Patrick v Capital Finance Pty Ltd

REASONS FOR JUDGMENT 1 After twelve days of hearing in this matter and after the evidence of all parties had closed the applicant in this representative proceeding has applied to amend the Fourth Further Amended Statement of Claim. The pleadings in this matter have already been extensively amended over the past year on several occasions pursuant to leave granted by the Court over the protests of all respondents. 2 On 18 December 2002 I delivered judgment on a no-case submissions made by each of the respondents. I there set out the nature of the case and the relevant background. I will not repeat those details in this judgment. 3 The present proposed amendments are strongly resisted.

relevant principles 4 The Court has a broad discretion under O 13 r 2 of the Federal Court Rules ("FCR") to grant leave to amend the pleadings. 5 The purpose of pleading is to clearly define the issues and inform the parties in advance of the case which they have to meet so as to enable them to take the necessary steps to deal with the allegations: see Dare v Pulham (1982) 148 CLR 658 at 664. The material particulars must be sufficiently clear and detailed to convey to the party the case which has to be met. However they must not be so detailed as to confuse or obscure the nature of the case. As pointed out by the High Court in Queensland v J L Holdings Pty Limited (1997) 189 CLR 146, the ultimate purpose of the pleading is the attainment of justice and this is the paramount consideration for the Court, which must ensure that any prejudice that might be caused by an amendment must be capable of remedy by an adjournment, costs or other appropriate order. 6 It is not the function of pleadings to allow an amendment which will enable a case to be made out at the conclusion of all the evidence, particularly in multi-party litigation, so as to adjust the claims to accord with what a party has been able to make out in cross-examination, in circumstances where such an amendment would raise fresh issues and would prejudice the respondents in such a way as to render the prejudice irremediable. 7 In The Commonwealth v Verwayen (1990) 170 CLR 394, at 456, Dawson J said: "The considerations which govern a decision to grant or refuse leave to amend are of a different kind from those which go to establish an estoppel. The rules of court have always provided that leave to amend pleadings may be given for the purpose of determining the real question in controversy between the parties …and an amendment should ordinarily be allowed if any harm arising from so doing can be compensated for by the imposition of terms upon the party asking for the amendment: … The usual terms which are imposed are an order for costs or an adjournment. In granting leave to amend, a court is concerned with the raising of issues and not with their merits. Of course, an amendment which is futile because it is obviously bad in law will not be allowed. But it is no ground for refusing an amendment that it raises a claim or defence which ought not to succeed. That will be an issue upon trial. An amendment may, however, be refused because it is made at such a late stage that neither costs nor an adjournment can compensate the other side for the failure to raise the issue at an earlier stage. …" (Emphasis added) 8 There is also a helpful discussion of the principles as to amendment of pleadings set out in the judgment of Kirby J in J L Holdings at 164-172. 9 The importance of the prejudice which might be caused as a result of a late amendment which is capable of affecting the way in which a case has been conducted was considered by Lowe J in Burnham v The City of Mordialloc (1956) VLR 239, at 241, where his Honour said: "His application [to amend at the close of the evidence] was opposed by Mr Voumard, who said that his whole conduct of the case had been based on a consideration of the issues disclosed in the pleadings and might have been quite different if matters of waiver or the like had been raised. In the light of such a defence he might well, he said, have called oral evidence. … I think the parties have chosen their battleground and that this contest should be decided on it. I therefore refuse the application." 10 The conduct of a lengthy complex commercial proceeding, such as the present, may, as the case is prepared and progresses, involve fine assessments as to what documentary or oral evidence ought to be adduced and as to whether or not to cross-examine a witness. If it is thought desirable to cross-examine then decisions need to be made and instructions obtained as to the nature and extent of the cross-examination. In the effective presentation of a case these matters are decided by the specific issues raised in the pleadings. If there are substantial variations in the issues raised then the way in which the case is conducted may be significantly different. Often, but not always, at the close of proceedings, to permit significant amendments that raise issues which, practicably, cannot be effectively addressed, may cause substantial injustice to the other parties. This principle is of particular significance in the present case where the application to amend is sought at the close of evidence in circumstances where extensive amendments were permitted prior to and after the commencement of the hearing.

