Knauf Plasterboard Pty Ltd v Hardy

PROCEDURAL BACKGROUND 5 As noted above, Knauf commenced this proceeding by the filing of an originating process and statement of claim on 29 March 2016. On 27 May 2016 Mr Hardy filed the Hardy Defence which contains the admissions he now seeks to withdraw. 6 On 9 June 2016 Knauf filed an interlocutory application seeking, as against Mr Blignaut, orders for substituted service and, as against Mr Hardy, an order pursuant to r 26.01 of the Federal Court Rules 2011 (Cth) (Rules) that judgment be given against Mr Hardy because he has no reasonable prospect of successfully defending the proceeding or, in the alternative, an order pursuant to r 16.21 of the Rules striking out paragraphs 19 to 26 of the Hardy Defence as not disclosing a reasonable defence (First Knauf IA). 7 On 10 June 2016 the Court made orders for substituted service on Mr Blignaut and orders relating to the filing and service of affidavits and submissions in relation to the relief sought in the First Knauf IA concerning the Hardy Defence. 8 On 11 August 2016 Knauf filed an interlocutory application seeking an order pursuant to r 5.23 of the Rules that judgment be given against Mr Blignaut for the relief claimed in the statement of claim filed on 24 March 2016 or, alternatively, seeking an order pursuant to r 26.01 of the Rules that judgment be given against Mr Blignaut because he has no reasonable prospect of successfully defending the proceeding (Second Knauf IA). 9 The balance of the First Knauf IA and the Second Knauf IA were listed for hearing on 5 October 2016. At that time: (1) Mr Hardy sought and was granted leave to file an affidavit sworn by him on 30 September 2016. That affidavit raised issues about the quantum of the debt sought by Knauf. The hearing proceeded as between Mr Hardy and Knauf but limited to the other issue raised by the Hardy Defence, namely that of equitable set off. The late service of Mr Hardy's affidavit and the grant of leave necessitated an adjournment of the First Knauf IA part heard to 1 November 2016; (2) the hearing of the Second Knauf IA was also adjourned to 1 November 2016, there having been an appearance for Mr Blignaut for the first time on 5 October 2016; and (3) Knauf was given leave to amend the First Knauf IA and the Second Knauf IA to include in each case an order for summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (FC Act). 10 On 7 October 2016 Knauf amended the First Knauf IA and the Second Knauf IA pursuant to the leave granted on 5 October 2016. 11 On 1 November 2016 the First Knauf IA and the Second Knauf IA were again listed for hearing. On the eve of that hearing Mr Hardy served an affidavit sworn by his wife, Cheryl-Lynn Hardy, on 30 October 2016. Mr Hardy sought to rely on that affidavit as well as an affidavit sworn by him on 21 October 2016. Those affidavits went to the issue of quantum. Mr Hardy indicated that because of the evidence now given he would need to amend the Hardy Defence and that the amendment would necessitate a withdrawal of admissions that had been made in the Hardy Defence. On 1 November 2016 orders were made that included: (1) granting leave to Mr Hardy to rely on his affidavit sworn 21 October 2016 and the affidavit of Mrs Hardy sworn 30 October 2016 in opposition to the First Knauf IA; (2) granting leave to Mr Hardy to file and serve the Amended Defence and his application to withdraw certain admissions contained in the Hardy Defence together with any affidavits in support of that application; and (3) adjourning the First Knauf IA and the Second Knauf IA for further hearing to 6 April 2017.

