Practice and procedure - Application to strike paragraphs of the defence withdrawing admissions - Relevant principles

Application to strike out paragraphs of the defence dismissed

Aon Risk Services Australia Ltd v Australia National University [2009] HCA 27; (2009) 239 CLR 175

Divcon (Australia) Pty Ltd v Devine Shipping Pty Ltd [1996] VicRp 58; (1996) 2 VR 79

Hutton v Meston (2004) WASCA 178

Jeanes v Commonwealth [2005] VSC 488

Norilya Minerals Pty Ltd v Ireland [No 2] [2010] WASC 265

Permanent Building Society v Wheeler (Unreported, WASCA, Library No 940115, 22 February 1994)

State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146

Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1994) 13 WAR 323

Water Corporation v Cardno BSD Pty Ltd (2009) WASCA 212

(This judgment was delivered orally on 3 December 2010 and has been edited from the transcript.)

1 This is an application by the plaintiffs for orders that amendments to the prefatory words to par 46 and all of the amendments to pars 46.1 and 46.2 of the defence made by a substituted defence dated 31 August 2010 be struck out. The grounds of the application are that the amendments impermissibly withdrew admissions previously made by the defendants and that the withdrawal of those admissions will prejudice or delay the fair trial of the action or are otherwise an abuse of the process of the Court.

2 The following matters are admitted on the pleadings:

(a) In May 2001, the first plaintiff and the first defendant entered into a contract, subsequently varied by deeds made between August and November 2001, by which the first plaintiff agreed to purchase and the first defendant agreed to sell land located at Pemberton, together with plant and equipment and the business known as 'Donnelly River Wines'.

(b) The second plaintiffs are the directors and shareholders of the first plaintiff. The second defendants control the first defendant.

(c) The purchase price of the business was $2.8 million plus stock, with the vendor to provide finance in an amount of $1.7 million.

(d) Settlement of the sale of the business was to occur on 30 November 2001. The vendor finance was to be repaid 12 months after that date.

(e) The vendor finance was not repaid on the due date and the first plaintiff failed to comply with a notice of demand issued by the first defendant in December 2002.

(f) There then followed negotiations that resulted, among other things, in a deed being made on 28 March 2003 between the first plaintiff and the second defendants.

3 The plaintiffs' application to strike out paragraphs of the defence concerns the way in which the defendants have pleaded to allegations about the circumstances in which the 28 March 2003 deed was made. In particular, par 28 of the statement of claim alleges that the defendants' conduct in procuring the 28 March 2003 deed was unconscionable, contrary to s 51AC(1) and 51AC(2) of the Trade Practices Act 1974 (Cth).

4 Paragraph 28 of the statement of claim contains a number of allegations concerning the circumstances surrounding the making of the 23 March 2003 deed that are said to establish that the conduct about which the plaintiffs complain was unconscionable. Those allegations include that:

(a) in the period preceding the first plaintiff's execution of the 28 March 2003 deed, the first and second plaintiffs were in a perilous and desperate financial position (par 28.1); and

(b) the defendants were well aware of the plaintiffs' financial position prior to the making of the 28 March 2003 deed (par 28.2).

5 The allegations of unconscionability were contained in the original statement of claim filed by the plaintiffs as part of an amended writ of summons dated 23 March 2008. Paragraphs 25.1 and 25.2 of that version of the statement of claim corresponded with pars 28.1 and 28.2 of the present version. Some particulars to pars 25.1 and 25.2 were provided in the original statement of claim. The balance of par 25 pleaded a number of other matters relied on by the plaintiffs in support of their plea of unconscionability.

6 The defendants served a request for further particulars of pars 25.1 and 25.2 but they filed their defence prior to the particulars requested being provided. The defendants contend that their defence was filed and served in advance of the particulars as orders had been made requiring their defence to be filed.

7 The defendants admitted the allegations made in pars 25.1 and 25.2 of the statement of claim by par 43 of their original defence. They also pleaded to the remaining allegations made in par 25 and included a general denial of all of the allegations contained in that paragraph to which they had not expressly pleaded (par 43.13).

