It is common ground that, during the period from about 1996 until about early 2003, the second plaintiff and the fourth defendant conducted the business of mining, cutting, and shaping dimension stone at the Grandee Quarry in New South Wales in partnership. On the plaintiffs' pleaded case, the business of the partnership also extended to the preparation for sale and selling of that dimension stone. The partnership is referred to in the pleadings as the Morris Carpenter Partnership and I will use the same term in these reasons.
Carpenter v Morris [2020] NSWSC 1264 | Case summary | Zoe
The first plaintiff is a director of the second plaintiff.
The first defendant is a director of the fourth defendant and the owner of part of the land comprising the Grandee Quarry together with the second and third defendants. The proceedings settled as between the plaintiffs and the second and third defendants on the first day of the hearing. The eighth and ninth defendants are the current owners of the balance of the land comprising the Grandee Quarry and play a very limited role in this proceeding.
The fifth to seventh defendants are parties alleged to have obtained an exploration licence and applied for a mining lease, and to have dealt with certain material stockpiled on the Grandee Quarry land in the period after 2014.
In very broad terms, this proceeding concerns:
1. the Morris Carpenter Partnership;
2. a stockpile of granite on the land comprising the Grandee Quarry that is said to contain material extracted from the Grandee Quarry during the course of the Morris Carpenter Partnership (the 2003 stockpile);
3. an agreement that the plaintiffs claim to have entered into with the first defendant in mid-2003 (the 2003 agreement) (it is not necessary for present purposes to address certain variations alleged to have been made subsequently to the 2003 agreement);
4. the circumstances in which the Grandee Quarry ceased to be mined in about late 2014, and whether the first defendant acted in breach of the alleged 2003 agreement or unconscionably at that time or in the period thereafter; and
5. a stockpile of granite on the Grandee Quarry land that is said to contain material extracted during the period 2003 to 2014 (the 2014 stockpile).
In their Further Amended Statement of Claim filed on 17 May 2019, the plaintiffs claim the following relief against the first and fourth to seventh defendants:
1. a declaration that the Morris Carpenter Partnership is dissolved pursuant to s 35 of the Partnership Act 1892 (NSW);
2. an order appointing a receiver for the taking of accounts and inquiry into all of the dealings and transactions of the Morris Carpenter Partnership and of the partners in relation to the partnership, the assets and liabilities of the partnership and the respective interests of the partners in the partnership assets;
3. restitution on a quantum meruit in relation to work allegedly performed by the second plaintiff during the period from 2003 to 2014;
4. a declaration that the 2014 stockpile, or part thereof, is held on constructive trust for the plaintiffs;
5. equitable compensation; and
6. damages for alleged breach of the arrangement said to have been entered into between the plaintiffs and the first defendant in 2003.
The claims for a declaration of constructive trust and equitable compensation were introduced by the Further Amended Statement of Claim filed in May 2019. The other claims for relief have been pleaded since the proceeding was commenced in May 2016.
A separate defence to the Further Amended Statement of Claim was filed on behalf of each of the first and fourth to seventh defendants on 5 April 2019.
In about August 2019, the fourth defendant's solicitors asked the solicitor then acting for the plaintiffs (Mr Hargreaves of Palmers Solicitors) to identify the basis on which an order was sought for the taking of accounts and inquiry into all of the dealings and transactions of the Morris Carpenter Partnership and of the partners in relation to that partnership. Specifically, the solicitors for the fourth defendant inquired whether it was alleged that no final account had been taken in relation to the Morris Carpenter Partnership, or whether there was some other basis on which an order for the taking of accounts was sought.
On 12 August 2019, Mr Hargreaves responded to that inquiry in the following terms:
"The Plaintiffs require that an account be taken of the 2003 stockpile in the quarry. On our instructions, other issues arising from the dissolution of the Morris and Carpenter partnership have been resolved between them.
The Plaintiffs seek such orders as will facilitate the sale of the 2003 stockpile and the distribution of the net sale proceeds in accordance with the partnership agreement."
Mr Hargreaves recently ceased acting for the plaintiffs after becoming gravely ill.
On 6 September 2020, the solicitors for the fourth defendant wrote to the present solicitors for the plaintiffs referring to the "admissions" made by Mr Hargreaves in his 12 August 2019 letter and stating that the fourth defendant was proceeding on the basis that the relief sought in relation to the Morris Carpenter Partnership was now "limited only to the appointment of a receiver in respect of the interest of the Morris Carpenter partnership in the stockpile (whatever that might be) and that it is no longer proposed to seek a general accounting for the partnership".
On 7 September 2020, the plaintiffs' solicitors replied:
"Mr Hargreaves made no admissions.
