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[2012] NSWSC 645
Supreme Court of NSW
2012-06-13
Beech-Jones J
Original judgment source is linked above.
Judgment 1This is an appeal pursuant to Uniform Civil Procedure Rules 2005 r 49.4 from a judgment of Harrison AsJ granting the plaintiff, Karl Suleman Enterprizes Pty Ltd (in liquidation) ("KSE"), leave to amend its statement of claim: Karl Suleman Enterprizes Pty Ltd (in Liq) v Philip Viet Dzung Pham [2011] NSWSC 1405. The appellants are Philip Viet Dzung Pham, Pham & Associates Pty Ltd and Pham Atic Pty Ltd, who are the first, fourth and fifth defendants respectively to the substantive proceedings. I will refer to them as the "Pham interests". 2An appeal from an Associate Judge to a single Judge of this Court is governed by the same principles as those which govern an appeal from a single Judge to the Court of Appeal (Komatsu Marketing Support Australia Pty Ltd v Marsh Pty Ltd [2012] NSWSC 163 at [6]). It follows that before they can succeed the Pham interests must establish an appellable error of law or fact by her Honour (Carbotech-Australia Pty Ltd v Yates [2008] NSWSC 540 at [3]). 3The substantive proceedings are 6 months short of their tenth anniversary. It will not be a date for celebration. Harrison AsJ noted that the proceedings have had over 60 directions hearings and referred to the matter as "lurching towards a hearing date". It is now necessary for the lurch to be assisted by a push.
Background 4The background detailed below (at [5] to [12]) is taken from her Honour's judgment. None of these findings were contested by the parties. 5KSE was incorporated in December 1999 and wound up on 7 December 2001. KSE was owned by Mr Karl Suleman and his wife and was primarily operated by him. 6From its incorporation, KSE operated a trolley collection business on the basis of contracts which it had with various supermarkets. KSE also conducted an investment scheme, which purported to offer investors distributions from the company's trolley collection business or other investments, which from time to time it might make. 7Investors entered into contracts (variously described as loan or investment agreements). However, the investors were never granted an interest or day to day control in the trolley collection business, or any other investment, and were paid their promised fortnightly distribution by monies coming in from subsequent investors. The promised returns were in the order of 50% to 60% per annum on their initial investment, over a set period, usually 3, 5 or 10 years. 8After incorporation the trolley business very quickly became an insignificant aspect of KSE's operations. 9In reality, KSE had no real underlying business, and was operating an illegal "Ponzi" scheme from its inception. The only income of KSE was that of ordinary investors lured by the promise of very high returns. 10Over the life of the scheme approximately $123 million was raised from at least 2,600 investment contracts. 11The liabilities incurred by KSE on the face of the investment contracts were in the order of $1 billion. 12In late 2001, the Australian Securities and Investment Commission ("ASIC") intervened and closed down the scheme. KSE had massive liabilities and the vast majority of investors sustained a significant loss on their investment. 13Mr Pham was admitted to practice as a solicitor on 6 June 1997. From June 1997 to April 2000, he was a solicitor employed by Borak & Co. The principal of Borak & Co was Nedeljka Borak, the second defendant. The motion to amend, the subject of this appeal, also affected Ms Borak. She has not appealed her Honour's judgment. 14From May 2000 to June 2001, Mr Pham carried on his own practice under the name of Pham & Associates Pty Ltd, the fourth defendant. 15From July 2001 to May 2002 Mr Pham carried on practice as principal of the firm Pham Atic Pty Ltd. Alexander Atic, the third defendant in the proceedings, was the other principal. The plaintiff has settled his claim against Mr Atic. 16As I will outline the plaintiff alleges that Mr Pham's involvement in KSE spans from its incorporation in late 1999 to the appointment of an administrator in late 2001. Over this period it is said that Mr Pham was the primary solicitor retained by KSE to assist it in setting up the scheme briefly outlined earlier in this judgment. This is said to have involved him drafting contracts and advising KSE generally in relation to that scheme.
Legislative Provisions 17As explained below, the substance of the amendment application allowed by Harrison AsJ was to allow the addition of a claim for relief under s 1325(2) of the Corporations Act 2001 (Cth). The amendment was sought to enable KSE to make a claim for damages against the Pham interests (and Ms Borak) on the basis of their alleged involvement in contraventions of the Corporations Act and the Corporations Law. The provisions said to have been contravened are:
Section 1325 and Sent v Jetcorp 22Two points should be noted about s 1325 at the outset. 23First, I do not mean this as a criticism but neither party addressed the legislative history of s 1325 of the Corporations Act. It appears to have its origins in s 87 of the Trade Practices Act 1974 (Cth) (the "TPA") especially ss 87(1) and (1A). The original form of ss 87(1) and 87(1A) were considered by the High Court in Sent v Jet Corp of Australia Pty Ltd [1986] HCA 35; (1986) 160 CLR 540. The High Court found that former s 87(1A) of the TPA could only be invoked in a "proceeding" instituted under another provision of Part VI of the TPA in respect of a contravention of Part V (at 543.9). If that reasoning was applied directly to s 1325(2) it would mean that it could only be invoked in respect of some other proceeding instituted under the Corporations Act in respect of a contravention of Chapter 5C, 6CA, 6D, or Part 7.10. These proceedings are not of that character. No point to this effect was taken by the Pham interests either before Harrison AsJ or before me and it does not form part of the reasoning upon which the outcome of this appeal is based. Further, given the different legislative contexts and histories I can see some scope for argument that the reasoning in Sent may not be applicable. Consequently, I would not go further on this issue without giving the parties the opportunity to address me on the point. However, it is relevant to the Pham interests' submission that the application to amend should have been refused because the "application" under s 1325(2) was effectively statute barred. 24Second, leaving aside the point raised in [23], the Court's power to grant compensation under s 1325(2) is only enlivened if there is an application made by a person who has suffered loss and damage and the conduct of "another person" was in contravention of Chapters 5C or 6D or Part 7.11 (which includes ss 601ED (5), 727, 780, and 781). If that threshold is overcome then, and only then is the Court's power to grant relief enlivened against that "other person" or against a "person who was involved in the contravention".
