Appeals - circumstances where discretionary decision (whether to permit amendment involving withdrawal of admission on the pleadings, and re-opening of case) could be reviewed on appeal - errors of fact and law.

Practice and Procedure - discussion of principles governing allowance of an amendment to a pleading and re-opening of a party's case - effect of mistaken admission in defence having resulted from false and misleading statements in the statement of claim and affidavit of the applicant - effect of applicant's failure to discover documents which would have revealed the true position - discussion of whether the respondent who made the admission on the pleading should have known or suspected the true position - discussion of the principle that the court ought to permit the correction of any kind of error or mistake if it can be done without injustice to the other party so that the real matter in controversy may be determined.

Smith v. New South Wales Bar Association [1992] HCA 36; (1992) 176 CLR 256

Commonwealth Bank of Australia v. Quade [1991] HCA 61; (1991) 102 ALR 487

Quade v. Commonwealth Bank of Australia [1991] FCA 26; (1991) 27 FCR 569

Lovell v. Lovell [1950] HCA 52; (1950) 81 CLR 513

Ketteman v. Hansel Properties Ltd (1987) 1 AC 189

Watson v. Metropolitan (Perth) Passenger Transport Trust (1965) WAR 88

National Australia Bank Ltd v. Nobile [1988] FCA 72; (1988) 100 ALR 227

Celestino v. Celestino (Spender, Miles and von Doussa JJ, unreported, 16 August 1990)

Poseidon Ltd v. Adelaide Petroleum NL [1991] FCA 663; (1991) 105 ALR 25

Solicitor for the Second Mr M. Mathas of Messrs

Counsel for the Respondent: Mr D.F. Jackson QC with

Mr R. Kaye

Solicitors for the Respondent: Messrs Brian Robinson and Co.

1. The appeal be allowed.

2. The orders made on 15 October 1992 be set aside, and:

(a) a new trial of the action be granted, limited to the issues

arising out of the appellants' notice of motion of 4

September 1992, but subject to all such further amendments

as the trial judge in his discretion may allow, including

any amendment designed to ensure that Lesola Pty Limited

has an opportunity to be heard and may be bound by the

result;

(b) the appellants have leave to amend their defence as sought

by the said notice of motion of 4 September 1992.

3. The respondent pay the appellants' costs of the appeal and of the

said motion.

4. The costs of the trial be reserved for determination by the trial

judge at the new trial.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NEAVES, BURCHETT AND RYAN JJ This appeal arises out of a singular anomaly in an otherwise unremarkable case of breach of fiduciary duty and contravention of s. 52 of the Trade Practices Act.

2. The action mounted by the present respondent Gulf Pacific Pty Limited against the appellants is based on a joint venture agreement entered into between a company Gulf Pacific Pty Limited and the second appellant Comrealty Limited (of which Mr Londish, the first appellant, was in control and Clairecourt Pty Limited, the third appellant, was a wholly owned subsidiary) by an exchange of letters in the first half of 1988. The agreement was proposed by Gulf Pacific Pty Limited by its managing director, a Mr Wynyard, by a letter under the company's letterhead of 18 April 1988, and accepted by a letter in reply of 4 May 1988 signed by a Mr Costley on behalf of Comrealty Limited. The terms so agreed included provisions for the sharing of profits and losses, the receipt by each company of a project management fee, and that "this arrangement operate for a trial period of six months from the date of this advice (i.e. the letter of acceptance). Continuation beyond this date is to be the subject of further written advice". There was in fact an extension until 4 April 1989 confirmed by a letter from Comrealty Limited addressed to:

"Mr Tom Wynyard

Gulf Pacific Pty Ltd"

dated 2 November 1988, and a further extension which we shall mention shortly.

3. The project which had led to the agreement was the acquisition, suggested by Mr Wynyard, of certain land at Duffy's Forest owned by a company Brickworks Limited, and its profitable development or disposal. In particular, development in conjunction with EIE Development Company Limited ("EIE"), a company controlled by Japanese interests, was for some time envisaged. In due course, an agreement in the nature of an option was negotiated with Brickworks Limited, and concluded on 2 December 1988. Its implementation required the obtaining of development consent from Warringah Shire Council for the use of the land as a golf course and for residential development. On 5 April 1989, a "further extension of our arrangement for 12 months to 4.4.90" was confirmed by a letter from Comrealty Limited, signed by Mr Costley, addressed:

"Mr Tom Wynyard

Gulf Pacific Pty Ltd".

There followed discussions between Mr Londish and Mr Wynyard about the possibility of Gulf Pacific Pty Limited accepting the sum of $1 million in discharge of its rights in respect of the joint venture. The initial proposals proved abortive. At that time, the participation of EIE remained in contemplation, and the obtaining of a development consent was being pursued. Mr Wynyard was involved during some stage of the discussions with council representatives which the obtaining of the consent entailed. It finally issued on 19 December 1989, but in August or September EIE had withdrawn, although Mr Londish did not advise Mr Wynyard of this change in the situation. In fact, a second Japanese company, Yamamoto Realty Co Limited ("Yamamoto"), appears, without Mr Wynyard's knowledge, to have been negotiating with Mr Londish and other representatives of Comrealty Limited, from quite early in 1989, with a view to a different and highly profitable proposal - that is, highly profitable to the joint venture. Early in 1990, it began to become clear that these negotiations were likely to ripen rapidly towards a successful conclusion.

