Direct Share Purchasing Corporation – defence kit

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This self help kit was written at a time when Direct Share Purchasing Corporation had sued a number of consumers.  Changes to the law have made it unlikely that consumers will see these types of cases in the future.

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TABLE OF CONTENTS

1.         Background

2.         Defending a claim by Direct Share Purchasing Corporation

3.         The Direct Share Purchasing Corporation Defence Kit

3.1       No agreement between the parties

3.2       Expiration of the Direct Share Purchasing Corporation’s offer by the effluxion of time

3.3       Misleading and deceptive conduct

3.4       Unconscionable Conduct – General Law

3.5       Offers made 13 December 2010 and after

3.6       Unconscionable Conduct under the ASIC Act

3.7       Unconscionable Conduct under other Acts

3.8       Section 1019E, 1019G and 1019I of the Corporations Act 2001 (Cth)

3.9       Arguing a claim under Subdivision B of Division 7 of Part 7.9 of the Act

4.         Applying to have the matter stayed on the basis that a court of another jurisdiction is the appropriate forum for the resolution of the matters in dispute

4.1       Section 20 of the Service and Execution of Process Act 1992 (Cth)

4.2       Procedure relevant to a stay application

5.         Application for summary dismissal

6.         Negotiating a settlement with DSPC

INDEX OF DOCUMENTS AVAILABLE ON REQUEST

1. Introduction

WIKIPEDIA ARTICLE ON DAVID TWEED

2. document examples:

TIMELINE OF PROCEDURE

3. Offer documents (example)

3.1 OFFER DOCUMENT FROM DSPC

3.2 ACCEPTANCE FORM

4. Court Documents (example)

4.1 COMPLAINT AND STATEMENT OF CLAIM

4.2 DEFENCE

4.3 PROPER BASIS CERTIFICATE

4.4 OVERARCHING OBLIGATIONS CERTIFICATE

4.5 NOTICE FOR DISCOVERY

4.6 SCHEDULE OF DISCOVERY

4.7 STAY APPLICATION AND AFFIDAVIT IN SUPPORT

4.8 SUMMARY DISMISSAL APPLICATION

5. Negotiation Documents (example)

5.1 CALDERBANK LETTER

5.2 DEED OF SETTLEMENT

GUIDE TO THE DIRECT SHARE PURCHASING CORPORATION DEFENCE KIT

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IMPORTANT NOTICE:  This document is prepared as a guide only and should in no way be used as a substitute for legal advice.  For lawyers, the material provided must be considered in light of the unique circumstances of each case, and documents amended accordingly.  By providing this document to you, the Consumer Action Law Centre does not provide any opinion upon the merits of your claim against any party.

The information contained in this legal kit is correct as at February 2013.

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1. Background

The sending of unsolicited offers to purchase investments and securities at below market value has been a controversial practice for many years, attracting the attention of regulators, legislators, and journalists.  The practice has also resulted in a substantial amount of litigation, and resulted in a prior version of this kit: The National Exchange Defence Kit.

Direct Share Purchasing Corporation Pty Ltd (DSPC) has engaged in the practice of making unsolicited below-value offers to holders of units in managed investment schemes.  It appears that the details of the recipients of these offers have been obtained from public registers, which were previously subject to relatively unhindered access.[1]

Most consumers reject unsolicited below-value offers, and it is often the vulnerable or less sophisticated that fall prey to the technique.[2]  A questionnaire completed by some investors who had ostensibly accepted DSPC’s offers indicated that:

  • many of these unitholders were elderly;
  • these unitholders commonly thought the offer came from the trustee of the investment scheme;
  • almost all stated that they did not understand that they would be receiving an amount less than the value of their units;
  • a number stated that they suffered from an illness.[3]

This kit should prove useful for lawyers whose clients have been sued or have been threatened with legal action by DSPC in relation to one of these offers.

2. Defending a claim by Direct Share Purchasing Corporation

Typically DSPC has made unsolicited offers to buy an interest in a managed investment scheme by a letter detailing the terms of its offer.  The price offered by DSPC was typically well below the fair value of the units held by the consumer.

In order to accept DSPC’s offer, the consumer has been usually requested to sign and return an enclosed acceptance form.  The acceptance form has purported to appoint DSPC as the consumer’s attorney to exercise all rights attaching to the units and to execute any document necessary or desirable to effect a transfer of the units.  The power of the attorney has been expressed to be irrevocable.

A number of trustees responsible for funds targeted by DSPC sought advice from the New South Wales Supreme Court in relation to whether they were obliged to transfer units at the request of DSPC.  In these cases, the New South Wales Supreme Court advised that the trustees would be justified in refusing to register a transfer of units to DSPC in the absence of a Court order or where the unit holders have indicated in writing to the trustee their wish for their interest not to be transferred to DSPC.[4]

Disputes with DSPC have arisen where a consumer subsequently became aware of the unfair deal they had entered into and then refused to provide express consent for the transfer of units to DSPC.  The consequence of a consumer’s refusal has been frequently a complaint initiated against them in the Magistrates’ Court of Victoria.

DSPC’s claims against consumers are generally based on breach of contract.  Typically DSPC claims that on receipt of the signed acceptance form, there is a binding agreement between the parties, a term of which is that the consumer complete, sign and/or provide any document or information which the Plaintiff considers necessary or desirable for the transfer of the units  By failing to provide a transfer of investments form, DSPC claims that the consumer acts in breach of the agreement between the parties, and further, that the action of the consumer in failing to transfer the units amounts to a repudiation of the agreement, a repudiation which DSPC has accepted.

