Medich v Bentley-Smythe Pty Ltd

REASONS FOR JUDGMENT 1 By Notice of Motion filed on 10 May 2010, the applicant, Ron Medich Properties Pty Ltd seeks the Court's leave to amend the Application, the Statement of Claim and the Defence to the Second Cross Claim in this proceeding. Since that time the Application and the Statement of Claim have gone through several iterations, the applicant having filed an amended application, an Amended Statement of Claim and a Further Amended Application. References to the documents in these reasons should be understood as referring to the iteration current at the date of hearing the Notice of Motion unless otherwise indicated. 2 The applicant's Notice of Motion has been brought on for hearing as a matter of urgency because of the time limits effectively imposed on the amendment of the pleadings in orders made by the Supreme Court of New South Wales. At the heart of the proposed amendments is a claim to an unregistered proprietary interest in property at Cremorne, New South Wales, of which the fifth respondent, Mrs Kimberley McGurk, is the registered proprietor. Central to the respondents' opposition to the proposed amendments is that the fourth respondent, Mr Michael McGurk, whose evidence would be crucial in responding to this claim was killed on 3 September 2009, shortly after the second cross claim was filed. 3 In November 2009, the applicant lodged a caveat on the title to the Cremorne property to protect the interest it claims to have in that property. Following the service, on 18 March 2010, of a lapsing notice in respect of the caveat the applicant applied to the Supreme Court of New South Wales for an extension of the caveat. On 14 April 2010 the Court ordered that, subject to one condition, the operation of the caveat was to be extended to 28 May 2010. The matter was relisted before a Registrar in Equity of the Supreme Court on 26 May 2010. The condition was that by 19 May 2010 the plaintiff was to amend its pleading in the present proceeding to include a claim for a proprietary interest in the Cremorne property. The condition was expressed to be "subject to whatever leave may be necessary in that Court." 4 Before considering the notice of motion I should give a brief account of the background to the main proceeding and the claims made by the applicant. The proceeding principally concerns payments alleged to have been made by the applicant to the first respondent, Bentley-Smythe Pty Limited and to the second respondent, Control Risks International Pty Ltd. 5 As mentioned above, the proposed amendments stem from a dispute as to the circumstances in which the payment used to discharge a mortgage over the Cremorne property was made. The applicant wishes to plead that the payment was made at the request of Mr McGurk to enable him to discharge a mortgage held by BankWest and as a consequence of it providing the monies to discharge the mortgage, it now has a proprietary interest in the Cremorne property. 6 The respondents oppose the proposed amendment on a number of grounds which may be summarised as follows: 1. The unavailability of Mr McGurk to give instructions and evidence on the claim made in the proposed amendments would cause prejudice to the respondents that could not be remedied by an adjournment and/or the imposition of costs. 2. No evidence is adduced and no explanation is given for the applicant's failure to bring this claim at an earlier time. 3. There is no evidence to show that the applicant will be able to support the claim made in the amendments. 4. The Court in its discretion should not allow the applicant to bring "an uncorroborated claim against a deceased person". 5. The proposed amendments are futile as they disclose no cause of action. 6. The application to amend is brought to ensure the continuation of a caveat which is a statutory injunction. Therefore the Court should not allow the amendment unless it is satisfied that there is a serious question to be tried and that the balance of convenience favours the applicant. 7. The prejudice to Mrs McGurk from the continuation of the caveat is such that the Court in its discretion should refuse to allow the proposed amendments. 7 Order 13 of the Federal Court Rules provides that, at any stage of the proceeding, the Court may give a party leave to amend a document in the proceeding. Rule 2(2) provides that: All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.

8 The general principle is that leave to amend should be granted unless the proposed amendment is obviously futile or would cause substantial prejudice or injustice which could not be compensated for. These considerations require the Court to take account of the nature of the proposed amendment, whether it is made in good faith, the stage in the proceedings at which leave is sought, the nature of the prejudice that may be caused and the means by which such prejudice might be redressed. The question of delay is relevant to these considerations however it is not the purpose of the Court to punish a party for delay in seeking an amendment.

Relevance of application to maintain caveat 9 The respondents submit that the Court should approach the applicant's request for leave to amend its pleadings from the perspective that "the justification for extension of the caveat has in a practical sense passed to this Court" because the effect of granting leave to amend is that the caveat survives. Accordingly, it submits that the legal considerations relevant to the maintenance of a caveat must be brought to bear in considering whether to grant leave for the applicant to make the proposed amendments. In particular the respondents submit that the Court must ask whether the pleading and the evidence disclose a serious question to be tried in relation to the claim for a proprietary interest in the Cremorne property. 10 I do not accept this submission. The extension of the caveat is not a matter for this Court. Considerations of evidence and prima facie case have no place in determining whether an amendment to pleadings should be permitted. Pleadings articulate claims and defences to claims. They do not involve the substantiation of those claims. Whether the caveat should be extended is a matter for the Supreme Court in the context of the application made in that Court. For this reason evidence of the distress that maintenance of the caveat might cause to Mrs McGurk is also irrelevant to this proceeding. The proceeding in the Supreme Court is relevant to the present application only in so far as it explains how the applicant's notice of motion came before this Court as a matter of urgency. The present application for leave to amend must be determined without reference to any issue involved in the extension or maintenance of the caveat.

