Ginger Roger Pty Ltd v Parrella Enterprises Pty Ltd

AND: PARRELLA ENTERPRISES PTY LTD (ACN 080 582 010)

REASONS FOR JUDGMENT 1 Before me is a notice of motion filed on 18 February 2010 by Famore Business Brokers Pty Ltd (ACN 010 254 930) and Mr Smiley Sansoni, the third and fourth respondents to the substantive proceedings. Mr Sansoni is a director of Famore Business Brokers Pty Ltd (ACN 010 254 930). In the interests of convenience I shall continue to refer to these parties as the third and fourth respondents, notwithstanding that they are the applicants to the notice of motion before the Court. 2 In this notice of motion the third and fourth respondents seek the following orders: 1. That the third and fourth respondents have leave, pursuant to o 13 r 2 of the Federal Court Rules, to amend their defence to the applicants' claim. 2. That the costs of this application be costs in the cause. 3. Such further or other orders as this Honourable Court considers appropriate. 3 The trial in the substantive proceedings is set down for hearing for seven days commencing on 8 March 2010, less than two weeks from now. Accordingly, a decision in respect of the notice of motion currently before the Court is urgently required.

The primary proceedings 4 The applicants seek relief from the respondents to these proceedings pursuant to the Trade Practices Act 1974 (Cth) ("the Act") in relation to events arising from the acquisition of a business trading under the name "Naughty But Nice" in the inner Brisbane suburb of Fortitude Valley. So far as is relevant for the purposes of these interlocutory proceedings, it appears that: · the first respondent was, inter alia, the master licensee of a trademark and associated images relating to the business system known as "Naughty But Nice"; · the second respondent was, in a manner yet to be determined, in a business relationship with the first respondent; · the third respondent acted on behalf of and as agent for the first respondent; · the fourth respondent was a director of the third respondent. 5 Specifically in relation to the third and fourth respondents, in the primary proceedings the applicants seek: · In respect of the third respondent: o a declaration that the third respondent in engaging in the conduct alleged in the statement of claim has engaged in misleading and deceptive conduct and has thereby contravened s 52 of the Act; and o an order pursuant to s 82, or alternatively s 87, of the Act that the third respondent pay to the applicants the amount of loss and damages suffered by them by reason of such conduct. · In respect of the fourth respondent: o a declaration that the fourth respondent has aided, abetted, counselled or procured, or was directly or indirectly knowingly concerned in, or party to, the conduct engaged in by the first respondent alleged in the statement of claim within the meaning of s 75B of the Act; o a declaration that the fourth respondent has aided, abetted, counselled or procured, or was directly or indirectly knowingly concerned in, or party to, the conduct engaged in by the third respondent alleged in the statement of claim within the meaning of s 75B of the Act; and o an order pursuant to s 82, or alternatively s 87 of the Act that the fourth respondent pay to the applicants the amount of loss suffered by the applicants by reason of such conduct. 6 The applicants also seek: · damages for breach of contract; · damages for breach of duty; · interest on damages pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth); · costs; and · such other relief as the Court may deem necessary.

Proposed amendment to defence of third and fourth respondents 7 In summary, by a Defence filed 11 August 2009 the third and fourth respondents deny the substantive claims of the applicants against them on the basis that any losses of the applicants were not caused by conduct of the third and fourth respondents in contravention of s 52 of the Act. The third and fourth respondents propose to amend the Defence by the addition of the following paragraphs: 38A. Further and alternatively, the applicants' losses were not caused by any contravention by third respondent of s.52 of the Trade Practices Act 1974, but were caused or contributed to by: (a) the first and second applicants' failure to appoint any person with authority to manage the business. Particulars Ms Leverton, the senior employee, had no power to determine stock levels, no information to enable her to attempt to manage expenses and no authority to approve staff training. (b) the first applicant, by the second applicant, failed to properly manage the business by: (i) failing to prepare or have prepared any business plan, cash flow forecast or budget for the business; (ii) failing or refusing to undergo any training with respect to the operation of the business; (iii) failing to adequately market and promote the store; (iv) failing to attend at the store with sufficient regularity and frequency to monitor sales and staff performance; (v) refusing to permit the store to be adequately stocked by adhering to a policy of permitting only one third of weekly takings to be used to purchase stock, with any regard to the need for stock; (vi) refusing to permit staff training despite requests from Ms Leverton; (vii) failing to have constructed a rear entrance to the store; (c) the failure of the first and second applicants to mitigate their losses by: (i) taking no reasonable steps to sell the business for market value; (ii) selling the business for a sum which was $36,411.00 less than the value of inventory, plan and equipment and leasehold improvements. 