25The original statement of claim was filed on 23 December 2002. An amended version was filed on 23 September 2003. A further amended statement of claim ("FASOC") was filed on 26 August 2006. A defence to that pleading was filed in November 2006. 26Prior to the amendments allowed by Harrison AsJ, the FASOC pleaded causes of action against the Pham interests (and Ms Borak) in negligence, breach of contract and for breach of fiduciary duty. The structure of the FASOC was that paragraphs 27 to 51 pleaded that KSE conducted, inter alia, a form of investment business described as the "Scheme" in a manner contrary to the corporations legislation. The rest of the FASOC then breaks up the allegations against the Pham interests and Ms Borak depending upon which entity Mr Pham worked for in the period December 1999 to December 2001. 27Paragraphs 52 to 105 relate to the period December 1999 to April 2000 when Mr Pham was employed by Borak & Co. Paragraphs 106 to 126 concern the period 30 April 2000 to June 2001 when Mr Pham practised as Pham and Associates and paragraphs 127 to 160 concern the period July 2001 to October 2001 when he was engaged by Pham Atic Pty Ltd. In respect of each such period the FASOC pleads that, in breach of contract and acting negligently, Mr Pham and the firm he worked for caused various losses to KSE arising from the conduct of its investment business. In short, it is pleaded that the losses occurred because Mr Pham prepared and provided the documentation for it to continue that business and that he failed to advise KSE of the numerous non-compliant aspects of its business. It is not necessary to describe here the allegations of breach of fiduciary duty. 28Paragraph 170 of the FASOC pleads the occasioning of damage to KSE and paragraph 171 specifies the forms of relief claimed namely damages, equitable compensation, interest and costs. 29The amendments allowed by Harrison AsJ involved the addition of five paragraphs between paragraphs 169 and 170 and two paragraphs seeking relief as follows: "169AIn the circumstances described in paragraphs 45-49, 115, 118.3-118.34 and 152 herein Pham was involved in the contravention (within the meaning of those terms as used in s 1325(2) of the Corporations Act) of the breaches of the Corporations Act described in paragraphs 49 and 50 above. 169B In the circumstances described in paragraphs 45-49. 115, 118.3-118.34 and 152 herein Pham was involved in the contravention (within the meaning of those terms as used in s 1325(2) of the Corporations Law) of the breaches of the Corporations Law described in paragraphs 49 and 50 above. 169CIn the circumstances described in paragraphs 45-49, 115, 118.3-118.34 and 152 herein Borak, by her employed solicitor Pham, was involved in the contravention (within the meaning of those terms as used in s 1325(2) of the Corporations Law) of the breaches of the Corporations Law described in paragraphs 49 and 50 above. 169DIn the circumstances described in paragraphs 45-49, 115, 118.3-118.34 and 152 herein Pham & Associates Pty Ltd was involved in the contravention (within the meaning of those terms as used in s 1325(2) of the Corporations Law) of the breaches of the Corporations Law described in paragraphs 49 and 50 above. 169EIn the circumstances described in paragraphs 45-49, 115, 118.3-118.34 and 152 herein Pham Atic Pty Ltd was involved in the contravention (within the meaning of those terms as used in s 1325(2) of the Corporations Act) of the breaches of the Corporations Act described in paragraphs 49 and 50 above. 171.2 A An order for damages pursuant to s 1325(5)(e) of the Corporations Act. 171.2 BAn order for damages pursuant to s 1325(5)(e) of the Corporations Law." 30As I understand it the distinction sought to be drawn by the references to the Corporations Act in paragraph 169A and the Corporations Law in paragraph 169B is between conduct before and after 15 July 2001. It follows from the discussion in [19] that the reference to the Corporations Law is unnecessary and all aspects of the matter are governed by the Corporations Act.
