Supreme Court of WA|2010-10-04|Before: Mr P, Allanson J

GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED) -v- HUGALL [2010] WASC 269 (4 October 2010)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED) -v- HUGALL [2010] WASC 269

BETWEEN : GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED)

GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED)

Practice and procedure - Application to disallow amendments to statement of claim - Alternative application to stay proceedings - Turns on own facts

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

Williams v Australian Telecommunications Commission (1988) 52 SASR 215

1 ALLANSON J: The plaintiff's claim is for a sum lent by the plaintiff to the defendant in 1988, plus interest and the costs and expenses incurred by the plaintiff and caused by the defendant's failure to observe the covenants in a deed of charge executed at the time of the loan (referred to in these reasons and in the pleadings as the Deed).

2 The defendant admits the loan, but defends the claim on several bases, including:

(1) by an oral agreement between the defendant and Mr Raymond Owen Jones, on behalf of the plaintiff, in or about June 1990, the plaintiff agreed to release him from all debts owing to the plaintiff;

(2) by a deed of release executed on or about 14 July 1990 by the defendant, the plaintiff, Mr Jones, and two other companies (Catania Pty Ltd (Catania) and First Western Group Limited (First Western)), the defendant was released from all obligations to pay the principal sum, interest and any other money payable under the Deed.

3 Mr Jones was, at the relevant time, a director of the plaintiff.

4 In its reply and defence to counterclaim, the plaintiff specifically pleaded that the deed of release was not effective to release the defendant from his debt because it expressly required the plaintiff, Catania, First Western and Mr Jones to enter into a new loan agreement in the form annexed to the deed of release, and those parties did not enter into that agreement.

5 In his rejoinder and reply, the defendant admitted that those parties 'did not execute the document annexed to the deed of release', but otherwise denied the plaintiff's allegations.

6 The execution of the new loan agreement is at the heart of the present dispute.

7 The action was listed for trial for three days beginning on 25 August 2010. The documents for trial had been prepared and lodged, and submissions filed. The defendant's submissions did not advert to either evidence or argument that the new loan agreement had been executed.

8 On the first day set aside for the trial, I was informed that in the last weeks leading up to the trial, the defendant had identified secondary evidence that the new loan agreement had been executed. On 14 and 15 April 1992, in an examination under s 19(2) of the Australian Securities Commission Act 1989 (Cth), two witnesses (Mr Sherlock and Mr Shillington) referred to a document, apparently then available, which from their description may have been the executed new loan agreement. The defendant intended to rely on that evidence and submit, at least in the alternative to other pleas, that the new loan agreement had been executed. The defendant advised the plaintiff of his intention to rely on this evidence one week before the trial was listed to begin.

9 The plaintiff sought an adjournment. There was another basis on which the adjournment was sought, relating to the claim for interest. It is not necessary to refer further to that issue for present purposes.

10 Counsel for the plaintiff submitted that the defendant needed to amend its pleading if it was to lead the evidence and rely on a claim that the new loan agreement had been executed. The plaintiff did not oppose the defendant amending. Counsel told the court:

from an interests of justice or due administration of justice point of view, that in the interests of the truth being ascertained, the better course may be to get down to the bottom of this allegation. Adjournment is regrettable and we don't want it, but it may be better that the trial of issue does proceed on the proper issues and on the basis of properly investigated allegations.

11 The defendant did not ask to amend its defence, and did not accept that it needed to in order to rely on evidence that the new loan agreement had been executed. Counsel submitted that the defendant had not admitted that the new loan agreement had not been executed, but merely that 'the document annexed to the executed deed of release' had not been executed. On that pleading, the defendant argued, it could lead the evidence and rely on the deed of release.

12 That submission takes too literal a view of the pleadings. One of the functions of a pleading is to ensure a fair trial by putting the other party on notice of the case to be made at trial: Williams v Australian Telecommunications Commission (1988) 52 SASR 215, 216. Reading the pleadings as a whole, I am satisfied that the plaintiff could only have been on notice of a case that the deed of release was effective notwithstanding the failure of all parties to execute the new loan agreement. For example, the defendant pleaded in his counterclaim that the plaintiff was in breach of the deed of release by failing to procure the other parties to execute the new loan agreement.

