Keynes v Rural Directions Pty Ltd

Introduction 1 This is an application by amended notice of motion by the plaintiffs in a proceeding in this Court to set aside orders made by the Court. 2 On 3 June 2009 I made the following orders in the proceeding: 1. Pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth), there be judgment for the Third Defendant against the Plaintiffs in relation to that part of the proceeding which relates to the contracts between the Plaintiffs and the Third Defendant pleaded in paragraphs 31 and 41 of the Amended Statement of Claim. 2. Pursuant to O 11 r 16 of the Federal Court Rules, the Amended Statement of Claim, in so far as it relates to the contract between the Plaintiffs and the Third Defendant pleaded in paragraph 25, be struck out. 3. The Plaintiffs be refused leave to file and serve the Second Amended Statement of Claim against the Third Defendant. 4. The Plaintiffs and the Third Defendant have leave to make further submissions on the Plaintiffs' proceeding against the Third Defendant. 5. The Plaintiffs be refused leave to file and serve the Second Amended Statement of Claim against the Fourth Defendant. 3 The plaintiffs seek an order that the above orders be set aside. 4 On 16 June 2009 I made an order as follows: 1. Pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth), there be judgment for the fourth defendant against the plaintiffs in proceeding SAD 110 of 2008. The plaintiffs seek an order that that order be set aside. 5 My reasons for making the above orders are reported in Keynes v Rural Directions Pty Ltd (No 2) [2009] FCA 567; 72 ACSR 264. 6 The plaintiffs appealed from my decision. The Full Court of this Court granted the plaintiffs leave to appeal but dismissed the appeal. The Full Court's reasons are reported in Keynes v Rural Directions Pty Ltd [2010] FCAFC 100; (2010) 186 FCR 281. 7 The present application is an application by the plaintiffs to set aside the judgments given in favour of the third defendant and fourth defendant. 8 The plaintiffs' claim against the third defendant as pleaded related to three contracts which I described in my reasons as the ABB Grain basis contract, the ABB Grain first forward contract and the ABB Grain second forward contract ([9]). The summary judgment referred to in order number 1 made on 3 June 2009 relates to the two forward contracts. No judgment has been entered in relation to the ABB Grain basis contract and as far as that contract is concerned the plaintiffs' action against the third defendant will proceed in relation to that contract subject to the provision of a satisfactory statement of claim. 9 By contrast the plaintiffs' claim against the fourth defendant as pleaded related to one forward contract and the judgment referred to in order number 1 made on 16 June 2009 is judgment in the proceeding. 10 It is not clear to me whether the plaintiffs maintain their application to set aside orders 2 to 5 inclusive, made on 3 June 2009. In the amended notice of motion presently before me the plaintiffs seek leave to file a document described as 'Proposed Further Second Amended Statement of Claim' which is exhibited to an affidavit of the plaintiffs' solicitor sworn on 13 January 2011. 11 I should mention at this point that the plaintiffs have put forward a number of statements of claim or proposed statements of claim. I will refer to some of them in the course of these reasons so it is convenient if I identify them now. The plaintiffs' Statement of Claim was filed on 4 August 2008. The plaintiffs' Amended Statement of Claim was filed on 18 November 2008. A document described as Second Amended Statement of Claim was exhibited to an affidavit of the plaintiffs' solicitor sworn on 4 February 2009. That is the document referred to in orders numbered 3 and 5 made on 3 June 2009. The plaintiffs lodged a document described as Proposed Third Amended Statement of Claim on 13 August 2009. Finally, there is the document described as Proposed Further Second Amended Statement of Claim exhibited to the affidavit of the plaintiffs' solicitor sworn on 13 January 2011. 12 The plaintiffs submit that the judgments given under s 31A of the Federal Court of Australia Act 1976 (Cth) ('Federal Court of Australia Act') should be set aside because they have an argument not previously considered by me or by the Full Court which has a reasonable prospect of leading to the relief they seek in relation to the ABB Grain forward contracts and the Glencore Grain forward contract. That argument is identified in the Proposed Further Second Amended Statement of Claim. In addition, there are two arguments identified in the Proposed Further Second Amended Statement Claim which the plaintiffs wish to pursue against the third defendant. 13 The plaintiffs' argument which is common to both the third and fourth defendants is described by the third defendant as the 'New Arrangement Claim'. For convenience, I will use that description. The argument is reflected in paragraphs 50A and 50B of the Proposed Further Second Amended Statement of Claim. 