CREASY'S GRAIN ENTERPRISES PTY. LIMITED v. MALTCO PTY. LIMITED [2006] NSWSC 531

Supreme Court Rules 1970 LEGISLATION CITED : Goods Act 1958 (Vic) Sale of Goods Act 1923 Civil Procedure Act 2005

Covino v. Bandag Manufacturing Pty. Limited (1983) 1 NSWLR 237 Queensland v. J.L. Holdings Pty. Limited (1996-1997) 189 CLR 146 McGee v. Yeomans (1977) 1 NSWLR 273 Do Carmo v. Ford Excavations Pty. Limited (1981) 1 NSWLR 409 CASES CITED : Edwards v. Noble (1971) 125 CLR 296 Warren v. Coombes (1979) 53 ALJR 293 Tomlinson v. Cut Price Deli Pty. Limited (1992) 1123 ALR 122 Rothwell Limited v. Equity Group Limited (1990) 101 FLR 460 Fieldrank v. Stein (1961) 1 WLR 1287 Phillips v. Mineral Resources Developments Pty. Limited (1983) 2 Qd. R. 138

PARTIES : CREASY'S GRAIN ENTERPRISES PTY. LIMITED v. MALTCO PTY. LIMITED

COUNSEL : P: R.N. Gye D: M.J. Watts

SOLICITORS : P: A.R. Connolly & Co. D: Kell Moore Solicitors Pty. Limited, by their agent, Levitt Robinson

LOWER COURT JURISDICTION : Supreme Court (Associate Judge)

LOWER COURT FILE NUMBER(S) : No. 10145 of 2002

LOWER COURT JUDICIAL OFFICER : Malpass, As.J.

LOWER COURT DATE OF DECISION : 29 July 2005

LOWER COURT MEDIUM NEUTRAL CITATION : CREASY'S GRAIN ENTERPRISES PTY. LIMITED v. MALTO PTY. LIMITED [2005] NSWSC 746

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

CREASY'S GRAIN ENTERPRISES PTY. LIMITED v. MALTCO PTY. LIMITED

1 HIS HONOUR: The defendant, by notice of motion filed on 26 August 2005 appeals from the judgment of Associate Justice Malpass delivered on 29 July 2005. It is contended by the appellant/defendant that the Associate judge erred in not granting leave to it to permit amendments sought to its defence in the proceedings. An order is sought granting leave to the appellant to file and serve an amended defence.

2 These proceedings were commenced in the District Court of New South Wales with the filing of a Statement of Liquidated Claim on 31 March 1999 in the Wagga Wagga Registry of the District Court. An outline of the interlocutory history of the proceedings appears below.

3 The plaintiff claims that an amount of $184,402.32 together with interest is owed by the defendant in respect of malting barley supplied by the plaintiff to the defendant between 1 January 1999 and 19 January 1999.

4 The appellant contends that the Associate Judge was in error in not granting leave to it to permit the amendment sought to its defence pursuant to the provisions of Part 20 Rule 1 of the Supreme Court Rules 1970. An order is sought in this appeal granting leave to the defendant/appellant to file and serve an amended defence in terms of Annexure "AMW1" to the affidavit of the defendant's solicitor, Andrew McArthur Williams, sworn 21 April 2005.

5 In the proposed amended defence, referred to in [4] above, the defendant admits:- (a) The allegation in paragraph 3 of the statement of liquidated claim filed on 31 March 1999 as to the supply and delivery by the plaintiff of malting barley between 3 August 1998 and 19 January 1999 (subject to paragraphs 3 to 15 of the proposed amended defence).

(b) The allegation in paragraph 5 of the liquidated statement of claim, namely, that it has not made payment for the barley in the sum of $184,404.32 or any other amount.

