Dawson as liquidator of J R Line and Safety Services Pty Ltd (in liq) v Alam

Background

1. The company was wound up and Mr Dawson was appointed liquidator on 21 September 2016. The liquidator commenced these proceedings by statement of claim filed 28 October 2019, which included claims for relief against the first defendant, Mr Joseph Alam, and the second defendant, J R Safety and Supplies Pty Ltd, pursuant to s 588FF(1) of the Corporations Act 2001 (Cth) to recover the sum of $604,872, as particularised in Sch A, being the total of alleged unreasonable director-related transactions within the meaning of s 588FDA. Although Sch A was omitted from the pleading as filed, it was served on the defendants when the proceedings were commenced.
2. The essential claim made by the liquidator is that during the period 1 July 2014 to 26 August 2016 a total amount of $604,872 was withdrawn by Mr Alam from an account held by the company with the Commonwealth Bank of Australia and paid to him or to third parties for his benefit at a time when he was a director of the company and these transactions constituted an unreasonable director-related transaction within s 588FDA, entered into during the four years ending on the relation-back day: s 588FE(6A).
3. The parties have served their evidence. A mediation was held in September 2020, but was unsuccessful.
4. The effect of the proposed pleading amendments is twofold. First, the amount of the unreasonable director-related payment claim is amended slightly to claim a higher amount of $617,530. This amount is particularised in a new Sch A as comprising cash withdrawals from automatic teller machines and various bank branches totalling $589,530 and an amount of $28,000 described as transactions of a personal nature, such as the payment of Mr Alam's credit card accounts with various banks.
5. Second, the amendment attaches a new Sch A to the statement of claim which includes some additional detail in terms of adding two columns, one in respect of "personal expense" and the other headed "Description" identifying the place or location where the relevant withdrawals were made. The new Sch A also includes some transactions not contained in the original Sch A and excludes some transactions that were included in the original Sch A.
6. In opposing the amendment application, counsel for the defendants submitted that insofar as the proposed amendments sought to rely upon transactions in the new Sch A that are not the subject of evidence served by the liquidator, the amendment was futile given the guillotine order made by Black J on 27 July 2020 in these terms: The plaintiffs are to serve their evidence in reply upon which they intend to rely by 10 August 2020, no evidence to be relied on if not served by that date.
7. In support of this submission, the defendants' solicitor deposed that (a) the bank statements and spreadsheet exhibited to Mr Dawson's affidavit of 8 May 2020 did not support the allegation that the total amount of $604,872 was withdrawn from the company's bank account and (b) other than bank statements for the period 31 December 2014 to 30 March 2015, Mr Dawson's second affidavit of 10 August 2020 did not exhibit any further bank statements relating to the alleged withdrawals.
8. Counsel for the liquidator responded by making an oral application for leave to rely upon the affidavit of Mr Dawson affirmed 30 October 2020 which contained the documentary evidence in the form of bank statements said to support all the transactions particularised in the new Sch A.
9. Counsel for the defendants objected to the liquidator seeking to rely upon additional evidence, describing the order made by Black J on 27 July 2020 as an "absolute" guillotine order. Counsel submitted that the defendants would be prejudiced by the new evidence having previously responded to the liquidator's claim and attended mediation on 2 September 2020, now to be faced by an amended claim and new evidence relating to a substantial number of new transactions, albeit the total value of the claim had only marginally increased.