38B. Further and alternatively: (a) the applicants' loss was caused or contributed to by the failure of the applicants to take reasonable care in the respects referred to in paragraph 38A herein; (b) in the premises, pursuant to s.82(1B) of the Trade Practices Act 1974 the applicants' damages are to be reduced to the extent to which the Court thinks just and equitable having regard to the applicants' share in the responsibility for the loss or damage. 38C Further and alternatively: (a) the claims of the first and second applicant are apportionable claims pursuant to s.87CB of the Trade Practices Act 1974; (b) at all material times the second applicant as director of the first applicant owed to the first applicant a duty at common law and pursuant to s.180 of the Corporations Act 2001 to act with reasonable care and diligence in his position as director of the first applicant; (c) by reason of the matters referred to in paragraph 38A herein, the second applicant breached the said duties; (d) the second applicant's breach of the said duties was a cause of the first applicant's loss; (e) in the premises, the second applicant is a concurrent wrongdoer in respect of any loss suffered by the first applicant; (f) the first respondent is a concurrent wrongdoer in respect of any loss suffered by the first and second applicants; (g) in the premises, pursuant to s.87CD of the Trade Practices Act 1974 the liability of the third respondent (and any ancillary liability of the fourth respondent) is limited to the amount reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of the third respondent's responsibility for the damage or loss. 8 These proposed amendments are in a document titled "DEFENCE OF THE THIRD AND FOURTH RESPONDENTS" in exhibit BJH1 to the affidavit of Brett John Heath filed in these proceedings on 18 February 2010. 9 In summary it is clear that the third and fourth respondents propose to amend their Defence to also claim that: · Conduct of the first and second applicants contributed to any losses they incurred; · The claims of the first and second applicants are apportionable claims pursuant to s 87CB of the Act; · The second applicant breached his duties to the first applicant under s 180 of the Corporations Act 2001 (Cth), which was a cause of the first applicant's loss; · The second applicant was a concurrent wrongdoer in respect of loss suffered by the first applicant, and the first respondent was a concurrent wrongdoer in respect of any loss suffered by both applicants.

Principles applicable to exercise of judicial discretion in respect of amendment to pleadings 10 Recently in Aon Risk Services Australia Ltd v Australian National University (2009) 258 ALR 14 the High Court considered principles applicable to the exercise of judicial discretion when application is made to amend pleadings. In that case, at the commencement of a four week trial, the plaintiff made application to the Supreme Court of the Australian Capital Territory for leave to amend its statement of claim in respect of the defendant Aon Risk Services Australia Ltd. In ordering that leave be granted, the trial judge found that, in summary: · The explanations for the delay in seeking leave to amend the statement of claim were not entirely satisfactory; · The trial was set for four weeks, and vacation of those dates meant that other litigants were disadvantaged by that allocated time not being used; · However, an important factor in the exercise of the discretion was that the allegations raised real triable issues between the parties. (The Australian National University v Chubb Insurance Company of Australia Ltd [2007] ACTSC 82 at [43].) 11 The High Court found that the primary judge was in error in granting leave to the plaintiff to amend its statement of claim. In summary, their Honours found that: · An award of costs to compensate the other party for the inconvenience of the trial dates being vacated as a consequence of the amendment to the pleadings is not a panacea: [5], [100]; · The Court should recognise any ill-effects of resultant delay upon the parties to the proceedings and the effects on other litigants who are also seeking a resolution to their proceedings: [101]; · The nature and importance of the amendment to the party applying for the amendment cannot be overlooked: [102]; · The exercise of the discretion requires an explanation to be given where there is delay in applying for amendment: [102]-[103]. The party seeking the amendment will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay: [103]; · The nature of the amendment requires consideration, including whether they introduce new and substantial claims: [104]; · An inference drawn by the Court that the raising of new claims not previously agitated is because of a deliberate tactical decision not to do so militates against the grant of leave to amend pleadings: [4]; · There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates: [102]. Issues of case management in the judicial system are not to be disregarded - it is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings: [5]-[6], [113]; · The timing of the application for amendment is a salient issue: [106]. Limits will be placed on the ability of parties to effect changes to their pleadings, particularly if litigation is advanced: [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: [111]. 12 In Aon (2009) 258 ALR 14 the defendant was prejudiced by the grant of leave because, inter alia, it was then required to face new claims of substance, the application was made very late in the litigation, and no satisfactory explanation had been given for the delay (although an inference could be drawn that the delay was tactical from the perspective of the plaintiff).

