MJ & PT Gunningham Pty Ltd (Trustee) v Redpa Dairy Partners Pty Ltd

The Applicant's Pleaded Case 10 To the extent now relevant, the applicant's claims are set out in the form of the Further Amended Statement of Claim as amended pursuant to leave that I granted on 29 September 2022 (FASOC). In doing so, I also refused to grant leave to make certain other amendments for the ex tempore reasons then delivered and which I said would be elaborated upon in my later reasons. Dealing first with the permitted amendments the claims formulated in the FASOC are as follows: 5. By deed executed 20 October 2015 the first respondent and the second respondent entered into a Shareholders & Unit Holders Agreement. 6. Clause 15 of the Shareholders & Unit Holders Agreement relevantly provided: 15. Transfers Pursuant to Option 15.1 [The second respondent] grants to [the applicant] the right to: (a) be issued with additional Ordinary Units at a value which (during the period referred to in clause 15.2) shall be determined in accordance with Annexure B; and concurrently: (b) require an equal number of the Preferred Units held by [the first respondent] to be redeemed at the same value, but only up to a maximum of 50% of the Units on issue to the intent that [the first respondent] and [the applicant] may each hold 50% of all issued Units in the [Redpa Dairy] Trust. 15.2 The option granted to [the applicant] under subclause 15.2 may only be exercised within 7 years of the Commencement Date by [the applicant]: (a) serving a written notice exercising the option both on the [first respondent] and [the second respondent] by no later than 31 May in any year; and (b) tendering to the [first respondent] full payment for the Ordinary Units to be acquired. 15.3 After receiving notice of the exercise of the option and payment, the [first respondent] must: (a) redeem the requisite number of Preferred Units at their cost value of per unit and make payment to [the second respondent]; and (b) issue the requisite number of Ordinary Units to [the applicant], with effect on 1 July in the same calendar year as the option is exercised. 7. On 31 May 2021 the applicant: a. served a written notice (the Notice) exercising the option, for a total of up to 50% of the total units on issue, to: i. the first respondent; and ii. the second respondent; aa. the Notice was in the following terms: Gunningham hereby gives written notice exercising the option to be issued with additional ordinary units at a value to be determined in accordance with annexure B of the Shareholders and Unitholders Agreement and requires Redpa Dairy Partners Pty Ltd to redeem an equal number of preferred units held by Haboob at the same value and hereby tenders to Redpa Dairy Partners Pty Ltd the sum of $3,401,547.25 being full payment for the ordinary units to be acquired by Gunningham calculated in accordance with annexure B to the Shareholders and Unitholders Agreement. b. tendered the amount of $3,401,547.25 to the first respondent (purchase price) by electronic transfer to the bank account of the first respondent; c. the purchase price was calculated in accordance with clause 15.1(a) and Annexure B to the Shareholders & Unit Holders Agreement. 8. Upon exercise of the option and tender of the purchase price by the applicant the second respondent held the number of preferred units that were to be redeemed to give effect to the exercise of the option on trust for the applicant pending redemption of those units and the issue of ordinary units to the applicant by the first respondent. And further or alternatively to the foregoing: 8A. The Redpa Dairy Trust was established with the objects of: a. purchasing and operating dairy farms; b. increasing the value of the Trust Assets (as defined by clause 1.1 of the Redpa Dairy Trust Deed); and c. to generate income from the Trust Assets; on behalf of the Unit Holders. PARTICULARS Redpa Dairy Trust Deed, clause 2.2. 8B. The arrangement between the applicant and the second respondent was properly characterised as a joint endeavour whereby: a. the second respondent would contribute the majority of the capital requirements of the Redpa Dairy Trust either by way of direct capital contributions or loans; and b. the applicant would contribute management services, skills and labour in the day-today operation and management of the dairy farms and other Trust Assets; 8C. It was the expectation of both the applicant and the second respondent that upon the termination or winding up of the Redpa Dairy Trust the capital and income of the Redpa Dairy Trust, after repayment of any liabilities, would be distributed to the applicant and the second respondent in accordance with their respective unit holdings in the Redpa Dairy Trust. 8D. It was the expectation of the applicant that in exchange for its management services, skills and labour in the day-to-day operation and management of the dairy farms and other Trust Assets that: a. it was entitled to exercise its rights under clause 15 of the Shareholders & Unit Holders Agreement at any time prior to 9 April 2022; PARTICULARS Clause 15.2 and the definition of 'Commencement Date' in clause 1.1 of the Shareholders & Unit Holders Agreement. b. upon exercise of its rights under clause 15 of the Shareholders & Unit Holders Agreement it would: i. become the beneficial owner of the units in the Redpa Dairy Trust purchased as a consequence of exercising its rights under clause 15 of the Shareholders & Unit Holders Agreement; ii. be entitled to share in any distribution of the capital or income of the Redpa Dairy Trust based on its unit holding after exercising its rights under clause 15 of the Shareholders & Unit Holders Agreement. 