THE PLEADINGS 12 In its statement of claim Knauf relevantly pleads that: (1) on or about 30 June 2014 it entered into an agreement titled "Deed of Acknowledgement, Forbearance and Repayment" (Agreement) with Messrs Hardy, Blignaut and McGinn and Retroflex; (2) pursuant to cl 6.2 of the Agreement, on or about 30 June 2014 it entered into an agreement titled "Guarantee and Indemnity" (Guarantee) with Messrs Hardy, Blignaut and McGinn whereby they each guaranteed payment of the "Secured Monies" by Retroflex to Knauf when due and, as a further and primary obligation, undertook to pay the Secured Monies to Knauf on demand. The term the Secured Monies was defined in the Guarantee; (3) on or about 4 February 2014 Messrs Hardy and McGinn entered into a further written agreement with Knauf titled "Personal Guarantee and Indemnity Agreement" (Credit Guarantee) whereby Messrs Hardy and McGinn agreed to guarantee and be liable to Knauf for all moneys due then or which at any time in the future fell due for goods supplied to Retroflex from time to time together with other fees, charges, expenses and obligations payable by Retroflex to Knauf; (4) pursuant to the Agreement, Knauf: (a) supplied goods to Retroflex from 27 October 2014 to 10 February 2016; (b) established an account for moneys payable to it by Retroflex in relation to the products it supplied to Retroflex; (c) offered Retroflex trading terms on credit and continued to trade with it on those credit terms; and (d) delivered products to Retroflex and invoiced Retroflex for such products in the amount of $1,792,842.73 (Invoices); (5) in relation to the Invoices, Retroflex made payments and Knauf agreed to allow credits on Retroflex's account in the sum of $1,233,496.62; (6) as a result, Retroflex is indebted to Knauf in the sum of $559,346.11 in respect of the Invoices; (7) pursuant to the Agreement, Retroflex made payments in respect of the Outstanding Amount, as that term is defined in the Agreement, totalling $532,777.66; (8) in breach of the Agreement, since November 2015 Retroflex has not paid the Minimum Repayment, as that term is defined in the Agreement, or any payments in respect of the Outstanding Amount (paragraph 12 of the statement of claim); (9) as a result Retroflex is indebted to Knauf in the sum of $431,771.11 in respect of the Outstanding Amount (paragraph 13 of the statement of claim); (10) Retroflex is indebted to Knauf in the total amount of $991,117.22 (paragraph 14 of the statement of claim); (11) Knauf demanded payment of the sum of $991,117.22 pursuant to the Guarantee from Messrs Hardy and Blignaut and the estate of Mr McGinn; (12) the sum of $991,117.22 remains unpaid (paragraph 16 of the statement of claim); and (13) Messrs Hardy and Blignaut and the estate of Mr McGinn have failed to pay any amount to Knauf in respect of the Guarantee or the Credit Guarantee. 13 In the Hardy Defence Mr Hardy pleads the following at paragraphs 14, 15, 16 and 18 (Admissions): 14. The first respondent admits the allegations contained in paragraph 12 of the statement of claim. 15. The first respondent admits the allegations contained in paragraph 13 of the statement of claim. 16. In relation to paragraph 14 of the statement of claim, the first respondent: 16.1. says that Retroflex is at least indebted to the applicant in the sum of $431,771.11 (Monies Payable); 16.2. otherwise does not admit the allegations contained in paragraph 14 of the statement of claim. … 18. In relation to paragraph 16 of the statement of claim, the first respondent: 18.1. admits that the Monies Payable are due by Retroflex to the applicant; 18.2. otherwise does not admit the allegations contained therein. 14 That is, Mr Hardy admits that, in breach of the Agreement, Retroflex has not paid the Minimum Repayment or any payment at all in respect of the Outstanding Amount; admits that Retroflex is indebted to Knauf in the sum of $431,771.11 in respect of the Outstanding Amount; and admits that the sum of $431,771.11 is due by Retroflex to Knauf. 15 The effect of the Amended Defence is that Mr Hardy now alleges that Retroflex is not indebted to Knauf in the amount claimed, either for the Invoices or the Outstanding Amount, and that Retroflex has paid Knauf more than was payable in respect of the Invoices and the balance of the Outstanding Amount. On that basis Mr Hardy alleges that he has no liability to Knauf as guarantor.

