Bowen Energy Limited v 2KD Drilling Pty Ltd

REASONS FOR JUDGMENT REVISED FROM TRANSCRIPT 1 Bowen Energy Ltd ("Bowen") is a mining exploration company. 2KD Drilling Pty Ltd ("2KD") of which Kevin Newman is a director, is a drilling contractor. Bowen alleges that, in 2008, Mr Newman (on behalf of 2KD) made a number of representations to it on the faith of which it purchased a drilling rig for the purpose of drilling on Bowen's coal tenements in the Bowen Basin in Queensland and entered into a contract with 2KD pursuant to which 2KD would undertake the drilling. The rig apparently broke down on the first day of operations and, after four months, drilling was suspended. Bowen claims that the representations were misleading and deceptive, that the rig was not fit for the purpose for which the respondents knew it was intended to be put, and that the respondents breached the drilling contract and their duty of care, causing loss and damage to Bowen. Bowen says it would not have bought the rig or entered into the contract had it been aware of the unsuitability of the rig. It claims damages and various other orders under the Trade Practices Act 1974 (Cth) and, in the case of Mr Newman, the Fair Trading Act 1989 (Qld). 2 The respondents deny most of Bowen's allegations and have claimed a set-off and have filed a cross-claim for amounts said to be due to 2KD under the contract for standing by during the suspension of the works. Bowen admits to receiving invoices for the amounts claimed but denies that the respondents are entitled to the sums under the contract. 3 The parties have filed and served a number of affidavits and the proceeding is set down for hearing for approximately two weeks in April. 4 By an interlocutory application filed on 29 February 2012 Bowen seeks, amongst other things, leave to amend its application, the statement of claim and its defence to 2KD's cross-claim. In support of the application Bowen relies on an affidavit of Peta James, a solicitor, affirmed on 2 March 2012 and filed on 5 March 2012. Amongst other things, the affidavit annexes the proposed amended application and pleadings. 5 Some of the proposed amendments are uncontroversial and Bowen should have leave to make them. They are the proposed amendments at paragraphs 23, 35, 53-61 and 70-73 of the proposed amended statement of claim and at paragraphs 11-13 of the proposed amended reply and defence to cross-claim. The controversial amendments relate to the proposed joinder as a respondent of Comesky Drilling Pty Ltd ("Comesky"), another company of which Mr Newman is also a director (together with Douglass Cahill, the respondent's solicitor). Those amendments are contained in paragraphs 62-69 of the proposed amended statement of claim. 6 Bowen asserts that these amendments seek to formalise a claim that is already asserted in evidence filed to date, namely that Bowen seeks relief in relation to 2KD's use of the rig and associated equipment after the drilling operations were terminated in October 2008. The substantive new allegations Bowen now wishes to make are as follows: (a) It was an implied term of the drilling contract that the rig and associated equipment would only be used for drilling programs commissioned by Bowen during the term of the drilling contract pending 2KD acquiring 100% of the equitable interest in the rig and associated equipment in accordance with the express terms of the drilling contract; (b) 2KD, its officers, servants and agents (including Mr Newman) held the rig and associated equipment on trust, as a fiduciary in relation to Bowen, pursuant to a profit/equity sharing arrangement established by the parties under the drilling contract, owed a fiduciary duty to Bowen to refrain from using the rig and associated equipment for their advantage to the exclusion of Bowen or taking a benefit from such use without the informed consent of Bowen or in accordance with the terms of the drilling contract; (c) Comesky held at least 75% of the ordinary issued capital of 2KD; (d) Mr Newman and Mr Cahill are the only directors and shareholders of Comesky and the only directors of 2KD; (e) With the permission and approval of 2KD, its officers, servants and agents (including Mr Newman) the rig and associated equipment (or part of it) were used by Comesky and Peabody Australia ("Peabody") on two occasions outside the terms of the drilling contract and without the knowledge or approval of Bowen; (f) Comesky received certain payments from Peabody arising out of the use of the drill and associated equipment on those two occasions; (g) Neither 2KD nor Comesky has accounted to Bowen for all or part of the money received from that use; (h) 2KD was in breach of the implied term; (i) 2KD and Mr Newman breached their fiduciary duties to Bowen; (j) Comesky knowingly received the money paid by Peabody in breach of the fiduciary duty; (k) Comesky was knowingly concerned in or procured 2KD to breach the implied term as to use; and (l) Bowen has suffered loss and damage or, alternatively, is entitled to an account of profits in relation to the money paid by Peabody. 7 An applicant may apply to the Court for leave to amend an originating application for any reason: Federal Court Rules 2011 (Cth) ("FCR") r 8.21. That application may include an order that a person be joined as a party to the proceeding if the person: (a) ought to have been joined as a party to the proceeding; or (b) is a person: (i) whose cooperation might be required to enforce a judgment; or (ii) whose joinder is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined; or (iii) who should be joined as a party in order to enable determination of a related dispute and, as a result, avoid multiplicity of proceedings. See FCR r 9.05(1). 8 The power to grant or refuse leave must be exercised in the way that best promotes the overarching purpose of the civil practice and procedure provisions of the Federal Court of Australia Act 1976 (Cth) ("FCA Act") and the FCR. That purpose is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. See Part VB and, in particular, s 37M of the FCA Act. 9 Bowen contends that by reason of its intimate connection with 2KD, Comesky is a necessary party and its joinder will eliminate any potential Anshun issues (see Port of Melbourne Authority v Anshun (1981) 147 CLR 589 ("Anshun")) that might arise if it were not joined now. 10 In answer to interrogatories given on 20 May 2010 and 1 June 2010 Mr Newman admitted that Comesky used the rig during two periods in December 2008 and February to April 2009 in relation to drilling operations other than on the Bowen tenements pursuant to the drilling contract and that Comesky received payments from Peabody totalling over $300,000 arising from the use of the rig on those operations. Bowen submits that this shows that, by reason of its control of 2KD and its "effective" possession of the rig and associated equipment, Comesky received a benefit from the use of the rig. 11 The real question is why Bowen has waited until now to seek to join Comesky. 