Sutherland v GHR Accounting and Anor

1. [1]

   These proceedings were commenced by the plaintiff, Richard Sutherland, on 13 August 2015 by way of Statement of Claim. The first and second defendants are an accounting firm, named as GHR Accounting Group (“GHR”), and Macquarie Bank (“Macquarie”).

2. [2]

   Mr Sutherland’s claim is for economic loss, which he has not quantified in his pleadings, said to have arisen because of conduct by the defendants variously alleged as negligence, breach of contract and negligent misstatement. The transaction at the centre of the plaintiff’s claim appears to be a “business proposal” he says Macquarie presented him with in early 2006. The details of this transaction are set out at paragraph 3 of the plaintiff’s Statement of Claim. The plaintiff claims that GHR gave him advice to proceed with the proposal, and to provide a mortgage over all of the properties he owned in pursuance of the proposal. In 2008 Macquarie alleged that the plaintiff was in default of a loan agreement.

3. [3]

   On 23 November 2015 I heard two applications brought by the defendants. By way of Notice of Motion filed 16 September 2015 the first defendant (GHR) sought an order dismissing the plaintiff’s Statement of Claim (pursuant to UCPR r 13.4) or alternatively striking out the Statement of Claim (pursuant to UCPR r 14.28) as against them. By Notice of Motion filed on 10 September 2015, the second defendant (Macquarie) sought orders in the same terms in relation to the claim against them.

4. [4]

   The second defendant relied upon a supporting Affidavit of Brendan John Miller sworn 10 September 2015. Mr Miller’s affidavit was also relied upon by the first defendant, as well as an Affidavit of Marco Gianni Chiarella sworn 16 September 2015. The plaintiff objected to both affidavits on the basis that he had not “heard of” either Mr Miller or Mr Chiarella and had not had any dealings with either man. There was no objection to the substance of either affidavit, and both were taken to be read on the application.

Background

1. [5]

   The plaintiff, at some stage, was the sole director and single shareholder of a company, Quadratus Pty Ltd. The plaintiff did not put on any affidavit evidence on this application. However, a chronology document prepared by him came to be included in the Court Book provided by the defendants, apparently on the plaintiff’s wishes. The chronology was attached to a letter dated 19 July 2011 from the plaintiff. It is not clear who the letter was addressed to. It is apparent that the chronology was not prepared for this litigation.

2. [6]

   According to the chronology, the plaintiff and his family have been involved in the buying and selling of various properties in New South Wales since about 1928. Relevantly, the chronology states that a property at 120 Bridge Road, Glebe was purchased in 1989 and that a property at 418 Abercrombie Street, Chippendale was purchased in 1992. An entry in the chronology for January 1996 states:

3. [7]

   As will be seen below, it is likely that the reference to “advice” in that entry and subsequent entries in the chronology is intended as a reference to advice alleged to have been provided by the accountants including the first defendant in these proceedings, GHR.

4. [8]

   An entry for June 2005 states:

5. [9]

   The chronology outlines events said to have occurred in early 2006. It is said that on 20 January 2006 there was a conversation with an employee of Macquarie, Stuart Boag. Details are not given as to the substance of that conversation. It is then said that on 3 February 2006 there was a “subsequent meeting requested by Macquarie at Accountant’s office.” It is said that in attendance were the plaintiff, three employees of Macquarie including Stuart Boag, three employees of GHR Accounting named as David Gordon, Bernadette Gore and Lisa Callaghan, and the family’s former accountant, Gren Olsen. It is then recorded:

6. [10]

   It is said in the chronology that on 15 February 2006 Macquarie sent documents and an offer in writing “as per meeting” though it is not said to whom the documents were sent. The chronology then deals with various proposed property purchases which were said to have been either pursued or not proceeded with depending on the advice of “Accountants”, which for the purposes of this application I presume to be a reference to GHR.

