaintiff.  After Maurice Blackburn took over conduct of the proceeding it brought Naidoo’s actions to the attention of the court and applied to regularise the proceedings.  The defendants resisted the application and sought variously to strike out the claim and obtain summary judgment.

In Cohen Naidoo issued a group proceeding in Dr Cohen’s name without his knowledge.  Naidoo sought but failed to find a person to be substituted for Cohen.  There had been a substantial history of amendments to the statement of claim. The court considered the application to strike out the proceeding as an abuse of process.

Ruling nos 1 

Lack of authority in a solicitor issuing a proceeding – does it render it a nullity

In opposing the application to regularise the proceeding SPI submitted that the irregularity, issuing a proceeding without authority of the named plaintiff, rendered it a nullity and that it was  incapable of cure by subsequent action or order of the court [40]. His Honour rejected this submission ([42]) stating, at [65]:

the established line of authority to the effect that a proceeding issued by a solicitor without the authority of a plaintiff be regarded, to use the terminology eschewed by the High Court, as neither “void” nor a “nullity“

He found that the defect could be cured if ratified by the purported plaintiff [66].  The fact that a Part 4A proceeding is commenced irregularly does not make it invalid or void from the commencement [73]. At [77] – [78], he rejected the submission that absent the existence of the principal/agent relationship between Keanne and Naidoo the proceeding should be treated as a nullity.  Agency is not essential to the act of ratification. At [79] his Honour stressed that the object of Part 4A was to permit one person in a group proceedings to have a group’s rights determined in a single proceeding. It was not the object of the legislation to render nugatory a group’s right because of the solicitor’s failure.

Is it possible for Matthews or Keane to ratify the institution of the proceedings

It was not necessary for the person ratifying the issue of proceedings being the plaintiff at the time of ratification ([87] – [88]). Keane had been removed as a plaintiff prior to the act of ratification.  His Honour referred to English authority which found that a nominal plaintiff could ratify a proceeding issued without its authority provided it was lawful to do so ([89] & [95]).

Should the proceeding be dismissed or stayed is an abuse of process (also the decision in Cohen)

SPI argued that even if the preceding was capable of ratification it remained an abuse of process in all the circumstances. The prejudice to the defendants included the calculation of interest in the event that the plaintiff was successful. Forrest J found that that it was open to the court to dismiss the claim is an abuse under section 33ZF.   He cited the principles enunciated by the High Court in Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd where the Court said, inter alia:

It is clear, however, that abuse of process extends to proceedings that are “seriously and unfairly burdensome, prejudicial or damaging” or “productive of serious and unjustified trouble and harassment

In claiming an abuse  SPI  relied on:

• the conduct of the solicitors ([102] & [104])
• the plaintiff and the group members have a remedy in the event that the claim is dismissed ([105])
• there was detriment the SPI regarding entitlement to interest([106])

It was not in the interests of justice to dismiss the claim at this point in time ([111]). His Honour made the point that the conduct of the solicitors is a matter for the court on another occasion and that of the Legal Services Commissioner (see [114] generally).  That said His Honour was not prepared to permit the plaintiffs to benefit from the original solicitors “contumelious actions” in precipitously issuing proceedings (see 119 – 129).To that end the plaintiff’s entitlement to interest would only commence on the 23 July 2010, the date of substitution.

Unlike the outcome in Ruling 1 Forrest J dismissed the proceeding in Cohen as an abuse of process.  He referred to the principles set out in Ruling 1 (see [34]) and distinguished the facts there with those in Cohen.  One important difference was that in Cohen there was no actual or putative plaintiff.  Another was that the uniformly substandard manner in which the proceeding was conducted by the plaintiff’s legal representatives. The specific reasons for acceding to the application are:

• the issuing and maintenance of this claim in Dr Cohen’s name was a patent abuse of process. He did not retain any solicitor to act on his behalf [43].
• Cohen had not sought to ratify the proceeding. It remained an unauthorised proceeding [44].
• there was no-one prepared to take on the role of representative plaintiff  and no discrete claim was issued by any group member prior to the expiry of the limitation period [45]
• Naidoo who issued the proceeding without authority was unable to procure a plaintiff prepared to take on the task [46]
• absent a litigation funder or a deep-pocketed lawyer who would carry the costs of the group, there is little or no prospect of finding a willing plaintiff  [47].
• even with appropriate notice there it was unlikely that someone would take on the role of representative plaintiff [48].
  
• the risk of there being, in a real sense, an infringement on the rights of any group member was very low [49].
  
• given the history of the proceeding to date and the issues that are likely to be raised, the prosecution of the claim would be “tortuous and lengthy and inevitably, the claim will be subject to further applications, which would result in the group being reduced in description or divided into sub-groups.” There was a risk that the claim would be “decertified” as a group proceeding and not conform with the requirements of s 33C [50].
• the case without a representative plaintiff had “vexed” the defendants for over two years – with numerous amendments to the statement of claim and interlocutory applications. There was no genuine prospect of it being prosecuted adequately in the future [51].

