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[2009] NSWSC 909
defendant. Amendments to paragraphs 70A and 73A to 73E of the statement of claim were disallowed; amendments to the defence to first cross-claim were disallowed; other proposed amendments were allowed....
On the first day of a five-day trial the plaintiff sought to add fraud allegations and an additional pleading about misuse of sale proceeds. The defendants' counsel could not say whether those new allegations could be handled on the evidence already to be led or whether an adjournment or further evidence would be required. The plaintiff offered no adequate explanation for why the fraud claims were not pleaded earlier. Applying case management principles and the High Court's recent guidance in Aon v ANU, the judge refused the late fraud-related amendments and the defence amendment, allowed other non-prejudicial amendments, and gave the plaintiff liberty to reapply during the trial if the defendants decided no adjournment or further evidence would be needed.
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This was an ex tempore ruling by Gzell J on 28 August 2009 on an interlocutory application made on the first day of a five-day trial. The plaintiff, Patricia Ehsman, sought leave to amend her statement of claim and her defence to the first cross-claim to add fraud-based allegations. The principal proposed additions were (a) paragraphs 73A–73E, which pleaded a contravention of s 37A of the Conveyancing Act 1919 (fraudulent alienation), and (b) paragraph 70A alleging that proceeds of sale were applied to the benefit of certain defendants to the exclusion of Timentel (paras 3, 5–6). The plaintiff contended the amendments merely reflected the evidence to be led and would not require fresh evidence (para 7).
Defence counsel (for first, second and fourth defendants) stated candidly that he did not know whether the amendments, if permitted, would require an adjournment or further evidence; he had not turned his mind to the effects of the amendments (para 8). The plaintiff offered no satisfactory explanation for the delay in seeking the fraud claim beyond counsel saying he thought of it while preparing written submissions for the hearing (para 9).
The court reviewed the interlocutory history, including earlier detailed consideration of proposed amended points of claim by Austin J in 2006 (paras 10–12). Having regard to case management obligations under s 56 of the Civil Procedure Act 2005 and the High Court’s recent treatment of late amendments in Aon v ANU, the judge declined to permit the fraud-related amendments and the defence amendment, while allowing other non-controversial amendments. Liberty to reapply during the five-day trial was granted if the defendants later considered the matter could be dealt with on the evidence already to be led (paras 17, 20–22).
Three interlocking considerations drove the decision.
Delay and lack of satisfactory explanation. The plaintiff provided no adequate reason for why the fraud pleading was not raised earlier. Counsel’s claim that he thought of the fraud allegation only while preparing submissions did not account for the prior detailed amendments process (paras 9–12). The court considered it probable that the fraud head of claim had been considered earlier and rejected (para 12).
Risk of prejudice and requirement for further evidence/adjournment. Defence counsel could not say whether the amendments could be dealt with on the evidence already to be led; that uncertainty meant the court could not assume no new evidence or adjournment would be required. The judge explicitly rejected the plaintiff’s submission that no fresh evidence would be needed (para 13). Because the amendments raised a serious allegation of fraud, the possibility that the case would need to be recommenced or the trial adjourned weighed heavily (paras 4, 13, 20).
Case management principles as recently stated by the High Court. The decision gives particular weight to Aon Risk Services Australia Limited v Australian National University [2009] HCA 27. Gzell J treated Aon as restoring the importance of case management considerations when exercising discretion to permit amendments, and as limiting the scope of State of Queensland v JL Holdings (the earlier authority which had been interpreted as more lenient toward late amendments). Aon emphasises that parties have choices about the claims they make and may be limited in their ability to effect changes when litigation is advanced (paras 17–18).
Taken together, these factors led the judge to refuse the late fraud pleadings in order to protect the efficient and just resolution of other litigants’ matters and to avoid prejudicing the defendants and the trial timetable (paras 17–21).
Before Aon v ANU some authorities, particularly readings of JL Holdings, had been invoked to suggest that a litigant should be allowed to pursue an arguable claim late in proceedings, with prejudice capable of being compensated by costs (para 15). That approach was more deferential to late changes, especially where the claim appeared arguable.
Aon v ANU, cited and applied in this ruling, reasserted case management concerns. The High Court held that an application for leave to amend should not be approached on the assumption that a party is entitled to raise an arguable claim subject merely to paying costs. Instead, the court must weigh all matters relevant to the exercise of the discretion, including delay, wasted costs, and impacts on other litigants, and require explanation for delay where necessary (paras 17–18). Gzell J applied that approach: the plaintiff’s delay and lack of explanation, combined with the potential effect on the trial, led to refusal of the fraud amendments (paras 17–21).
