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Hutchins v Robinson[2012] QSC 411
Hutchins v Robinson[2012] QSC 411
SUPREME COURT OF QUEENSLAND
CITATION: | Hutchins v Robinson and Ors [2012] QSC 411 |
PARTIES: | FU-MEI HUTCHINS (Plaintiff) v MICHAEL GERARD ROBINSON (First Defendant) and SECURCORP LIMITED ACN 088 919 377 (Second Defendant) and DESMOND MARK NIALL (Third Defendant) and LESTER JOHN HUGHES (Fourth Defendant) and AMERICAN HOME ASSURANCE COMPANY (Third Party) |
FILE NO/S: | BS 3767 of 2011 |
DIVISION: | Trial Division |
PROCEEDING: | On the papers |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 17 December 2012 |
DELIVERED AT: | Brisbane |
HEARING DATE: | Written submissions on 6 September 2012 (for the plaintiff) and 2 October 2012 (for the defendants) |
JUDGE: | Philip McMurdo J |
ORDER: |
|
CATCHWORDS: | PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – PLEADING – STATEMENT OF CLAIM – where the plaintiff applies for leave to amend its statement of claim to join two further defendants and to plead several further points - where the defendants oppose the application and claim that the pleading is deficient and pleads no cause of action against the proposed new defendants – whether there are sufficient grounds to give leave to allow the plaintiff to amend its statement of claim Australian Securities and Investment Commission Act 2001 (Cth), s 12DA Corporations Act 2001 (Cth), s 601FC, S 601FD, s 761GA, s 1041E Trade Practices Act 1974 (Cth), s 52 Uniform Civil Procedure Rules 1999 (Qld), r 150 |
COUNSEL: | A Narayan for the plaintiff G Handran for the defendants and proposed third and fourth defendants |
SOLICITORS: | Arcuri Lawyers for the plaintiff Tucker and Cowan for the defendants and proposed third and further defendants |
- The plaintiff applies to join two further defendants and to amend her statement of claim to plead her case against them and in some other respects. The present defendants oppose the application upon the argument that the proposed pleading against the new defendants is deficient in several respects and does not plead a cause of action against them. Many of the criticisms which are made of the proposed pleading would be relevant also to the case as it is presently pleaded against the existing defendants, although there is no application to strike out the present pleading.
- The plaintiff’s present and proposed claims arise from two investments which she made with the second defendant (“the company”), in which she lost all of the funds invested. The first was the so-called Altitude Tower Investment, in which she paid to the company $2 million in July 2007, for that sum to be part of a loan by the company for a property development. The second investment was made in April 2008, when she paid to the company the sum of $1.27 million, which it lent to a developer on the security of a second mortgage which the company had held but which was transferred to the plaintiff. This is described in the pleading as the Albert St Investment.
The Altitude Tower Investment
- According to the plaintiff’s proposed pleading, which for present purposes must be accepted as factually accurate, the relevant events were as follows. The plaintiff was induced to make this investment by representations made by the company through the first defendant, Mr Robinson. The representations were to the effect that the investment was a safe and secure one because the borrower had a strong asset backing, as did those who were behind the project and from whom the company had obtained personal guarantees. Those representations were misleading or deceptive in a number of respects, because the investment was relatively risky and there was no reasonable basis for such of the representations which were as to future matters. In reliance upon them, the plaintiff transferred to the company the sum of $2 million, for investment through a registered managed investment scheme known as the Securcorp Mortgage Income Scheme or “SMIS”, of which the company was the responsible entity.
- The plaintiff made this payment on 30 July 2007, at which point the company held a first mortgage over the development property, which had been registered on 7 June 2007 as part of its agreement with the borrower for a loan by the company of $25 million. On 15 August 2007, a second mortgage was registered on that property in the company’s favour. The plaintiff’s investment was pooled with other funds which were advanced on the security of that second mortgage.