4. At a time when the prospects for the joint venture were thus very bright, on 8 February 1990, following discussions during the period between December 1989 and January 1990 between Mr Londish and Mr Wynyard, an agreement was executed between Comrealty Limited and the respondent Gulf Pacific Pty Limited. At that time, Mr Wynyard had still not been told of the negotiations with Yamamoto, nor of the departure from the scene of EIE, which had only ever held out the possibility of a much less favourable deal. The real expectation of a highly profitable denouement opening up before the joint venture being thus concealed from him, he was willing to agree to a rescission of the joint venture agreement in consideration of the payment of the sum of $1 million.

5. The agreement executed on 8 February 1990 recited the arrangement between Comrealty Limited and Gulf Pacific Pty Limited in the following terms: "Comrealty and Gulf entered into an arrangement whereby Comrealty would share with Gulf profits and losses on an 80/20 basis on projects introduced by Gulf and acquired by Comrealty (such arrangement being evidenced by correspondence, copies of which are annexed)". The annexed correspondence consisted of the letters previously referred to of 18 April 1988, 4 May 1988, 2 November 1988 and 5 April 1989. There were further recitals, including the following:

"C. Gulf introduced to Comrealty a project known as Duffy's

Forest ('the Duffy's Forest Project') and Clairecourt has

acquired or is about the (sic - scil. to) acquire certain

lands more particularly described in the schedule hereto

('the lands') as part of this project.

D. Gulf and Wynyard have assisted Comrealty and

Clairecourt in the negotiations for such acquisitions and

the applications to the Warringah Council and other

authorities for the necessary consents to the development

of the lands as a golf course and residential allotments."

Provision was made for the payment of the consideration of $1 million, and the rescission of the joint venture agreement so far as it related to the project in question.

6. In these circumstances, the learned trial judge held that Mr Londish had dishonestly failed to inform Mr Wynyard of the true position in negotiating the agreement of rescission. Believing the project was likely to be extremely profitable, Mr Londish had concluded the rescission agreement in order to buy out the rights created by the joint venture agreement before the profit should crystallise. Applying United Dominions Corporation Limited v. Brian Proprietary Limited [1985] HCA 49; (1985) 157 CLR 1, the judge held that the joint venture agreement had created a fiduciary relationship involving a duty to disclose the negotiations with Yamamoto. Accordingly, the claim of breach of fiduciary duty succeeded, and judgment was given against the appellants in the sum of $1,015,312. It was unnecessary for his Honour to consider the alternative cause of action based on s. 52 of the Trade Practices Act, by which the respondent claimed that Mr Londish's silence about the negotiations which were actually on foot involved an implicit misrepresentation of the continued existence of the previous less profitable proposals for the development of the land.

7. None of the matters we have stated thus far is now in dispute. The questions debated upon the appeal concern a circumstance we have not yet mentioned, and of which no inkling could have been obtained from an examination of the pleadings in the case. The first intimation of it emerged, but then only inferentially, during the cross-examination of Mr Wynyard. After a series of questions, directed at the outset to what was described as Mr Wynyard's "modus operandi" in relation to joint ventures, and then to a reference, contained in one of Mr Wynyard's affidavits, to a settlement in respect of another joint venture (which was with a company referred to as "Dainford"), Mr Gyles QC, who appeared at the trial for the appellants, elicited the following evidence:

"Q. Could you tell us, without going into fine detail,

how the matter (i.e., the Dainford joint venture) was

resolved, Mr Wynyard?

A. Yes, we settled it, came to a settlement and they

paid me, paid me up, yes.

. . .

Q. Well, they paid you up for what?

A. They acquired the shares of - the interest - the

company, that company and its interests in those projects.

Q. You had a different corporate vehicle, did you?

A. No, that's because of that - it's different. That

company was still called Gulf Pacific but the name, I

reserved the name.

Q. Well, reserved the name or not, it was not the same

company as entered into the Comrealty arrangements?

A. It was at the time ... (There was here an objection,

but Mr Gyles was permitted to continue.)

Q. Mr Wynyard, may I put to you what I have gleaned from

your answers and you can correct me if I am wrong. A

company called Gulf Pacific entered into the arrangements

with Dainford, is that correct?

A. That's correct.

Q. You beneficially controlled the shares in Gulf Pacific?

A. That's correct.

Q. Those shares were acquired by Dainford as part of the

settlement?

A. That's correct.

Q. Its name was changed?

A. Yes.

Q. Another corporate vehicle changed its name to Gulf Pacific?

A. That's correct.

Q. And that entered into the Comrealty transaction?

A. That was in the Comrealty, that's the Comrealty

partner. That's the entity, yes."

8. At this point, the cross-examination turned back to the original topic, that is, the nature of the joint venture arrangements with Dainford. With hindsight, and advertence to the significant dates in the case, Mr Wynyard having earlier said the settlement with Dainford was "in July 1989" (an answer he qualified by the word "thereabouts"), it seems obvious that these answers revealed a very big difficulty for the case mounted by Gulf Pacific Pty Limited; but the transcript does not suggest that counsel was alive to this. He had stumbled upon the point accidentally, when cross-examining upon another issue, and the question in which he put "(I)t was not the same company as entered into the Comrealty arrangements?" seems to reflect the reality of his attitude rather than any over-refinement of subtlety. This is confirmed by the last question in the series, which still misses the point.

