Aspect Safety Group Pty Limited v Swift

INTRODUCTION 1 This is an interlocutory application for leave to file a cross-claim out of time under r 15.05 of the Federal Court Rules 2011 (Cth) and to join a third party as second cross-respondent under r 9.05 of the Rules. 2 In support of the application, the cross-claimants, Richard and Za-Za Swift, relied on an affidavit of Peter Glen Mylne, solicitor, affirmed 23 December 2021. Annexure PGM-1 to that affidavit is a draft of the proposed cross-claim. In opposing the application, Aspect Safety Group Pty Ltd relied on an affidavit of Hayden Dyer, solicitor, affirmed 6 May 2022.

BACKGROUND 3 Prior to 3 March 2017, Mr Swift worked at WSP Australia Pty Ltd as a state manager, at a time when Mr Richard Johnson, the proposed second cross-respondent, worked as an executive director of WSP. 4 Aspect was incorporated on 6 March 2017, with Mr Johnson as the sole director and secretary. On that same day, Mr Swift entered into an employment agreement with Aspect. 5 Mr Swift's employment with Aspect ceased in November 2020. 6 The substantive proceedings are between Aspect and the Swifts. The proceedings were commenced on 12 July 2021. An amended originating application and an amended statement of claim were filed on 19 July 2021. The amendments were not substantive and were directed to correcting errors in respect of the identification of Mrs Swift as Mrs Smith. 7 Aspect alleges that Mr Swift breached statutory, fiduciary and contractual duties owed by him in his capacity as a director of Aspect from 6 March 2017 to 15 November 2020. Aspect contends that Mr Swift engaged in unauthorised expenditure of monies, including by paying a salary to Mrs Swift in circumstances where she was not employed by Aspect. Aspect claims against Mrs Swift as an accessory. Aspect seeks relief in the form of declarations pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth), equitable compensation, damages and costs. 8 The Swifts filed a defence on 24 August 2021. In their defence they contend, inter alia, that Mr Swift entered into a joint venture agreement with Mr Johnson (and seemingly Aspect) that is alleged to have been conditional upon Mr Swift's resignation from WSP, his then current employer, and on the incorporation of Aspect. The Swifts contend that a part of the joint venture agreement is that Mr Swift would be registered as a director and shareholder of Aspect upon Mr Johnson resolving a dispute with WSP, a company of which Mr Johnson was a director and an employee, and with whom he was in dispute. The Swifts contend that despite the dispute between Mr Johnson and WSP being resolved, and despite repeated requests, Mr Swift has not been made a director and shareholder of Aspect. The Swifts further contend that Aspect is estopped from denying the existence of the joint venture agreement. 9 The Swifts further contend in their defence that Mr Johnson, on behalf of Aspect, agreed with Mr Swift that "for taxation minimization purposes" their respective spouses "would undertake employment with the Applicant and/or receive remuneration" and "would be paid a salary accordingly commensurate with the duties so undertaken or as worked out by the Company Accountant, to facilitate taxation minimisation". 10 The final salient feature of the defence for present purposes is that the Swifts allege that loan(s) advanced by Aspect Environmental Pty Limited, a related company, to Aspect were changed by Aspect's accountant to "personal loans" alleged to be repayable by Mr Swift. 11 Pursuant to r 15.04, the date by which any cross-claim was due to be filed was 24 August 2021, being the date the defence was filed. A cross-claim was not filed by that date. 12 On 1 September 2021, by consent, the Court referred the substantive proceedings to mediation before a Registrar. The mediation took place on 14 September 2021, however the proceedings did not resolve. The evidence of Aspect's solicitor is that the respondents did not inform Aspect of Mr Johnson before the mediation that they intended to file a cross-claim. 13 The evidence of the Swifts' solicitor on this application is that a forensic decision was made by the Swifts not to seek to file their cross-claim before mediation, lest the prospect of the resolving the proceedings at mediation be undermined. A consequence of the Swifts' forensic decision was that the mediation took place at a time before the pleadings were closed in a substantive sense, and at a time when, if the Swifts' contentions on this application are to be accepted, the totality of the substantive issues between the parties had not been identified, let alone narrowed, and without the joinder of Mr Johnson as a party. 14 The proceedings were next listed for case management on 4 November 2021. On 3 November 2021, Mr Mylne informed Aspect that the Swifts proposed to seek leave to file a cross-claim in the substantive proceedings. The Swifts did not raise the proposed cross-claim at the case management hearing on 4 November 2021. 15 At that case management hearing, orders were made, again by consent, to permit Aspect to file a further amended originating application and a further amended statement of claim. No such documents have since been filed by Aspect. A timetable for the filing of evidence was also entered by consent. 16 The Swifts did not flag that they intended to seek leave to file a cross-claim out of time. The filing of a cross-claim, if leave was granted to do so, would likely impact the efficient and cost-effective preparation of the evidence scheduled to be filed. 17 On 23 December 2021, the Swifts filed (but did not serve) the interlocutory application for leave to file the proposed cross-claim and to join Mr Johnson as second cross-respondent. Annexed to the supporting affidavit, which was also filed on 23 December 2021 but not served, was a copy of the proposed cross-claim. The Swifts have not provided any explanation for the delay in service. 18 It was not until 25 January 2022 that the Swifts served the interlocutory application and supporting affidavit on Aspect. Even then, the Swifts did not seek to advance their application for hearing until over four months after it had been filed. On 22 April 2022, I directed that the parties confer and bring forward a timetable for the hearing of the Swifts' application for leave to file the cross-claim out of time. Submissions were subsequently filed and the parties confirmed that they were content for the application to be determined on the papers. 19 The proposed cross-claim relies on and incorporates significant parts of the defence. By their proposed cross-claim, the Swifts seek relief for damages arising out of misleading representations alleged to have been made by Aspect and Mr Johnson, which are alleged to have induced the Swifts into employment with Aspect. The Swifts allege that these representations are contrary to various provisions of the Australian Consumer Law (ACL), being schedule 2 of the Competition and Consumer Act 2010 (Cth).

