HIS HONOUR: By notice of motion filed on 1 July 2015 the first defendant seeks leave to file a proposed cross-claim. The application is opposed on the grounds of delay, prejudice, and lack of apparent merit of the cross-claim.
It is, unfortunately, necessary to say something about the lengthy history of the proceedings. The proceedings were commenced by statement of claim filed on 14 August 2012; that is, almost three years ago. Rule 9.1(a) of the Uniform Civil Procedure Rules 2005 provides that a party may file a cross-claim within the time limit for it to file a defence or such further time as the Court might allow. The time prescribed by r 14.3 for the filing of a defence was twenty-eight days after service of the statement of claim or such further time as the Court might allow. Thus, prima facie, times were vastly exceeded in this case.
The slow progress was due to a number of factors, including the defendants' making an application for security for costs, which was attended by its own additional interlocutory disputes. It was also in large part due to extensive correspondence between the parties' solicitors as to the adequacy of the plaintiff's statement of claim, which underwent a number of amendments, with associated excessive requests for particulars. There were also delays, particularly by the plaintiff, in the service of evidence.
The defendants' application for security for costs was filed on 24 September 2012. On 26 September 2012 the Registrar ordered that the defendants' defence and any cross-claim were to be filed within fourteen days following determination of the motion for security for costs. That motion was determined on 24 May 2013. The plaintiff was ordered to pay $60,000 by way of security. That security was provided.
The defence and cross-claim should have been filed by 7 June 2013. But the plaintiff indicated its intention to amend the statement of claim. Matters were delayed whilst disputes raged about the proposed amendments and other matters.
Ultimately, on 17 September 2013 the Registrar made orders noting that the defendants consented to the filing of an amended statement of claim. The Registrar ordered that the defendants file and serve their defences and cross-claims by 18 November 2013. That date was extended to 3 December 2013. On 4 December 2013 the defendants filed their defence. They did not file or serve any cross-claim.
Orders were made for the service of evidence. The plaintiff served its evidence by 9 May 2014. Following assertions from the defendants that the amended statement of claim failed to disclose a cause of action, the plaintiffs filed and served a further amended statement of claim on 26 May 2014.
There followed two interlocutory applications brought by the defendants that were heard by Robb J on 7 October and determined by his Honour on 17 October 2014 (Pakefx Pty Ltd v David F Dickson [2014] NSWSC 1424). One application was for the striking out of the further amended statement of claim. That was partially successful and partially unsuccessful. The second application was for an injunction to restrain the plaintiff's solicitors, Somerset Ryckmans, from continuing to act for the plaintiff. That application was rejected.
It is necessary to say something of the plaintiff's claim and the grounds on which part of that claim was struck out. That provides some context to the proposed cross-claim.
The plaintiff, along with the defendant, was, with others, a member of a consortium, the individual members of which were alleged to have entered into a contract on 31 August 2007 for the purchase of a villa on Hamilton Island for $2.76 million. The villa is called Villa 33. The plaintiff alleges that it was induced to do so by representations made to its director (or as he has been called, the plaintiff's principal) a Mr McPherson. The representations are said to have been made by the defendant, Mr Dickson.
The plaintiff alleges that it was intended that the villa would be sold prior to completion for a profit. It alleges that before completion was due on the purchase, it became apparent that there was no market interest that would allow for the villa to be sold prior to completion for a profit. It alleges that in September 2009 it was told, or Mr McPherson was told, that the date for completion had been extended to 2010 and two members of the consortium, a Mr and Mrs Miller, had withdrawn as members and would no longer be parties. Subsequently, it seems that another member or members of the consortium also sought to withdraw.
In its further amended statement of claim that was subject to challenge before Robb J, the plaintiff alleged that further allegedly misleading representations were made by Mr Dickson to Mr McPherson and that as a result of both the pre-contractual representations and those further representations, the plaintiff paid further monies to acquire units in a unit trust, the trustee of which, the second defendant, was to complete the villa sale contract.