6 Before briefly dealing with the matters determined by the Associate Judge, it is necessary to refer to the somewhat lengthy and convoluted interlocutory history of the proceedings:- (a) In June 1999, the defendant filed its defence and a cross-claim. The cross-claim sought damages for alleged breach of contract and, in particular, referred to implied conditions said to arise by operation of the Goods Act 1958 (Vic) and the Sale of Goods Act (NSW) 1923 . The defendant did not, at that point, plead by way of set-off, equitable or otherwise, a defence in terms which it now seeks to rely upon by way of the proposed amended defence. The defence in its present form is based on alleged satisfaction of the debt claimed. (b) On 14 December 2001, (then) Master (now) Associate Justice Harrison heard and determined an application by the defendant to transfer the proceedings to the Supreme Court from the District Court by reason of a claimed excess of the jurisdictional limit, arising from the cross-claim. (c) One matter of history relied upon by the plaintiff is that prior to June 2003, the defendant sold its business to a third party, a Joe White Maltings Limited. It is claimed that as at 30 June 2003, the defendant had net assets of $233,970. (d) It appears, however, that by November 2003 all proceeds of the sale of the business had been dispersed to the unit holder in the Maltco Unit Trust. The plaintiff contended that the appellant was impecunious and would be unable to pay any costs ordered in the proceedings in favour of the plaintiff. (e) On 24 June 2004, Assistant Registrar Howe ordered that the cross-claim be stayed pending payment of security for costs by the defendant in the amount of $120,000. The security for costs was never paid. (f) On 11 November 2004, the defendant served a notice of motion enclosing the first of several drafts of the proposed amended defence referred to above. (g) On 1 February 2005, Registrar Howe made orders to the effect that:-

(i) if the security for costs remained unpaid by 5.00 pm, 28 February 2005, the cross-claim would be dismissed; and

(ii) the cross-claimant was to pay the costs of the plaintiff in respect of the cross claim. (h) On or after 1 April 2005, the plaintiff caused orders to be entered to the effect of the self-executing orders made on 1 February 2005. (i) On 22 April 2005, Registrar Howe gave conditional leave to file and serve an amended defence identical in form to that in Exhibit AMW1 to the affidavit of Mr. Williams referred to above. The orders made on that date were in the following terms:- (i) Upon payment of the costs ordered in order 1 of the Orders made on 1 February 2005, as agreed, or assessed, leave is granted to the defendant to file and serve an amended defence in the form of Annexure AMW1 to the affidavit of A.M. Williams sworn 21 April 2005 within 14 days of such payment. (ii) The defendant is to pay the costs thrown away by reason of the amendment. (iii) Costs of this application are to be costs in the cause of s.54 of the Sale of Goods Act set-off (iv) Matter listed for status conference at 9.00 am on 20 May 2005. (j) The above orders were entered on 13 July 2005. (k) On 1 June 2005, the Court (Hoeben, J.) dismissed the defendant's application to transfer the proceedings to the Equity Division of the Court. (l) On 25 July 2005, Associate Justice Malpass heard an application for review of Registrar Howe's decision brought by the defendant pursuant to Part 61 Rule 3. On 29 July 2005, he made an order setting aside the order made by the Registrar on 22 April 2005. He dismissed the notice of motion filed on 11 November 2004 and ordered the defendant to pay the costs of that notice of motion and the costs of the review.

7 Associate Justice Malpass recorded the history and the nature of the proceedings. He observed that the plaintiff's claim was in the sum of $184,404.32, being the price said to be owing in respect of malting barley which it had sold to the defendant.

8 In evidence before me, a copy of the original contract made for the sale, storage and delivery of barley dated 30 October 1997 contained terms as to quantities and price together with standard terms and conditions set out in paragraphs 1 to 13 of the contract.

9 The current defence dated 24 June 1999 is, as noted earlier, was one of satisfaction, that is to say, that the debt has been paid (paragraph 4 of the defence). The plaintiff has filed and served affidavits to the effect that the debt remains outstanding.

10 The plaintiff has contended that, by its proposed amended defence, the defendant effectively seeks to resurrect its cross-claim by pleading it as a defence. I also observe at this point that the plaintiff contends that the evidence of the defendant discloses that the grain alleged to be defective relates to invoices other than those sued on by the plaintiff.

11 In order to understand the relevant background to the judgment of Associate Justice Malpass, it is appropriate to refer at this point to the orders sought by the defendant on the application for review heard by Associate Justice Malpass and to the events that materially altered the nature of the proceedings on the hearing of that application.

12 In written submissions on behalf of the appellant/defendant dated 6 June 2005, it was made clear that it sought to challenge the order made by Registrar Howe on 22 April 2005, in particular, order 1, the terms of which I have set out earlier in this judgment.