7. [11]

   Difficulties are mentioned in terms of the “cash position” presumably of Quadratus, and attempts to find tenants for properties purchased in Glebe. In March 2008 it is said that there were “various telephone conversations with both the Accountant and Macquarie Bank regarding the increasingly difficult financial position” again, presumably of Quadratus. It is said that a meeting took place in June 2008, again at the request of Macquarie and at the office of the accountants. The entry states, amongst other things:

8. [12]

   It is said that in 2009 certain loans (it is unclear which loans are being referred to) were refinanced through various lenders. It is said that in March 2010 “both commercial properties are repossessed and sold substantially below purchase price.” The chronology concludes with further information as to challenges and difficulties said to have been faced by the plaintiff or his company. Some statements are then made as to the plaintiff’s belief that his losses were caused by the defendants in the present proceedings.

9. [13]

   The Affidavit of Brenden Miller sets out the details of two loan facilities provided by Macquarie to Quadratus Pty Ltd in April 2006. It seems probable that these facilities form part of the transaction or “proposal” referred to by the plaintiff in his chronology (see [9] above).

10. [14]

    The first facility, number 144334, was offered to Quadratus pursuant to a facility letter dated 29 March 2006. Macquarie provided a line of credit to Quadratus on or about 26 April 2006. The facility limit was $525,000 and the plaintiff was the guarantor. According to Mr Miller’s affidavit, the purpose of the facility was to assist with the refinancing of an investment property at 418 Abercrombie Street, Darlington (presumably the Chippendale property referred to by the plaintiff in his chronology). A mortgage was provided over the Darlington property as security.

11. [15]

    The second facility, number 109584, was offered to Quadratus pursuant to a facility letter dated 29 March 2006. The line of credit was also provided to Quadratus on or about 26 April 2006. The facility limit was $600,000 and again, the plaintiff was the guarantor. According to Mr Miller’s affidavit the purpose of the facility was to assist with the refinancing of an investment property at 120 Bridge Road, Glebe. Again, a mortgage over that property was provided as security.

12. [16]

    Mr Miller states in his affidavit (at [6] and [9]) that the loan facilities were each varied on or about 28 July 2006. Annexure B to his affidavit is a copy of the variation letter relating to both facilities. Mr Miller states at [10] that the second facility was further varied on or about 25 June 2008, Annexure D to his affidavit being a variation letter.

13. [17]

    It is alleged that the plaintiff defaulted in respect of these facilities. On or about 11 December 2008, Quadratus was issued with a Notice of Demand by Macquarie. After no payment was received, on or about 19 January 2009 Macquarie issued notices pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) with respect to the Darlington and Glebe properties. Macquarie commenced proceedings in this Court (proceedings number 2009/11290) on 6 March 2009 against Quadratus, naming the plaintiff in these proceedings as second defendant due to his role as guarantor. According to Mr Miller’s affidavit, no defence was filed.

14. [18]

    On or about 12 May 2009, Quadratus sold the Darlington Property. On or about 21 July 2009, Quadratus sold the Glebe property. The balances owing under both facilities were then repaid. The Supreme Court proceedings were discontinued. Quadratus was deregistered on 11 August 2013.

15. [19]

    As mentioned above, these proceedings were commenced by the plaintiff on 13 August 2015.

Pleadings

1. [20]

   Under the heading “Relief Claimed” in his Statement of Claim, the plaintiff has stated that the defendants are indebted to him for “the capital invested; costs; professional fees; interest; legal fees; loss of opportunity to make alternative investments; and other costs as the court deems appropriate.” As previously stated, no loss has been quantified in the pleadings. The amounts claimed as capital, fees etc have not been specified. The same statement as to loss and indebtedness appears at [8] of the Statement of Claim.

2. [21]

   Paragraph 1 of the Statement of Claim is entitled “Reliance”. Under this heading, the plaintiff has stated that the accountants for the plaintiff were “at all times GHR Accounting of Mona Vale (the First Defendant)”. The plaintiff has then provided examples of the types of matter he claims to have received advice on from GHR. At [1.3] the plaintiff states that “it was reasonable for the Plaintiff to rely on advice provided by GHR Accounting.”