- At some point between July 2007 and 13 December 2007, the directors of the company resolved to create an unregulated fund to be known as the Securcorp Mezzanine Income Fund or “SMIF”, and to seek the consent of those who had invested in second mortgages in the SMIS to the transfer of their investments from that scheme to the SMIF. The plaintiff was one such investor. Mr Robinson was one of the directors. The others were the now proposed third and fourth defendants, Mr Niall and Mr Hughes.
- In December 2007, the company sought and obtained the plaintiff’s consent to transfer her investment to the SMIF, by the company’s representation to the plaintiff that an investment in the SMIF was relevantly identical to an investment in the SMIS. She says that this was untrue because investors in the SMIS would be repaid in priority to investors in the SMIF. At this point it may be noted that her investment had apparently been made from the outset upon a second mortgage over which the original investors in the SMIS, who would not be transferring to the new scheme, would enjoy priority by their first mortgage. Then in March 2008, there was a transfer of the second mortgage to the company in its capacity as the entity or trustee of the SMIF.
- On what is said to have been the maturity date of the Altitude Tower Investment, in January 2009, the company and Mr Robinson “caused or permitted [the investment] to roll over” without the plaintiff’s consent. Interest was paid to the plaintiff until May 2009. In a meeting in the following month, the company through Mr Robinson represented to the plaintiff that she would be repaid in full which, it is alleged, was misleading or deceptive.
- In September 2009, the company took possession of the Altitude Tower property. In the following month, the directors of the company, being Mr Robinson and the proposed third and fourth defendants, resolved to raise additional funds to complete the Altitude Tower project with priority being given to new investors providing these funds over the original investors in the SMIS and, in turn, investors such as the plaintiff in the SMIF. Over the following year, the company raised a further $9.12 million for construction of the Altitude Tower project.
- From July 2009, the plaintiff agreed, month by month, to extend the time for repayment, induced by representations that she would be paid, or as was represented from July 2010, that she would be repaid one half of her original investment. Each of these representations, it is alleged, was misleading or deceptive.
- Ultimately, in about April 2011, the plaintiff was advised by Mr Robinson that none of her Altitude Tower Investment would be repaid. By that stage, the amounts owing to lenders ranking in priority to those such as the plaintiff who had an interest in the second mortgage had greatly increased. The plaintiff pleads that the present defendants, that is to say the company and Mr Robinson, owed to her fiduciary duties as her professional investment advisers. The company is also said to have owed her fiduciary duties as the responsible entity for the SMIS. As part of that duty, the company was obliged to act fairly and impartially between all members of that scheme. She alleges that the present defendants breached these fiduciary duties in a number of ways. It is said that the company was in a position of conflict between its interest as the first mortgagee and its duty to provide independent advice to the plaintiff. The company is also said to have breached its duty by asking the plaintiff to transfer her investment to the SMIF and subsequently, in granting priority to further investors who contributed additional funds to complete the project. There are also allegations of negligence and breach of contract made against the present defendants, making substantially the same complaints as those made in the breach of fiduciary duty case. The claims of misleading and deceptive conduct are made by reference to s 52 of the Trade Practices Act 1974 (Cth), s 12DA of the Australian Securities and Investment Commission Act 2001 (Cth) and s 1041E of the Corporations Act 2001 (Cth).
- There is also a complaint that there was a “breach of s 761GA of the Corporations Act” by the present defendants in failing to provide a written statement according to paragraph (e) of that provision. That fact could be relevant for whether the plaintiff was or was not a “retail client” as that term is used in that provision and others, but there seems to be no pleaded consequence of her being a retail client.
- The plaintiff pleads that the company, as the responsible entity for the SMIS, owed to all members of that scheme “of which the plaintiff was one”, a duty pursuant to s 601FC(1)(d) of the Corporations Act to treat all members of the SMIS equally. The duty owed by a responsible entity according to that provision is to:
“(d)treat the members who hold interests of the same class equally and members who hold interests of different classes fairly.”
