Bruce Clyde Bailey v Arnold Neil Bailey

CSI International Co Ltd v Archway Personnel (Middle East) Ltd [1980] 3 All ER 215 CASES CITED : Stott v West Yorkshire Road Car Co Ltd [1971] 2 QB 651 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

TEXTS CITED : Ritchie's Uniform Civil Procedure NSW

Bruce Clyde Bailey (First Plaintiff) Janet Beatrice Shafik Bailey (Second Plaintiff) PARTIES : Arnold Neil Bailey (First Defendant) Glenice Margaret Bailey (Second Defendant) Annette Mavis Bailey (Third Defendant)

COUNSEL : C Bevan, E Young (First and Second Plaintiffs) M Pesman (Second and Third Defendants)

SOLICITORS : Turner Freeman (First and Second Plaintiffs) Australegal (Second and Third Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Date of Hearing: 21 April and 4 June 2009 Date of Judgment: 23 June 2009

2313/02 Bruce Clyde Bailey & anor v Arnold Neil Bailey & ors JUDGMENT 1 REIN J: The second and third defendants, Glenice Margaret Bailey ("Glenice") and Annette Mavis Bailey ('Annette"), are, together with Arnold Neil Bailey ("Arnold"), defendants in proceedings brought by their brother Bruce Clyde Bailey ("Bruce") and Bruce's wife, Janet Beatrice Shafik-Bailey ("Janet"). These proceedings were commenced in 2002 and they represent a further chapter in a very unfortunate long-running family dispute following the death of Henry Neil Bailey, the father of Glenice, Annette, Arnold and Bruce, which dispute was largely settled on 3 July 1995 by a Principal Mediation Agreement and then on 22 January 1996 by a Supplementary Mediation Agreement, which I shall refer to collectively as "the mediation agreement". I say 'largely' settled because there were general releases given in respect of most of the disputes concerning the family partnership continued on after the late Henry Neil Bailey's demise but disputes relating to ownership and sale of the partnership's cotton crops for the 1995 and 1996 seasons were not resolved.

2 In May 1996 the plaintiffs agreed to purchase the estate farm Hazeldene and seven of its nine water licenses for a price of $7 million.

3 The plaintiffs assert that in mid-July 1996 the defendants refused to perform their obligations under the mediation agreement to cooperate with the plaintiffs to enable them to complete their purchase of Hazeldene and the water licenses, by insisting that the plaintiffs enter into an agreement known as the Contingency Fund Agreement ("the CFA"). The CFA provided that Bruce's share in the proceeds of the sale of partnership assets was to be held on trust to secure the claims against him by the defendants in respect of the partnership being the original disputes released in the mediation agreement.

4 The plaintiffs assert that the insistence on entry into the CFA was a breach of the mediation agreement and that they entered into the CFA to avoid being placed in breach of the sale agreement by which they had agreed to purchase Hazeldene, and hence the CFA was the product of economic duress or unconscionability on the part of the defendants.

5 As a consequence, it is claimed, Bruce was obliged to surrender his contractual right to purchase the seventh water license "because the money ear-marked to complete the purchase of it was paid into the contingency fund": see para 10 of the outline of the plaintiff's case attached as part of the plaintiff's submissions of 15 April 2009.

6 Because of the freezing of Bruce's share of the proceeds of the sale of the partnership, it is claimed he was unable to purchase the seventh water license at a price of $500,000 and the water license is now worth significantly more. The plaintiffs claim a loss of profits from being unable to farm an additional area of land from 1996 because of the loss of the opportunity to purchase the seventh water license.

7 The mediation agreement contained, relevantly, the following clauses: see pp P116 - P122 to Exhibit TAM1 of affidavit of Tessa A Manning sworn 1 June 2009 ("Exhibit TAM1"): "13. The parties acknowledge that the sum of $1.42 million was applied by the 3rd Defendant from partnership moneys towards the property Rosewood West, and that sum shall be accounted by the Third Defendant to the partnership, together with interest at the rate of 10% p.a. from the dates upon which such moneys or part thereof were applied towards Rosewood West to the date of accounting (on daily rests) to be disbursed with the partnership shares set out in Clause 12."