14 Those paragraphs are in the following terms: 50A Prior to entering the First Forward Contract, the plaintiffs, through their agents Timothy and Elizabeth Keynes ('the Agents'), knew that amongst grain growers and grain traders there was an informal agreement, understanding or arrangement in respect to forward grain contracts, that: 50A.1 in the event, that the grain grower suffered a production failure which would either prevent or impair that grower's ability to deliver to a forward grain contract; 50A.2 despite the written terms and legal effect of the forward contract; 50A.3 the grain trader, who was the purchaser under that contract, would relieve the grower of the obligation to deliver under that forward contract, and 50A.4 permit the grower to washout his or her obligations in the manner described in paragraph 56 hereof and would thus permit the grower to wholly settle his or her obligations by cash within the meaning of s 761D(3)(a)(ii) of the Act. PARTICULARS (a) The Agents were informed by different employees of the First Defendant in or about mid 2006 that there was a universal practice within the grain industry that in the event that a grain grower was unable to deliver to a forward sale, be it a basis contract which had become deliverable or a forward contract, by reason of a production failure then that contract would be washed out in the manner described in paragraph 56 hereof; and (b) the Agents had in 2006 washed out some forward sales in the same manner as is described in paragraph 56 hereof. 50B This informal agreement, understanding or arrangement was a trade custom or useage in the grain industry, and was known to the Third and Fourth Defendants prior to the making of the First Forward Contract. In fact it was the Third and Fourth defendants' primary objective that, in the event that the price rose between the time the Forward Contracts were made and the time that delivery fell due, to be paid the difference between the contract price and the current market price at the time of delivery. It was a matter of commercial indifference to the Third and Fourth defendants whether the contracts were washed out or delivery was made under them. 15 The second argument which the plaintiffs wish to raise against the third defendant is described by the third defendant as the 'Basis Contract PDS Claim' and again for convenience I will use that description. I do not need to set out the proposed pleadings. The essence of the argument is that but for the third defendant's failures in relation to the ABB Grain basis contract the plaintiffs would not have entered into that contract nor would they have entered into the ABB Grain first forward contract and the ABB Grain second forward contract. 16 The third argument which the plaintiffs wish to raise against the third defendant is described by the third defendant as the 'Misleading Washout Claim' and again for convenience I will use that description. The argument is set out in paragraphs 56C - 56D of the Proposed Further Second Amended Statement of Claim. Those paragraphs are in the following terms: 56C On or about 14 February 2008 the first plaintiff ('Keynes'), as agent for the plaintiffs, had a meeting with Stephen Howells ('Howells'), who was acting as agent for the Third Defendant. In that meeting Howells represented to Keynes that the plaintiffs' liability in respect of washout costs under the First Forward Contract was $158,628, whereas in fact it was $126,255 ('the First Washout Representation'). 56C.1 The First Washout Representation was conduct which was misleading and deceptive, or which [sic] likely to mislead or deceive within the meaning of section 52 of the Trade Practices Act 1974 (C'th) ('the TPA'). 56C.2 The First Washout Representation was made in the course of trade and commerce. 56C.3 In reliance on the First Washout Representation, Keynes agreed, on behalf of the plaintiffs, to enter into the Third Washout Contract. 56C.4 Had Keynes known that the true washout liability was $126,255 he would not have agreed to enter into the Third Washout Contract in the amount of $158,628. By reason of the matters pleaded above this Honourable Court should, pursuant to its powers under section 87(1) and (2)(b) of the TPA, vary the Third Washout Contract by reducing the liability from $158,628 to $126,255. 56D On or about 3 April 2008 the first plaintiff ('Keynes'), as agent for the plaintiffs, had a meeting with Roger Laube and Ben Simpson, who were representatives of the Third Defendant and acted as agents for the Third Defendant ('the ABB Representatives'). In that meeting the ABB Representatives represented to Keynes that the plaintiffs' liability in respect of washout costs under the First Forward Contract was $132,000, whereas in fact it was $73,800 ('the Second Washout Representation'). 56D.1 The Second Washout Representation was conduct which was misleading and deceptive, or which [sic] likely to mislead or deceive within the meaning of section 52 of the Trade Practices Act 1974 (C'th) ('the TPA'). 56D.2 The Second Washout Representation was made in the course of trade and commerce. 56D.3 In reliance on the Second Washout Representation, Keynes agreed, on behalf of the plaintiffs, to enter into the Fourth Washout Contract. 