Supreme Court of WA|2007-09-06|Before: Miere J

JOYCE -v- PALASSIS [No 3] [2007] WASC 214 (6 September 2007)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : JOYCE -v- PALASSIS [No 3] [2007] WASC 214

Civil practice and procedure - Pleadings - Amendment to defence - Application to disallow amendments to defence - Whether leave required to bring application to disallow - Whether defendants only entitled to make amendments to defence that are consequential upon amendments to statement of claim - Whether amendments to defence consequential

Civil practice and procedure - Pleadings - Application for leave to amend defence - Whether satisfactory explanation given as to necessity of amendment - Whether plaintiff would suffer irremediable prejudice - Leave granted to amend on conditions

Rules of the Supreme Court 1971 (WA), O 1, O 2, O 20, O 21, O 29, O 58

1 LE MIERE J: The plaintiffs apply to disallow amendments to the defence of the second defendant (Chattock). Chattock resists that application but also applies to amend its defence to re-plead the disallowed amendments if they are disallowed. These applications were heard together with the plaintiffs' originating summons under O 58 r 10 of the Rules of the Supreme Court 1971 (WA) (RSC) for the determination of a question of construction arising under a deed (the Deed) dated 10 November 2000 and made by the first defendant (Mr Palassis) and the first plaintiffs. I delivered reasons for judgment in that matter on 24 July 2007 ([2007] WASC 156). In those reasons for judgment I outlined the issues in these proceedings. I will commence these reasons by repeating that outline of the issues in these proceedings.

2 According to the statement of claim, the first plaintiffs and Mr Palassis are accountants who used to practice together as Stanton Partners. Mr Palassis was the managing partner of Stanton Partners. The second defendant, Chattock, is an entity related to Mr Palassis. Chattock owned a building at 5 Ord Street, West Perth. In or about 1992 Mr Palassis proposed to the first plaintiffs that Stanton Partners should take a lease of premises at 5 Ord Street (the Premises). Thereafter the first plaintiffs and Mr Palassis (together the Partners) and Chattock negotiated for the terms of a lease.

3 The plaintiffs allege that throughout the negotiations Mr Palassis acted for and on behalf of, and as agent of, Chattock. The plaintiffs say that Mr Palassis, for and on behalf of and as agent of Chattock, made oral proposals to the plaintiffs in respect of the rent and outgoings payable under the proposed lease, for the payment to the Partners of management fees in respect of the management of the building and in respect of rights of pre-emption which the Partners would have over the shares in Chattock and the building (the Proposals).

4 Between November 1992 and January 1993 Mr Palassis delivered to the first plaintiffs a written statement of certain of the Proposals (the Written Proposals). The Written Proposals did not include certain of the Proposals namely the 'Right of Pre-emption Proposal', the 'Rent Proposal' and the 'Shares Proposal'. The Right of Pre-emption Proposal was that the Partners would have a right of pre-emption over the shares in Chattock in that each of the shareholders in Chattock would grant the Partners the first right to purchase their shares in Chattock if they wished to sell them. The Rent Proposal was that if the total rent received in respect of the building should exceed the sum of $450,000 plus unrecoverable outgoings per annum (the Excess) then the Partners would receive 74.27% of the Excess. The Shares Proposal was that at the expiration of each calendar year, Chattock would allot 100 fully paid ordinary shares in itself for each $10,000 by which the gross income received or receivable in respect of the building exceeded $450,000 and the Partners were to receive 37.14% of the allotted shares. The first plaintiffs say that they and Mr Palassis orally agreed to the Proposals and on 7 February 1993 entered into occupation of the Premises and commenced to pay rent and, by reason of those matters, the Partners and Chattock entered an agreement for lease (the Agreement for Lease). The plaintiffs say that the terms of the Agreement for Lease included the Right of Pre-emption Proposal, the Rent Proposal and the Shares Proposal.