13 The existence of an executed new loan agreement is a fact of significance to both parties. Both parties have, from the beginning of this litigation, proceeded on the basis that while the deed of release was executed, the new loan agreement was not. Notwithstanding the delay caused to the trial, I was satisfied that the defendant should have the chance to advance a case that the deed had been executed. The plaintiff was not prepared to meet that case, and I acceded to the plaintiff's request to adjourn.

14 I was informed that the plaintiff required about four weeks to investigate and to make any necessary amendments, before the matter would be ready to proceed. The court was in a position to re-list the matter for a trial, starting on 4 October.

15 Counsel for the plaintiff also informed the court that it was likely that the plaintiff's reply would be amended 'to raise issues which impugn the document itself'. I was not then aware of the issues sought to be raised, save that it was likely to include an allegation that Mr Jones had breached his duties as a director of the plaintiff in relation to the transactions with the defendant which led to the deed of release. I was told that those allegations had previously been part of the pleadings but had been abandoned.

16 The defendant submitted that the plaintiff should not now be allowed to raise breach of fiduciary duty in which the defendant was a participant when that issue had been out of the action for some years. I was not then in a position to understand the issues that the plaintiff sought to plead, and made directions for the parties to amend their pleadings and, if there was to be argument about the plaintiff's reply, it could come before me in early September when the proposed pleadings had been done. The matter was then adjourned.

18 Following the adjournment, the defendant filed a re-amended further substituted defence and counterclaim dated 26 August 2010. The relevant amendment is found in cls 15A and 16A in which the defendant pleads, in effect, that the deed of release and the new loan agreement were both executed on or about 17 July 1990, and that, upon execution, the defendant was released from all obligations under the Deed. The defendant also amended the set off and counterclaim to reflect the assertion that the new loan agreement had been executed.

19 The plaintiff filed its proposed re-amended reply and defence to counterclaim on 3 September 2010. Specifically, pars 4.2 to 4.4 retains the plea that the parties to the new loan agreement did not enter into that agreement, with the consequence that the plaintiff was not released from any of his obligations under the deed. In pars 4.9 to 4.13, the plaintiff seeks to impugn the deed of release by alleging that Mr Jones breached his duties to the plaintiff in making that agreement, and that the defendant had notice of the facts related to that breach.

20 The plaintiff has now obtained from ASIC, and produced to the defendant, an executed copy of the new loan agreement. The plaintiff accepts that this is an executed copy of the document referred to in the deed of release. The plaintiff does not take any point about whether the execution of the new loan agreement otherwise complies with the requirements of the deed of release.

21 In submissions dated 14 September 2010, the plaintiff says, at par 10:

The plaintiff does not now contest the fact of the execution of the new loan agreement by all parties. Consequently, the deed of release will afford the defendant complete defence to the plaintiff's claim unless it can be impugned, as the plaintiff seeks to do in paragraphs 4.9 to 4.13 of the reply.

22 This concession, however, came after the pleadings had been amended.

23 The plaintiff further submits that pars 15.1, 15.2, 15.4 to 15.7, 16 and 21 to 24 of the defence, and the whole of the counterclaim, are now unnecessary. The issues remaining for determination are:

whether the defendant can rely on the deed of release;
if not, whether the plaintiff's claim is nonetheless defeated by the alleged antecedent oral agreement; and
if not, whether the plaintiff is entitled to interest and, if so, at what rate, on what amount, over what period.

24 The plaintiff may overstate the extent to which the issues raised in the defence now fall away. It is, however, true that the common acceptance that the new loan agreement was executed substantially reduces the issues previously raised.

25 What is in controversy is whether the plaintiff should be permitted to raise the further pleas it now seeks to include in pars 4.9 to 4.13.