Grounds of appeal 1 and 2(i): No contravention by Suleman and "standing"
31It is appropriate to address these grounds together. Before her Honour and on appeal, the Pham interests contended, inter alia, that the amendments should have been refused because, properly analysed, proposed paragraphs 169A to 169E did not make even the barest of allegations capable of falling within s 1325(2). The argument had two steps. First it was and is submitted that the references to "contraventions" in paragraphs 169A to 169E in other parts of the FASOC was in substance a reference to contraventions by KSE and not Karl Suleman. Second it was and is submitted that the pleading was defective because, as outlined at [24] above, s 1325(2) can only be engaged by KSE if KSE identified (and properly pleaded) "another person" such as Karl Suleman was the contravenor and then pleaded Mr Pham as the person "involved" in Karl Suleman's contravention(s). KSE could not invoke s 1325(2) by merely alleging Ms Pham was involved in its own contraventions. 32I do not understand there to be any dispute about the second step but before her Honour and me there was a dispute about the first. Harrison AsJ dealt with this argument by finding as follows: "33.The defendants submitted that the plaintiff does not have "standing" to pursue a cause of action under s 1325(2) of the Corporations Act because the company cannot be both the contravenor of the legislation and a plaintiff against a person who was involved in the contravention. 34However, the plaintiff relies upon contraventions by Karl Suleman and not KSE. It is Karl Suleman's contraventions that the plaintiff alleges Mr Pham was involved in. The plaintiff submitted that if KSE could not pursue its own director (the contravenor) and his accomplice (being a person involved in the contraventions) where KSE has suffered loss, this would defeat the purpose of the section. To decide whether or not to grant an amendment I need only to be satisfied that these amendments are arguable. It is my view that it is an arguable proposition that the plaintiff can take action against its own director and a person (Mr Pham) involved in the contravention." (emphasis added) 33The conclusion in the second sentence of [34] of her Honour's judgment addresses the argument I have summarised in [31] by rejecting the first step. Paragraph [33] and the balance of [34] of her Honour's judgment appear to address a broader argument, that s 1325(2) cannot be availed of by a contravenor such as KSE. There was some debate before me as to whether this argument was relied on before her Honour. It is unnecessary to resolve this because the narrower argument I have referred to in [31] was clearly made (see [5] to [9] of the Pham interests written submissions dated 8 November 2011). The broader argument was not made on appeal. 34The Pham interests contend that her Honour erred in concluding in [34] of her Honour's judgment that it was Karl Suleman's contraventions that are referred to in paragraphs 169A to 169E. To address this it is necessary to consider the pleading more closely. I have already referred at [26] above to the defined phrase "Scheme" which is used throughout the FASOC. The critical paragraphs concerning its meaning and content are as follows:- "27From the date of incorporation until the date of winding up KSE carried on business: 27.1operating a supermarket shopping trolley collection service ("the trolley Business"); 27.2managing various trolley collection businesses on behalf of the owners; and 27.3operating an unregistered and unapproved managed investment scheme ("the "Investment Business"). ... 29The Investment Business involved investors either loaning funds to KSE or investing funds in the Trolley Business and KSE agreed to pay to the investor principal and interest repayments from time to time, until the loan or investment was repaid. 30Investments were made by the investors by paying funds to KSE, for investment in the Trolley Business. The Managed Investment Scheme ("MIS") 31The Investment Business constituted a Managed Investment Scheme within the meaning of the Corporations Law... and the Corporations Act ... (the "Scheme") 32The total amount invested in the Scheme by investors was approximately $123 million and at least 2,458 investment contracts were entered into by investors pursuant to the Scheme." 35These provisions make it clear that the operator of the "Scheme" was KSE and KSE only. Only KSE is said to have carried on business operating the "Investment Business" (FASOC at paragraph 27). 36Paragraphs 36 to 40 of the FASOC pleaded further facts concerning the "Scheme" including that KSE made promises of regular payments to investors (paragraph 36.1), that KSE did not generate official income from its trolley business to fund repayments (paragraph 37) and that funds paid by investors were received by KSE (paragraph 38). Paragraph 39 pleaded that upon receipt of the funds, "KSE by Suleman" authorised the execution of the individual investment contracts. 37Each of paragraphs 169A to 169F refer to the contraventions "described in paragraphs 49 and 50" of the FASOC. Paragraphs 49 and 50 need to be read with paragraphs 45 to 48 of the FASOC: "45Funds from investors were solicited by KSE without disclosure documents or prospectus as required by s 706 of the Law and the corresponding provisions of the Act. ... 47Between the date of incorporation until the date of winding up, the monies investors paid to KSE under the Investment Contracts were paid for the purpose of the investors investing in the Trolley Business or other businesses of KSE. 48.The Scheme: 48.1was at all times that it operated, required to be registered under s 601ED of the Law and related provisions of the Act; 48.2was not registered under s 601ED of the Law and related provisions of the Act; 48.3did not comply with the disclosure requirements under s 706 of the Law and the related provisions of the Act; 48.4operated without a principal of the Scheme being a licensed dealer pursuant to s 780 of the Law and the related provisions of the Act; and 48.5operated an investment advice business without holding an investment advice license as required under s 781 of the Law and related provisions of the Act; 48.6operated without a responsible entity as required by s 601FB of the Law; 48.7operated without an auditor as required by s 33 AB of the Law. 49.The Scheme operated contrary to: 49.1Part 5C of the Law and related provisions, and the corresponding provisions of the Act (together, "the MIS Provisions") [ie s. 601ED(5)]; 49.2Part 7.3 of the Law, and related provisions and the corresponding provisions of the Act, (together "the Securities Provisions") [ie ss 780 and 781]; 49.3Part 6D.2 of the Law and related provisions and the corresponding provisions of the Act (together "the Disclosure Provisions") [ie s 727]; 49.4Chapter 2L of the Law and related provisions and the corresponding provisions of the Act (together "the Debenture Provisions"). 