13 In paragraph 2 of the written submissions, it was stated on behalf of the defendant:- "2. By the second prayer for relief of the notice of motion filed 20 May 2005, the defendant has sought a review of the decision of Registrar Howe on 22 April 2005. In particular, the defendant seeks an order varying Order 1 of the orders made on 22 April 2005, by removing the condition imposed on the grant of leave to file an amended defence. The defendant also seeks a variation of the consequential costs order, Order 3, made by the Registrar."

14 The written submissions developed the argument setting out the basis for the relief claimed in the application for review.

15 On this appeal, a considerable volume of material was included in the appeal book. That material included a copy of the transcript of the proceedings before Associate Justice Malpass on 25 July 2005. On p.1 of the transcript, following counsel for the defendant moving on the notice of motion, counsel for the plaintiff made a submission which is recorded in the following terms:- "Mr. Gye submitted his Honour could substitute whatever order thought fit. He requested his Honour (sic) withdraw the order made granting leave to amend the defence."

16 The transcript records that there was then a short adjournment in order to enable the plaintiff's counsel to obtain instructions. On resumption, it is recorded:- "GYE: Our instructions are to seek an order on the hearing of this application that the order granting leave to amend be discharged."

17 It is a little difficult from the transcript to follow exactly what thereafter happened. The transcript records:- "HIS HONOUR: Is your application not to set aside the orders made on 22 April and in lieu thereof dismiss the notice of motion with costs? GYE: Yes, that's right. The written submissions of the defendant at p.5, paragraph 23, raise the issue of the sale of assets during the proceedings."

18 Apart from references by each counsel to two reported cases, judgment was then reserved.

19 The Associate Judge, in this judgment on 29 July 2005, refers to the terms of the proposed amended defence noting that it admitted non-payment of the amount claimed by the plaintiff but pleaded damages as a set-off. He also noted that it was common ground that it propounded in substance the same allegations of fact that had been made in the cross-claim.

20 It is of central importance that the order of the Registrar made on 22 April 2005, though conditional in form upon the payment of costs as agreed or assessed, nonetheless did grant leave to the defendant to file and serve the proposed amended defence. Whilst the defendant sought to challenge the condition as to payment, the outcome of the review sought of the Registrar's decision was that his order granting leave to amend he defence was set aside. That, of course, was not an order that arose on the notice of motion that had been filed by the defendant. It arose, in the circumstances referred to in paragraphs [15] to [17], when counsel for the plaintiff, during the course of the hearing before the Associate Judge, sought and obtained instructions to seek an order that would have the effect of setting aside the grant of leave by the Registrar.

21 In this context, the Associate Judge accordingly turned to the question as to the discretionary principles that apply to the granting of leave to amend pleadings.

22 In paragraph 21 of his judgment, Associate Justice Malpass recorded:- "21. At the commencement of the review, the plaintiff took the stance that the orders of the Registrar should be confirmed. During the course of the review, it changed its position. The plaintiff then sought to have the orders made by the Registrar on 22 April 2005 set aside and the defendant's notice of motion dismissed with costs."

23 Associate Justice Malpass then adverted to the fact that the Registrar may have sought, by the condition which he had ordered, to minimise prejudice to the plaintiff (paragraph [22] of the judgment).

24 Without identifying any other basis or reason, the Associate Judge then, as earlier stated, ruled that the decision "of the Registrar should be disturbed" and that the leave granted was not "in the best interests of justice". Accordingly, without any further elaboration, the orders made by the Registrar were set aside.

25 I granted leave at the hearing of this appeal to the defendant to file an amended notice of appeal dated 30 November 2005. The amended notice of motion includes additional paragraphs 1A, 1B and 1C, all of which effectively raised the question as to whether the Associate Judge had erred by failing to give sufficient reasons.

26 The grounds upon which the plaintiff opposed the grant of leave to the defendant to amend its defence in this appeal were essentially as follows:- (a) The evidence which pointed to the impecuniosity of the appellant/defendant. (b) The fact that the cross-claim for which security of costs were ordered having been dismissed, the defence essentially re-pleads the matters that formed the foundation of the cross-claim. The plaintiff contended the defendant thereby seeks to avoid the difficulty that confronted it in relation to the requirement to provide security of costs in accordance with the Registrar's order.

