DISTRICT COURT OF QUEENSLAND

1. [1]
   This is an application by the defendant for orders striking out the plaintiff’s Amended Claim and Statement of Claim and for costs. A further order sought restraining the plaintiffs’ communicating with the defendant and associated persons was resolved by the parties.

2. [2]
   The plaintiffs’ cause of action is pleaded in negligence. The claim is for damages for pure economic loss.

3. [3]
   The plaintiffs are husband and wife. In 1998 they became involved with others in a proposed joint venture to develop units on land at Bowen. Two companies (the companies) were formed, Rose Bay Properties Pty Ltd which purchased the land upon which the development would take place and Rose Bay Developments Pty Ltd which was to undertake the construction of the development. Each company was trustee for a unit trust, respectively the Rose Bay Properties unit trust and the Rose Bay Developments unit trust. The unit holders in each unit trust which included the plaintiffs contributed capital to the trusts. The male plaintiff was a director of each company until October 2002 when he ceased.

4. [4]
   Initially money was borrowed from National Australia Bank to fund the project. In November 2001 Rose Bay Developments Pty Ltd applied to the defendant for funding to complete the project in substitution for National Australia Bank. $2,600,000.00 was to be provided (the loan facility). The existing loan with National Australia Bank ($360,000.00) was to be paid out.

5. [5]
   Rose Bay Properties Pty Ltd mortgaged the land to secure the funds from the defendant. Personal guarantees were provided by the directors to the defendant.

6. [6]
   Rose Bay Developments Pty Ltd engaged Oakpride Staff Pty Ltd (Oakpride) as the builder of the units. Oakpride is the plaintiff’s company.

7. [7]
   The loss claimed by the plaintiffs is the amount of money they contributed to the unit trusts. The amount is represented in the accounts of each company. See for instance the accounts for year ended 30 June 2005. In the balance sheet for Rose Bay Properties Pty Ltd, shareholders equity is represented by beneficiaries current accounts $138,900.00 (which includes an amount of $40,900.00 for Oakpride) and accumulated losses, reflecting a deficiency in shareholders funds of $22,247.89. In the balance sheet for Rose Bay Developments Pty Ltd shareholders equity is represented by beneficiaries current accounts $189,918.70 (which includes an amount of $59,516.40 for the Venn family trust) and accumulated losses of $161,083.60 reflecting a deficiency in shareholder funds of $28,835.00. The addition of $40,900.00 and $59,516.40 is $100,416.40, the amount claimed by the plaintiffs.

8. [8]
   Between 21 December 2001 and 20 August 2002 drawdowns on the loan facility occurred. It was fully drawn on the 20 August 2002. It was fully repaid by 23 September 2003. Personal guarantees were not called upon.

9. [9]
   The claimed loss to the plaintiffs is pleaded to have been caused by the negligence of the defendant.

10. [10]
    The defendant’s application contends that the defendant owed no duty of care to the plaintiff to avoid causing them pure economic loss.

11. [11]
    The conduct of the defendant which it is said amounted to breach of its duty of care to the plaintiffs relates to the loan and the associated accounts opened and operated by the defendant. The line of credit was provided to Rose Bay Developments Pty Ltd. The defendant’s contractual arrangements relating to the loan were with that company. The plaintiff’s only connection was that the male plaintiff was until October 2002 a director of Rose Bay Developments Pty Ltd and a guarantor of its obligation to repay.

12. [12]
    The breach of duty is said to be constituted by various activities (or lack thereof) on the part of the defendant in operating the accounts, by its failure to advise the companies or the plaintiffs of particular of its actions in operating the accounts and by its failure to adhere to the male plaintiff’s instructions by hand delivered message on 9 August 2002 that his signature was required on each and every transaction, from either the Rose Bay Development trust account or the Rose Bay Properties trust account.

13. [13]
    The statement of claim asserts that it was reasonably foreseeable the plaintiff’s would “suffer harm” if the defendant engaged (or failed to engage) in the activities said to constitute the breach of duty, that the defendant knew or ought to have known that losses by the companies would cause consequential economic loss to persons such as the plaintiffs who relied upon the success of the development, and knew, or had the means of knowing the plaintiffs were an ascertainable class of members of vulnerable persons who were unable to protect themselves from harm. It asserted that the duty of care contended for “would not have impaired the legitimate pursuit by the defendant of its own commercial interests” and “flowed from the occurrence of activities within the defendant’s control” .

14. [14]
    The statement of claim pleads that as a consequence of the defendant’s breaches of duty, the joint venture project failed in that approximately $1.093 million was not paid into or retained in the accounts of Rose Bay Developments Pty Ltd or Rose Bay Properties Pty Ltd with the defendant. Rather it was paid out or flowed on as benefits to others as a consequence of the defendant releasing mortgages without any reduction of the loan. Thus it is pleaded, the value of the plaintiffs’ investment in the joint venture was lost.

15. [15]
    It is difficult, if not impossible to understand from the statement of claim how the breaches of duty articulated therein or at least some of them, were causative of or linked to the causation of money which, it is said should have flowed to the companies, failing to do so. In paragraph 65 of the statement of claim it is pleaded that the damage alleged and claimed flowed from the occurrence of activities within the defendant’s control. The particularised breaches of duty in paragraph 68 of the Statement of Claim articulate matters within the defendant’s control. The causal connection between the occurrence of those activities and the plaintiffs’ damage is not plain. Putting it another way, their contribution to the plaintiff’s losing the money they had invested in the joint venture is not clear from the pleading.

