Chelmer NZ Ltd v Financial and Energy Exchange Ltd; No 1 [2019] NSWDC 25 | Case summary

Background Facts

The brief facts were that on or about 6 June 2007, Chelmer and FEX entered into an agreement for Chelmer to develop a fix gateway to connect to the National Stock Exchange equity trades. That project was developed together with a second project which required Chelmer to build an interface known as "WebFX". Ultimately the fix gateway was accredited by the NSX in October 2007. In February 2008, Chelmer, Lucsan Capital Pty Ltd [2] (FEX's project manager) and FEX commenced work on the business requirements document for the Plaintiff to develop a fixed gateway to connect to a derivatives market.
It was not in issue that Chelmer was paid in full for the NSX project and also for the WebFEX project. However, invoices in relation to the FEX's Derivatives Project were not paid, culminating in Chelmer suspending all works on 13 November 2008. Ultimately on 5 November 2009, the Derivatives Project was terminated and the Plaintiff issued a tax invoice for the balance of USD $121,654 which is the subject of the claim. .
In opening his case on the cross-claim, counsel for FEX stated:- "Your Honour, could I perhaps just explain to your Honour my client's cross claim if I may, just briefly. Your Honour will find the claim set out in a fair amount of particularity in the cross claim itself, but perhaps if I may just give your Honour a flavour of my client's case. The first matter is that I don't find the projects into three separate projects. And indeed, the evidence of Mr Robertson is that they had nothing to do with one another. What the evidence will show your Honour is that these three projects were in fact interlinked and they were by their nature interlinked. Because what Chelmer was asked to do was to develop software which is what will be called, or what I will call, in any event, the equities FIX gateway, to distinguish it from the derivatives FIX gateway. So they did the equities one first and added the WEBFEX interface, and we'll come to some evidence about why that was added and in what circumstances. They were part of the first statement of work that my client approved and a lot of that work was going to be shifted over and used by Chelmer to develop the derivatives FIX gateway. And that's significant because we will say that a lot of the work that they now want to charge us for, as in Chelmer - and the evidence will demonstrate that amply - was actually work that they were doing on the earlier project. And indeed we'll say that a lot of that -- " [3]
Counsel went on to sum up his opening in the following terms: "… Just to sum up what I will say ultimately to your Honour in relation to the derivatives FIX gateway is that my client never received any deliverables under that statement of work and indeed that's common ground. The second thing I say is that a lot of the work that is now claimed to be under this project wasn't part of this project. I should perhaps add a subparagraph to what I just said a moment. This was actually part of an arrangement that Chelmer had with Lucsan behind the scenes. When I mention behind the scenes, one of my claims in the cross-claim is that Chelmer entered into an arrangement behind FEX's back so that it would pay a certain amount to Lucsan for Lucsan brokering Chelmer's agreement with FEX. Basically Lucsan would go and get FEX to sign up to the deal with Chelmer. Lucsan would get an amount of money for that brokering." [4]
The principal witness called in Chelmer's case was its director, Mr Andrew Robertson, who affirmed two affidavits dated 13 May 2014 [5] and 1 September 2015. [6] He was cross-examined extensively in relation to the relationship between the Chelmer and Lucsan. To understand the context of that cross-examination, it is necessary to first refer to the existing cross-claim. FEX pleaded:- [6] In 2007, Chelmer entered into negotiations with Lucsan concerning a brokering agreement, or alternatively, entered into a brokering agreement with Lucsan whereby Chelmer would pay to Lucsan an amount for brokering a commercial arrangement between Chelmer and FEX (Brokering Agreement). Particulars The Brokering Agreement was in writing and contained in a document entitled "FEX Service Brokering Agreement". [7] Chelmer did not disclose to FEX the Brokering Agreement, the fact that it had engaged in negotiations with Lucsan concerning the Brokering Agreement or, alternatively, the fact that it had entered into the Brokering Agreement. …. [24] By failing to disclose the matters set out in paragraph 6 above, Chelmer engaged in misleading or deceptive conduct or conduct that was likely to mislead or deceive, in contravention of s 52 of the Trade Practices Act 1974
The Amended Defence to the cross-claim filed on behalf of Chelmer which at [6] and [7] stated as follows:- [6] In answer to paragraph 6 of the Cross-Claim, the Cross-Defendant: [6.1] Admits that it entered into discussions initialled by Lucsan concerning a brokering arrangement with respect to the NSX Agreement only; [6.2] Denies entering into negotiations with Lucsan for any other project other than the NSX Agreement; [6.3] Denies entering into the Brokering Agreement; [6.4] Denies entering into any sort of brokering arrangement or brokering agreement with Lucsan at all whereby Lucsan would pay the Cross-Defendant an amount for brokering a deal with the Cross-Claimant; and [6.5] Otherwise does not admit the allegations in paragraph 6 of the Cross-Claim. [7] In answer to paragraph 7 of the Cross-Claim, the Cross-Defendant: [7.1] Refers to and repeats paragraph 6 above; [7.2] Admits that it did not disclose to the Cross-Claimant the discussions it had with Lucsan concerning a brokering agreement for the NSX Agreement; [7.3] Denies that it was required at law to disclose to the Cross-Claimant: (a) The negotiations it had with Lucsan concerning the NSX Agreement; or (b) Any negotiations it had with Lucsan at all; [7.5] (sic) Otherwise does not admit the allegations in paragraph 7 of the Cross-Claim.
In a letter dated 12 September 2014, by Macedone Legal, solicitors for the Chelmer, addressed to Baker McKenzie, the then solicitors for FEX, a request was made for further and better particulars in respect of [6] of the first cross-claim in the following terms: [2] With respect to paragraphs (sic) 6 of the First Cross-Claim, please: [2.1] Provide further particulars of the circumstances your client alleges constitute the 'negotiations' referred to in paragraphs 6 and 7 including (a) Who on behalf of Chelmer entered into the alleged negotiations? (b) Who on behalf of Lucsan entered into the alleged negotiations? (c) Precisely when were the alleged negotiations entered into? (d) Where were the alleged negotiations entered into? (e) Who was present during the negotiations? (f) What was the substance of the alleged negotiations? [2.2] Provide a copy of any and all documents comprising the Brokering Agreement. [7]
The response to that request was contained in a letter by the solicitors for FEX dated 25 September 2014, which relevantly reads as follows:- [2] The following are the best particulars that FEX is able currently to provide: 2.1 Andrew Hamilon (sic). (b) Harold Lucero. (c) In or around 2007. FEX will provide further and better particulars of these matters after evidence and discovery. (d) FEX will provide further and better particulars of these matters after discovery. (e) FEX will provide further and better particulars of these matters after discovery. (f) The substance of the negotiations is reflected in the Brokering Agreement. FEX will provide any further and better particulars of these matters after evidence and discovery. [2.2] We enclose a copy of the Brokering Agreement. [8]
It appears that the document that was presented in response to the request for further and better particulars was a copy of a document obtained from material in the Supreme Court proceedings which FEX had commenced against Lucsan.
On 2 March 2015, Ms Ann Bowering, the Chief Financial Officer of FEX swore an affidavit. [9] In that affidavit, Ms Bowering attests that in or around March 2007, she began work at Lucsan as the head of business development and operations and reported to Mr Harold Lucero, who at the time, was the Chief Executive Officer. Ms Bowering stated:- BROKERAGE AGREEMENT [9] In or around June 2007, I became aware that Lucsan and Chelmer were negotiating a brokering agreement. A document entitled "Services Brokering Agreement" (Brokerage Agreement), which I believe is a document that was circulated between Lucsan and Chelmer, is annexed hereto and marked "A". [10] I do not know whether the Brokerage Agreement was ever signed by Lucsan and Chelmer. [11] I am not aware that anyone from Lucsan or Chelmer ever informed anyone from FEX about the Brokerage Agreement or the previous relationship between Lucsan and Chelmer (emphasis in original). [10]
In response to that affidavit, Mr Robertson affirmed an affidavit dated 1 September 2015 stating:- [84] In response to paragraphs 9 to 11 of Ms Bowering's Affidavit: (a) The first time I became aware of the existence of the agreement referred to in this paragraph was when it was provided to Chelmer's solicitors in or around 25 September 2014 in response to a request for further and better particulars issued by Chelmer's solicitors. A copy of the agreement provided to Chelmer's solicitors on 25 September 2014 appears at Tab 14 of Exhibit AR2; (b) The agreement referred to in Ms Bowering's Affidavit seems to be an earlier version of the agreement provided in response to the request for further and better particulars; (c) At no point in time did I draft, amend or sign any Service Brokering Agreement on behalf of Chelmer with Lucsan; (d) In or around September/October 2006 and well before Chelmer provided any FIX gateway services to the Defendant, I had some discussions with Harold Lucero of Lucsan regarding the potential for Lucsan to become Chelmer's distributer for areas outside New Zealand for existing software previously developed by Chelmer. The software to be distributed has no relation any or (sic) the software developed or used by Chelmer in providing services to the Defendant. To the best of my knowledge and belief this was the extent of any previous relationship between Lucsan and Chelmer; (e) Emails passing between myself and Harold Lucero of Lucsan on 6 June 2007 appear at Tab 15 of Exhibit AR2; (f) Emails passing between myself and Kym Sharma of Lucsan between 20 July 2007 and 27 July 2007 appear at Tab 16 of Exhibit AR 2; and (g) I recall being informed by Harold Lucero of Lucsan that Lucsan no longer sought the $26,000.00. Whilst I cannot recall exactly when this conversation took place, to the best of my recollection the conversation occurred after Chelmer commenced work on WebFX. Chelmer did not pay the anticipated $26,000.00 to Lucsan. Chelmer did not receive a tax invoice from Lucsan for the $26,000 (emphasis in original). [11]
In Tab 16 of the affidavit of Mr Robertson, an email was annexed from Mr Kym Sharma from Lucsan to Mr Robertson dated 20 July 2007, which relevantly stated:- "Total cost for Option 1 is $US 229,700 and it includes Lucsan share of $US 26,000. [Andy Robertson]. … [Andy Robertson] Lucsan will invoice Chelmer at the sign off of the project from FEX (ie all payments complete)" (emphasis in original). [12]
In submissions, counsel for FEX stated that the relevant representation which it relies upon to advance its case of fraudulent misrepresentation and deceit, and misleading or deceptive conduct, was that in paragraph [19] of the proposed Amended Cross-Claim, which reads as follows:- [19] By providing the statement of work, Chelmer represented that the quote or estimate set out in the Equities FIX SOW was only of Chelmer's expected effort and licensing cost for the project to develop the WebFEX interface and a FIX gateway. PARTICULARS Clause 3.1 of the Equities FIX SOW.
The reference to the statement of works is a document dated 1 June 2007, and contained in the affidavit of Mr Robertson of 1 September 2015. [13]
In paragraphs [23] and [24] of the proposed Amended Cross-Claim, the Defendant sought to plead:- [23] Chelmer made the fraudulent representation pleaded in paragraph 19 above knowing it to be false or was reckless, not caring whether it was true or false, in that Chelmer knew as at June 2007 the nature and terms of the agreements it had entered into with Lucsan alternatively set out in paragraphs 6, 10 and 14 above. [24] Further and in the alternative to paragraph 23, the conduct complained of in paragraphs 19 to 23 above, Chelmer engaged in conduct amounting to fraudulent misrepresentation, deceit or misleading or deceptive conduct, or conduct that was likely to mislead or deceive, in contravention of s 52 of the Trade Practice Act 1974.
Mr Robertson was cross-examined extensively in relation to an arrangement that was asserted he had with Lucsan, whereby he was to pay Lucsan a sum of money ($26,000) and inflated the cost of what was described as Option 1 to the include the payment to Lucsan.
During oral argument, I asked counsel for FEX whether he had put to Mr Robertson that he had deliberately concealed the arrangement from FEX. [14] I was referred to the following parts of the transcript: "Q. Now, you agreed with Lucsan to keep the terms of these arrangements that you're now saying you had with Lucsan confidential. A. I don't recall specifically making that statement. Q. You agreed to keep it confidential, didn't you? A. Like I said, I don't agree - I don't remember agreeing to that. Q. But you did keep it confidential, didn't you? A. Yes Q. You didn't tell FEX about it, did you? A. No. Q. You didn't in effect tell FEX about it because you knew that if you had told FEX that you had inflated the price of the statement of works by $26,000. FEX would never agree to that statement of works. Isn't that right? A. No. Q. So you're saying to this Court that if you had told FEX that, 'I've inflated the price of the works by $26,000 so I can pay $26,000 to Lucsan,' FEX would have still gone ahead with that statement of works. Is that what you're telling this Court? A. What I'm saying is when I put a quote forward to a client we don't have to break down what our costs are in making that quote." [15]

Determination

On 25 July 2017, I raised with counsel for FEX whether the specific allegation that it was making was beyond those in [6] of its pleaded cross-claim. I was informed that at that point: "No, your Honour. It isn't inaccurate. That is accurate." [17] I drew to counsel's attention my concern about whether it needed any amendment. [18] Counsel for Chelmer acknowledged that to the extent that information came from emails in affidavits prepared on behalf of his client, he could hardly submit that he was taken by surprise. [19]
This is the way the matter was advanced until the eve of the resumption of the hearing on 10 August 2017. When I inquired of counsel for FEX as to the reason, I was informed: "I just, I personally couldn't attend to it earlier; but I had anticipated that most of the way the matter was pleaded, was a matter for, a matter that arose from the evidence that Mr Robertson gave in the witness box." [20]
UCPR 19.1 enables a party to amend its statement of claim as of right within 28 days of filing.
Be that as it may, s 64 of the Civil Procedure Act 2005 (NSW) (the '2005 Act') [21] gives the Court a wide power in relation to the amending of documents and pleadings. s 64(2) specifically states:- 64 Amendment of documents generally (2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.
Furthermore, as was identified in FEX's submissions, s 65 of the 2005 Act gives the Court power amongst other things, to grant leave to a party to amend a statement of claim to include a new cause of action, where the relevant limitation period for that cause of action has expired.
In Kelly v Mina [2014] NSWCA 9, Barrett JA stated: 47. Particularly in light of the opening words of s 64(2), it is not controversial that the provisions in Part 6 Division 1 of the Civil Procedure Act were binding on the primary judge and that, in accordance with s 58, his Honour was bound to seek to act in accordance with the dictates of justice and, in so doing, to have regard to s 56 concerning the "overriding purpose" of the Act and rules of court in their application to civil proceedings; also that, in addressing the amendment application in the particular statutory context, his Honour was required to take into account a combination of factors identified by the High Court in Aon Risk Services Pty Ltd v Australian National University (2009) HCA 29: (2009) 239 CLR 175 and usefully summarised by Vickery J in Namberry Craft Pty Ltd v Watson [2011] VSC 136 (at [38]) as follows: "(a) Whether there will be substantial delay caused by the amendment; (b) The extent of wasted costs that will be incurred; (c) Whether there is an irreparable element of unfair prejudice caused by the amendment, arising, for example, by inconvenience and stress caused to individuals or inordinate pressures placed upon corporations, which cannot be adequately compensated for, whatever costs may be awarded; (d) Concerns of case management arising from the stage in the proceeding when the amendment is sought, including the fact that the time of the court is a publicly funded resource, and whether the grant of the amendment will result in inefficiencies arising from the vacation or adjournment of trials; (e) Whether the grant of the amendment will lessen public confidence in the judicial system; and (f) Whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought." 48 .As this Court has emphasised more than once, Part 6 Division 1 of the Civil Procedure Act made substantive and important changes to the law so that considerations of promptness and efficiency in the conduct of civil litigation are afforded a new and special importance which may sometimes provoke a sense of injustice in a party who has failed to proceed with despatch: see, for example, Dennis v Australian Broadcasting Corporation [2008] NSWCA 37; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 at [160]- [161]; Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230; Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; Bi v Mourad [2010] NSWCA 17; Richards v Cornford (No 3) [2010] NSWCA 134. [22]
Whilst I accept that some parts of the proposed Amended Cross-Claim would standing alone, amount to reformulations of the allegations in [6] so as to provide a different basis for the payment said to be made to Lucsan, I would not accept the amendments based on new causes of action, being deceit and fraudulent concealment.
FEX has been in possession of the documents as referred to Tab 16 of Exhibit AR 16 as disclosed in the evidence of Kirstie- May Morris since 2015. It would have been aware that Chelmer kept the arrangement confidential from it. Whilst I accept that FEX would not have been aware of the precise mechanism by which the full amount of US $26,000 was used to inflate the price so as to take into account Lucsan's share, it was in a position, should it have chosen to do so, to advance the case it now seeks to make.
Beyond that, it is necessary to consider how the matter was advanced in evidence.
In Nadinic v Drinkwater [2017] NSWCA 114, Leeming JA (with whom Beazley P and Sackville AJA) stated: [108] In light of the submission, it may be reiterated that a finding of fraud is a serious matter. It is not lightly to be made. Section 140 of the Evidence Act 1995 (NSW) is to be applied. And if such a finding is made, it is to occur in a way which is procedurally fair. [109] Mr Nadinic was both a witness and a party. As a witness, a finding of dishonesty could not be made without his first having been given an opportunity to deal with the criticism: Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [67]. This is not a case where the pleadings or the affidavits or the openings put Mr Nadinic squarely on notice of the dishonesty which the primary judge ultimately found. In the absence of cross-examination on the point, fairness dictated that the primary judge refrain from making findings of dishonesty: Bale v Mills (2011) 81 NSWLR 498; [2011] NSWCA 226 at [67]; State of New South Wales v Hunt (2014) 86 NSWLR 226; [2014] NSWCA 47 at [32]-[44]. [110] As a party, Mr Nadinic was entitled to be informed of the way in which it was said he had been party to the fraud. Ordinarily, that is done by the pleadings. In theory, it is possible that a party may forego that right, and may do so by acquiescence rather than express election, but such acquiescence is not easily inferred.