The plaintiff alleged that on or after 1 April 2010 it accepted an offer of mortgage finance made by the Commonwealth Bank to the second defendant, (Villa 33 Pty Ltd) and it gave a guarantee of the second defendant's loan and entered into other financial commitments. There was also an oppression claim, the details of which are not presently relevant.
Robb J accepted the submission by the defendants that the plaintiff's further amended statement of claim did not make clear that the post-contractual alleged representations could have caused the plaintiff to act in a manner that caused it to suffer additional or different damage when it was, in any event, bound to complete the contract.
Robb J said that whilst post-contractual representations might be capable of causing the plaintiff to have suffered additional or different damage than it would have suffered if only the pre-contractual representations had been made and relied on, it would be necessary for the plaintiff to plead clearly the material facts that caused it to suffer such an additional or different damage by its reliance upon post-contractual representations which it would not have suffered in any event by reason of its having entered into the contract in reliance upon pre-contractual representations (at [40] and [43]). The plaintiff was given the opportunity to re-plead and in due course it was given leave to file a second further amended statement of claim. That pleading does not press the post-contractual representations.
As to the defendants' claim to restrain Somerset Ryckmans from continuing to act for the plaintiff, Robb J referred to evidence given by Mr Dickson, the first defendant, that Mr Ryckmans' involvement in the transaction involving the purchase of Villa 33 began in October 2009 when it is said that Mr McPherson suggested that the remaining members in the consortium should change their lawyer.
His Honour said that following October 2009, according to Mr Dickson, Mr Ryckmans provided advice and services to the remaining members of the consortium, which led to the creation of the unit trust and the purchase of the second defendant, Villa 33 Pty Ltd, for that company to complete the purchase rather than the purchase being completed by the members of the consortium personally.
His Honour held that the defendants:
"had provided no evidence of any particular prior involvement of Mr Ryckmans in the transaction that would give rise to a positive concern that Mr Ryckmans may have gained any knowledge that could give the plaintiff any advantage in the proceedings, or which might be misused against the interests of the defendants." (at [58])
Robb J also said that there was no suggestion that whatever involvement Mr Ryckmans had in the withdrawal of the Millers from the consortium, that that was in any way connected with the basis of the dispute that was the subject of the proceeding (at [58]).
Robb J rejected a submission of the defendants that the plaintiff's knowledge and understanding derived through Mr McPherson and, as imputed, from the consortium's solicitor would be a central issue for the trial and that Mr Ryckmans would be an important witness. He rejected the defendants' argument that Mr Ryckmans' conduct would inevitably come under scrutiny and that he was in a position of inherent conflict.
Robb J observed the defendants had not identified any relevant knowledge on the part of Mr Ryckmans, let alone provided evidence of it. His Honour noted the submission for the defendants that the defendants might have a claim against Mr Ryckmans for negligence and that his firm might well be the subject of a pleaded claim by the defendants that that firm was a concurrent wrongdoer. His Honour said that he could not see how those matters arose or could have substance (see paras [63]-[66]). His Honour also noted that the defendants had filed their defence and had not raised any issue of concurrent liability.
On 3 December 2014 Robb J gave leave for the filing of the second further amended statement of claim, prepared after and in the light of his Honour's reasons, and directed the defendants to file their defence and their evidence by 27 February 2015. At the hearing on 3 December 2014 the solicitor for the defendants then proposed that an order be made that the defendants file their defence and cross-claim, apparently by that date. His Honour refused to make that order, saying "I'm not sure if there's going to be a cross-claim, why it shouldn't have been filed ages ago."
Robb J expressed a concern about what he described as litigation by attrition. His Honour did not make an order, the effect of which would be to preclude the defendants' seeking leave to file a cross-claim. But even by 3 December 2014 no such cross-claim had been formulated.
The defence to the second further amended statement of claim was filed on 27 February 2015, and I assume that the defendants' evidence was served on or about that date. The defence contains no allegations of concurrent liability that might engage Somerset Ryckmans. A proposed cross-claim was served on 10 June 2015. The plaintiff refused consent to its being filed. Hence the notice of motion with which I am now dealing was filed on 1 July 2015.