DSPC then claims that in consequence of the breach of contract it has suffered loss and damage, being the amount represented by the difference in value between the value of the units and the agreed sale price.

A considerable barrier to defending a claim by DSPC is the cost of defending proceedings.  The legal costs of defending proceedings (including the risk of an adverse costs award) will often be greater than the amount claimed by DSPC against the consumer, with the result being that defending proceedings is not viable.

Nevertheless, there may be grounds for defending a claim by DSPC depending on the circumstances of the individual case.  In [Part 4] of the Guide, a discussion of those grounds is set out.  Each of those grounds is also included in the pro forma Notice of Defence, which is included in [Schedule 4.2] to the Direct Share Purchasing Corporation Defence Kit.[5]

Of course, the relevance of each ground raised in the Notice of Defence should be considered in light of the individual circumstances of each case, and the Notice of Defence amended to reflect the individual consumer’s circumstances.

There has been some indication that DSPC has previously been reluctant to proceed to a hearing where a well argued defence is advanced.[6]

Finally, some consumers who reside in states other than Victoria may apply to have the Victorian proceedings stayed on the basis that it is more appropriate the matter be heard in a court of another jurisdiction.[7]  In [Part 4] of the Guide, this type of application is discussed.  [Part 4] of the Guide should be read in conjunction with the relevant pro forma court documents, being an Application and Affidavit in Support, attached to [Schedule 4.7].

3. The Direct Share Purchasing Corporation Defence Kit

The purpose of the Direct Share Purchasing Corporation Defence Kit is to assist consumers and the legal representatives of consumers with disputes involving Direct Share Purchasing Corporation.

The Guide to the Direct Share Purchasing Corporation Defence Kit (the Guide) provides an overview of many of the legal issues relevant to the unsolicited offers made by DSPC.  In particular, the Guide discusses the some of the grounds which may be used in defence to a claim by DSPC, depending on the circumstances of the individual case.  Importantly, the Guide also outlines relevant aspects of Victorian civil procedure.

The Direct Share Purchasing Corporation Defence Kit also includes various pro forma documents, which are to be used in conjunction with the Guide:

This information should serve as a useful starting point for consumers and their lawyers to understand a dispute with DSPC.  However, please note that the a kit of this kind can only be a guide and cannot replace the need for consumers to seek their own legal advice, and for lawyers to thoroughly consider and investigate the unique circumstances of their client.

3.1      No agreement between the parties (please refer to paragraph 4.1 of the defence)

To bring a contract into existence, the parties must establish an agreement or meeting of the minds on the subject matter of the contract.  To determine if there has been a meeting of the minds it is common to analyse whether a valid offer has been made by one party and accepted by the other party.  Generally, in the absence of either offer or acceptance, no contract is formed.  The test of whether a contract has been made is objective and the subjective intention of the parties will be irrelevant.

A Defendant who has incorrectly completed the acceptance forms; for example, with an incorrect account number or without an account number at all may be able to defend the claim on the basis that no valid and enforceable agreement exists.  In the example given, the shares or units which DSPC offered to purchase may not be the same units which the defendant purported to sell and therefore there has arguably been no agreement or meeting of the minds between the parties on the subject matter of the contract.

Legal representatives acting for the Defendant should examine whether there are any defects in the offer or acceptance documents which could result in the agreement being unenforceable.  Where it is warranted, DSPC should be called upon to produce the signed acceptance form.

In response to such a defence, DSPC could argue that there has been a common mistake between the parties and seek rectification of the agreement to give effect to the objective intention of both parties at the time of contract formation.  This risk should be considered by legal representatives when pleading this defence and appropriate instructions should be taken from the defendant regarding their true intention when completing the acceptance forms.  A claim for rectification of an agreement is not without its difficulties.  DSPC may well determine, given the quantum of the claims, not to pursue that cause of action.

A party must have sufficient capacity to enter into a contract.  If a party who lacks capacity enters into a contract, the contract will be voidable, meaning the affected party can exercise their option to void the contract[8].  Legal representatives acting for the Defendant should attempt to assess whether the defendant had capacity at the time the contract was formed.  A defence of this nature will require medical evidence in support, which evidence will need to be contemporaneous to the date of contract formation.

3.2      Expiration of the Direct Share Purchasing Corporation’s offer by the effluxion of time

DSPC’s letters of offer to purchase  units will typically state that the offer to purchase the  units will close on a specified date.  The letter of offer will also typically provide that the offer is accepted when the signed acceptance form is received at DSPC’s address.

Legal representatives acting on behalf of Defendants should compare the closing date specified in the letter of offer with the date on which DSPC says it received the signed acceptance form. This date may be:

a)         set out in the particulars of the Complaint; or

b)         specified in a letter of demand from DSPC’s legal representatives.

If the acceptance form was received after the specified closing date of the offer, it would be arguable that the offer expired prior to acceptance of the offer being communicated.  An offer which has expired can no longer be accepted and therefore an enforceable contract cannot be said to exist.[9]

3.3      Misleading and deceptive conduct (please refer to paragraph 4.7-4.16 of the defence)

Misleading conduct in relation to financial services is prohibited by s12DA of the Australian Securities and Investment Commission Act 1974 (Cth) (the ASIC Act) and s1041H of the Corporations Act 2001 (Cth) (the Corporations Act).  It is arguable that by making unsolicited offers to purchase units, DSPC engaged in conduct that was misleading or deceptive or likely to mislead and deceive.