RELEVANT PRINCIPLES 20 Rule 15.04 of the Rules requires a party to file and serve any cross-claim on the date that a defence is due. Rule 15.05 provides that where a party does not comply with r 15.04 they must apply for leave. The application for leave must be supported by an affidavit setting out the nature of the cross-claim, its relationship with the subject matter of the proceeding, and reasons why the cross-claim was not filed in accordance with r 15.04. 21 The principles applicable to the grant of leave to file a cross-claim out of time are summarised in Rush v Nationwide News Pty Ltd (No 2) [2018] FCA 550; 359 ALR 564 (Wigney J) at [87]: The principles that are applicable to the grant of leave to file a cross-claim out of time are relevantly the same as those that apply in the case of applications for leave to amend. Relevant considerations include: whether the subject matter of the claim fell within the Court's jurisdiction; the extent of the delay; whether an acceptable explanation has been provided for the delay; any prejudice to the other party or parties occasioned by the delay; the merits or strength of the proposed cross-claim; the degree of connection between the proposed cross-claim and the subject matter of the principal proceedings; and the desirability that all disputed matters between the parties connected with the subject matter of the proceedings be dealt with in the main trial: Trade Practices Commission v Allied Mills Industries Pty Ltd (1980) 33 ALR 127 at 129, 133, 134; Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-9; Sunbeam Corporation Ltd v Breville Pty Ltd [2007] FCA 496; Lendlease Project Management and Construction (Australia) Pty Ltd v Construction, Forestry Mining and Energy Union (No 3) [2011] FCA 912 at [18]; Tada Constructions Corporation Pty Ltd v JP Dixon Real Estate Pty Ltd (No 3) [2012] FCA 329. 22 Section 37M(1) of the Act provides that the overarching purpose of the practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. 23 As the cross-claim also proposes to join Mr Johnson as the second cross respondent, it is necessary to consider the principles that apply to r 9.05 of the Rules. 24 Rule 9.05 relevantly provides that a party may apply to the Court for an order that a person be joined as a party to the proceedings if that person ought to have been joined as a party to the proceedings at the outset, and is a person: … (b) whose joinder is necessary to ensure that each issue in dispute in the proceedings is able to be heard and finally determined; or (c) who should be joined as a party in order to enable determination of a related dispute and, as a result, avoid a multiplicity of proceedings.

ISSUES ARISING FOR DETERMINATION 25 On the present application the critical issues going to the exercise of the Court's discretion are: (1) the extent of the delay and whether the Swifts have given an acceptable explanation for the delay; (2) any prejudice to Aspect and/or Mr Johnson occasioned by the delay; (3) the merits or strength of the proposed cross-claim; (4) the degree of connection between the proposed cross-claim and the subject matter of the principal proceedings; and, relatedly, the desirability that all disputed matters between the parties connected with the subject matter of the proceedings be dealt with in the same proceedings.