8 The plaintiffs provided further particulars of the allegations made in pars 25.1 and 25.2 shortly after the defendants filed their defence. They amended those particulars in November 2008 (the November 2008 particulars). Subsequently, the plaintiffs amended their statement of claim and the defendants their defence. It is not necessary to recount the course of those amendments. So far as they are relevant, they are summarised in a document entitled 'Chronology: perilous and desperate financial position plea' that was provided by counsel for the plaintiffs during the hearing. I gratefully adopt that chronology and note that it corresponds with a similar chronology that was provided by the defendants. It is sufficient for these reasons to merely note that the defendants continued to admit the allegations made in pars 28.1 and 28.2 of the statement of claim in two further versions of their defence that were filed and served.

9 In July 2010, the plaintiffs further amended their statement of claim. In that pleading they:

(a) maintained the allegations made in pars 28.1 and 28.2;

(b) added some particulars to the allegations made in par 28.1;

(c) incorporated into the body of the pleading the November 2008 particulars.

10 On 31 March 2010 the defendants filed a substituted defence in which they:

(a) did not admit the allegations made in par 28.1;

(b) pleaded to the particulars to that paragraph and in doing so, admitted those particulars that had been pleaded in the initial statement of claim as particulars to pars 25.1 and 25.2;

(c) did not admit the remaining particulars to par 25.1, being the particulars that had been pleaded as the November 2008 particulars;

(d) admitted some of the matters alleged in the particulars to par 28.2, essentially matters that had been pleaded in the original statement of claim as particulars to par 25.2;

11 It is that pleading that is the subject of the plaintiff's application to strike out, the contention being that the withdrawal of the admissions previously made would prejudice or delay the fair trial of the action or is an abuse of process.

12 The plaintiffs contend that the allegations of the material fact that had been previously admitted have not been amended since the original statement of claim. The only substantive change in the most recent version of the statement of claim was to incorporate the November 2008 particulars. They say further that most of the November 2008 particulars were, in fact, first provided in August 2008. The defence had been amended since that time - and indeed, I note that it has been amended since November 2008 - but the admissions were preserved. Consequently, the admissions had stood for some time. Finally, the plaintiffs emphasise that the defendants had not provided any evidence as to the circumstances in which the admissions were made and the reasons for the withdrawal of the admissions.

13 The plaintiffs did not point to any particular prejudice that they would suffer if the amendments were allowed to stand. They did, however, highlight those authorities that indicate that a party should not be permitted to withdraw an admission without good cause, especially having regard to the objectives and principles of case flow management. They also emphasised that the admissions concerned matters that were fundamental to their plea of unconscionability and that the defendants had provided no evidence explaining the circumstances in which the admissions had been withdrawn.

14 The defendants contended that the plaintiffs had substantially recast their case since the admissions were made and that the admissions were made on the basis of a limited set of particulars. The matters pleaded as particulars of the allegations of material fact made in pars 28.1 and 28.2 had significantly changed and as a consequence, the defendants' amendments were dependent on, and flowed from, the version of the statement of claim filed in July 2010. The defendants further emphasised that there was no prejudice to the plaintiffs if the admissions were withdrawn but conversely, they would be prejudiced if the plaintiffs were permitted to insist on the admissions.

15 The chronology provided by counsel for the plaintiffs was directed to the first of those matters. The plea of unconscionability has been developed by amendment. However, I accept that the chronology demonstrates that the allegations relevant to this application have remained substantially unchanged and that there has been no significant amendment to pars 28.1 and 28.2 since the November 2008 particulars were provided. I do not consider that the amendments to par 48 of the defence can, in substance, be described as consequential on the service of the most recent version of the statement of claim.