50.On 6 May 2002, in Supreme Court Proceedings Plaint No. 5415 of 2001 commenced by ASIC against amongst others Karl Suleman, Vivian Suleman and KSE, the parties consented to the Court making declarations in relation to the operation of the Scheme. Particulars 50.1Each of KSE, Karl Suleman and Vivian Suleman did from 17 December 1999 to 13 November 2001 contravene section 601 ED (5) of the Act by operating a managed investment scheme, which was required to be registered under s. 601EB of the Act, but was not so registered; 50.2Each of KSE, Karl Suleman and Vivian Suleman did from 17 December 1999 to 13 November 2001 contravene section 780 of the Act in relation to the operation of the Scheme by: 50.2.1........ 50.2.2........ 50.3Each of KSE, Karl Suleman and Vivian Suleman did from 17 December 1999 to 13 November 2001 contravene section 781 of the Act in relation to the Scheme by: 50.3.1......... 50.3.2........" 38Paragraphs 169A to 169E allege involvement by the Pham interests in the breaches "described" in paragraphs 49 and 50 of the FASOC. To the extent that this refers to paragraph 49 then the breaches referred to therein are those identified in paragraph 48 which refer to contraventions by the "Scheme". Leaving aside the grammatical question of whether the "Scheme" is a person, the definition of "Scheme" in paragraph 27 and all of the pleaded material facts concerning the "Scheme" and its operation make it clear that it is KSE and only KSE who is pleaded to be the contravenor, not Karl Suleman. In my view and with respect to Harrison AsJ, her Honour was in error in concluding otherwise in [34] of her Honour's judgment. 39Senior Counsel for KSE, Mr Ashhurst SC, pointed to various parts of the pleading that referred to Karl Suleman as demonstrating that the "tenor and effect" of the pleading is that Karl Suleman was the operating mind and will of both KSE and the Scheme. I agree that that conclusion could be drawn from the various parts of the pleadings. He further submits that it is Karl Suleman's contraventions which were relied upon for the accessorial claim against the Pham interests. I do not accept that submission. The other parts of the pleadings to which he refers are factual assertions littered throughout the FASOC as to how KSE in some respects acted via or through Karl Suleman. They do not constitute or amount to a pleading of a contravention by Karl Suleman. 40Paragraph 50 of the FASOC does refer to contraventions by Karl Suleman. However this does not avoid the conclusion of error on her Honour's part, because paragraph 169A also refers to paragraph 49 and, as I have said, that is the culmination of facts pleaded in paragraphs 27 to 48 concerning contraventions by KSE and not Karl Suleman. In any event the form of paragraph 50 is wholly inadequate if it is meant to be a stand alone pleading of contravention by Karl Suleman. The paragraph only alleges that a declaration was made against Karl Suleman along with his wife and KSE. The particulars only recite the legislative provisions he was declared to have contravened. The material facts said to support the contraventions are not pleaded other than the fact that they are said to be "in relation to the operation of the Scheme". This compounds the problem as the pleading of the "Scheme" in the FASOC could not support any such declaration. 41This leads to the larger question as to what is to be done on this appeal, if error on her Honour's part is established. The conclusion in [38] above is sufficient to justify refusing the application to amend. Leaving aside all other complaints, the amendments did not get to the first step of making a proper allegation sufficient to support an application under s 1325(2). 42In his written submissions, Mr Ashhurst SC submitted that if the Court had any concerns about the clarity of the allegations it could act under s 75A(6)(c) of the Supreme Court Act 1970 and allow his client to amend paragraph 49 to read "The Scheme was operated by each of KSE and Karl Suleman contrary to, and in contravention of [the relevant provisions]". Unfortunately for KSE this is the top of a slippery slope the bottom of which is an overhaul of significant parts of the pleading that would have to be undertaken before an application to add a claim under s 1325(2) can be entertained. In oral argument and after attention was focused on paragraph 27 of the FASOC, Mr Ashhurst SC agreed that it would need to be amended so that it referred to KSE "and Karl Suleman" carrying on the businesses referred to. He also agreed that paragraphs 115 and 152 would have to be amended as they are incorporated by reference into paragraphs 169A to 169E. They both refer to only KSE operating the "Scheme" and only to KSE's non-compliance with the Corporations Act. 43In reply, Senior Counsel for the Pham interests, Mr Pritchard SC, submitted that these changes only highlighted rather than solved the problem with the amendments. He contended that, if these additional amendments were allowed, it would only result in there being bare assertions of contravention by Karl Suleman (ie the problem with paragraph 50 of the FASOC) without material facts pleaded to support those assertions. I agree. This is best illustrated by reviewing paragraphs 29 to 47 of the pleading which I have described above. Those paragraphs plead various material facts which support the pleading in paragraph 27 that KSE operated the "Investment Business"; that it constituted a "Scheme" which satisfied the elaborate definition of "managed investment scheme" in s 9 of the Corporations Act; and ultimately the pleading of contraventions in paragraph 48 of the FASOC. The only reference to conduct by Karl Suleman in those paragraphs is to the reference in paragraph 39 of the FASOC that I have noted above. That brief allegation and a bare assertion that he carried on the same businesses as KSE including the "Investment Business" without further material facts being pleaded is not capable of supporting an allegation of contravention by him of s 601ED(5) (cf Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561 at [54] to [58]) or any of ss 727, 780 and 781. 44In his submissions Mr Pritchard SC emphasised the length of time since the pleadings closed (in 2006), the potentially serious nature of the further allegations that are involved if the amendments were allowed and the size of the potential claim made against his client. The damages claimed are said to be in the range of tens of million to over a hundred million. These contentions were in part directed to seeking to establish error when her Honour's approach to delay and prejudice within the framework for considering amendments discussed in Aon Risk Services Australia Ltd v Australia National University [2009] HCA 27; (2009) 239 CLR 175. Given the conclusion about grounds 1 and 2(i) that I have come to it is not necessary for me to consider whether her Honour erred in considering those matters, although they were certainly taken into account. However, the matters pointed to by Mr Pritchard SC are also relied on as matters relevant to any discretion I might consider exercising to allow KSE to address the difficulties with the pleading that have been identified on the hearing of this appeal. I agree that they are important factors to be considered. 