[2022] VCC 1620 (Judge Trapnell)

PRACTICE AND PROCEDURE - Amendment of pleadings - Where application for leave to amend defence made four weeks before County Court trial - Where notice of the amendment to the defence given six weeks prior to the County Court trial - Where plaintiffs below opposed the application to amend - Where amended defence withdraws claims and narrows issue in dispute - Where amended defence does not enlarge scope of evidence - Significant prejudice to the defendant by refusal to permit amendment to the defence - Lawyer's duty to cooperate under s 20 of the Civil Procedure Act - Whether prejudice to the plaintiffs below in allowing the application to amend - Whether interests of justice served by avoiding undue delays - Whether judge failed to take into account a material consideration - Whether the judge's refusal to permit the amended defence would result in a substantial injustice - Leave to appeal granted - Appeal allowed.

Retirement Villages Act 1986 - Residential Villages Act 1986 - Residential Villages (Contractual Arrangements) Regulations 2006 - Supreme Court (General Civil Procedure) Rules 2015 - County Court Civil Procedure Rules 2018, r 36.01(1)(a) - Civil Procedure Act 2010, ss 9(1), 20, 23 and the overarching obligations_._

House v The King (1936) 55 CLR 499, Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, Northern Health v Kuipers [2015] VSCA 172 applied; Adam P Brown Male Fashions Pty Ltd v Phillip Morris (1981) 148 CRL 170, Billington v Sussan Corporation Australia Pty Ltd [2020] VSCA 12, Cargill Australia Ltd v Viterra Malt Pty Ltd [No 18] [2018] VSC 772, Ultra Thoroughbred Racing Pty Ltd v Those Certain Underwriters at Lloyd's, London [2011] VSC 370, Mandie v Memart Nominees Pty Ltd [2016] VSCA 4 referred to.

1. On 29 October 2021, Heather and Thomas Ingpen, as executors (the 'executors') of the estate of their mother, Margaret Colborne, instituted a proceeding in the County Court against the applicant, Baptcare Ltd ('Baptcare').
2. Mrs Colborne resided at the Templestowe Orchards Retirement Village in the years prior to her death in March 2017. She entered into separate leases for two units with the Templestowe Baptist Church Community Centre Ltd ('Templestowe Baptist Church') in 2006.
3. Under the terms of the leases, in October 2006, two loans of $185,000 each, totalling $370,000, were advanced by Mrs Colborne to Templestowe Baptist Church.
4. Subsequently, Baptcare assumed the rights and liabilities of that company when it acquired the Templestowe Orchards Retirement Village.
5. The leases terminated upon Mrs Colborne's death and in April 2017, Baptcare took possession of the two units.
6. The units were subsequently demolished by Baptcare.
7. The contest between the executors and Baptcare relates to the repayable amount of the loans. As the pleadings stand, the trial will involve consideration of the terms of the leases, provisions of the Retirement Villages Act 1986 and related regulations, and the valuation of the units.
8. Six weeks out from a trial fixed for 19 October 2022, Baptcare gave notice to the lawyers for the executors that it sought to amend its defence and attached a draft amended defence (the 'draft'). The alterations were significant, but it is not suggested that they are not arguable.
9. The executors resisted any change to the defence and the dispute was heard by Judge Trapnell as the Duty Judge in the Commercial Division of the County Court. After hearing argument on 28 September 2022, his Honour refused to permit Baptcare to amend its defence. His Honour provided reasons in a timely fashion on 3 October 2022.
10. This Court on 17 October 2022 heard an urgent application brought by Baptcare seeking leave to appeal his Honour's decision.
11. After receiving written submissions and hearing oral argument, we determined to grant leave to appeal and allow the appeal. The orders we made, dated 17 October 2022, were as follows:

(1) The applicant have leave to appeal.

(2) The appeal be allowed.

(3) The orders of his Honour Judge Trapnell made 28 September 2022 be set aside and in lieu thereof the court orders as follows:

(a) The defendant have leave to file and serve an amended defence substantially in the form annexed as Exhibit DLT-1 to the affidavit of Dian Lenore Turner affirmed 20 September 2022.

(b) The trial fixed for 19 October 2022 be vacated and the proceeding referred to the Judicial Registrar for refixing a trial date and further directions.