In response to submissions made by the plaintiff's counsel as to alleged deficiencies in the pleading, a revised version of the proposed cross-claim was served and became MFI-1 and the first defendant seeks leave for the filing of that document.
The cross-claimant is Mr Dickson. The proposed cross-defendants are the plaintiff and Mr McPherson as first and second cross-defendants. Mr Ryckmans and his employer, SR Legal Pty Ltd, that trades as Somerset Ryckmans, are named as the fourth and third cross-defendants. SR Legal is alleged to be vicariously liable for the alleged conduct of Mr Ryckmans.
There are essentially three causes of complaint in the proposed cross-claim. More than one cause of action was said to arise from these causes of complaint, but the causes of complaint fall into three categories.
The first relates to advice that it is said Mr Ryckmans and Mr McPherson ought to have given to members of the syndicate, including Mr Dickson, which they failed to give. It is alleged that Mr McPherson retained Somerset Ryckmans on behalf of the syndicate members to advise them in respect of all matters relevant to the purchase of Villa 33, including as to the rights, interests, and liabilities of syndicate members, and the legal import and effect of documents drafted or executed in respect of the joint venture between the syndicate members.
It is alleged that in accordance with Mr Ryckmans' advice, Mr McPherson instructed him in November 2009 to set up a company and unit trust to give effect to the syndicate's purchase of Villa 33 as a unit trust joint venture. In accordance with those instructions, Mr Ryckmans is said to have arranged for the incorporation of the second defendant, Villa 33, and the establishment of the unit trust.
It is then alleged that on or around 13 November 2009 Somerset Ryckmans provided the syndicate with a draft agreement called a shareholders agreement. It is said that included in that draft agreement were terms which provided important protections to each of the unit holders in the unit trust and, in particular, provided protections in respect of each unit holder's liabilities pursuant to third party financing. Four clauses are referred to as being included in the draft agreement which were designed to provide such protection.
It is alleged that in December 2009 a deed of rescission was executed by the syndicate in relation to what is called the first villa sale contract; that is, the contract entered into in 2007, and a second sale contract was also executed. I understand this to be the contract under which the second defendant, Villa 33, was to be the purchaser. It is alleged that no shareholders agreement was executed.
It is alleged that Villa 33 entered into a loan agreement that was secured by a mortgage and pursuant to the loan agreement a joint and several guarantee was provided by Mr Dickson. It is alleged that the terms of the loan agreement were contrary to the provisions of the draft shareholders agreement.
The alleged negligence of Mr Ryckmans is said to be that he failed to advise the syndicate of the meaning and legal effect of the draft shareholders agreement; that he failed to advise that "the execution of the Shareholders Agreement by the Syndicate was a necessary precondition to execution of the Second Villa Sale Contract to ensure that the rights, interests and liabilities of the Syndicate members would be protected"; and that he failed to advise that a failure by the syndicate to execute the shareholders' agreement prior to execution of the Second Villa sale contract was not in the best interests of the syndicate, presumably the members of the syndicate.
The essence of the allegation appears to be that Mr Ryckmans was negligent in not advising the syndicate members that if they wanted the protection provided by the draft shareholders agreement they should execute it.
The proposed cross-claim does not plead what the first defendant would have done had such advice been given. Mr McPherson is said to have breached fiduciary duties owed to the syndicate by failing to inform the syndicate of the need to execute the shareholders' agreement prior to entry into the Second Villa sale contract.
The proposed cross-claim alleges that the cross-claimant suffered loss as a result of the alleged defaults by being required to make mortgage repayments which exceeded his proportionate share and also by his having lost the chance to enter into a loan agreement as a several borrower, as opposed to a joint and several borrower, and having lost the chance to "not enter into the Second Villa Sale Contract" (sic), presumably meaning that he lost the chance to seek to cause Villa 33 not to enter into the Second Villa sale contract.