9. There was, in fact, no reason why counsel should have been alert to detect something wrong. The amended statement of claim was perfectly straightforward. It gave no hint that there were two companies associated with Mr Wynyard during different parts of the period relevant to the case, each of which had borne the name Gulf Pacific Pty Limited. Indeed, it is now clear that the amended statement of claim seriously misrepresented the position. It contained the following allegations:

"6. At all material times Gulf (i.e. the then applicant, the

respondent to the appeal) has carried on the business of

investor and joint venturer in real estate. (This, though

perhaps not false, was quite misleading. At the material

times when the letters of 18 April 1988, 4 May 1988 and 2

November 1988 were written, the respondent did not have the

name Gulf Pacific Pty Limited, and had nothing to do with

the transactions in this case.)

7. By an exchange of letters respectively dated, 18 April

1988 from Gulf to Londish as Chairman of Comrealty, and 4

May 1988 from Comrealty to Gulf, Gulf and Comrealty made an

agreement that they would from time to time, on a project

by project basis, acquire, obtain development approvals for

and sell real property.

. . .

9. The said agreement constituted a code pursuant to which

there would from time to (time) be constituted single

venture partnerships governed by its provisions.

10. Between December 1987 and December 1988 Gulf and

Londish conducted a series of negotiations with Brickworks

Limited regarding a proposal to acquire land at Duffys

Forest owned by Brickworks Limited.

. . .

13. By letter bearing date 17 November 1988 Comrealty

notified Gulf that, if the Duffys Forest land were acquired

by Gulf and Comrealty, there would be a sub-partnership

between Comrealty and EIE Development Company Limited ...

14. In or about November 1988 it was agreed between Gulf

and Londish on behalf of Comrealty that if all or any of

the Duffys Forest land were to be acquired Clairecourt

would acquire such land as trustee for a single purpose

partnership between Gulf and Comrealty; and Clairecourt

agreed that it would be the trustee for Gulf and Comrealty

in respect of any such land so to be acquired.

15. In or about December 1988, Clairecourt entered into an

agreement with Brickworks Limited for the acquisition of

its said land. ...

. . .

19. By reason of the matters and fact (sic) pleaded in

paragraphs 7 to 18 (inclusive) Clairecourt held the Duffys

Forest land on trust for a single venture partnership

between Gulf and Comrealty.

19A. Further, or in the alternative to paragraphs 14 and 19

by reason of the matters and facts pleaded in paragraphs 6

to 12 hereof, at all material times the respondents or one

or more of them were under an obligation to account to the

Applicant and/or to pay the Applicant 20% of all profits or

net funds (duly calculated) received by the Respondents or

payable to them for or in respect of the Duffys Forest land.

Particulars

The obligation as aforesaid arose out of the agreement as

pleaded in paragraphs 6 to 18 hereof and/or the

relationship between the parties as joint venturers and/or

partners in respect of the Duffys Forest land."

Subsequent paragraphs of the amended statement of claim pleaded the agreement of rescission; allegations that the facts constituted the engaging by Comrealty, in trade or commerce, in conduct which was misleading or deceptive; and breach by it and Clairecourt of a fiduciary duty owed to the respondent. It was pleaded:

"34 But for the agreement (of rescission) Gulf would have

become entitled, on completion of the said sale to an

amount in excess of $2,000,000.00 on the winding up of the

said single venture partnership."

10. In answer to the statement of claim (as originally filed) - there was no formal amendment to the defence following the insertion of para. 19A - the defence opposed detailed denials, reliance on the rescission, a reliance which is not now relevant on certain proceedings in the Supreme Court of New South Wales, and (so far as the alleged trust was concerned) a defence raising the New South Wales equivalent of the relevant provision of the Statute of Frauds, s. 23C of the Conveyancing Act 1919 (NSW). Also, as to a number of allegations, the defence pleaded that the appellants did not admit them.

11. The pleading bears every indication of having been carefully drawn. But in answer to paras. 7, 8 (which merely gave some particulars of the agreement alleged in para. 7) and 9 of the statement of claim, the defence reads as follows:

"... the Respondents:

(a) admit that the Second Respondent received from the

Applicant a letter dated 18 April, 1988 and the Second

Respondent forwarded to the Applicant a letter dated 4 May, 1988;

(b) Admit that the Applicant and the Second Respondent

entered into an Agreement;

(c) Do not admit that the Agreement its terms or effect

have been fully or accurately set out therein;

(d) Will rely at the hearing on the terms of the said

correspondence as if fully set out herein."

The terms of this answer to paras. 7, 8 and 9, and of the whole of the defence, suggest that the respondents were desirous of putting in issue all that they properly could. They were certainly not afraid to plead technical defences, as is indicated by their pleading of the technical defence provided by s. 23C of the Conveyancing Act. Had the pleader been aware of the matters revealed by Mr Wynyard in cross-examination, it is almost inconceivable that the pleading would not have put in issue the question whether the company, Comrealty Limited, had entered into an agreement with the respondent, and whether the letters in question were respectively written to and by the respondent. Of course, it is also inconceivable that Mr Wynyard had disclosed the true position to his solicitors; had he done so, the statement of claim must have been drawn differently.

12. The defence in reliance upon s. 23C of the Conveyancing Act produced a reply by which, inter alia, "the existence of sufficient writing to manifest and prove the declaration of trust" was alleged, and particularised as including:

"(i) Applicant's letter to the First and Second Respondent

of 18 April 1988.

(ii) Second Respondent's letter to the Applicant of 4 May 1988.

(iii) Second Respondent's letter to the Applicant of 2

November 1988."