The capital interests 11 In the case of the first four respondents ("Capital"), counsel sought further particulars as to the nature of the allegations in the proposed new pleading and I directed that those details be furnished by the applicant on or before 21 February 2003. Those particulars have now been furnished and the Capital interests press their objection to the proposed amendments. 12 Capital submits that the amendments sought allege new facts as a basis to support what are in fact new causes of action under existing legal labels. It is submitted that the substance of the amendments allege that the fourth respondent ("Park") had knowledge of the scheme that was given effect to at settlement and that investors' funds were going to be used to purchase the security required by the Prospectus for the "Crazy For You" Production. There are a series of allegations from which this knowledge is said to be derived, including Park's knowledge of similar schemes and what he had been told by a Mr Olivestone and Mr Emanuel. It is now alleged that Park agreed to lend funds from the scheme and participated in and prepared loan documents for the scheme whereas previously it had been alleged that he had established the scheme. 13 In opposition to the amendments counsel submits that prejudice and injustice will arise if the amendments are allowed at this late point in the proceeding. 14 Counsel notes the applicant's submission that there can be no prejudice to Park because it is clear that Park never proposed to call Mr Olivestone or Mr Emanuel and that the significance of this would be developed in final submissions on behalf of the applicant. 15 Counsel submits that in his judgment it was not necessary to call Mr Olivestone or Mr Emanuel on the matters previously put in issue. It was possible, counsel submits, that Park would have called both of them, together with officers of J D Tolhurst and the solicitors who prepared the documentation to establish that there never was a scheme as alleged, and if there was, that Park was not told of it. 16 The prejudice relied on is that noted in a judgment of Bryson J of the New South Wales Supreme Court in Mercantile Mutual Insurance v Farrington (1996) 44 NSWLR 634, at 651, where his Honour said: "A very liberal attitude to amendments is required by the rules of court but the power is discretionary. An amendment which is brought forward for the first time after the trial of the proceedings has been concluded and when many decisions relating to presentation of the parties' case of fact have been made, including decisions about what evidence should be put forward, what should not be tendered and what admissions should be made, faces special difficulties." 17 I agree that these observations are apposite to the present case. 18 Counsel for Capital submits that the applicant has abandoned the only claim which Park had to meet on the pleadings as originally formulated and that it would be unfair to seek to rely on the conduct of Park in defeating the pleaded case to create a further factual basis from which the Court should draw inferences in respect of the case as now alleged. This, it is submitted, amounts to grave prejudice. 19 In Gordon v MacGregor (1909) 8 CLR 316, at 321, Griffiths CJ noted that: "…it is a very dangerous thing after the close of the evidence to allow an amendment to raise a point founded on some oral statement by a witness, which may be perfectly complete so far as it is relevant to the issues which are being tried, but which if it were given with reference to entirely different issues would be incomplete. It is like allowing a party to raise a new case on appeal when the Court has not all the materials before it." 20 In substance it is said that the proposed amendments seek to raise new allegations of fraud after there has been failure to prove the now abandoned fraud allegations, which were originally formulated and not pressed. 21 By way of illustrating the prejudice likely to be suffered, it is said that it was never put to Park in cross-examination that he was told of the scheme by Mr Olivestone or Mr Emanuel. They are not parties to the proceeding yet the Court is now asked to find that they were probably aware of or were possibly involved in a fraudulent scheme. 22 In these circumstances, I do not consider, having regard to the interests of justice, that at this point in time, after the close of the evidence, my discretion should be exercised in favour of permitting the proposed amendments as against the Capital and Park interests. I therefore refuse the application because it is now too late to adjust the positions of the parties so as to remove the prejudice to Capital which will ensue if the amendments are permitted.