"22. The Third Defendant agrees to release and forever forgo all his right title and interest which he may otherwise be alleged to have in the three properties jointly standing in the names of the Plaintiffs and the Third Defendant at Ballina and Cremorne in the State of New South Wales and to do all things necessary to convey legal title therein to the Plaintiffs wholly. The Third Defendant agrees to pay the stamp duty and the Second Defendant agrees to pay the sum of $2,000 for valuation and legal costs of the Plaintiffs in respect of such transaction."

8 Glenice and Annette, for whom Mr Pesman of counsel appears, now seek leave to file a cross claim in the form of the document at pp 20 - 31 of Exhibit TAM1 which ventilates three matters: (1) they seek a declaration that Bruce holds his interest in the properties at Ballina and Cremorne, referred to in clause 22 of the mediation agreement, as trustees for them, and ancillary relief (" the properties issue ");

(2) they seek rectification of clause 13 of the mediation agreement asserting that it was the common mistaken belief of the parties that Bruce owed $1.42 million to the partnership when in fact the amount was $2,142,945.86 (" the first rectification issue "); and

(3) they seek a declaration that the agreement noted by the Court at clause 8 of the Court's orders of 23 November 2007 (" the consent orders ") (see p 196 of Exhibit TAM1) was based upon a common intention of the parties that the Accounts Agreement would result in the prompt preparation of accounts properly reflecting the financial position of the Bailey partnership, and this belief was mistaken "because in directing Mr Humphreys to base the preparation on the accounts and opinions of Mr Long, the accounts would not properly reflect the Principal Mediation Agreement as rectified under order 6": see para 8 of proposed cross claim at p 26 of Exhibit TAM1. (" the second rectification issue ").

9 When it became clear that the plaintiffs had not served all of their evidence on quantum in relation to their claim and that the quantum issue would involve extensive documents for a lengthy period, I encouraged the parties to consider agreeing to have a hearing on liability only. The defendants indicated their agreement to this approach, as did the plaintiffs initially. The plaintiffs' approach on this fluctuated but eventually, either with the consent of the plaintiffs (in my view) or at least without opposition, I ordered that liability be determined first. At that point a proposed cross claim, different to the form in which it is now propounded (containing only the properties issue), had been the subject of this Notice of Motion which I stood over to allow Bruce to consider whether or not he would agree to transfer the properties pursuant to clause 22 of the mediation agreement and allow Glenice and Annette to consider whether or not they wish to amend their proposed cross claim in light of Bruce's response. I indicated on 21 April that were leave to be granted, the cross claim (then limited to the properties issue) could be heard with the hearing on liability.

10 Bruce and his wife resist the bringing of a cross claim and the proposed third cross defendant Arnold, whose interests are or may be aligned with Glenice and Annette neither consents nor opposes the filing of the cross claim. 11 Mr Bevan of counsel who appears with Mr Young of counsel for Bruce and Janet, opposes leave on a number of grounds. They are: (1) that by agreeing to a 15 day hearing in November when the matter was fixed for hearing by Brereton J, Glenice and Annette waived their right to bring a cross claim because the time available for the liability hearing would be reduced unfairly to the plaintiffs;

(2) that there had been laches or delay on the part of Glenice and Annette in bringing the cross claim - the proceedings have been on foot for seven years and the cross claim should not be permitted as it would detract from time set aside for the hearing on liability. This submission seemed to be predicated on the basis that Glenice and Annette were seeking to vacate or postpone the hearing date fixed for November; and

(3) that the cross claim lacked merit for a variety of reasons advanced in considerable detail, including that the claims were statute barred or would be refused on the grounds of laches. 12 When I indicated to the parties in April that the cross claim, if allowed, could be heard as part of the hearing on liability in November, it was a cross claim limited to the properties issue. Mr Pesman indicated that when the matter was fixed for hearing by his Honour Brereton J it was accepted on behalf on Glenice and Annette that the cross claim could not be tacked on to the liability hearing: see T5.41 - T6.9. I am not sure if this is because by the time application was made for a hearing date Mr Pesman already knew that the proposed cross claim would include the two rectification matters, but for whatever reason, it is not now submitted that the cross claim should be heard in November against the wishes of the plaintiffs. In view of this, the second point is no longer an issue.

13 Uniform Civil Procedure Rules 2005 ("UCPR"), r 9.1 requires any cross claim to be filed at the same time as the defence is filed, but the Court may permit the cross claim to be filed at any time - and a cross claim was even allowed after judgment on the principal claim in one case: see CSI International Co Ltd v Archway Personnel (Middle East) Ltd [1980] 3 All ER 215 at 230 and see Stott v West Yorkshire Road Car Co Ltd [1971] 2 QB 651.