56D.4 Had Keynes known that the true washout liability was $73,800 he would not have agreed to enter into the Fourth Washout Contract in the amount of $132,000. By reason of the matters pleaded above this Honourable Court should, pursuant to its powers under section 87(1) and (2)(b) of the TPA, vary the Fourth Washout Contract by reducing the liability from $132,000 to $73,800. 17 The second and third arguments are probably clear enough, but the relevance of the first argument requires some elaboration. 18 The plaintiffs' causes of action against the third and fourth defendants respectively depend upon the contracts constituting 'financial products' for the purposes of the Corporations Act 2001 (Cth) ('Corporations Act') Ch 7 Pt 7.1. Section 764A provides that a number of things are financial products for the purposes of Chapter 7 and those things include a derivative. Section 761D sets out the meaning of a derivative. Subsection (1) provides that an arrangement is a derivative if the conditions in subsection (1) are satisfied. Subsection (3) provides relevantly as follows: Subject to subsection (2) the following are not derivatives for the purposes of this chapter even if they are covered by the definition in subsection (1): (a) an arrangement in relation to which subparagraphs (i), (ii) and (iii) are satisfied: (i) a party has, or may have, an obligation to buy, and another party has, or may have, an obligation to sell, tangible property (other than Australian or foreign currency) at a price and on a date in the future; and (ii) the arrangement does not permit the seller's obligations to be wholly settled by cash, or set-off between the parties, rather than by delivery of the property; and (iii) neither usual market practice, nor the rules of a licensed market or a licensed CS facility permits the seller's obligations to be closed out by the matching up of the arrangement with another arrangement of the same kind under which the seller has offsetting obligations to buy; but only to the extent that the arrangement deals with that purchase and sale. 19 There has been no dispute in this proceeding that subparagraph (i) was satisfied in the case of the three forward contracts. There was a dispute at the time of the applications for summary judgment as to whether subparagraphs (ii) and (iii) were satisfied. I held that they were and my conclusion was upheld by the Full Court. In other words, in the case of subparagraph (ii) I held to the required standard under s 31A of the Federal Court of Australia Act that the arrangement did not permit the seller's obligations to be wholly settled by cash, or by set-off between the parties, rather than by delivery of the property. 20 The plaintiffs' New Arrangement Claim starts with the definition of 'arrangement' in s 761A of Ch 7. The definition is in the following terms: arrangement means, subject to section 761B, a contract, agreement, understanding, scheme or other arrangement (as existing from time to time): (a) whether formal or informal, or partly formal and partly informal; and (b) whether written or oral, or partly written and partly oral; and (c) whether or not enforceable, or intended to be enforceable, by legal proceedings and whether or not based on legal or equitable rights. 21 The plaintiff also referred to the section which provides that in certain circumstances two or more arrangements may be considered a single arrangement (s 761B). 22 The plaintiffs' submission is that both myself and the Full Court considered whether subparagraph (ii) of s 761D(3)(a) was satisfied only by reference to the three forward contracts themselves. The New Arrangement Claim is that in addition to the contracts themselves there was a trade custom or usage in the industry which allowed a grain grower to washout his contract in the event of a production failure. The plaintiffs' argument is that this new argument means that subparagraph (ii) was not satisfied in the case of the three forward contracts and, therefore, the forward contracts were not excluded from being derivatives by virtue of s 761D(3) of the Corporations Act. In support of their New Arrangement Claim, the plaintiffs tendered an affidavit of Elizabeth Jane Keynes (the second plaintiff) sworn on 21 December 2010. The third defendant and the fourth defendant objected to substantial parts of the affidavit. I said that I would rule on the admissibility of the affidavit in the course of my reasons dealing with the application and I do so later in these reasons. 23 Before leaving the provisions of the Act, it should be noted that s 765A(1)(a) provides that despite anything in Subdivision B or Subdivision C of Chapter 7 Part 7.1 Division 3, so much of an arrangement as is not a derivative because of s 761D(3)(a) is not a financial product for the purposes of Chapter 7. 24 As I understand it, it is common ground between the parties that the New Arrangement Claim can only be raised in the event that the judgments are set aside. The plaintiffs' contention that the judgments should be set aside was the main issue on the hearing of the application. The other claims which, as I have said, are only relevant in relation to the third defendant - the Basis Contract PDS Claim and the Misleading Washout Claim - are not said by the third defendant to be precluded by the judgments. It does submit that leave to amend to introduce should be refused for other reasons.