The ASIC Act prohibits a person engaging in misleading or deceptive conduct in trade or commerce in relation to financial services. The Court has interpreted ‘in trade or commerce’ narrowly to refer to ‘conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character’.  As such, the phrase refers to the ‘central conception’ of trade and commerce and not the ‘immense field of activities’ in which a corporation may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business’.[10]  It would appear that making unsolicited offers to unitholders would be caught within this definition given that the High Court have indicated that the supply of goods or services to actual or potential consumers would be conduct in trade or commerce.[11]

Section 1041H(1) of the Corporations Act requires the misleading and deceptive conduct, or conduct that is likely to mislead or deceive, to take place in relation to a financial product or service.  Section 1041H(3)(c) provides that conduct in relation to a disclosure document or statement within the meaning of 1022A does not contravene s1041H(1).  However the Court has indicated that an offer to buy units plainly falls within this section.[12] It would appear that the requirement for the conduct to be in relation to a financial service would be fatal to an ASIC Act argument unless the offer was not clear and concise.[13]

In any event, both Acts focus on case law derived from s52 Trade Practices Act 1974 (Cth) (or its equivalent in its successor, the Australian Consumer Law).  S51AF of the Trade Practices Act provides that s52 does not apply to conduct engaged in relation to financial services.  For the purposes of the Trade Practices Act, “financial service” is defined in s4 as having the same meaning as in Division 2 of Part 2 of the ASIC Act.

Aside from the need to identify the relevant statutory provision which may be relied upon in any particular case, the relevant conduct which is misleading or deceptive must be identified.  When determining whether conduct is misleading and deceptive, or likely to mislead and deceive, the conduct must amount to a false representation.[14]  However, the Court has determined that statements while factually true are capable of constituting misleading and deceptive conduct.[15]  This will be the case where a document contains a potentially misleading statement and insufficient attention is drawn to the correction which is contained elsewhere in the document.[16]

In National Exchange Pty Ltd v ASIC[17] the Court determined that an unsolicited offer clearly stating the offer price was misleading because it failed to draw adequate attention to the correct payment terms which stated that payment would be in 15 instalments, not one lump sum.  The Court indicated that while the representation in the offer document was that the unitholders would receive full payment in cash at over market price, the true position was that the unitholders were agreeing to make an interest free loan to National Exchange over 15 years.[18]

Finally conduct will be misleading if there is a sufficient nexus between the conduct which the complaint is made and the erroneous assumption which it is said to induce.[19]  In this instance the unsolicited offers were not made to the public at large but to identifiable unitholders and accordingly s1041H of the Corporations Act will be contravened if only one unitholder has been misled.[20]

It may be difficult to prove that DSPC’s offers are misleading and deceptive as they do not typically state an offer price and then subsequently refer to another part of the document requiring payment in instalments. There does not appear to be anything inherently misleading about DSPC’s current offer document.  Despite this many defendants are still confused as to the nature of the document.  However, if the offer failed to disclose the true financial value of the shares it could be considered capable of constituting misleading and deceptive conduct.  A better argument might be to argue that the offer was not clear concise or effective within s1022B of the Corporations Act.

If a breach of section 1041H is made out, the Court can make a variety of orders under section 1014I or 1325 of the Corporations Act, including a declaration that the contract was not validly formed and never had any legal effect (void ab initio).  This means DSPC is unable to enforce the contract to compel the Defendant to transfer their units.

3.4      Unconscionable Conduct – General Law (please refer to paragraph 4.17-4.20 of the defence)

In order to avoid transferring their units pursuant to the contract, Defendants may argue the contract is liable to be avoided in equity because DSPC has engaged in unconscionable conduct by making unsolicited offers.

Equity will provide relief where one party is under a special disability and another party has knowledge or ought know that the disability impacts on the party’s ability to understand what is in their best interests, so as to make it contrary to good conscience to allow a party to procure the benefit of the transaction.[21]  It is arguable that Defendants were under a special disability because of their lack of commercial knowledge and DSPC ought to have known that they were unsophisticated unitholders incapable of determining what was in their best interests.

It is essential that the special disability actually impedes the Defendant’s ability to understand the nature and effect of the offer document and to make a judgment as to what is the Defendant’s best interest.[22]  The fact that one party is at a disadvantage vis-à-vis the other[23] or one party has a physical or mental disability that does not impact on their understanding of the particular transaction will be insufficient.[24]  Similarly, mere disparity between the offer price and the fair estimate of value will be insufficient to establish unconscionable conduct.[25]  The unitholders of recently demutualised companies arguably occupy a position of special disadvantage by reason of health, age or the ability to understand the nature of the offer documents.[26]

In addition, it is arguable  DSPC had actual or constructive knowledge of the consumer’s special disability.[27]  While it may be difficult to prove  DSPC has actual knowledge of circumstances that may place a unitholder under a special disability it more likely that they were aware of circumstances that ‘would cause a reasonable person to suspect that they were under a special disability that impeded them from acting in their best interests’.[28]  In Re Perpetual Investment Management Ltd[29] White J stated:

‘It is arguable that what Perpetual has labelled opportunistic offers were designed to exploit persons who suffered from an inability properly to assess the merits of DSPC’s offer, even though the particular circumstances of individuals were presumably unknown to DSPC.’[30]

In order to prove DSPC had constructive knowledge of the Defendant’s special disability, it is necessary to adduce evidence of a system of conduct or predatory behaviour designed to take advantage of the Defendant’s position of special disadvantage.  This may be achieved by adducing evidence that DSPC obtained contact details of unitholders of companies which are in the process of demutalisation, termination or are making special withdrawal offers to members.  A large proportion of these unitholders are elderly, in poor health and are commercially unsophisticated.