THE EVIDENCE 16 The Amended Defence is concerned with the Agreement. It is useful to start by summarising the relevant terms of the Agreement: (1) the recitals to the Agreement record that: A. Knauf has supplied building products on credit to [Retroflex] pursuant to the Credit Agreement. B. [Retroflex] is indebted to Knauf in the sum of the Outstanding Amount. C. The parties have reached an agreement regarding repayment of the Account and the parties wish to enter into this Deed to record the terms of their agreement, including in consideration for Knauf refraining from taking steps to recover the Outstanding Amount, [Retroflex] providing security to Knauf in respect of the monies payable pursuant to this Deed. (2) the "Outstanding Amount" is defined as "all outstanding moneys drawn under the Account, including any interest, fees, costs or charges being, at the date of this Deed, the amount set out in Item 3 of the Reference Schedule", which is specified to be $900,000; (3) the "Account" is defined as "the trading account created by the Credit Agreement by which Knauf supplies goods on credit to [Retroflex]". The "Credit Agreement" is the document titled "Credit Application" entered into by Knauf and Retroflex on 4 February 2014; (4) pursuant to cl 4.1 Retroflex acknowledged and agreed that it was liable to Knauf for the Outstanding Amount on the Account and that the Outstanding Amount on the Account was immediately due and payable to Knauf; (5) pursuant to cl 5 Knauf and Retroflex agreed that interest would be payable on the Outstanding Amount calculated at 7.5% per annum on the last day of each month after 1 July 2014 and that Retroflex would pay the Outstanding Amount in 24 monthly instalments of at least $40,500, being the Minimum Repayment, by depositing cleared funds into Knauf's nominated bank account by the first day of each month. 17 In his affidavit sworn on 21 October 2016 Mr Hardy gives evidence that, through his access to the accounting system and information held by the liquidators for Retroflex, he obtained copies of various bank statements and was able to identify records of payment made by, or on behalf of, Retroflex to Knauf and credit notes in favour of Retroflex which were not accounted for in Knauf's statement of claim or in evidence filed on behalf of Knauf. As a result of his review of that material, Mr Hardy prepared a schedule. 18 In her affidavit sworn on 30 October 2016 Mrs Hardy gives evidence that: (1) under the terms of the Agreement, as at 30 June 2014 an amount of $900,000, representing all outstanding moneys owing by Retroflex to Knauf, was agreed and that amount became the Outstanding Amount for the purposes of the Agreement; (2) Knauf has not provided a reconciliation of the payments made or credits provided for invoices rendered by Knauf to Retroflex for the period from about 30 June 2014; (3) she downloaded a report titled "Creditor Reconciliation Details" from the "Accrivia" accounting system maintained by Retroflex into a document. She then narrowed that document to only include payments made or credits given after 30 June 2014 in respect of invoices dated prior to 30 June 2014 (Report). The Report identifies how payments made by Retroflex to Knauf or credits given by Knauf to Retroflex were accounted for within the Retroflex accounting system. Mrs Hardy says that from the Report she has identified that: (a) Retroflex has paid Knauf or received credits from Knauf after 30 June 2014 of between $1,058,134.27 and $1,092,215.28 (Credit Amount) in respect of invoices rendered by Knauf to Retroflex prior to 30 June 2014; (b) the invoices that Knauf notionally credited in respect of the $900,000 sum on account of the Outstanding Amount under the Agreement did not include any of the invoices forming part of the Credit Amount; and (4) from her analysis, Retroflex paid or was entitled to credits in the sum of the Credit Amount towards invoices rendered after 30 June 2014, which it has not received. 19 Mr Hardy's evidence in support of his application to withdraw the Admissions is as follows: (1) at the date of entry into of the Agreement, Knauf had not been able to provide a proper reconciliation of the moneys owing by Retroflex to it; (2) in early 2014, after Mr Blignaut was engaged as Finance Manager of Retroflex, Mr Hardy undertook more sales and distribution work for the business and less day to day management of the accounts payable by Retroflex. As a result, Mr Hardy ceased having day to day dealings in relation to the status of the accounts between Retroflex and any of its trade suppliers, including Knauf; (3) despite entering into the Agreement, Mr Hardy is aware from discussions he had from time to time with those involved in dealing with Retroflex's account that there continued to be problems with Knauf being unable to reconcile Retroflex's account with it and that those problems persisted throughout the subsequent trading history between Retroflex