5 The plaintiffs say that Mr Palassis, in breach of the fiduciary duties he owed to the plaintiffs, and to the knowledge of Chattock, did not ensure that a lease was prepared and executed containing the terms of the Agreement for Lease. The plaintiffs say that in or about 1997 Marjoe Nominees Pty Ltd (who at the time owned one half of the issued shares in Chattock) sold its shares in Chattock without offering to the Partners the first right of refusal. The plaintiffs say that at some time the total rentals received or receivable in respect of the building exceeded $450,000 but Chattock has not paid the 74.27% of the Excess or any sum to the Partners. The plaintiffs further say that in the financial years ending 30 June 1997 and 1999 Chattock received gross income in respect of the building in a sum exceeding $450,000 but Chattock has not issued any shares to the Partners. The plaintiffs allege accordingly that Mr Palassis breached fiduciary duties he owed to the plaintiffs and Chattock breached the terms of the Agreement for Lease. The plaintiffs claim damages for breach of the Agreement for Lease.

6 The plaintiffs further alleged that between February 1993 and December 1996, without their knowledge or consent, Mr Palassis paid various sums from the Partners' bank account to Chattock. The first payments are said to be payments of rent, variable outgoings and rates and taxes that exceeded the rental, variable outgoings and rates and taxes payable to Chattock in accordance with the Written Proposals and/or the Agreement for Lease. The second payment was the sum of $69,587.56 allegedly paid gratuitously. The third payment was the sum of $167,031.29 to discharge liabilities owed by Chattock to third parties. The plaintiffs say that each of the payments was made by Mr Palassis in breach of the fiduciary duties he owed to the plaintiffs and were made with the knowledge of, and for the benefit of, Chattock. The plaintiffs claimed against each of Mr Palassis and Chattock an account of profits or equitable compensation.

7 In November 2000 Mr Palassis' defence was set out in a re-amended defence filed on 23 March 2000. Mr Palassis said that in or about 1992, acting as managing partner of Stanton Partners, he proposed to the plaintiffs that the partnership take a lease of the Premises. Mr Palassis denied that he acted for or on behalf of, or as agent of, Chattock. Mr Palassis denied that he made the Proposals but says that between about November 1992 and February 1993, acting as managing partner of Stanton Partners, he made oral proposals to the plaintiffs as to rent and outgoings payable under the proposed lease and as to management fees in respect of the building. Mr Palassis admits that he subsequently delivered a written statement and that the written statement did not include all of the Proposals. Mr Palassis admits that the Partners entered into occupation of the premises but denies that they entered an agreement for lease on the terms of the Agreement for Lease alleged by the plaintiffs. Mr Palassis denied that any Agreement for Lease was made, denied that it was breached and denied any obligation to the plaintiffs as alleged by the plaintiffs. Mr Palassis denied the plaintiffs' claims in relation to the payments between February 1993 and December 1996 to Chattock.

8 In November 2000 Chattock's defence was in the form of a further re-amended defence filed 21 March 2000. Chattock denied that the plaintiffs were entitled to the relief claimed against Chattock or any relief. The defence of Chattock was different from that of Mr Palassis in one important respect. Chattock admitted that Mr Palassis acted for and on behalf of, and as agent of, each of Chattock, the plaintiffs and Stanton Partners in making proposals and during negotiations for a lease.

9 The Deed makes reference to other litigation between the plaintiffs and Mr Palassis. The Deed refers to Supreme Court CIV 2025 of 1998, and Supreme Court CIV 1616 of 1999, as well as the present proceedings.

10 The Deed included the following settlements. First, the plaintiffs agreed to discontinue CIV 2025 of 1998. Secondly, Mr Palassis agreed to discontinue the counterclaim in CIV 2025 of 1998, and to discontinue CIV 1616 of 1999.

11 By the Deed the first plaintiffs and Mr Palassis gave mutual releases and discharges in favour of each other. By cl 4.1 of the Deed the first plaintiffs released Mr Palassis from all claims against him arising out of all 'claims, issues and matters alleged or raised' at anytime in this action excluding the 'Surviving Claims'. Clause 6.1 defines the Surviving Claims and provides that no other cause of action or material facts will be pleaded in this action. Clause 6.2 provides that the plaintiffs will amend the statement of claim in the form of the sch 3 minute. Clause 6.3 provides that Mr Palassis and Chattock will sign a minute of consent orders in the form annexed as sch 4 of the Deed. That minute provides that the plaintiffs have leave to amend their statement of claim in terms of the sch 3 minute. Clause 6.4 provides that once the court has given leave for the plaintiffs to amend their statement of claim in the form of the sch 3 minute, the plaintiffs will not make any amendments to their statement of claim to plead any other cause of action or material facts, but may amend their particulars or give further particulars as they see fit, provided those particulars are limited to loss or damage. Clause 6.5 provides that if Mr Palassis or Chattock makes any amendment to his or its defence, the plaintiffs may amend their statement of claim, provided that the need to make the amendment fairly arises from and is consequential to the amendment to Mr Palassis' defence or Chattock's defence as the case may be and provided that the plaintiffs shall not in any circumstances plead any cause of action or plead any material fact raised in the claim, as defined.