3. [22]

   Paragraph 2 is entitled “Duty of Care”. As in [1], there is no mention of Macquarie with the matters sought to be pleaded in [2] concerning only GHR. Under this heading the plaintiff makes statements about GHR’s advertising methods. He also makes a number of statements claiming that GHR was aware of his financial circumstances as well as matters relating to the finances of his family. At [2.3]–[2.4] the plaintiff pleads:

4. [23]

   Paragraph 3 is entitled “Loan Agreement with Macquarie Bank” and concerns a business proposal said to have been presented to the plaintiff by Macquarie in early 2006. Again, I take this to be a reference to the events discussed above at [9] and [13]. The claims made by the plaintiff in this section of his Statement of Claim are:

5. [24]

   Paragraph 4 is entitled “Breach of Contract GHR Accounting”. Under this heading it is said that there was a commercial agreement in place between the plaintiff and GHR. At [4.2] it is stated that “GHR Accounting regularly said to the Plaintiff that they would provide advice which would help to increase the wealth of the Plaintiff”. It is then said that the plaintiff paid substantial amounts of money to GHR for “the advice which was given in relation to this matter” however the phrase “this matter” is not further specified. At [4.4] it is pleaded that “GHR Accounting did not honour the terms of its agreement with the Plaintiff.” No specific terms of any agreement are pleaded, nor any action amounting to breach in the context of this paragraph.

6. [25]

   Paragraph 5 is entitled “Breach of Contract Macquarie Bank”. Again the plaintiff pleads that there was a commercial agreement between himself and Macquarie, that substantial sums were paid to it “in relation to this matter” and that Macquarie did not “honour the terms of its agreement”. It is then stated:

7. [26]

   Paragraphs 6 and 7 are in identical terms except insofar as paragraph 6 is concerned with alleged conduct of GHR and paragraph 7 concerns the same alleged conduct but by Macquarie Bank. The paragraphs are entitled “Negligent Misstatement GHR Accounting” and “Negligent Misstatement Macquarie Bank” respectively. Paragraph 6 is as follows:

8. [27]

   Paragraph 7 is in the same terms except references to GHR Accounting are replaced by references to Macquarie. As such, the allegations of negligent misstatement are the same against each defendant. No further details or particulars as to the advice or recommendations referred to are given.

Principles

1. [28]

   UCPR r 13.4 provides:

2. [29]

   Rule 14.28 provides:

3. [30]

   The defendants face a high burden in seeking to obtain orders under either of these rules. The power to summarily dismiss proceedings should only be exercised in limited and exceptional cases, and not where determination of seriously disputed questions of fact is required. As Dixon J (as his Honour then was) said in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91:

4. [31]

   The power to strike out pleadings should also only be exercised in clear cases. An order may be made merely on an examination of the pleadings: Dey v Victorian Railway Commissioners, supra. One ground for either summary dismissal or strike out of pleadings is if the proceedings/pleadings do not disclose a reasonable cause of action. The following principle was stated in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129:

5. [32]

   The fact that a plaintiff has slim prospects of success is not enough to strike out a pleading: McGuirk v The University of New South Wales [2009] NSWSC 1424 at [38] referring to Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241 at 271; Preston v Star City Pty Limited [1999] NSWSC 1273 at [31]. As Johnson J stated in McGuirk at [38]:

6. [33]

   An order should not be made simply because pleadings are defective; pleadings must be beyond saving by legitimate amendment: Mutual Life and Citizens Assurance Co Ltd v Evatt (1970) 122 CLR 628.

7. [34]

   As to the principles relating to pleadings, the following observations were made by Johnson J in McGuirk, supra:

8. [35]

   On the topic of pleadings said to be embarrassing for the purposes of UCPR r 14.28, Johnson J in McGuirk stated:

9. [36]

   The plaintiff’s Statement of Claim and the defendants’ Notices of Motion must be considered in light of these principles.