16 Senior counsel for the defendants referred in his oral submissions to the judgments of Gillard J in Jeanes v Commonwealth [2005] VSC 488 and Le Miere J in Norilya Minerals Pty Ltd v Ireland [No 2] [2010] WASC 265. In the first of those matters, Gillard J summarised at [19] the principles he considered applicable to an application for leave to amend a pleading to withdraw an admission. It is helpful to reproduce his Honour's summary as it provided, in substance, the basis upon which the defendants contended that the strike-out application should be dismissed:

• The general rule is that all amendments should be permitted and that includes an amendment to a defence, unless the amendment will cause prejudice to the other party which cannot be overcome in some way.
• No amendment would be allowed if it raised a false issue or did not raise an arguable defence.
• The issue is one of justice between the parties ensuring that the real matters in controversy are decided.
• The trial is the proper place to determine all claims and defences and it is not appropriate, except in a clear case on a summary application to amend, to exhaustively investigate the facts and the law.
• The burden of proof or persuasion may be crucial on an application where there are disputed facts.
• It is not the law that a defendant is not permitted to resile from an admission unless it was shown the admission was made inadvertently or through error; justice is the determinant.
• It is unnecessary to show that there was some error or mistake which led to the form of the pleading and that there is a reasonable explanation for having made the admission, before a party may seek to withdraw the admission. A court usually requires some explanation for the change in approach, but the absence of same or whether it was an adequate or inadequate explanation can hardly determine the outcome of the application in the face of compelling reasons of justice.

17 His Honour also expressed the view at [26] that there was an evidentiary onus resting on a party opposing the withdrawal of an admission on the grounds of prejudice but that ultimately the burden of persuasion rested on the parties seeking the amendment.

18 In Norilya Minerals Pty Ltd v Ireland, Le Miere J permitted the defendants to amend their defence by withdrawing admissions close to trial. In doing so, he referred to and applied the principles identified by the Court of Appeal in Water Corporation v Cardno BSD Pty Ltd (2009) WASCA 212 [19] - [21]. He also noted the observations of the High Court in Aon Risk Services Australia Ltd v Australia National University [2009] HCA 27; (2009) 239 CLR 175 [111] - [112]. Notwithstanding what was said by the High Court in Aon, his Honour permitted the defendants to withdraw an admission even though the trial of the action was imminent as 'the gravity of the issues' in the action was relevant to the application to amend and was a factor favouring leave to amend 'to plead the defendants case in a way that reflects trial counsel's formulation of the defence and evidence to be adduced by the plaintiff and contemporaneous documents' [46].

19 The reference by senior counsel for the defendants to the decision of Gillard J in Jeanes led counsel for the plaintiffs to submit that this application required a conflict in approach to be resolved.

20 On the one hand, the principles identified by Gillard J suggested a permissive approach to applications for leave to withdraw an admission, subject primarily to the question of prejudice. In particular, his Honour indicated that an admission could be withdrawn even if there was no evidence providing an explanation of the circumstances in which the admission had been made and was subsequently sought to be withdrawn.

21 On the other hand, the commentary [21.5.42] of Civil Procedure Western Australia suggested a more restrictive approach. In particular, the learned editors of that work cite Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1994) 13 WAR 323 for the proposition that, 'if it is contended that the admission was made as a result of a mistake or error, it is necessary to place material before the Court to demonstrate that fact'. They also refer to the decision of Beach J in Divcon (Australia) Pty Ltd v Devine Shipping Pty Ltd [1996] VicRp 58; (1996) 2 VR 79 for the proposition that the applicant, 'must show good cause for the grant of leave to amend such an error in giving instructions for the preparation of a pleading or misapprehension by counsel or solicitor concerning the client's instructions'.

22 It is necessary to make some brief comments about what is stated at [21.5.42] of Civil Procedure Western Australia having regard to the submissions made by counsel for the plaintiffs at the hearing of the application.

23 First, the circumstances in which an admission may be withdrawn are dealt with at two points in the work, at [20.14.2] as well as at [21.5.42]. What appears at [21.5.42] is not intended to be a comprehensive statement of the relevant principles and the work is, of course, an annotation of the Rules of the Supreme Court.