13. Plainly, the reply, the allegations under s. 52 of the Trade Practices Act, and the claim for damages in respect of the contravention of that section all raised issues to which the identity of the company that had entered into the original joint venture arrangements was relevant. In this case, before the hearing, there had been formal discovery. No document bearing on the swapping of names to which Mr Wynyard referred in his evidence had been discovered. The solicitors for the appellants had obtained a company search which is dated 30 July 1990 and an extract dated 30 May 1991 in relation to Gulf Pacific Pty Limited. Apparently, it did not occur to anyone that there had been a swap of names, for there was no corresponding search against the company which had formerly been Gulf Pacific Pty Limited. It does not appear whether the search which was obtained ever found its way into counsel's brief on the hearing. If it did, examination of it would have shown that a change of name was registered on 3 February 1989, the company having originally been called "Lesola Pty Ltd" and having been incorporated on 15 October 1979. It is apparent that the question might have been asked why the company, in respect of its letterhead and otherwise, had anticipated its change of name by something over 9 months, although it may, of course, have been thought that the answer was that resolutions are not always in practice passed formally as soon as they should be.

14. But to ask whether the solicitors or counsel representing the appellants ought to have had their suspicions aroused seems to us to be to ask altogether the wrong question. From time to time, a defendant in a fraud case has attempted to rely on the defence that the plaintiff had the means of knowledge of the truth, and was unduly gullible in submitting to be deceived. Such defences have always had from the courts a short shrift. (See Poseidon Ltd v. Adelaide Petroleum NL [1991] FCA 663; (1991) 105 ALR 25 at 37.) So here, in our opinion, if it was unsatisfactory that this point should have emerged when the pleadings raised no issue as to the identity of the company Gulf Pacific Pty Limited, the responsibility ought to attach to the party that made the false assertion in the statement of claim. Particularly is this so when the respondent has failed to make proper discovery. In Quade v. Commonwealth Bank of Australia [1991] FCA 26; (1991) 27 FCR 569, this Court held that the stringent rules, which ordinarily restrict the grant of a new trial to enable the calling of fresh evidence, must be relaxed where the reason why the evidence was not available at the hearing was the failure of the successful party to comply with that party's own obligations in respect of discovery. An appeal was dismissed by the High Court in Commonwealth Bank of Australia v. Quade [1991] HCA 61; (1991) 102 ALR 487, where (at 489) the joint judgment of Mason CJ, Deane, Dawson, Toohey and Gaudron JJ referred, inter alia, to cases of surprise as being cases which could not properly be seen as mere cases of "fresh evidence". Their Honours continued:

"Nor can a case where the material constituting the fresh

evidence was unknown to the unsuccessful party by reason of

misconduct on the part of the successful party, such as an

admitted failure to comply with the requirements of the

trial court's order for discovery of documents."

Their Honours thought a case of failure to comply with a discovery order could, particularly if it remained unexplained, provide a stronger case for allowing an appeal than a case of surprise, which was expressly excluded from the general rule restricting appeals of this kind by Dixon CJ in Wollongong Corporation v. Cowan [1955] HCA 16; (1955) 93 CLR 435 at 444.

15. Whether or not those advising the appellants could have made themselves aware, had they pursued further enquiries, of the true situation, the uncontradicted evidence is that they were in fact unaware. The solicitor having the carriage of the matter on their behalf, Mr J.F. Walker, swore an affidavit on 4 September 1992 in which he stated, inter alia:

"2. I have been led to believe by the Applicant that it was

the only corporate entity called 'Gulf Pacific Pty

Limited'. I had also been led to believe that the Applicant

had been incorporated prior to December 1987 and was the

entity with which Comrealty made an arrangement by way of

exchange of letters dated 18 April and 4 May, 1988.

. . .

5. I have also read the Applicant's List of Documents and

have found no reference to any document which may indicate

that there were two companies called Gulf Pacific Pty

Limited. There is also no reference to any document which

may have suggested that the Applicant had not been

incorporated before December 1987 or was not the company

with which Comrealty made the arrangement by way of

exchange of letters dated 18 April and 4 May, 1988.

6. The Respondents prepared their case and proceeded on

the assumption that the Applicant was the same entity

throughout the period from December 1987 to the present

date. I am informed by Mr. A.T. Martin, a former director

of Comrealty and Clairecourt, and verily believe that the

Respondents believed that the Applicant was the same entity

throughout this period and that they had no knowledge

whatsoever that there had been a change in the entity using

the name 'Gulf Pacific Pty Limited'.

. . .

8. I am informed by senior counsel for the Respondents and

verily believe that the importance of the evidence given by

Mr Wynyard on 24 August, 1992 did not become apparent to

him until it had been pointed out to him by junior counsel

on Friday, 28 August 1992."

It should also be pointed out that the solicitor who drew the agreement of rescission, which is central to the dispute between the parties, on behalf of Comrealty Limited and submitted it to Mr Wynyard, laboured under the same misapprehension. Mr Wynyard did not disabuse him. The recitals in the agreement are consistent only with the continued existence of the one company, Gulf Pacific Pty Limited, as the joint venture partner of Comrealty Limited. The terms of that agreement certainly cast no doubt upon what Mr Walker swore, but, in any case, he does not appear to have been cross-examined. Furthermore, although it has been suggested that the appellants should have applied to amend their pleading immediately after Mr Gyles elicited the answers from Mr Wynyard which we have quoted, instead of four days later, during submissions at the end of the case, it is significant that when Mr Gyles raised the matter during his submissions, the trial judge responded:

"Well, Mr Gyles, I do not think - I was listening to this

evidence and I certainly did not understand it to be then

said that the wrong Gulf Pacific was suing and nor has that

been previously raised. It is not raised in a defence ..."

