Cashflow Advantage Australasia Pty Ltd v Bannister

General principles

1. A plaintiff is required to plead a summary of the material facts on which it relies and not the evidence by which those facts are to be proved: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 14.7. Its pleading must be as brief as the nature of the case allows: UCPR, r 14.8. If documents are referred to in a pleading, the effect of the document must be stated but not the precise terms, except in so far as those terms are material: UCPR, r 14.9. In a statement of claim, the plaintiff must plead any matter that, if not pleaded specifically, may take a defendant by surprise: UCPR, r 14.14. A pleading may be struck out if it does not disclose a reasonable cause of action; has a tendency to cause prejudice, embarrassment or delay; or is otherwise an abuse of process: UCPR, r 14.28(1).

The parties' submissions

1. There was some overlap between the motions in that the second and third defendants objected to the amendment and pressed their claim that the pleading be struck out on the substantive basis that the pleading was deficient. As I understood Mr Smallbone's submissions he contended that it was necessary, as a matter of law, that a claim on a guarantee include allegations as to each of the following: 1. The relevant terms of the agreement between the original creditor and the debtor; 2. The date on which advances were made to the debtor and the amount of such advances; 3. The date of default by the debtor; 4. The relevant terms of the guarantee between the creditor and the guarantor; 5. The amount said to be outstanding; 6. The assignment of the debt from the creditor to the plaintiff; and 7. The giving of notice of the assignment to the defendants.
2. Mr Smallbone submitted that because a claim against a guarantor is a derivative claim, it was important for the guarantor to know whether the guarantor could plead any defence, such as a limitation defence, which would have been available to the debtor. He submitted that the defendants were entitled to know the date of the advance or advances and the date of the alleged defaults by the borrower. He submitted that, unless these matters were pleaded, the pleadings were deficient and ought be struck out pursuant to any one or more of the three grounds listed in UCPR, r 14.28(1) (see above). He relied on Steiner v Strang [2016] NSWSC 9, in which executors of a deceased estate made a claim for monies said to have been paid by the deceased to the cross-defendant as a loan. Lindsay J found that the allegation of the payment and the acknowledgment by the cross-defendant tended to cause embarrassment, struck out the cross-claim and granted the executors leave to re-plead it. Mr Smallbone also referred to Blair et al (eds), Bullen & Leake & Jacob's Precedents of Pleadings (18th ed, 2016, Sweet & Maxwell) (Bullen & Leake). The extracts he provided solely related to claims against debtors.
3. Mr Smallbone further contended that, as the plaintiff had been on notice for some time of the second and third defendants' objections to the pleading, the plaintiff ought not be permitted to re-plead since it could be assumed that, had the plaintiff been able to rectify the alleged deficiencies, it would have done so.
4. Mr Cleary, who appeared for the plaintiff, submitted that there was no principle for which Mr Smallbone contended. He submitted that the pleading was ample to inform the defendants of the case they had to meet and its basis. He contended that the defendants had no entitlement to evidence at this stage when they had not even filed a defence and that it was a matter for the plaintiff as to how, in due course, it proposed to establish the amounts outstanding. He drew my attention to a statement of account which had been provided by the plaintiff to the second and third defendants to indicate the amounts outstanding from the debtors at particular times. Mr Clearly provided extracts from Bullen & Leake relating to claims by guarantors and submitted that these precedents did not support the proposition for which Mr Smallbone contended.