45As I have explained, the amendments foreshadowed by Mr Ashhurst SC only compound the problem that has been identified with paragraphs 169A to 169E of the FASOC. Given the stakes involved and the length of time that has passed I consider that the only appropriate course is to allow the appeal and disallow the amendments entirely. I appreciate that this might lead to a further application to amend. However, as I will explain, any such further application will be considered against the backdrop of a fixed hearing date. Further, leaving aside the limitation issues, any proposed pleading will need to properly set out all the material facts upon which an allegation of contravention by Karl Suleman is based. When those alleged facts are exposed it may reveal that these amendments require further factual investigation which may impact on the hearing date or may not. However, until they are identified then the usual questions about prejudice etc cannot be properly addressed. Ground 2(ii): Amendment precluded by ss 1325(4) 46Ground 2(ii) of the appeal contends that her Honour should have dismissed the application to amend because it was outside the six year time limit referred to in s 1325(4). 47In light of the conclusion that I have reached above (at [45]) it is not strictly necessary for me to address this ground. However, given the attention devoted to this issue and its potential significance it is appropriate that I deal with some of the arguments that were raised concerning this ground. In my view, whether it is open to KSE to make an out of time application of the kind considered here requires further analysis of s 1325 and its legislative history, including the effect and legacy of the decision in Sent. These matters were not addressed at the hearing and it would be inappropriate to express a concluded view on these issues without the parties addressing me further. I considered calling for further submissions on the point but declined to put the parties to the extra cost of doing so. The issue would not affect the outcome of this appeal and it is my firm view that nothing should delay the parties obtaining a hearing date and then working backwards as to what further steps will be taken. 48I have set out the terms of s 1325(4) of the Corporations Act in [20] above. Both parties argued the matter on the basis that the "day on which the cause of action arose" in s 1325(4) was no later than the last date upon which the person who makes the application referred to in s 1325(2) has suffered or is likely to suffer loss or damage. Given that KSE was wound up on 7 December 2001 the parties were confident to proceed on the assumption that the six year period referred to in s 1325(4) expired in December 2007 at the latest. I have misgivings about this because it appears to assume that the "cause of action" referred to in s 1325(4) is the ability to make an application under s 1325(2). If Sent is directly applicable it would suggest that the "cause of action" referred to in s 1325(4) is the action for contravention of Chapter 5C etc to which an application under 1325(2) is an addendum. It does not necessarily follow that any such cause of action accrued at the time of loss being suffered. 49KSE submitted that the Court was conferred with the power to grant leave to amend to add a claim for relief under s 1325(2) outside the six year period in respect of a proceeding commenced within the six year period by reason of ss 64 and 65 of Civil Procedure Act 2005 (the "CPA") . In particular, KSE pointed to s 65(2)(c), which provides that: "(2)At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the Court under section 64(1)(b) amend the originating process so as:- ... (c)to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action, that in the court's opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process." 50For the present I will proceed on the basis that the application under 1325(2) is a "new cause of action" and one that could be said to have arisen from the same or substantially the same facts as those giving rise to the existing causes of action pleaded in the FASOC and the pre-existing claims for relief against the Pham interests. However, the source of this Court's power to consider an application under s 1325(2) derives from the definition of "Court" in s 58AA of the Corporations Act and the conferral of jurisdiction by s 1337B(2). In hearing any such application the Court is considering a "right" or "power" derived from a federal law. It follows that in such a case this court is exercising federal jurisdiction (see s 76 of the Constitution and Agtrack (NT) Pty Ltd v Hatfield [2005] HCA 38; (2005) 223 CLR 251 at [32]). 51Section 79 of the Judiciary Act 1903 (Cth) provides: "The laws of each State or Territory, including the laws relating to procedure, evidence and the competency of witnesses, shall, except as otherwise provided by the Constitution or laws of the Commonwealth, be binding on all courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable." 52There is no doubt that ss 64 and 65 of the CPA are laws of this state relating to procedure. However, the Pham interest contends that s 1325(4) "otherwise provides" within the meaning of s 79 of the Judiciary Act 1903 (Cth) such that this court cannot exercise the power conferred by s 64 and s 65 to make an amendment which would have the effect of allowing an application under subsection 1325(2) to be made outside the six year period. 53In responding to this contention, Mr Ashhurst SC referred to a number of cases dealing with applications to amend in respect of actions for damages under s 82(1) of the former Trade Practices Act 1974 (Cth) (the "TPA"). I will deal with the submissions about these cases before returning to their applicability to ss 1325(2) and (4) of the Corporations Act. 54At the relevant times subsections 82(1) and (2) of TPA provided: "(1) A person who suffers loss or damage by an act of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person. (2) An action under sub-section (1) may be commenced at any time within 3 years after the date on which the cause of action accrued." (With effect from July 2001 the period of three years in s 82(2) was changed to six years: see item 20 of Schedule 1 to the Trade Practices Amendment Act (No 1) 2001). 55In Australia and New Zealand Banking Group Ltd v Larcos (1987) 13 NSWLR 286 Rogers J allowed a cross-claimant leave to amend their pleading to add a claim that the cross-defendant had engaged in misleading and deceptive conduct contrary to s 52 of the TPA outside the 3 year period fixed by s 82(2). The allegation of a breach of s 52 arose out of the same or similar facts that had originally been pleaded in its cross-claim. It alleged the making of a fraudulent misrepresentation. Rogers J invoked r 20.4 of the Supreme Court Rules which for present purposes was not relevantly different to ss 65(2)(c) of the CPA (see Larcos at p 292E- F). 