"Of course not, your Honour, we had no idea about this".

That exchange underlines that the significance of the matter was not immediately apparent.

16. However, it is apparent now. After realising what was implicit in the evidence of Mr Wynyard, Mr Walker obtained an extract from the Australian Securities Commission's data base in relation, not only to Gulf Pacific Pty Limited, but also Lesola Pty Limited. It is now plain that, on 3 February 1989, the company which had previously been Gulf Pacific Pty Limited changed its name to Lesola Pty Limited and afterwards acquired directors who included Tibor Balog, a gentleman mentioned by Mr Wynyard in his evidence as a principal of Dainford, the company which acquired the shares in Gulf Pacific Pty Limited. If further confirmation of that transaction is required, Mr Tibor Balog's name as a director appointed 13 February 1989 provides it. His co-directors were appointed on the same day. The "Name Start", as it is called, shown on the extract for Lesola Pty Limited is 3 February 1989. It will be recalled that the search previously obtained against Gulf Pacific Pty Limited showed that it had been originally called Lesola Pty Limited, and that a change of name had been registered on 3 February 1989. The inference of a straight swap of names is really too clear for further discussion.

17. When the point was raised in argument, the learned trial judge responded:

"I think it is a highly technical point which if taken

earlier might have been cured, because we do not know what

the deal was between Dainford and Mr Wynyard. He may have

been able to get an assignment. It was not taken in your defence."

18. The difficulty about this approach is that the appellants did not know the situation at any time before trial. It was then certainly too late for the steps his Honour suggests to have been taken, if they were in fact ever open to Mr Wynyard. The persistent concealment of the true position from the time of the rescission agreement to the filing of the statement of claim and the preparation of Mr Wynyard's affidavits, which inevitably contained false statements, provides ground for the inference that, in fact, he could not have solved the problem by so simple a measure. If he could have done so, he would surely have proceeded regularly, rather than irregularly.

19. Counsel sought to withdraw the admission on the pleadings, in the light of the evidence Mr Wynyard had given. The application was refused. It has been suggested that counsel should have applied to recall Mr Wynyard for further cross-examination and to re-open the evidence. However, none of this was suggested at the time. Counsel's argument had been a two-fold one; that the situation reflected on Mr Wynyard's credit, and that it provided in itself a defence to the respondent's claim. In answer to the latter proposition, it was urged that the pleading prevented its maintenance, and the application to withdraw the admission on the pleading followed. That application was immediately refused, and the question whether, as a consequence of any amendment of the pleadings, Mr Gyles would have had to seek an adjournment for the adducing of further evidence was never really debated. If it had been, we have great difficulty with the contention that there would have been any basis for thinking that the appellants might have had to bear the costs. The situation was not of their making. Their admission on the pleadings had been, in the circumstances, a responsible one, and there would have been better ground to criticise them had they refused to admit letters which they had no reason to doubt had been received and sent by the respondent, Gulf Pacific Pty Limited. The terms of the admission, of course, make it clear that there was no election, with knowledge of the facts, to forego reliance on the lack of identity of the respondent with the company with which they had contracted; such an election would have been reflected in a pleading admitting the respondent's entitlement to stand in the original company's shoes - not a pleading admitting (contrary to the fact) the entry by the respondent into the original agreement.

20. However, the trial judge pointed out that if the exchange of names occurred on 3 February 1989, the letter confirming an extension of the joint venture agreement of 5 April 1989 must have been sent to the now Gulf Pacific Pty Limited, the applicant at the hearing before him. On this basis, he said:

"So, even if Comrealty's original (May 1988) joint venture

agreement was with the company now known as Lesola Pty

Limited, it is strongly arguable that, after 5 April 1989,

its relationship was with the present applicant."

With respect, we cannot accept this reasoning. A letter written without knowledge of the exchange of names, obviously intended for the company with which there was an existing contractual relationship, could not be accepted, so as to create a new contractual relationship, by a different company wearing the mask of the original name. The purported acceptance of it was nothing but a deception - a holding out by a corporate Jacob of its hairy hands to receive the blessing which belonged to Esau.

21. His Honour then referred to an affidavit filed in answer to the motion by a solicitor acting for the respondent, a Mr Marshall. Although the respondent had thus gone into evidence upon the motion, it must be thought significant (see Jones v. Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 308, 312, 321) that there was no suggestion of any fact casting any doubt on the truth of the inference raised by the appellants' evidence that there had been an exchange of names, and that the respondent company was not the company with which the joint venture agreement was originally concluded and had been since extended (before the extension of April 1989). Nor was there any suggestion that Mr Wynyard had ever frankly disclosed the true situation. But the affidavit did show that the documents discovered by the appellants included a search, which we have already mentioned, of Gulf Pacific Pty Limited at the Australian Securities Commission. His Honour referred to the affidavit in the following terms:

"Annexed to this affidavit were copies of company searches,

of the same two companies, dated 30 May 1991. The

information they contained was similar to that in the later

searches. In particular, the May 1991 searches referred to

the two 'Name Starts' of 3 February 1991 (sic). ...

Whatever information the recent searches reveal, has long

been known to the respondents (i.e., the present appellants)."

