Mokrzecki v Popham & Ors [2013] QSC 123

PROCEDURE - SUPREME COURT PROCEDURE - QUEENSLAND - PROCEDURE UNDER THE UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS - DEFAULT OF PLEADINGS - where defendants bring application to strike-out paragraphs of plaintiff's amended statement of claim because the limitation period has expired - where defendants bring alternative application to have those paragraphs take effect from certain date - where it is not clear whether limitation period has expired - whether application should be granted - whether the statement of claim discloses new causes of action - whether the new causes of action in the statement of claim arise out of the same or substantially the same facts as a cause of action already claimed

LIMITATION OF ACTIONS - AMENDMENT OF ORIGINATING PROCESSES AND PLEADINGS OUTSIDE LIMITATION PERIOD - GENERALLY - where plaintiff amended statement of claim - where defendant brings application to strike-out or have amendments take effect from certain date - where it is unclear whether limitation period has expired - where it is difficult for court to fairly determine whether limitation period has expired - whether application should be granted - whether the statement of claim discloses new causes of action - whether the new causes of action in the statement of claim arise out of the same or substantially the same facts as a cause of action already claimed

Australian Securities and Investments Commission Act 2001 (Cth), rr 375, 276, 377, 378, 379, 387

Civil Proceedings Act 2011 (Qld), s 16

Limitation of Actions Act 1974 (Qld)

Air Link Pty Limited v Malcolm Ian Paterson (No 2) [2003] NSWCA 251; (2003) 58 NSWLR 388, cited

Cousins Securities Pty Ltd v CEC Group Ltd [2007] QCA 192; [2007] 2 Qd R 520, cited

Drane v Barry [2002] 1 Qd R 145, applied

Henry & Henry v Calamvale Estates Pty Ltd [1997] QSC 200, cited

Middleton v O'Neill [1943] NSWStRp 10; (1943) 43 SR (NSW) 178 , cited

Fibreglass Pool Works (Manufacturing) Pty Ltd v ICI Australia Pty Ltd [1998] 1 Qd R 149, cited

Tomasetti v Brailey [2012] NSWCA 399, considered

Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, cited

Westpac Banking Corporation v Hughes [2011] QCA 42; [2012] 1 Qd R 581, considered

[1] The plaintiff sues his former accountant and entities for whom at various times he worked. He claims that he made several bad investments, each on the advice of the first defendant, from which he has suffered losses which at one stage he quantified as in excess of $3 million. There were seven distinct investments made over a period from November 2003 to December 2007.

[2] The defendants apply to strike out a number of paragraphs of the statement of claim which was filed on 5 November 2012. They argue that those paragraphs plead causes of action which had not been pleaded previously and which have been added outside the relevant limitation periods. The amendments were made without leave, but the defendants say that they should be disallowed because the UCPR does not permit the addition of statute barred causes of action, except within the circumstances prescribed by r 376(4) which, it is argued, do not exist here.

[3] The plaintiff agrees that some new causes of action are added within this pleading. But it says that those amendments are within r 376(4). It says that most of the allegedly new matters are not new causes of action or alternatively, that the relevant periods of limitation have not yet expired.

[4] Ultimately the defendants conceded that it would be difficult for the court to fairly determine, within this interlocutory hearing, questions of whether various causes of action here are statute barred. That submission is consistent with the well recognised difficulty and undesirability of determining questions of this kind in interlocutory proceedings in advance of the hearing of the action. In Wardley Australia Ltd v Western Australia,[1] Mason CJ, Dawson, Gaudron and McHugh JJ said that limitation questions of this kind should not be decided in interlocutory proceedings "except in the clearest of cases," because:

"Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question."

