Lewis v Nortex Pty Ltd

3081/97 PETER LAWRENCE LEWIS v NORTEX PTY LTD (In Liq) 1750/02 LAMRU PTY LIMITED v KATION PTY LIMITED & ORS JUDGMENT 1 HIS HONOUR: Before me I have a notice of motion on behalf of the Lewis interests to amend their defence in these proceedings by incorporating a par 37K. This is the 47th day of the trial. The burden of paragraph 37K is that if what has been called in the case "the certificate evidence" is accepted, then sales of goods made for cash over a period of years in respect of which the cash was divided between Mr Lewis and Mr Lamb should be brought back into account in the books of the company for the purpose of calculating the Free Net Income. The subject matter is not new. Already one attempt has been made by the same parties to bring this material into play in these proceedings. In respect of that attempt, I delivered judgment on 29 April 2003: Lewis v Nortex Pty Ltd (in Liq) [2003] NSWSC 354 ("my judgment"). 2 The situation was brought about by Mr Lamb giving what has been called the "certificate evidence" under cover of a certificate under s 128 of the Evidence Act 1995, which he procured. Mr Lamb gave evidence that, over a period of years from about 1991 until his departure from the company in 1996, he and Mr Lewis had engaged in the practice mentioned above of taking goods of the company, selling them for cash, not recording the sales or the cash in the company's books and themselves dividing the cash in the proportion 60:40, which was the proportion in which they were entitled to the profits of the trading trust conducted by the company. No trace of or allusion to this practice was contained in the earlier pleadings and written evidence in these proceedings. The evidence, however, was able to be led because it was relevant as tending to prove an allegation which had always been made on behalf of Lamru, namely, that after Mr Lamb left the company, Mr Lewis continued to deal with goods in the above fashion, save that he took 100 per cent of the cash proceeds for himself. 3 Some history of the matter was set out in my judgment, and I do not intend to repeat it here. Other matters of history were referred to in a written submission given to me by Mr Cotman of Senior Counsel on behalf of the Lewis interests on the argument of this application. That written submission reminds me that it was on 6 and 9 December 2002 that Mr Lamb gave the certificate evidence. Between 14 and 29 April 2003, the Lewis interests, as I have said, applied for leave to amend their points of defence. Some of the amendments were allowed, for instance, clean hands defences arising from Lamru's reliance upon Mr Lamb's evidence of his discreditable conduct in support of the proof of its case against the Lewis interests. 4 It was sought to raise a defence at that time to bring into play an indebtedness between Mr Lewis and Mr Lamb arising from the abstracted stock. The defence was sought to be relied on in pursuance of the principle that he who seeks equity must do equity. It was alleged that, if Lamru were to succeed in its claim against the Lewis interests, then it should bring into account the moneys said to be owed by Mr Lamb to Mr Lewis as between themselves in respect of cash transactions. I refused to allow that defence on the ground of the lack of identity of parties between the two transactions sought in broad terms to be offset: see my judgment [20] and [21]. In addition, I indicated that, if it were necessary, I should refuse certain of the amendments, including that amendment, on discretionary grounds which I set out in [23] of my judgment. 5 The matter has gone further down the track since then. On 19 May 2003 Mr Lewis commenced proceedings 2850/03 in this Division against Mr Lamb personally, making a claim in respect of the "private account" between them referred to above. Evidence of an accounting expert, Craig Edwards, was brought forward in these proceedings which dealt with consequences of the abstraction of stock, but that portion of his evidence I rejected on the ground that it was not relevant to any part of the case as pleaded. On 23 June 2003 Senior Counsel for the Lewis interests brought forward the amendment now propounded. 6 There is one other very important factor or development that has occurred since the delivery of my judgment on 29 April 2003. Lamru's case is now closed and, with the exception only of some documents, the case of the Lewis interests is also closed. We are now in the liquidator's case and Mr Silvia himself is in the witness box at the moment under cross examination. As at 29 April 2003, the Lewis interests were still taking the stance that they might well not call any evidence at all and at some appropriate stage make a no case application in relation to the fraud claim arising from the abstracted stock. However, by now, the situation has crystallised. They did go into evidence, but, although he had filed affidavits, they did not read them or call Mr Lewis. Thus, at the end of the Lewis interests' case, the situation is that Mr Lamb has, on oath and under certificate, given evidence of the practice that he and Mr Lewis engaged in in relation to stock over a period of years. Mr Lewis, who was the only other party to those transactions and essentially the only other witness to them, has chosen not to give evidence and Mr Lamb's evidence concerning the matter is not denied. No doubt Mr Lamb's credit is under heavy challenge in the proceedings and the time has not come for me to evaluate it. However, the fact that he has given the certificate evidence on oath and the fact that the only other participant in the transactions has chosen not to deny that evidence must increase very greatly the likelihood of a finding that those transactions did take place as Mr Lamb has alleged. I should add that there are some documentary materials in evidence which, in various ways, give some corroboration to Mr Lamb's version. 