8E. In the circumstances alleged at paragraphs 8A to 8C above, the applicant's expectation alleged at paragraph 8D above was a legitimate expectation. 8F. At all material times the applicant contributed the management services, skills and labour necessary for the day-to-day operation and management of the dairy farms and other Trust Assets. 8G. In the circumstances: a. it would be unconscionable to for the first respondent to distribute the capital and income of the Redpa Dairy Trust to the applicant and the second respondent without recognition of the applicant's: i. exercise of its rights under clause 15 of the Shareholder & Unit Holder's Agreement; ii. payment of the purchase price; and iii. contributions to the Redpa Dairy Trust by way of the provision of the management services, skill and labour necessary for the day-to-day operation and management of the dairy farms and other Trust Assets; b. if the first respondent was to distribute the capital and income of the Redpa Dairy Trust to the applicant and the second respondent without recognition of the applicant's: i. exercise of its rights under clause 15 of the Shareholder & Unit Holder's Agreement; ii. payment of the purchase price; and iii. contributions to the Redpa Dairy Trust by way of the provision of the management services, skill and labour necessary for the day-to-day operation and management of the dairy farms and other Trust Assets, the second respondent would: iv. be unjustly enriched; and/or v. receive a windfall gain, at the expense of the applicant. 11 The reference in this pleading to Annexure B to the Agreement requires elaboration. It provides: ACCOUNTING PRINCIPLES FOR VALUATION OF UNITS For the purposes of clause 15, units will be valued by reference to the following: Unit Price = {LB + (A - L)} / TU Where: TU - means the total number of units on issue at the date of valuation. LB - means the cost price of land and buildings, including all fixtures, chattels and land improvements, and where "cost price" includes original purchase price (including all acquisition costs) plus all capital improvements at cost less depreciation/amortisation (if any) based on the life span of assets as advised by the Directors. A - means all other assets (not included in LB) at market value L - means all liabilities at market value. Notes: • "Market value" will be the amount determined by agreement between the Directors or, if no agreement can be reached, will be a market value determined by an independent expert. • Depreciation for the purpose valuation of units will be based on the Directors lifespan of assets, regardless of depreciation life spans for tax purposes 12 The amendments for which I refused to grant leave sought to incorporate the following paragraphs: 8B. … c. The applicant would have the opportunity, at any time in any year during the first 7 years of the arrangement, to share in any capital appreciation of the land and building component of the Trust Assets by having the Option to acquire additional units in the Trust, up to a maximum of 50%, whereby the cost of such additional units would be calculated by reference to the land and building component of the Trust Assets being valued at cost price as set out in the definition of "LB" in Annex B to the Shareholders & Unit Holders Agreement, which provided: LB - means the cost price of land and buildings, including all fixtures, chattels and land improvements, and where "cost price" includes original purchase price (including all acquisition costs) plus all capital improvements at cost less depreciation/amortisation (if any) based on the life span of assets as advised by the Directors. d. the intention of the applicant and the second respondent was to conduct the dairy farming business for a period of 10 years. 8D. … c. it was entitled to share in the benefit of any capital appreciation of the land and building component of the Trust Assets by reason of the formula and definition of "LB" in Annex B to the Shareholders & Unit Holders Agreement. 8FA. It was not the intention of the parties that the applicant would be precluded from benefiting from any capital appreciation of the land and building component of the Trust Assets if: a. the dairy farms were sold in a year in which the applicant exercised or purported to exercise the Option under clause 15 of the Shareholders & Unit Holders Agreement; or b. clause 15 of the Shareholders & Unit Holders Agreement was unworkable or incapable of operating contrary to the applicant's expectation alleged at paragraph 8D above in event of the circumstances set out in paragraph 8FA(a) occurring. 