[5] That concession for the defendants was rightly made. The questions of whether these causes of action are out of time is far from clear. The plaintiff sues for losses resulting from each of these investments. To take the first of them, which was made on or about 3 November 2003, the plaintiff says that but for the conduct of which he complains, he would not have made this investment and (he pleads for the first time in this statement of claim) he would have invested in alternative investments. He then pleads that in or about March 2009, the capital value of his investment (units in a property trust fund) had fallen below their acquisition cost. He says that with alternative investments he would have been better off as to the capital value of the investments, and also that he would have earned more income. But beyond these general assertions, in this statement of claim he does not provide any particulars.

[6] That type of pleading is repeated for each of the investments, so that ultimately the claims for damages are now completely unquantified. The statement of claim promises further particulars and a quantification of his loss and damage "by way of expert evidence to be provided to the ... defendants prior to trial."[2]

[7] The essential debate here is whether his loss, and therefore his causes of action (save for his claims for breach of contract) accrued when he made the investment or only at some subsequent point, such as when the value of his units fell below their acquisition cost. There is the not uncommon debate here of whether, upon making the investment, he suffered a loss or instead only the prospect of a loss. This kind of question arose, for example, in Wardley and, in relation to a "bad investment" case, in Tomasetti v Brailey.[3] In the latter case, the plaintiff sued his former accountant and financial adviser about advice that he should enter into certain managed investment schemes. The defendant contended that the loss was suffered when the investments were made. The New South Wales Court of Appeal disagreed. MacFarlan JA (with whom McColl and Campbell JJA agreed) said:[4]

"I do not consider that the appellants' inclusion in their claims of amounts calculated by reference to initial and other payments made by them prior to the relevant limitation dates indicates that their causes of action must have arisen prior to those dates. Their causes of action arose when it become ascertainable that they had suffered an overall loss on each investment. When that occurred it became clear for the first time that the earlier payments constituted losses. Those payments were thereafter properly included in the appellants' calculations of loss."

[8] Counsel for the plaintiff emphasised that judgment, in arguing that none of the plaintiff's causes of action here is statute barred. Although that passage seems to provide particular support for the submission, this is a question which should be resolved with the benefit of the evidence at the trial, especially given the very general terms in which the plaintiff's loss and damage is pleaded.

[9] Recognising this difficulty in determining the limitation period questions within this interlocutory application, counsel for the defendants made an alternative application, which was that the amendments should be declared to take effect from 22 May 2012. That was the date on which the plaintiff filed and served an earlier statement of claim, which raised the matters which are said to be new causes of action. That statement of claim was struck out by Fryberg J on 24 September 2012 in the context of the plaintiff's application to amend its claim to include a claim for damages under s 1041I of the Corporations Act 2001 (Cth). His Honour did so because he considered that it was too difficult to discern the time at which the causes of action arose, having regard to the way in which that statement of claim was pleaded. He adjourned the application to amend the claim. And he gave the plaintiff "liberty to re-plead the statement of claim generally" upon terms that any further pleading would take effect "not later than 22 May 2012."

[10] Therefore this alternative submission is that justice can be served by ordering that the amendments take effect on that date, because if some of these causes of action were statute barred on that date, the defendants should have the benefit of the limitation defence. But if, as the plaintiff contends, they were (and are) not statute barred, then no defence will be available even if the amendments do not take effect until that date.

[11] This alternative submission has some immediate appeal. However, it does not recognise the potentially beneficial operation of r 376(4), under which a cause of action, which was statute barred as at 22 May 2012, might be added with effect, according to r 387(1), "on and from the date of the document being amended." An amendment which is made under r 376(4) can effectively defeat a limitation defence.

[12] The relevant rules of the UCPR do not appear to readily accommodate cases of the present kind, namely where there is a question of whether a limitation period has expired which cannot be fairly determined ahead of the trial. Instead, they operate to permit, or not permit, amendments according to whether, in truth, a limitation period has expired at a certain time. In many cases of course that question will be clear, but the present is not one.

[13] Rule 375(1) permits the court to allow or direct a party to amend a claim, anything written on a claim, a pleading, an application or any other document in the way and on the conditions the court considers appropriate. Rule 375 is expressly subject to r 376.