OCBC 23 The amendments sought to be made against the fifth respondent ("OCBC") include the deletion of a number of matters in respect of which the applicant concedes that no case has been made out on the evidence. Counsel for OCBC does not consent to these deletions and seeks a favourable ruling on them because in some instances they raise allegations of a grave nature, including fraud against the Bank which reflect adversely on some of its officers. I think it is appropriate for those claims to remain in the pleading so that they can be determined in the judgment of the Court. This will serve to alleviate any suggestion or taint of impropriety in respect of those abandoned claims. 24 OCBC contends that two new areas of allegations are now sought to be made against it which were not previously raised. 25 The first of these are the allegations relating to accessorial liability for breach of trust. It is said that this amendment is futile in view of other amendments proposed to the pleadings which make it clear that the applicant's case, on the evidence, now is that it was not the sixth respondent (Mr Coote) who made the payments for the term bonds as security, but the Gordon Frost Organisation Pty Limited ("GFO"): see par 37(d) of the proposed Fifth Further Amended Statement of Claim. The amended claim is that in respect of the three "finance" settlements: "OCBC disregarded or had wilfully and recklessly failed to make enquiries of the fact that the payments which were made out of the Crazy For You Fund … were made in breach of the Representative's fiduciary and trustee duties." (Emphasis added) 26 It is said that in view of the variation with respect to GFO it is futile to permit this amendment, because the payments are now said to have been made by GFO and not the Representative. I consider that this amendment should be allowed because it continues to rely on the allegation that there has been a breach of the fiduciary duty of the Representative. The contention may not succeed but this of itself is not a sufficient ground to disallow this amendment. 27 The principal concern of OCBC is with the recasting of the claim in respect of misleading and deceptive conduct as set out in new pars 68AA- 68AE of the proposed Fifth Further Amended Statement of Claim. This amendment raises for the first time the allegation that OCBC was a direct participant rather than an accessory to the misleading and deceptive conduct by "adopting" misleading representations in the "Crazy For You" Prospectus ("the Prospectus"). Previously, the allegation had been put on the basis that OCBC knew that there were misleading and deceptive statements in the Prospectus and this allegation of knowledge has been removed by the new claims in view of the evidence. 28 Three objections are raised by OCBC in relation to this amendment. It is said that the new claim would be statute barred, it would be futile and that it would give rise to prejudice which cannot be remedied. 29 I do not accept that the grounds of futility or the limitation argument raised by OCBC are sufficient to warrant refusal of leave. However, I am persuaded that the ground of irremediable prejudice has been made out. The futility ground and the limitation ground raise matters which can be addressed in submissions on the evidence but the question of prejudice is more fundamental. 30 OCBC submits that the amendments in pars 68AA - 68AE raise new areas of factual inquiry, particularly in relation to the allegation that OCBC was a participant in the misrepresentation because it "adopted" the Prospectus representations and participated in the misleading conduct as a consequence of the issue and circulation of the Prospectus. OCBC says that its evidence has not addressed these issues because they were not pleaded. 31 OCBC further submits that it has not had an opportunity to confront such a case in cross-examination or by adducing appropriate evidence to meet the new allegations either in documentary form or by testimony. 32 Senior counsel for OCBC states that the case would have been conducted differently if the allegations now sought to be raised had been raised originally. OCBC, it is said, would have sought to cross-examine witnesses differently and would have probably sought to adduce evidence as to whether Dr Patrick or other witnesses would have considered that a lender, such as OCBC, in the present circumstances was adopting or endorsing the representations in the Prospectus as its own statements. In addition, OCBC argues that it would have probably adduced evidence from financial advisers in relation to whether intending investors regard a potential lender as endorsing representations in a prospectus. Expert marketing evidence as to the perceptions of relevant members of the public is not unusual in this court: see R & C Products v S C Johnson (1993) 42 FCR 188 at 192; Koninklijke Philips v Remington (1999) 91 FCR 167 at 206; Red Bull Australia Pty Ltd v Sydneywide Distributors Pty Ltd [2001] FCA 1228; Twentieth Century Fox v S A Brewery (1996) 66 FCR 451and Simplot Australia Pty Ltd v McCain Foods (Aust) Pty Ltd [2001] FCA 518. 33 The prejudice caused by the inability to remedy this position or pursue any appropriate further cross-examination is not now capable of being effectively remedied. Nor can it be rectified by orders for costs or an adjournment. I consider this detriment sufficient to warrant refusal of the recasting by the applicant of the case as it is has been conducted and on the basis of which the hearing took place over many days. 34 Counsel for the applicant contends that any evidence of a marketing expert, for example, which might have been called by OCBC in respect of the amendment would not be relevant. He says such evidence, even if allowed, could not have made any difference to the actual proceeding and that it is wrong to suggest that any alleged prejudice of this nature is sufficient to justify refusal of the amendment. However, on an amendment application, the Court is not concerned with making a finding as to the ultimate outcome of any such evidence but rather, with the question whether it might reasonably have been adduced and arguably have affected the outcome of the proceeding. In addition to calling witnesses to give expert evidence, OCBC contends that it would have been possible to challenge the witnesses for the applicant in respect of the proposed allegations, if these had been made at the outset of the proceeding. The matter has now progressed to a stage where this is not practicable. Instructions could have been obtained by counsel for OCBC in respect of the cross-examination of witnesses to challenge the evidence and this course is not now possible. Costs cannot remedy the situation nor will an adjournment. Accordingly, I do not accept these arguments advanced by the applicant to the effect that no injustice would ensue if the amendments were permitted. 35 Because in conducting a case such as the present important tactical decisions have to be made as to the way in which the case should be run, a substantial change in the nature of the case at the close of the evidence can clearly give rise to, and in the present case does give rise to, prejudice. Because the evidence referred to by counsel for OCBC was not called and because the view was formed that it was not then necessary or relevant, there has been no opportunity to deal with the amended allegation and it would be unjust to require OCBC at this stage to address on the basis of issues which had not been clearly indicated. In my view, there is substance in the contention of OCBC in relation to these amendments and I reject the application to amend the claims of misleading and deceptive conduct on the part of OCBC for this reason.