13 In refusing leave to insert each of these paragraphs on the morning of the second day of the trial, I accepted as valid the central complaint of Mr Truong KC which he expressed as: The fundamental problem with this application, aside from being made on the second day of trial, which is, of course, causative of considerable prejudice which we've outlined, the fundamental problem is that it seeks to leave footprints in their pleaded case and that's not acceptable. That's not acceptable because we are hearing for the first time that the arrangement may fall outside of the four corners of the contract. It has never been the case - never been their case that the arrangement, however characterised, however pleaded, is constituted by anything other than the four corners of the contract, which they had here and which they had always accepted is binding and effectual. 14 I had earlier made that point to senior counsel for the applicant, Mr Gunson SC, specifically by reference to the decision of the High Court in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 at [33]-[34] (Equuscorp). In short, the applicant's pleaded case to date accepted that the parties entered into and were bound by the provisions of the Trust and the Agreement and no case was articulated to the effect that the written documents did not truly reflect the intent of the parties, did not contain the entirety of their agreement or otherwise were liable to be set aside by reason of the operation of some other legal principle. Indeed, not even the misleading and deceptive conduct claim (that was initially pleaded but then abandoned) went that far. 15 As I foreshadowed to counsel in refusing leave to amend for the brief reasons that I gave on 29 September 2022, these are my more detailed reasons for taking that course. The starting point is the overarching purpose of civil practice and procedure at ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). Amendments may be refused where it is concluded that a party has not acted consistently with those obligations: Australian Competition & Consumer Commission v Jutsen (No2) [2010] FCA 982 at [12]-[13], Nicholas J. In this matter the applicant first proceeded in the form of its concise statement filed on 23 September 2021. Thereafter it pleaded in accordance with a statement of claim filed on 19 October 2021 and an amended statement of claim filed on 16 February 2022. In February 2022, the respondents complained about ambiguity and a lack of precision in the applicant's pleading. On 25 February 2022, and in response, the applicant's solicitor stated that he was satisfied that the statement of claim then relied upon "adequately identifies the issues relevant to the applicant's claim". In making that statement, the solicitor advised that he had specifically considered the overarching purpose of the civil practice and procedure provisions. 16 Pursuant to various case management orders, the applicant and the respondents were required to file and serve witness statements together with copies of all documents intended to be relied upon at the trial and to prepare a joint court book of agreed documents. Those orders were complied with. Self-evidently, the witness statements were drafted and the documents were considered in the context of the applicant's extant pleadings. No explanation was offered on behalf of the applicant as to why the issues sought to be raised by the refused amendments were not considered as relevant at an earlier point in time. The inference that is open is that the amendments were drafted to address concerns that I expressed to Mr Gunson, during the course of his opening submissions, as to the precise case that the applicant seeks to make out and in order to confirm that the applicant accepted that it is bound by the terms of the Trust and the Agreement. 17 As Mr Truong submitted, correctly, his clients prepared the case on the express basis that the applicant had effectively exercised the Option. In contrast, the amendments that I refused seek to open new territory which, apparently, involves the proposition that the applicant might not have effectively exercised the Option and, in that event, its legitimate expectations will be defeated unless equity intervenes in a manner that responds to the claimed "windfall gain" that will otherwise accrue to Haboob. A submission was pressed, and not disputed, that if I were to allow the contestable amendments, there would need to be an adjournment of the trial in order for the respondents to consider whether to adduce additional evidence and to call other witnesses. Of itself that would significantly inconvenience Anthony, he having travelled from Switzerland to Australia specifically to give evidence at the trial. 18 Inevitably, as submitted by Mr Truong, his clients would suffer delay, prejudice and an increase in costs if the contested amendments were allowed. In framing that submission, specifically by reference to the case management that has taken place in this matter, he placed heavy emphasis upon Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon) particularly in the joint reasons at [102]-[110], Gummow, Hayne, Crennan, Kiefel and Bell JJ. In his submissions the attempt to recast the case, if permitted, would likely lead to substantial delay, wasted costs, unfair prejudice which could not be compensated by the usual costs order and disruption to the fair and orderly conduct of the proceeding. He further emphasised the lateness of the application and the absence of any satisfactory explanation as to why no consideration was given to the proposed amendments at an earlier point in time. 19 I took into account each of these general considerations. However, and more specifically, I was not satisfied that the contested amendments should be allowed for the following reasons. 