The same kinds of matters by which Robb J found that the further amended statement of claim was deficient appear to me to arise in respect of this part of the pleading of the proposed cross-claim.
The second area of complaint is that on 15 March 2010 the solicitors for Mrs Susan Miller wrote to members of the syndicate and alleged that Mr Dickson had made misleading representations in respect of the first villa sale contract. It is alleged that Mr McPherson instructed Mr Ryckmans to advise the syndicate in relation to those allegations. It is alleged that following advice received by Mr Ryckmans, Mr McPherson wrote to Mr Dickson with a revised letter of response to the Miller allegations and that on the same day Mr McPherson sent the response that Mr Ryckmans had settled to the solicitor acting for Mrs Miller.
Paragraphs 51 and 52 of the proposed cross-claim allege:
"51 By sending the Settled Response, the second cross defendant and fourth cross defendant induced the cross claimant to believe that no member of the Syndicate (including Miller) had or could have any claim, complaint or allegation against the cross claimant in respect of misleading representations made by him but to the contrary, that at no time had 'any party' been misled by the cross claimant ('Representation').
52 In the above circumstances, the second cross defendant and the fourth cross defendant impliedly represented that:
no member of the Syndicate, including the first cross defendant, had or could have any claim or allegations against him in relation to the purchase of Villa 33; and
no member of the Syndicate, including the first cross defendant, would make any claim against him in relation to the purchase of Villa 33.
('Implied Representations')."
Assuming, contrary to the fact, that para 51 fairly summarises the effect of the emails of 22 March 2010, still it is difficult to see how a representation that at no time had any party been misled by Mr Dickson could impliedly convey that no syndicate member could make a claim or allegation against Mr Dickson in relation to the purchase of the villa.
But, in any event, the emails of 22 March 2010 do not say what they are alleged to have conveyed. The "Settled Response" relevantly stated:
"In your correspondence dated the 15th March, you stated your client entered into a sale contract on the basis of representations made by David Dickson and others. This is in inaccurate [sic], David and no others at any time made any representations whatsoever to Susan. Furthermore at no time was any party led to believe that there was a guarantee the property would be sold prior to settlement, or that no additional funds would be required."
All parties understood that:
It was a common goal, and responsibility of all parties, that we on sell the property prior to settlement.
Each party had the option to sell their individual interest to a third party.
In the event the property could not be sold then each party would be liable to finance its share of the balance owing.
The investor group would apply for bank finance using the property as security.
They should seek legal advice before entering into the contract.
All parties have been made aware of the responsibilities and risks associated with this investment."
There was not an assertion that at no time had "any party" been misled by Mr Dickson. Rather there was an assertion that "David and no others at any time made any representations whatsoever to Susan".
There was also an assertion as to the five matters which it is said the parties understood and an assertion that all parties had been made aware of the responsibilities and risks associated with the investment. That is not the same as saying that no party had ever been misled by Mr Dickson.
The merits of at least this part of the cross-claim appear to me to be dubious at best.
The third area of complaint concerns what are called "Capacity Representations". Whereas the earlier allegations make complaints against both the plaintiff and more particularly Mr McPherson and also Mr Ryckmans and SR Legal, the allegations concerning the "Capacity Representations" are made against Mr McPherson and do not concern Mr Ryckmans.
It is alleged that through emails sent in October and November 2009 Mr McPherson represented to the proposed lender to Villa 33 Pty Ltd, and represented to the syndicate, that he had the financial capacity to comply with any obligations imposed by the bank in giving the financial accommodation that was being sought and that members of the syndicate could proceed on the basis that he would not only honour Villa 33 Pty Ltd's obligations to the bank, but would share in further ongoing costs and had the financial capacity to do so. There are some additional alleged representations of the same kind.
It is alleged that three weeks after the syndicate executed the loan agreement the plaintiff and Mr McPherson advised the syndicate that Pakefx Pty Ltd could not fulfil its obligations under the loan agreement.