12 On 14 November 2000 the parties filed a memorandum of consent orders in the present proceedings providing for the plaintiffs to have leave to amend their statement of claim in terms of the sch 3 Minute. On 7 December 2000 a Registrar made orders that the plaintiffs have leave to amend their statement of claim in terms of the sch 3 Minute, and the defendants file and serve amended defences by 22 January 2001. The amended statement of claim gives effect to the settlement effected by the Deed.

13 On 22 January 2001 each of Mr Palassis and Chattock filed further re-amended defences purportedly pursuant to the order of the Registrar made on 7 December 2000. The further re-amended defence of the first defendant is non-contentious for present purposes. However, the further re-amended defence of Chattock withdrew the admission that Mr Palassis, for and on behalf of, and as agent of, Chattock proposed to the plaintiffs that the partnership should take a lease of the Premises, that the Partners and Chattock entered into negotiations for the terms of a lease and that throughout the negotiations Mr Palassis acted, amongst other things, for and on behalf of, and as agent of, Chattock.

14 On 7 February 2001 the plaintiffs applied to the case management Registrar to disallow the amendments to Chattock's defence on the grounds that the amendment was not authorised by the order of the Registrar of 7 December 2000 and alternatively that Chattock should not be permitted to withdraw its earlier admission because to do so would cause undue prejudice to the plaintiffs. Chattock maintains that its amendment of 2001 is valid. By chamber summons issued on 16 April 2007 Chattock made an application to amend its defence in the terms of the further re-amended defence filed on 22 January 2001.

15 The plaintiffs have foreshadowed that if Chattock has validly amended its defence, or is given leave to amend its defence, in accordance with the further re-amended defence of 22 January 2001 then the plaintiffs propose to amend the statement of claim by the addition of [18A] - [18E] of a minute dated 15 January 2007 and entitled 'second minute of substituted statement of claim' put before the court on the hearing of this originating summons. The proposed amendments to the statement of claim amount to adding a plea of breach of warranty of authority to the existing plea of breach of fiduciary duty by Mr Palassis, if Chattock is correct in contending that Mr Palassis had no authority to negotiate or deal on its behalf.

16 The plaintiffs applied by originating summons under O 58 r 10 for the determination of a question of construction arising under the Deed and for a declaration of the rights of the plaintiffs. The question of construction concerned the right of the plaintiffs to amend their statement of claim. Mr Palassis contended that the first plaintiffs are precluded from making the proposed amendments to the statement of claim by the Deed.

17 On 24 July 2007 I delivered reasons for judgment in CIV 1061 of 2006 and subsequently made an order declaring that the Deed does not preclude the plaintiffs from amending their statement of claim in accordance with the second minute of substituted statement of claim dated 15 January 2007 in the event that Chattock is allowed to withdraw the admissions contained in [11] and [12] of its defence dated 22 January 2001.

18 Chattock filed its amended defence on 22 January 2001. The plaintiffs filed an application to the case management Registrar on 7 February 2001 for leave to bring the application and for orders disallowing the amendments.

19 The plaintiffs submitted that pursuant to O 21 r 4 of the RSC, their application should have been brought by 5 February 2001. O 21 r 4 provides that within 14 days after the service on a party of a pleading amended under r 3(1), that party may apply to the Court to disallow the amendment. However, Chattock's amendment to its defence was not made under O 21 r 3(1). Order 21 r 3(1) provides that a party may, without the leave of the Court, amend any pleading once at any time before the pleadings are deemed to be closed. Chattock did not amend its defence without leave or before the pleadings were deemed to be closed. Chattock amended or purported to amend its defence after pleadings had closed, pursuant to the order of the Registrar made on 7 December 2000.