Consideration

1. The amendment application is to be considered against the background of the relevant provisions in the Civil Procedure Act 2005 (NSW), specifically ss 56, 57 and 58 and also 64.
2. Section 64(1) provides that at any stage of the proceedings, the Court may order that leave be granted to a party to amend any document in the proceedings. Section 64(2) provides that subject to s 58, all necessary amendments are to be made for the purpose of determining the real questions raised or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.
3. In deciding whether to grant leave to re-plead the court must seek to act in accordance with the dictates of justice: s 58(1), and for that purpose the court must have regard to the provisions of ss 56 and 57 of the Civil Procedure Act, importantly the facilitation of the just, quick and cheap resolution of the real issues in the proceedings (s 56(1)) and also have regard to the matters set out in section 58(2)(b) to the extent to which the court considers it relevant to the management of the proceedings. Here it is relevant to consider the degree of expedition with which the parties have approached the proceedings, that a guillotine order relating to further evidence was made in July 2020, that a mediation was held in September 2020, the liquidator's explanation for the failure to serve the relevant bank statements as part of the evidence intended to be relied upon, and the degree of injustice to the defendant if the pleading amendment and further evidence is allowed.
4. It is also to be kept in mind that whilst Dennis v Australian Broadcasting Corp [2008] NSWCA 37 at [28]-[29] treated the statutory duty imposed by s 56 as "a significant qualification of the power to grant leave to amend a pleading", s 56 also constituted an expansion of the power to refuse an amendment, which, on one view, had been limited by Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146; [1997] HCA 1: see Halpin v Ors v Lumley General Insurance Ltd [2009] NSWCA 372 at [21] (Basten JA).
5. In the present case, the proceedings have not yet been given a hearing date and the liquidator seeks to correct an error in his first affidavit of 8 May 2020, where the bank statements exhibited to that affidavit were only for the period 1 July 2015 to 30 September 2016, rather than, as should have been exhibited, the bank statements for the period 1 July 2014 to 30 September 2016. I accept the liquidator's unchallenged evidence that this was a consequence of a purely administrative error. The further evidence sought to be relied upon by the liquidator in the form of bank statements of the company is evidence which it can be expected that Mr Alam would be familiar with as a director of the company.
6. The guillotine order made on 27 June 2020 is interlocutory. It is open to the Court, as a matter of case management, to reconsider this order given the particular circumstances of the case. To allow further evidence is not inconsistent with proper case management principles, as counsel for the defendants suggested, nor would it be sending the wrong message to parties that guillotine orders can be easily overcome. It all depends on the circumstances and an assessment of the balance of justice and injustice to the parties in allowing further evidence.
7. In my view, this is a case where the dictates of justice require a grant of leave to permit the liquidator to rely upon the bank statements annexed to his affidavit of 30 October 2020. This is necessary for the purpose of determining the real questions raised by the proceedings.
8. As to the proposed amended pleading, in balancing the justice to the plaintiffs in permitting the amendment against the injustice to the defendants, I am satisfied that the prejudice said to be occasioned by the amendment to the defendants is outweighed by the public interest for the real issues in the proceedings to be determined: Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423 at [58] (Ward J, as her Honour then was).
9. I am satisfied that the prejudice to the defendants in terms of wasted time and costs will be appropriately addressed by making a costs order against the plaintiffs in relation to the costs thrown away by reason of the amended pleading and the liquidators' motion to amend the pleading.
10. The costs order will be on an indemnity basis, given the circumstances in which the liquidator has made application to amend the pleadings and to rely upon further evidence. This has resulted in unnecessary trouble and expense to the defendants in answering a case advanced by the liquidator on an evidentiary basis which has now changed. The failure of the liquidator and his legal advisers to detect in a timely manner, and by no later than the time for service of his evidence in reply, the error relating to the liquidator's evidence in chief, was in my view unreasonable conduct being a relevant delinquency justifying a special costs order: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [44].

Conclusion and Orders

1. I am satisfied that the plaintiffs have made out a case to amend their pleading and also to rely upon the further evidence of Mr Dawson of 30 October 2020, notwithstanding the guillotine order made on 27 July 2020.
2. Accordingly, the Court made the following orders at the conclusion of argument on 23 November 2020: 1. Grant leave to the plaintiffs to file and serve an amended statement of claim in the form of Annexure A to the notice of motion filed 4 November 2020. 2. The plaintiffs to pay the defendants' costs thrown away by reason of the amendment to the pleadings on an indemnity basis. (2A) The plaintiffs to pay the defendants' costs of the notice of motion filed 4 November 2020, including today's hearing, on an indemnity basis. 1. The defendants to file and serve their amended defence by 7 December 2020. 2. Grant leave to the plaintiffs to rely upon the affidavit of Thomas Dawson affirmed 30 October 2020. 3. The defendants to serve any further evidence in response by 21 December 2020. 4. Reasons reserved. 5. Stand over the proceedings before the Corporations List Judge on 1 February 2021 with the view to the allocation of a hearing date on that occasion.

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