27 In developing the plaintiff's opposition to the proposed amendment, a considerable body of material in the affidavits was relied upon to establish prejudice. Such prejudice is said to arise, firstly, from delays and from non-compliance by the defendant with various directions and prejudice arising from the defendant being allowed to advance the same matters as had been pleaded in the dismissed cross-claim.

28 The defendant in response essentially relied upon two matters. Firstly, that the Associate Judge failed to give weight or consideration or appropriate weight and consideration to the fact that there was no real or actual prejudice on the evidence before him. Secondly, that any prejudice as claimed was prejudice that had arisen from the past interlocutory history of the proceedings, and was not prejudice that could be attributable to the proposed amendment to the pleadings. It was submitted on behalf of the defendant that, insofar as the Associate Judge did give weight to the fact that the proposed amended defence raised matters that had been the subject of the cross-claim, then undue weight was given to that fact, it being contended that that was not a matter, in any event, which strictly related to the question of an entitlement to obtain leave to amend a defence.

29 In the assessment of this matter on appeal, counsel for the appellant submitted that as there had been no cross-examination of witnesses before the Associate Justice, and no credit findings were made by him, this Court on appeal was not impeded in correcting error otherwise said to be manifest.

30 The appellant relied upon the affidavit sworn by the defendant's solicitor, Mathew Stephen Rogers sworn 22 November 2004 in which it is stated that the defendant seeks to rely upon its right to equitable set-off in its defence pursuant to principles such as those established in Covino v. Bandag Manufacturing Pty. Limited (1983) 1 NSWLR 237. In this respect, the defendant also seeks to rely upon the provisions of s.54 of the Sale of Goods Act.

31 In support of the appellant/defendant's case to be permitted to amend its defence, reliance is placed upon the following factual matters:- (a) The plaintiff's claim for the amount of $184,404.32 relates to malt and barley supplied to the defendant between 1 January and 19 January 1999. (b) That in or about August 1998, it became apparent to the defendant that grain delivered from the plaintiff's storage facilities demonstrated unacceptably high levels of weevils and dead grains. (c) That there were communications thereafter between the plaintiff and the defendant concerning the defendant's observations as to the quality of the grains but yet further deliveries were made which contained unacceptably high levels of dead grains and the product was not fit for the purpose of producing malt. (d) At the time of these events, the defendant was in full production and was obliged to meet its contractual obligations to purchasers of malt. One such purchaser was Saigon Beer Company. (e) That between 7 August 1998 and 9 November 1998, the plaintiff delivered barley which was not according to specification and constituted in all approximately 840 tonnes. (f) That in January 1999, the Saigon Beer Company informed the defendant that it was cancelling its contract with the defendant dated 11 June 1998. (g) That the defendant's profit margin per tonne of malt was calculated at $161.01 and accordingly the loss of profit attributable to the cancellation of the balance of the contract amounted to a loss of $354,222.

32 The plaintiff relied upon, inter alia, affidavit evidence of Mr. Alan Robert Connolly, solicitor for the plaintiff, sworn 20 April 2005. That affidavit raises a number of discrete issues said to be material to the question of leave to amend the defence. They are as follows:- (a) The defendant's repeated non-compliance with orders to serve evidence in support of its defence and cross-claim. (b) The issue of the defendant's insolvency. (c) The late notice (9 November 2004) provided by the defendant of its intention to seek leave to file an amended defence. (d) Security for costs (in this respect, in particular, the fact that the security ordered by the Court on 1 March 2005) and a costs order had not been paid into court by the defendant.

33 In the affidavit (paragraph 34), it is stated that the proposed amended defence does not represent an "acceptable" defence on the basis that the invoices being sued on by the plaintiff are for grain delivered during the period 1 January to 19 January 1999 have no connection to the grain delivered in the period 7 August and 9 August 1998, which the defendant alleges was faulty.

34 In relation to this evidence, Mr. Gye of counsel on behalf of the plaintiff, stated that the defendant's non-compliance with directions and the question of impecuniosity were both relevant matters and could be taken into account by the Associate Judge upon the following basis (transcript, 29 November 2005, at p.12):- "… I say that it is relevant because, when considered in the context of the impecuniosity of Gregory Street Pty. Limited and how it became impecunious, the prospects of that company having any capacity, without there being evidence of more, to prosecute the defence and may be an order for costs in the event that the plaintiff were successful, and being able to meet an order for costs as ordered on the cross-claim, identifies the material prejudice to the plaintiff."