Obviously the success of such an argument will depend on the individual facts of a particular case.  If a Defendant is a sophisticated investor and, despite being elderly or suffering from some physical or mental disability, is capable of forming a judgment as to what is in their bests interests, then the defence will fail.  Conversely, it would appear that an unsophisticated Defendant would have a strong argument because they would be incapable of determining whether the acceptance of the offer was in their best interest.

The Court has acknowledged that DSPC is notorious for deliberately targeting unitholders of recently demutualised funds in order to exploit the unitholders inability to understand the offer documentation.[31]

3.5      Offers made 13 December 2010 and after

Prior to an amendment of the Corporations Act effective 13 December 2010, anyone could request a copy of a company’s register of members without providing a reason for the purpose for which they intended to use the information contained in the register.

The Corporations Act (as at February 2013) provides that where a person seeks a copy of the register they must apply to the company and state the purpose for which they intend to use the information.  A company can refuse to provide a copy of the register where the purpose is a prescribed purpose as defined in the regulations (see s 173(3A) and Regulation 2C.1.03(d) of the Corporations Act).

One such ‘prescribed purpose’ is the making of an unsolicited off-market offer.  This effectively prohibits a person from obtaining a copy of a register to access details of members (i.e. their name, address and security holding) for the purpose of making an unsolicited off-market offer).

The Act further prohibits a party from using information obtained from a register for the purpose of making an unsolicited off-market offer (or disclosing information to a person knowing that the information will likely be used for such purpose) (see s 177(1AA) of the Act).

The above offences are strict liability offences, meaning that the intention of the party accessing or using the information is irrelevant.  In the case of the offence dealing with ‘use of information’ (s 177(1AA) of the Corporations Act), a person who breaches this section is liable to compensate anyone else who suffers loss or damage as a result of the contravention.

As such the date of the offer document should always be checked during the early stages of preparing a possible defence.  If the offer document is dated 13 December 2010 or later then these provisions provide a strong defence to a claim by DSPC.  Any suggestion of a breach of these sections would be of concern to ASIC and the matter should be referred to PILCH.

3.6      Unconscionable Conduct under the ASIC Act (please refer to paragraph 4.21-4.25 of the defence)

It may also be possible to argue that DSPC has engaged in unconscionable conduct within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), although for reasons detailed below, an argument based on the ASIC Act has low prospects of success.

For offers made prior to 13 December 2010, the ASIC Act may not apply given the inclusion of the then in force ‘deeming’ regulation, regulation 2(C)(2) which deems when a financial services is not provided.  The regulation provides that a financial service is not provided when the offeror effectively complies with the requirements set out in Part 7.9 of Division 5A of the Corporations Act (Division 5A).  Each case will need to be assessed as to whether Tweed has in fact complied with the requirements of Division 5A.

The deeming provision was removed from the Australian Securities and Investments Commission Regulations 2001, effective 13 December 2010 and therefore the threshold issue of whether a financial service has been provided will not be contentious if the offer is dated on or after this date.

For offers made prior to 1 January 2012, it will still be difficult for a Defendant to successfully argue a breach of two of the unconscionability provisions in the ASIC Act because of the requirement in s 12CB (that the financial services acquired be for a personal, domestic or household use) and in s 12 CC (that the acquisition of the supply of the financial service be for the purpose of trade and commerce). There is Full Federal Court authority in ASIC v National Exchange Pty Ltd [2005] FCAFC 226 (National Exchange No. 2) in support of this view. Their Honours did not rule out the possibility that a Court could find a breach of the general law unconscionability provisions in the appropriate circumstances.  A Defendant may therefore have greater success relying on s 12CA of the ASIC Act which codifies general law unconscionability (see above at paragraph # for a discussion on the merits of relying on general law unconscionability).

For offers made after 1 January 2012, an argument based on the unconscionability provisions of the ASIC Act has strong prospects of success.  This is due to the fact that the statutory requirements regarding the purpose of the acquisition / supply have been removed from the legislation.  Without limiting the matters a Court may have regard to, it can consider such factors as the relative bargaining power between the parties, an acquirer’s ability to comprehend a document to which the supply relates (for example, an offer document), the price an offeree could have received from another supplier and whether the parties have acted in good faith.  The Court in National Exchange No. 2 found that DSPC had breached the statutory unconscionability provisions, although relief was denied on the basis that that the ‘purpose’ requirement was not met.

If a breach of section 12CA, 12CB or 12CC is made out, the Court can make a variety of orders under section 12GM of the ASIC Act, including a declaration that the contract was not validly formed and never had any legal effect (void ab initio). This means DSPC is unable to compel the Defendant to transfer their units.