Claim against Macquarie Bank

1. [37]

   The pleadings, outlined above, indicate that the plaintiff’s claims against the second defendant, Macquarie, are for alleged breach of contract and alleged negligent misstatement.

2. [38]

   Macquarie, in its written submissions, acknowledges that in the early stages of proceedings a Court may be inclined to strike out a problematic pleading and allow an opportunity to re-plead rather than dismissing the proceedings entirely. Macquarie submits however, that the plaintiff’s case against it is misconceived and cannot succeed even if pleading issues could be resolved. For that reason it submits that the proceedings should be dismissed.

3. [39]

   In their written submissions at [20]-[22], Macquarie has identified what it submits are difficulties with, or defects in, the plaintiff’s Statement of Claim, including that the “commercial agreement” relied upon in paragraph 5 is not identified or particularised, nor the sums of money said to have been paid by the plaintiff to Macquarie or the “advice”, “Risk Analysis” and “Recommendations” referred to in paragraph 5

4. [40]

   It is not necessary to re-state the various problems identified by Macquarie in relation to paragraph 5 and paragraph 7 in any greater detail because I accept that they do constitute defects in the Statement of Claim. As submitted at [21] of its written submissions, Macquarie “is left to entirely speculate as to what is the breach of contract claim sought to be made against it.” In relation to the plaintiff’s negligent misstatement case, Macquarie submits at [23] that they are “also left to speculate about the claim…There is no proper pleading of duty, breach or causation. It is impossible to understand what is the essence of the claim and it cannot be responded to…”

5. [41]

   Macquarie also noted that, in relation to the “significant losses” identified in paragraph 8 of the Statement of Claim there has been no attempt by the plaintiff to identify or explain what losses are claimed against whom, how the losses are said to arise and the quantum of the losses: Second Defendant’s Written Submissions at [24].

6. [42]

   It was submitted by Macquarie that the evidence on the application demonstrates that there is no reasonable cause of action by the plaintiff against it. In this respect Macquarie, in its written submissions, referred to the chronology prepared by the plaintiff and the letter to which it was attached, stating that those documents demonstrate:

   1. (1)

      That the plaintiff’s claim appears to relate to loans to Quadratus and the financial position of Quadratus.

   2. (2)

      That any complaint in relation to poor advice which is alleged to have been relied upon by the plaintiff and caused loss (presumably to Quadratus) is against GHR.

   3. (3)

      The relevant events occurred long ago and more than 6 years before these proceedings were commenced.

7. [43]

   Macquarie made the following submissions:

Conclusion: Macquarie Bank

1. [44]

   The plaintiff’s Statement of Claim against Macquarie fails to comply with the provisions of the UCPR in respect of pleadings: UCPR Part 14, Division 3.

2. [45]

   In paragraph 3 (“Loan Agreement with Macquarie Bank”) the first reference to Macquarie concerns what was said to be the presentation of a business proposal by it in early 2006. Paragraph 3.2 pleads as a fact that the plaintiff was dependent upon GHR to approve the business proposal. As previously stated, it is in the following terms:

3. [46]

   In paragraph 3.4 it is pleaded that GHR Accounting allegedly stated that the business proposal of Macquarie was appropriate. In 3.6 the plaintiff says he followed advice given by GHR Accounting.

4. [47]

   It is plain from the plaintiff’s own pleading that he relied upon the approval and advice of GHR, not Macquarie, in relation to Macquarie’s business proposal.

5. [48]

   In paragraph 5 (“Breach of Contract Macquarie Bank”) there is no recital of any facts supporting the bare contentions made as to “advice” not being appropriate or being misleading or deceptive.

6. [49]

   Paragraph 7 (“Negligent Misstatement Macquarie Bank”) is equally bereft of any factual matter capable of supporting any claim of negligent misstatement or misleading or deceptive advice.

7. [50]

   In particular there is no legal relationship identified in the Statement of Claim as having existed between the plaintiff and Macquarie or between Macquarie and Quadratus.