20 As to paragraph 8B(c), I was not able to understand how it was said that the proposed pleading is relevant. The applicant pleads reliance upon the Agreement with the consequence that each of its terms are incorporated therewith: Day v William Hill (Park Lane) Ld [1949] 1 KB 632 at 636. On that view, this paragraph does not add to the extant pleading and there is no utility in its inclusion if that is its purpose. However, if it goes beyond that, its vice is that it fails to disclose how and what case is sought to be made by reference to it. The entire case was brought on the basis that the written documents set out the agreement of the parties and the intention of the parties is to be discerned from them. Either the paragraph is unnecessary or it is incomplete and ambiguous and for those reasons, in addition to the general case management considerations, I refused leave to include it. 21 Paragraph 8B(d) pleads a joint intent said to be of the applicant and Haboob as to the period for which the dairy business of the joint endeavour would be conducted as framed by the commencing words of paragraph 8B. But, as above, the applicant's case has always been framed on the basis that the documents set out the terms of the joint venture and that intent is to be discerned from construing the relevant provisions. To permit the applicant to step beyond the written documents and open for the inquiry a completely new case at a very late stage in this litigation in my view warranted refusal of this proposed amendment. 22 Paragraph 8D(c) raises similar difficulties to 8B(d). If it is simply relied on to plead the effect of the Agreement, then it is an unnecessary pleading and leads to confusion. If it seeks to plead an independent expectation held by the applicant as to its "entitlement to share in the benefit of any capital appreciation" of the land and buildings, then the difficulty is that there is no proposed pleading to the effect that the Agreement should be read as failing to set out the true agreement of the parties or that it was entered into in consequence of the mistake, misrepresentation or some form of misleading or deceptive conduct. At the pleading level, the applicant's entitlements are as set out in the Agreement, when read with the Trust, properly construed. If the Agreement fails to reflect the applicant's expectation, and in consequence must be ignored, that is an entirely new case raised at a very late stage and which is incapable of attracting a favourable exercise of the discretion to grant leave to amend. 23 Paragraph 8FA is an entirely new case and it suffers from pleading defects. It is framed by reference to a double negative that it was not the intention of the parties that the applicant would be precluded from receiving certain benefits. On its face, the paragraph is ambiguous. It falls to identify how it was "not the intention of the parties" that the applicant would be precluded from receiving benefits. The pleading is also embarrassing. It masks what might be said to be the real case: for example, is it the applicant's case that the parties jointly held a specific intent (and if so what was that intent) or that the parties did not hold a specific intent? As argued by Mr Truong, "an absence of intention that the applicant be precluded from benefiting from something is quite different from a positive intention by the respondents to bind themselves to arrangement entitling the applicant to benefit from that thing". I agree. 24 That difficulty was not adequately addressed in the argument in support of the proposed amendment. Ultimately, it was not clear as to what case was sought to be made out by the applicant by pleading this paragraph. The further contention that the Agreement "was unworkable or incapable of operating" contrary to the applicant's expectation suffers from the particular difficulty that it fails on its face to identify the necessary material facts as to what was said to be the intention of the parties, what amounts to relevant preclusions and benefit and how it is said that the "unworkable" contention sits with the earlier pleas which rely on the Agreement to support the exercise of the Option. Ultimately as to this paragraph I formed the view that it is incomplete and embarrassing in that it invites the inference that a case is sought to be made to be that if the Agreement does not work in accordance with what was said to be the intention of the parties, which of itself is rather amorphous, then this Court should move beyond the terms of the Agreement in order to address the applicant's disappointed expectation which is claimed to flow from the joint intent of the parties. That amounts to a fundamental shift in the nature of the case that the applicant has for a considerable period of time relied upon. Not only is it not a proper pleading, but if it were allowed it would necessarily require a wholesale amendment to other parts of the pleading in order to articulate the case that is sought to be made which would inevitably lead to further amendments and delay. All of that is contrary to the overarching purpose of civil litigation and procedure in this Court and a proper exercise of the discretion to grant leave to amend informed by the reasoning in Aon. For these reasons I refused leave to amend in the terms of this paragraph.