26 The defendant objects to the plaintiff seeking to now impugn the deed of release in the way pleaded. The defendant submits:

(1) the defendant has always relied on the execution and effect of the deed of release and its amendments do not alter that position;

(2) the plaintiff is now seeking to introduce an allegation of fraud, 20 years after the events in question;

(3) the plaintiff has previously pleaded issues relating to the alleged breach of fiduciary duty by Mr Jones and abandoned them all when it re-enlivened the proceedings in 2008;

(4) the plaintiff now seeks to introduce allegations akin to fraud that have never before been raised;

(5) the pleas in the proposed amended reply would prejudice the defendant and delay the fair trial of the action, and should be struck out.

27 As an alternative, the defendant submits that the plaintiff's action should be permanently stayed.

28 In a supplementary submission, the defendant asserts that, following the discovery of the executed new loan agreement, it is now clear that it was 'at an early stage' in the possession of the plaintiff and its solicitors. The plaintiff conducted its summary judgment application in 1994 and its case for 18 years on a 'false basis'. The defendant says he has conducted his case on an incorrect basis for 18 years because of a false affidavit of discovery and false submissions by the plaintiff.

29 The defendant submits that the interests of justice weigh heavily against allowing the plaintiff to amend and plead a case 'that is intended to avoid the consequence of the correct position now being revealed'.

30 In support of these submissions the defendant filed an affidavit of Mr David Brian Shaw, solicitor for the defendant, dated 7 September 2010. Mr Shaw attaches to that affidavit a minute of proposed Re-amended Reply and Defence to Counterclaim, prepared in October 1999 (which does not appear on the court file), and a Minute of Proposed Re-Amended Reply and Defence to Counterclaim dated March 2000. Each contains allegations that Mr Jones made improper use of his position as a director of the plaintiff, and otherwise breached his duty, and that those breaches were carried out with the defendant's knowledge. The proposed amendment in 1999 does not appear to have been filed. The allegations in the 2000 pleading relate to the making of an oral agreement between the defendant and Mr Jones, and not to the deed of release.

31 It is necessary first to refer to an affidavit of Mr Peter Reymond Quigley, sworn 14 September 2010. Mr Quigley was appointed receiver and manager of the plaintiff on 26 July 1990. He swears that he did not, at any stage, have possession of the executed new loan agreement. The ASC, and subsequently ASIC, had possession, custody and power of the document, and he was not entitled to custody or power of documents held by ASC and used in its investigation and examinations. Mr Quigley has no recollection of the executed document being used in the examination of Mr Sherlock by the ASC. He did not see it.

32 Mr Quigley refers to his limited access after 1994 to the documents held by the ASC due to proceedings commenced against the ASC and others by the plaintiff's auditors.

33 The plaintiff also relies on an affidavit of Mr Kelvin Lee Christensen. Mr Christensen was appointed by the ASC in 1992 to examine various persons in relation to the affairs of the plaintiff. He refers to the limited access to documents during the course of the examination. In particular, Mr Christensen prepared the reply, filed in March 1993, in which it was pleaded that the deed of release was not effective because the new loan agreement had not been executed. Mr Christensen states that he was not at that time aware of an executed copy of the new loan agreement. He now has no recollection of seeing a copy of the new loan agreement, executed on 17 July 1990, until it was received from the ASIC on 7 September 2010.

34 The plaintiff submits that the document was always in the possession of a third party, and it is not through any fault on its part that the matter proceeded for so long on a false basis.

35 The plaintiff also submits that it is desirable to understand the background to the pleadings if the court is to understand why the plaintiff needs to make the allegations about Mr Jones's breach of duty in responding to the amendments made by the defendant in pars 15A and 16A of the defence. It refers, in particular, to the finding by Master Bredmeyer in September 1994 on the plaintiff's application for summary judgment. While the learned Master dismissed the application, he found that, on the uncontested fact that the new loan agreement had not been executed, the defences based on the deed of release were not arguable.

36 The plaintiff also says that allegations, similar to those it now seeks to plead, were part of the plaintiff's case until May 2009. Examination of the court record, however, paints a slightly different picture.

37 The writ of summons is dated 16 October 1992 and has endorsed on it a statement of claim. Similarly to the present pleadings, the statement of claim pleaded the debt, and that it has not been paid.

38 In a defence dated 20 October 1992, the defendant admitted the debt, but pleaded that, by the deed of release, the plaintiff released the defendant from all its obligations.