Therefore the terms of the pleading (paragraph 108) misstate the terms of the section.
- This duty under s 601FC is said to have been breached both on the occasion of the transfer of interests from the SMIS to the SMIF and on the subsequent raising of additional funds from investors who are granted priority over both the original investors in the SMIS and those such as the plaintiff.
- I come then to the allegations against the so-called “Director defendants”, being Mr Robinson and the proposed third and fourth defendants. Paragraphs 110 and 111 of the proposed pleading allege that each of the directors had access to or received all relevant documents as to the company’s dealings with the Altitude Tower property (and the Albert Street property which was the subject of the plaintiff’s second investment) and had full knowledge of the affairs of the company, the SMIS, the SMIF and the plaintiff’s two investments.
- Paragraph 112 alleges that the directors knew that the company owed to the plaintiff the various duties which are pleaded against the company. These include the fiduciary duty to act impartially between all members of the SMIS and the company’s duty under s 601FC(1)(d). They also include the alleged duty of care and the contractual duty of the company, which is curious because there is no pleaded basis for making the directors liable for the company’s breach of either of those duties.
- In paragraphs 113 through 115, the plaintiff alleges that the Director defendants knew of a number of facts and circumstances relevant to these two investments or either of them.
- In paragraph 116, it is alleged that the Director defendants themselves owed statutory duties. These are pleaded by reference to s 601FD, which imposes duties upon an officer of a responsible entity of a registered scheme. The duties pleaded in reliance upon that provision are those prescribed by subparagraphs (b), (c) and (e) of s 601FD(1).
- In paragraph 117, the plaintiff pleads that the Director defendants breached their duties under s 601FD with respect to the Altitude Tower Investment. That broad allegation is particularised within four subparagraphs. The first of them is that:
“(a)in making SMIF Resolution pleaded at paragraph 24 above each of the Director defendants intended that the SMIS investors would be repaid in priority to the SMIF investors, including the plaintiff and in so doing caused a detriment to members of the scheme.”
This was the resolution in 2007 to transfer the investors in the second mortgage to a separate scheme called SMIF. The particular subparagraph s 601FD(1) which is relied upon in this respect is not identified. The reference to the causing of a “detriment to the members of the scheme” would seem to indicate an intended reliance on subparagraph (e). But that prescribes the misuse of the officer’s position, either to gain an improper advantage for the officer or another person, or to cause detriment to the members of the scheme. The complaint here is not that “the members of the scheme” were caused a detriment. It is that one class within the scheme was preferred to another class.
- The second particular of a breach of s 601FD is as follows:
“(b)In December 2007 each of the Director defendants caused, consented to or allowed Securcorp to make the Request for Transfer and the Transfer Representation and in so doing, failed to exercise his powers and discharge his duties to the degree of care and diligence that a reasonable person would exercise in his position.”
Clearly enough, this is an intended reliance upon the duty in s 601FD(1)(b). But it is no more than a bald allegation in terms of the statute without revealing how it was that the defendants failed to meet the required degree of care and diligence. There may well be a tenable case in this respect but it requires particularisation.
- The third of these allegations is as follows:
“(c)from December 2007, or at any time thereafter, each of the Director defendants failed to correct the Transfer Representations and in so doing, failed to exercise his powers and discharge his duties to the degree of care and diligence that a reasonable person would exercise in his position; and”
The complaint here is that each of the directors failed to correct the company’s representations which were made to procure the consent of the plaintiff to the transfer of her investment to the SMIF. This is not an immediately compelling case. The proposed third and fourth defendants are not alleged to have been parties to those representations or indeed to have been aware that the representations had been made.
- The fourth particular is in these terms:
“(d)in making the Priority Tranche Resolution pleaded at paragraph 65 above, each of the Director defendants intended that new SMIS investors in the Altitude Tower project would be repaid in priority to the original SMIS investor, who in turn would be repaid in priority to the SMIF investors, including the plaintiff, thereby causing further detriment to the members of the scheme.”