Ruling nos 2

Summary judgment

The State of Victoria, a defendant, applied for summary judgment relating to those allegations that Victorian police officers breached their statutory and common law duties. The allegations related to a failure to warn residents were exposed to the fire ([4]).  Forrest J reviewed principles relating to strike out at [15] – [22], in particular Rule 23.01, the High Court’s decision in Spencer v the Commonwealth and section 63 of the Civil Procedure Act. He found that the civil procedure legislation intended a less stringent test to be applied in determining summary judgement application.  At [22] he identified the relevant principles as being:

1. If a court determines that a particular cause of action is hopeless or bound to fail, then it should be dismissed;
2. A court may also dismiss a claim where it determines that it has no real prospect of success in the sense that such prospects are fanciful rather than realistic;
3. The less complex the issue in a case then the easier it is for a court to take the view that such a proceeding is capable of being determined on summary judgment; and
4. Whatever the test to be applied, the power to order summary dismissal of a claim must be exercised with care. This is particularly so where a case may involve issues of contested fact, or where its consequences may affect a large number of persons.

Statutory duty & common law breaches alleged against police officers

Forrest J reviewed  the police powers and duties at common law and under the Civil Procedure and the Police Regulations Acts ([28] – [37]) and the operation of Emergency Management Act and the relevant plan.  In that context he found that Victorian police officers did not owe a statutory duty to those who suffered personal injuries because the legislation did not impose an obligation on the police officers nor did the legislature intend to confer a private right upon individuals which would then entitle that person to sue for non-compliance ([68]).  It was question of statutory construction, the exercise of which he undertook at [70] – [87].

His Honour found there was a basis to allege a common law duty owed by the police. He relied upon the High Court authority of Sutherland shire Council v Heyman, Pyrenees Shire Council v Day and Crimmins v Stevedoring industry Finance Committee (see [104] ff).  The starting point in determining the existence of a common law duty was the statutory provisions which set out the powers of the authority or the person in question ([109]). That exercise  was not to be done in isolation, with his Honour quoting Gummow and French in the very recent High Court decision of Kuhl v Zürich Finance Services Australia Ltd at [114]:

“..in determining a duty of care, its scope and content “those questions are determined by considering reasonable foreseeability and the ‘salient features’ of the relationship between the plaintiff and the defendant”.

His Honour found the question of control as of critical significance in the imposition of a duty of care ([118]). In that context he found that the matters alleged in the pleadings could only be fleshed out at trial. Issues such as prior inspection of the area and the properties were also relevant regarding imposition of the duty ([119] – [120]).  The other matters which militated against summary dismissal were:

• that police officers exercise common law functions as well as their statutory powers and the exercise of those powers may point to a duty of care as well as opposing competing considerations (such as public policy, inconsistent obligations) are matters that can only be determined after the whole of the circumstances of the case can be determined [121] – [124].
• section 64 of the Civil Procedure Act which permits a case to proceed to trial even if there is no real prospect of success [126].  He found the nature of this case was such that full hearing on the merits is appropriate.

Issues

The Court made clear that the precipitate action in issuing proceeding sowed some of the seeds of the problems facing the plaintiff in both Matthews and Cohen.  Those problems included obtaining satisfactory plaintiffs and drafting statements of claim to the appropriate standards.  In Matthews the plaintiff was substantially successful in maintaining the proceeding and the core of its claim.  In Cohen the defects proved fatal.

The Matthews Ruling 1 and 2 Forrest J undertook a very useful analysis of Part 4 of the Supreme Court Act and its interrelationship with the Civil Procedure Act.  He continued, from other decisions commencing late last year, to consider the operation of the Civil Procedure Act.  In Matthews Ruling 2 he analysed sections 63 – 64 , relating to summary judgement applications.  Ultimately his Honour maintained the traditional caution of the judiciary in considering a summary judgment application, particularly involving determination of contested facts.

FACTS (pars 4 – 11)

The Plaintiffs are the artist Charles Blackman and his trustee, Robert Dickerson.  The Second Defendant is Peter Gant, an art dealer.  Gant originally supplied three works of art to a Helen Stewart , another art dealer, together with two valuations of the works.  She was the former First Defendant.  Stewart sold the works to a a Robert Blanche, giving him a copy of the valuations.  The evidence is that Blanche relied upon one of the valuations when purchasing the works and used the other for insurance valuation purposes.  When, later, Blanche was advised that the works were not authentic he returned them to Stewart who refunded his money.  Stewart then returned the works to Gant.   The Second Defendant maintains the works are authentic.  The issue before Vickery J was confined to the Second Defendant’s no case application.

ANALYSIS

The Plaintiffs claim, at [12], that the valuations impliedly represent that the works were authentic and consequently a breach of section 9 of the Fair Trading Act.  The Plaintiffs claim loss and damage (see [21] - [24], [27] and [33] – [36]).