24 Second, the Full Court did not state in Tony Sadler v McLeod Nominees the proposition that is attributed to it at [21.5.42]. The proposition was submitted by counsel appearing in that case, reference being made to the decision of the Full Court in Permanent Building Society v Wheeler (Unreported, WASCA, Library No 940115, 22 February 1994). Seaman J noted the submission by counsel but it was not expressly adopted by him or any other member of the Full Court.

25 In Permanent Building Society v Wheeler, an application was made at the hearing of the appeal to amend a defence to withdraw an admission that was said to have been made by mistake. Malcolm CJ observed that there was no evidence from the materials before the Full Court of a mistake and that evidence could have been provided of the kind of mistake that it was contended had been made. I doubt whether his Honour intended his comments to be understood as recognising a rule expressed in the unequivocal terms stated at [21.5.42] of Civil Procedure Western Australia or, perhaps more relevantly, that the only circumstances in which leave to withdraw an admission could be granted was where the applicant had demonstrated on evidence that the admission had been erroneously made in one of the ways identified by Malcolm CJ in Permanent Building Society v Wheeler.

26 The third comment I would make about what appears at [21.5.42] of Civil Procedure Western Australia is that in Divcon v Devine Shipping the Court was concerned with the interpretation and application of rules contained in the Victorian Supreme Court Rules that are in some relevant respects different to the Rules of this Court. However, in the course of his reasons, Beach J observed that, 'as a matter of principle, a party who has made an admission in a pleading should not be entitled to withdraw that admission in a pleading without good cause' (80). His Honour's observations are relevant to an argument advanced by the defendants that O 21 r 3 permitted the withdrawal of an amendment without leave and, in effect, as of right and without showing cause.

27 I am, of course, bound by what was said by the Court of Appeal in Water Corporation v Cardno. However, I do not consider that there is, in substance, any conflict between what was said by the Court of Appeal in that case and Gillard J in Jeanes. The emphasis in both decisions was on the interests of justice in the circumstances of the case.

28 However, it must be borne in mind that Jeanes was decided before the High Court revisited State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 in Aon. It should also be appreciated that the Court of Appeal in Hutton v Meston (2004) WASCA 178 placed considerable emphasis on the High Court's reasoning in Queensland v J L Holdings.

29 Senior counsel for the defendants acknowledged that the admissions that have been previously made were not pleaded in error in the sense that they reflected a misunderstanding of the defendants' instructions or an error in drafting; rather, he had taken a different view of the relevant facts from that taken by counsel who had been previously briefed to advise the defendants.

30 In Water Corporation v Cardno, the Court of Appeal indicated that it was a serious matter to make an admission in a pleading and so ordinarily, a party will not be permitted to withdraw an admission without good cause. Generally, a change in counsel and the difference in forensic perspective that almost inevitably follows would not be a sufficient cause to justify, by itself, the withdrawal of an admission. Indeed, I note in Water Corporation v Cardno the Court of Appeal stated in the course of analysing the evidence of the applicant for leave that there was nothing 'to suggest that the admission of the BSD contract was a tactical move on behalf of the respondent or that the respondent had changed its mind about the manner in which it wishes to put its case' [27].

31 The import of that last comment is obvious. It would defeat entirely the principles on which case management in this Court operates if parties could simply make and withdraw admissions on forensic whims. Nevertheless, I have concluded that in this instance the substituted defence should be allowed to stand with the amendments withdrawing the admissions to pars 28.1 and 28.2 of the defence preserved. The amendments should, however, only be permitted to stand on terms as to costs.

32 I have reached this conclusion for the following reasons. First, par 28.1 pleads a conclusion that seeks to characterise the plaintiffs' financial circumstances. The relevance of the plaintiffs' financial circumstances to the plea of unconscionability is obvious but no particular formulation of those circumstances is required as a matter of law to support that plea. What is critical is the underlying facts relied on to demonstrate the alleged vulnerability of the plaintiffs as a result of their financial position rather than the adjectival description employed to characterise that position.

33 Second, par 28.2 pleads a fact rather than a conclusion by characterisation: the defendants' knowledge of the plaintiffs' financial position. However, the content of what the defendants are alleged to have known is drawn from the material fact alleged in par 28.1 - that the plaintiffs were in a perilous and desperate financial position.