and Knauf; (4) in terms of explaining the change in his defence, Mr Hardy says that in his affidavit sworn 21 October 2016 he identified payments made by or on behalf of Retroflex to Knauf and credits that were agreed between Retroflex and Knauf for the period 1 July 2014 to 10 February 2016. He has since considered the content of Mrs Hardy's affidavit sworn 30 October 2016 and now believes that there was approximately $1,058,092.60 in payments made or credits agreed that Knauf applied to invoices dated before 30 June 2014 despite the terms of the Agreement; (5) at the time he provided instructions to his lawyers to make the Admissions Mr Hardy was: (a) aware that the payments that Retroflex had made specifically towards the repayment arrangements in respect of the Outstanding Amount were those pleaded at paragraph 11 of Knauf's statement of claim and that Retroflex had made no further payments specifically towards the repayment arrangements in respect of the Outstanding Amount; (b) unaware of the matters raised in his affidavit sworn 21 October 2016 and Mrs Hardy's affidavit sworn 30 October 2016; and (c) unaware that, despite not specifically making payments towards the Outstanding Amount beyond those included at paragraph 11 of Knauf's statement of claim, Retroflex had paid Knauf more than the total of the invoices claimed by it to be outstanding and the balance of the Outstanding Amount. 20 Mr Hardy believed that the Outstanding Amount constituted the whole of the amount due by Retroflex to Knauf for debts accrued prior to 30 June 2014. He believed that from the time of entering into the Agreement the only moneys due to Knauf, other than the Outstanding Amount, were for invoices rendered by Knauf from 1 July 2014. 21 Damian Frost, who was until mid-May 2016 the Chief Financial Officer and company secretary of Knauf, gives evidence about the negotiation of the Agreement. Mr Frost, as the person at Knauf responsible for the negotiation of the Agreement, says that the negotiations involved a number of meetings, telephone calls and email exchanges between him on behalf of Knauf and Mr Blignaut and, at times, Mr Hardy on behalf of Retroflex. While Mr Frost does not have a specific recollection of particular conversations, he recalls the course of discussions generally. His recollection is that: (1) at the time of the negotiations, Retroflex was a significant debtor of Knauf with total overdue debt of approximately $1.8 million to $1.9 million; (2) someone on behalf of Retroflex made a request to Mr Frost to the effect that $900,000 of Retroflex's debt be deferred and paid over time with the balance of the debt to be paid within Knauf's terms; (3) Mr Frost discussed the matter with Mark Norris, then Knauf's Chief Executive Officer. They decided that the request would be acceptable provided that the deferred debt accrued interest at a commercial rate and that Retroflex provided security; and (4) that position was communicated to Retroflex, most likely through Mr Blignaut, and a formal agreement was subsequently entered into. 22 On 21 March 2014 Mr Frost wrote to Messrs Hardy and Blignaut by email with subject "Payment Arrangements" in the following terms: Just to confirm our discussions yesterday: Debt to be isolated: $900,000 Period: repaid over a maximum 2 years Interest Rate: 7.5% interest. Security: A registered Company Charge This will clear up all 90+ day debt Original consignment stock, which was then charged will remain on extended terms, 90 days is up on 31 March but given virtually no product has gone to site these terms will be extended and reviewed on a month by month basis. A separate account will be set up to monitor this. To be paid as stock is delivered 60+ days to be paid upon receipt of cash from Ross, early to mid April. The account is to then be paid within normal trading terms of 30 days. Suza has sent through details of outstanding invoices according to Knauf, so I would appreciate reconciling this with your ledger to ensure we are all working off the same numbers asap. I will get the ball rolling on documentation. 23 Later that evening at 6.32 pm Mr Blignaut responded to Mr Frost's email, including Mr Hardy as an addressee, saying: "[s]ounds good to me". 24 Mr Frost says that his email dated 21 March 2014 is an accurate summary of a conversation that he had with Messrs Hardy and Blignaut on 20 March 2014. He says that the $900,000 (the Outstanding Amount in the Agreement) was, as is referred to in his email, the "90+ day debt". He says that the reference to "60+ days to be paid upon receipt of cash from Ross, early to mid April" is a reference to Mr McGinn, who he believes was at the time another director of Retroflex. 