56Larcos was considered by the Court of Appeal in Air Link Pty Ltd v Paterson (No 2) [2003] NSWCA 251; (2003) 58 NSWLR 388 ("Air Link No 2"). Air Link No 2 involved a personal injury claim arising out of travel on commercial aviation. Part IV of the Civil Aviation (Carriers' Liability) Act 1959 (Cth) (the "Carriers' Liability Act") created an exclusive scheme for recovery of compensation from carriers in such cases. Section 34 of the Carriers' Liability Act provided that the right to seek damages under Part IV of that Act was "extinguished" if an action was not brought "by them or for their benefit within two years after the date of the arrival at their destination". The plaintiff commenced proceedings in the District Court for damages arising out of such air travel just within the two year period. Their statement of claim pleaded causes of action in contract and tort. In Air Link Pty Ltd v Paterson [2002] NSWCA 85 ("Air Link No 1") the Court of Appeal found that this was not sufficient to constitute the bringing of an action for the purposes of s 34. As a result and after the expiry of the two year period the plaintiff applied to the District Court to amend the statement of claim by removing the contract and tort claims and asserting a cause of action arising under Part IV of the Carriers' Liability Act. The District Court allowed the amendments and the carrier appealed. 57Mason P and Beazley JA dismissed the appeal in Air Link No 2 on the basis that the former District Court rule equivalent of s 65(2)(c) of the CPA was picked up and applied by s 79 of the Judiciary Act. Their Honours found that it enabled the amendment to be made and have effect from the time of the filing of the original statement of claim (Air Link No 2 at [113] and [175] per Mason P, Beazley JA agreeing at [177]). Thus the extinguishment effected by s 34 of the Carriers' Liability Act was avoided because the action was treated as having been commenced within the two year period. Their Honours endorsed the result in Larcos although they expressed reservations about the absence of any consideration by Rogers J of s 79 of the Judiciary Act (at [140] per Mason P). Their Honours also approved the decision of the Victorian Court of Appeal in PSL Industries Ltd v Simplot Australia Pty Ltd [2003] VSCA 7; (2003) 7 VR 106 which was to the same effect as Larcos. 58Ipp JA dissented in Air Link No 2. His Honour concluded that, to the extent the relevant District Court rule purported to resuscitate an expired remedy or cause of action, it was invalid (Air Link No 2 at [226]). His Honour also found that s 34 of the Carriers' Liability Act "otherwise provided" for the purposes of s 79 of the Judiciary Act (Air Link No 2 at [236]). Ipp JA declined to follow PSL Industries (Air Link No 2 at [235]). 59An appeal from Air Link No 1 to the High Court was allowed and an appeal from Air Link No 2 was dismissed: Air Link Pty Ltd v Paterson [2005] HCA 39; (2005) 223 CLR 283. The High Court concluded that the premise of the Court of Appeal's judgment in Air Link No 2, which followed from its decision in Air Link No 1, that no action "under" Part IV had been commenced within the two year period was incorrect. The High Court found that the factual assertions that had been made in the statement of claim as originally filed were sufficient for the proceedings to be characterised as an "action" for the purposes of Part IV of the Carriers' Liability Act (at [30] to [33] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ; at [93] per Kirby J; at [134] per Callinan J). 60The High Court's judgment in Air Link needs to be considered with another appeal heard and determined by it at the same time, namely Agtrack. Agtrack was an appeal from the Victorian Court of Appeal which involved circumstances not relevantly different to those of the plaintiff in Air Link. The Victorian Court of Appeal had reached a conclusion to the same effect as the majority of the Court of Appeal in Air Link No 2, namely that a state court's powers of amendment allowed a party to make an amendment to add a cause of action out of time notwithstanding s 34 of the Carriers' Liability Act. 61As with the appeal in Air Link, in Agtrack the High Court dismissed the appeal on the basis that the plaintiff had, by filing proceedings, commenced an "action" within 2 years and avoided the extinguishment of s 34 notwithstanding that she did not make any express reference to Part IV of the Carriers' Liability Act in her pleadings (Agtrack at [42] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ; at [74] per Kirby J; at [106] per Callinan J.) However, the High Court also concluded that, on its proper construction, the two year time period in the Carriers' Liability Act was a "condition which is of the essence of the right to damages" as opposed to providing for no more than a "bar to the enforcement of an existing right" (at [51]). This meant that that s 79 of the Judiciary Act could not operate to pick up any State law, including a power of amendment, that purported to alter the nature of a right which was so conditioned (at [58] and [59] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ). The same conclusion could be reached by concluding that s 34 of the Carriers' Liability Act was to be taken as "otherwise providing" for the purposes of s 79 (at [60] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ). Either way the extinguishment provided for in s 34 could not be avoided by reliance on the Court's amendment powers. Kirby and Callinan JJ expressed similar conclusions in their judgments in both Agtrack and Air Link (Air Link at [100] to [103] and [127] to [130] respectively; Agtrack at [77] and [108] respectively). 62Thus the differences between the Court of Appeal in Air Link No 1 and Air Link No 2 and the High Court's judgments in Air Link and Agtrack concerned: first, whether or not the plaintiff had in fact made an application under Part IV of the Carriers' Liability Act within the 2 year time period stipulated; and secondly, an analysis of the effect of s 34 of the Carriers' Liability Act and its role in the scheme created by Part IV. 63Nothing in the plurality judgments in either Air Link or Agtrack expressly disavowed the approval by Mason P and Beazley JA in Air Link No 2 of the decisions in Larcos and PSL. It may be that the High Court's analysis of whether or "not action [was] brought" within two years in s 34 of the Carriers' Liability Act would be applicable to determining whether "an action under sub-section has been commenced" for the purposes of s 82(2) of the TPA (and its modern equivalents) so that a result similar to Larcos will follow. It is not necessary to consider that further. In the absence of any express disavowal by the plurality in Agtrack and Air Link of Mason P and Beazley JA's agreement with Larcos I should follow Mason P and Beazley JA on that issue. As I explain below, the position may be different with the judgments of Kirby and Callinan JJ but their Honour's judgments are not binding on me. Whether the conclusion of Mason P and Beazley JA can be extended to s 1325(2) and 1325(4) is a different matter. 