34 Third, the defendants have in their substituted defence admitted the particulars provided to the equivalent allegations in the initial statement of claim; that is, the particulars to what were pars 25.1 and 25.2, being the particulars that were provided prior to the November 2008 particulars. Admissions to the underlying facts have to that extent been made.

35 Fourth, whether a corporation has contravened s 51AC of the Trade Practices Act is to be determined by reference to all of the circumstances surrounding the impugned conduct. Sections 51AC(3) and 51AC(4) identify a number of matters that a Court may have regard to in determining whether there has been contravening conduct but the subsections are prefaced by the words, 'without in any way limiting the matters to which the Court may have regard for that purpose'. In such a claim, the distinction between material fact, particulars and evidence is easily blurred.

36 In this case, the plaintiffs incorporated in the latest version of their statement of claim all of the November 2008 particulars to pars 28.1 and 28.2 despite the admissions that had been previously made. I was advised that this was done so as to consolidate the pleadings in preparation for trial. That may be so but the incorporation of particulars to allegations that have been admitted in the statement of claim would appear to be unnecessary unless the plaintiffs intend at trial to rely on the matters that have been pleaded as forming part of the factual matrix from which the ultimate fact in issue, unconscionable conduct, is to be inferred. I do not think that the defendants should be prevented from disputing some of the allegations pleaded as particulars to pars 28.1 and 28.2 of the statement of claim having regard to the wide-ranging inquiry that is inevitably involved in determining whether there has been a contravention of s 51AC of the Trade Practices Act,.

37 It also seems inevitable that the evidence at trial will traverse the matters alleged in pars 28.1 and 28.2 and the particulars to those paragraphs. That matter is clearly relevant to whether it is in the interests of justice, including the public interest in the proper allocation of judicial resources, to permit the withdrawal of admissions.

38 Fifth, the possibility that the matters alleged in pars 28.1 and 28.2 will be the subject of evidence in the trial also suggests that the plaintiffs will not be prejudiced if the defendants are permitted to withdraw their admissions. It is not said that the plaintiffs took any particular step in reliance upon the admissions being made or that they were prevented or will be prevented in some way from advancing their claim if the admissions are withdrawn.

39 Sixth, although the admissions have stood for some time, the action has not been set down for a trial and it is not suggested that the withdrawal of the admissions will adversely affect completion of the interlocutory program. It is relevant to note that the matter has not progressed beyond pleadings and associated interlocutory steps despite the action having been commenced in November 2007.

40 Seventh, there is not, in my view, an absolute rule that requires a party seeking to withdraw an admission to give evidence of the circumstances surrounding the making of the admission and its proposed withdrawal. I agree with the observations of Gillard J that it is ultimately a question of determining what best serves the interests of justice, broadly defined to reflect both what is necessary to do justice between the parties and the public interest reflected in the principles of case management.

41 In my view, it is in the interests of justice that the amendments made by the defendants in their substituted defence be allowed to stand, subject to orders as to costs. I would, therefore, dismiss the application to strike out those parts of par 46 of the defence that plead to pars 28.1 and 28.2 of the statement of claim.

42 The defendants raised an issue as to whether O 21 r 3 permitted the admissions to be withdrawn without leave. I have not found it necessary to determine that issue as questions of onus have not been decisive and I have considered the matter according to the overarching principle that interlocutory discretions are to be exercised in the interests of justice, private and public.

43 Consequently, I have not confined my consideration of the plaintiff's application strictly to whether it has shown that the amendments would prejudice or delay the fair trial of the matter or were otherwise an abuse of process. I also consider that regardless of the effect of O 21 r 3, I retain a discretionary power of the kind exercised by Le Miere J in Norilya to allow the amendments withdrawing the admissions to pars 28.1 and 28.2 of the statement of claim only on terms.

44 In my view, as a condition of dismissing the application to strike out, the defendant should be required to pay the plaintiffs' costs thrown away as a result of the amendments.