20 The plaintiffs' application to disallow the amendments is properly brought under the court's inherent jurisdiction, or O 2 r 1(2) or O 20 r 19(1). However, as the parties dealt with the application on the basis that it was brought out of time and leave was required to bring the application I will deal with it on the basis that the plaintiffs' application was filed two days out of time.

21 Chattock submits that whilst the plaintiffs' application was only two days out of time, the plaintiffs did nothing after filing the application to bring it on for hearing or otherwise have the issues in the application dealt with by the court for approximately six years.

22 The solicitor for the plaintiffs, who also appeared as counsel for the plaintiffs, swore an affidavit on 6 December 2006 in which she stated that the interlocutory history of this matter is convoluted and annexed a chronology of events since the parties executed the memorandum of consent orders permitting the plaintiffs to amend the statement of claim in November 2000, which amendment gave rise to the interlocutory disputes which have followed. The chronology of events discloses that after the plaintiffs applied to disallow some of the amendments to Chattock's defence there were communications between the parties and a status conference at which the matter was addressed. The plaintiffs' solicitors alleged that Chattock would not be given leave to amend its defence because of the terms of the Deed. Mr Palassis' solicitors responded that they did not consent to the deed being exhibited to an affidavit because of the confidentiality provisions in the Deed. There followed numerous communications between the parties concerning the amendment to Chattock's defence and the provisions of the Deed. In January 2002 the originating summons in CIV 1061 of 2002 was issued. There followed further protracted communications between the parties concerning the provisions of the Deed. Nothing appears to have happened between September 2003 and April 2005 at which time the plaintiffs' solicitors took further steps and subsequently wrote to the defendants' solicitors about the matters in issue between them. Thereafter there were further communications between the parties leading eventually to the hearing of these applications and the originating summons CIV 1061 of 2002 being heard.

23 The plaintiffs' application was only two days out of time. The defendants have had notice of it since that time. The delay in the application being brought on for hearing has been partly, but not fully, explained by the plaintiffs. The defendants could at any time have taken steps for the application to be brought on for hearing but did not do so. The defendants have not pointed to any relevant prejudice to them. In all the circumstances, the just resolution of this matter requires that the plaintiffs be given leave to bring their disallowance application.

24 The orders made by the Registrar on 7 December 2000 included:

the plaintiffs have leave to amend their statement of claim in terms of the minute dated 14 November 2000

the defendants file and serve amended defences by Monday, 22 January 2001.

25 Chattock contends that the Registrar's order gave to Chattock an unlimited ability to amend its defence as it thought fit. The plaintiffs contend that the Registrar's order entitled Chattock to only make any amendment which may be necessitated by the amendment to the statement of claim and in particular the right of amendment did not extend to the withdrawal of admissions.

26 In Squire v Squire [1972] 1 Ch 391 the plaintiff issued a writ and statement of claim against three members of his family and a company alleging a conspiracy to cheat and defraud arising out of a sale of his shares in the company to the defendants. The defendants by their defences denied the allegations. At the trial the plaintiff was granted leave to amend his statement of claim to allege a conspiracy to cause and procure the company to act in breach of duty and unlawfully and the trial was adjourned. No order permitting amendment of the statement of claim was drawn up. However, in an order for security for costs by the plaintiff an order was inserted that the defendants be at liberty to serve on the plaintiff such defences or amended defences to the action as they may be advised. The defendants amended their defences so as to plead laches, acquiescence and limitation of action not previously pleaded. The plaintiffs moved for an order that the defendants should not be at liberty to amend their defences so as to rely upon laches, acquiescence or limitation as a defence to the allegation of fraudulent conspiracy. In the course of hearing that application Goff J corrected that order under the slip rule so that it should refer quite neutrally to service of defences. Before Goff J it was contended for the plaintiff that, while the defendants were entitled by amendment to plead, as amendments consequential upon the amendments to the statement of claim, laches, acquiescence and limitation in respect of the alleged breaches of duty and alleged liabilities, they were not entitled to plead in respect of the fraudulent conspiracy, unless they made a substantive application for leave so to do. The defendants contended that when leave was obtained by the plaintiff to amend the statement of claim this resulted automatically in an unlimited ability in the defendants to amend their defences as they thought fit. Alternatively, the defendants contended that if this was wrong, and their consequential ability to amend was limited to the introduction of matters that have been described as consequential upon the changes introduced into the statement of claim in its amended form, then the plea of laches, acquiescence and limitation was consequential in that sense in respect also of the allegation of fraudulent conspiracy. Goff J ruled against the wider construction advanced by the defendants but concluded that on the narrow approach neither side was wholly correct. Goff J held that the defendants were entitled to plead laches and acquiescence in connection with the conspiracy, but not limitation. Both the plaintiff and the defendants appealed. The defendants asserted that their ability to amend was unlimited and in any event if the narrower approach is correct the whole plea including limitation was available to them as consequential upon the amendments touching fraudulent conspiracy. The plaintiff cross-appealed contending that the Judge should not have allowed the plea of laches and acquiescence in relation to the conspiracy.