The emails said to contain these representations were not tendered. But on the face of the pleading, if the emails contained the representations alleged either expressly or impliedly and those representations were dishonoured shortly after they were made, then prima facie Mr Dickson might have a good claim for any loss he might have suffered as a result of his reliance upon those representations.
But Mr Dickson's case faces a conceptually similar hurdle to the hurdle faced by the plaintiff in its further amended statement of claim in pleading loss arising from post-contractual representations, namely, that he, like the plaintiff, was already subject to contractual obligations, and he would need to establish how he had suffered additional or different loss as a result of the alleged Capacity Representations over and above that which he in any event faced.
The cross-claim alleges that as a result of the Capacity Representations Mr Dickson "has the suffered loss and damage as hereinbefore pleaded". That appears to be a reference to alleged loss or damage being a requirement to make mortgage repayments which exceeded Mr Dickson's proportionate share and the loss of a chance to "(i) enter into the Loan Agreement as a several borrower as opposed to a joint and several borrower and (ii) not enter into the Second Villa Sale Contract".
The first defendant accepts that the matters raised in the proposed cross-claim could be maintained in separate proceedings if leave to file the cross-claim is not given. The matters raised by the cross-claim are not pleaded as a defence to the plaintiff's second further amended statement of claim, nor, I think, could they be. Whether the plaintiff wins or loses, the matters raised in the cross-claim could still be maintained for whatever merit they might have.
The first defendant submits that the critical matter is that if leave is not given there would be two separate proceedings, both arising out of the same general factual matrix. Those proceedings would probably be heard before two judges and it was submitted that it would be cheaper and ultimately quicker for all issues to be decided by one judge in the same proceeding.
But the plaintiff's claim is now, or should be, ready for hearing. If leave to file the cross-claim is given there will be further delays which could well be substantial.
The plaintiff relies heavily on the defendant's delay in propounding the cross-claim and on the prejudice which it would suffer if the cross-claim is allowed.
In Lend Lease Project Management & Construction (Australia) Pty Ltd v Construction, Forestry, Mining and Energy Union (No 3) [2011] FCA 912, Collier J said (at [18]) in respect of a cognate Federal Court rule that:
"Principles relevant to the exercise of the Court's discretion in respect of an application out of time for an extension of time in which to file process are found in the judgment of Wilcox J in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-9. In summary:
• the Court should have regard to whether the applicant for extension has shown an acceptable explanation of the delay in filing the process.
• any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension.
• the merits of the application are properly to be taken into account in considering whether an extension of time should be granted."
The delays in serving the proposed cross-claim are very great. Nor is there any satisfactory explanation for that delay. The solicitor for the defendant, Mr Steven Song, swore affidavits in support of the application. But his affidavits do not explain the delay otherwise than by reference to other delays in the proceedings, some of which (he would say many of which) are to be attributable to the plaintiff. These other delays in the proceedings do not explain the delay in serving the proposed cross-claim. Even if some delays and failures to comply with the orders for filing any cross-claim could be excused because of the plaintiff's delays, there is no excuse for not preparing the cross-claim and seeking leave for its being filed prior to the time Robb J heard the defendants' application to restrain Somerset Ryckmans from continuing to act. The overlap of issues is obvious.
The various amendments to the statement of claim do not affect the causes of action sought to be raised by the cross-claim. As I have said those causes of action are independent of the plaintiff's claim and can be pursued (assuming they have substance) whether the plaintiff's claim succeeds or fails.
Part of the delay is attributable to the solicitors for both parties seeking particulars of the opposite party's pleadings. I cannot pass by those matters without comment. Reading the voluminous and acrimonious correspondence between the solicitors was an infuriating task.
By way of illustration, on 15 August 2013 the defendant's solicitors, Doyles Construction Lawyers, wrote to Somerset Ryckmans seeking further and better particulars of the plaintiff's proposed amended statement of claim.
The first two pages of the letter contain definitions of the "usual particulars" of any contract, agreement, transaction, arrangement etc etc. Then usual particulars or "usual details", another defined term, are sought of just about every matter raised in the proposed amended statement of claim, whether significant or not.