"(1) This rule applies in relation to an application, in a proceeding, for leave to make an amendment mentioned in this rule if the relevant period of limitation, current at the date of the proceeding was started, has ended."

Where r 376 applies, the court may give leave to make an amendment to include a new cause of action only in the circumstances described in r 376(4) which are where:

(b) the new cause of action arises out of the same facts or substantially the same facts as a cause of action for which relief has already been claimed in the proceeding by the party applying for leave to make the amendment."

[15] In Westpac Banking Corporation v Hughes,[5] Fraser JA may have suggested that outside the operation of r 376, there was no power to allow an amendment to add a new cause of action after the expiry of its limitation period.

[16] A curious feature of r 376 is that it is expressly confined to a case where the relevant period of limitation has expired but where it was "current at the date the proceeding was started." On the face of the rule, it does not apply where the period of limitation had ended at the date of the commencement of the proceeding. The present case may be one of that kind, because upon at least one of the defendants' arguments, any cause of action in relation to the first investment accrued when it was made (November 2003) and this proceeding was commenced, more than six years later, in December 2010. It may not be correct to say that where r 376 does not apply at all, there is no power to permit an amendment which is to add a statute barred cause of action.

[17] Rule 376(4) permits an amendment only if the new cause of action arises out of the same facts or substantially the same facts as a cause of action which has already been claimed. In Drane v Barry,[6] Thomas JA said that the need to prove some additional facts which are pleaded by the amendment is not necessarily fatal to a favourable exercise of the discretion under r 376(4). He said that

"If the necessary additional facts to support the new cause of action arise out of substantially the same story as that which would have to be told to support the original cause of action, the fact that there is a changed focus with elicitation of additional details should not of itself prevent a finding that the new cause of action arises out of substantially the same facts. In short, this particular requirement should not be seen as a straitjacket."[7]

[18] Rule 387(1) provides that if a document is being amended under this Part, the amendment takes effect on and from the date of the document being amended. Rule 387(2) provides that an amendment including or substituting a cause of action arising after the proceeding started takes effect on and from the date of the order giving leave. Rule 387(3) then provides that despite sub-rule (2), if an amendment mentioned in sub-rule (2) is made, then for a limitation period, the proceeding as amended is taken to have started when the original proceeding started, unless the court orders otherwise. A "limitation period" in this rule means a limitation period under the Limitation of Actions Act 1974 (Qld).[8] Therefore, it does not apply to every relevant limitation period in this case.[9] Rule 387(2) applies only where the added cause of action is one which has arisen after the proceeding started. In this case, at least some of the suggested new causes of action arose before then, so that they would be within the more general operation of r 387(1). The result is that unless the court can and does order otherwise, a defendant is at risk of losing the limitation defence by the operation of that sub-rule.

[19] Section 16(2) of the Civil Proceedings Act 2011 (Qld) provides that the court may order an amendment to be made, or grant leave to a party to make an amendment, although a relevant period of limitation, current when the proceeding was started, has ended. Section 16(3) provides that despite sub-section (2), the rules of court may limit the circumstances in which amendments may be made. Therefore, where there is a case to which r 376 applies, the court's discretion is effectively defined by the rule and there is not a distinct and wider power within s 16.

[20] How then is r 376 to be applied where, as matters can be presently assessed, no more can be said that the cause of action is possibly out of time? To permit the amendment, but on condition that it be treated as taking effect only from a certain date, to the end of preserving a limitation defence, might unfairly defeat the operation of r 376, which could be beneficial to the plaintiff by relating the amendment back to the date of the original proceeding.