Consideration

1. In order to address the submissions, it is necessary to refer to some aspects of contracts of guarantee and indemnity, since it is a contract of this variety on which the plaintiff bases its claim against the defendants. Such contracts, notwithstanding their special features, are to be regarded and interpreted as contracts in accordance with their terms: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 255; [1988] HCA 11 (Mason CJ). Thus the scope of the liability of a guarantor or indemnifier is to be determined by reference to the terms of the contract of guarantee and indemnity. An action in contract arises on breach. A plaintiff which sues on a contract must generally plead the contract, its material terms and its breach. The present pleading and the proposed pleading contain allegations as to these matters. They do not, however, contain allegations as to the date on which particular funds were advanced to the borrower. Plainly, since the guarantee is a guarantee of the payment of money, it is necessary for the plaintiff to allege (and prove) that monies are outstanding from the debtor. The present pleading and the proposed pleading include such allegations.
2. I am not satisfied that it is necessary for the plaintiff to allege the dates of particular advances from the assignor of the debts to the plaintiff (the original lender). These matters are not necessary either to establish the cause of action or permit the defendants to determine whether there is a limitation defence. Any cause of action against the borrower would, in any event, be dependent on the date of breach and not the date of the advance. The date of accrual of the cause of action against the defendants would depend on the terms of the contract between the original lender and the defendants and the breach relied upon. I do not regard Steiner v Strang as supporting the proposition for which Mr Smallbone contended. Further, while some of the precedents in Bullen & Leake contain allegations against the debtor concerning the agreement between the creditor and debtor in an action against a guarantor, this does not establish that such allegations are required to be alleged in a pleading, although in some cases a pleader may choose to plead a claim in that way.
3. As referred to above, a party is required to plead matters which might otherwise take the other party by surprise. The guarantees and indemnities were alleged to be in respect of monies advanced to companies with which the defendants were involved. It is alleged that the first and second defendants were shareholders and office holders in Great Southern Fresh Produce Pty Ltd; and that they "personally received a commercial benefit from each of the loans". Ms Hillier confirmed that the first defendant was a shareholder of Great Southern Fresh Produce Pty Ltd but was not in a position to say whether he was also a director. Mr Smallbone confirmed that the second defendant was the secretary of Great Southern Fresh Produce Pty Ltd and was a director of the third defendant. It is difficult, in these circumstances, to accept that the first three defendants could be taken by surprise by a pleading in the form of the statement of claim or the draft proposed pleading or that they could fail to appreciate the case they have to meet sufficiently to file a defence to the claim.
4. I do not regard the statement of claim or the proposed amended statement of claim as deficient in the respects alleged by Mr Smallbone. I am not persuaded that there are any proper grounds to strike it out.
5. Mr Smallbone contended further that paragraphs [11], [19] and [27] of the proposed pleading ought be struck out as being inconsistent with UCPR, r 14.9. This paragraph says: "The first plaintiff relies on the terms and conditions of the first loan and the first loan guarantee for their full meaning and effect."
6. I accept that these paragraphs do not comply with the requirements of UCPR, r 14.9. This matter can be incorporated in the grant of leave to amend, which will be considered below.

Whether the proceedings ought be dismissed

1. Mr Smallbone submitted that the proceedings ought be dismissed for want of due despatch pursuant to UCPR, r 12.7; or on the grounds that the proceedings were vexatious, that no reasonable cause of action was disclosed or that the proceedings are an abuse of process of the Court pursuant to UCPR, r 13.4.

Whether there has been a "want of due despatch"

1. In order to deal with the "want of due despatch" ground, it is necessary to summarise, as briefly as possible, the proceedings to date.
2. As referred to above, the statement of claim was filed on 3 October 2017 by Mark Smith, an officer authorised by the plaintiff who was not a solicitor. On 24 January 2018 a notice of appointment was filed by the plaintiff's solicitors. On 4 May 2018 the plaintiff filed a notice of motion to amend its statement of claim together with an affidavit in support. These documents were served on the second, third and fifth defendants. However, the plaintiff was unable to serve the first defendant, who was apparently in outback New South Wales and the fourth defendant, who was said to be in the Philippines. This led to the notice of motion being stood over on several occasions before the Registrar to permit the plaintiff to serve the remaining two defendants. On several occasions the plaintiff mentioned the appearance of the second and third defendants at the directions hearings before the Registrar to minimise costs. Ultimately, on 10 October 2018, Registrar Bradford made an order for substituted service on the first and fourth defendants who were served the following day.
3. With the benefit of hindsight, the plaintiff ought to have instructed solicitors before filing the statement of claim. This omission was corrected by 24 January 2018. The original statement of claim did not include a further loan which the plaintiff also wished to include in these proceedings and which is contained in the proposed amended statement of claim. It is desirable that, in so far as practicable, all issues between the parties be determined in one proceeding so as to avoid a multiplicity of proceedings: s 64(2) of the Civil Procedure Act 2005 (NSW). The amendment, if granted, will have that effect. The progress of the proceedings has been hampered by the difficulties of serving the first and fourth defendants and obtaining an order for substituted service. It is plain from the affidavit of Amanda Heard, the plaintiff's solicitor, that, since the plaintiff instructed solicitors in January 2018, she has been endeavouring to progress the matter but was, for several months, stymied by the difficulties encountered in effecting service.
4. I am not satisfied that there has been any want of due despatch on the part of the plaintiff such as would warrant dismissal of the proceedings. To the contrary, the plaintiff's solicitor appears to have been endeavouring to prosecute these proceedings on behalf of the plaintiff.

Whether the proceedings ought otherwise be dismissed

1. Mr Smallbone relied on the matters referred to above in support of the application and, in particular, what he contended to be the deficient pleading and the delay. I have rejected these submissions above. I understood him to submit that the plaintiff was obliged, in the circumstances, to adduce evidence of its claim against the defendants to avoid its dismissal. I reject this submission. In the normal course, directions are made for service of evidence following the close of pleadings. There is no requirement or expectation that a plaintiff adduce evidence of a claim before a defence is filed unless default judgment or summary judgment is sought. I am not persuaded that there is any proper basis to dismiss the claim.