12 The evidence shows that Bowen acquired the information upon which it relies to support the proposed amendments as early as June 2010. Bowen raised the fact that the Peabody monies had been retained by 2KD/Comesky without Bowen's knowledge or authority in the affidavit of its principal witness, Mark Sheppard, in July 2010. Bowen submits that it is clear that it was claiming recovery of these monies. 13 According to Ms James's affidavit, it was not until over 12 months later, on 29 July 2011, that the respondents were put on notice that Bowen might bring proceedings against Comesky. On 13 October 2011 the originating application was set down for hearing. At that time no mention was made of the possibility of joining an additional party. Copies of the proposed amended application and pleadings were not furnished to the respondents' solicitors until 29 February 2012. The hearing is now only less than six weeks away. The explanation for the delay appears in paragraph 15 of Ms James's affidavit. It is put this way: The amendments the subject of the proposed amended pleadings were proposed as a consequence of a comprehensive review of the evidence and the pleadings leading up to the proposed hearing of these proceedings. 14 It would seem that in substance Bowen's position is that the delay in making the amendment was caused by an oversight. Bowen claims, however, that there is no relevant prejudice as Mr Newman and the respondents' solicitors are both directors of Comesky and its only shareholders. No evidence has been put before the Court to suggest that there would be any such prejudice. Mr Dupree, who appeared on behalf of the respondents, though not on behalf of Comesky, complained of the delay, and expressed the concern of his clients about the possibility that the hearing dates may not be able to be retained. I will come to that question shortly, but it's important to observe at this point that prejudice is not, of course, the only consideration. 15 As the plurality observed in Aon Risk Services Australia Pty Limited v Australian National University (2009) 239 CLR 175 at [101]-[114], there is no entitlement to amend. All relevant matters need to be weighed. Factors such as the nature and the importance of the amendment to the party applying for it, substantial delay and wasted costs and concerns about case management are all important. Limits will be placed on the ability of a party to change its pleadings where litigation is advanced. Much may depend on the point in the litigation at which the amendment is sought to be made. These principles lie behind the provisions of Part VB of the FCA Act. 16 The delay in this case is significant. Nevertheless, weighing all the relevant matters I am of the view that leave should be granted. The possibility of proceedings against Comesky was flagged some time ago. The issue of recovery of the Peabody monies was raised in the evidence Bowen served over 18 months ago. The respondents have put on evidence dealing with it. See paragraph 56 of the affidavit of Mr Newman sworn on 11 October 2010. There is plainly an issue between the parties on whether the rig was used with Bowen's approval. There is no good reason why all the necessary parties to that issue should not be joined in the proceeding. 17 Certainly joinder of Comesky would enable determination of a related dispute, and as a result, avoid multiplicity of proceedings. It might also be said that Comesky is a person whose joinder is necessary to ensure that each issue in the dispute in the proceeding is able to be heard and finally determined. 18 In all the circumstances, there is no reason to think that the hearing dates cannot be maintained, or that costs will have been wasted. The parties may wish to put on further evidence, but that can be accommodated. The proposed amendments are not so obviously futile as to be liable to be struck out. They are made for a proper purpose and are not contrary to the interests of the administration of justice. Although the delay is of some concern, I accept Ms James's explanation. 19 Then there is the Anshun estoppel point. In Dow Jones v Gutnick (2002) 210 CLR 575 at [36] Gleeson CJ, McHugh, Gummow and Hayne JJ observed (footnotes omitted): Clearly, the common law favours the resolution of particular disputes between parties by the bringing of a single action rather than successive proceedings. The principles of res judicata [Jackson v Goldsmith (1950) 81 CLR 446], issue estoppel [Blair v Curran (1939) 62 CLR 464], and what has come to be known as Anshun estoppel [Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589], all find their roots in that policy. Effect can be given to that policy by the application of well-established principles preventing vexation by separate suits … or, after judgment, by application of the equally well-established principles about preclusion, including principles of Anshun estoppel. 20 Bowen's concern about the possibility of an Anshun estoppel is soundly-based. It is at least arguable that the subject-matter of an action against Comesky is so relevant to the subject matter of this proceeding that it would be unreasonable not to pursue it so that Bowen might later be precluded from mounting such an action. Cf. Anshun at 602. An Anshun estoppel also arises where an omission to plead a claim will contribute to the existence of conflicting judgments: Anshun at 603-4. For this reason, an Anshun estoppel may arise although the parties to the second proceeding are not the same: Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 at [83]. 21 In any event, the interests of justice are best served by allowing Bowen to proceed against Comesky now. The additional claim against Comesky is closely connected with the existing proceeding. Evidence concerning its conduct will be given at the hearing of this proceeding. It would promote the overarching purpose to have the additional claim dealt with at the same time. 22 Accordingly, I grant leave to Bowen to amend the application, the statement of claim and the reply and defence to the cross-claim in accordance with the documents annexed to Ms James's affidavit filed 5 March 2012. As Bowen is seeking an indulgence, it should pay the respondent's costs of the interlocutory application (insofar as it concerns the application for leave to amend) including the costs, if any, thrown away by reason of the amendments. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.