Submissions of the parties 13 In summary, the submissions of the third and fourth respondents in support of their notice of motion seeking amendment to their Defence are as follows: 1. The factual issues proposed to be ventilated by the proposed amendments have already been raised by para 58(vi) of the Defence of the first and second respondents. Paragraph 58(vi) of the Defence of the first and second respondents provides as follows: (vi) the First and Second Respondents say that any loss or damage suffered by the Applicants has been caused by their failure to mitigate their loss and damage and/or their failure to conduct the Store in a businesslike manner, because: (A) the Second Applicant had every opportunity to form his own views as to profitability and how to maintain it when he examined trading figures of other "Naughty but Nice" businesses, and spoke to a number of "Naughty but Nice" business owners, prior to purchasing the pleaded business. (B) the Second Applicant failed to avail himself of opportunities to be trained in areas of operating a "Naughty but Nice" business, including marketing, promotion and merchandising. (C) the Applicants failed to avail themselves of an offer by the Second Respondent to consult to the Applicants after commencement of the business; (D) the Applicants failed, after the commencement of business, to keep the business adequately stocked with products; (E) the Applicants failed, after commencement of the business, to adequately market and promote the business; (F) the Second Applicant by his conduct, including aggression towards staff, made the staff of the business unhappy and de-motivated them; (G) the business was initially profitable, but became unprofitable by reason of the Second Applicant's conduct as pleaded in this paragraph 58; (H) since the Applicants ceased operating the business, the business has become much more profitable. 2. The factual basis for the proposed amendments has already been the subject of evidence filed and served in these proceedings, namely: · in the witness statement of the second applicant Mr Trikamji filed 3 December 2009, where Mr Trikamji's evidence at paras 184-217 and 225-245 refers to the manner in which the relevant business had been conducted and the circumstances of the sale of the business; · in the witness statements of Ms Glenice Tune and Ms Tiffany Leverton filed 22 January 2010, and the statements of Mr Tyrone Constable filed 27 January 2010 and 28 January 2010; and · in the witness statement in reply of Mr Trikamji filed 10 February 2010 in which Mr Trikamji responded to the evidence of Ms Tune, Ms Leverton and Mr Constable. While new legal issues are pleaded in the amendments proposed in paras 38A, 38B and 38C, relevant factual material is already before the parties and the Court. 3. By order of 15 July 2009 the respondents were directed to file and serve a defence and cross-claim (if any) on or before 4.00 pm on 7 August 2009. The notice of motion seeking the leave of the Court to amend the Defence of the third and fourth respondents was filed 18 February 2010, two weeks prior to the commencement of the trial in the substantive proceedings. However in an affidavit sworn 18 February 2010, Mr Heath, the solicitor for the third and fourth respondents, deposed in summary that: · the evidence of Ms Tune, Ms Leverton and Mr Constable was not finalised until 21 January 2010; · the expert report dated 22 January 2010, containing conclusions with respect to the applicants' conduct of the business the subject of this action, was filed on 4 February 2010. 14 Mr Couper QC for the third and fourth respondents submitted that the reason for the lateness in the notice of motion was that, in summary, until this evidence was finalised the solicitors for the third and fourth respondents were not in a position to consider whether an application to the Court seeking amendment to the Defence was warranted. 15 In any event, it is clear that on 4 February 2010, prior to a mediation in which the parties participated on 10 February 2010, Mr Heath had in correspondence to the solicitors for the applicants informed them of the intention of the third and fourth respondents to seek the leave of the Court to amend their Defence, and provided a copy of the proposed amendments to the Defence (the aforesaid exhibit BJH 1 to the affidavit of Brett John Heath filed 18 February 2010). 16 In opposing the notice of motion Mr Lynch for the applicants submitted in summary as follows: 1. The amendment to the Defence of the third and fourth respondents proposed in para 38C raises issues concerning the duties of the second applicant to the first applicant under the Corporations Act 2001 (Cth). Not only are these issues new, and not previously ventilated, but the impact of the amendment to the Defence is that the interests of the applicants potentially conflict on this point, and the applicants would need to consider whether separate representation would be necessary for each applicant in these proceedings. 