16. [16]
    Counsel have been unable to locate any authority for the proposition that a duty of care is owed to a third party in a bank’s conduct of its account with its customer.

17. [17]
    The plaintiff has sought to rely upon the principles articulated in Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 and Perre v Apand (1999) 198 CLR 180. 

18. [18]
    In Fortuna Seafoods v The Ship “Eternal Wind” (2005) QCA 405, McMurdo P succinctly set out those factors (indicated in Caltex Oil and Perre) which in combination may support a duty not to cause pure economic loss to another.  Her Honour said:

“the determination of whether a defendant owes a claimant a duty of care not to cause pure economic loss will depend on a combination of factors including the reasonable foresight of the likelihood of harm; the defendant’s knowledge or means of knowledge of an ascertainable determinate class of persons who are at risk of foreseeable harm; the claimant’s vulnerability or whether they are unable to protect themselves from the foreseeable harm; whether the implication of a duty would impair the defendant’s legitimate pursuit of autonomous commercial interests including the existence of any contracts between the claimant and defendant; whether the damage flowed from the occurrence of activities within the defendant’s control; the closeness of the relationship between the parties and the existence of any other special circumstances justifying compensation.

There is however, no simple formula to be applied in determining whether the application of these principles to the facts---(It) requires some more detailed attention to the pertinent facts of this case”.

19. [19]
    Here on the face of things the plaintiff’s are an ascertainable determinate class of persons at risk of foreseeable harm. The male plaintiff was a director of the defendant’s customer. On the other hand, the vulnerability of the plaintiff’s to economic harm, was on one view, due to their own active involvement in the joint venture, the establishment of the companies as trustee companies for unit trusts and as, respectively mortgagor of the land and, developer of the land and borrower from the defendant.

20. [20]
    In Perre Gleeson CJ said at 192:

“In Caltex Oil(Australia) Pty Ltd v The Dredge Willemstad, all the members of the Court except Murphy J accepted that there is no general rule that one person owes to another a duty to take care not to cause reasonably foreseeable financial harm.  The consequences of such a rule would be intolerable.  However as the decision in that case showed and as had been previously shown in Hedley Byrne & Co Ltd v Heller & Partners Ltd, there are circumstances in which the law recognises a duty of care such as will permit recovery of pure economic loss.

There are at least three considerations which have been and will remain influential in restraining acceptance of such a duty of care in particular cases or categories of case.  First, bearing in mind the expansive application which has been given to the concept of reasonable foreseeability in relation to physical injury to person or property, a duty to avoid any reasonably foreseeable financial harm needs to be constrained by ‘some intelligible limits to keep the law of negligence within the bounds of common sense and practicality’.  Secondly, to permit recovery of foreseeable economic loss which may or may not occur in a commercial setting, for any negligent conduct may interfere with freedoms controls and limitations established both by common law and statute in many legal contexts.  Thirdly, in those cases where the loss occurs in a commercial setting, a third party, C, may suffer financial harm as a result of conduct which is regulated by a contract between A and B.  It may be that the consequences of such conduct as between A and B are governed and limited by the contract”.   

21. [21]
    At 220, McHugh J indicated that in determining whether a duty of care is owed it is always relevant to consider the vulnerability of the plaintiff to incurring loss by reason of the defendant’s conduct. His Honour went on “So also is the actual knowledge of the defendant concerning that risk and its magnitude. If no question of indeterminate liability is present and the defendant having no legitimate interest to pursue is aware that his or her conduct will cause economic loss to persons who are not easily able to protect themselves against that loss, it seems to accord with current community standards in most, if not all, cases to require the defendant to have the interests of those persons in mind before he or she embarks on that conduct”. And at page 225 his Honour said “In many cases there will be no sound reason for imposing a duty on the defendant to protect the plaintiff from economic loss where it was reasonably open to the plaintiff to take steps to protect itself”.

22. [22]
    The defendant also submitted that the plaintiffs have suffered no loss, that any loss is a loss of the trustee companies. In response the plaintiffs’ submitted their case was one of beneficiaries seeking damages occasioned to them by a wrong done to them which caused the relevant trustee undertakings to fail. They accepted they must prove the existence of a duty or duties owed to them, not just to the companies and that the damages sought by them is for their damage distinct from and not merely reflective of losses sustained by the companies.

23. [23]
    The damage to the plaintiffs is pleaded to have flowed from the completion of the joint venture not resulting in Rose Bay Developments Pty Ltd and/or Rose Bay Properties Pty Ltd retaining an estimated amount of money from the joint venture. The breach of the defendant’s duty (as particularised) is pleaded as causative of that. As the plaintiffs have pleaded, they are not suing for a wrong to the trustee company or companies. Rather they have pleaded the wrong was done to them and that it has caused them damage, namely the loss of their investment in the joint venture. Whether in the final analysis they are able to establish causation of their loss claimed, independently of what is said to be a failure of money to be paid to or retained in the accounts of the company may depend upon findings of fact.

24. [24]
    In the final analysis, I am not presently persuaded to a view that I should dispose of this matter without the benefit of a full determination of the relevant facts particularly so in this area of the law where cases have been incrementally developing the law. Caltex Oil, Perre, Bryan v Maloney (1995) 182 CLR 609, Hill v Van Erp (1997) 188 CLR 159, Cattanach v Melchion (2003) 215 CLR 1, Wilcox Street Investments Pty Ltd v LDG Pty ltd (2004) 205 CLR 522. 

25. [25]
    It is a matter for the plaintiffs to consider whether the company’s or either of them should be joined in the proceeding and if so, on what basis.

26. [26]
    The application is dismissed.