27 On appeal the plaintiff contended that the right of a defendant to amend in the circumstances was limited to making amendments consequential upon the amendments made to the statement of claim. Some criticism having been made of the word consequential, a definition was found acceptable to both parties in the formula that if the right to amend is limited, the extent to which it is limited is that it does not permit amendments of the defence which relate only to those allegations or contentions contained in the statement of claim that are not affected by amendments to the statement of claim.

28 Russell LJ delivered the judgment of the Court of Appeal. Russell LJ rejected the wider submission of the defendant. Russell LJ held that in circumstances such as those considered, a defendant was entitled to make amendments to his defence which were consequential upon the amendments to the statement of claim in the sense of the formula above mentioned but not amendments which related only to allegations in the statement of claim which were not affected by subsequent amendment. Russell LJ held that the amendments to the statement of claim caused a different or additional conspiracy to be pleaded and therefore the pleas of laches, acquiescence and limitation applied to the allegations of fraudulent conspiracy as well as to the fresh allegations raised by the amendments. Accordingly, the appeal was allowed and the defences were ordered to stand as amended.

29 In OD Transport (Australia) Pty Ltd (in liq) v OD Transport Pty Ltd [1998] FCA 1653, Finkelstein J considered a similar issue. In their original statement of claim the applicants pleaded the existence of a franchise agreement and alleged that it was made on 5 September 1990. The respondent delivered its defence in which it admitted that the franchise agreement was made on 5 September 1990. Subsequently, the applicants obtained leave to amend their statement of claim and did so. The plea in relation to the franchise agreement was not amended by the new pleading. The first responded delivered an amended defence in which it did not admit that the franchise agreement was made on 5 September 1990 but alleged that it was made 'on or about October 1992 dated 5 September 1990'. The applicants argued that the first respondent should not be entitled to withdraw its admission that the agreement was made on 5 September 1990 without good cause. Finkelstein J held that the fact that the applicants obtained leave to amend their statement of claim and that the first respondent was therefore required to deliver an amended defence 'did not give it liberty to make any amendments it thought appropriate'. The need to deliver an amended defence came about because of changes to the statement of claim and the amended defence must be confined to meeting the new case. It was not an occasion upon which a respondent is entitled to alter its defence in whatever way it thinks fit. Finkelstein J said that the first respondent was not at large in the manner in which it could alter its defence and referred to Bowes v Chaleyer [1923] HCA 15; (1923) 32 CLR 159. Finkelstein J held that it followed that the first respondent must deliver a further amended defence that reproduces its admission concerning the date when the franchise agreement was made or make an application for leave to withdraw that admission supported by appropriate evidence.

30 An order giving a defendant leave to amend its defence following upon an amendment to the statement of claim is limited to making amendments consequential upon the amendments to the statement of claim. Such an order does not permit amendments of the defence which relate only to those allegations or contentions contained in the statement of claim that are not affected by amendments to the statement of claim unless the order granting leave to amend the defence expressly states to the contrary. Apart from an amendment under O 21 r 3(1) or r 3(2), a defendant always requires leave to amend his defence. The need for leave is inconsistent with an unqualified ability to amend the defence after leave is given to amend the statement of claim. Further, as Russell LJ observed in Squire v Squire at 398, 'it would be unjust that a defendant should, by the slightest amendment permitted to the statement of claim, be able to avoid the imposition of stringent terms on an independent application for leave to amend the defence, or even a refusal of leave'.