2. In relation to the issue of commonality between para 58(vi) of the Defence of the first and second respondents and the proposed amendments to the Defence of the third and fourth respondents, para 58(vi) pleaded only causation, and included no reference to either contributory negligence or apportionment of liability as proposed by the third and fourth respondents. Claims of contributory negligence and apportionment of liability are new legal issues to be addressed by the third and fourth respondents, and also raise the question whether further evidence is required. 3. The third and fourth respondents conceded that a factual overlap existed between the proposed amendments to the Defence of the third and fourth respondents and the material in the witness statements of Ms Tune, Ms Leverton and Mr Constable. 4. The applicants prefer the existing trial dates to remain undisturbed. However although at this stage the third and fourth respondents have not produced evidence as to costs they would incur should the Court grant the leave sought, such steps would include: · taking instructions from the applicants and witnesses in relation to the matters raised by the amendments; · briefing Senior Counsel to settle these witness statements; · drawing a draft Amended Reply addressing the new matters raised by the proposed amendments; · briefing Senior Counsel to settle the Amended Reply; · obtaining instructions about what new documents might now be required to be discovered by the applicants in consequence of the issues raised by the proposed amendments; · make, file and serve a supplementary list of documents discovering such documents; · conferring with Senior Counsel and any new witnesses before trial. 17 Further, the applicants' preparation for trial would be severely disrupted. 5. The terms of the proposed amendments to the Defence cannot be substantiated and are bound to fail. Accordingly leave should not be granted. Inter alia: · In proposed para 38A(a) it is alleged that the second applicant failed to appoint a manager to manage the business the subject of this action. This allegation cannot succeed as against the second applicant because it is only the first applicant, through its Board of Directors, that could lawfully appoint a manager to manage the business owned by the first applicant. · Proposed para 38A(c) fails in respect of the second applicant for the same reason. · To the extent that para 38B refers to the facts pleaded in para 38A it fails as against the second applicant, for the same reasons that para 38A is flawed in its reference to the second applicant. · Proposed para 38C(a) pleads that the claims made by the first and second applicants is an apportionable claim however paras 2, 4 and 7 of the Application seek damages pursuant to s 87 of the Act, para 8 seeks damages for breach of contract and para 9 seeks damages for breach of duty. None of these claims are apportionable claims under the Act: BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 2) [2008] FCA 1656. · To the extent that para 38C(c) refers to the facts pleaded in para 38A it fails as against the second applicant, for the same reasons that para 38A is flawed in its reference to the second applicant. · Proposed para 38C(e) pleads that the second applicant is a concurrent wrongdoer but given that that conduct alleged against the second applicant does not disclose a good cause of action the second applicant cannot, in law, be a concurrent wrongdoer so far as concerns the first applicant. 6. No satisfactory reason has been provided by the third and fourth respondents for delays in seeking to amend their Defence. In particular: · Section 87CE(1)(a) of the Act required the third and fourth respondents to give the applicants written notice as soon as practicable that they had reasonable grounds to believe that the second applicant might be a concurrent wrongdoer in relation to the claim. · The evidence before the Court suggests that the solicitors for the third and fourth respondents were alive to the possibility of an apportionment claim against the applicants as early as 26 October 2009, and that they had sufficient instructions by 26 October 2009 at the latest to have reasonably formed the view that such a claim existed. The Court can draw this inference from material including: o a letter from PPB to Mr Heath dated 26 October 2009 requesting the provision by the applicants of various classes of documents, including documents not relevant to the calculation of loss and damage; o correspondence from the solicitors for the third and fourth respondents to PPB dated 3 December 2009 requesting that it prepare a report on the conduct of the applicants' business, which report was produced on 22 January 2010; o the witness statements of Ms Tune, Ms Leverton and Mr Constable, each of which apparently bear a document creation date of 30 December 2009; o the witness statement of Ms Tune, which was actually signed on 5 January 2010 although not filed until 22 January 2010. 18 Notwithstanding this material, the solicitors for the third and fourth respondents did not give notice to the applicants of a proportionate liability claim until 4 February 2010.