(c) The defendant pay the plaintiffs' costs of and incidental to the summons dated 21 September 2022, and costs thrown away by reason of vacation of the trial date and the amendment of the defence.

(4) The respondents pay the appellant's costs of the appeal including the application for leave to appeal.

1. The writ and statement of claim of the executors was issued on 29 October 2021. The statement of claim sought repayment of the two loans.
2. On 3 December 2021, Baptcare filed its defence to the statement of claim. The defence was primarily directed towards the construction of the leases but also raised quantum meruit and promissory estoppel claims.
3. On 31 January 2022, procedural steps were set out by the Court and the trial fixed for 19 October 2022.
4. On 8 April 2022, in its further and better particulars of the defence, Baptcare's lawyers foreshadowed amending the extant defence 'in due course'.
5. On 7 September 2022, Baptcare's lawyers emailed the executors' solicitors. The email sought the executors' consent to filing the draft, which was attached to the email, in place of the extant defence. Baptcare's lawyers sent follow-up emails and a letter on 9, 14 and 20 September 2022.
6. On 16 September, not yet having received a response from the executors, Baptcare's lawyers wrote to the County Court Commercial Registry seeking an interlocutory determination. The Registry replied advising that an application to amend a pleading where there is no consent must be made by way of summons.
7. The lawyers for the executors then replied to Baptcare's correspondence on 20 September 2022, stating that the executors opposed the filing of an amended defence in the form of the draft.
8. On 21 September 2022 Baptcare filed its summons seeking leave to file and serve an amended defence substantially in the form of the draft.

1. Unarguably, the draft refashioned Baptcare's defence of the executors' claim.
2. It abandoned the quantum meruit claim and made a series of admissions not contained in the extant defence.
3. It spelt out Baptcare's asserted construction of the terms of the leases.
4. It raised the effect of the Retirement Villages Act 1986 and the Retirement Villages (Contractual Arrangements) Regulations 2006 (the 'Regulations') on the construction of the terms of the lease and the calculation of the repayable amount of the loans.
5. Briefly, in substance, whereas the extant defence relied upon cls 10.1 to 10.4 of the leases, the draft primarily relied on cl 10.5.
6. Clauses 10.1 to 10.4 required the deduction of a 'deferred management fee' and a 'capital replacement fee' from 'the loan amount' to arrive at the amount of money, if any, repayable under each loan. Where a lease lasted longer than two years, the deferred management fee was calculated as a percentage of the 'new loan amount', being the proceeds of re-letting the unit to a new incoming resident. Similarly, the capital replacement fee was to be calculated as an annual rate applicable from the commencement of the original lease until the grant of a new lease to a new incoming resident. Where a unit was not leased to a new incoming resident, arguably there could be neither a deferred management fee or capital management fee, meaning that the full amount of the loans, without deduction, was repayable. This was the executors' position.
7. However, in the extant defence, Baptcare alleged an agreement made with Mrs Colborne fixing a notional 'new loan amount' for the purpose of the mechanism provided by cls 10.1 to 10.4. In part, it relied upon an acknowledgment signed by her shortly prior to her death ('acknowledgment'). This notional 'new loan amount' was not premised on the units being re-let, but instead determined by reference to a valuation of the units which Baptcare, alone, had commissioned. The application of the formula using the (allegedly) agreed new loan amount resulted in a nil amount repayable under the loans.
8. In contrast, cl 10.5 of the leases, pleaded in the draft, incorporated by reference the provisions of a schedule to the Regulations said to apply when a resident became entitled to repayment of a loan 'before another person has paid any in-going contribution' in respect of the same unit. That mechanism required a valuation by an independent valuer agreed by the parties or, failing agreement, appointed by an external body. Adopting the formula provided in the schedule, Baptcare still maintained a nil loan amount was repayable.
9. Baptcare asserted that it was entitled to rely upon its previously obtained valuation report in calculating the amount repayable by it to the executors pursuant to the formula provided in the schedule. In argument before us, Baptcare appeared to concede that the existing valuation may not strictly comply with the schedule, being one factor which would require the trial date to be vacated if the amendment was allowed.
10. Additionally, the draft makes a series of claims in respect of Mrs Colborne's potential transfer to a new accommodation facility and the acknowledgment. Whilst the acknowledgment had been mentioned in the extant defence, fresh consequences are alleged to flow from it and the actions of Mrs Colborne in executing it. Relying on the acknowledgment, Baptcare in the draft pleads a waiver and fresh promissory estoppel argument.