8. [51]

   The evidence before me, particularly Mr Miller’s evidence, establishes that Macquarie were involved with the business and financial affairs of the plaintiff only insofar as the 2006 loan facilities provided to Quadratus. Two issues of significance arise. The first is that the plaintiff is not the ‘proper plaintiff’ because the loans were made to Quadratus and Macquarie’s services were provided to Quadratus. The second is that any losses said to have resulted from those transactions (bearing in mind that no losses are particularised and although there was default, the possession proceedings were discontinued following an orderly sale of the property and payment of the debts by Quadratus) would, at best, be reflective losses suffered by the plaintiff as a shareholder in Quadratus. In this respect it was stated by Stevenson J in VPlus Holdings Pty Ltd v Bank of Western Australia Ltd [2012] NSWSC 1327 at [28] that:

9. [52]

   On the above bases the plaintiff’s case against Macquarie is untenable, cannot possibly succeed, and should be dismissed under UCPR r 13.4.

Claim against GHR Accounting

1. [53]

   The first defendant, GHR, relied upon written submissions dated 13 November 2015 and oral submissions made on its behalf by Mr CJ Peadon of counsel at the hearing of the Notices of Motion.

2. [54]

   At [2] of GHR’s written submissions the following summary of the plaintiff’s claim is set out with references to the plaintiff’s Statement of Claim:

3. [55]

   This is an accurate summary of the plaintiff’s pleadings against GHR insofar as they relate to the 2006 loan facility. It is clear from paragraphs 2, 4 and 6 that the plaintiff alleges breach of a duty of care, breach of contract and negligent misstatement in relation to the transaction outlined in paragraph 3.

4. [56]

   The pleadings indicate however that the relationship between GHR (in various corporate forms as discussed below) and the plaintiff had been ongoing over a number of years and that the plaintiff’s involvement with it was not limited to the 2006 transaction. Paragraph 1 of the Statement of Claim, headed “Reliance” stated that GHR had “regularly advised” the plaintiff on “various accounting matters” said to include taxation matters and superannuation. At [1.2.2] the plaintiff states:

5. [57]

   Additionally, at [4.2] of the Statement of Claim, under the heading “Breach of Contract GHR Accounting” the plaintiff alleges that:

6. [58]

   These aspects of the pleadings suggest that the plaintiff’s claim against GHR is not limited to the 2006 transaction with Macquarie but relates more broadly to advice given to him by the firm in relation to his investments in general and the structuring of Quadratus in relation to certain property holdings. In that respect, the claim against GHR is, in my opinion, materially different to the claim against Macquarie, and may not be susceptible to a reflective loss defence.

7. [59]

   If it was the plaintiff’s intention to plead losses against GHR extending beyond the 2006 transaction this has not been conveyed with specificity. The plaintiff has not provided particulars as to specific advice he says was given to him by GHR or communications between himself and GHR. More fundamentally, specific breaches and causation between any alleged acts done or statements made by GHR and losses, which are not quantified in the Statement of Claim, have not been pleaded.

8. [60]

   GHR submitted that the plaintiff’s claim discloses no reasonable cause of action for three reasons:

   1. (1)

      GHR was not incorporated at the time the plaintiff was advised (if the plaintiff was advised) to enter into the facility in 2006. Therefore, GHR did not relevantly advise the plaintiff.

   2. (2)

      The facility from Macquarie was made available to Quadratus and not the plaintiff himself.

   3. (3)

      The plaintiff was not called on to pay any amounts as guarantor pursuant to the facility. The plaintiff therefore did not suffer any compensable loss. It was submitted that whether or not Quadratus suffered any loss is not relevant to the proceedings.

9. [61]

   It was submitted by GHR that the Statement of Claim should accordingly be summarily dismissed, with reliance placed on the decision of French CJ and Gummow J in Spencer v the Commonwealth (2010) 241 CLR 118 at [17], [22] and [25]. Alternatively it was submitted that the Statement of Claim should be struck out, with reliance placed on General Steel Industries Inc v Commissioner for Railways (NSW), supra, at 129-130.