35 In the course of his submissions, Mr. Gye, contended that the impecuniosity of the defendant was a relevant factor which Associate Justice Malpass was entitled to take into account. It was said to be common ground for the purposes of the hearing before Associate Justice Malpass that the defendant was impecunious (transcript, 29 November 2005 at p.25).

36 I observe at this point that the plaintiff did not seek to appeal the orders made by the Registrar on 22 April 2005 whereby leave was granted to the defendant to amend its defence in the form of Annexure AMW1 subject to the condition as to payment.

37 In this appeal, the appellant relied upon a notice of contention of 25 November 2005. In it, it contended that it would be unjust for the leave sought by the defendant to be granted upon grounds set out in paragraph 3(a) to (e) of the Notice (which included, in particular, the defendant's impecuniosity).

38 In support of the contention that there was relevant prejudice arising from the impecuniosity of the defendant, Mr. Gye submitted (transcript, 29 November 2005, at p.20):- "The prejudice is this: there has been a cross-claim filed. There has been an affidavit served in support of that cross-claim. During the currency of the proceedings the assets of the cross-claimant are sold off, the proceeds are distributed. It is an impecunious company. That same evidence will be used to support the defence. Meanwhile, there is a costs order made upon dismissal of the cross-claim, which costs order is stripped of its utility because behind this, is, in a sense, a backdoor attempt to avoid the consequences of the dismissal of the cross-claim. It will be articulated by the defence. You use the evidence which was to support the cross-claim but you use it without any cost sanction because you avoid the implications of the cost order to press your defence to the plaintiff's claim …"

39 The further submission made on behalf of the plaintiff was directed to prejudice said to arise out of the "unfairness", the "injustice" of a party avoiding the consequences of a dismissed cross-claim by reason of it selling its own assets "… so that it can nonetheless run this evidence against the plaintiff which was never part of its original defence to the plaintiff's claim …".

40 In essence, in response to these submissions, the defendant's case was that there was a lack of relation or connection between what has happened in the past interlocutory history of the proceedings and the issues that are relevant to the exercise of the discretion to permit the amendment of pleadings. The point, alternatively, was expressed in the submission that the evidence in this respect did not constitute relevant evidence for the purposes of the application for amendment.

41 On analysing the judgment of the Associate Judge, it is clear that, paragraphs [1] to [21] of the judgment (other than paragraphs 15 and 16), are directed to recording relevant history by way of background to the review application. Paragraph [22], as I have previously observed, related to an inference as to the possible reasoning that had led the Registrar to impose the cost condition on Order 1 made on 22 April 2005.

42 In paragraph 23, the second last paragraph of the judgment, the Associate Judge stated:- "23. The review has led me to the view that the decision of the Registrar should be disturbed. It seems to me, when regard (sic) to had to the relevant circumstances of this particular case, that the leave granted by the Registrar was not in the best interests of justice. I consider that justice is best served if the orders made by him are set aside."

43 In relation to the decision of the Associate Judge in this respect, I am of the opinion:- (a) That the Associate Judge was in error in failing to identify what he considered were "the relevant circumstances of this particular case" which supported the making of the order setting aside the orders made by the Registrar on 22 April 2005 and dismissing the notice of motion. The earlier paragraphs in his judgment had merely set out the interlocutory history of the proceedings. (b) The failure by the Associate Judge to identify the grounds and reasons which led him to conclude that the leave that had been granted by the Registrar was "not in the best interests of justice" . (c) The Associate Judge was in error in failing to identify any relevant prejudice which would operate against the plaintiff and which would warrant, in the proper exercise of the discretion, the refusal of the amendment sought by the defendant.

44 The provisions of s.64 of the Civil Procedure Act 2005 provide for power in the Court with respect to the amendment of documents (including pleadings). The provisions of s.64, similar in form to the former provisions of Part 20 of the Supreme Court Rules provides:- "At any stage of proceedings the Court may order:- (a) that any document in the proceedings be amended; or (b) that leave be granted to a party to amend any document in the proceedings."