In any event, the Plaintiffs intend to proceed to seek all of the relief stated in the Further Amended Statement of Claim with the possible exception of the appointment of a receiver.
The Plaintiffs' position is that the taking of accounts will value the 2003 Stockpile, and it will be accounted for as an asset of the partnership. The Plaintiffs' position will also be that the taking of accounts should also account for profit, as, on the undisputed evidence, the Plaintiffs were paid a wage and not a share of the profits."
The final hearing of the proceeding commenced on 14 September 2020.
On that day, the first and fourth to seventh defendants moved on a notice of motion filed at 4.30pm on 8 September 2020 (two business days prior to the commencement of the final hearing) seeking leave to amend their respective defences to the Further Amended Statement of Claim by filing defences in the form included in Annexure A to the affidavit of the solicitor for the first and fourth to seventh defendants, Mr Grant Gayler, sworn on 8 September 2020.
The plaintiffs opposed leave being granted in relation to one of the amendments proposed by the first defendant and two amendments proposed by the fourth defendant, but did not oppose leave being granted in respect of the balance of the amendments by the first and fourth to seventh defendants.
The contentious proposed amendments are:
1. paragraph 27 of the proposed amended defence of the first defendant, which raises for the first time the contention that the plaintiffs' claims for damages for breach of contract, equitable compensation or restitution on a quantum meruit are barred by s 14 of the Limitation Act 1969 (NSW);
2. paragraph 14 of the proposed amended defence of the fourth defendant, which raises for the first time a defence of settled accounts to the plaintiffs' claim for an order for the taking of accounts of the Morris Carpenter Partnership and of the dealings of the partners in relation to the partnership. The particulars of the settled accounts provided in paragraph 14 of the proposed amended defence refer to those parts of Mr Hargreaves' letter of 12 August 2019 which I have set out above; and
3. paragraph 27 of the proposed amended defence of the fourth defendant, which raises for the first time the contention that s 15 of the Limitation Act applies in its own terms and/or by analogy to the plaintiffs' claim for an order for the taking of accounts. Although the proposed amendment refers to the application of s 15 directly or by way of analogy, the fourth defendant's oral submissions in support of the application for leave to amend referred only to the application of s 15 in equity by analogy.
The first and fourth defendants acknowledge that the limitation periods now sought to be relied on were required by r 14.14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to be specifically pleaded.
Counsel for the first and fourth defendants candidly acknowledged that they offered no excuse for the lateness of the application for leave to amend, stating that the issues sought to be raised by the contentious amendments had only recently occurred to the legal representatives acting for the first and fourth defendants.
The first and fourth defendants submitted that the plaintiffs could not point to any prejudice arising from the grant of leave to amend, and that it was therefore consistent with ss 56 to 58 of the Civil Procedure Act 2005 (NSW) to grant leave to amend.
The plaintiffs submitted that leave to amend should be refused because the first and fourth defendants had not offered any explanation for the delay in pleading the limitation statute and, in the case of the fourth defendant, the defence of settled accounts. The plaintiffs referred in general terms to Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27.
The plaintiffs submitted that they would be prejudiced if leave to amend were to be granted at this late stage because:
1. they have been preparing for four years for a trial in the proceeding in which no limitation point has been taken, and that prejudice could not be entirely cured by a costs order because the stresses and strains of litigation cannot be adequately compensated for by a costs order;
2. in relation to the proposed limitation defence to the claim for an order for the taking of accounts, the evidence shows that the partnership agreement governing the Morris Carpenter Partnership entitled each partner to an equal share of profits, and that the second plaintiff had only been paid "wages", and "so it's difficult to see what the dispute is about the fact that profits were not split equally" and "if we assume that the profits were not equally split, to allow this amendment at this late stage … would allow Mr Colin Morris to keep an unequal share of profits" so there is "a great injustice" to the second plaintiff "to be deprived of something it's entitled to under its partnership agreement"; and
3. in relation to the proposed defence of settled accounts, it was not open to the plaintiffs to speak with Mr Hargreaves to ascertain whether there was other relevant correspondence that would shed light on the matter, due to Mr Hargreaves illness.
The plaintiffs did not resile from the fact that Mr Hargreaves' 12 August 2019 letter had been sent on the plaintiffs' instructions and that the fourth defendant's solicitors had been entitled to rely on it until the plaintiffs notified them of their reversal of position on 7 September 2020. However, the plaintiffs submitted that the fourth defendant had not identified any prejudice arising from that reversal.
The plaintiffs acknowledged that, if leave were granted in respect of the contentious amendments, this would not cause the plaintiffs to alter their present approach to the conduct of the final hearing. The only change would be that the plaintiffs would need to deal with the additional limitation issues and defence of settled accounts sought to be pleaded.