[21] Where the new cause of action does arise out of the same facts or substantially the same facts as a cause of action already claimed, then allowing the amendment without any condition that it take effect from a certain date would allow the plaintiff the apparently beneficial operation of r 376. If, in truth, the rule does not apply (according to sub-rule (1)), then there is no relevant detriment to a defendant. In that event, the period of limitation either would not have ended (in which case no limitation defence would be available) or it would have ended prior to the commencement of the proceeding (in which case the limitation defence would still be available).

[22] In cases which are outside r 376(4) where there may or may not be a new cause of action which is then out of time, the amendment may be permitted but on terms that it take effect from the order giving leave or from some other time, so as not to prejudice a possible limitation defence. The power to impose this condition is well established.[10]

[23] In Westpac Banking Corporation v Hughes, the issue considered by Fraser JA was whether the amendments pleaded a new cause of action. There seemed to be no doubt that if it did raise a new cause of action, the limitation period had expired. His Honour was not dealing with a case of the present kind. Rather if, as his Honour concluded, there was a new cause of action raised by the amendment, r 376 was plainly engaged, according to r 376(1), so that the court's power was limited according to r 376(4).

[24] Therefore, I shall consider the amendments in question by reference to the test in r 376(4)(b), namely whether, if they plead new causes of action, they arise out of the same facts or substantially the same facts as a cause of action for which relief had already been claimed.

[25] In the present context, of course, the plaintiff seeks no leave to amend. He was able to amend his statement of claim without leave, because no request for a trial date has been filed.[11] He is required to obtain leave to amend the claim,[12] and as I have mentioned, his application for that leave was adjourned last year to a date to be fixed. That application was not argued before me, because the parties said that it should await the determination of this challenge to the statement of claim.

[26] By r 379, an amendment which is made without leave before the filing of the request for trial date, may be disallowed upon an application made by the other party. The present application is for the disallowance of the amendments within these certain paragraphs of the November 2012 pleading. As appeared to be common ground, an application under r 379 should be dealt with by reference to the rules and principles which govern the court's discretion to give leave to amend.[13]

[27] The amendments are certainly extensive and the identification of them is made more difficult by the fact that the statement of claim has been filed in a form which does not reveal the content of its predecessor, but rather begins with the introductory statement that it "wholly replaces" the statement of claim filed on 22 May 2012. That is incorrect.

[28] Clearly some new causes of action are pleaded, where it is alleged that the defendants contravened one or more of s 1041E, s 1041F and s 1041H of the Corporations Act. The contravention of s 1041E is pleaded in paragraphs 35 and 54. In my view, the pleaded case is not limited to the same facts or substantially the same facts as causes of action already claimed. Paragraphs 35(d) and 54(d) plead that the first defendant knew that the alleged representations made by him were materially misleading. But that allegation, tantamount to one of fraud, was not an element of any previous pleading and it seems to me to be quite unrealistic to say that this new case is simply based on the same or substantially the same facts.

[29] For the same reason the case in paragraphs 36 and 55, alleging a contravention of s 1041F, raise for the first time an allegation tantamount to fraud, which is that the first defendant was recklessly indifferent as to whether the representations were misleading, false or deceptive.

[30] Therefore, the amendments in paragraphs 35, 36, 54 and 55 will be ordered to take effect on and from 22 May 2012.

[31] On the other hand, although a new cause of action is raised by paragraphs 37 and 56, namely a claim for a contravention of s 1041H, in my view that does arise out of the same or substantially the same facts. There was already a pleading that the representations were misleading and deceptive. The defendants contend that these amendments raised a new cause of action which was a breach of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). However, that case was pleaded by, in particular, paragraph 54 of the first statement of claim. To the extent that there are some variations in the current pleading, they are not such as to take the case outside r 376(4). Therefore no order will be made in relation to them.

[32] I have reached the same conclusion in relation to the allegations of representations which were false, misleading and/or deceptive and made without reasonable grounds, insofar as they are pleaded in paragraphs 54, 53 and 56. The allegations in paragraphs 22 and 41, that the defendants made certain representations as to the worth of the investments, in my view involves, as Thomas JA described it, effectively "the same story."[14] Again no order should be made in respect of them.

