M & A Pharmachem Limited v Laderma Pty Ltd [2013] NSWDC 253 | Case summary

The application to amend the cross-claim 230On 22 November 2012, at the close of evidence from both parties, these proceedings were stood over to 14 February, 2013 for any further cross-examination of Mr Gatenby on the issue of mistake, and the tender of any further documents by the defendants, by reason of the amendment of the plaintiff on the first day of the trial, as well as a timetable for submissions. I specifically ordered that no further evidence or affidavits be filed (T 351). This was because the parties had already filed extensive evidence setting out all the conversations and all of the relevant documentation and the plaintiff had stated from the first that no additional affidavit evidence would be required. 231Counsel for the defendant submitted (T 351) that it was "inappropriate" for me to make such an order, as further affidavit evidence from Mr Sher or Mr Badley could be required (T 352). As it happened, when the hearing was resumed on 14 February 2013, there was no application for leave to adduce further evidence from any witness in relation to the plea of mistake, and both parties agreed (T 356) that there were no further documents to tender on this issue. 232 On the evening before the 14 February 2013 hearing I received a series of affidavits and learned that on 16 January 2013, during the vacation, the defendants had foreshadowed an application for leave to amend their claim. No notification of this application was given to the court prior to 13 February 2013. 233The amendments in question (which are underlined in the proposed defence and proposed cross-claim which are Exhibit X3) are numerous. Some related to the claim as presently pleaded; these were, in the main, agreed to by the plaintiff. The remaining amendments consisted of what Mr Sirtes SC called two "anchor claims" and some related but lesser amendments. 234The first proposed "anchor claim" amendment consisted of a claim of mistake by Laderma and Laderma Trading, on the basis that they had overpaid credits for advertising promotions since about the end of 2007. In the event that a finding was made by me that the distribution agreement was neither varied nor notated, the cross-claimants argued that since 2007 they had mistakenly overpaid credits, and the return of this sum was sought. 235The second proposed "anchor claim" amendment was a set-off (s 21 Civil Procedure Act 2005 (NSW)) for loss of opportunity arising from the prohibited sale of goods past the embargo period of 150 days in the agreement. 236The nature of the transactions in question, which Mr Miller conceded would require not only a further adjournment but also new evidence, can best be seen from Mr Miller's description of them in his submissions. At T 378 - 80 he gave one example of the advertising and promotion claim, which is the set-off claim. The total involved in the advertising claims was, Mr Miller said, 76,000 euros for transactions between 2007 - 2010 which would mean, since the plaintiff was claiming 99607,44 euros, that the parties were "almost at a nil-all draw" (T 380). This was a strange submission to make when the cross-claim initially made substantial claims for £492,000 for loss of profits (some of which appear, from the submissions received after this application, to have been abandoned, but which nevertheless amounted to £374,835.97 and freight costs of $66,102.38). 237I note these were not actual payments made to the plaintiff, but credits for advertising in accordance with a formula. In addition, these claims would be brought by both cross-claimants, because Laderma Trading was not a party to activities of this kind, even on the defendants' case, until January 2009. 238The lack of relationship between these cross-claims and the plaintiff's claim can readily be demonstrated from an examination of the statement of claim. The plaintiff's case is a claim for 99607,44 euro for two isolated payments, one in 2009 and one in 2010, at the very end of the distribution agreement. 239The case that the defendants now wish to bring, in relation to the advertising rebates, is that because the amount in the signed distribution agreement was informally (i.e. without writing) varied in 2007 between the parties prior to there being any question of a "newco" which would take over the Laderma business, that variation cannot be permitted if variation of the Laderma/Pharmachem agreement is not permitted. There are two answers to this argument. The first is that it does not follow that there was in fact a variation but even if there were, one unrelated agreed variation of a term in a contract does not mean that a subsequent, and significant, amendment to replace Laderma with Laderma Trading must be accepted, or is even related to the earlier oral amendment. If in December 2007 the parties informally changed one aspect of the distribution agreement, that is not a set-off in relation to the payment of money in 2010. Any "mistake" by Laderma in 2007 has nothing to do with the claim by the plaintiff, in an entirely different set of circumstances three years later, that it has paid money by mistake. 240In addition, it is hard to see how the claim can be brought as a set-off under s 21. The claim made by the defendants is not a set-off but a contingent claim based upon factual findings which the defendants ask the court not to make. 241The defendants had little to say about the loss of opportunity claim. Mr Sirtes SC's description of the claim as complex (T 44403 - 4) was not challenged. 242An additional group of amendments (described as the "fourth category" at T 405), the third being those to which there was agreement) amounted to a renewal of the application to amend made during the trial, but with additional factual material of the kind set out above. 