Forbes Engineering (Asia) Pte Limited v Forbes

REASONS FOR JUDGMENT 1 On 18 October 2007 I gave judgment for the respondents in the substantive proceedings to the effect that the hearing dates of the substantive proceedings in this matter be vacated, pursuant to a notice of motion brought by the respondents. In addition, I made a number of orders including that the respondents file and serve any further amended defence, as had been anticipated by the respondents, by 4.00 pm on 19 October 2007. At the time I made those orders Mr Tucker for the respondents was present in Court, and Mr Kim for the applicants was present by telephone from Sydney. 2 The applicants to the substantive proceedings subsequently sought to return before me last Thursday 25 October 2007 and be heard in relation to the order concerning the further amended defence of the respondent. At this hearing, Mr Perran SC, by way of oral application for the applicants sought orders that: · the first order made by me on 18 October 2007 be revoked · the second further amended defence filed by the respondents on 19 October 2007 be withdrawn from the Court file. 3 I understand, in light of the fact that the directions made by me on 18 October 2007 have not yet been entered, that the first order sought by the applicants in this application is pursuant to O 35 r 7(1) Federal Court Rules. It is not in contention that the Court has the power to withdraw pleadings from the Court file in appropriate circumstances, although on what basis is not clear. However, I note that the Court has inherent powers to control its own proceedings; further the Court has broad power under s 23 Federal Court of Australia Act 1976 (Cth) and powers to strike out pleadings including where a pleading has a tendency to cause prejudice in the proceedings (O 11 r 16 Federal Court Rules). 4 Mr Perran SC submitted at the hearing that an order should not have been made directing the respondents to file and serve a second further amended defence, in view of the fact that no submissions had been made by Mr Jones on behalf of the applicants in relation to this issue at the hearing of 18 October 2007. Mr Perran SC further submits that Mr Jones had not made any submissions on this point on the basis of his understanding that the respondents did not intend to seek leave to file a second further amended defence on that day. 5 Finally, Mr Perran SC submits that the second further amended defence contains withdrawals of admissions. This contention is disputed by the respondents. 6 I note that: · One of the reasons I ordered the hearing dates vacated was because I accepted the view taken by the new solicitor for the respondents that, in light of developments following the hearing of 26 September 2007, a second further amended defence would need to be filed and served (Forbes Engineering (Asia) Pte Limited v Mark Forbes [2007] FCA 1598 at [19]). · The orders of 18 October 2007, which accepted that leave to amend the respondents' further amended defence had been given pursuant to O 13 r 3, and directed that a second further amended defence be filed within a short time frame, were made in light of those reasons. · I accept the submission of the respondents, and it is not in dispute, that the legal representatives for the applicants had been in possession of a copy of the proposed second further amended defence since the morning of 18 October 2007, but no objection was made by the legal representatives when I made the relevant orders, including the order of which complaint is now made, on the afternoon of 18 October 2007. 7 However, notwithstanding the absence of objection by the legal representatives of the applicants on 18 October 2007 when directions were being given, it is now clear that they had not had a proper opportunity to consider the contents of the proposed second further amended defence. Further, I accept that Mr Jones for the applicants had anticipated that he would have an opportunity at a later date to deal with this proposal and any application for leave to file. 8 In addition to this, the possibility that the second further amended defence contains withdrawals of admissions made in earlier versions of this pleading raises a different issue. Whereas the general position with respect to amendment of pleadings is dealt with in O 13 r 3 and O 22 r 4 Federal Court Rules specifically deals with withdrawals of admissions. In this case the applicants particularly rely on O 22 r 4(2), which provides: Sub-rule (1) does not enable a party to withdraw, without the consent of another party or the leave of the Court, an admission or any other matter operating for the benefit of that other party. 9 The effect of this rule in my view is that a party must specifically obtain the leave of the Court to withdraw an admission to which O 22 r 4(2) applies. In this case no such specific leave has been obtained by the respondents. Mr Perran SC relies on the decision of Sackville J in Deangrove Pty Ltd v Commonwealth Bank of Australia [2003] FCA 268 as authority that no leave ought be granted to withdraw admissions in this case. The primary complaint of the applicants in this context relates to paras 5 and 6 of the second further amended defence. 10 On a simple comparison of the two versions of paras 5 and 6, it appears clear that the respondent has, in amending its defence, withdrawn a number of admissions. The relevant paragraphs are as follows: Paragraphs 5 and 6 in the further amended defence filed by the respondent on 28 September 2007 5. With respect to paragraph 24 of the amended statement of claim the respondents: (a) admit that the first respondent and the first applicant agreed as to the amount of the Agreed 1998 Profit Shortfall Amount (as defined in the amended statement of claim); (b) deny that the second respondent agreed to the Agreed 1998 Profit Shortfall Amount on the basis that the second respondent was not present during discussions about the Agreed 1998 Profit Shortfall Amount; (c) admit that the conversation particularised in paragraph 24(a) took place; (d) admit the existence of the letter particularised in paragraph 24(b), but object thereto on the basis that the letter is not a material fact relevant to the alleged agreement. 