[33] The defendants say that there is a new contract case which is pleaded here. Paragraph 9 pleads that the contract contained an implied obligation to provide financial and investment advice, rather than what had been pleaded as an express obligation to provide accounting and taxation advice and services. In my view, this does involve a new cause of action, because this implied agreement appears to have postdated the original contract and might be regarded as a new contract which is now alleged. Nevertheless, the agreement is said to be implied from facts which are the same or substantially the same as those which have been pleaded. No order should be made in respect of paragraph 9.

[34] Next the defendants point to the differences in the pleading of the negligence claim. In my view, the further facts do not involve any addition of a new cause of action. The same applies to the new facts pleaded in relation to a breach of fiduciary duty.[15] It is said that there are new facts pleaded as to the breaches of "expanded contractual, tortious and fiduciary duties." That may be accepted, but in my view the content of those allegations of new breaches is not such as to add a further cause or causes of action. In that respect, it is notable that most of these new allegations involve alleged omissions and in that way add little to the facts to be proved.

[35] Finally, there are the amendments to the plaintiff's case about his alleged losses. Paragraphs 38(b) and 57(b), respectively pleaded for the first and second investments, allege that the plaintiff would have invested in "alternative investments better suited to his financial circumstances and financial objectives, being a range of shares and real property as would have been recommended to him by a competent financial adviser and in such amounts as would have been recommended to him by a competent financial adviser." Paragraphs 39 and 58 then allege that those alternative investments would have performed better than the first and second investments which the plaintiff did make. These allegations are new. They are so general that it is yet more difficult to assess at present whether they have the effect of adding a new cause of action. The question here is one mentioned earlier, which is how the plaintiff's cause of action in relation to a bad investment is to be defined. At present all that can be said is that the plaintiff may have pleaded new causes of action. But if so, it could hardly be concluded that whatever lies behind these generalities, it will involve no more than the same or substantially the same facts as have been pleaded. Almost inevitably it will involve a considerably wider factual case. Therefore, it is appropriate to allow these amendments but only on the condition which the defendants have proposed, namely that they take effect on and from 22 May 2012.

[36] The outcome therefore is that none of the amendments will be disallowed, but some will stand only upon the condition proposed by the defendants. It will be ordered that paragraphs 35, 36, 38(b), 39, 54, 55, 57(b) and 58 of the third further amended statement of claim filed on 5 November 2012 take effect on and from 22 May 2012.

[1] [1992] HCA 55; (1992) 175 CLR 514 at 533.

[2] Third Further Amended Statement of Claim, para. 147.

[3] [2012] NSWCA 399.

[4] [2012] NSWCA 399 at [115].

[5] [2011] QCA 42 at [7] and [18].

[6] [2002] 1 Qd R 145.

[7] Drane v Barry [2002] 1 Qd R 145 at 164.

[8] See the definition in Schedule 4 to the UCPR.

[9] See Cousins Securities Pty Ltd v CEC Group Ltd [2007] QCA 192; [2007] 2 Qd R 520.

[10] See, for example: Middleton v O'Neill [1943] NSWStRp 10; (1943) 43 SR (NSW) 178 at 186; Fibreglass Pool Works (Manufacturing) Pty Ltd v ICI Australia Pty Ltd [1998] 1 Qd R 149; Henry & Henry v Calamvale Estates Pty Ltd [1997] QSC 200; Air Link Pty Limited v Malcolm Ian Paterson (No 2) [2003] NSWCA 251; (2003) 58 NSWLR 388 at 400.

[13] cf Westpac Banking Corporation v Hughes [2011] QCA 42; [2012] 1 Qd R 581 at 584.

[14] Drane v Barry [2002] 1 Qd R 145 at 164.

[15] For which there is no statutory limitation period but for which a limitation period will be applied by analogy.