243Mr Miller's rationale was that the amendment which I permitted on the first day of the hearing, namely for the plaintiff to bring an alternative claim of mistake, meant that any defence to that claim should not be "constrained and truncated to a defence that is just based on one set of facts, when the evidence already before your Honour already opens up the whole area of another related set of facts that necessarily form part of his [sic] mistake claim" (T 397). Mr Miller characterised my response to this application as having left the door open for a further application. The application to amend was not pursued during the hearing and should not have been brought again after the hearing was over. 244I agree with the plaintiff's submissions (T 360, 384) that these claims could always have been brought and that the failure to do so is not only unexplained but also unsatisfactory. These were matters within the knowledge of the defendants, in the sense that they had considered issues relevant to the cross-claim when that document was drafted. The material upon which these claims is based did not arise from surprise evidence or disclosures during the hearing. There was no explanation as to the delay in bringing the claim as part of the existing cross-claim at the hearing, or for not raising these matters during the hearing or even after the evidence was concluded. Nor was there any explanation for notifying the plaintiff two months after the hearing, during the vacation, or for not notifying the court until the evening before the application was to be made. This delay is exacerbated by the fact that the transactions in relation to one proposed amendment went back to 2007, almost six years before the application for leave to amend was brought. 245The issue of amendment of the defence and cross-claim was raised during the hearing (T 122), although not in the context of advertising costs. When counsel for the defendant conceded that the defence and cross-claim did not refer to a variation of the contract, he sought leave to amend. The issue of variation never featured in the plaintiff's case; the plaintiff's case was that there was only one contract, and that contract came to an end on 4 April 2010. In this respect, Mr O'Donald's affidavit, which states "if [the plaintiff's] contention is accepted by this Court, that the distribution agreement...was never varied" misses the point. The plaintiff has never claimed the contract was varied. 246Nor does a proposed new claim of mistake by the defendants relate in any way to the amendment to plead mistake by the plaintiff on the day of the hearing. The mistake pleas by the parties relate to entirely different matters. 247In addition, at a time when the defendants were considering an amendment to during the hearing, there was no thought of these additional claims, and Mr Miller agreed that these issues had not been considered at the end of the hearing, when all that was sought was leave to tender any additional documents (which was later agreed to be unnecessary: T 356) and cross-examine Mr Gatenby (which never occurred). 248The defendants made some concessions about the payment of costs, essentially in relation to the cost of the plaintiff having to bring witnesses from the United Kingdom (T 383). However, even if costs had been proffered for the hearing thrown away, the circumstances in which a court will dislocate a hearing in order to permit a litigant to bring an entirely new case, especially where the evidence in that case was complete, would have to be compelling. 249Bringing the application caused significant delay to the hearing. The hearing had to be adjourned until Monday 1 April 2013, then to 20 May 2013, and further submissions were then provided in June 2013. This led to further difficulties because of my leave and circuit commitments. 250In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [102], Gummow, Hayne, Crennan, Kiefel and Bell JJ examined the requirement for proffering an explanation when there is delay in applying for amendment: "[102] The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment." 251The High Court's requirement for an explanation is a significant recognition that applications to amend brought with little or no notice, particularly where such an application is made shortly before or during a trial, may be brought as a trial tactic. The party bringing the application benefits whether the application is successful or unsuccessful, because the appeal process requires the finding of errors of law by the trial judge, rather than appellate examination of the merits of the case, and the search for errors may overshadow what those merits are. Some of the academic articles on this subject refer to late applications to amend, as well as the sudden discovery of material of significance when the hearing is over, issues not raised at the trial and complaints of bias as potentially distracting the court from examination of the factual issues in the trial (see, for example, "Appeal by Ambush" and other articles in the 2011 issue of the Thurgood Marshall Law Review, which devoted an entire volume to the issue of "trial by ambush"). Recent decisions of the NSW Court of Appeal such as Sydney South Western Area Health Service v MD [2009] NSWCA 702; Belligen Shire Council v Colavon Pty Ltd [2012] NSWCA 34) have similarly endorsed these principles. 252At the time I heard the application I had not had the advantage of reading the parties' submissions as to the merits of the cross-claim. Mr Miller's "nil-all draw" estimate that the proposed amendments would be the equivalent of the plaintiff's claim was puzzling at the time, given the size of the cross-claim. Having now had the benefit of the parties' submissions as to the cross-claim, particularly concerning the abandonment of the loss of opportunity for the "terminated order" resales, I am satisfied that the cross-claim as pleaded contained claims that were weak, and must have been known to be so by the defendants and those who advised them. Not only was the cross-claim wholly contingent upon the implication of a term into the contract (in circumstances where the implication of such a term was inconsistent with express terms), but there were significant problems with causation and quantum. 253Accordingly, although it did not play a part in my consideration at the time, the futility of the "terminated order" claim, and the weakness of the remaining claim in relation to causation are factors that should militate against the granting of liberty to amend.

M & A Pharmachem Limited v Laderma Pty Ltd

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