45 The power contained in s.64 is subject to the provisions of s.58 (see s.64(2) of the Civil Procedure Act). Section 68 provides that the Court is to follow the dictates of justice and, in that respect, the Court is to have regard to the provisions of ss.56 and 57. Section 56(1) provides that the overriding purpose of the Civil Procedure Act and the Rules of the Court in their application to civil proceedings is to "… facilitate the just, quick and cheap resolution of the real issues in the proceedings". The Court is also required to have regard to the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction (s.58(2)(b)(iv)) and also to have regard to the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities (s.58(2)(b)(ii)). The Court is also to have regard to such other matters as it considers relevant in the circumstances of the case (s.58(2)(b)(vii)).

46 The general principles that apply to the amendment of pleadings was the subject of detailed consideration by the High Court in Queensland v. J.L. Holdings Pty. Limited (1996-1997) 189 CLR 146. In particular, Kirby, J. at pp.167-172, set out the relevant principles under the subheading Approach to pleading amendments. At p.169 (point 5) Kirby, J. observed that amongst the considerations that may tend to favour the extension of an indulgence to a party applying for leave are the following:- "… that this is the only way in which the true issues and the real merits, factual and legal, can be litigated and artificiality avoided; that the oversight which occurred is adequately explained … as, for example, that it arose out of sudden and unexpected events …; that the proposed amendment is of considerable importance to the rights of a party, particularly where it provides a complete answer to a claim …; that any fault is that of the party's before the legal representatives …; that the oversight was wholly accidental …; that it was simply the product of unavoidable human error … or possibly, the outcome of the application to the case of fresh legal minds who perceive an important new point … that the costs orders or the imposition of other conditions could adequately rebalance the competing claims to justice … ; and that the hearing is sufficiently in the future to permit a party to meet the amendment …"

47 Reference was also made in J.L. Holdings to the need, on the one hand, for the court to retain flexibility which is the hallmark of justice, whilst on the other hand, to be mindful of the risk that, through ignoring the modern imperatives of the efficient conduct of litigation, unconsciously this may work an injustice on one of the parties or the litigants generally and on the public (per Kirby, J. at 172).

48 Similarly in McGee v. Yeomans (1977) 1 NSWLR 273 at 280, Glass, JA. stated that, on an application to amend under the general power to permit amendments to pleadings, a court is required to have regard, on the one hand, to the prejudice occasioned to a party if the amendment is granted and, on the other hand, the hardship that would flow from the refusal of an amendment. That is particularly relevant in the circumstances of the present case, for the Court is required to take into account any prejudice that would be occasioned to the plaintiff by now permitting the defendant to raise the amended defence at this late stage.

49 The present appeal is brought pursuant to Part 45 Rule 4 of the Uniform Civil Procedure Rules 2005. In Do Carmo v. Ford Excavations Pty. Limited (1981) 1 NSWLR 409, it was held that an appeal from a Master/Associate Judge to a single judge was subject to the same principles as those governing an appeal from a judge to the Court of Appeal. Section 74A(5) of the Supreme Court Act provides that an appeal "shall be by way of re-hearing". The court is permitted to draw inferences and make findings of fact. Except for appeals where fresh evidence is admitted, there are limitations on the Court's powers to substitute its view of the facts: Edwards v. Noble (1971) 125 CLR 296 and Warren v. Coombes (1979) 53 ALJR 293. Accordingly, appeals from a Master/Associate Judge are treated in the same manner as appeals to the Court of Appeal from a judge.

50 In exercising the powers of appeal, it is important to have regard to the fact in the present matter that there were no discrete findings of fact made by the Associate Judge nor any reasons expressed based on such findings in support of the ultimate conclusion set out in the penultimate paragraph of the judgment. In those circumstances, the judgment of the Associate Judge is more vulnerable on an appeal such as the present, for the Court on appeal is required to examine for itself whether there is a sound basis on the evidence that was before the Associate Judge for the ultimate conclusion and orders made.

51 I have had particular regard to whether or not the principal matters relied upon by the plaintiff on this appeal either alone or in combination would have provided a basis for the order made by the Associate Judge which had the effect of withdrawing the conditional leave granted by the Registrar to amend. On the hearing of the present appeal, the principal matters relied upon by the plaintiff were:- (a) The defendant's impecuniosity.

(b) The defendant's history of non-compliance with the court's directions.

(c) The defendant's delay in seeking leave to amend its defence.

52 The further matter raised in the affidavit of Mr. Connelly sworn 20 April 2005 in paragraph 34 was not a matter that was developed in the hearing of the appeal.