Mr Coote 36 The substantial amendments sought concerning the sixth respondent are in essence substituted and further "particulars" of the allegation in par 37(g) that Mr Coote did not take all steps to ensure compliance with the Investment Deed. In the Fourth Further Amended Statement of Claim there were no detailed particulars furnished in relation to this allegation of breach. A substantial number of suggested appropriate inquiries are now sought to be alleged and the proposed particulars are to the effect that Mr Coote did not make particularised inquiries of specified parties in respect of the three settlements effected in July and August 1996 and that he should have ascertained certain matters. The amendments are strenuously opposed on the ground that there is no evidentiary support for them and because, counsel for Mr Coote assures me, he would have conducted the case differently if the present amendments had been made at the commencement of the hearing or earlier in the course of the hearing. He says that he would have cross-examined differently and also would have considered whether to call evidence to show that even if the inquiries alleged to be appropriate had been made, it was unlikely they would have led to a result which supported the applicant's case. Accordingly, it is said that Mr Coote would suffer irremediable prejudice as a consequence of the amendments sought after the close of the evidence. It is submitted that counsel has had no opportunity to investigate and adduce evidence as to the likely outcome of any such inquiries if they had been made. It is pointed that the case now sought to be raised is substantially different from the pleadings as they stood after the extensive amendments made in the Fourth Further Amended Statement of Claim. I am persuaded by these submissions on behalf of Mr Coote that he would suffer irremediable prejudice if the amendments sought in par 37(g) and the consequential amendments were made and I therefore do not grant leave to make the amendments. The applicant has had every opportunity to comprehensively plead his case and should not be permitted to make the amendments at this late stage. 37 For these reasons, I allow the amendments relating to accessorial liability on the part of OCBC for breach of Trust by the sixth respondent as specified in the proposed Fifth Further Amended Statement of Claim, but I otherwise dismiss the application for leave to amend. The applicant should pay the costs of the respondents in respect of the application for leave to amend. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Counsel for the Applicant: C L Pannam QC T J McLean

Solicitor for the Applicant: Corrs Chambers Westgarth

Counsel for the First, Second, Third and Fourth Respondents: E N Magee QC D M Austin

Solicitor for the First, Second, Third and Fourth Respondents: Voitin Walker Davis

Counsel for the Fifth Respondent: R Garratt QC M Moshinsky

Solicitor for the Fifth Respondent: Cornwall Stodart

Counsel for the Sixth Respondent: P M Bornstein

Solicitor for the Sixth Respondent: Phillips Fox

Date of Hearing: 20, 21, 25, 26, 27, 28 and 29 November 2002 10-14 February 2003

Date of Judgment: 18 March 2003