Hardy Bros v Hardy Bros [2008] NSWSC 1220 | Case summary

… 2 The offer of compromise was served on 9 October 2008. It prescribed a period of 28 days for its acceptance. On 31 October 2008, the plaintiffs' solicitors notified the seventh to twelfth defendants' solicitors (the offer had been made to those defendants) that the plaintiffs sought to withdraw the offer and that the plaintiffs would make an application to the Court if consent to that were not forthcoming. That consent was not given. On the contrary, by letter dated 4 November 2008, the seventh to twelfth defendants (whom I shall call, as the parties call them, "the accountants"), gave notice of acceptance of the offer. 3 To understand the application and the conclusion to which I have come, one needs to know a little about the proceedings. The plaintiffs bring two claims against the accountants. The first claim relates to contributions made by the first plaintiff to an offshore non-complying superannuation fund. It appears to be the case that this "arrangement" was set up by an entity known as CFAS, of which one Mr George Nowak, an accountant, was the principal. It is said that the first plaintiff received certain accounting and taxation advice in respect of those arrangements, including that it would receive taxation deductions for contributions made. It is said further that, after the first plaintiff had made substantial contributions over a period of about two years, those tax deductions were refused. 4 In respect of these transactions, the plaintiffs say that the accountants were negligent in failing to advise, or advise properly, as to the accounting and taxation implications of the offshore non-complying superannuation fund and of contributions to it. 5 The case for the accountants, on this aspect of the plaintiffs' claim, appears to be that the relevant advice was given, and the relevant duties were owed, by CFAS or Mr Nowak. As I understand it, the accountants wish to argue that they were not required to, and did not, advise; and that their role was limited to processing the relevant accounting entries in respect of the payments. 6 As one particular of breach of duty, the plaintiffs allege that the accountants received commissions from CFAS or Mr Nowak. That is explicitly denied by Mr Leslie Angus Holmes, the seventh defendant. In paragraph 9 of an affidavit sworn on 26 June 2006, Mr Holmes said that, having been introduced to Mr Nowak some years before the transactions in question, he introduced his firm's clients to Mr Nowak from time to time and Mr Nowak "provided them with financial planning assistance". Mr Holmes said that the accountants "did not receive any commission from Nowak or CFAS". 7 The second claim that the plaintiffs make against the accountants relates to events that occurred, it is said, about 12 to 18 months after the first plaintiff made the last contribution to the offshore non-complying superannuation fund to which I have referred. It is said that a number of transactions were put in place, including book entries and novation agreements, whereby the assets of the first plaintiff were transferred to other entities, and whereby all creditors of the first plaintiff but for the Australian Taxation Office were paid. At the time, but not now, there was also a claim by a workers' compensation insurer; that has been resolved. There is in addition a claim, or potential claim, by a former customer of the first plaintiff. 8 As against the first to sixth defendants (who are either the entities involved in the transfer of assets to which I have referred or the directors at the times in question of the first plaintiff) it is said that the transfer of assets and associated transactions were carried out in a way that caused loss to the first plaintiff and involved a breach of fiduciary duty on the part of the directors. It is said that both the recipients of the benefit of those transactions and the accountants were knowingly involved in those breaches of fiduciary duty. Alternatively, against the accountants, it is said that they should have, but negligently failed to, advise. 9 The offer of compromise that was made specified that the plaintiffs would compromise the proceedings against the accountants on the basis that the accountants pay it a sum (which was set out in the offer but which it is both unnecessary and undesirable to set out in these reasons) "exclusive of costs". In case the point were not obvious from the form of the document, it stated that it was an "offer made pursuant to Part 20 of the" UCPR. As I have said, it limited a period of 28 days for acceptance. 10 As will be seen, the offer was one to compromise the whole of the claims brought by the plaintiffs against the accountants. It did not differentiate between, or seek to reserve for further consideration any part of, the two discrete claims to which I have referred. 11 The parties accepted in broad outline that the application to withdraw the offer of compromise was one which required the plaintiffs to demonstrate a sufficient change in circumstances since the offer was made to make it just that leave to withdraw be given. That has been said to be the test in relation to the former SCR Part 20 Rule 3(6). See the decision of Hodgson J in Young v Combe (29 July 1993, unreported; BC 9301813) and the decision of Palmer J in Scanruby P/L v Caltex Petroleum P/L [2001] NSWSC 411. Although there are differences of expression between the former Part 22 and the current Part 20 Division 4, and one difference perhaps of substance, I think that the same principle is to be applied in considering an application under the current rule. (The possible change of substance is that under the former Part 22, an offer of compromise was required to be open for at least 28 days after it was made. Under the present regime, where an offer is made within two months of the commencement of the hearing, it is to remain open only for such time as is reasonable in the circumstances. I do not perceive that distinction as having any relevance in the present case.) 12 The material change in circumstances on which the plaintiffs rely is that, after the offer was made, the first to sixth defendants procured, and served, an affidavit by Mr Nowak sworn (or affirmed) on 20 October 2008. In that affidavit, Mr Nowak dealt among other things with commissions payable by CFAS to "agents" or "subagents" who introduced business to CFAS. According to Mr Nowak, those agents or subagents included the accountants. 