Thus, after Aon, and as reflected in this judgment, courts are less likely to permit late, potentially disruptive amendments where they would undermine case management objectives. Costs alone are not an adequate remedy for prejudice in that context.
Selected key passages from Gzell J with translations and references.
Passage: "To seek to raise an allegation of fraud at the commencement of a hearing is a serious matter." [4]
Passage: The statutory wording of s 37A Conveyancing Act 1919 (quoted) [3]
Passage: "I reject that submission." (court's response to plaintiff's claim that no fresh evidence was required) [13]
Passage: The court's order (para 21): disallow the fraud-related amendments and the defence amendment, allow other amendments, liberty to reapply during trial.
Passage: Summaries of Aon v ANU quoted and applied (paras 17–18)
This judgment is specifically relevant where:
A party seeks to add a fraud-based allegation (or any new, serious cause of action) on the first day or during the course of a trial, particularly when the trial is scheduled to proceed immediately and an adjournment would cause significant delay (paras 1–6, 20).
The proposed amendment is late and there is no satisfactory explanation for why the claim was not raised earlier, especially where there has been prior interlocutory opportunity to plead (paras 9–12).
Defence counsel cannot say whether the proposed amendment can be dealt with on the evidence already to be led, creating inherent uncertainty about the need for an adjournment or additional evidence (para 8, 13).
The late amendment concerns matters that, if allowed, could cause the trial to be substantially recommenced or substantially change the scope of the hearing, affecting other litigants and court resources, invoking s 56 CPA and the approach in Aon (paras 17–21).
If these elements are present, a court following this precedent is likely to refuse the amendment unless the applicant can explain the delay and the defendants can be assured they will not be prejudiced or that no adjournment will be required.
This judgment itself does not report subsequent treatment by later courts. It is, however, an application of Aon v ANU in the New South Wales Supreme Court context, demonstrating how Aon’s reassertion of case management considerations affects exercise of the amendment discretion at trial commencement (paras 17–18). Practitioners should treat Aon as the controlling High Court authority on late amendments and respect the approach taken here: explanations for delay and protection against prejudice are essential.
Absent subsequent reported decisions cited in this judgment, one should not infer other courts’ treatment beyond the clear application of Aon and the cited authorities (paras 15–18). Any later decisions applying or distinguishing this ruling must be located in subsequent authorities.
Several practical and doctrinal issues remain for future litigation:
What level of explanatory detail will satisfy the court where amendments are sought very late? Gzell J found the bare statement that counsel "thought of" fraud while preparing submissions insufficient (para 9). Future cases will refine what counts as satisfactory explanation.
How should a court evaluate the defendant’s cursory or equivocal statement that an adjournment may not be required? Here, the defence counsel could not say and that uncertainty weighed against amendment (para 8, 13). Future judges will need to identify what evidence or assurance from defence counsel is sufficient for the court to permit late amendments without adjournment.
The tension between the right to litigate arguable claims and the court’s duty to manage its docket remains alive. Aon v ANU insists on weighing case management factors; however, where an amendment is genuinely necessary for justice and delay is modest or explained, different outcomes may follow. This judgment leaves open the precise balancing point (paras 15–18, 20).
The scope of the liberty to reapply during trial. Gzell J granted liberty to reapply if defendants agree the matter can be dealt with on existing evidence (para 21). How often and under what circumstances courts will permit mid-trial reapplications before evidence is fully heard may generate future elucidation.
Interaction with costs and indemnity costs: Aon altered the presumed role of costs as a sufficient remedy. How costs orders will be tailored where late amendments are permitted, refused, or where relief is granted but causes additional trial disruption, remains a point for development (paras 15–18).
Practitioners should prepare to justify the timing of any proposed amendment with documentary or affidavit material, and to address the practical consequences on trial conduct, to satisfy the heightened case management scrutiny reflected in Aon and applied in this ruling (paras 17–21).
CITATION : Ehsman v Nutectime [2009] NSWSC 909
HEARING DATE(S) : 28 August 2009 JUDGMENT OF : Gzell J
DECISION : Application refused with liberty to reapply if defendants did not need an adjournment.