There was no suggestion that the hearing would need to be vacated, or could not conclude within the two and a half weeks for which it has been set down, if leave to amend were granted.
Nor was there any suggestion that evidence relevant to the defence of settled accounts was no longer available. On the contrary, financial accounts for the Morris Carpenter Partnership for the financial year ended 30 June 2003 are exhibited to an affidavit of Mr Carpenter that was read on the first day of the hearing.
The plaintiffs also submitted that the contenious proposed amendments lacked utility because:
1. in relation to the proposed defence of settled accounts, Mr Hargreaves' letter of 12 August 2019 particularised in the proposed amended defence was not an admission; and
2. in relation to the first defendant's proposed limitation defence, the breaches of contract were alleged to have occurred in 2013 and later, and the proceedings were commenced within less than three years of the first alleged breach.
I accept that the absence of any explanation from the defendants for the delay in seeking leave to make these amendments is one matter that counts against the grant of leave to amend. In Aon Risk Services Australia Ltd (supra), French CJ said, in the context of relevantly similar provisions of the Court Procedure Rules 2006 (ACT) (at [24]):
"The ACT Rules, like their precursors, confer the discretion to give leave to amend and impose the duty to make amendments for the purpose of deciding the real issues in, and avoiding multiplicity of, proceedings. The discretion is exercised in the context of the common law adversarial system as qualified by changing practice. But that is not a system which today permits disregard of undue delay. Undue delay can undermine confidence in the rule of law. To that extent its avoidance, based upon a proper regard for the interests of the parties, transcends those interests. Another factor which relates to the interests of the parties but transcends them is the waste of public resources and the inefficiency occasioned by the need to revisit interlocutory processes, vacate trial dates, or adjourn trials either because of non-compliance with court timetables or, as in this case, because of a late and deliberate tactical change by one party in the direction of its conduct of the litigation."
Similar observations were made in the joint judgment of Gummow, Hayne Crennan, Kiefel and Bell JJ where their Honours said (at [97]-[98]):
"97. The purposes stated in r 21 [the ACT equivalent to s 56 of the Civil Procedure Rules 2005 (NSW)] cannot be ignored. The Court Procedures Rules make plain that the Rules are to be applied having regard to the stated objectives of the timely disposal of the proceedings at an affordable cost…
98. Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a 'just resolution' is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account…It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs."
Their Honours continued (at [102]-[103]):
"102. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case…
…
103. …Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules."
As Ball J pointed out recently in Lambert v Twigg Investments Pty Ltd (No 2) [2020] NSWSC 466, the significance of the delay in determining whether the grant of leave to amend is consistent with the overriding purpose and the dictates of justice in ss 56 to 58 of the Civil Procedure Act depends on all the circumstances of the case. As his Honour said in that case at [7]:
"The primary question for the Court is whether the amendments will "facilitate the just, quick and cheap resolution of the real issues in the proceedings", to quote from s 56(1) of the Civil Procedure Act 2005 (NSW). Where the amendments necessitate a vacation of the hearing date, the absence of a good explanation for the delay will be a very important consideration. But where the case can proceed and the defendant suffers no real prejudice as a result of the amendments, the absence of a good explanation for the delay is of limited significance. The question is whether the amendments raise a real issue which in the interests of justice the plaintiffs should be permitted to pursue."
I accept that the plaintiffs have been preparing for four years for a trial in which no limitation issues have been pleaded to date. However, in so far as it was suggested or implied that the second plaintiff would not have expended the time and cost in pursuing the proceeding and would not have suffered the stresses and strains of litigation for that four year period if the defendants had pleaded earlier the limitation issues and defence of settled accounts now sought to be raised, that suggestion does not withstand scrutiny for two reasons.
First, Mr Hargreaves' letter of 12 August 2019 reveals that, even at a time when the plaintiffs considered that they no longer wished to press the claim for the taking of an account, they were continuing to press their other claims for relief.
Second, I accept the force of the plaintiffs' submissions that claims in respect of breaches of contract alleged to have occurred in or after 2013 are not time barred. It follows that there is no apparent reason why the plaintiffs would not have continued to pursue their claims in respect of those alleged breaches, even if the fourth defendant had pleaded the limitation statute earlier and if the plaintiffs had taken the view that claims for restitution and/or equitable compensation were time barred. I hasten to add that the plaintiffs have made no concession that their claims for restitution and/or equitable compensation would be barred by s 14 of the Limitation Act.