31 Chattock submits that the Registrar's order permitted it to amend its defence as it saw fit. That argument would confer rights on Chattock wholly unconnected with that which was the sole cause of the ability to amend its defence, that is the leave to make particular amendments to the statement of claim.

32 A defendant is not able to amend its defence so as to withdraw admissions merely because it has been given leave to amend its defence consequential upon amendments to the statement of claim unconnected with the admission sought to be withdrawn.

33 For those reasons, the amendments to Chattock's defence contained within its amended further re-amended defence of 22 January 2001 will be disallowed.

34 Chattock seeks leave to amend its defence in terms of the amended further re-amended defence filed by it on 22 January 2001 purportedly pursuant to the order of the Registrar made on 7 December 2001. That is, Chattock seeks leave to amend its defence to plead the amendments I have just disallowed.

35 The grant or refusal of leave to amend is a matter of discretion. The proposed amendments by Chattock, if established, would be a good defence. Chattock should be given leave to amend its defence if it can be done without injustice to the plaintiffs: Queensland v J L Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146.

36 The plaintiffs oppose leave to amend on two grounds. First, Chattock has not given a satisfactory explanation for its change of position. Secondly, the plaintiffs are, or may be, irremediably prejudiced by the late amendment.

Explanation for Chattock's change of position

37 The plaintiffs object to the amendments to [11] and [12] of Chattock's defence. As I have said, the effect of those amendments is to withdraw the admission that Mr Palassis, for and on behalf of, and as agent of, Chattock proposed to the plaintiffs that the partnership should take a lease of the premises, that the partners and Chattock entered into negotiations for the terms of a lease and that throughout the negotiations Mr Palassis acted, amongst other things, for and on behalf of, and as agent of, Chattock.

38 In Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1995) 13 WAR 323 Seaman J, with whom Anderson J agreed, referred to 'the former practice' that applied before the insertion into the RSC O 1 r 4A (elimination of delays) and r 4B (system of case flow management) and O 29 (case flow management). Seaman J said that under the former practice, upon an application to amend so as to withdraw a significant admission, prejudice to the opposite party would be closely considered and it could militate against the grant of leave that the admission had stood on the record for a long time. Seaman J said that the former practice in relation to applications to withdraw admissions was no longer an isolated factor in the exercise of the discretion to grant or refuse leave to amend, but is one of the matters for consideration when applying the principles of positive case flow management referred to in O 1 r 4A and r 4B. If it is contended that the admission was made as a result of a mistake or error, it is necessary to place materials before the court to demonstrate that fact.

39 Chattock relies upon the affidavit of Peter Adair Hamilton Hickson sworn 1 March 2001. Chattock submits that it is clear from Mr Hickson's affidavit that Chattock only became aware of the correct status of Mr Palassis in his dealings with the plaintiffs after the original defence had been filed. As a result of Chattock becoming aware of these facts, the admissions previously made were withdrawn. The matters deposed to by Mr Hickson, it is submitted, show good cause for the grant of leave to amend.

40 At the time of swearing the affidavit, Mr Hickson was a director of Chattock. At that time, Mr Hickson and Mr Palassis were the directors of Chattock. During 1992 and 1993 the directors were Guiseppe Buri and Mr Palassis. Mr Hickson instructed his solicitors during 1999 on the basis of information available to him at that time. Subsequent to the receipt of the plaintiffs' amended further re-amended statement of claim he had discussions with Mr Buri and Mr Palassis. Mr Hickson saw that as a result of the discussions which took place Chattock became aware:

(1) That at all times during any meetings which took place between Palassis and any one or more of the first plaintiffs specifically referred to by the plaintiffs in their amended answers to requests for further and better particulars of amended statement of claim Palassis was acting in his capacity as managing partner of the second plaintiffs (Stanton Partners).

(2) Palassis was not acting on behalf of Chattock during any such meetings.

(3) Palassis was not authorised by Chattock to finalise any agreement for lease with Stanton Partners.

(4) The purpose of the alleged meetings was to prepare proposals on behalf of Stanton Partners for submission by Palassis on behalf of Stanton Partners to Chattock.