25 Mr Frost recalls that Mr McGinn was involved with another construction company which had a role in constructing the Perth Children's Hospital, had purchased product from Retroflex and was Retroflex's single largest customer and debtor. Mr Frost says that he was informed by Mr Blignaut that the head contractor on that project was holding approximately $2 million in retention from Mr McGinn's other company; that because of that retention Mr McGinn's company was not in a position to pay its debt to Retroflex; and that once the retention was released Retroflex would be paid and it could then pay Knauf. 26 On 26 March 2014 Mr Frost sent a further email to Mr Blignaut in which he said: Have sent through instructions to get documentation done up. Loan calculator attached detailing payments. Done effectively as a mortgage, minimum payments of $40,500 per month, approx. $72,000 in interest over the loan. 27 Mr Blignaut responded later that day in the following terms: Thanks Damien. That is a good calculator. You happy if we make payments on the 1st of each month? Thanks once again for your help. 28 On 27 March 2014 Mr Frost responded to Mr Blignaut, saying "[y]es, that's what will be in the agreement". 29 The following further evidence obtained from the records of the receivers and managers of Retroflex was relied on by Knauf: (1) on 1 October 2015 Mr Hardy sent an email to Mr Norris with subject "Creditors" which attached a creditor trial balance and in which Mr Hardy said: hi mate, creditors are up to date. Couple of pricing issues with BGC and Knauf but everything is in. The creditor trial balance included an entry "Knauf Plasterboard (Quarantine)" showing a 90 day balance of $14,814.36. Mr Hardy says that the reference to the "quarantined amount" was a reference to the Outstanding Amount in the Agreement; (2) on 13 November 2015 Mr Hardy wrote to Gavin Burton at Knauf in the following terms: Firstly thank you for meeting me the other day and providing some green shoots of confidence in the brand. I have meet (sic) with the shareholders, accountant and bank yesterday and I believe I have a proposal to pay the Knauf quarantined amount (in the form of the loan) down quickly. I propose that if we trade for the next 3 full months in 60 days terms with Knauf we can in the new year have this amount paid out. The reason I say starting new year is that with the Xmas period basically on us I'm not a 100% the November and December account will generate enough sales for us to pay the loan out this year (I'm keen to try it if you are). My thinking is if we start the period of 60 days in December or now I believe at a minimum we can start paying down large amounts weekly, this also allows bank finance to kick in in the new year as I rearrange the directors and shareholders around over Christmas (as I mentioned I need to get the last director removed and settled). Or we start first Jan and it'll be gone end of Feb-mid March. I am committed to getting this paid out ASAP. Your thoughts? (3) on 20 January 2016 Clifford Robert, the Financial Controller of Retroflex, sent an email to David Carson and Mr Hardy, copied to Mr Norris, with subject "December 2015 Management Report and 3 Way Forecast (with Payroll reductions)". The report attached to that email included an entry in the profit and loss summary for the 12 months to 30 June 2016 under the heading "Other Expenses" of "Interest - Knauf Plasterboard" and an entry in the balance sheet under the heading "Loans" of "Knauf" showing an amount owing as at December 2015 of $388,803; (4) on 20 January 2016 Mr Hardy sent an email to Mr Norris which forwarded an email from Mark Lieshout, who described himself as a "Business Engineer", to Mr Hardy. Attached to the email was a creditor trial balance which included Knauf as a creditor for a total amount of $236,261.45 with an amount of approximately $201,000 owing for 90 days; (5) on 25 January 2016 Mr Robert sent an email to Messrs Hardy and Norris in which he set out "2 versions of the outstanding amount to Knauf based on the information that I have at hand now". The first version headed "Retroflex" showed the total owing to Knauf for the Knauf loan as $388,803.04 and the total owing to Knauf, including the Knauf loan, as $759,314.66. The second version headed "Knauf " showed the total owing for the Knauf loan in the same amount, namely $388,803.04, but the total owing to Knauf, including the Knauf loan, as $804,984.11. The email set out the variance between the amount Retroflex said it owed to Knauf and the amount Knauf said it was owed by Retroflex as being $45,669.45; and (6) on 27 January 2016 Mr Frost sent an email to Mr Robert, copied to Mr Hardy, with subject "Loan Statement" in which he said the following: Loan statement as requested, with balance @ 31 December, 2015. The loan is currently in arrears, with Column AG showing it is behind by $73,311.74 @ 31 December. A further payment of $40,499.63 is expected on 1st February, taking the total amount due on 1 February to $113,811.37. As part of the agreement with Mark, the loan was to be repaid in full by 30 June this year, 3 months early. It is imperative that this be brought up to date immediately.