This was to overstate the position quite considerably. The affidavit did not have annexed to it a search of Lesola Pty Limited, but only of the one company, Gulf Pacific Pty Limited. There is no evidence that the appellants had available to them a search of Lesola Pty Limited from which, when added to the search they did have of Gulf Pacific Pty Limited, they might have inferred the exchange of names. The search they had did not include two name starts, but only the one, to which we have referred. Nor, of course, did it suggest that the company was ever under the control of the Dainford interests, since the company now known as Gulf Pacific Pty Limited never was under their control. All that was relevantly revealed by the search the appellants had was that the respondent company, before 3 February 1989, had borne the name Lesola Pty Limited, which might have been explicable on the basis of some failure to effect validly a change of name at an earlier time. In any case, it did not give any hint of the existence of a second company having a peculiar relevance to this proceeding. With hindsight, it might be suggested there was room for some vague suspicion of a less specific nature, but certainly the appellants' solicitors were not upon notice by reason of any searches that there had been an exchange of names, and that the company which had brought the action was not the company to which the fiduciary duties had (at least originally) been owed.

22. The misapprehension about the information available to the appellants' solicitors is a matter of some significance in this appeal. There is no evidence that the appellants were aware of the existence of the company now known as Lesola Pty Limited before the cross-examination of Mr Wynyard at the hearing, when the information appeared to come as a complete surprise. There is simply no reason to doubt the oath of the solicitor for the appellants, Mr Walker, in his affidavit to which we have already referred. Whatever criticism there may be as to the admissibility of so much of that affidavit as suggests he was actually misled by the respondent, the evidence of his own state of mind was plainly admissible and effectively rebuts the suggestion that the truth had "long been known to (his clients)" by virtue of searches which he had obtained.

23. The learned trial judge referred to the authorities concerning the grant of leave to re-open a case as being apparently "few in number". He added: "Perhaps the most useful decision is that of Wolff CJ in Watson v. Metropolitan (Perth) Passenger Transport Trust (1965) WAR 88 at 89". At that page, the learned Chief Justice seems to have adopted tests which are virtually the same as those generally applicable after the entry of judgment, upon an application to introduce fresh evidence in support of an appeal. At the same time, Wolff CJ conceded that certain authorities "emphasize the discretion which lies with the judge but would appear to sanction a wider range than the one I have mentioned". The actual decision was to permit the re-opening of the defendant's case to call fresh evidence, after the close of the case but before the delivery of judgment, in circumstances where the tests for fresh evidence on an appeal were certainly met. It follows that the views of Wolff CJ, which would have countenanced denying an opportunity to re-open the defendant's case if those stringent tests had not been met, were strictly obiter. More importantly, Watson is cited in the joint judgment of Brennan, Dawson, Toohey and Gaudron JJ in Smith v. New South Wales Bar Association [1992] HCA 36; (1992) 176 CLR 256, where (at 266-267) their Honours say:

"If an application is made to re-open on the basis that new

or additional evidence is available, it will be relevant,

at that stage, to inquire why the evidence was not called

at the hearing. If there was a deliberate decision not to

call it, ordinarily that will tell decisively against the

application (Barker v. Furlong (1891) 2 Ch 172, at p 184;

Hughes v. Hill [1937] SAStRp 43; (1937) SASR 285, at p 287). But assuming

that that hurdle is passed, different considerations may

apply depending on whether the case is simply one in which

the hearing is complete, (As, e.g., in Watson v

Metropolitan (Perth) Passenger Transport Trust (1965)

WAR 88; Murray v Figge (1974) 4 ALR 612), or one in

which reasons for judgment have been delivered. (As, e.g.,

in In re Scott and Alvarez's Contract (1895) 1 Ch 596.) It

is difficult to see why, in the former situation, the

primary consideration should not be that of embarrassment

or prejudice to the other side. In the latter situation the

appeal rules relating to fresh evidence may provide a

useful guide as to the manner in which the discretion to

re-open should be exercised."

After the comment, "It is difficult to see why ... the primary consideration should not be that of embarrassment or prejudice to the other side", the judgment contains a footnote in the following terms:

"As suggested by Sheppard J in Joyce v GIO (NSW) reported in

Ritchie's Supreme Court Procedure, New South Wales, vol. 2,

pp 8551 - 8552. But cf Watson v. Metropolitan (Perth)

Passenger Transport Trust; Murray v Figge; Hughes v Hill."

It seems quite clear that the joint judgment rejects the stringent obiter dicta contained in Watson.

24. The judgment of Sheppard J (when a judge of the Supreme Court of New South Wales) in Joyce v. Government Insurance Office of New South Wales (supra) dealt with the discretion to permit a party to re-open his case. Sheppard J said:

"The essential principle which I should apply in relation to

the application is that I should do justice as between the

parties. ... Some of the cases, however, say that a party

ought not be allowed to re-open if the evidence sought to

be led was available to him at the time of the trial and an

apparently conscious decision was made not to lead it.

. . .

It is curious to me that such law as there is on this

subject has tended to develop in quite a different way from

the law which indicated to a judge faced with an

application to amend pleadings, the manner in which his

discretion should be exercised. Broadly speaking any

amendment should be allowed, unless the embarrassment thus

caused the opposite party cannot be cured by an adjournment

and costs.

. . .

I think in arriving at a conclusion as to what I should do

I must take very much into account the need to ensure that

cases are properly presented and, further, that if risks

are taken by counsel consciously, strong reasons must be

shown why their clients are, after all, to have a second chance."