The resolution which is referred to here is that to permit further investments which would be in priority to both the SMIS and SMIF investors. The difficulty with this complaint is discussed below at [29].
- Paragraph 118 alleges that in making the so-called SMIF Resolution and the Priority Tranche Resolution, each of the Director defendants knowingly induced or immediately procured a breach of fiduciary duty by the company.
- In paragraph 119 it is pleaded, in the alternative, that the company’s breach of fiduciary duty was dishonest and fraudulent in that the company acted “deliberately to secure for itself, the Director defendants, or persons associated with the Director defendants, a benefit, or advantage over other investors in the SMIS and/or SMIF” in that “The Director defendants intended to obtain priority for the monies that Robinson had invested in the Altitude Tower sub-scheme of the SMIS (being Securcorp’s funds and/or Robinson’s father’s superannuation) over the other investors in the SMIS and/or SMIF”. This is said to have been the company’s breach of fiduciary duty on the occasion of originally attracting the plaintiff’s investment in this project.
- Paragraph 120 then alleges dishonesty of the Director defendants as follows:
“120.Further, or in the alternative, in making the SMIF Resolution and in making the Priority Tranche Resolution each of the Director defendants, in respect of Securcorp’s breach of Fiduciary Duty:
(a)assisted Securcorp in its dishonest and fraudulent design;
(b)did so with knowledge of the dishonest and fraudulent breach of fiduciary duty by Securcorp, in the sense that the Director defendants:
(i)had actual knowledge of the dishonest and fraudulent breach of fiduciary duty by Securcorp;
(ii)alternatively, wilfully shut his eyes to the dishonest and fraudulent breach of fiduciary duty by Securcorp which was obvious;
(iii)alternatively, wilfully and recklessly failed to make such enquiries as an honest and reasonable person would make with respect to the breach of fiduciary duty by Securcorp; and
(iv)alternatively, had knowledge of circumstances which would indicate to an honest and reasonable person that Securcorp was acting dishonestly and fraudulently in breach of its fiduciary duty.”
- These allegations of dishonesty are too general and apparently ill-considered to be allowed. The way in which they are pleaded give the impression that the intention has been to plead the case in a way which would engage any of the possible legal bases for making one person responsible for a breach by another of a fiduciary duty. Paragraph 120 pleads that the three directors of the company acted with knowledge of the company’s “dishonest and fraudulent breach of fiduciary duty”, or with Nelsonian blindness to the company’s intention, when it was the intention of one or more of them which itself must have constituted the company’s intention. Then the particulars of the company’s dishonesty and fraud identify an intended beneficiary as the first defendant or his father’s superannuation scheme. But they do not identify the way in which “the Director defendants or persons associated with the Director defendants” (other than Mr Robinson and his father) were to benefit over other investors in the SMIS and/or SMIF. Nor does the plaintiff plead that either of the other directors, or any person associated with him, was such an investor.
- In paragraph 120, there is no indication of what enquiries would have been made by an honest and reasonable person, which the Director defendants are said to have wilfully and recklessly failed to make. The “dishonest and fraudulent design” of the company, referred to in subparagraph (a) of paragraph 120, is not identified except that it might be inferred that it is the dishonesty and fraud pleaded in paragraph 119. But again this involves the problems with the particulars within paragraph 119.
- A further difficulty is that the allegations of fraud and dishonesty are not made with apparent regard for r 150(1)(f) and (k) and (2) of the Uniform Civil Procedure Rules 1999 (Qld), by which any fact from which an allegation of fraud, motive, intention or other condition of mind is to be inferred must be specifically pleaded. It is unrealistic to expect that a case of this kind is to be proved only by direct evidence of the defendant’s state of mind.