53 The past conduct of the defendant in relation to delay and non-compliance are matters that should be taken into account in determining whether or not the defendant ought to be granted leave to amend and whether or not those factors alone or in combination justified the order made by the Associate Judge.

54 However, having considered the history of the matter, I do not consider that those matters of themselves constitute irremedial prejudice on the question as to whether or not a defendant should be granted leave to raise a bona fide defence. In other words, matters concerning the past history of the proceedings will often be relevant in relation to the exercise of a discretionary power, but, by themselves, would not, absent specific or actual prejudice, warrant the refusal of leave.

55 Similarly, the dismissal of the cross-claim does not, per se, as the plaintiff has contended, create a bar to the grant of leave to amend to raise a defence by way of set-off. The situation is quite unlike circumstances that prevent the pursuit of a cause of action by reason, for example, of the operation of the doctrines of estoppel or res judicata. No authority was cited in support of the contention that the dismissal of the cross-claim, in the particular circumstances of this case, would require or warrant the refusal of leave to amend the defence.

56 The issue of the insolvency of the defendant is an understandable matter of concern to the plaintiff. In particular, if the plaintiff succeeds in its claim at hearing and a set-off defence for which the leave sought is granted fails, the hearing of the proceedings may have been extended by reason of the defence of set-off and yet the plaintiff may be prejudiced in a practical sense by an inability to recover under any costs order in its favour.

57 However, at the point of time at which an application to amend a defence is considered, it is not possible to forecast whether or not the defence of set-off is likely to succeed. Accordingly, whilst I understand the legitimate concerns of the plaintiff in terms of possible future prejudice arising by reason of the asserted insolvency of the defendant, I do not consider that that, in itself, provides a basis for the order made by the Associate Judge nor does it provide a basis for refusal of leave to amend a defence. No authority was cited in support of the issue of insolvency as a ground for a refusal by a court to grant leave to amend a defence in circumstances such as those that exist in these proceedings.

58 Accordingly, I have concluded that no basis existed upon which the Associate Judge could conclude as he did, namely, that the circumstances justified that leave granted by the Registrar was not in the best interests of justice. It follows that there was no basis, in my opinion, for the further conclusion by the Associate Judge that justice would be best served if the orders made were set aside.

59 I am accordingly of the opinion that the appeal should be allowed and leave be granted to the defendant to file and serve an amended defence but only upon conditions. I now turn to consider the question of what conditions, if any, should be imposed.

60 In written submissions on behalf of the plaintiff (1 December 2005), it was submitted that if the Court were to permit the amended defence, then the order made by the Registrar on 22 April 2005 should be reinstated or alternatively an order be made that the defendant pay to the plaintiff the sum of $120,000 within 14 days. It was submitted that the grant of leave should be conditional upon payment of that amount.

61 The amount of $120,000 has been advanced upon the basis that that amount that had been ordered as security for costs payable in accordance with the order of Associate Registrar Howe on 24 June 2004. It was an amount assessed to be a reasonable amount as security payable with respect to the former cross-claim. That amount is said to be less than half of the total costs that have been expended by the plaintiff on that cross-claim. It was submitted the Court would see that amount to be a fair amount. It was submitted in this respect that removal of prejudice by the actual payment of monies protects the interests of the plaintiff, so that the defendant cannot, by what was contended to be a "re-pleading of its cross-claim as a defence", avoid the consequences of The Registrar's order (paragraph 14 of the written submissions, 1 December 2005).

62 The question of the provision of security or payment of a costs order such as that ordered by Registrar Howe by a defendant as a basis for leave to amend is far from straightforward.

63 Section 86(1) of the Civil Procedure Act 2005 provides that the power of the Court to make orders in relation to proceedings includes the power to make all or any orders on terms.

64 Section 86(2) provides that the power of the Court to make orders on terms is taken to be a power to make orders on such terms and conditions as the Court thinks fit.

65 Section 21(1) of the Civil Procedure Act 2005 provides:- "21(1) If there are mutual debts between a plaintiff and a defendant in any proceedings, the defendant may, by way of defence, set off against the plaintiff's claim any debt that is owed by the plaintiff to the defendant and that was due and payable at the time the defence of set off was filed, whether or not the mutual debts are different in nature. "

66 Section 21(4) provides that the section does not affect any other rights or obligations of a debtor or creditor in respect of mutual debts, whether arising in equity or otherwise.