No case submission – generally

Vickery J, as is his wont, set out the principles governing consideration of a no case submission, at [2], quoting Kaye in Oakley & Anor v Insurance Manufacturess of Australia:

1. Where a no case submission is made in a trial by jury, the role of the judge is to determine whether, on the view of the evidence most favourable to the party against whom such a submission has been made (“the respondent party”), the jury could (not would) find in favour of the respondent party.
2. The test which is applicable, where a judge is sitting without a jury, is less stringent. In such a case the judge may uphold a no case submission, notwithstanding that the evidence, on the view most favourable to the respondent party, could support a judgment in favour of the respondent party.
3. In such a case the judge may perform an assessment of the quality of the evidence which has been called on behalf of the respondent party. In some cases, such an assessment may involve the judge evaluating the credit of witnesses from whom such evidence has been called.
4. In determining a no case submission, the judge is entitled to draw inferences from the evidence.
5. On a no case submission, the judge cannot draw an inference against the party making the submission (“the moving party”) based upon the absence of evidence from that party.
6. Although the judge, sitting alone, may assess the quality of the evidence in determining a no case submission, nonetheless the test which is to be applied by the judge, at that stage, is different to the test which the judge would apply in determining the ultimate outcome of the case, at the conclusion of a trial. Notwithstanding that the judge, in determining the no case submission, may assess the quality of the evidence, nonetheless the test remains whether, on the evidence so assessed, the judge “could” (not would) find for the respondent party on the evidence so far led. In such a case, the judge would only find against the respondent party if the evidence, so far adduced, is so unsatisfactory or inherently unreliable or equivocal that he were to conclude that he could not be reasonably satisfied of the case made by the respondent party on the evidence thus far adduced.

(my emphasis)

No case application – misrepresentation.

Counsel for the Second Defendant submitted, (see [14 ] – [16]) that the valuations were opinions of market value, not representations of authenticity.  As such the valuations did not constitute a representation under section 9 of the Fair Trading Act.  A valuation is an opinion of worth, not statement of fact, and as such is not a representation or misrepresentation.

His Honour did not accept this submission stating at [18]:

18 However, I am satisfied that there is evidence from which it is open to conclude that the valuations served a dual purpose. True it is that they contained an opinion of value. However it is open to conclude that the valuations also contained an implicit representation of fact that each of the works in contention were authentic works, each having been created by one of the Plaintiffs.

(my emphasis)

No case application – loss and damage.

It was also submitted that the sole recipient of the representation was Blanche.  Blanche is not a Plaintiff.  There was no evidence that he suffered any loss or that the valuations were circulated in the market place.   Vickery J extracted the relevant paragraphs and found that the relief sought included future loss and damage if valuations were used in the future in conjunction with the sale of the works (see [27] – [28]).  That element of the claim justified the claim for permanent injunction regarding the use of the valuations.  In considering sections 149 and 149A of the Fair Trading Act, empowering the grant of injunctive relief, Vickery J stated, at [30]:

30 These sections of the Fair Trading Act are framed in broad terms. On their face they arguably do not depend upon any person being actually mislead by conduct which contravenes section 9 of the Act. Rather, it is the conduct in breach of section 9 which may give rise to a grant of relief under section 149 .. The relief sought by the Plaintiffs in this case under paragraphs 1-3 of the relief claimed, would appear to fall within the ambit of these statutory provisions.

While Vickery J found there was a case to answer regarding the claim for injunctive relief he found there was no case to answer regarding the Plaintiffs’ claim for $25,000 in damages.  Section 159 of the Fair Trading Act requires a causal link between the contravening conduct and the loss and damage claimed, [34].  After analysing the evidence thoroughly (at [37] – [43]) his Honour found while thre was considerable evidence going to authenticity of the works (though he noted no declaration was sought on same in the pleadings - [41]) there was no evidence that valuations or their use had any effect causing the loss claimed.  On that point Vickery J found there was no case to answer the claim for $25,000.

No case application – the election.

The usual rule in making a no case submission is:

1. a judge will not rule on a no case submission unless the applicant states it will not call evidence in the event that submission is unsuccessful [44]. It is however a matter of discretion whether the judge puts the applicant to his election.  The exercise of the discretion depends on “..depends on matters which go to the just and convenient disposition of the litigation and the interests of justice.”
2. a judge will rule on whether to put the the applicant to his election after the submission is made.

His Honour did not put the applicant to his election because of the serious allegations being made; that an art dealer represented that fakes were authentic and sold fakes.  This is particularly serious for a dealer continuing to operate in the art market. In the circumstances the Second Defendant should have the opportunity to put on evidence against the case put against him.  Curiously his Honour regarded the publicity associated with the case as a factor, stating (at [46]), “I cannot ignore the measure of publicity that this case has attracted.”

ISSUE

No case applications are, not surprisingly,  infrequently made.  In a matter where the facts are actively contested the prospect of being put to an election rightly warrants a conservative approach.  If an application is contemplated it is critical to carefully analyse the Plaintiff’s evidence against the pleadings.  In this case the  Second Defendant was partially successful because the Plaintiff’s evidence focused on authenticity claims rather than evidence of actual loss.  As Vickery J made clear, one does not equate with the other.

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.