- Paragraph 121 alleges as follows:
“121.Further, or in the alternative, in making the SMIF Resolution and in making the Priority Tranche Resolution each of the Director defendants knowingly induced or immediately procured Securcorp’s s 601FC Breach.”
The company’s breach of s 601FC, as noted above, was in failing to treat “all members of the SMIS equally” contrary to s 601FC(1)(d). Curiously, the participation of the Director defendants in that breach is not pleaded by reference to s 601FD(1)(f), by which an officer of a responsible entity is obliged to take all steps that a reasonable person would take, if they were in the officer’s position, to ensure that the responsible entity complies with the Corporations Act.
- There are more fundamental difficulties in the proposed case against the third and fourth defendants in respect of the Altitude Tower investment. The first is that the pleading does not reveal the plaintiff’s case as to the means by which her legal position became worse after her investment was transferred from the SMIS to the SMIF. She claims that this resulted in her ranking lower in priority to those who stayed in the SMIS. However, this was already the position, according to her pleading, because she and the others who transferred to the SMIF were entitled to the second mortgage over the development property, behind the investors entitled to the first mortgage, who remained in the SMIS. Her pleading fails to reveal how her participation in that second mortgage was less beneficial for the fact that she and like investors were transferred to the new scheme. Therefore, there is no apparent basis for her complaint that the company breached both statutory and fiduciary duties by failing to treat all members of the SMIS equally, because from her own pleading it appears that there were different classes of members. As I have noted, the alleged breach of s 601FC(1)(d) involves a misstatement of the effect of the section, which does not require the responsible entity to treat all members equally although in different classes.
- Her other complaint in relation to the proposed defendants, is in respect of the decision to have the company borrow further funds, described as the Priority Tranche Resolution. The complaint is that this lengthened the queue of secure creditors to be repaid from the development, leaving the plaintiff and others in the SMIF at the end of the queue. However, these funds were borrowed for the completion of the development and there is no allegation that they were not applied for that purpose. It may or may not have been wise for the company to take over the development as it did and to raise these further funds. But any consideration of this resolution would have to be by reference to the relevant facts and circumstances, at least at the time at which it was made if not implemented, and they would include the then likely return from a completion of the development, the likely further costs to be incurred in doing so and the likely impact upon members of the SMIF such as the plaintiff. When this resolution was made, it may well have been a sound business decision and not one taken for the dishonest purpose of benefiting only some existing investors. For example, if the plaintiff’s case was that this resolution was made to benefit all investors in the first mortgage, that is to say the SMIS investors, in preference to the interests of the SMIF investors, then that case would have to be particularised by reference to the facts and circumstances which would be relied upon, such as the unlikelihood of a completion of the development yielding any repayment of the funds of the SMIF investors. But no such case is pleaded here.
- For these reasons the proposed case against the third and fourth defendants in relation to the Altitude Tower Investment ought not to be permitted in the presently proposed terms.
- I go then to the case against the proposed defendants in relation to the Albert St Investment. The plaintiff’s funds in this investment were advanced to the same borrower, or at least a company within the same group as the borrower in the Altitude Tower Investment. In October 2007, the company had agreed to lend $4.7 million to the developer on a first mortgage over the development property. That mortgage was promptly registered. In about April 2008, the company and Mr Robinson represented to the plaintiff that this project was an ideal investment for the plaintiff for a number of reasons. These representations are said to have been misleading or deceptive for a number of reasons, all to do with the high risk of the investment. But for the defendants, there is a specific allegation (paragraph 35) that the company and Mr Robinson represented to the plaintiff that by making this investment, she would be lending directly to the borrower on the security of a second mortgage. This is said to have been misleading or deceptive, because it is said that the so-called Albert St Investment was not a loan directly to the borrower but was a loan made by the plaintiff through the SMIF. As a particular, the plaintiff alleges that this representation was made in the context of “the plaintiff’s history of lending directly to borrowers coupled with Robinson’s failure to point out any difference on this occasion”. At this point it may be noted that in April 2008, according to her pleaded case, the plaintiff had invested in the Altitude Tower project initially through the SMIS and subsequently (with her consent) through the SMIF.