67 By its proposed amended defence, as earlier discussed, the appellant concedes that the plaintiff sold, supplied and delivered to it between 3 August 1998 and 19 January 1999 malting barley, details of which are said to have been previously provided, and further that it has not paid any monies claimed by the plaintiff in respect thereof. Accordingly, the sole defence sought to be raised by the defendant in the proposed amended defence is confined to the set-off as set out in the draft amended defence.

68 This raises the question as to whether or not the grant of leave should be on an unconditional or conditional basis.

69 The position may be summarised in the following terms:- (a) The proposed defence indicates that there is no defence to the plaintiff's prima facie right to claim the amount of $184,404.32.

(b) The defendant seeks to rely solely on its unlitigated set-off to answer the plaintiff's claim.

(c) The provisions referred to in paragraphs [62] and [63] provide power to condition leave on terms within the discretion of the Court.

(d) The power to impose terms is directed to ensuring fairness and justice to the party opposing leave to amend where the circumstances establish that terms are necessary to achieve that outcome.

(e) The circumstances which justify the imposition of terms are not susceptible to categorisation as the facts of each case will vary one from the other.

(f) The circumstances relied upon in these proceedings include the impecuniosity of the defendant (claimed to have arisen following sale of its business in June 2003 and dispersal of the proceeds of sale), its failure to provide security with respect to the previous cross-claim and its failure to comply with directions.

(g) There may exist circumstances in which a party seeking leave to rely upon an equitable set-off may be granted leave conditioned upon the provision of security, eg., Tomlinson v. Cut Price Deli Pty. Limited (1992) 112 ALR 122. Security may be required where a defence is doubtful, not by way of performance of the alleged mutual obligations, but as a matter of "good faith". In such circumstances, it could go to secure costs or the claim or both: Rothwell Limited v. Equity Group Limited (1990) 101 FLR 460; Fieldrank v. Stein (1961) 1 WLR 1287 and Phillips v. Mineral Resources Developments Pty. Limited (1983) 2 Qd. R. 138. A condition requiring security may arguably be appropriate where there is a sign of bad faith.

(h) However, generally speaking, there is authority that indicates that it is rare for a defendant who is not a cross-claimant to be made the subject of an order for security as the price for defending an action.

70 The defendant wishes to rely upon particular matters for the purposes of the defence of set-off, which are said to be the same as those which the former cross-claim pleaded.

71 The defendant is said to have failed over a considerable period of time to comply with directions for filing of its evidence in support of the dismissed cross-claim. The matters that it now seeks to revive for the purposes of the set-off relate to events that are said to have occurred almost eight years ago (August 1988).

72 I do not consider that in the special circumstances of this case, that it would be either fair or appropriate to grant leave to the defendant to amend its defence unconditionally. I am of the opinion that conditions should be attached to any grant of leave aimed at ensuring that, having failed to comply with directions in the past, that the defendant is subjected to appropriate conditions which, if it does not or cannot meet, will prevent the defendant from relying upon the set-off it proposes.

73 To this end, one possible condition would be that the defendant should, within a defined period (eg., a period of six weeks), be required to file and serve upon the plaintiff all affidavit evidence and expert reports it will seek to rely upon to establish liability and quantum issues in relation to the set-off defence. If it does not do so, then the conditional leave to amend will be automatically revoked or discharged. A further possible condition would limit the defendant to such affidavits and expert reports served within that defined period and the defendant would not be permitted to rely upon any other evidence not served within that defined period. The purpose and intent of such conditions would be to ensure that the plaintiff is not delayed or prejudiced by the defendant relying upon the set-off defence. The overall intention behind the imposition of conditions is that the defendant would be required, as the basis for the grant of leave, in light of its delay and the history of non-compliance with Court directions, to submit to conditions of the kind outlined above which will be self-executing in their operation.

74 I propose to allow the parties the opportunity to address the question of the appropriate conditions to be imposed upon the defendant as the basis for the grant of the leave it seeks. For that purpose, I will re-list the proceedings at 9.30 am on a date suitable to the parties by arrangement with my associate.

75 I reserve all questions of costs until final orders are made on this appeal.

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