1. On 28 September 2022, the judge refused Baptcare's application for leave to file the draft as its amended defence and ordered it pay the executors' costs of the application on a standard basis to be taxed in default of agreement.
2. His Honour's reasons commenced by setting out the procedural history.
3. The judge accepted 'the plaintiffs' submissions in their entirety' and then referred to the following matters:[1]

(a) Baptcare's application was made 'only three weeks before the trial which [was] scheduled for 19 October 2022'.[2]

(b) The trial date was set on 31 January 2022.[3]

(c) If the trial date were to be vacated, the next available trial date was not until 14 August 2023.[4]

(d) There was 'no satisfactory explanation for the lateness of Baptcare's application', and the 'presumably late briefing of senior counsel [was] not a satisfactory excuse'.[5]

(e) The amendments sought in the proposed amended defence were substantial.[6]

(f) There was 'simply no possibility of the existing trial date being retained, and the further delay of some ten [months] would cause prejudice to the plaintiffs by way of significant stress and anxiety which cannot be compensated for by an order for costs'.[7]

(g) 'Concerns about case management are highly significant in this case, particularly in the COVID-19 environment. The vacation of the current trial date would inevitably inconvenience other litigants in the Commercial Division and cause inefficiency in relation to the use of judicial resources. There will be significant cost consequences for the plaintiffs if the amendment is permitted, in a case which does not involve a very large sum.'[8]

1. In refusing the application, the judge concluded:

Granting leave to the defendant to file and serve the proposed amended defence would not assist the parties and the Court in the attainment of the overarching purpose set out in the CPA.

Accordingly, I consider the overarching purpose of the CPA and the interests of justice are best served by refusing the defendant's application.[9]

1. For this Court to reconsider the judge's ruling, Baptcare must establish two things. First, a material error, in the House v The King sense, by the judge in the exercise of his discretion.[10] Second, as the decision was concerned with the matter of practice and procedure, it must also demonstrate that it will suffer substantial injustice if the appeal is refused.[11]
2. In the present case, the relevant principles to be applied in determining whether to permit an amendment to an existing defence come from three sources:

(a) The County Court Civil Procedure Rules 2018 and particularly r 36.01(1)(a);[12]

(b) The provisions of the Civil Procedure Act 2010 ('CPA'), particularly s 9(1) and the overarching obligations;[13] and

(c) Statements of the High Court in Aon Risk Services Australia Ltd v Australian National University.[14]

1. Since the enactment of the CPA and the decision in Aon, this Court has on several occasions considered the application of these principles: in particular, in Northern Health v Kuipers [15] and Billington v Sussan Corporation Australia Pty Ltd.[16]
2. These principles were succinctly summarised by Elliott J in Cargill Australia Ltd v Viterra Malt Pty Ltd [No 18]:[17]

The principles relating to the granting or refusal of leave to amend pleadings are well established. Rule 36.01(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) empowers the court to grant leave to any party to amend any document for the purpose of 'determining the real question in controversy between the parties to any proceeding'. Leave may be granted at any stage of the proceeding.

In deciding whether to grant leave to a party to amend its pleadings, the court must consider whether the proposed amendments facilitate the identification of the real issues in dispute and the just resolution of the proceeding.

The power to grant leave to a party to amend its pleading to raise an arguable issue is a discretionary power. There is no right or entitlement for a party to amend its pleading subject to the payment of costs referable to the amendment. The nature and importance of the proposed amendments must be considered. This factor must be weighed against case management considerations such as cost, delay and the potential for unfair prejudice to other parties to the proceeding, the court and other litigants that might arise if the proposed amendments are allowed.