- On 18 April 2008, the plaintiff paid to the company the sum of $1.27 million for this investment. On the same day the company registered a second mortgage over the Albert Street property. On 28 May 2008, the company transferred that second mortgage, which was by then registered, to the plaintiff “in consideration for the sum of $1.27 million” (paragraph 41). This is not altogether easy to reconcile with the notion that she did not come to be a creditor of the developer.
- In April 2009, on the so-called maturity date of this investment, the company and Mr Robinson caused or permitted the investment to be rolled over without seeking the plaintiff’s consent. Interest payments ceased in June 2009. By this stage the builder had stopped all work both on this project and the Altitude Tower project and an administrator had been appointed to it. In about June 2009, the company and Mr Robinson represented to the plaintiff that she would be repaid in full. This is said to have been misleading or deceptive. The company took possession of the Albert Street property in September 2009. The company and Mr Robinson continued to make representations to the effect that the plaintiff would be paid. Again it is said that these were misleading or deceptive. Month by month she agreed to extend this investment until January 2010 when she was informed that none of her money would be repaid.
- The company and Mr Robinson are alleged to have breached their fiduciary duties, in relation to the Albert St Investment, in these ways:
“89.…
(b)failing to advise the plaintiff, at the Albert St April 2008, meeting, that:
(i)because Securcorp had a first registered mortgage and therefore a financial interest in the Albert St project, they were in a position of conflict;
(ii)as a result of the conflict they were not in a position to advise her about the Albert St project;
(iii)she should obtain independent advice concerning investment in the Albert St project.
(c)failing to advise the plaintiff, at the Albert St April 2008, meeting, or at any time thereafter, that the Albert St Investment was an investment in the SMIF and not a loan directly to the borrower (the Albert St Breach of Fiduciary duty).”
- Again there are allegations of negligence and breach of a retainer which were made against the present defendants but in which the proposed defendants are not said to have been participants.
- Similarly, the claims based upon misleading or deceptive conduct are made only against the present defendants with no case to the effect that the proposed defendants are also liable upon that ground.
- There is no case pleaded in reliance upon s 601FC(1)(d) of the Corporations Act in relation to this Albert St Investment.
- In paragraph 114, it is alleged that each of the Director defendants knew or ought to have known, as directors of the company, various things with respect to the Albert St Investment. One of those things is that “the primary defendants [meaning the company and Mr Robinson] had made the Further Albert St Representation”, which is the alleged representation that the plaintiff would be lending her moneys directly to the borrower on the security of a second mortgage.
- The Director defendants are said to have breached their duties under s 601FD in relation to the Albert St property by “causing, consenting to or allowing” the primary defendants to represent that she was lending directly to the borrower and by failing to advise her that her investment was an investment in the SMIF. One difficulty in that respect is that Mr Robinson is both a “primary defendant” and a Director defendant, he is said to have caused, consent to or allowed himself to do something. But as to the proposed defendants, they are said to have been in breach of their duties, as officers of the responsible entity of a scheme, by not informing the plaintiff that she was investing in the scheme. But the duties prescribed by s 601FD are directed to the interests of members, rather than prospective members, of a scheme.
- In paragraph 123, it is alleged that the proposed third and fourth defendants, in allowing this representation as to a direct loan to the developer to be made, were “directly or indirectly, knowingly concerned in or party to” a breach of fiduciary duty by the company and Mr Robinson. That breach was the failure by the company and Mr Robinson to advise her initially or at any time thereafter, that her investment was in the SMIF and not a loan directly to the borrower. However, paragraph 123 does not reveal how the proposed defendants did “cause, consent to or allow” the primary defendants to make this representation.