39 The plaintiff applied unsuccessfully in December 1992 to have the defence struck out on grounds that the document pleaded as a deed of release was unstamped. The application failed when the defendant produced a stamped copy of the deed of release.

40 The plaintiff filed a reply dated 10 March 1993. It pleaded that in or around April 1990 to July 1990, Mr Jones entered into various negotiations with the defendant and others - including but not limited to the making of the deed of release and the new loan agreement - and that, at all material times during those negotiations:

(1) the plaintiff was unable to pay its debts as and when they fell due from its own moneys, in that, it was insolvent;

(2) Mr Jones had duties as an officer of the plaintiff and failed to exercise those duties by entering into the negotiations; and

(3) the defendant knew or ought to have known of those matters.

41 On 28 June 1993, the plaintiff brought an application for summary judgment. Both parties filed affidavits in those proceedings, including (on behalf of the defendant) an affidavit by Mr Jones. None of the deponents said anything about whether the new loan agreement was executed. In his judgment the master says that it was an uncontested fact that it had not been executed.

42 The application for summary judgment was dismissed. The master did not accept the defendant's construction of the deed of release, and did not accept that it was arguable that the deed was effective even if the new loan agreement had not been executed.

43 The defendant filed an amended defence and counterclaim in September 1994. On 19 October 1994, the plaintiff filed a reply and defence to counterclaim. Relevantly, the plaintiff now deleted the allegations that Mr Jones had breached his duties as a director of the plaintiff in his negotiations with the defendant leading to the deed of release. Those allegations were not revived before now.

44 In May 2000, the plaintiff was given leave to re-amend the reply and defence to counterclaim in terms of a minute dated March 2000, attached to the summons of 12 May 2000. The plaintiff again did not maintain any plea relating to Raymond Jones' breach of fiduciary duty in his negotiations towards the deed of release and new loan agreement.

45 In a supplementary list of documents attached to an affidavit of Mr Quigley, sworn 21 May 2008, the plaintiff gave discovery of the ASC transcripts, including the transcript of the examination of Mr Graham Sherlock on 14 April 1992, and Mr John Shillington on 15 April 1992. Arguably, from that time, both parties had access to the documents from which the defendant was later prepared to argue the existence of the executed new loan agreement. Neither party recognised the significance of what had been said.

46 Pleadings were further amended in 2008 and 2009. The changes made are not presently relevant.

47 The plaintiff's amendments to the reply and defence to counterclaim come nearly 18 years after the issue of the writ. While they follow an amendment to the defendant's defence, they go further than merely responding to the new plea.

48 Although this is an application to strike out, I consider that it is appropriate to deal with it in the same way as I would an application by the plaintiff for leave to amend. It would be wrong in principle to approach this application on the basis of an entitlement to amend, subject to payment of costs by way of compensation to the defendants: see Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175. Rather, under O 1 r 4B of the Rules of the Supreme Court 1971 (WA), I must conduct the processes and procedures of the Court so as best to ensure the attainment of the objects referred to in r 4B (1). That is:

Actions, causes and matters in the Court will, to the extent that the resources of the Court permit, be managed and supervised in accordance with a system of positive case flow management with the objects of -

(a) promoting the just determination of litigation; and

(b) disposing efficiently of the business of the Court; and

(c) maximising the efficient use of available judicial and administrative resources; and

(d) facilitating the timely disposal of business; and

(e) ensuring the procedure applicable, and the costs of the procedure to the parties and the State, are proportionate to the value, importance and complexity of the subject matter in dispute; and

(f) that the procedure applicable, and the costs of the procedure to the parties, are proportionate to the financial position of each party.

49 All factors relevant to the exercise of the discretion to permit the amendments to stand must be weighed. Without attempting to be exhaustive, those factors include the length of time this matter has already been before the court; the difficulty of introducing any new factual issue so long after the events in question; the wasted costs which the amendments might produce; and the effect of the amendments upon the defendant, who will inevitably lose his opportunity to have this case tried in October.

50 Consideration must also be given to the reason why the plaintiff now seeks to amend. I take into account the nature and importance of the amendments to the plaintiff; and their effect upon the breadth of the evidentiary matters to be investigated in the case. I must also consider the impact of the amendments upon the limited resources of the court, having regard to the interests of other litigants in the efficient utilisation of those limited resources.