Notwithstanding the above, for offers made on 13 December 2010 and after, section 3.# (which discusses the prohibitions on accessing and using information contained in members’ registers for the purpose of making an unsolicited off market offer) should be considered at an early stage of preparing the defence.

3.7      Unconscionable Conduct under other Acts (please refer to paragraph 4.21-4.25 of the defence)

For the following reasons, care should be taken when arguing a contravention of similar provisions in the Trade Practices Act 1974 (TPA) or the Fair Trading Act (Vic) 1999 (FTA).

Firstly, the unconscionability provisions in the FTA were removed effective 1 January 2011 and so are only relevant if the conduct occurred before this time.  Likewise, the TPA was superseded by the Australian Consumer Law on 1 January 2011.

Secondly, unlike the amended ASIC Act, which removed the requirement that the supply and or acquisition be for the purpose of trade and commerce and that the financial services be acquired for a personal, domestic or household use:

(a)       section 8A of the FTA and 51AC of the TPA require that that the supply or acquisition be for the ‘purpose of trade and commerce’;

(b)       section 8 of the FTA and 51 AB of the TPA require that the goods supplied be of a kind ordinarily used for personal, household or domestic use.

Given that these sections retain the purpose and usage requirements that the ASIC Act did away with, and for the reasons expressed in National Exchange No. 2 (see above), it will be difficult to successfully argue a breach of these sections.  General law unconscionability has however been codified in section 7 of the FTA and 51AA of the TPA and a breach of these sections may be argued more successfully (please see above in paragraph # for the prospects of successfully relying on these provisions).

If a breach of these sections is made out, the Court can make a variety of orders under section 87 of the TPA (with respect to a breach TPA provisions) and under 158 of the FTA (with respect to the FTA provisions), including a declaration that the contract was not validly formed and never had any legal effect (void ab initio). This means DSPC is unable to compel the Defendant to transfer their units.

3.8      Section 1019E, 1019G and 1019I of the Corporations Act 2001 (Cth) (please refer to paragraphs 4.3 – 4.6 of the defence)

Since 14 January 2003, DSPC has been required to comply with the statutory provisions expressly relating to the contents of unsolicited offers to purchase units and securities off-market.  These provisions are contained in Division 5A and require that the offer document (among other requirements) :

  • contain the price at which the DSPC wishes to purchase the financial product;
  • contain the market value of the product as at the date of the offer (if the financial product is traded);
  • contain a fair estimate of the value of the product (if the financial product is not traded);
  • state the period during which the offer remains open (that is, at least one month);
  • contain a statement to the effect that the offer may be withdrawn by sending a withdrawal document to the Defendant; and
  • be worded and presented in a clear, concise and effective manner.

If DSPC does not comply with the requirements set out in Division 5A then the offeree has the right to refuse the transfer the financial product to the offeror or the right to have the financial product returned to them, if the offeror still holds the financial product.

The remedies must be exercised during a 30 day period starting on the day the contract was entered into.  The remedies offer a good defence to an offeree; however, an offeree needs to act quickly to avail themselves of these remedies.

3.9      Arguing a claim under Subdivision B of Division 7 of Part 7.9 of the Act (please refer to paragraph 6 of the defence)

In addition to the relief available under Division 5A of the Act, the Defendant may be able to seek relief under the civil liability division (Subdivision B of Division 7) of Part 7.9 of the Act (Civil Liability Division).   One relevant provision states that where an offeror makes an unsolicited offer to purchase shares off-market by sending an offer document to an offeree in accordance with Division 5A, but the offer document is ‘defective’, the client can recover the amount of loss or damage by action against the offeror (section 1022B(2)(c) of the Act).  Section 1022C provides that, in addition to awarding loss or damage under s. 1022B(2), the Court may, if it thinks it necessary in order to do justice between the parties, make an order declaring void a contract entered into by the Defendant referred to in that subsection for or relating to a financial product or a financial service.

For the purposes of the Civil Liability Division, a document is defective if there is an omission from the material required by section 1019I, which requires that the offer document be worded in a clear, concise and effective manner.  Therefore if a document is not presented in a clear, concise and effective manner then it is possible to argue that the document is ‘defective’ for the purposes of s 1022(1)(c)(ia) of the Act and seek relief on the basis of section 1022B(2)(c) and or 1022C.

ASIC considers that a ‘clear, concise and effective’ disclosure document will:

  • highlight key information;
  • use plain language;
  • be as short as possible;
  • explain complex information, including any technical terms; and
  • be logically ordered and easy to navigate.

A document which does not possess these characteristics may constitute a ‘defective’ document and therefore it may be possible to seek loss and damage under the Civil Liability Division.

A Defendant could seek loss and damage on the basis that they have been unable to realise the market value of their securities.

As far as we are aware, the above has not been considered by the Courts in a matter involving DSPC and therefore the merits or otherwise of the above has not been tested.  Defendants and their advisers should be cautious to consider the appropriateness of using the above as a part of any defence or settlement negotiations.

Applying to have the matter stayed on the basis that a court of another jurisdiction is the appropriate forum for the resolution of the matters in dispute.

David Tweed and his companies, formerly National Exchange Pty Ltd and now most commonly Direct Share Purchasing Corporation Pty Ltd (‘DSPC’), regularly bring proceedings in the Magistrates’ Court in Victoria regardless of where the Defendant might live.  In circumstances where the Defendant lives in a jurisdiction other than Victoria, legal representatives may consider the possibility of seeking to have the proceedings stayed under the Service and Execution of Process Act 1992 (Cth).  A successful stay application would force DSPC or other relevant David Tweed companies to pursue the Defendant in the court of another jurisdiction.