10. [62]

    It was additionally submitted that the Statement of Claim should be struck out as embarrassing because of deficiencies said to flow from:

    1. (1)

       The plaintiff’s failure to plead the material terms of the alleged commercial agreement with GHR as well as his failure to plead the terms of the alleged agreement said to have been breached or causation.

    2. (2)

       The plaintiff’s failure to identify the “advice”, “risk analysis” and “recommendations” complained of in [6.1]-[6.3] of the Statement of Claim under the heading “Negligent Misstatement”, as well as the facts and circumstances rendering any advice given by GHR not appropriate, misleading and/or deceptive.

11. [63]

    At the hearing I raised with counsel for GHR the issue discussed above at [58] as to whether the Statement of Claim could be said to embrace not only the discrete loan facilities as their summary of the claim (see above at [54]) would suggest but a more general transaction whereby GHR provided advice in relation to a new structure, including the establishment of Quadratus and any advice as to the transfer of properties into the company name as a property portfolio investment company. In response Mr Peadon submitted:

12. [64]

    Mr Peadon maintained, on behalf of GHR, that the essence of the claim brought by the plaintiff is advice in relation to the provision by Macquarie of facilities to the plaintiff’s company.

13. [65]

    In relation to the submission concerning GHR’s incorporation, and the fact that GHR in its current form did not exist at the time many of the alleged acts occurred, I consider that this is in the nature of a misnomer in the pleading which could be overcome by the plaintiff. I accept the plaintiff’s contention that the practice which provided advice to him was essentially the same as that carried on by the corporate vehicle known as GHR Accounting today. I consider this could be cured, for instance, by the company’s deregistration being revisited or the plaintiff joining an insurer, if leave of the Court was granted to proceed in that way.

14. [66]

    As to the submission that any advice given by GHR was given to Quadratus, and any loss was suffered by Quadratus, it was submitted that the reflective loss principle discussed above also applies to any potential claim the plaintiff may have against GHR. As foreshadowed earlier, I consider that the position is slightly different to the claim made against Macquarie, as it appears that the plaintiff seeks to rely upon ongoing conduct over a period of time against GHR causing him losses. If the plaintiff were to be given leave to replead it would be necessary for him to identify:

    1. (1)

       The relevant retainer of GHR;

    2. (2)

       Whether there is any material capable of establishing that the scope of duty of care extended as far as the plaintiff alleges;

    3. (3)

       Whether there is any basis for an allegation of a breach of that duty in relation to any particular transaction/the overall investment scheme and

    4. (4)

       Whether there would be an arguable basis that loss or damage flowed to the plaintiff as distinct from the company against GHR.

Conclusion

1. [67]

   I consider that the plaintiff should be afforded the opportunity to replead against GHR in respect of any cause of action as to any maintainable claim for alleged loss separate from losses that may have been suffered by his company, Quadratus.

2. [68]

   I consider that the pleadings are embarrassing within the meaning of UCPR r 14.28. I do not consider that the deficiencies in the pleadings can be remedied by the provision of further particulars by the plaintiff. In my opinion the Statement of Claim should be struck out with liberty to the plaintiff to replead against GHR.

   1. (1)

      The proceedings brought by the plaintiff against the second defendant, Macquarie Bank, are dismissed pursuant to UCPR r 13.4.

   2. (2)

      The Statement of Claim filed by the plaintiff as against the first defendant on 13 August 2015 is struck out pursuant to UCPR r 14.28.

   3. (3)

      Leave is granted to the plaintiff to file an Amended Statement of Claim to re-plead against the first defendant, GHR Accounting, in relation to alleged breach of contract and/or alleged negligence or negligent misstatement.

   4. (4)

      I grant leave to the first and second defendants to lodge with my Associate any written submission on costs. The plaintiff is to lodge with my Associate any written submissions in reply by 4pm Friday, 12 February 2016 with copies to be served on the defendants’ solicitors.