Connections Total Fitness for the Family Pty Limited v Selkirk Pastoral Co Pty Limited

ex tempore Judgment 1This is the Court's second judgment in these proceedings. The Court's principal judgment found that the plaintiffs had the benefit of an indemnity for certain residual financial obligations after the sale of a gym business: Connections Total Fitness for the Family Pty Limited v Selkirk Pastoral Co Pty Limited [2014] NSWSC 184. This judgment and the Court's principal judgment should be read together. Events, matters and things are refered to in both judgments the same way. 2The plaintiff seeks by motion today to file a further amended statement of claim. The amended statement of claim, in a number of respects, is uncontentious. I will ignore the uncontentious amendments. 3But one part of those amendments is opposed. The plaintiffs seek to alter their claim for damages in paragraph 30 of the existing Statement of Claim, by adding subparagraph (c) as follows: "30(c) Connections TF and Messrs Sheehy and Wright have incurred the following expenses and incurred the following losses: (i) the costs of Connections TF incurred in the course of and for the purposes of the administration of that company commencing October 2013 ($134,138.36 - see [154] - [246] of the 2nd Debt Tender Bundle (2nd DTB)); (ii) the costs of Connections TF incurred in the course of and for the purposes of the liquidation of that company commencing February 2014 ($13,110.90 - see [247] - [250] of the 2nd DTB); (iii) the costs to Messrs Sheehy and Wright of defending or otherwise attending to proceedings commenced by the ATO and by Technology Leasing Pty Limited on behalf of Northern Finance Pty Limited, including legal expenses ($9,435 - see [319] - [323]); (iv) losses suffered by Mr Wright as a result of Connections not paying debts to Camden Squash ($11,075.50 - see [251] - [318] of 2nd DTB) Particulars As a result of non-payment of those debts, Camden Squash went into administration and subsequently liquidation; Mr Wright has indemnified the liquidator of Camden Squash for the costs of the liquidation of Camden Squash." 4This proposed amendment introduces for the first time a claim for certain consequential losses alleged to have been suffered by Connections and Messrs Sheehy and Wright as a result of the placing of Connections into administration, the liquidation of Connections, the defence of proceedings brought by the ATO, and certain other losses alleged to have been suffered by Mr Wright as a result of Connections' non-payment of debts to Camden Squash. 5Mr Crossland of counsel, on behalf of the plaintiff, explains that these amendments are claims for damages made within the second limb of Hadley v Baxendale [1854] 9 Exch 341 at 354: that a party may recover damages for breach of contract "such as may fairly and reasonably be considered either arising naturally, that is according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they were made the contract, as the probable result of the breach of it" [emphasis added]. 6Mr Crossland submits that if these amendments are allowed there is an available case that on the Court's findings, these losses will satisfy the accepted test in Australia that Hadley v Baxendale second limb loss may be recovered for a result of a breach of contract which is contemplated as "not unlikely": Koufos v C Czarnikow Limited [1969] 1 AC 350 at 388 per Lloyd Reid, and Wenham v Ella (1972) 127 CLR 454. And in Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, McHugh JA, as His Honour then was, said there is no doubt it is well-established that a plaintiff may claim damages for legal costs incurred in previous proceedings, as this proposed amended claim would seek to do. 7But the real difficulty for these claimed amendments is that if the application to amend had been made earlier in the proceedings, it is highly unlikely that the Court would have ordered the separate trial of any questions of damages. That, in itself, is sufficient reason not to allow the amendments at this stage. 8There was debate at the trial about whether or not there should be a separate damages hearing. It seemed convenient when there were complexities in the contest about what debts were owed by Connections, to deal with the contractual matters first: in particular, the issue of the terms of the contract, as to whether any indemnity arose in favour of Connections and Mr Wright and Mr Sheehy at all. As the hearing transcript shows, the Court was anxious to avoid a situation in which Mr Wright and Mr Sheehy's credit would be considered, not only in respect of the contract hearing, but separately in respect of a later damages hearing. 9The Court made it clear that it was not prepared to order the separation of the issues into two trials if Mr Sheehy and Mr Wright were going to be recalled to give evidence in a second damages hearing. The reason the Court took that course was that, if a damages hearing were separate from the contract hearing, the Court would be required to make findings about Mr Sheehy and Mr Wright's credit on two separate occasions. That is undesirable for well-known reasons. 10An adverse finding in the first hearing might mean the Court would be asked not to sit and consider the evidence in the second hearing. If witnesses who had given evidence in the first hearing were recalled in the second hearing, the Court might be faced with making inconsistent credit findings from those made in the first hearing. 11With that in mind, the hearing was separated. But this was done on the express basis that the plaintiffs would rely upon documentary material which they had already served, or were in the course of serving, but which would not involve further oral evidence from Mr Sheehy and Mr Wright, the plaintiffs' witnesses in the contract hearing. 12The problem now presented by the amendments is that if they are permitted, it seems inevitable that the defendant will have the right to ask for the recall of Mr Wright and Mr Sheehy. The defendant may wish to put to them questions about the reasons why Connections went into administration, and then liquidation, and about steps they took in defending the ATO proceedings, and about how Mr Wright suffered loss because Connections did not pay the debts of Camden Squash. 13The Court could not properly deny the defendant the opportunity to seek the recall of Mr Wright and Mr Sheehy for that purpose. To try the new issues of claimed consequential loss without permitting the defendant to do that would be likely to involve a denial of procedural fairness to the defendant. 14Added to these considerations is that representations were made to the Court, on behalf of the plaintiff, before the Court ordered a separate hearing, to the effect that the debts which would be in contest at such a hearing were approximately the same as those that had already been pleaded, although the amounts might be slightly different. To the extent that anything was missing it was said to be "only a few small debts". 15The Court was certainly not given an indication before it made the orders for separate trial that an additional claim, amounting to approximately $180,000 in consequential loss, would be made. This omission is the more remarkable in circumstances where the Court sought from both sides before the proceedings were separated an indication that all relevant amendments had been made. Such a substantial amendment lies well outside the contemplation of what the Court had in mind when the hearings were separated. 16If the presently proposed amendments had been sought early in the proceedings, it is quite unlikely that the Court would have ordered a separate hearing. That is sufficient reason to refuse these amendments. For all these reasons I decline to grant the amendments now sought. The uncontentious amendments may be made.