25. It is to be observed that the view expressed by Sheppard J, to which the High Court alluded in Smith v. New South Wales Bar Association, introduced into a discussion of the principles upon which a party may be permitted to re-open a reference to the proper approach to an application to amend pleadings, as distinct from a special rule about the calling of fresh evidence. The same distinction was taken by this court in Celestino v. Celestino (Spender, Miles and von Doussa JJ, unreported, 16 August 1990). In a joint judgment, their Honours said (at p 7):

"There is an important point of distinction between an

application made on appeal after judgment to introduce

fresh evidence, and an application made during a trial for

leave to withdraw an admission. It is in the public

interest that disputation between litigants be brought to

finality by the judgment of the court, subject only to the

normal appeal process which ordinarily does not entail the

reception of further evidence. The public interest

considerations are reflected in the rules which limit the

admission of fresh evidence on an appeal. Where an

application is made to withdraw an admission before

judgment the relevant considerations are different. The

trial process which is intended to lead to the finality of

judgment is still in progress. Regard must be had to

another public interest consideration which is reflected in

the principle governing the amendment of pleadings. That

principle was stated by Bowen LJ in Cropper v. Smith

(1884) 26 Ch D 700 at pp 710-711:

'... the object of Courts is to decide the rights

of the parties, and not to punish them for

mistakes they make in the conduct of their

cases ... I know of no kind of error or mistake

which, if not fraudulent or intended to

overreach, the Court ought not to correct, if

it can be done without injustice to the other

party ... (A)s soon as it appears that the way

in which a party has framed his case will not

lead to a decision of the real matter in

controversy, it is as much a matter of right on

his part to have it corrected, if it can be

done without injustice, as anything else in the

case is a matter of right.'

This statement of principle was approved by the High Court

in Clough and Rogers v. Frog (1974) 48 ALJR 481."

In Clough and Rogers v. Frog, the joint judgment of McTiernan ACJ, Menzies, Gibbs and Mason JJ (at 482) contains the statement:

"As the defence, if established, would be a complete answer

in either action, the amendments sought should have been

allowed unless it appeared that injustice would thereby

have been occasioned to the respondent, there being nothing

to suggest fraud or improper concealment of the defence on

the part of the appellants. With the exception of the

suggestion of prejudice arising in respect of the loss of

the possible claim against the nominal defendant, the

matters relied upon by the respondent in opposition to the

amendments sought go at the most to delay and irregularity

only, matters which are relevant to costs but do not

constitute injustice to the respondent in the sense in

which that expression is used."

A decision, though discretionary, to refuse to allow amendments on the eve of a hearing was reversed. Similarly, in this court, in National Australia Bank Ltd v. Nobile [1988] FCA 72; (1988) 100 ALR 227 at 235-236 Davies J said:

"It was a ground of appeal that the issue as to

misrepresentation was raised at a late stage in the hearing

of the proceedings and that an amendment to the pleadings

to rely upon it was permitted at the close of the evidence.

In my opinion, the amendment was properly allowed. The

factual evidence had already been given by all relevant

witnesses who, on that point, were in substantial

agreement. It would have been unjust to exclude reliance

upon it. Pleadings are intended to enhance the achievement

of justice, not to hinder it. Unless good reason appears to

the contrary, an amendment should be made to raise the real

issues between the parties: see, for example, Cropper v

Smith (1884) 26 Ch D 700 at 710-711 per Bowen LJ. As

Muirhead J said in Caruso Australia Pty Ltd v Portec

Australia Pty Ltd (Federal Court, G29/1983, 13 February

1986, unreported):

'The powers of this court to amend pursuant to O

13, r 2 are more than wide, they tend to be

remedial in that "all necessary amendments

shall be made for the purpose of determining

the real questions raised by or otherwise

depending on the proceedings, or of correcting

any defect or error in any proceeding, or of

avoiding multiplicity of proceedings".

Consideration of the authorities indicates that

an amendment should only be refused where bad

faith is demonstrated or where the

consequential injury or prejudice to the other

party is incapable of remedy. And this

reasoning applies to amendments sought during

trial or on the eve of trial.'"

26. These statements of principle concerning the power to allow amendments are supported in this court by the terms of Order 13 rule 2 of the Rules of Court, subrules (1) and (2) of which provide:

"(1) The Court may, at any stage of any proceeding, on

application by any party or of its own motion, order that

any document in the proceeding be amended, or that any

party have leave to amend any document in the proceeding,

in either case in such manner as the Court thinks fit.

(2) All necessary amendments shall be made for the purpose

of determining the real questions raised by or otherwise

depending on the proceeding, or of correcting any defect or

error in any proceeding, or of avoiding multiplicity of

proceedings."

That an amendment involves the withdrawal of an admission is no bar to the application of Order 13 rule 2: H. Clark (Doncaster) Ltd v. Wilkinson (1965) 1 Ch 694.

27. While the rule refers to "error", and Bowen LJ in Cropper v. Smith (supra) said the object of the courts was not to punish for mistakes, a distinction should be seen between the case of an applicant for leave to amend who is not at fault, or whose fault is slight, and the case of an applicant for an indulgence sought to cover the consequences of the careless or incompetent conduct of his proceeding in the court. Since it is plainly intended by the rule to grant relief even in cases of the latter kind, the former have a claim a fortiori, although still dependent upon the exercise of a judicial discretion. Fairness may require, too, some balancing of indulgences granted to each side. Here, the respondent had been allowed to make at the trial a significant amendment to the statement of claim by the addition of para. 19A. (It was significant because the case of an actual trust, originally pleaded, failed). The terms of para. 19A incorporated, inter alia, paras. 7 and 9, and thus, in effect, repleaded them. The admission on the pleadings, of course, pre-dated the amendment.