The extent of the delay and the explanation for it 26 The delay is significant. The application was filed four months after the cross-claim was due to be filed. The Swifts then delayed serving the application for another month. The Swifts then did not seek to advance their application for several months after it had been filed. 27 The Swifts did not flag at the 4 November 2021 case management hearing that they intended to seek leave to file a cross-claim out of time, notwithstanding that the proceedings were referred to mediation by consent on that day. 28 The Swifts seek to explain their delay in bringing the cross-claim and the application for leave as follows. First, that because they believed that filing the cross-claim would undermine the potential for the proceedings to resolve at mediation, they elected for what their solicitor describes as a "forensic reason" not to raise the cross-claim until after the mediation failed. Secondly, after the mediation failed, the Swifts conferred with their solicitor at length and Mr Swift took a considerable amount of time to "piece together all of the relevant information, in particular, locating the various documents that confirm the representations alleged to have been made by Mr Johnson" and to "undertake a comprehensive audit of the documents" relating to his and Mrs Swift's claim for loss and damage based on the representations. However, the draft statement of cross-claim includes multiple references to the Swifts' inability to particularise until after disclosure is complete. Dates are not provided in respect of alleged events in which Mr Swift is said to have been directly involved. The representations relied on are interwoven in a narrative form that as a pleading is embarrassing and at risk of being struck out. In one paragraph, a quote is included that purports to be from an email between Mr Swift and Mr Johnson which is described as "email dated (TO BE INSERTED)". The Swifts do not offer any explanation for the delay between filing and serving the present application nor for their delay in seeking to have the application progressed. 29 As noted, the Swifts, through their solicitor, have frankly acknowledged that they elected to defer seeking leave to file a cross-claim until after the mediation proved to be unsuccessful. That is inconsistent with the requirements of ss 37M(1)(b), (2)(b) to (d) and 37N(1) of the Act. As noted at paragraph [22] above, s 37M(1) provides that the overarching purpose of the practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Section 37M(2)(b) to (d) provides that the overarching purpose includes to facilitate the objectives of efficiently using judicial and administrative resources; efficiently disposing of the Courts overall caseload; and disposing of all proceedings in a timely manner. Section 37N imposes an obligation on parties to conduct proceedings in a way that is consistent with the overarching purpose, and provides that a party's lawyer must assist the party to comply with that duty. 30 The deliberate decision by the Swifts to defer bringing the cross-claim within time and consenting to both mediation before a Registrar of the Court and a timetable for the filing of evidence flies in the face of the rule that any cross-claim is to be filed contemporaneously with the defence. It undermines the Court's ability to facilitate the just resolution of the dispute between the parties in a manner that is quick, inexpensive and efficient and at a cost that is proportionate to the importance and complexity of the matters in dispute. To stand by and consent to mediation, knowing that if the mediation fails, then leave to file a cross-claim out of time will be sought, positively undermines the likely efficacy of mediation. Consenting to an evidence timetable well after the mediation had concluded but before bringing forward the application for leave to file the cross-claim similarly undermines the Court's ability to manage the proceedings in a way that promotes the overarching purpose. 31 As to the other matter advanced by way of explanation - namely, that significant time was needed to formulate the cross-claim - that is not an acceptable explanation having regard to the circumstances of this matter. The cross-claim is, in large part, based either on matters already pleaded in the defence, or on factual matters relating to what in the main appear to be oral representations that are relatively uncomplicated. The level at which the material facts are pleaded, and the discursive manner in which the draft cross-claim is framed, suggest that the draft cross-claim is still at this stage, something of a work-in-progress in any event. 32 The Swifts' delay has been protracted and their explanation for it is inadequate. This weighs against the grant of leave.