41 Mr Hickson says that as a result of Chattock having become apprised of that information it seeks to amend its defence.

42 During the course of the hearing of this application I raised with senior counsel for Chattock apparent deficiencies in the material put before the court by Chattock to explain the error in giving instructions for the preparation of the original defence. To ensure that Chattock had every opportunity to put before the court material to demonstrate that there was good cause for the grant of leave to amend, such as error in giving instructions for the preparation of the original defence, I granted leave to Chattock to file and serve any further affidavits in support of its application. Chattock did not do so.

43 In his affidavit Mr Hickson says that he instructed his solicitors during 1999 on the basis of information available to him at that time. Mr Hickson must be taken to say, or it must be inferred from what he says, that in 1999 he instructed his solicitors that Mr Palassis, for and on behalf of, and as agent of, Chattock proposed to the plaintiffs that the Partners should take a lease of the Premises, that the Partners and Chattock entered into negotiations for the terms of a lease and that throughout the negotiations Mr Palassis acted, amongst other things, for and on behalf of, and as agent of, Chattock. Further, Mr Hickson must be taken to say, or it must be inferred from what he said, that he believed that information to be correct as a result of enquiries he had made.

44 Chattock's case is not that the admission in the original defence was a result of any mistake made by Chattock's solicitors or counsel in understanding Chattock's instructions. To the contrary, Mr Hickson says that the admission was made on his instructions and that his instructions were given on the basis of information available to him at that time. Mr Hickson does not identify the information that was available to him or its source. Mr Hickson says that he now believes Mr Palassis was not acting on behalf of Chattock during the negotiations as a result of discussions with Mr Buri and Mr Palassis subsequent to the receipt of the plaintiff's amended further re-amended statement of claim. That amendment was contained in a minute dated 14 November 2000. Chattock filed its re-amended defence on 22 January 2001. Thus, it appears that Mr Hickson's discussions with Mr Buri and Mr Palassis, as a result of which he believes Mr Palassis did not act for and on behalf of Chattock in the relevant negotiations occurred between about November 2000 and January 2001.

45 Mr Hickson has not identified the information which led to his belief in 1999 that Mr Palassis acted on behalf of Chattock in the negotiations, nor the source of that information. Mr Hickson has not said whether or not he spoke to Mr Buri and Mr Palassis at that time and if so what they then told him. That is significant because Mr Palassis in his defence denied that he acted on behalf of Chattock. In the absence of evidence to the contrary, it should be assumed that if Mr Hickson had asked Mr Palassis in 1999 then Mr Palassis would have told Mr Hickson that he did not act on behalf of Chattock in the negotiations. It follows that Mr Palassis was not the source of Mr Hickson's belief in 1999 that Mr Palassis acted on behalf of Chattock in the negotiations. Mr Hickson has not disclosed the source of his belief. It might be that that undisclosed information was sufficient to cause Mr Hickson to believe that Mr Palassis acted on behalf of Chattock in the negotiations notwithstanding that Mr Palassis denies that he did so. That Mr Hickson now says that he has changed his position because of discussions with Mr Palassis and Mr Buri is a wholly inadequate explanation for his change of position. The evidence before the court does not satisfy me that Chattock has given a satisfactory explanation for its change of position.

46 The plaintiffs say that if Chattock had put the position it now wants to put timeously then the plaintiffs could have raised the allegation of breach of warranty of authority by Mr Palassis, as pleaded in the proposed amendment to [18A] - [18E] of the statement of claim and will be irremediably prejudiced if they are not now able to amend their statement of claim in that way. There are, or were, two possible barriers to the plaintiff amending its statement of claim in the manner referred to.

47 First, Chattock argued that the first plaintiffs were precluded from making the proposed amendments to the statement of claim by the provisions of the Deed. In CIV 1061 of 2006 I have made an order declaring that the Deed does not preclude the plaintiffs from amending their statement of claim in the manner proposed. Accordingly, that matter can be put to one side.