- Paragraph 124 pleads, in the alternative, that the company and Mr Robinson were dishonest and fraudulent in breaching their fiduciary duty by saying that her investment would be a direct loan to the borrower. Paragraph 125 pleads that the proposed defendants assisted them in that dishonest and fraudulent design with knowledge of it. That assistance is said to have been by their causing, consenting to or allowing the primary defendants to make this representation. Again, the pleading does not reveal how they did so. They are also said to have assisted by failing to advise the plaintiff that the Albert St Investment was an investment in the SMIF. But there would be no basis for this complaint unless there was a sufficient awareness on their part that the representation had been made or was likely to have been made. As to that, the particulars of the state of mind of the proposed defendants are pleaded as follows:
“(i)had actual knowledge of the dishonest and fraudulent Albert St Breach of Fiduciary Duty by the primary defendants;
(ii)alternatively, wilfully shut his eyes to the dishonest and fraudulent Albert St Breach of Fiduciary Duty by the primary defendants which was obvious;
(iii)alternatively, wilfully and recklessly failed to make such enquiries as an honest and reasonable person would make with respect to the Albert St Breach of Fiduciary duty by the primary defendants;
(iv)alternatively, had knowledge of circumstances which would indicate to an honest and reasonable person that the primary defendants were acting dishonestly and fraudulently in respect of the Albert St Breach of Fiduciary.”
Again, the way in which this part of the case is pleaded gives the impression that the pleader has sought to include any possible legal bases for making these defendants liable for another’s breach of fiduciary duty. Again, there is no indication of what inquiries would have been made by an honest and reasonable person. As to (ii), the pleading does not reveal the facts and circumstances from which it was obvious to the proposed defendants that this representation had been made. As to (iv), there is no specification of the circumstances which would indicate to such a person that the primary defendants had made this representation. Again there is the further difficulty that these allegations are not made with apparent regard for r 150 of the Uniform Civil Procedure Rules.
- In all of this there are at least two fundamental difficulties with the proposed pleading. The first is that upon at least one view of the facts, the plaintiff did become a creditor of the borrower, upon the transfer of the second mortgage to her. Possibly her investment remained one through the SMIF but in some way it became secured by this mortgage although she and the borrower were not in a direct creditor/debtor relationship. But the transfer of this mortgage to her is pleaded as having been made in consideration for her payment of the amount of her investment (paragraph 41). This strongly suggests that she was or became the lender under this mortgage.
- Secondly, the pleading does not reveal any consequence for the plaintiff of having invested through the SMIF rather than as a direct lender to the developer if that is what did occur. On her case, she believed that she would be lending upon a second mortgage. She does not suggest that the second mortgage which was assigned to her had some legal defect which made it unenforceable. Is it her case that for some reason her mortgage did not secure her investment, because, for example, it secured only the borrower’s indebtedness to the company? This cannot be answered from the pleading which does not set out the material terms of the mortgage or of its transfer. So if, as the plaintiff alleges, she should have been informed after she made her investment that she was not a creditor of the borrower, what should she have been told, particularly about her rights under the mortgage?
- For these reasons the proposed case against the third and fourth defendants in relation to the Albert St Investment ought not to be permitted in the presently proposed terms.
- In the plaintiff’s submissions, it is said that for the second mortgage to be held by the plaintiff was “incongruous with” the duty of a responsible entity of a scheme to hold scheme property on trust for the members of the scheme according to s 610(1)FC(2) of the Corporations Act. I should be noted that there is no pleading to that effect. But the submission does tend to confirm the impression created by the pleading, which is that this mortgage became in all respects the property of the plaintiff making it at least likely that she was or became a lender to the owner of the development property.
- Therefore the plaintiff should be refused leave to add the third and fourth defendants and to amend the statement of claim as provided on 6 September 2012.
- The present defendants sought particular costs order to which the plaintiff’s submissions did not respond. The costs of the application which is dismissed by this judgment should be paid by the plaintiff. But I will hear the parties as to the other orders sought by the defendants.