19 September, 2013

Larsson v WealthSure Pty Ltd [2013] FCA 926


WHAT YOU NEED TO KNOW

 

  • In Larsson v WealthSure Pty Ltd, Buchanan J of the Federal Court of Australia ordered that a proceeding not continue as a representative proceeding because the definition of the group by reference to them having appointed a particular firm of solicitors impermissibly operated as an “opt in” arrangement.
  • The decision emphasises that it is impermissible to define a group by a criterion which allows “opting in” after a proceeding has been commenced, and illustrates other circumstances in which a court may order that a proceeding not continue as a representative proceeding.


Background


The proceeding arose from the alleged conduct of Mr Oberg, whom, Larsson pleaded, was authorised to provide financial services on behalf of WealthSure Pty Ltd (WealthSure). Mr Oberg allegedly made misleading or deceptive representations about returns on investments. WealthSure was alleged to owe a duty of care to Mr Oberg’s clients to take reasonable steps to prevent them from sustaining economic loss. It was also alleged that when Mr Oberg ceased to be an authorised representative of WealthSure, WealthSure had a duty to inform his clients of this.


The proceedings against WealthSure, in the Federal Court, were commenced as representative proceedings. Members of the group were identified by reference to three criteria:


a) persons who were clients of Mr Oberg and who, between November 2008 and May 2012, provided monies to Mr Oberg to invest on their behalf;


b) persons who, by reason of matters referred to in the pleadings, suffered loss and damage as a consequence of providing monies to Mr Oberg to invest; and


c) persons who “have appointed” a firm of lawyers to act for them in the proceedings.


WealthSure contended that the statement of claim should be struck out in part, and that the proceedings should not continue as representative proceedings. This update focuses on the second issue.


WealthSure’s objections to the representative proceeding


WealthSure objected to the proceeding being continued as a representative proceeding on two grounds.


First, WealthSure claimed that there were no common issues based on similar or related circumstances, as required under section 33C of the Federal Court of Australia Act 1976 (Cth) (the Act). In particular, there were allegedly different circumstances surrounding, and different causes of action available to, members of the group who entrusted money to Mr Oberg before he ceased to be WealthSure’s authorised representative — these members’ claims were based on breach of statutory duty, negligence, and misleading or deceptive conduct — and after he ceased to be WealthSure’s authorised representative — these members’ claims were only based on breach of statutory duty and negligence.


Buchanan J rejected this argument. His Honour found that there was sufficient commonality between the causes of action and the interests of the group members.


Second, WealthSure took issue with the definition of the group membership by the criterion that they were persons who have appointed a firm of solicitors to act for them in the proceeding. WealthSure argued that this criterion operated as an impermissible “opt in” arrangement. Larsson submitted that this was not an “opt in” arrangement, but, properly construed, referred to members who had, at the commencement of the proceeding, appointed the firm of solicitors to act for them.


Buchanan J rejected Larsson’s interpretation, noting that one person identified as a group member had appointed the firm of solicitors after the proceeding commenced, and the language used to define the group allowed for the possibility of someone joining the group after the proceeding had commenced by appointing that firm to act for them. The criterion was found to be an “opt in” arrangement.


A consequence was that no group member satisfied the criterion, since the group members had since changed solicitors and the criterion had continuing operation.


Counsel for Larsson sought leave to amend the pleadings to cure any defect in the class definition. Buchanan J considered this was “insufficiently attractive”, considering that in any case relief was being sought based on individual calculations of loss (unlike, for example, a case where members would share in a common pool), and relief could be obtained by means of a proceeding other than a representative proceeding. Accordingly, an order was made that the proceeding not continue as a representative proceeding under section 33N of the Act.


Conclusion


The decision emphasises that it is impermissible to define a group by a criterion which allows “opting in” after a proceeding has been commenced, and illustrates other circumstances in which a court may order that proceedings not continue as representative proceedings.

 

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For further information, please contact:

 

Chris Goddard, Partner, Ashurst
chris.goddard@ashurst.com


Mark Bradley, Ashurst
mark.bradley@ashurst.com

 

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