While a Defendant who lives in a jurisdiction other than Victoria may conduct the proceedings in part by providing instructions to legal representatives based in Victoria, most likely Melbourne, and by way of telephone in the case of a pre-hearing conference, he/she will be required to attend any hearing in person.  This would impose the cost and inconvenience of a Defendant travelling to Victoria to defend their claim at a hearing.  In many cases the Defendant may be elderly, in poor health and/or impecunious and such costs would be extremely onerous.

In most cases, the costs to the relevant David Tweed company of pursuing a Defendant in a jurisdiction other than Melbourne are likely to outweigh any favourable court award that it might otherwise obtain.  We caution, however, that before undertaking a stay application it is necessary for practitioners to ensure that in the event a stay application is successful the Defendant will be able to avail itself of appropriate legal representation in the nominated jurisdiction.

We set out the matters relevant to an application to have proceedings stayed in the paragraphs following.  As with any court application the merits of a stay application as it applies to the specific case must be undertaken, particularly given the costs implications in the event such application might be unsuccessful.

4.1      Section 20 of the Service and Execution of Process Act 1992 (Cth)

Under section 20 of the Service and Execution of Process Act 1992 (Cth), a court hearing a matter may order that the proceedings be stayed if it is satisfied that a court of another State has jurisdiction to determine all the matters in issue between the parties and is the appropriate court to determine those matters.  The matters that the court is to take into account include:

  • The place of residence of the parties and of the witnesses likely to be called in the proceeding;
  • The place where the subject matter of the proceeding is situated;
  • The financial circumstances of the parties;
  • Any agreement between the parties about the court or place in which the proceeding should be instituted;
  • The law that would be most appropriate to apply in the proceeding; and
  • Whether a related or similar proceeding has been commenced against the person served.

The fact the proceeding was commenced in the place of issue is not a matter for the court to take into account.

DSPC’s offers generally state that the offer is accepted when the signed acceptance form is received at DSPC’s address.  This may lend support to the argument that the contract is formed in Victoria.  However, it is also arguable that the cause of action arises in the jurisdiction where the Defendant lives (as that is where the alleged breach or repudiation of contract has occurred).

Section 20(9) of the Service and Execution of Process Act 1992 (Cth) provides that the court has power to stay a proceeding on a ground other than the ground mentioned in subsection (3).  Such grounds may include the age and poor health of the Defendant.  If the consumer is of significantly limited financial means, such as a pensioner or Centrelink recipient, this will be central to any argument put forward in an application to have the proceedings stayed.

In National Exchange Pty Ltd v Brown [2004] VSC 108, the Victorian Supreme Court considered an appeal by National Exchange against a stay application which had been granted by the Magistrates’ Court.  The appeal was dismissed on the grounds that the decision granting a stay was not a ‘final order’ for the purposes of section 109 of the Magistrates’ Court Act 1989 (Vic).  However, the Supreme Court referred to part of the transcript from the Magistrates’ Court proceeding in which Magistrate Smith stated:

‘In the circumstances, I accept that the impact upon you will be disproportionate to the impact upon the Plaintiff company.  Therefore, given that the cause of action properly arose in Queensland and that you are disproportionately affected financially in terms of coming to Melbourne, as opposed to the Plaintiff appearing in Queensland, I’m going to stay this proceeding under section 20 of [the Act].

Other matters may also be considered by the court.  In the Victorian Magistrates’ Court matter of Krueger Transport Equipment Pty Ld v Parry Bros Pty Ltd [2008], His Honour Magistrate Garnett  had regard to section 100(4) of the Magistrates Court Act 1989 (Vic) which provides that the court does not cease to have jurisdiction simply because part of the cause of action arose outside Victoria, and the decisions of the High Court in Oceanic Sunline Special Shipping Co Inc. V Fay (1988) 165 CLR 197 and Victorian Supreme Court in the matter of Holt v Forehan (2006) VSC 148.  These authorities stand for the proposition that where jurisdiction exists it should not be withdrawn unless the chosen forum is clearly inappropriate.  The onus is on the Defendant to persuade the relevant court that it should put aside its duty to exercise its jurisdiction.

Pursuant to section 101 of the Magistrates’ Court Act 1989 (Vic) if a civil proceeding is wholly or part beyond the jurisdiction of the court, the court may order that the proceeding be stayed pending the making of an application under Part 3 of the Courts (Case Transfer) Act 1991 (Vic).

4.2      Procedure relevant to a stay application

An application is made to the court in accordance with Order 46 of the Magistrates’ Court General Civil Procedure Rules 2010.  Pursuant to Order 46.02(1) such application must be made on summons and supported by an affidavit or affidavits.  The summons must be filed by way of Form 46A.  The summons, with supporting affidavit(s), must be filed with a registrar at the proper venue, which on recent experience is likely in most cases to be the Melbourne Magistrates’ Court.

When the summons and supporting affidavits have been filed and the application has been scheduled for hearing, a copy of the summons and any supporting affidavit must be served upon DSPC or other relevant David Tweed company in accordance with Order 46.05 of the Magistrates’ Court General Civil Procedure Rules 2010.