Further, in exercising the power to grant leave, the court may give any direction or impose any term or condition it thinks fit.[18]

1. However, as was pointed out in Northern Health and consistent with the provisions of s 9(1)(a) of the CPA:

[While] time, costs and limited judicial resources are relevant considerations in the determination of whether to allow certain interlocutory process ... 'the primary question still remains: what do the interests of justice dictate?'; Aon reminds courts that 'the prism through which these interests are viewed is wider than just that of the moving party'.[19]

1. Finally, it is worth repeating what was also said in Northern Health:

[I]t is important that ... trial judges engage with the [CPA's] provisions in balancing the competing interests of the parties and those of the administration of justice more generally.[20]

As procedural rulings must often be made promptly with succinct reasons, that does not mean that trial judges must set out each applicable provision of the Act and state reasons in relation to it. However, it must be apparent from the reasons for the ruling - either expressly or inferentially - that the judge took into account the applicable provisions.[21]

1. In our view, both of the necessary conditions to challenge the judge's decision are established.[22]
2. We accept that, as the judge found, the draft contained a substantial change to the way in which Baptcare proposed to resist the executors' claim. Notwithstanding this, we consider that there were several specific errors on the judge's part which enliven House v The King principles.
3. First, his Honour seemingly gave no regard to the consequences of his order in ensuring that there was a fair trial of the claim and the defence to it. The judge's reasons for refusing the application occupy some nine paragraphs. There is no mention of the overarching purpose of ensuring a 'just ... resolution' of the real issues that the parties seek to contest.[23] It was not suggested before the judge or this Court that the fresh claims in the draft were hopeless. Our necessarily uninformed view at the present time is that they are clearly arguable. The Reasons focus solely on the inadequacies of Baptcare's conduct and its consequences, but do not address the competing interest of Baptcare in ventilating an arguable defence.
4. Second, there was no apparent consideration of the prejudice to Baptcare by it being prevented from raising arguable grounds of defence. Essentially, this raises the same point as that just mentioned - namely, the inability of Baptcare to present its complete case at trial. Whilst the prejudice to the executors is explained in detail, the consequences of shutting Baptcare out from running potential defences at trial received no attention by the judge.
5. Third, there was no consideration by the judge of how the trial would proceed with the issues raised in the draft essentially lurking beneath the surface but unable to be agitated. In considering how (if at all) the leases provided for the repayment of the loans if the unit was not to be re-let, the trial judge would seemingly be obliged to limit recourse to a provision which may contain the answer. Several pieces of evidence (particularly surrounding the acknowledgment which was referred to in the original defence) would be artificially precluded. It is inevitable that the trial would be beset by procedural objections.
6. His Honour did not grapple with the consequence of the refusal of the amendment in relation to the orderly conduct of the trial. Moreover, the refusal led to a bizarre consequence. Baptcare's desired abandonment of several aspects of its defence, including its quantum meruit claim, was refused, as were a number of admissions. This meant that a number of denials or non-admissions remained within its pleaded case, notwithstanding Baptcare's wish to narrow part of the contest.[24]
7. Accordingly, we conclude that his Honour failed to take into account several material considerations and thus House v The King error is established.
8. Next, we are also satisfied that the refusal to permit the amended defence would result in a substantial injustice. It is not necessary for us to explain again the problem that the refusal of the amendment would have had on Baptcare's ability to present its case at trial. The second condition is also established.
9. Having determined that his Honour's discretion miscarried in a way occasioning substantial injustice, it is for this Court to re-exercise that discretion.
10. We accept, readily, several of the considerations detailed by the judge and set out at paragraphs [33] and [34] above that would militate against permitting the amendment. As we have said previously, his Honour correctly described the amendments as substantial. The most significant effect of granting the application was the potential consequential adjournment of the trial to a date in August 2023.
11. However, these factors must be balanced against the following:

(a) Primarily, and consistent with the observations we have set out at paragraphs [43] to [46], it would be unjust to Baptcare to shut it out from relying upon arguable defences. Permitting the draft to be relied upon will, as we have discussed, contribute to the just resolution of the contestable issues.

(b) The delay in Baptcare giving notice to the executors of the proposed amendments to the defence was, undoubtedly, significant. However, amendments were foreshadowed in the further and better particulars provided in April, and the draft was provided to the executors' lawyers six weeks before the trial. This can be contrasted with Aon where notice was given on the day that the trial commenced.[25] Moreover, 13 days elapsed before the executors' solicitors responded to Baptcare's late notice (after receiving two prompts from the lawyers for Baptcare).[26] Neither side is free from blame, although clearly Baptcare should have acted more promptly in delivering the draft.