PRINCIPLES 30 Rule 26.11 of the Rules relevantly provides that a party may at any time withdraw a plea raised in the party's pleading by filing a notice of withdrawal. However, a party must not withdraw an admission or any other plea that benefits another party, in a defence or subsequent pleading, unless the other party consents or the Court gives leave. 31 Knauf referred the Court to the decision in Maile v Rafiq [2005] NSWCA 410, which sets out the principles applicable to an application of the nature now before me relying on Drabsch v Switzerland General Insurance Co Ltd (1996) (unreported, Supreme Court of New South Wales, 16 October 1996) (Drabsch). 32 In this Court, in Optical 88 Ltd v Optical 88 Pty Ltd [2010] FCA 310 Yates J considered an application to withdraw admissions under the former O 22 r 4 of the Federal Court Rules, which was in substantially the same terms as r 26.11 of the Rules, which had been filed on the fifth day of the hearing. In setting out the applicable principles his Honour referred to the decision of a Full Court of this Court in Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309; (2003) 204 ALR 327 (Jeans), where the Full Court rejected the approach suggested in H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694 that, except in cases which give rise to an estoppel, an admission might be withdrawn, at least if the other party is not prejudiced otherwise than in a way that might be cured by a costs order. His Honour noted that the Full Court "accepted the true position to be that there is no principle that admissions might or might not be withdrawn" and "accepted that a court has 'a broad discretion to weigh up all matters with the overall question being to ensure that there was a fair trial'": at [26]-[27]. 33 Yates J also noted that in Jeans the Full Court accepted the observations of Santow J in Drabsch as guiding the exercise of the discretion as follows: 1. Where a party under no apparent disability makes a clear and distinct admission which is accepted by its opponent and acted upon, for reasons of policy and the due conduct of the business of the court, an application to withdraw the admission, especially at appeal, should not be freely granted … 2. The question is one for the reviewing judge to consider in the context of each particular appeal, with the general guidelines being that the person seeking on a review to withdraw a concession made should provide some good reason why the judge should disturb what was previously common ground or conceded … 3. Where a court is satisfied that admissions have been made after consideration and advice such as from the parties' expert and after full opportunity to consider its case and whether the admission should be made, admissions so made with deliberateness and formality would ordinarily not be permitted to be withdrawn … 4. It will usually be appropriate to grant leave to withdraw an admission where it is shown that the admission is contrary to the actual facts. Leave may also be appropriate where circumstances show that the admission was made inadvertently or without due consideration of material matters. Irrespective of whether the admission has or has not been formally made, leave may be refused if the other party has changed its position in reliance upon the admission … 5. Following Cohen v McWilliam (1995) 38 NSWLR 476, a court is not obliged to give decisive weight to court efficiency, such that a party who wishes to defend its claim is entitled to a hearing on the merits, with costs orders being available as a means of compensating the other party for any costs thereby unnecessarily incurred or not fairly visited on the other party. 34 His Honour referred to the significance of considerations of case management, observing that in Jeans the Full Court had regard to the effect of the decision of the High Court in Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146, which rejected an emphasis upon case management as a ground for refusing an application to amend a defence. But his Honour also noted that the significance to be given to considerations of case management must now be viewed in light of s 37M of the FC Act. In the circumstances of the case before him Yates J declined to grant leave to withdraw the relevant admissions. 35 In Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2007] FCA 1390 Finn J granted leave to withdraw an admission in a defence because it was in the interests of justice that the withdrawal be permitted and because no significant detriment or prejudice would be occasioned by the withdrawal: at [7]. His Honour had earlier observed, based on the authorities, that the interests of justice was "[t]he overriding consideration" in the exercise of the discretion to grant leave.