Senior counsel for the plaintiffs did not take the Court in any detail through the evidence relied on in support of the submission that the grant of leave in respect of the fourth defendant's proposed limitation defence would be unjust to the second plaintiff because it would deprive the second plaintiff of profits to which it was entitled. The submission invites the Court to entertain and determine an allegation that has not been pleaded by the plaintiffs (that is, that the fourth defendant received a greater share of profits from the Colin Morris Partnership than that to which it was entitled, and that the second plaintiff was deprived of its share of the profits), and thereby prematurely determine the outcome of the taking of accounts of the partnership. It would be inappropriate to embark on that exercise for the purpose of determining the fourth defendant's application for leave to amend.
Of course, if leave to amend is granted, and if the plaintiffs subsequently seek leave to amend to plead an allegation of the kind referred to above, and/or seek to contend in reply to the fourth defendant's limitation defence that s 15 ought not be applied by equity by analogy because reliance on s 15 by the fourth defendant would be unconscionable in the circumstances (cf Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181 at [70]-[76]), then the lateness of the fourth defendant's amendment would be highly relevant to the outcome of such an application by the plaintiffs.
It is difficult to accept that the plaintiffs would be prejudiced by the proposed amendment to plead a defence of settled accounts because they are unable to seek information from Mr Hargreaves. Senior counsel for the plaintiffs acknowledged that Mr Hargreaves letter of 12 August 2019 was sent on the plaintiffs' instructions. It is open to senior counsel and his instructing solicitor to seek instructions from the second plaintiff, without troubling Mr Hargreaves. In any event, there is no apparent reason why the plaintiffs would not be able to obtain and inspect Mr Hargreaves files (assuming, for present purposes, that those files have not already been handed over to the plaintiffs' current solicitors).
I also note that, although counsel for the fourth defendant stated that the defendant had no excuse for the lateness of the application for leave to amend, it seems to me that Mr Hargreaves' letter of 12 August 2019 does provide an explanation for the failure during the period from 12 August 2019 to 6 September 2020 to seek leave to amend to plead a defence of settled accounts.
For those reasons, and having regard to the plaintiffs' frank concession that a grant of leave to amend would not change the manner in which they conduct the final hearing, much less require the hearing to be vacated, I consider that the overriding purpose and the dictates of justice warrant the grant of leave to amend in all the circumstances of this case, notwithstanding the defendants' delay in seeking leave to amend and the lack of explanation for the delay in seeking leave in relation to the limitation amendments.
For completeness, I note that I am not satisfied that the contentious amendments lack utility. The question whether or not Mr Hargreaves' letter constituted an admission of settled accounts is a matter to be determined at final hearing having regard to the terms of the letter itself and any other evidence that may be submitted to provide relevant context. Whilst the alleged breaches of contract appear to have been pleaded well within the limitation period, s 14 of the Limitation Act may be relevant to the plaintiffs' claim for restitution for work allegedly done during part of the period from 2004 to 2014, the proposed amendment, on the face of it, cannot be said to lack utility at least insofar as it relates to part of the plaintiffs' claim for restitution. Of course, I express no view about the merits of the argument introduced by the amendment concerning the application of s 14 of the Limitation Act to the plaintiffs' claims for relief.
I note that many of the uncontentious amendments in the proposed amended defences of the first and fourth to seventh defendants replace non-admissions with statements that the relevant defendant does not plead to the corresponding paragraph in the Further Amended Statement of Claim as that paragraph contains no allegation against that defendant. I doubt the utility of these amendments, as a failure to plead to an allegation constitutes an admission: Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [62]-[63]. The plaintiffs have expressly raised this in relation to different aspects of the pleadings in their written opening submissions. It is a matter for the defendants whether they wish to proceed with amendments of that nature.
For all of the above reasons, I make the following orders:
1. Grant leave to the first defendant to amend his defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the first defendant in Annexure "A" to the affidavit of Mr Gayler sworn on 8 September 2020;
2. Grant leave to the fourth defendant to amend its defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the fourth defendant in Annexure "A" to the affidavit of Mr Gayler sworn on 8 September 2020;
3. Grant leave to the fifth defendant to amend his defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the fifth defendant in Annexure "A" to the affidavit of Mr Gayler sworn on 8 September 2020;
4. Grant leave to the sixth defendant to amend its defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the sixth defendant in Annexure "A" to the affidavit of Mr Gayler sworn on 8 September 2020;
5. Grant leave to the seventh defendant to amend its defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the seventh defendant in Annexure "A" to the affidavit of Mr Gayler sworn on 8 September 2020;
6. Order each of the first and fourth to seventh defendants to pay the plaintiffs' costs thrown away by the amendments made by that defendant;
7. Order first defendant and fourth to seventh defendants jointly and severally to pay the plaintiffs' costs of the notice of motion filed on 8 September 2020.
[2]
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Decision last updated: 16 September 2020