48 The second barrier to the plaintiffs amending their statement of claim in the manner proposed is a limitation point. Counsel for Mr Palassis and Chattock submitted that breach of warrant of authority cannot be pleaded by the plaintiffs because the six year limitation period prescribed in s 38(1)(c) of the Limitation Act 1935 (WA) has elapsed. Senior counsel submitted that the six year limitation period commenced to run against the plaintiffs when their pleaded cause of action arose at either:

(a) between November 1992 and January 1993, when the plaintiffs entered into negotiations and discussions for the lease or on 7 February 1993, when the plaintiffs and Palassis took occupation of the Premises and commenced to pay rent ... or

(b) on 30 June 1994, when [Chattock] and Daleridge Holdings Pty Ltd, a company that provided services to the plaintiffs and Palassis, executed a lease ... for the building that did not contain the rights of pre-emption over shares in Chattock, a share in excess [of] rent received in respect of the whole building and shares in Chattock.

49 The plaintiffs submit that if the defendants' contention about the limitation period is right, the plaintiffs are now precluded from alleging a breach of warranty of authority against Mr Palassis and it would suffer irremediable prejudice if Chattock is permitted to amend its defence to withdraw the admission that Mr Palassis acted for and on behalf of Chattock in the negotiations.

50 Order 21 r 5(2) of the RSC provide that the court may grant leave to make an amendment notwithstanding that any relevant period of limitation current at the date of issue of the writ has expired if the circumstances specified in sub-rule 5 are made out and the court thinks it is just to do so. Sub-rule 5 provides that an amendment may be allowed notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment. The plaintiffs submit that the proposed amendments to the statement of claim fall within sub-rule 5 and hence the court may grant leave to amend under sub-rule 2.

51 Order 21 r 5(5) cannot override s 38 of the Limitation Act. There must be a sufficient overlap between the facts out of which the old cause of action arose and the new facts sought to be pleaded such that the new cause of action can fairly be said to arise out of substantially the same facts as the old cause of action: Stone James (a firm) v Pioneer Concrete (WA) Pty Ltd [1985] WAR 233, 241, 242.

52 There is force in the defendants' submission that the proposed amendments to the statement of claim are statute barred and are not saved by O 21 r 5(5) but for the reasons which follow I find it unnecessary to finally decide that point.

53 Order 21 r 5(1) provides that the court may allow a party to amend his pleading on such terms as may be just.

54 Chattock should be given leave to amend its defence if it can be done without injustice to the plaintiffs: Queensland v J L Holdings Pty Ltd. It would be unjust to the plaintiffs to give leave to Chattock to amend its defence by withdrawing the admission that Mr Palassis acted on its behalf in the negotiations if the plaintiffs would be precluded from amending their statement of claim in response to the amendment to Chattock's defence because a relevant limitation period has expired. See for example Jones v Bass Express Ships Ltd [1998] TASSC 22, Giuriato v Attorney-General (Tas) (1997) 6 Tas R 344, Wilson v Grimwade [1995] VicRp 80; [1995] 2 VR 628 and Howard v Watling [2002] TASSC 87.

55 It would be unjust to permit Chattock to amend its defence, if the plaintiffs were unable to amend their statement of claim as proposed in response for two reasons. First, Chattock has provided no satisfactory explanation for its change of position. Secondly, if Chattock had denied, or not admitted, that Mr Palassis acted on its behalf in the negotiations in its original defence, then the plaintiffs would not have been statute barred from amending their statement of claim in the manner they now propose.

56 There would be an injustice to Chattock if Chattock is precluded from amending its defence to raise a good point of defence. Furthermore, the question of whether or not Mr Palassis acted for and on behalf of Chattock in the negotiations will be an issue at the trial of the action. That is because Mr Palassis has pleaded that he did not act for and on behalf of Chattock.

57 In all the circumstances, justice is best served by giving Chattock leave to amend its defence to withdraw the admission that Mr Palassis acted for and on behalf of Chattock in the negotiations on terms. The terms should be that Chattock shall not raise any limitation point in opposition to an application by the plaintiffs to amend their statement of claim in the manner proposed and that Chattock shall not further amend its defence so as to plead any limitation point in answer to the plaintiffs' proposed amended statement of claim. I will give Chattock leave to amend its defence on those terms.

JOYCE -v- PALASSIS [No 3] [2007] WASC 214 (6 September 2007)

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Judgment (69 paragraphs)

JOYCE -v- PALASSIS [No 3] [2007] WASC 214 (6 September 2007)

Cases Cited (4)