13 Mr Nowak's affidavit identifies commissions that he says were payable by CFAS to the accountants. He refers to what appear to be (or purport to be) business records that are capable of supporting his evidence on this point. He says that, of commissions that were payable, "it appears" that about $67,000 was paid at the direction of the accountants to a third party. The business records that he produces do not support that assertion, which remains unsubstantiated. 14 Thus, as Mr Pritchard of senior counsel for the accountants put it, there is no necessary inconsistency between Mr Nowak's evidence and Mr Holmes' evidence. Nonetheless, it must be said, the two do not sit together very easily. 15 Mr Nowak's evidence might assist in showing that the accountants were more closely involved in the first aspect of the matter - the decision to set up and make payments to the offshore non-complying superannuation fund - than they assert was the case. That does not necessarily follow. A person paid a commission, or "spotter's fee", for introducing business does not necessarily participate in the execution of the business introduced. It does not seem to me to follow simply because a commission was payable (and perhaps paid) to the accountants - and I assume for the purposes of the application the truth of what Mr Nowak asserts - that the accountants had any active part in the setting up of the arrangements in question. Far less does it follow that the accountants owed any duty in relation to the setting up of those arrangements. 16 It is also possible that Mr Nowak's evidence may have some relevance to an assessment of the credibility of Mr Holmes. However, for present purposes, that seems to me to be a collateral matter. 17 The question is therefore whether the service of Mr Nowak's evidence, after the offer of compromise was made but before the expiry of the time limited for its acceptance, is a sufficient change in circumstances to entitle the plaintiffs to the relief sought. To adopt the words of Palmer J in Scanruby at [12], the Court should consider whether that evidence amounts to "significant new evidence coming to light after the offer had been made". 18 A great number of points were taken in answer to the application. Likewise, substantial submissions were put in support of it. On the view to which I have come, there is one consideration that is dispositive. Having regard to the hour, I will go straight to that point. 19 As I have said, the change in circumstances must be of such significance as to justify interception of the statutory process. Further, in considering the point, the court is required to take into account the dictates of section 56(1) of the Civil Procedure Act 2005. 20 In this case, an assessment of the significance of Mr Nowak's evidence would require an understanding of the extent of the damages claimed by the plaintiffs in respect of the first claim against the accountants - the claim for negligent advice (or failure to advise) in respect of the setting up of the arrangements in question relating to the offshore non-complying superannuation fund. All that the Court knows is that (as is common ground) the overall quantum of the plaintiff's claim against the accountants was about two million dollars before interest and costs. The affidavit evidence in support of the application did not dissect this amount between the two heads of claim, although logically they are quite distinct and should be capable of separation out. The plaintiffs' solicitor was cross-examined on this. She said, when asked what was the quantum of the claim in respect of the first head of claim, that she could not answer the question "at this point of time". 21 Thus, all the Court knows is that the claim is somewhere between $1 and two million dollars. I have no doubt that it must be more than $1; I cannot believe that a claim that was totally trifling would be advanced. But the fact remains that whether or not Mr Nowak's evidence is significant depends not only on the forensic use to which it may be put but also on the amount of claim to which it is relevant. In particular, where the offer of compromise is one that extends across both heads of claim, and where there is no evidence to suggest that it reflected one rather than the other, there is no way in which the Court can make any objective assessment of the significance of this possible new development. 22 In those circumstances, I am not satisfied that the plaintiffs have discharged the onus of showing that they ought to be given leave to withdraw the offer. 23 I do not think that discretionary considerations are of enormous significance. However, to the extent that it is relevant, I record that the plaintiffs appear to have considered the possibility of calling Mr Nowak and to have discarded that, on the basis of the plaintiffs' solicitor's assessment that he would be "unhelpful to the liquidator." The plaintiffs, and their legal advisors, had the benefit of a liquidator's examination of Mr Nowak, in the course of, or from, which, no doubt, his demeanor, and his general ability to assist, were assessed. Thus, it could be thought, that the plaintiffs have sought to take advantage of the late service of the affidavit. I do not regard that as being of particular significance. However, I do regard it as being significant that the accountants, who are individuals (and who will remain involved in the proceedings as cross-defendants), will be put to a longer hearing if the plaintiffs get the leave that they seek than will be the case if the plaintiffs do not get that leave. It may be - I do not know - that the accountants had the benefit of insurance to assist them in their defence of the claim. Thus, the financial repercussions to them might not be significant. But they are, nonetheless, entitled in my view to order their affairs in a way that involves as little exposure as possible to the hazards of litigation. 24 In circumstances where the plaintiff made what appears to have been a reasoned decision not to call Mr Nowak, and thereafter changed its mind in the circumstances that I have described, I would conclude that to the extent that considerations of relative prejudice were dispositive (and I repeat that in my view they are not) they would not favour the grant of the relief sought. 25 I order that the plaintiff's notice of motion filed on 4 November 2008 be dismissed with costs. 26 I order that the exhibits on the application and the documents marked for identification be returned. 27 I order that the affidavit of Kirsten Pearl Farmer affirmed 4 November 2008 be placed in a sealed envelope and be not opened without the leave of a judge of the Court.

Hardy Bros v Hardy Bros

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