64Mr Ashhurst SC referred to the plurality judgment's reference in Agtrack at [51] to the distinction between a limitation period which operates to extinguish a cause of action and one which only bars the enforcement of a cause of action. He submitted that this suggested that their Honours accepted that s 79 of the Judiciary Act operates to pick up a State law allowing an amendment to include an out of time cause of action under a federal law where the relevant limitation period is only a bar to enforcement of the remedy and does not effect an extinction of the cause of action. He submits that the former s 82(2) of the TPA is an example of a provision which is only a bar to enforcement. He relied on a decision of French J, as his Honour then was, in Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd [2001] FCA 703; (2001) 112 FCA 336 concerning former ss 74J(1) and 75AO of the TPA. Mr Ashhurst SC may well be correct on this point. This reasoning was accepted by Muir J of the Supreme Court of Queensland in Interline Hydrocarbon Inc v Brenzil Pty Ltd [2006] QSC 184 at [44]. Mr Ashhurst SC further submits that s 1325(4) is also only a bar to the enforcement of a remedy. I consider this next step in the argument below. 65Mr Pritchard SC submitted that the High Court's reasoning in Agtrack and Air Link were "more consistent" with the dissenting judgment of Ipp JA in Air Link No 2 who had disapproved of Larcos and PSL Industries. I have already described the effect of the plurality judgements in Agtrack and Air Link on the endorsement of Larcos by Mason P and Beazley JA in Air Link No 2. Arguably the plurality judgment supports Larcos if the proper characterisation of s 82(2) of the TPA is that it only operates to bar the remedy. 66It is the case that in Air Link Kirby J endorsed the judgment of Ipp JA in Air Link No 2 (at [103]) but that was in the context of describing the relevant cause of action as being "extinguished" and then resuscitated (at [102]). His Honour's analysis does not necessarily extend to a time limitation that only operated as a bar to the remedy. 67Mr Pritchard SC also sought to rely on the following passage from the judgment of Callinan J in Agtrack at [108]: "....... ss 79 and 80 of the Judiciary Act cannot operate to pick up a State rule, or rules of court such as those designed to alter the common law as stated in Weldon v Neal, and which would, if operative, have the effect of amending or detracting from the operation of a federal enactment, here the Act". 68Sub-section 65(2) of the CPA is such a provision. However the question whether it applies to "amend or detract" from the former s 82(2) of the TPA in the circumstances that occurred in Larcos is not directly addressed by the judgments in Agtrack or Air Link. 69In any event, even if the judgments of each of Kirby J in Air Link and Callinan J in Agtrack are inconsistent with the result in Larcos, for the reasons I have given I should still follow Larcos and PSL. First, by reason of the judgment of Mason P and Beazley JA in Air Link No 2 and, secondly because of the support it arguably finds in the Agtrack plurality judgment's reference to the distinction between a limitation period that bars a remedy and extinguishes a cause of action. 70This brings the analysis back to ss 1325(2) and 1325(4) of the Corporations Act. If I were to conclude that there is no relevant difference between those provisions and the former ss 82(1) and 82(2) of the TPA then it would follow that s 1325(4) does not prevent the amendments being sought by KSE from being made. However, the matters that bear upon whether there is such a relevant difference were not addressed, or not addressed fully ,in argument. I note two matters in particular. 71First, there is the decision in Sent which I have referred to above. Before it can be determined that the journey through Agtrack and Air Link that I have undertaken is of any utility, the legislative origins and history of s 1325 will have to be considered along with the decision in Sent and its legacy. If s 1325(2) does not confer an entitlement on a party to make an application for relief, unconnected to any proceedings instituted under some other provisions of the Corporations Act, then the entire strategy that lay behind the proposed amendments will have to be reconsidered. 72Second, even if s 1325(2) does confer an entitlement on a party to make an application for relief unconnected to any other proceedings instituted under another provision of the Corporations Act, there are still obvious contrasts between the right so conferred and provisions such as the former s 82(1) of the TPA (which has its equivalents elsewhere in the Corporations Act eg ss 601MA, 670B, 729 and 1005). In contrast to s 82(1) of the TPA (and for example s 1005(1) of the Corporations Act), s 1325(2) does not confer any entitlement or right to recover by "action" (or otherwise) on the person who has suffered loss. At most on this approach s 1325(2) only confers a right on such a person to apply to the Court for an exercise of a discretionary power in their favour. In these circumstances there seems much scope for concluding that the prescription by s 1325(4) of a time in which to apply is more of a condition or "essence" of the "right" to apply conferred by s 1325(2) rather than a mere "time stipulation of a procedural nature" (Gordon v Tolcher [2006] HCA 62; (2006) 231 CLR 334 at [36] to [37] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). Again to consider this further it would be necessary to consider a broader range of materials concerning the provisions in question, if there is any, given that they were critical to the conclusions in Gordon v Tolcher and Agtrack. Other grounds of appeal 73In view of the conclusion that I have reached concerning grounds 1 and 2(i) I will only briefly note the other grounds of appeal relied on by the Pham interests. 74Ground 2(iii) of the appeal raise various pleading deficiencies namely that: (i)there is no pleading that the contraventions relied on caused loss or damage; (ii)that there needs to be further identification of the manner in which Mr Pham is said to have been "involved" in the relevant contraventions; (iii)that insofar as the cross referred paragraphs listed in paragraphs 169A to 169E plead that Mr Pham "ought to have known" various matters rather than had actual knowledge they were bad in form; and (iv)that no attempt has been made to plead the operation of the transitional provisions concerning the movement from the Corporations Law to the Corporations Act that I have referred to above. 75In light of the points I have already made concerning the form of the pleading I do not consider it necessary to say anything further about the first three points. I have already referred to the substance of the fourth point at [19]. The absence of an express reference to a transitional provision does not seem to me to be a matter of great moment. 