Consideration 19 In my view the notice of motion of the third and fourth respondents should be allowed in part. I refuse leave in respect of the material in proposed para 38C(b), (c) and (d) as set out earlier in my judgment. I form this view for the following reasons. 20 First, it cannot be said that the proposed amendments to the Defence of the third and fourth respondents so far as relate to alleged contributory negligence of the first applicant, the issue of the second applicant being a concurrent wrongdoer, or apportionment of liability, take the applicants by surprise. This is so in light of the material in para 58(vi) of the Defence of the first and second respondents (which was filed on 11 August 2009). 21 Second, it was common ground at the hearing before me in this matter last Monday that there is substantial factual overlap between the proposed amendments to the Defence and the material in the witness statements of Ms Tune, Ms Leverton and Mr Constable. Indeed this material has already been the subject of a reply statement by Mr Trikamji dated 9 February 2010. Whether the applicants will need to adduce further evidence to respond to the proposed amendments to the Defence of the third and fourth respondents is unclear. Such evidence may be completely unnecessary in light of the existing evidence filed in these proceedings. Accordingly the degree to which the applicants would suffer prejudice, substantial or otherwise, from the amendments to the Defence of the third and fourth respondents so far as concerns the issues of contributory negligence, concurrent wrongdoer and apportionment of liability, is not clear. 22 Third, I am not persuaded that the third and fourth respondents have improperly delayed the filing of the notice of motion to amend the Defence. Although the notice of motion was not filed until 18 February 2010, it is common ground that the solicitors for the applicants were notified by letter, dated 4 February 2010 from the solicitors for the third and fourth respondents, of the intention of the third and fourth respondents to seek leave of the Court to amend the Defence in the terms currently before the Court. I note that between 4 February 2010 and 18 February 2010 the parties participated in mediation discussions in an attempt to resolve these proceedings, which discussions were unsuccessful. 23 Fourth, I am not persuaded that the solicitors for the third and fourth respondents have in any way acted improperly in their conduct of the case of the third and fourth respondents, or in respect of the process by which a decision was reached to seek the leave of the Court to amend the Defence. In my view it was perfectly proper prior to the filing of a notice of motion seeking leave to amend the Defence that the solicitors for the third and fourth respondents should be satisfied that evidence in witness statements and an expert report supported an amendment to the Defence. I am not persuaded that the solicitors for the third and fourth respondents should have advised their clients as early as October 2009 that leave of the Court should be sought to amend the Defence. Further, I am not prepared to draw the inference in these proceedings that the timing of the notice of motion was part of a deliberate tactic of the third and fourth respondents to, for example, thwart the litigation or otherwise create an unfair advantage for their clients to the prejudice of the applicants at this stage of the proceedings. I am also not prepared to find at this stage that the third and fourth respondents have acted in breach of s 87CE of the Act, because I am not persuaded that the third and fourth respondent have acted otherwise than as soon as practicable for the purposes of s 87CE(1)(b). 24 Fifth, while it is not in contention that the amendment to the Defence of the third and fourth respondents may necessitate a further Reply to be prepared and filed by the applicants, none of the parties to these proceedings have flagged an application to vacate the current trial dates. Indeed all parties at the hearing indicated a preference for the trial dates to be maintained irrespective of the outcome of the notice of motion. Accordingly, at this stage, it cannot be said that the principles of case management would be subverted should leave in respect of this proposed amendment be granted. 25 Sixth, while I note Mr Lynch's submission concerning the first applicant's ownership of the business the subject of the primary proceedings, and the alleged error in proposed para 38A (and related proposed paragraphs) to the reference to the conduct of the second applicant, I also note that the applicants themselves plead that both applicants have suffered loss and damage as a result of the conduct of the respondents. I refer, for example, to para 32 of the Statement of Claim filed 24 June 2009. I accept the submission by Mr Couper QC that the drafting of proposed para 38A (and related proposed paragraphs) was against the background of the Statement of Claim and the reference to losses suffered by both applicants. It may be that the third and fourth respondents cannot substantiate these proposed claims against the second applicant at trial for the reasons submitted by Mr Lynch, however in my view it is appropriate that such issues be addressed in Reply, and properly ventilated and determined at trial. 26 Seventh, while I again note Mr Lynch's submissions with respect to apportionment of claims and the operation of s 87CB - a point conceded in submissions by Mr Couper QC - I again take the view that the drafting of the proposed amendments is against the background of the broad terms of the Statement of Claim. To the extent that apportionment applies only to claims pursuant to s 82, not s 87 of the Act, I consider that the point raised by Mr Lynch could properly be taken in Reply, and is not a sufficient reason to refuse leave to the amendments sought. 27 However, as I indicated earlier I consider it appropriate that I refuse leave in respect of the material in proposed para 38C(b), (c) and (d). In my view: · These claims appear to raise new and substantive legal issues not previously before the parties. I am not persuaded that pleadings or facts already in evidence support an inference that the applicants had earlier been put on notice of claims pursuant to s 180 of the Corporations Act 2001 (Cth) in the Defence. · Second, and in my view critically, I consider that the applicants would be unfairly prejudiced at this late stage of the proceedings by such amendments to the Defence. This is because I accept Mr Lynch's submission that these amendments proposed by the third and fourth respondents raise an immediate prospect of conflict in the interests of the first and second applicants, potentially necessitating their separate legal representation. In my view the consequences of permitting these new and substantive claims to be pleaded in the Defence would be unduly burdensome on the applicants less than two weeks out from the commencement of the trial of the substantive proceedings. 28 Finally, the third and fourth respondents sought an order that the costs of the notice of motion be costs in the cause. As the third and fourth respondents have been only partially successful in relation to this notice of motion, I consider it appropriate that costs be reserved. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.