51 In particular, I take into account the following. First, the amendment does not merely respond to the amended defence by joining issue on whether the parties did execute the new loan agreement. Rather, it seeks to impugn the deed of release on a different basis.

52 Second, the plaintiff would, in most part, be relying on facts which it has known about and documents which it has had possession of for some time. Should I permit the plaintiff, at this stage, to introduce a plea based on material facts which it has known, but has chosen not to plead? The plaintiff abandoned similar allegations 'when they were perceived to be unnecessary, in the interests of saving time and expense'.

53 Third, there is a significant difference in the positions of the plaintiff and the defendant. The amendments made by the defendant corrected a false assumption, common to both parties, that the new loan agreement had not been executed. I accept that at least until May 2008 the defendant may not have had the means to know that assumption was incorrect - even then it required reading the transcript of the ASC examinations in a way contrary to both parties' understanding of the facts. The defendant was not a party to the new loan agreement and there is no reason why it should ever have been in the defendant's possession. The document was not discovered by the plaintiff. Mr Jones is a witness for the defence, and provided an affidavit in 1994. Perhaps he may have had knowledge of the executed new loan agreement. But it is hardly conceivable that had the defence known that the new loan agreement had been executed, it would, for so many years, have relied on the pleading it had filed.

54 I am not, however, satisfied that the plaintiff was at fault in not discovering the executed new loan agreement earlier, so that he should be now denied the opportunity to meet the case raised by the defendant. Mr Quigley has sworn that it was never in his possession or custody, and he was not aware that Mr Sherlock was referring to that document. There was another loan agreement between Catania and the plaintiff made at about the same time. The executed agreement appears, on the evidence, to have been in the possession of the ASC and ASIC at all times.

55 Ultimately, I am most influenced by the history of this matter. The plaintiff now wishes to advance a case that it originally pleaded, but which it perceived to be unnecessary following the decision of Master Bredmeyer. The history of the pleadings supports the plaintiff's submission.

56 The discovery of the executed new loan agreement alters the position for both parties. To permit the defendant to rely on it, with no chance for the plaintiff to reinstate the position it formerly advanced, would not promote a just determination of the case.

57 For the same reasons, I do not accept the defendant's alternative submission that the plaintiff's action should be permanently stayed.

58 I realise that the dates in October will not now be used, as there will be further discovery, and both parties will need to consider the presentation of further evidence. That is, in my opinion, an unavoidable consequence of the change to this case that has occurred in the last weeks.

59 Finally, my decision that the plaintiff should be able to raise issues impugning the deed of release does not mean that I am satisfied that all of the amendments in pars 4.9 to 4.13 should be permitted - at least in their present form. The defendant, in seeking to strike out the amendments, dealt with them as a whole. While the plaintiff should not be precluded from challenging the deed, the proposed pleading is not, in my opinion, satisfactory. For example, par 4.9(8), repeated as a particular in 4.9(10), raises a fresh allegation of conspiracy to deceive, and may be subject to various objections. More generally, I have difficulty in relating the facts which the defendant and Mr Jones are said to have known, or been recklessly indifferent to, to the relevant breaches of duty said to have been committed by Mr Jones.

60 I am also conscious that both parties pleaded their amendments without knowing that the executed new loan agreement could be produced. The case should be clarified by each party having the opportunity to take that new fact into consideration in the way it wishes to advance its case.

61 I propose to adjourn the matter to enable the parties to consider what orders they want as a consequence of this decision, including who should bear the costs of the amendments, the costs of the adjournment and the costs of this application to strike out the plaintiff's reply or stay the action. I am prepared to hear further argument directed to striking out specific parts of the proposed reply.

Securities Commission Act 1989

Aon Risk Services Australia Ltd v Australian National University

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (83 paragraphs)

GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED) -v- HUGALL [2010] WASC 269 (4 October 2010)

GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED) -v- HUGALL [2010] WASC 269 (4 October 2010)

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Legislation Cited (1)

Cases Cited (2)