Schedule 4.7 to this guide includes a copy of the required Form 46A and a draft Affidavit in Support.

WARNING TO LEGAL REPRESENTATIVES

The Affidavit in Support has been prepared as a guide.  Deponents are required to have knowledge of the matters contained in the draft Affidavit in Support.  Where deponents depose to matters based on information and belief, the deponent should state the source of the belief.

If the deponent does not have knowledge of the matters referred to in the Affidavit in Support, in particular in relation to paragraphs 9 and 10, then the deponent should obtain such knowledge, by conducting their own research.  Information relating to DSPC and other David Tweed companies is readily available on the internet, including from various media sources and in reported judgments from NSW cases.

Alternatively, if the deponent cannot depose, based on their own knowledge or on information and belief, to the matters contained in the draft Affidavit in Support the relevant paragraphs should be struck out.

5. Application for summary dismissal

The Magistrates’ Court Rules provide that a Defendant may bring an application for the summary stay or dismissal of any claim in a proceeding or the proceeding generally where the claim or proceeding:

(a)       does not disclose a cause of action;

(b)       is scandalous, frivolous or vexatious; or

(c)       is otherwise an abuse of the process of the Court.[32]

The Magistrates Court Rules also provide that if the Notice of Defence filed by the Defendant shows that the Defendant has a good defence on the merits, the Court may make an order in the proceeding in favour of the Defendant against the Plaintiff.[33]

In addition to the rights for summary dismissal which arise under Orders 23.01 and 23.03 of the Magistrates’ Court Rules a Defendant may rely on s 62 of the Civil Procedure Act 2010 (Vic) which provides that a Defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that the Plaintiff’s claim or part of that claim has no real prospect of success.

The ‘no real prospect of success’ test under the Civil Procedure Act 2010 (Vic) is said to make an application for summary judgment easier for a party than the test to be applied under the Magistrates’ Court Rules.  However, in the vast majority of cases there will be no practical difference in the application of the different tests.[34]  The principles which are now said to apply in an application for summary dismissal can be summarised as follows:

(a)       if a proceeding or cause of action is hopeless, untenable, bound to fail, or could not possibly succeed then it ought to be summarily dismissed;

(b)       under section 62 of the Civil Procedure Act 2010 (Vic) the court will not direct an inquiry into whether a certain and concluded determination could be made that the proceeding would necessarily fail, rather the court will make a practical judgment as to whether a claim has more than a ”fanciful” prospect of success.

(c)       the discretion to exercise the power of summary dismissal is very wide and will be based on a consideration of the interests of justice.  The discretion will be exercised to facilitate the just, efficient, timely and cost-effective resolution of real issues in dispute.

(d)       although the court may be satisfied that there is no real prospect of success in a civil proceeding, the court may nevertheless consider the dispute to be of such a nature that only a full hearing on the merits is appropriate;

(e)       the power to order summary dismissal is to be exercised with great care; and

(f)        that argument directed to the issues relevant on the application, perhaps even extensive submissions, may be necessary to demonstrate that the case of the plaintiff has no real prospect of success is not ordinarily a relevant consideration.[35]

In light of the above, an application for summary dismissal should only be used in circumstances where a technical issue renders DSPC’s  cause of action without merit or where the Defendant has a good defence to the claim on the merits; for example, an acceptance document was signed after the date the offer expired or where the acceptance document was incorrectly completed with an incorrect account number or fund name, rendering the purported acceptance invalid.  This is likely to arise only in a limited number of circumstances.

A Defendant who is successful in obtaining a summary dismissal of a proceeding would also be entitled to a

n order that DSPC pay the costs of the proceeding.

A Defendant who wishes to make an application under either Rule 23.01 or 23.02 of the Magistrates’ Court Rules or s62 of the Civil Procedure Act 2010 (Vic) should do so by application to the Court using Form 46A together with supporting affidavit(s).

A draft affidavit in support has not been included in this defence kit as the issues which may entitle a Defendant to make such an application are varied and will arise from a series of facts which are particular to each individual case.

6. Negotiating a settlement with DSPC

Where in all the circumstances, the likelihood of a successful defence is minimal and is outweighed by the risk of an adverse costs award and the consumer resides in Victoria (such that there is no room for a stay application), there may be grounds for settling a DSPC claim for less than what it is claiming from the consumer by way of damages.  DSPC typically seeks relief against consumers in the form of damages for breach of contract and/or loss of a bargain.

Any breach of contract entitles the innocent party to sue for damages and in circumstances where the breach is serious, the innocent party may treat the contract as repudiated, giving rise to an immediate right to sue for damages.  The general rule is that damages are to compensate the actual loss incurred by the innocent party.  Therefore, in assessing the appropriate damages, the court must attempt to place the innocent party in the position as if the contract had been performed in accordance with its terms.

At common law, damages are, as a general rule, calculated at the time or date that the breach occurred.  Obviously, this is also the date that the cause of action arises.

DSPC usually calculates its loss by multiplying the number of shares it had offered to buy, by the difference between the share price on the Australian Stock Exchange as at the date it claims it accepted the consumer’s repudiation) and the price that the defendant agreed to sell.  DSPC essentially claims the profit it would have made by reselling the shares for their market value.  Often the date that DSPC claims to have accepted the consumer’s repudiation, however, is some time (months or even a year or more) after it claims to have received the signed transfer form from the consumer.