This way of conducting litigation is to be deplored. A culture in which legal practitioners think that litigation can be conducted in this way was one that I had thought had long been dispelled. My belief seems to be wrong. It is high time that that approach to litigation is abandoned. It is completely inimical to the requirements of s 56 of the Civil Procedure Act 2005 (NSW) and the Practice Notes that govern litigation in this Division. However, the requests for particulars make only a small contribution to the delays.
If leave is given for the filing of a cross-claim there will inevitably be a further delay before the proceeding can be given a hearing date. That is so for a number of reasons.
First, if leave to file a cross-claim which contains the allegations against Mr Ryckmans and his firm is allowed, it will be necessary for the plaintiff to change its solicitor. It is possible that counsel, who has been briefed in the matter for an extensive period, might also have to cease to act. There would be the prospect of possible cross-claims between Mr McPherson and Mr Ryckmans or claims of proportionate liability.
I understood from counsel for the defendants that not all the evidence on which the defendants would rely in support of the cross-claim has yet been served. Hence there would be a need for additional evidence. There would inevitably be a need for evidence in response to the first defendant's evidence from both Mr McPherson and Mr Ryckmans. A defence to the cross-claim wold be required. It is on the cards that expert evidence might be required on the question as to whether Mr Ryckmans' conduct of the matter was in accordance with good or accepted professional practice of competent and diligent solicitors.
Even if the case were given closer case management than it appears to have had to date, it is not possible for me to predict when the matter would be ready to obtain a hearing date. I do not think, having regard to the delays to date and the fact that the case is now, or should be, ready for hearing, subject only to the service of the plaintiff's evidence in reply, that the hearing date should be delayed.
Secondly, the plaintiff would suffer additional prejudice in terms of additional costs by reason of having to change its solicitor. I accept that not all of the costs that have been incurred would be thrown away. Clearly that would not be the position. For example, there is no reason to think that the pleadings and the affidavits that have been filed and served by the plaintiff would not be used or that they would need to be revisited. But a change of solicitors, and perhaps of counsel, would inevitably result in further costs and would contribute to the delays in the matter coming on for hearing.
The third matter concerns the apparent merits of the cross-claim. This is not a strike-out application, and I do not deal with the question by asking whether the cross-claim raises an arguable cause of action. Even assuming that the cross-claim does raise an arguable cause of action, or arguable causes of action, the apparent merits of the claim are still a matter to be considered in exercising the discretion as to whether to grant or refuse leave.
For the reasons I have given, I think at least the first two matters of complaint are dubious. The proposition that investors in a project such as the acquisition of Villa 33 would need to be told that if they wanted the protection of the shareholders' agreement drafted for that purpose then they should all sign it, seems risible. No doubt the matter would be taken further, but that does appear to be the essential allegation.
I was not taken to any evidence of the defendant that he was unaware of his exposure under the revised arrangements following the rescission of the first sale contract, the establishment of the second defendant and the unit trust and the entry into the second sale contract and the loan agreement. Nor was I taken to any evidence of the defendant that he was unaware that if he wished to limit that exposure he should ensure that the shareholders' agreement was signed by all of the syndicate members. Nor was I taken to any evidence that demonstrated that realistically he could have acted differently than the way he did.
For the reasons I have given, the claim based upon the alleged implied representations said to arise from the express representations in the email of 22 March 2010 appears to be similarly dubious.
I was not taken to the emails upon which the Capacity Representations are said to be based. But assuming that the alleged Capacity Misrepresentations could be made good, I was not taken to any evidence as to how the first defendant would establish that such misrepresentations caused him substantial loss, having regard to the liabilities which he was already under.
Having regard to all of these matters, I do not think that it would be consistent with ss 56, 57, 58 and 59 of the Civil Procedure Act to grant leave for the filing of the cross-claim. For these reasons I order that the first defendant's notice of motion filed on 1 July 2015 be dismissed with costs. I will stand the matter into the Registrar's list.
[3]
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Decision last updated: 14 August 2015