THE PARTIES' SUBMISSIONS 36 Mr Hardy submitted that by the terms of the Agreement Knauf and Retroflex agreed to a compromise, the effect of which was that the amount owing by Retroflex as at 30 June 2014 was agreed to be a lump sum of $900,000; that there was a line drawn as at 30 June 2014; and that $900,000 was the amount with which they were dealing going forward. Mr Hardy further submitted that insofar as Mr Frost's evidence about the effect of the Agreement relates to pre-contractual negotiations that may raise a case for an estoppel or perhaps rectification, but those are matters to be determined based on evidence given at the trial and not on an application for summary judgment or the present application. 37 Mr Hardy also submitted that at the time he gave instructions to make the Admissions he was unaware of various matters. He contended that: (1) it was after he gave those instructions that he became aware that there were payments made for which Knauf had not been given credit; (2) thereafter, Mrs Hardy identified that there was at least $1 million in payments made or credits agreed that Knauf had applied to invoices dated before 30 June 2014; (3) it was only after Mr Seymour's affidavit sworn 28 October 2016 was served that he had access to evidence showing the receipts by Knauf and how it had accounted for the receipts. He thus became aware that there were a large number of payments that were made or credits that were given after 1 July 2014 that had been applied to invoices rendered prior to 30 June 2014, which ought not to have happened because of the terms of the Agreement. 38 Mr Hardy submitted that the payments made by Retroflex and credits in its favour after 30 June 2014 were in excess of $1 million in respect of invoices rendered prior to 30 June 2014. He submitted that, as the sum of the Outstanding Amount and the Invoices claimed by Knauf are less than that amount, if the argument advanced by the Amended Defence is successful then Retroflex would be a creditor rather than a debtor of Knauf, albeit for a very small amount. That is, Mr Hardy submitted that the relevant parts of the Amended Defence go to the full amount of claim and, if successful, would provide a complete defence. 39 Mr Hardy also submitted that, even if he were not permitted to withdraw the Admissions and rely on the Amended Defence, the argument may in any event be relied on by Mr Blignaut such that the Court would need to determine the issue. Mr Blignaut confirmed that that was his position. 40 Knauf submitted that the Admissions were made in circumstances where Mr Hardy enjoyed a substantial opportunity, a period of some two months, to consider Knauf's case prior to filing the Hardy Defence. In that period, Mr Hardy was able to consider his position aided, no doubt, by Mrs Hardy. In her affidavit sworn 23 August 2016 Mrs Hardy described her role at Retroflex as one which involved reconciling Knauf's statements of account against its invoices and proof of delivery documents, such that she put Mr Hardy in a position to deal with questions of quantum and quantification of credits and payments. 41 Knauf submitted that the new case concerning the construction of the Agreement first emerged in Mrs Hardy's affidavit sworn 30 October 2016, which was filed on the eve of the adjourned hearing of Knauf's interlocutory applications. In that context, Knauf submitted that the withdrawal of the Admissions may be principally driven by a desire for advantage in the face of an application for summary judgment. 42 In relation to the context in which the Agreement was executed and subsequently operated Knauf submitted that: (1) first, the evidence of Mr Frost showed that there was a concept of quarantining some of the debt that was owing prior to 30 June 2014. That evidence is plainly relevant to ascertaining the subject matter of the Agreement, the issue being whether the Outstanding Amount of $900,000 was to extend to every dollar owed by Retroflex to Knauf as at 30 June 2014; (2) secondly, based on the further correspondence that was before the Court, it was clear that: (a) in Retroflex's own accounts Knauf was identified as a creditor in three respects, one of which was described as "Knauf Plasterboard quarantine"; (b) in the email from Mr Hardy to Mr Burton at Knauf dated 13 November 2015 Mr Hardy said that he had met with the "shareholders, accountant and bank yesterday" and believed that he had a "proposal to pay the Knauf quarantined amount (in the form of the loan) down quickly"; (c) the loan is identified by Retroflex in its own records as quarantined. The notion of it being quarantined can only be consistent with the proposition that the $900,000 was not the entirety of the amount owing by Retroflex to Knauf as at 30 June 2014, but a portion isolated for the purpose of being made the subject of a repayment arrangement; (3) thirdly, other internal reports and accounts for Retroflex show interest expenses owing to Knauf and a liability, in the form of a loan, owing to Knauf with no suggestion on the part of Retroflex that the loan had been fully repaid; and (4) fourthly, the correspondence does not show Mr Hardy stepping away from involvement in the management of accounts and devoting himself to the role of sales, as Mr Hardy claims. 43 Knauf submitted that if leave to withdraw the Admissions and rely on the Amended Defence were granted then the matters upon which Knauf now relies could find themselves being pleaded by Knauf in various ways. But it submitted that the Court need not be detained by that because, based on what is available to the Court and what has been available to the parties, there can be no basis for suggesting that the Admissions were contrary to the actual facts. The Admissions, in fact, completely accord with those facts. 44 Knauf submitted that Mr Hardy had sought to "throw a spanner into the works" in order to delay the inevitable, namely, the fulfilment of his liability to Knauf for the amounts sought in the statement of claim. The Court would be satisfied that there was no basis for granting leave to withdraw the Admissions and to rely on the Amended Defence.