Prejudice to Aspect and or Mr Johnson occasioned by the delay 33 There will be prejudice to Aspect if leave is granted. The proposed cross-claim is convoluted and poorly pleaded. If leave is granted, Aspect has foreshadowed that it will likely move to strike the cross-claim out. Such an application is likely to meet with success, at least in part, and in the ordinary course, one might expect an opportunity to re-plead would be given. This will inevitably result in delay. If any causes of action are ultimately properly pleaded, it will be some time before the pleadings on the cross-claim are closed and the parties can prepare evidence in relation to the cross-claim. Evidence has been filed and served by Aspect, including from Mr Johnson, and by the Swifts. It is possible, perhaps probable, that the parties will seek to file and serve further evidence if leave is granted. In submissions opposing the grant of leave, Aspect has foreshadowed the necessity to prepare additional evidence in opposition to the cross-claim, if leave to file the cross-claim is granted. The inevitable consequence is that setting the proceedings down for hearing will be delayed, and the allocation of a final hearing will be later than it would otherwise have been. Aspect and Mr Johnson will suffer prejudice if leave is granted. That prejudice flows from a deliberate forensic decision by the Swifts not to file their cross-claim in accordance with the requirements of the Rules. 34 The Swifts have not, on this application, indicated that they consent to leave being granted on condition that they pay the costs thrown away. 35 Conversely, if leave is refused, Aspect and Mr Johnson have undertaken through Mr Dyer, confirmed by counsel in written submissions not to raise any objection, including by way of estoppel, to the matters the subject of the cross-claim being advanced in separate proceedings. For this reason, any prejudice to the Swifts will be minimised, and in any event is as a result of the strategic decisions they have made in these proceedings.

The merits/strength of the proposed cross-claim 36 The assessment of the merits of the proposed cross-claim on an application such as this is necessarily approached in a summary way. That the draft cross-claim is discursive and in an embarrassing form does not assist the exercise. There is considerable opacity as to the critical dates for some of the material facts relative to the date of incorporation of Aspect. Although it is not clear in the draft cross-claim, it appears that the alleged representations pre-date the incorporation of Aspect. The basis on which Aspect is said to have contravened ss 18 and 31 of the ACL is unclear. Critical elements of the claims against Mr Johnson under ss 18 and 31 of the ACL are absent from the pleading. The basis on which Mrs Swift is entitled to maintain the claims made in the draft cross-claim is not articulated. These deficiencies in the draft cross-claim militate against leave being granted in circumstances where, if leave is granted, an application to strike out the pleading has been foreshadowed. The Swifts have not sought to address the criticisms made of the proposed cross-claim notwithstanding they have been put on notice of them.

The degree of connection 37 The issue that weighs in favour of the grant of leave is the principle that it is desirable to have all disputed matters between the parties connected with the subject matter of the proceedings dealt with in the same proceedings. 38 The Swifts contend that leave should be granted to file the cross-claim out of time because the subject of the proposed cross-claim is closely related to the issues in the substantive proceedings. The Swifts submit that the questions of law and fact involve a commonality arising out of the same transaction period. The Swifts contend that the overlap is illustrated by the centrality of the employment relationship(s) to the principal claim, the defence and the draft cross-claim. The Swifts assert that granting leave to file the cross-claim will avoid additional costs of bringing separate proceedings and will facilitate all issues between the parties being determined in context and at the same time. 39 Aspect contend that the proposed cross-claim concerns pre-employment representations alleged to have been made by Mr Johnson before Aspect was incorporated. Further, that the conduct which informs the cross-claim is separate and distinct from that in issue in the substantive proceedings - namely the joint venture agreement alleged in the Swifts' defence. 40 I accept that there is some overlap between the subject matter of the substantive proceedings and the draft cross-claim and that in the ordinary course it would be desirable to hear the substantive proceedings and the cross-claim in the same proceedings. This weighs in favour of granting leave.

CONCLUSION 41 Taking into account all of the matters outlined above, I am not persuaded that to grant leave to file the cross-claim out of time would be consistent with the overarching purpose. 42 On their own solicitor's evidence, the Swifts made a calculated decision not to bring their cross-claim forward in accordance with the requirements of the Rules. In doing so, they permitted the proceedings to be prepared for hearing, and to proceed to mediation on the basis that the issues between the parties had crystallised when, in truth, they were keeping at least some of their powder dry, waiting until the matter had been mediated and evidence filed. They now seek to advance a draft cross-claim that broadens the field of contest between the parties and joins Mr Johnson as an additional party in his personal capacity. The draft cross-claim is in a form that is likely to give rise to an interlocutory strike out and re-pleading skirmish and to require the filing of additional evidence. It is not possible on the material before me on this application to go further than to observe that any subsequent re-pleading would need to be considerably more focussed in the identification and pleading of the material facts that are alleged to support the claims that Mr and Mrs Swift respectively seek to advance. The process of strike out, re-pleading and filing additional evidence will delay the allocation of a hearing date. Against this, Aspect and Mr Johnson have undertaken not to raise any objection to the matters the subject of the cross-claim being advanced in separate proceedings. Weighing up all of these considerations, and having regard to the overarching purpose, I am satisfied that leave to file and rely upon the cross-claim should be refused. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman.