Clutha v Millar [2002] NSWSC 523 | Case summary

4834/00 CLUTHA LTD (IN LIQ) V FREDERICK WILLIAM MILLAR & ORS (NO.2) JUDGMENT 1 HIS HONOUR: On 8 and 15 April 2002, various applications came before me in the Corporations List in proceedings No 4834 of 2000 and 1428 of 2001, involving substantially the same parties. In proceeding No 4834 of 2000, Clutha Ltd (in liquidation) seeks to recover damages for negligence from its directors and (in the case of its Japanese director and alternate director) their employers. In proceeding No 1428 of 2001 Clutha and its liquidator seek various orders, including compensation orders, from the same defendants for breach of the statutory duties of care and diligence and for insolvent trading (and, in the case of the tenth and eleventh defendants, involvement in breaches by others). The allegations of facts on which the plaintiffs seek to rely to found their causes of action in the two proceedings are the same. 2 The applications included an application by the first to seventh defendants for summary dismissal of proceeding No 4834 of 2000 on the ground that the claim was statute-barred, and an application by the plaintiff in that proceeding to amend its statement of claim in a manner designed to address the limitation point. The pressure of the Corporations List made it impossible to hear at once all of the applications that were before the Court. Therefore the parties invited me to decide only the question whether the cause of action in the 2000 proceeding was statute-barred. 3 On 6 May 2002 I published reasons for judgment on that question (Clutha Ltd (in liq) v Millar [2002] NSWSC 362), holding that the plaintiff's action for negligence against the first to seventh defendants, as pleaded in its statement of claim in proceeding No 4834 of 2000, was statute-barred under s 14 of the Limitation Act 1969 (NSW). The plaintiff pleaded that it became insolvent on 30 September 1994 and remained insolvent thereafter; and that the first to seventh defendants allowed it to incur debts in the period from 30 September 1994 to 14 February 1995 in breach of their duty of care. The proceeding commenced on 30 November 2000. I held that the cause of action pleaded in the statement of claim accrued on 30 September 1994, when (according to the pleading) the plaintiff first suffered damage. I did not make any orders to give effect to my conclusion. I noted that by arrangement with the parties, both proceedings would return to me on 4 June 2002, and at that time the plaintiff in the 2000 proceeding would pursue its application to amend the statement of claim. I have now heard the plaintiff's application to amend. These are my reasons for judgment on that application. 4 By an amended notice of motion filed in court on 4 June 2002, the plaintiff seeks to amend its statement of claim in two ways. First, it seeks to plead a cause of action in negligence confined to the period from 1 December 1994 to 14 February 1995, a period falling just within the six-year limitation period. This is to be achieved principally by replacing "30 September 1994" with "1 December 1994" throughout the statement of claim. Secondly, it seeks to re-plead its allegations of facts in a more expanded way, so as to bring the pleading in the 2000 proceeding into line with the pleading in the 2001 proceeding. The amendments in the second category were not challenged before me, although the tenth and eleventh defendants foreshadowed a claim for costs on a special basis if those amendments were allowed. 5 The contested issue was the application to amend the statement of claim to plead a cause of action falling within the limitation period. The issue was contested between the plaintiff and the first to seventh defendants. The tenth and eleventh defendants supported the position of the first to seventh defendants, but their position (as defendants alleged to be vicariously liable for the conduct of the eighth and ninth defendants) was reserved for later consideration. The eighth and ninth defendants did not appear because they have not yet been served with the statement of claim. 6 The Supreme Court Rules allow amendments to pleadings in the following circumstances. "20.1 (1) The Court may, at any stage of any proceedings, on application by any party or of its own motion, order that any document in the proceedings be amended, or that any party have leave to amend any document in the proceedings, in either case in such manner as the Court thinks fit. (2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, or of correcting any defect or error in any proceedings, or of avoiding multiplicity of proceedings. … (3A) An order may be made, or leave may be granted, under subrule (1) notwithstanding that the effect of the amendment is, or would be, to add or substitute a cause of action arising after the commencement of the proceedings, but in such a case the date of commencement of the proceedings, so far as concerns that cause of action, shall, subject to rule 4, be the date on which the amendment is made. …" "20.4 (1) Where any relevant period of limitation expires after the date of filing of a statement of claim and after that expiry an application is made under rule 1 for leave to amend the statement of claim by making the amendment mentioned in any of subrules (3), (4) and (5), the Court may in the circumstances mentioned in that subrule make any order giving leave accordingly, notwithstanding that that period has expired. … (5) Where a plaintiff, in his statement of claim, makes a claim for relief on a cause of action arising out of any facts, the Court may order that he have leave to make an amendment having the effect of adding or substituting a new cause of action arising out of the same or substantially the same facts and a claim for relief on that new cause of action. (5A) An amendment made pursuant to an order made under this rule shall, unless the Court otherwise orders, relate back to the date of filing the statement of claim. … (7) This rule does not limit the powers of the Court under rule 1." 7 Prior to the adoption of these rules, this Court applied the rule in Weldon v Neal (1887) 19 QBD 394, according to which an amendment would not be allowed if the amendment would set up a new cause of action which, at the time of the amendment, was barred by a statute of limitation. The rule was not absolute, but it has been described as "a settled rule of practice" that would be followed except in "very peculiar circumstances": McGee v Yeomans [1977) 1 NSWLR 273, 277 per Glass JA. Part 20 rules 1 and 4 appear to be incompatible with the rule in Weldon v Neal. The power to amend conferred by rule 1 (1) is formulated broadly, not expressed to be subject to rule 4 in circumstances where a limitation period is relevant, and rule 4 (7) expressly makes it clear that rule 1 is not limited by rule 4. These features of the rules led Glass JA (with whom Moffitt P agreed) in McGee v Yeomans to say (at 280): "I am driven to the conclusion that the Supreme Court Rules, upon their proper construction, displace the settled rule of practice laid down in Weldon v Neal and all the finespun distinctions which it engendered. In its place there has been substituted a general discretion to allow an amendment, notwithstanding that it raises a barred cause of action, where justice so requires. The exercise of the discretion is unaffected by any rules of practice. It is not possible by judicial decision to establish in advance categories of amendments which it would be just or unjust to allow: cf Sophron v Nominal Defendant (1957) 96 CLR 469, at 475. The discretion, having been set free, should not again be confined by rigid technicalities. The Court hearing the application will necessarily have regard to the hardship of the plaintiff, if the application is refused, and the prejudice to the defendant, if it is granted. It must also consider all other relevant circumstances, such as the fault of the plaintiff or his advisers, the period of time since the limitation has expired, and the defendant's knowledge of the new cause of action or the new capacity." 8 In McGee v Yeomans the plaintiff was injured in a motor vehicle collision in New South Wales, in which the other driver, resident in Victoria, died. The plaintiff took proceedings for damages in this Court against the Victorian administrator of the deceased driver's estate, filing his statement of claim three days before the New South Wales limitation period expired. Faced with an application that the statement of claim be set aside, the plaintiff sought to amend it to allege that the defendant had intermeddled with property of the deceased in New South Wales so as to be an executor de son tort in this State. 9 Mahoney JA held that this amendment would add a new cause of action arising out of substantially the same facts, in circumstances falling within Part 20 rule 4 (5), and consequently in his Honour's view the amendment was permissible on that ground. Glass JA also held that the amendment was permissible, without finding it necessary to fit the amendment into any of the permitted categories of amendments set out in rule 4. He decided to allow the amendment after weighing up the various discretionary considerations set out in the passage extracted above (at 282). The judgment does not state whether, in doing so, his Honour relied on Part 20 rule 1 (1) or some provision of Part 20 rule 4. 10 Although his Honour did not specifically say so in his judgment, his decision implied that once made, the amendment would relate back to the date of the original statement of claim, according to the general rule recognised in this Court in Baldry v Jackson [1976] 2 NSWLR 415; see Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166, 175 per Moffitt P, 181 per Glass JA, 183 per Priestley JA. He did not attempt to explain how the cause of action against the executor de son tort, which had been "extinguished" by the application of s 63 of the Limitation Act 1969 (NSW) before the amendment was made, could be revived by force of the Supreme Court Rules. 11 In Proctor v Jetway Aviation Pty Ltd the plaintiff took proceedings in this Court for compensation arising out of an aeroplane crash in which his wife had been killed. The Civil Aviation (Carriers' Liability) Act 1959 (Cth) provided a limitation period in relation to such actions. The plaintiff's action was commenced well within the limitation period but the statement of claim omitted some essential allegations as to the type of flight, necessary to attract strict liability under the legislation and to avoid the limitation period. An application to amend the statement of claim to plead those essential allegations was made after expiry of the limitation period. The application was denied by Cross J, on the ground that to permit it would be to permit a non-existent cause of action to be revived. His Honour analysed McGee v Yeomans and chose not to follow it (preferring to follow Hunt J's decision in Chapple v Laming [1981] 2 NSWLR 765) on the ground that s 63 of the Limitation Act was of critical importance and had not been cited or considered by the Court of Appeal. 12 The Court of Appeal unanimously allowed an appeal from Cross J's judgment and permitted the amendment, relying on McGee v Yeomans. Moffitt P (at 171) regarded McGee v Yeomans as having decided that Part 20 rule 4 (a rule authorised by s 6 of the Supreme Court Act 1970 (NSW), which came into effect after the Limitation Act 1969) operates to confer a power of amendment in respect of an expired period of limitation, whether the limitation period is imposed by the Limitation Act or any other earlier Act. He observed (at 171) that "the decision necessarily carried with it that Part 20 rule 4, confers the power to amend in the circumstances there prescribed, notwithstanding the terms of the relevant statute as to the expiry of the limitation period including the consequence of the expiry". 13 Moffitt P treated McGee v Yeomans as a decision made under Part 20 rule 4. Apart from the passages just referred to, he drew attention to the heading of rule 4, "Statutes of Limitation" (at 172-3) and referred to the "remedial statutory provision made by rule 4" (at 174). He did not identify the particular subrule of rule 4 under which the amendment sought by the appellant in McGee was made, but it is probable that he had in mind rule 4 (5). This is because his judgment in Proctor responded to and accepted the submission by the appellant (set out at 170) that if the proposed amendments to the statement of claim had the effect of adding a new cause of action, the cause of action was one "arising out of the same or substantially the same facts" as already pleaded and was therefore permitted by rule 4 (5). 14 It seems to me that in view of Moffitt P's approach in Proctor, both Proctor and McGee should be treated as cases where an amendment was permitted under rule 4 (5) as an amendment adding a new cause of action arising out of the same or substantially the same facts. In neither case did the Court of Appeal permit the amendments under the general provisions of Part 20 rule 1 (1). 15 Counsel for the first to seventh defendants sought to distinguish these two cases from the plaintiff's application, on the ground that in the present case I have held (in my reasons for judgment delivered on 6 May 2002) that the statement of claim was statute barred from its inception. Counsel submits that in view of my decision, Part 20 rule 4 can have no application because this is not a case "where any relevant period of limitation expires after the date of filing of a statement of claim". Counsel relies on Lloyd Steel (Aust) Pty Ltd v Jade Shipping SA (1985) 1 NSWLR 212, where (at 217) Clarke J said that Part 20 rule 4 is "conditioned upon the existence of proceedings which have been commenced within time". Similarly in Proctor v Jetway, Moffitt P (at 174) referred to rule 4 as operating "in the special field where proceedings are on foot". 16 In my opinion this submission is correct. In Lloyd Steel, the proceeding was commenced within the relevant contractual limitation period and in any case, the limitation period did not apply to all of the causes of action asserted in the statement of claim, and amendments were permitted to substitute defendants. In Proctor, the statement of claim was filed within the limitation period, and in the course of pleading a case in negligence, it pleaded almost all of the facts needed to make out a case of strict liability. Amendments were permitted so that the remaining ingredients of the strict liability case could be pleaded. In McGee, the statement of claim was filed within the limitation period, but it was fatally flawed because the defendant was the Victorian administrator whose grant of administration was not recognised in New South Wales. Amendments were permitted so that the plaintiff could allege intermeddling to constitute the defendant an executor de son tort in New South Wales. There is a difference between a proceeding in which the statement of claim makes out an incomplete or defective case, to be perfected by amendment after expiry of the limitation period, and a proceeding in which the statement of claim pleads a case that cannot be made out at all. Moreover, and more simply, they were all cases where the "relevant period of limitation" expired after the date of filing of the statement of claim, and so rule 4 (1) applied, while in the present case that is simply not so. 17 In my view there can be no doubt that the words "where any relevant period of limitation expires after the date of the filing of the statement of claim" state a condition to be satisfied before rule 4 has any application. Clarke J's observation to that effect in Lloyd Steel was an obiter observation made in the course of developing quite a different point, but its context does not detract from its accuracy. Since rule 4 (1) does not apply in the present case, it follows that rule 4 (5) is also inapplicable. Nothing in rule 4 permits amendment in the present case. 18 At the hearing of the application to amend counsel for the plaintiff sought to bring the case within rule 4 (5) by contending that the amended statement of claim would substitute a new cause of action arising out of substantially the same facts. The argument was that a cause of action alleging that the directors of Clutha were negligent during a period of insolvency beginning on 1 December 1994 is categorically different from a cause of action alleging that they were negligent during a period of insolvency beginning on 30 September 1994. Indeed, counsel submitted that the amendments to the statement of claim should be taken to imply the assertion that Clutha was not insolvent during the period from 30 September to 30 November 1994. In my opinion the wording of the amended statement of claim does not carry that implication. Even if it did, however, I cannot accept the submission that the amended pleading asserts a cause of action so different from the statute-barred cause of action that it is a new cause of action for the purposes of rule 4 (5). However, since I take the view that none of rule 4 has any application, I do not need to reach a concluded view on that point. 19 That leaves me with an issue to decide which is not directly covered by the earlier cases. The question is whether I have jurisdiction to grant leave to permit the amendments under Part 20 rule 1, notwithstanding that Part 20 rule 4 is unavailable. The issue is whether rule 4 (read together with Part 8 of the Rules concerning joinder of parties) is an exclusive code setting out the circumstances in which an amendment can be permitted to overcome a limitation period. 20 If one were to take the expansive observations of Glass JA in McGee in isolation and literally, it might appear that there is a general power to permit amendments to overcome a limitation period outside the circumstances of rule 4. That, it may be said, is a consequence of the displacement of the rule in Weldon v Neal. However, as I have pointed out, McGee v Yeomans was treated in Proctor v Jetway as a case about rule 4, in which the amendment was permitted under rule 4 (5). If the Court of Appeal in Proctor v Jetway had thought there was a more general power to permit amendments to overcome limitation periods, it is likely that they would have said so, prompted by the broad observations by Glass JA in McGee, which was a case they were required to consider carefully. 21 On balance, I think the proper inference to draw from Proctor v Jetway is that where an amendment to a statement of claim is sought to overcome a limitation period which would otherwise defeat the plaintiff's claim, the amendment is available only where one of the categories in rule 4 is applicable (putting to one side joinder of parties under Part 8 of the Rules). Therefore an amendment cannot be made where the claim in its original form was statute barred, because in such a case rule 4 has no application at all. 22 The contrary view would produce some very odd consequences. It would mean that if the relevant period of limitation expired after the date of filing the statement of claim, amendments to the statement of claim would be permitted only in the limited circumstances defined in subrules (2), (3), (4) and (5) of rule 4. If, however, the relevant period of limitation expired before the date of filing of the statement of claim, as in the present case, the Court would have jurisdiction to grant leave to amend without any limitation, the only issue being whether it should do so in the exercise of its discretion. Such an irrational outcome cannot have been intended. 23 Moreover, to treat Part 20 rule 1 as authority to allow a plaintiff to amend a claim that was statute barred before it began would be to operate contrary to the legislative intention underlying the Limitation Act. As Gleeson CJ said in Fernance v Nominal Defendant (1989) 17 NSWLR 710 at 722, "It is no small matter to construe Rules of Court in a way which permits the Court, by a discretionary decision, to set at nought the provisions of the Limitation Act. Those provisions give effect to important considerations of public policy. Clear words are necessary to confer on a court power to negate their operation." 24 My conclusion is that the Court does not have jurisdiction under the Supreme Court Rules to grant leave to the plaintiff to amend in this case. 25 If there were jurisdiction to do so, I would nevertheless decline the application in the exercise of my discretion. It appears to me that the amendment with respect to the time period is, of its nature, an amendment calculated to restrict the period, during which, it is said, the directors of Clutha breached their duty of care, to the maximum period permissible under the Limitation Act, having regard to my judgment of 6 May 2002. Even if it be so that the plaintiff now regards the company as having been solvent until 1 December 1994, it must be more than a coincidence that that date, just within the limitation period measured from the date of commencement, is selected. 26 Moreover, after the 2000 proceeding is dismissed, the 2001 proceeding will remain. That has two consequences. One is that it will be open to the plaintiff to chance his arm by seeking an amendment to plead negligence in that proceeding, and if the application is successful, then all relevant causes of action arising out of the same facts will be contested in the same proceeding. Secondly, given the existence of the 2001 proceeding, it is prejudicial and potentially oppressive on the defendants that a separate concurrent proceeding should be maintained, limited to the allegation of negligence. 27 My conclusion is that the plaintiff's application to amend the statement of claim must be denied, as against the first to seventh defendants. Given that the plaintiff's claim in the 2000 proceeding is statute-barred and cannot be saved by the proposed amendment, the proper course is for me to dismiss the 2000 proceeding as against the first to seventh defendants. I shall hear submissions on behalf of the tenth and eleventh defendants with respect to whether the proceeding should be continued against them or against the eighth and ninth defendants. I shall also hear the submissions of the parties with respect to costs. **********

Clutha v Millar

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