76Ground 3 of the appeal asserted that her Honour had erred in finding that an adequate explanation had been given by KSE for the delay in seeking leave to amend. The explanation given by KSE and accepted by her Honour was that, due to various commitments, KSE had to engage different Senior Counsel over time. KSE engaged Mr Ashhurst SC on 16 February 2011. He advised in April 2011 that the application to amend needed to be made. Her Honour accepted that explanation for the delay and considered that once that advice was given KSE acted expeditiously ([2011] NSWSC 1405 at [40]). At the hearing of the application to amend, Mr Ashhurst SC advised her Honour that the rationale for the amendment had been to overcome a matter specifically pleaded in the defence to the effect that Mr Pham had advised KSE via Mr Suleman of the non compliant nature of the investment scheme but he proceeded to implement it anyway. 77Mr Pritchard SC submitted that while this may have constituted an explanation for the delay in applying to amend it was certainly not a justification for it having regard to the discussion in Aon at [53] and [103]. Before me he noted that the defence had been filed in late 2006 and the potential causation problem just identified should have been apparent at that time. He contends that there is no excuse for the four year delay that then followed. 78Given the conclusion that I have already come to and the potential for a further application, I do not propose at this point to enter into the debate as to whether the explanation that was given was one that could justify the amendment. Aon does not establish that a party seeking amendment must give an explanation which demonstrates that that party is blameless. Beyond that, it is a matter of considering the explanation proffered along with the various other factors including prejudice and potential delay in the final disposition of the proceedings. This is best done when any further proposed pleading is provided, the relevant material facts are exposed and a hearing date is known. 79Ground 4 contended that her Honour had erred in failing to find that the Pham interests would be prejudiced by reason of the amendments being allowed. I have already adverted to the question of prejudice. If a further application to amend is made with the relevant material facts pleaded, and assuming the question of time is resolved in KSE's favour, then the question of any prejudice, be it presumed or actual, will be better identified and considered against the backdrop of a known hearing date.
Future case management 80The usual practice in this division is that matters which are estimated to occupy more than a week of hearing time are allocated to a judge for case management after a hearing date has been set, although that judge may not necessarily conduct the hearing. In this matter no hearing date has been set. However, given the exceptionally long delay in the finalisation of this matter, it is appropriate that case management commence immediately. 81Another aspect of the usual practice in this division is that matters will not be fixed for hearing unless the court is assured that all interlocutory matters have been completed and the matter is ready to be heard. This approach reflects the high volume of work in the division and the limited number of judges available. It prioritises the need to avoid any adjournments over the desirability of parties obtaining a fixed hearing date at an early time in an effort to force them to focus their efforts and interlocutory applications so as to meet that date. Again, the prolonged delay in the finalisation of this matter warrants the latter course being taken. The parties will be directed that within 14 days they are to apply to the Registrar for the allocation of a hearing date noting that the estimate is three to four weeks. 82The matter has reached a stage where every remaining interlocutory step that has to be undertaken in the case will have to occur against the backdrop of a fixed hearing date. The likelihood is that the matter will not be given a hearing date this year but instead will be heard some time in 2013. In the ordinary course that should be more than sufficient time for the parties to complete any further preparation and interlocutory steps. I will monitor any further interlocutory applications. Depending on their complexity I will determine whether I will hear them or whether they can proceed before a registrar. 83I note that on 13 August 2010 Schmidt J made orders requiring KSE to provide security for costs in various amounts in tranches to the defendants. Order 6 provided the requirement of security in the sum of $125,000 "on the date which is 14 days after call-over at which time the proceedings are set down for final hearing". That time will commence running from the time the matter is fixed for hearing in accordance with the orders I shall make. 84As I will be disallowing the amendments concerning only the first, fourth and fifth defendants, there will still remain a pleading in a form that I consider objectionable as against the second defendant. It will be a matter for the parties as to how they will address that. 85I will fix the matter for further directions before me when I am next sitting in civil matters on Friday 13 July 2012 at 9.30am, so that I can be advised of its further progress.
ORDERS 86Accordingly the orders of the Court are as follows: (1)The appeal by the First, Fourth and Fifth Defendants from so much of the decision of Associate Justice Harrison as concerns them be allowed. (2)That so much of the orders made by Associate Justice Harrison on 23 November 2012 as concern the First, Fourth and Fifth Defendants to these proceedings be set aside. (3)The Plaintiff's notice of motion filed 31 May 2011 be dismissed insofar as it concerns the First, Fourth and Fifth Defendants. (4)The Plaintiff pay the First, Fourth and Fifth Defendants' costs of the notice of motion filed 31 May 2011 and the First, Fourth and Fifth Defendants' costs of their notice of motion filed 22 December 2011. (5)Direct the parties within 14 days hereof to approach the Registrar to obtain a hearing date noting the parties' estimated length of the hearing as three to four weeks. (6)Direct the First, Fourth and Fifth Defendants to notify the Associate to Beech-Jones J of the hearing date as allocated. (7)Direct that any party who files any interlocutory application in the proceedings other than an appeal from this judgment is to notify the Associate to Beech-Jones J of that fact and provide a copy of the interlocutory process within 3 days of it being filed. (8)Fix the matter for directions before Beech-Jones J on 13 July 2012 at 9.30am.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 June 2012
Karl Suleman Enterprizes Pty Ltd (in liquidation)
Philip Viet Dzung Pham
[2006] QSC 184
[2003] VSCA 7
[1986] HCA 35
(2005) 223 CLR 251
(2003) 58 NSWLR 388
(2005) 223 CLR 283
(1987) 13 NSWLR 286
(2009) 239 CLR 175
(2003) 58 NSWLR 322
(2006) 231 CLR 334
(2003) 7 VR 106
(1986) 160 CLR 540
[2009] HCA 27