6. With respect to paragraph 25 of the amended statement of claim the respondents: (a) admit the Agreed 1998 Profit Shortfall Amount appeared in the books of account of Forbes Australia as a prepayment of rent payable under the Lot 8 Lease; (b) deny that Agreed 1998 Profit Shortfall Amount represented a true entry in the books of account of Forbes Australia on the basis no shortfall existed despite the matters set out herein such that no amount was truly owing pursuant to the agreement referred to therein; (c) further and alternatively- (i) repeat the rely on the matters pleaded in paragraphs 4C and 4D herein; (ii) plead that, in the premises, no obligation arose under the Forbes Guarantee or under the Forbes 8 Lease Guarantee, as alleged or at all. Paragraphs 5 and 6 in the second further amended further amended defence filed 19 October 2007 5. With respect to paragraph 24 of the amended statement of claim the respondents: (a) deny that there was any agreement as to the 1998 profit shortfall "pursuant to the Forbes Guarantee and the Forbes Lot 8 Lease Guarantee", as those agreements did not provide for calculation of, or agreement to, any profit shortfall for the 1998 calendar year or otherwise; admit that the first respondent and the first applicant agreed as to the amount of the Agreed 1998 Profit Shortfall Amount (as defined in the amended statement of claim); (b) deny that the second respondent agreed to the Agreed 1998 Profit Shortfall Amount on the basis that the second respondent was not present during discussions about the Agreed 1998 Profit Shortfall Amount; (c) admit that the conversation particularised in paragraph 24(a) took place, but plead that any such agreement as alleged therein is to be set aside because- (i) the first applicant caused the amount of the sales of Forbes Australia in the 1998 calendar year to be reduced by approximately $418,000 by the issue of "credit notes", which ought to have been recorded as sales by Forbes Australia for the 1998 calendar year, or included by way adjustment to the profit result for the 1998 calendar year; (ii) the first applicant knew, or ought to have known, of the matters pleaded in subparagraph (i) above; (iii) by reason of the first respondent's agreement in the course of the conversation that the amount of the shortfall of the Profit Guarantee for the 1998 calendar year was $127,284.00, when in truth and in fact there was no shortfall of the Profit Guarantee for the 1998 calendar year, the first applicant knew, or ought to have known, that the first applicant was unaware of the matters pleaded in subparagraph (i) above; (iv) in the premises, it would be unconscionable to permit any agreement to create any liability in respect of the alleged, and non-existent, 1998 profit shortfall; (v) further and alternatively- (A) Forbes Australia failed, in contravention of s 286 of the Corporations Law and, subsequently, s 286 of the Corporations Act, properly and adequately to maintain its financial records for the 1998 calendar year; (B) accordingly, the respondents have been denied any proper opportunity to assess- (1) the validity and accuracy of any accounts of Forbes Australia for the 1998 calendar year; or (2) the full amount of the sales made by Forbes Australia for the 1998 calendar year; (C) the present proceeding is, accordingly, an abuse of process; (d) admit the existence of the letter particularised in paragraph 24(b), but object thereto on the basis that the letter is not a material fact relevant to the alleged agreement. 6. With respect to paragraph 25 of the amended statement of claim the respondents: (a) do not admit the Agreed 1998 Profit Shortfall Amount appeared in the books of account of Forbes Australia as a prepayment of rent payable under the Lot 8 Lease, because- (i) Forbes Australia failed, in contravention of s 286 of the Corporations Law and, subsequently, s 286 of the Corporations Act, properly and adequately to maintain its financial records for the 1999 calendar year; (ii) accordingly, the respondents have been denied any proper opportunity to assess whether or not the alleged entry was a proper entry in Forbes Australia's book of accounts; (b) deny, in any event, that Agreed 1998 Profit Shortfall Amount represented a true entry in the books of account of Forbes Australia on the basis no shortfall existed despite the matters set out herein such and that, accordingly, no amount was truly owing pursuant to the agreement referred to therein; (c) further and alternatively- (i) repeat and rely on the matters pleaded in paragraphs 4B, 4C, 4D, 4F and 5 herein; (ii) plead that, in the premises, no obligation arose under the Forbes Guarantee or under the Lot 8 Lease Guarantee, as alleged or at all. 11 The basis of the applicants' complaint is most obviously illustrated by a simple comparison between the two versions of these paragraphs in that, for example, whereas in the further amended defence filed 28 September 2007 in each of paras 5(a) and 6(a) the respondent "admits" the fact contained therein, in the second further amended defence filed 19 October 2007 in each of paras 5(a) and 6(a) the respondent "denies" (para 5(a)) or "does not admit" (para 6(a)) the relevant facts. Prima facie, this does appear to constitute a withdrawal of admissions. 