Delay 11 The applicant submits that its delay in bringing the present application is not inappropriate given the complexity of the transactions which are the subject of this proceeding. In fact the applicant attributes its delay to confusion about the source of the monies used to discharge the mortgage to BankWest. This much is evident from the fact that when the applicant first brought the proceeding it also filed an interlocutory application for injunctive relief against the respondents including an order against the fifth respondent in relation to the Cremorne property. In its written submissions in support of the notice of motion the applicant explained that at the time, it believed that the monies used to pay out the mortgage had been paid to the first respondent in a different transaction. It now accepts that this was not the case. 12 In the circumstances I do not regard the delay as a reason, per se, for refusing leave to amend. Although the present proceeding was commenced in March 2009 for reasons that, at least in part, are understandable, including the death of Mr McGurk, it has not progressed very far. Discovery is still to be completed, the evidence is not closed and no trial date has been set. That being so the proposed amendments should not cause undue disruption to the progress of the matter.

Evidence to support claim 13 The respondents submit that there is no evidence to support the claims made in the proposed amendments. Rather, they say, the evidence filed to date is directly contrary to the claims made in the proposed amendments. They also submit that the Court should not allow the applicant to bring "an uncorroborated claim against a deceased person" having regard to the care with which the claimant's evidence must be scrutinised. Both these submissions must be rejected. As explained above, at [10], pleadings are not a matter of evidence. For this reason the respondents' reliance on Zahra v Francica [2009] NSWSC 1206 is misplaced. The need for careful scrutiny of evidence in respect of claims against a deceased estate to which Bryson AJ refers in that case, is not relevant at the pleading stage of a proceeding.

Futility of claim 14 The respondents submit that the proposed amendments disclose no cause of action and are therefore futile. The proposed amendments claim, inter alia, that as a consequence of the applicant providing the sum of $3.8 million that was used to pay the amount owing under the mortgage to BankWest, the Cremorne property was impressed with a constructive trust for repayment of that amount to the applicant. Alternatively, it is claimed that the applicant is subrogated to the interests of BankWest under the mortgage. It is yet to be seen whether the claims made in the proposed amendments can be substantiated by evidence. The respondents submit that there is already evidence from Mr McGurk and Mr Medich that shows that the claim is bound to fail. Whether that is the case is a matter to be addressed at trial not at the pleading stage. For a proposed amendment to be a futility it would be necessary for this to be clear on the face of the pleading and for it to be so obviously futile that it would have been struck out if it had appeared in the original pleading. The decision of Foster J in Davis v Insolvency and Trustee Service Australia (No 1) [2009] FCA 562 is an example. His Honour refused to allow amendments that were contrary to well-established principles of constitutional law; see in particular [57]-[58]. The proposed amendments are not futile in that sense.

Prejudice to respondents 15 The most substantial of the objections that the respondents make to the proposed amendments is that of irremediable prejudice. The arrangements pursuant to which the $3.8 million was paid by the applicant were made between Mr McGurk and Mr Ron Medich. Given the death of Mr McGurk the respondents say that they will be seriously prejudiced in their attempt to respond to allegations made at this late stage and to reply to evidence that may be adduced by the applicant. They claim that the prejudice they would suffer could not be remedied by the common means of adjournment and/or imposition of costs. 16 It appears that there is now no dispute between the parties that the monies used to pay out the BankWest mortgage were paid by the applicant to the second respondent. However, in the second Cross Claim which was filed on 25 August 2009 it is pleaded that the sum of $3.8 million was paid at Mr McGurk's direction in partial satisfaction of monies owed for services rendered to the applicant and to the second cross respondent, Mr Ron Medich. A different account is given in the defence to the second cross claim which was filed on 18 November 2009. The defence pleads that the $3.8 million was a loan which the cross respondents are entitled to set-off against any amount owed to Mr McGurk. The proprietary claim that the applicant seeks to make in the proposed amendments may or may not be consistent with that defence. In any event, whether some additional evidence would be required to address the proprietary claim made in the proposed amendments, it is clear that the circumstances in which the payment was made to the second respondent will need to be addressed in evidence even on the present state of the pleadings. 17 As it happens, evidence is available as to Mr McGurk's account of the circumstances in which the $3.8 million was paid. Mr McGurk addressed the issue in an affidavit sworn on 25 March 2009. In paragraph 37 of the affidavit Mr McGurk deposes: In or about January 2008, I telephoned Mr Medich and said words to the effect: I said: "I have some payments I need to make and want you to pay me some of the money you owe me under our agreement. I want $3.8 million". Mr Medich: "What do you want that for?" I said: "I want it to pay out my existing mortgages." Mr Medich: "Okay. I will send you the money." 18 The respondents also tendered a copy of a witness statement dated 12 March 2009 given by Mr Ron Medich to the New South Wales Police in connection with a matter that is independent of the present proceeding. In his statement Mr Medich comments on his relationship with Mr McGurk and says that he gave Mr McGurk $3.8 million "as his commission" for services in respect of recovering money from a third party. Similarly, in an affidavit sworn on 25 March 2009, Mr Medich says that Mr McGurk asked for the money as "an advance against my fees" and that he replied: "I will pay you the money and we will make the adjustment later". In oral submissions, senior counsel for the respondents, Mr Kunc, said in relation to this evidence: [I]n those circumstances, unless Mr Medich is going to get into the box and change his evidence about what passed between him and Mr McGurk, the claim is doomed to failure, and it is at that point in particular that our prejudice is irremediable and why the amendment should not be granted because at that point we no longer have Mr McGurk to answer any evidence that Mr Medich may put on.

19 At the trial it will be necessary to consider all the evidence. It would not be appropriate for the Court to speculate about what evidence might be adduced at the trial. Clearly, however, the credibility of a witness who gives inconsistent testimony, and the weight to be attributed to that evidence, is a matter for the trial. As the circumstances surrounding the payment of the $3.8 million are already raised on the current pleadings I do not believe that the respondents will suffer irremediable prejudice by the applicant's proposed amendments. 20 Accordingly, I will give the applicant the leave it seeks. Clearly, however, the respondents should have their costs of the notice of motion. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.