The proposed amendment

1. Had the plaintiff sought to amend the statement of claim within 28 days of its filing, it would have been permitted to do so, once, without leave: UCPR, r 19.1. However, as the plaintiff is outside this time period, leave of the Court or consent of the parties is required. Mr Cleary confirmed that his solicitors would also act for the second plaintiff, Paidonexchange Pty Ltd. The first three defendants opposed leave being granted. Mr Smallbone opposed the granting of leave on the basis of the pleading point set out above, which I have rejected.
2. Ms Hillier contended that, as the effect of the amendment would be to add a party, the amendment, if granted, should date from the order granting leave.
3. For the reasons given above, I am not persuaded that the statement of claim ought be struck out or that it, or the proposed amended statement of claim, is deficient in the manner contended for by Mr Smallbone and supported by Ms Hillier.
4. The question of the date from which the amendment should take effect is one which ought, in my view, be deferred since I do not consider it to be appropriate to make such a determination at this stage of the proceedings, particularly in the absence of argument.
5. UCPR, r 19.2 provides that if a person is added as a party under that rule, the date of commencement of the proceedings in relation to that person is taken to be the date on which the amended document is filed. If this were the applicable rule, it would follow that the proceedings brought by Paidonexchange Pty Ltd would commence at some future date when the plaintiff filed the amended statement of claim. However, Mr Cleary did not seek leave to amend pursuant to UCPR, r 19. Instead, he relied on ss 64 and 65 of the Civil Procedure Act. These provisions make it clear that a court has power to grant leave to amend documents (s 64), including after the expiry of a limitation period (s 65) with the effect that the amendment dates back to the filing of the original statement of claim. Thus, it is implicit in ss 64 and 65 that the Court could, for example, order that the amendment date back to the filing of the original statement of claim, notwithstanding that the effect would be to add a party with a cause of action which would otherwise have been statute-barred at the time the amendment was sought to be made.
6. There is insufficient material before me to determine whether the limitation period has expired in respect of the causes of action sought to be made and whether the claim brought by Paidonexchange Pty Ltd arises from the same or substantially the same facts as those giving rise to the existing cause of action pleaded in the original statement of claim. It is generally undesirable that contested issues of this nature be determined at an interlocutory hearing: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 533; [1992] HCA 55 (Mason CJ, Dawson, Gaudron and McHugh JJ). It may be of significance that the agreements between the parties are, or are alleged to be, in the form of deeds, in respect of which a longer limitation period of 12 years applies (s 16 of the Limitation Act 1969 (NSW)). If the contracts are not deeds, the limitation period is 6 years (s 14 of the Limitation Act) from the accrual of the cause of action in contract, which accrues on breach. I am satisfied that the appropriate course is to defer final consideration of when the amendment, which I propose to allow, takes effect.

Costs

1. Mr Smallbone accepted that if I allowed the amendment, the second and third defendants ought bear the costs of the plaintiff's motion since they could have avoided the costs by consenting to the amendment. I am satisfied that the first defendant ought also pay the plaintiff's costs of the plaintiff's motion since Ms Hillier opposed the plaintiff's motion and supported the motion brought by the second and third defendants. The second and third defendants ought pay the plaintiff's costs of their motion for strike-out and dismissal.
2. I am told that the Registrar reserved the costs of some of the hearings before him. Nothing in these reasons ought be understood as making any determination of the costs which have been reserved by the Registrar.

Orders

1. For the reasons given above, I make the following orders: 1. Order that Paidonexchange Pty Ltd ACN 126 679 678 be joined as a plaintiff in the proceeding. 2. Subject to orders (3) and (4) below, grant leave to the plaintiff to file an amended statement of claim in the form of annexure "B" to the affidavit of Amanda Heard sworn 30 April 2018 (the draft pleading) and direct that it be filed on or before 30 October 2018. 3. Refuse leave to the plaintiff to include [11], [19] and [27] of the draft pleading in the amended statement of claim to be filed. 4. Reserve the question under s 65 of the Civil Procedure Act 2005 (NSW) of the date from which the proceedings brought by Paidonexchange Pty Ltd are to commence or to have commenced. 5. Order the first, second and third defendants to pay the plaintiff's costs of the plaintiff's notice of motion filed on 4 May 2018. 6. Make no order as to the costs reserved by the Registrar, with the intention that such costs will be determined by the Registrar. 7. Dismiss the second and third defendants' notice of motion filed on 11 September 2018. 8. Order the second and third defendants to pay the plaintiff's costs of their motion filed on 11 September 2018. 9. Stand the matter over for further directions before the Registrar at 9am on 22 November 2018.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 October 2018