28. Reference was made during the argument of this appeal to certain recent authorities which, it was suggested, represent a rolling back of these long accepted principles in respect of the allowance of amendments. On examination, we do not think there is any justification for such an interpretation of those authorities. In Ketteman v. Hansel Properties Ltd (1987) 1 AC 189 at 220 Lord Griffiths referred to "the strain the litigation imposes on litigants" and "the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other", as factors tending against the allowance of a late amendment. He also referred to the public interest in the reasonable containment of the cost of litigation. But it is necessary to see with what his Lordship was dealing. As appears at the same page, counsel had submitted "that the authorities obliged a judge to allow an amendment no matter how late it was made nor for what reason provided the other party could be properly compensated by an award of costs". It was this extreme submission that Lord Griffiths was answering. Nevertheless, in doing so he reiterated the principle:

"Whether an amendment should be granted is a matter for the

discretion of the trial judge and he should be guided in

the exercise of the discretion by his assessment of where

justice lies. Many and diverse factors will bear upon the

exercise of this discretion."

The case involved an application during final argument, at the end of a two weeks hearing, to amend defences in order to raise a plea that the claim was time-barred. What Lord Griffiths said was adopted by Sheppard J in Federal Commissioner of Taxation v. Brambles Holdings Ltd (1991) 99 ALR 523 at 528-529, but his Honour's remarks make it clear that he was referring to situations where an application for amendment results from "careless work" by a party's legal advisers. Neither Lord Griffiths nor Sheppard J was speaking of a case where a party has been misled by the conduct or assertions of the other side, or for any other reason was not responsible, or not solely responsible, for the lateness of the application, and neither was dissenting from the statements of principle which we have cited. Sheppard J, indeed, suggested (at 529) that a mere change of counsel might in some cases justify an amendment.

29. The trial judge referred to the evidence that Mr Gyles had only been brought to see the significance of Mr Wynyard's testimony concerning the exchange of company names on the very day of his application for leave to withdraw the admission on the pleadings. However, his Honour regarded it as important that there was "no explanation of the failure to use the information contained in the May 1991 searches." He added:

"It is by no means clear that the point sought to be raised

by the notice of motion was previously overlooked."

This view was plainly crucial to the decision and, equally plainly, it depended upon the misapprehension that the searches discovered by the appellants included searches of both companies, and thus revealed the point. Once it is appreciated that this was not so, the reasoning falls to the ground. Not only was there unchallenged evidence from the solicitor that he did not know, but it would be quite wrong to impute some kind of constructive knowledge to parties who had been misled by false statements in the pleadings and affidavits filed by the other side, and by the failure of the other side to discover discoverable documents. His Honour said that he was "prepared to approach the application to amend and re-open on the basis that there had been a measure of inadvertence about the point, rather than a conscious decision not to raise it earlier." However, that greatly understated the appellants' true position. There was not a measure of inadvertence about something that had "long been known to the (appellants)", but a complete lack of notice of the true facts, which were peculiarly within the knowledge of the respondent.

30. It was in the light of the circumstances as he understood them, and upon the basis of the principles which he drew from the cases, among which he described Watson v. Metropolitan (Perth) Passenger Transport Trust as "perhaps the most useful decision", that the judge came to the conclusion the appellants' motion should be denied unless it provided security in the sum of $1,000,000.

31. Courts have frequently emphasised that an appeal against a discretionary judgment will not succeed simply on the ground that the appellate court is inclined towards a different exercise of the discretion. One of the best known statements of this principle is that made by Kitto J in Lovell v. Lovell [1950] HCA 52; (1950) 81 CLR 513 at 532-534. But two matters, in particular, which Kitto J sets apart as grounds for reversing even a discretionary judgment, are "error in point of legal principle" and "a misapprehension of fact". In our opinion, both apply here. The factual error in relation to Mr Marshall's affidavit lies at the root of the decision, and the acceptance of the dicta in Watson v. Metropolitan (Perth) Passenger Transport Trust cannot stand with the joint judgment in the High Court in Smith v. New South Wales Bar Association, to which it would appear his Honour was not referred. A further problem of principle is the failure of the reasons to take any account of the responsibility of the respondent for the situation that developed at trial. It is a ground, accepted by Kitto J in the passage to which we have referred in Lovell v. Lovell, that "no weight, or no sufficient weight, has been given to relevant considerations" by the trial judge. Consistently with Commonwealth Bank of Australia v. Quade (supra), great weight should have been given to the extent to which the lateness of the appellants' application was attributable to the respondent's failure to comply with its obligations in respect of discovery, and to the false and misleading statements made in its pleadings, and in Mr Wynyard's affidavit.

32. As the exercise of discretion in this case was vitiated in the respects we have mentioned, it falls to this Court to exercise that discretion afresh. The appeal should be allowed; the orders made on 15 October 1992 should be set aside, and a new trial of the action should be granted, limited to the issues arising out of the appellants' notice of motion, but subject to all such further amendments as the trial judge in his discretion may allow, including any amendment designed to ensure that Lesola Pty Limited has an opportunity to be heard and may be bound by the result; orders should be made allowing the appellants to amend their pleading as sought by the notice of motion; the respondent should pay the appellants' costs of the appeal and of the motion; and the costs of the trial should be reserved to the learned trial judge for determination at the new trial. In our opinion, it is appropriate that the matter should be referred back to the trial judge.