14 Since a cross claim is, for almost all purposes, to be treated like a statement of claim (see UCPR, r 9.1(3)) a defendant to a cross claim can move to strike out a cross claim if filed within time, on the ground that there is no reasonable cause of action disclosed in it or that the proceedings are doomed to failure: see Ritchie's Uniform Civil Procedure NSW, footnote 14.28.25. Since leave needs to be sought for filing a cross claim out of time, it is open to a putative defendant to a cross claim to oppose the grant of leave on a similar basis.

15 The submissions filed on behalf of the plaintiffs seek to expose weaknesses in the cross claim. Thus, in relation to the claim that Bruce is, by clause 22 of the mediation agreement, a trustee for the cross claimants, Mr Bevan argues that since there is no express trust, the trust can only be a resulting or a constructive trust and for reasons which he advances, he submits it could not be either. Mr Bevan also submits that the cross claim is framed in the way that it is in order to avoid the considerable problem that the cross claimants have done nothing about Bruce's failure to transfer the properties since 1995, and hence the claim is statute barred. There is reference in the relief sought to specific performance "of the trust" but not the contract, which presumably is designed to avoid this obstacle.

16 The contention that the cross claim is, in reality, an attempt to dress up a statute barred claim in a guise that seeks to escape the appropriate consequences may be shown ultimately to be correct, but at this stage, I do not think it is appropriate to attempt to plumb the depths of law either as to trusts or limitations - the point, if it is a good one, is not so clearly and obviously correct that the cross claim ought to be dismissed, and I am mindful too, of the warning of the High Court in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 that limitations questions often depend on the precise facts determined at trial and laches as an equitable defence could involve attention to the course of conduct of both parties over a considerable period. I would not have refused to grant leave to Glenice and Annette to cross claim on this basis had it been the only claim made. 17 Then there is an attack on the claims for rectification. This attack has four components: (1) the plaintiffs rely on the agreement with the cross claimants noted on the short minutes of order of 15 April 2009: see p 273 of Exhibit TAM1, that in consideration of the plaintiffs withdrawing paragraphs 74A - 74D of the third further amended statement of claim, the second and third defendants would not bring a cross claim in relation to the consent orders; (2) that the claim for rectification is brought two years after the consent orders were made; (3) that there is a res judicata in respect of any matters connected with the rectification issues; and (4) that the cross claimants are not permitted to bring any evidence of what occurred at the mediation. 18 In relation to the first point, Mr Pesman argued that the agreement not to challenge the consent orders arose in the context of a proposed cross claim which then sought to set aside the whole of the mediation agreement as a result of the conduct of the 1995/1996 mediation and was acceded to in order to avoid the need for the solicitors and counsel for the plaintiffs to cease acting, which he said need not occur in relation to the rectification claims, as now formulated. Secondly, he says, the relief sought is not to vitiate the consent orders but "a mechanical provision giving effect to rectification of the 1995 agreement". Clause 13 of the mediation agreement is not itself mentioned in the consent orders, and it may be that the first rectification issue does not contravene the agreement made in April 2009 between the parties but it would seem that the first and second rectification issues are closely linked, and the second rectification issue is a claim "in relation to the consent orders" whether it concerns a 'mechanical' matter or not.

19 Having regard to: (1) the very late advancement of the cross claim; (2) the fact that the issues which will now need to be determined, assuming that they ought not otherwise be precluded, will not be determined at the November hearing; and (3) the fact that the cross claimants have agreed not to advance claims "in relation to the consent orders" and that one, at least, of the rectification claims does meet that description,

I am of the view that leave should not be granted to the cross claimants to file their cross claim. If the plaintiffs are successful on liability at the November hearing, there will remain the question of damages. I do not think it would be appropriate to burden that aspect of the case with new issues relevant to a different and discrete aspect of the dispute. I fully accept the desirability of all matters concerning the mediation agreement and the consent orders in 2007 being heard at the one time, but the cross claimants have, by their delay in bringing the cross claim, even assuming it not to be statute barred, prevented this occurring. 20 I refuse leave for the filing of the cross claim. The second and third defendants are to pay the plaintiffs' costs.

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