CATCHWORDS : PROCEDURE - Miscellaneous Procedural Matters - Amendments - amendment sought on first day of a five day trial to raise fraud based on the evidence to be led on other issues - defendant not sure whether an adjournment would be sought if amendments allowed - no explanation of delay beyond counsel thought of new ground when writing submissions - Aon Risk Services Australia Limited v Australian National University [2009] HCA 27 - (2009) 258 ALR 14 considered
LEGISLATION CITED : Conveyancing Act 1919 Civil Procedure Act 2005
Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 CASES CITED : State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1996-1997) 189 CLR 146 Sali v SPC Ltd [1993] HCA 47; (1993) 67 ALJR 841 Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 83 ALJR 951
Patricia Mary Ehsman (Plaintiff) Nutectime International Pty Ltd (First Defendant) PARTIES : David Neilan Brady (Second Defendant) Francis Joseph Frasca (Third Defendant) David Bruce Paix (Fourth Defendant) Timentel Pty Ltd (Fifth Defendant)
COUNSEL : R Harper SC and S Docker (Plaintiff and Fifth Defendant) F Corsaro SC and B Bradley (First, Second and Fourth Defendants)
SOLICITORS : McDonald Johnson Lawyers (Plaintiff and Fifth Defendant) Mason Lawyers (First, Second and Fourth Defendants)
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION
5189/05 PATRICIA MARY EHSMAN v NUTECTIME INTERNATIONAL PTY LTD & ORS EX TEMPORE JUDGMENT 1 The Plaintiff, Patricia Mary Ehsman, seeks leave to amend the statement of claim and her defence to first cross-claim. 2 No issue is taken with respect to the amendments to the prayers for relief in paragraphs 4A, 13A and 13B of the statement of claim, nor to the amendments of the pleading and particulars in paragraphs 61A and 81 and the insertion of a heading to paragraph 74. 3 In proposed paragraph 19A of the prayers for relief, an order is sought avoiding the alienation of assets by the fifth defendant to the first defendant pursuant to an asset sale agreement and a deed of assignment of licence. The basis for that relief is pleaded in new paragraphs 73A to 73E. What is raised is an allegation that there has been a contravention of s 37A(1) of the Conveyancing Act 1919. That provision is as follows: "Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced." 4 To seek to raise an allegation of fraud at the commencement of a hearing is a serious matter. 5 Mrs Ehsman also seeks to insert a new paragraph 70A in the statement of claim in the following terms: "The proceeds from the sale of the Sale Assets, after payment of solicitor's costs and disbursements, were applied to the benefit of the Second Defendant and the Third Defendant to the exclusion of Timentel and its other creditors." 6 That is a new allegation that also raises the question of fraud. 7 It was submitted in support of the application that the amendments merely rephrase the relief sought on the evidence to be lead and do not involve any occasion for fresh evidence. 8 Mr Corsaro SC, who with Mr Bradley appears for the First, Second and Fourth Defendants, says, fairly, that he does not know whether the amendments, if allowed, would cause him to seek an adjournment. He says he has not turned his mind to the effect of the amendments. It may be that he can deal with the amendments within the compass of the evidence about to be lead. 9 There is no explanation for the failure to raise these matters in the original pleading or by way of application for amendment of the pleading before the commencement of the hearing. Mr Docker, who appears for Mrs Ehsman, candidly says that he thought of the fraud allegations when he was preparing written submissions for the five-day hearing that commenced today. But there is no evidence of whether or not a pleading of fraud had been considered earlier and rejected. 10 In Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705, Austin J gave consideration to an application for leave to file and serve amended points of claim in this matter. Mrs Ehsman was represented by senior counsel. His Honour went carefully through the proposed pleading paragraph by paragraph, offering comment in relation to various paragraphs. As to paragraph 17, for example, an allegation that the first to fourth defendants were estopped from asserting that Timentel Pty Limited was entitled to assign its rights under the licence agreement, his Honour said at [31]: "The document does not reveal how the allegation can be made against any defendant other than Mr Brady, given that the assumption is said to have been created and acted upon at the time of the licence agreement, which was made well before Mr Frasca and Mr Paix became involved." 11 His Honour went on to say at [40] that the amended points of claim were "seriously defective". He did not accede to Mrs Ehsman's application. He said what was needed was a carefully considered pleading by statement of claim. His Honour said that the amended points of claim identified in broad terms, though imprecisely and at times in a confused way, some derivative and personal causes of action that emerged on Mrs Ehsman's account of the evidence. 