CONSIDERATION 45 The withdrawal of admissions should not be permitted lightly. The Court's exercise of its discretion should be guided by the principles I have set out above, subject to the overriding consideration of the interests of justice which must be considered in the context of s 37M of the FC Act. 46 Having considered the parties' submissions I am of the opinion that this is a case where the discretion should be exercised in favour of Mr Hardy and that he should be permitted to withdraw the Admissions and rely on the Amended Defence. I do not come to this conclusion lightly. I am cognisant that this proceeding has been ongoing for some time, that Mr Hardy has been less that diligent in his defence of the proceeding and that this application may be yet another attempt to forestall the ultimate resolution of the proceeding. I am also mindful that at the time Mr Hardy made the Admissions he was legally represented and that the Hardy Defence was prepared with the assistance of legal advice after Mr Hardy had had some time to consider his position. Further, the evidence relied on by Knauf clearly puts in issue the construction of the Agreement postulated by Mr Hardy. 47 But balanced against those factors are that: (1) Mr Hardy's evidence is that at the time of the preparation of the Hardy Defence he was unable to reconcile the payments made to and the credits given by Knauf and thus was unable to calculate the amount owing to Knauf. That is, he was unable to verify quantum. Mr Hardy also says that it was his understanding that the Amount Owing referred to in the Agreement was $900,000 and that this represented, in effect, a compromise of the debt due to Knauf prior to 30 June 2014; (2) despite Mr Hardy being legally represented at the time he made the Admissions, they were made because, according to Mr Hardy, the reconciliation exercise had not taken place and could not take place until he was seized of sufficient information. Mr Hardy's interpretation of the Agreement only became apparent upon the filing of Mrs Hardy's affidavit sworn 30 October 2016. Until that time Mr Hardy had not postulated any particular interpretation of the Agreement, although quantum was identified as an issue. The issue now raised in the Amended Defence depends on both the reconciliation undertaken and Mr Hardy's interpretation of the Agreement; (3) there is clearly an issue between the parties as to the construction of the Agreement. On one view the Admissions are not contrary to the actual facts on the basis of the material available to the Court. But that is not a matter that should be resolved on this application. There is ambiguity in the terms of the Agreement and full argument as to its meaning is desirable; (4) the matters raised by Knauf in response to the Amended Defence are available to be argued at a final hearing, as conceded by Knauf; (5) although the proceeding has been on foot for some time and the First Knauf IA has been adjourned on a number of occasions, the proceeding is not so far advanced that allowing Mr Hardy's application would cause any significant prejudice to Knauf that could not be cured by an order for costs; and (6) unlike Mr Hardy, Mr Blignaut has not made admissions about Retroflex's indebtedness to Knauf, but denies the relevant paragraphs of the statement of claim. Mr Blignaut's position is that he will in any event rely on the matters raised by Mr Hardy in the Amended Defence. That is, even if Mr Hardy is not permitted to withdraw the Admissions and rely on the Amended Defence then those issues will still remain to be determined by the Court as between Knauf and Mr Blignaut. That is perhaps one of the more compelling reasons to allow Mr Hardy's application.

CONCLUSION 48 In light of the matters set out above I will make orders that Mr Hardy have leave to withdraw the admissions made in paragraphs 14, 15, 16 and 18 of the Hardy Defence. It follows that Mr Hardy will be able to rely on the Amended Defence. 49 I will hear the parties on costs of this application. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.