(c) The amendments contained in the draft do not seek to introduce new evidence. Rather, they flesh out Baptcare's case in relation to the construction of the leases, the effect of the Retirement Villages Act 1986 and related regulations, and better particularise Baptcare's defence.

(d) Section 20 of the CPA imposes an overarching obligation upon the lawyers for the executors and Baptcare to cooperate in the conduct of the proceeding. Once the draft had been received by the executors there ought to have been discussion between the parties to see whether the trial could proceed with the amended pleading in place. If the executors' lawyers had responded in a cooperative way, then it might well be that the trial could have proceeded. This obligation under the CPA goes directly to the efficacy of pre-trial processes. The days of stonewalling by not responding (as the executors' lawyers did for 13 days notwithstanding three follow-up communications) are gone. There should have been a prompt response to see whether, with Baptcare's amended defence, the trial could proceed. Of course, that may not have eventuated, but the clear obligation on both sides was to adopt a cooperative approach that might have enabled the trial to proceed as listed, or alternatively, to proceed at a date earlier in 2023 - if available.

(e) There is no substantive prejudice to the executors as a result of granting the application. The leases the subject of the claim were executed in 2006. Mrs Colbane died in March 2017. The executors issued their writ four and a half years later and the proceeding was fixed for trial in October 2022. The delay occasioned by a refixed trial date in August 2023, whilst regrettable, is unexceptional and not overly burdensome in this case.

(f) In the context of this application, orders as to costs provide an adequate (but perhaps not perfect) amelioration of the executors' position.

1. Overall, we consider that the interests of justice point squarely to allowing the appeal, and granting Baptcare's application.
2. In our view, and as we said at the time of making the orders, the proposed amendment to the defence in the form of the draft should be allowed and a consequential order for the adjournment of the trial made. In those circumstances, costs orders in favour of the executors in respect of the summons in the County Court, the amendment of the defence, and the vacation of the trial date are appropriate. But, the costs of the appeal, including the application for leave to appeal, should follow the event and be ordered in favour of Baptcare. A certificate under the Appeals Cost Act 1998 should also be granted to the executors.

[1] Ingpen v Baptcare Ltd [2022] VCC 1620, [59]-[63] ('Reasons').

[2] Ibid [59]. In fact, the application was made four weeks prior to trial, and heard three weeks prior to trial.

[10] House v The King (1936) 55 CLR 499, 504-5 (Dixon, Evatt and McTiernan JJ).

[11] Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc [1981] HCA 39; (1981) 148 CLR 170, 176-7 (Gibbs CJ, Aickin, Wilson and Brennan JJ); [1981] HCA 39; Billington v Sussan Corporation Australia Pty Ltd [2020] VSCA 12, [24] (Beach, Kaye JJA and Croucher AJA) ('Billington').

[12] Rule 36.01(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015 is in identical terms. The two provisions are governed by the same principles.

[13] Civil Procedure Act 2010, pt 2.3.

[14] (2009) 239 CLR 175; [2009] HCA 27 ('Aon').

[15] [2015] VSCA 172 ('Northern Health').

[16] [2020] VSCA 12.

[17] [2018] VSC 772.

[18] Ibid [31]-[34] (emphasis in original) (citations omitted).

[19] Northern Health [2015] VSCA 172, [33] (Kyrou and McLeish JJA), quoting Ultra Thoroughbred Racing Pty Ltd v Those Certain Underwriters at Lloyd's, London [2011] VSC 370 [9] (J Forrest J); Billington [2020] VSCA 12, [25] (Beach, Kaye JJA and Croucher AJA).

[20] Northern Health [2015] VSCA 172, [22] (Kyrou and McLeish JJA); Mandie v Memart Nominees Pty Ltd [2016] VSCA 4, [36]-[48] (Kyrou, Ferguson and McLeish JJA).

[21] Northern Health [2015] VSCA 172, [22] (Kyrou and McLeish JJA).

[22] See [35] above.

[23] Civil Procedure Act 2010, s 7(1).

[24] Cf Civil Procedure Act 2010, s 23, which obliges parties to seek to narrow the issues in dispute.

[25] Aon (2009) 239 CLR 175, 195 [45] (Gummow, Hayne, Crennan, Kiefel and Bell JJ), 224 [141] (Heydon J).

[26] See [17] and [19] above.