12 At the hearing on 25 October 2007, Mr Bain QC for the respondents submitted in summary that: · in the second further amended defence filed 19 October 2007 the respondents have ensured that all legal bases of their defence, in light of the applicants' true case, are made clear. Specifically, the respondents have pleaded their contended construction of a relevant agreement, the effect of variations made subsequently to that agreement upon any surety, and that any agreement in respect of any profit shortfall in respect of the 1998 calendar year is liable to be set aside. · the respondents have not sought to plead any facts not previously raised on the pleadings or in affidavits filed in the proceeding. · the respondents had, by the content of their previous defence, already put in issue the proper construction of the Share Sale Agreement and associated documentation. · accordingly, no new matters have been raised by the second further amended defence filed on 19 October 2007. · the amendments in paragraphs 5 and 6 to the defence of the respondents, which can be identified on a comparison of the paragraphs in the pleadings filed 28 September 2007 and 19 October 2007, do not constitute a "withdrawal" of admissions. At best, they are a variation of admissions. 13 Although there are many cases in which principles applicable to the concept of withdrawal of admissions are considered, in these cases the fact that a party is actually withdrawing an admission is not in contention. In this case, this issue is in contention. 14 The Macquarie Dictionary 4th edition defines "withdraw" as including: "to retract or recall". 15 In turn, "retract" has a number of possible meanings, the most relevant of which in this context is: "to draw or shrink back". 16 Both parties submitted that paras 5 and 6 of the second further amended defence related to paras 24 and 25 of the amended statement of claim, which provide: 15.24. On or about 14 January 1999 Forbes Asia by Poh Kiat and Forbes Australia by and Mark Forbes and Karen Forbes by Mark Forbes agreed that, pursuant to the Forbes Guarantee and the Forbes Lot 8 Lease Guarantee, the amount of the 1998 Profit Shortfall was $127,284.00 would be treated as the ("Agreed 1998 Profit Shortfall Amount").amount of the benefit to which Forbes Australia was entitled pursuant to the Share Sale Agreement and the lots 8 and 9 side letters 1 and 2 in respect of the financial year ending 31 December 1998 by way of rent reductions in respect of the leases of lots 8 and 9 and/or by way of payment from Mark Forbes or Karen Forbes. Such amount is hereinafter called the '1998 Secured Profit Shortfall'. Particulars (a) Conversation between Mark Forbes and Poh Kiat on 14 January 1999. (b) Letter Poh Kiat to Mark Forbes and Ajit Singh dated 22 July 1999. 16.25. Forbes Australia thereafter recorded the amount of $127,284Agreed 1998 Profit Shortfall Amount.00 as a prepayment of rent payable under the Lot 8 Lease in the books of account of Forbes Australia. Particulars (a) Audited accounts for the financial year ending 30 June 1999; (b) General ledger Transaction List 1 July 1998 to 30 June 1999. 17 Mr Bain submitted that reading the "new" versions of paras 5 and 6 with paras 24 and 25 of the amended statement of claim, it is clear that there was no withdrawal of an allegation of fact - rather the question is now one of legal characterisation of what was said as a matter of fact, not now seeking to say the identified people did not have such a conversation. So, for example, with respect to para 5, the fact of a conversation and on a subject matter has been admitted on the 28 September 2007 version, and remains admitted on the current version of the respondents' defence. Mr Bain submits further that, what is intended by the amendment in the current version is to say, albeit that the parties had a conversation in certain terms, the legal effect of that is not as is asserted. 18 While this submission raises an interesting point, on the material before me I cannot accept it. A plain reading of paras 5 and 6 in the second further amended defence, even read together with paras 24 and 25 of the amended statement of claim, indicates that there has been: · in para 5(a), a withdrawal of an admission of fact - namely an agreement as to the amount of the Agreed 1998 Profit Shortfall Amount, which was substituted in the second further amended defence by a denial that there had been any such agreement pursuant to nominated documents. To characterise this withdrawal as a variation in the legal characterisation of an agreement, and not a withdrawal of the admission as to the agreement, even considered with para 5(c) does not accurately state the effect of the amendment to para 5(a). · in para 6(a), a withdrawal of an admission of fact, namely that the Agreed 1998 Profit Shortfall Amount appeared in the books of account of Forbes Australia as a prepayment of rent payable under the Lot 8 Lease. That this amendment constitutes a withdrawal of admission is underscored by the supporting reasons in paras 6(a)(i) and (ii). 19 In any event Mr Bain QC also sought to make an application nunc pro tunc to the Court to grant leave to the respondents to amend in terms of the second further amended defence. This application was opposed by Mr Perran SC, on the basis that for the Court to entertain the application at such short notice would unfairly prejudice the applicants. 20 While my judgment of 18 October 2007 anticipated that a second further amended defence would be filed, it did not contemplate circumstances where the applicants had not had a meaningful opportunity to represent their views as to that document, nor an amended defence containing withdrawal of admissions without specific leave of the Court. If the respondents wish to have their defence amended in such terms and in such circumstances, it is necessary that a proper application be made to the Court and that the applicants be given an appropriate opportunity to answer it.