Setting aside summary judgment 25 The first matter is to identify the relevant principles on an application to set aside summary judgment given under s 31A of the Federal Court of Australia Act. 26 The relevant orders have been entered. The Court's power to set them aside is contained in O 35 r 7(2) of the Federal Court Rules. That subrule provides as follows: (2) The Court may vary or set aside a judgment or order after the order has been entered where: (a) the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order; (b) the order was obtained by fraud; (c) the order is interlocutory; (d) the order is an injunction or for the appointment of a receiver; (e) the order does not reflect the intention of the Court; or (f) the party in whose favour the order was made consents. 27 The submissions made to the Court proceeded on the assumption that the orders were interlocutory orders and that the relevant paragraph is (2)(c). 28 Before 1 January 2010 there was considerable debate in the authorities as to whether judgment under s 31A was final or interlocutory for the purpose of determining whether leave to appeal was required under s 24(1A) of the Federal Court of Australia Act: Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372; Kowalski v MMAL Superannuation Fund Pty Ltd (2009) 178 FCR 401. The matter is now the subject of a specific statutory provision to the effect that for the purposes of the leave to appeal provisions (s 24(1A) and (1C)) an order granting or refusing summary judgment under s 31A is taken to be an interlocutory judgment (s 24(1D)). 29 The third defendant was prepared to argue the matter on the basis that judgments under s 31A were also interlocutory for the purposes of applications to set them aside. However, it also indicated that it wished to reserve its position on this matter should there be an appeal to the Full Court from my judgment. 30 Even though the orders are interlocutory the need for finality in litigation is still important. Furthermore, there is a wide variety of interlocutory orders or judgments and judgment under s 31A of the Federal Court of Australia Act has many of the characteristics of a final judgment. Not only was there an avenue of appeal in this case but an appeal was taken and was unsuccessful. These considerations suggest to me that even though the orders are interlocutory the cases dealing with the setting aside of final judgments provide guidance and that the power to set aside the judgments should be exercised only in special or exceptional circumstances. 31 There are a number of authorities on the power of the Court to set aside final judgments. It is sufficient for me to refer to the following authorities. In Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 301-302, Mason CJ referred to the jurisdiction of the Court to re-open a judgment and grant a rehearing as one to be exercised with great caution having regard to the importance of the public interest in the finality of litigation (see also Wentworth v Woollahra Municipal Council (1982) 149 CLR 672; Smith v NSW Bar Association (1992) 176 CLR 256. In De L v Director-General NSW Department of Community Services [No 2] (1997) 190 CLR 207 Toohey, Gaudron, McHugh, Gummow and Kirby JJ said (at 215): The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded 'on a misapprehension as to the facts or the law', where 'there is some matter calling for review' or where 'the interests of justice so require'. It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required 'without fault on his part', ie without the attribution of neglect or default to the party seeking reopening. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. In the case of a final court of appeal, such as this Court, that injustice may be irremediable, unless the Court itself, acting promptly, is persuaded to reopen its orders so as to afford relief in the exceptional circumstances of the case. 32 The third defendant referred to a passage in the reasons for judgment of McLelland J in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-47. I did not understand the plaintiffs to take issue with any of the principles stated in the passage. Although lengthy, I set it out in full: The private injustice and public undesirability of permitting the relitigation of matters already litigated once is recognised in a number of principles of law, notably the rules relating to res judicata and issue estoppel, the more flexible rules under the rubric of vexation and abuse of process illustrated in such cases as Stephenson v Garrett [1891] 1 QB 677 and Hunter v Chief Constable, West Midlands Police [1982] AC 529 ; [1981] 3 All ER 727, and the restrictive provisions governing the adducing of further evidence on the hearing of an appeal even by way of rehearing: see, for example s 75A(8) of the Supreme Court Act 1970 (NSW). Interlocutory orders, of their very nature, create no res judicata or estoppel, and the court retains jurisdiction to set aside, vary or discharge an interlocutory order up to the time of the final disposition of the proceedings. However the general rationale of the principles last referred to