Even accepting that the question of dishonesty was put in cross examination, [23] it is necessary to bear what was said in Gordon v McGregor [24] by Griffiths CJ at 32: … it is a very dangerous thing after the close of the evidence to allow an amendment to raise a point founded on some oral statement by a witness, which may be perfectly complete so far as it is relevant to the issues which are being tried, but which if it were given with reference to entirely different issues would be incomplete. [25]
Beyond that I accept Chelmer's argument that the new causes of action of deceit and misrepresentation raise new matters that it has been deprived of the opportunity to make timely inquiries and to adduce evidence about. [26] I do not accept FEX's submission that:- [2.1] The amendments do little more than reformulate allegations of fact, of the pleading of which Chelmer cannot be surprised. The new causes of action are based on the same factual matrix as the claims for misleading or deceptive conduct, which were already at the heart of this case. The facts pleaded were clearly within the knowledge of Chelmer at all times and based on evidence from Mr Robertson, Chelmer's principal. [2.2] Chelmer would not be prejudiced if the amendments were allowed.
In this instance, it is relevant to note, without the allegation having been squarely pleaded, or outlined in the opening, counsel for Chelmer chose not re-examine Mr Robertson at the conclusion of Mr Robertson's evidence. Nor did it call other evidence that could have been relevant to the issue. [27]
During the time since Mr Robertson had given evidence, the Court heard from Ms Kelly Leslie-Cole, Mr Martin James Clelland-Pottie, Mr Andrew Lang Hamilton, and Mr Michael Holdsworth. The Defendant's witness Mr John Hulst was part way through cross-examination.
Counsel for FEX stated that the evidence, other than Mr Robertson's evidence, went to the Derivatives Project and not the Equities Project, which is the project in relation to which the statement of works in relation to which FEX was complaining about alleged inflated figures. [28] That argument to the extent it has force, overlooks the asserted interconnectivity between the two projects which FEX's counsel submitted on in his opening.
Chelmer contended that were the allegations to be made at an earlier point in time, it could have produced additional evidence that would have been relevant. [29] It outlined that this could have included enquires from Lucsan, particularly Mr Lucero, [30] and industry evidence as to referral arrangements. [31]
FEX argued that if Chelmer wanted to call "Lucsan people" it could have as it always knew there was a misleading and deceptive conduct claim and it shouldn't be the basis of opposing the pleading. [32] FEX submitted that on the question of prejudice, Chelmer cannot argue that it would have led evidence in relation to the claims now sought to be advanced on the proposed amended cross-claim if it had not led it in the misleading or deceptive conduct claim. [33]
FEX's submissions overlook that the forensic choice which a party takes to deal with a claim of misleading or deceptive conduct may be very different to one where there are allegations of fraud or deceit - a matter which I drew to the parties' attention. [34] To allow the amendment at this point would require as a matter of fairness an opportunity to address the issue that FEX seeks to raise involving additional expense and delay and a further fragmentation of the proceedings.
I have regard to the overriding purposes of sections 56 and 57 of the 2005 Act, and I bear in mind that the hearing has been conducted in circumstances where a previous hearing allocation had been vacated. The hearing was listed to commence on 24 July 2017 as a five day matter. At the outset I indicated to the parties that I could not sit past four days, and the matter had to be thereafter adjourned if it had not concluded. A further two hearing days were allocated. However, as events have evolved further time will be required beyond that.
I bear in mind the delay that has been occasioned in the raising of this matter, the point in the proceedings where it has been raised, the potential injustice that could flow were the amendment to be allowed. Having regard to the dictates of justice in section 58 of the 2005 Act, in my view, this is not the appropriate case for the exercise of the discretion to grant leave. For those reasons the motion was dismissed. [35] Costs were reserved for determination at the conclusion of the substantive proceedings.

Chelmer NZ Ltd v Financial and Energy Exchange Ltd; No 1

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Judgment (5 paragraphs)

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Cases Cited (20)