The date of the breach or repudiation is critical as it is clear that the value of the subject matter of the dispute, the shares or securities, constantly fluctuate in their market value.  The date that DSPC elects might be a date where that price is considerably higher than at the time it made its offer.

The appropriate assessment of damages should be made at the time of the breach.[36]  In the majority of cases, when the consumer fails to provide an issuer sponsored holding statement showing his/her SRN, DSPC writes to the consumer threatening to initiate proceedings for breach of contract if the consumer fails to provide that issuer sponsored holding statement within 28 days.  Usually, the particulars of the Form 4A Complaint will refer to this letter.

Arguably, the effectual date of repudiation or the consumer’s breach of the contract, if any, should be the date on which the 28 day period expired.  Where negotiating a settlement with DSPC is envisaged, a copy of the shares or securities prices report should be obtained for the purposes of working out whether a lesser sum than that claimed by DSPC may be negotiated.


[1] In December 2010, the practice of sending below market value offers was significantly curtailed, if not brought to an end, when the Corporations Act 2001 (Cth) was amended to allow a company or scheme to refuse access to its register if access was sought for an ‘improper purpose’ (see: Corporations Amendment (No. 1) Act 2010 (Cth) and Corporations Amendment Regulations 2010 (No 10) (Cth))

[2] See e.g. Commonwealth, Parliamentary Debates, House of Representatives, 29 September 2010, 112 (David Bradbury, Parliamentary Secretary to the Treasurer)

[3] Re Perpetual Investment Management Limited as responsible entity for Perpetual’s Monthly Income Fund and Perpetual’s Wholesale Monthly Income Fund [2011] NSWSC 133 (Unreported White J, 9 March 2011) [35] – [37]

[4] see e.g. Re Perpetual Investment Management Limited as responsible entity for Perpetual’s Monthly Income Fund and Perpetual’s Wholesale Monthly Income Fund [2011] NSWSC 133 (Unreported White J, 9 March 2011)

[5] Where the ground is not applicable to the particular circumstances of the case, it should be deleted from the defence.

[6] David Tweed bows out of battle, Sydney Morning Herald 13 April 2012 <http://www.smh.com.au/business/david-tweed-bows-out-of-battle-20120412-1wwjh.html> at 27 July 2012

[7] National Exchange Pty Ltd v Brown [2004] VSC 108 (5 April 2004).

[8] Gibbons v Wright (1954) 91 CLR 423; Blomley v Ryan (1956) 99 CLR 362

[9] Payne v Cave (1789) 100 ER 502, Dickinson v Dodds (1876) 2 Ch D 463

[10] Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 92 ALR 193 at 197.

[11] Ibid.

[12] Australian Securities and Investment Commission v National Exchange Pty Ltd (2003) FCA 955, Finkelstein J at [2].

[13] Section 12BAB(2)(b) provides that regulations may set out when a financial service is or is not provided.  Relevantly, regulation 2C(2) states that a person is not taken to have provided a financial service if they tell another person, in a clear concise written statement (that is part of the offer) either the market value (or a fair estimate of value) of the financial product and the offer remains open for a period of no less than one month and no greater than 12 months.  However, there may be an argument to suggest that DSPC’s offer documents are not clear or concise and thus, regulation 2 (c)(1) would apply bringing the conduct within the definition of a financial service.

[14] Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177.

[15] Australian Securities and Investment Commission v National Exchange Pty Ltd (2003) 21 ACLC 1652 and on appeal in National Exchange Pty Ltd v Australian Securities and Investment Commission (2004) 22 ACLC 609.

[16] Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216.

[17] (2004) FCAFC 90.

[18] National Exchange v Australian Securities and Investment Commission (2004) FCAFC 90.

[19] Campomar Sociedad, Limitada v Nike International (1999) 202 CLR 45.

[20] Australian Securities and Investment Commission v National Exchange Pty Ltd (2003) 21 ACLC 1652.

[21] Commercial Bank of Australia Ltd v. Amadio (1983) 151 CLR 447, Deane J at 422.

[22] Australian Competition and Consumer Commission v CG Berbatis Hol;dings Pty Ltd (2003) HCA 18.

[23] Commercial Bank of Australia Ltd v. Amadio (1983) 151 CLR 447, Mason J at 413.

[24] Turner v Windever (2005) NSWCA 73.

[25] Wilton v Farnworth (1948) 76 CLR 646.

[26] Re Challenger Managed Investments Ltd (As Responsible Entity For Challenger Howard Mortgage Fund) (2011) NSWSC 213.

[27] Commercial Bank of Australia Ltd v. Amadio (1983) 151 CLR 447, Mason J at 417.

[28] Australian Competition and Consumer Commission v. Radio Rentals Limited (2005) FCA 1133.

[29]  Re Perpetual Investment Management Ltd (2011) NSWSC 133, White J at [66].

[30] Ibid.

[31] Re Perpetual Investment Management Ltd (2011) NSWSC 133, White J at [66].

[32] Magistrates’ Court General Civil Procedure Rules 2010 (Vic), order 23.01.

[33] Magistrates’ Court General Civil Procedure Rules 2010 (Vic), order 23.03.

[34] National Australia Bank Limited v Norman [2012] VSC 14 at 13.

[35] Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222 at 18.

[36] Johnson v Perez (1988) 166 CLR 351.

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