12 The statement of claim, having had the advantage of his Honour's views on the amended points of claim, was filed in October 2006. There having been a precise analysis of the amended points of claim and then the filing of a statement of claim, it is not beyond the realms of probability that somebody gave consideration to s 37A(1) of the Conveyancing Act and decided not to proceed with it. 13 It was submitted that the evidence about to be lead is known to the defendants and there is no need for further evidence. I reject that submission. Having been told by senior counsel that there may be a need for further evidence, but that cannot be decided until the proposed amendments have been considered in detail, I do not propose to act upon the basis that the evidence that is to be lead is the only evidence that could relate to the issue of fraud. 14 It was submitted that there was no evidence of prejudice that might be suffered by the defendants. That is a matter that needs to be taken into account but it is by no means the only matter that should be taken into account. 15 In State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1996-1997) 189 CLR 146, the High Court held that case management considerations should not prevent a party litigating an issue that was fairly arguable provided any prejudice could be compensated by costs. At 155 the court said that justice was the paramount consideration. 16 While the attitude of courts to adjournment applications or amendment applications based on JL Holdings has been lenient, they have not always been successful. In Sali v SPC Ltd [1993] HCA 47; (1993) 67 ALJR 841, the High Court held that a refusal to grant an adjournment on the basis of an inability to obtain the services of senior counsel was not a miscarriage of justice. And a lack of preparedness of a party's legal adviser did not justify an adjournment in Dekkan v Picciau [2008] NSWCA 18. 17 In Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 83 ALJR 951 the High Court has recently restored case management principles as relevant considerations in such matters and has held, in that respect, that JL Holdings is not authoritative. The ANU brought proceedings in the ACT against its insurers and against Aon, its insurance broker. It settled against the insurers and then sought an adjournment to raise extensive amendments of its pleading against Aon. The adjournment was granted and leave to make the amendments was subsequently granted, notwithstanding that the explanations for delay were not entirely satisfactory, according to the trial judge. On appeal, indemnity costs were substituted for ordinary costs. The High Court ordered that leave to amend should be refused. 18 The ACT rules of court contain an equivalent of s 56(1) of the Civil Procedure Act 2005 in its r 21. Gummow, Hayne, Crennan, Kiefel and Bell JJ concluded as follows at [111-112]: "An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in JL Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court's earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future.
A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate."
Then at [114] their Honours said: " Rule 21 of the Court Procedures Rules recognises the purposes of case management by the courts. It recognises that delay and costs are undesirable and that delay has deleterious effects, not only upon the party to the proceedings in question, but to other litigants. The Rule's objectives, as to the timely disposal of cases and the limitation of cost, were to be applied in considering ANU's application for amendment. It was significant that the effect of its delay in applying would be that a trial was lost and litigation substantially recommenced. It would impact upon other litigants seeking a resolution of their cases. What was a "just resolution" of ANU's claim required serious consideration of these matters, and not merely whether it had an arguable claim to put forward. A just resolution of its claim necessarily had to have regard to the position of Aon in defending it. An assumption that costs will always be a sufficient compensation for the prejudice caused by amendment is not reflected in r 21. Critically, the matters relevant to a just resolution of ANU's claim required ANU to provide some explanation for its delay in seeking the amendment if the discretion under r 502(1) was to be exercised in its favour and to the disadvantage of Aon. None was provided." 19 French CJ and Heydon J, while agreeing with the joint judgment, added their own observations. 20 In this case there is not the immediate prospect of an adjournment, but that cannot be ruled out. In my view, if there is to be an adjournment and the matter is to recommence at some later stage, the principal objective of s 56 of the Civil Procedure Act will not be met. 21 What I propose to do is this. I disallow the amendments to paragraphs 70A and 73A to 73E of the statement of claim, with liberty to reapply during the five days of this trial should the defendants reach the view that the matter can be dealt with on the existing evidence. I will allow the other amendments. 22 I disallow the amendments to the defence to first cross-claim with liberty to reapply should the defendants reach the view that the matter can be dealt with on the existing evidence.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Ehsman
Nutectime
[1993] HCA 47
(2009) 258 ALR 14
(1993) 67 ALJR 841
(2009) 83 ALJR 951
[2009] HCA 27
Amendments to paragraphs 70A and 73A to 73E of the statement of claim were disallowed; amendments to the defence to first cross-claim were disallowed; other proposed amendments were allowed. Liberty to reapply during the five-day trial was granted should the defendants determine the fraud issues can be dealt with on existing evidence (para 21-22).