applies even in the case of interlocutory orders. It would be conducive to great injustice and enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will. The overriding principle governing the approach of the court to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances of the case. In giving effect to that general principle, and in recognition of the public and private interests earlier referred to, rules of practice have been developed in accordance with which the discretionary power of the court to set aside, vary or discharge interlocutory orders will ordinarily be exercised. Not all kinds of interlocutory orders attract the same considerations. For present purposes one may put to one side orders of a merely procedural nature (as to which see for example Wilkshire & Coffey v Commonwealth (1976) 9 ALR 325) and injunctions (or undertakings) made or given by agreement and without contest "until further order" (as to which see for example Warringah Shire Council v Industrial Acceptance Corp (unreported, SC(NSW), McLelland J, 22 November 1979). In the present case I am dealing with an interlocutory order of a substantive nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings. In such a case the ordinary rule of practice is that an application to set aside, vary or discharge the order must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application: see Woods v Sheriff of Queensland (1895) 6 QLJ 163 at 164-5; Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 447-8; Chanel Ltd v F W Woolworth & Co [1981] 1 All ER 745 ; [1981] 1 WLR 485; Adam P Brown Male Fashions v Philip Morris (1981) 148 CLR 170 at 177-8; 35 ALR 625 at 629-30; Butt v Butt [1987] 1 WLR 1351 at 1353; Gordano Building Contractors Ltd v Burgess [1988] 1 WLR 890 at 894. 33 Of the two limbs referred to by McLelland J in the last paragraph it is difficult to conceive of how the first limb - a material change of circumstances since the application for summary judgment was heard - would have any role to play where the interlocutory order is the giving of summary judgment under s 31A. By contrast, the second limb - the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application - might have work to do. 34 The plaintiffs submitted that the test I should apply is as follows: [the plaintiffs] show that there existed some matter, factor or other consideration, which was not taken into account at the time the original decision was made, and which, if it had been taken into account when the original decision was made, would have led to a different outcome. 35 I would firmly reject the above as a statement of the relevant test. It seems to me that it cannot be the case that a party can have a judgment given under s 31A set aside simply on the basis of the introduction of a new argument or new evidence (in the sense of evidence not put forward on the original application) that would have led to a successful defence of the summary judgment application. Such a test would mean that a party could either deliberately or negligently hold back part of its case on the application for summary judgment, appeal unsuccessfully and then apply to set aside the summary judgment on the basis of a new argument or new evidence. To my mind, that cannot be correct. 36 The plaintiffs also made submissions as to how I should approach the application of s 31A assuming their test was the correct one. They referred to the recent decision of the High Court in Spencer v Commonwealth (2010) 241 CLR 118; 269 ALR 233 ('Spencer'). My attention was directed to passages at 131-132 [24]-[26] per French CJ and Gummow J and at 138-141 [49]-[60] per Hayne, Crennan, Kiefel and Bell JJ. No doubt when considering whether to set aside an order not only the nature of the order but also the conditions necessary for it to be made need to be borne in mind. However, as I have said, I do not accept that the test formulated by the plaintiffs is the correct one and I do not need to discuss the decision in Spencer in any further detail. 37 It seems to me that where the order is an order for summary judgment and that order has been the subject of an unsuccessful appeal the principle of finality of litigation must be given considerable weight. At the very least, an applicant for an order setting aside summary judgment would need to show new evidence and argument which would affect the result and the applicant would need to provide a clear and satisfactory reason as to why the material was not put forward on the application for summary judgment. It may be that this is understating the test and that it is subject to other qualifications and requirements, but it is a sufficient statement for present purposes because I am satisfied the plaintiffs have not met it. 38 In this case there is no explanation from the plaintiffs as to why the evidence of Mrs Keynes and the allegations in paragraphs 50A and 50B were not advanced at the time of the application for summary judgment and I do not think the argument the plaintiffs now wish to advance is sufficiently strong to warrant an order setting aside the judgments.

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