7 There is now another attempt to bring the abstracted stock or its proceeds back into play in these proceedings. This is, as I say, by propounding par 37K of the defence, alleging that the results of those transactions should at this stage be brought into the calculation of the Free Net Income over the years. The calculation of the Free Net Income is a basic issue that underlies all of this case. This is a matter which, on the evidence, the Lewis interests could have brought forward from a very early point of time. If Mr Lamb's evidence is accepted and Mr Lewis was also a participant in these transactions, the facts relating to them were known to Mr Lewis from the day they occurred. Had he chosen to reveal his part in them or bring them forward then he could have done so from the very start. If on the evidence it is found that they did not occur, well, it matters not, because on that basis they cannot be brought into account in any event. The clean hands defences were allowed by me in my judgment because the defendants could not have perceived that such defences were relevant and ought be pleaded until Mr Lamb gave the certificate evidence. They were announced and brought forward within a reasonable time after that event. In the meantime, Mr Lewis has chosen to agitate the issue against Mr Lamb by commencing proceedings #2850/03 as noted above. The facts relevant to this matter were known to Mr Lewis from the time they occurred. From the very start, these matters were relevant to the central question of what the Free Net Income of the subject trading trust was from year to year. But further months have been let go by without this matter being brought forward and it is now brought forward very late in the case. The determination of Free Net Income is in the pleadings. Mr Cotman has said this means that that question is at large. But in my view that is not correct. The items by which the Free Net Income might be adjusted are defined in pleadings, Scott Schedule and particulars. This item does not receive a mention and, so far as I am concerned, is not at the moment open between the parties, as witness my ruling on Mr Edwards' evidence mentioned in [5] above. 8 The relations between the parties are bedevilled by the fact that there exist other pieces of litigation which still remain to be determined between them, including cross claims in these proceedings that have been deferred by the nature of the lateness with which they were brought forward and other sets of proceedings between them in divisions of this court and extensive proceedings between them awaiting trial in the High Court of New Zealand. 9 Various suggestions are made in the written submissions that no real prejudice will be suffered by anyone and as to the way in which possible prejudice may be avoided. But, as I say, at this point of time, the cases of the principal parties on both sides are already closed and the very submissions that are made show the necessity, if this amendment be allowed, of those cases being reopened. This has been a vexing and troublesome case. Although it has taken 47 days to date, it is probably on a minority of those days that evidence has actually been received in the trial. There has been constant and ferocious contest between the parties over all manner of issues: amendments, admissibility of evidence and almost anything that could be imagined. The task of the Court in attempting to bring these proceedings to some sort of finality has been very difficult. If there are rights between the individual men and they are not statute barred, they can be agitated in proceedings #2850/03. The complication and extension of these already complicated and overextended proceedings would be redoubled by allowing this amendment. Furthermore, it is clear that both Lamru and the liquidator have run short of funds. There is the overtone of an attempt to run the other parties out of funds. The consequences of the amendment as to the conduct of the proceedings are unclear. There is no explanation of the delay. I cannot clearly see that the prejudice which in my view will be undoubtedly suffered can be ameliorated. I do not see how the costs consequences can at this stage realistically be estimated or provided for. I repeat that it is an amendment brought forward now on the 47th day of the trial in 2003, being something that could have been brought forward at any time from the time of the commencement of the proceedings. 10 I have, of course, taken into consideration the decision of the High Court in The State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. I have adverted to the considerations against granting amendments listed by Kirby J at 170 - 172. The final criterion is the requirements of justice. In all the circumstances of this case, I have formed the view that the dictates of justice to Lamru and indeed the liquidator require the refusal of this application and the notice of motion is dismissed with costs.

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