Smith v Commissioners of the Rural and Industries Bank of Western Australia [2009] WASC 100

Smith v McCusker (Unreported, WASC, Library No 970415, 16 June 1997)

Smith v McCusker QC [2000] WASCA 320

1 MARTIN CJ: The plaintiffs (the Smiths) have applied by motion for leave to amend their statement of claim in terms of a minute which has been filed, and for ancillary orders including orders for disclosure in relation to the allegations made in the amended pleading, that the defence be struck out as an abuse of process and that judgment be entered in favour of the Smiths accordingly. The Smiths have also applied for inspection of documents discovered by the defendant in respect of which legal professional privilege has been claimed, on the basis that the matters alleged in the proposed amended pleading give rise to a waiver of privilege.

2 These proceedings have a long and tortuous history. It has been recounted on a number of occasions - see for example Smith v Commissioners of the Rural and Industries Bank of Western Australia [2009] WASC 100. It is unnecessary to recount that history for the purposes of resolving these applications, other than to observe that in recent years I have been endeavouring to case manage these proceedings to a trial. In the course of that management, and in order to get the matter to trial, I have adopted a robust approach in relation to pleading issues and have, for example, adjourned the defendant's application to strike out the plaintiffs' statement of claim to be determined at trial, lest these already protracted proceedings become even further protracted by avoidable interlocutory disputes.

3 It is also necessary to note that the trial has been listed to commence on 19 April 2010. I have made it clear to all parties on a number of occasions that the interests of justice require the trial to start on that date, given the protracted history of these proceedings, and that case management directions and interlocutory rulings will be made with that objective strongly in mind.

4 The dispute between the parties with respect to the amendments to the pleadings now proposed by the Smiths are of a different character to those which I have adjourned to be determined at trial. That is because the ambit of the evidence to be adduced at trial would be dramatically affected if the amendments were allowed. It is therefore necessary to rule on this issue well in advance of trial, in order that the parties can prepare accordingly.

5 The proposed amendments to the statement of claim which are contentious comprise 41 paragraphs occupying a little under 15 pages of text. They are difficult to summarise succinctly. Their flavour can be gathered from the first two paragraphs which are in the following terms:

1. The duties of the defendant are contractual, fiduciary and arise in tort and include the duty to exercise skill and care, the duty to act in good faith, and with absolutely openness and frankness to the client, the duty to avoid conflicts of interest and duty [sic], a duty to inform the plaintiffs of everything he knew would be of assistance to the plaintiffs including expert assistance available to the defendant in his role as director of Town and Country, a rural financier, and in his business relationships with the R & I Bank, a rural financier, and a continuing duty of loyalty to the plaintiffs, his former client.
2. His prosecution of his defence and his claim of privilege over documents and information contained in his affidavit of discovery breaches his duty of loyalty to his former clients, the plaintiffs, as he did not make disclosure.

6 Other paragraphs assert breaches of these duties by the defendant in failing to make disclosure of his business dealings and business relationships with the Town and Country Permanent Building Society of Western Australia, the R & I Bank (the Bank) and its commissioners, and the Legal Aid Commission.

7 The proposed pleading further asserts that '[i]n November 2008 the plaintiffs discovered that the defendant had even closer business relationships with ...' the Bank. The basis for the plea is said to be founded in a series of assertions concerning management relationships between the Bank, an associated entity of the Bank, and the Town and Country Permanent Building Society (of which the defendant was a director).

8 The Smiths further assert that by reason of the defendant's failure to disclose these relationships, they lost the opportunity of obtaining legal representation from a practitioner who did not have these conflicts of interest. The pleading goes on to assert various consequences which are said to flow from that lost opportunity, including '[a]larm and distress and extra work and expense'.

9 In my opinion, there are four separate reasons why the amendments proposed by the Smiths, and the ancillary claims for orders associated with those amendments (including the claims for disclosure and inspection of documents), must be disallowed. They are:

(1) the amendments seek to assert causes of action which the Full Court has previously held to be unarguable - see Smith v McCusker QC [2000] WASCA 320;

(2) the amendments are moved at a late stage of the proceedings, after a lengthy period of unexplained delay;

(3) the amendments, if allowed, would cause substantial prejudice to the defendant, given the time which has elapsed since the occurrence of the events the subject of the amendments, and would very likely lead to a postponement of the trial;

The amendments have been previously disallowed

10 On 15 April 1997, the Smiths filed a document entitled 'Minute of proposed substituted substituted [sic] statement of claim'. In that document, the Smiths pleaded the relationship between the defendant and the law firm McCusker & Harmer, his relationship with the Town and Country Permanent Building Society, the relationship between the Town and Country Permanent Building Society and the Bank and the defendant's membership of the Board of the Legal Aid Commission of Western Australia. The Smiths also pleaded that the defendant was a 'rural financier'.

11 The 1997 proposed pleading also asserted a duty of disclosure and a breach of that duty of disclosure in connection with the various relationships pleaded. The proposed pleading further asserted that the consequence of the failure of disclosure was that the Smiths lost the opportunity of having a legal adviser whose loyalties were not divided.

12 Written submissions were filed in support of the pleading proposed in 1997. Those written submissions deal explicitly with the same relationships between the defendant and the various entities to which I have referred which are at the heart of the amendments now proposed.

13 In Smith v McCusker (Unreported, WASC, Library No 970415, 16 June 1997), the Master rejected the Smiths' application to substitute their statement of claim with the 1997 proposed pleading and dismissed the Smiths' action. The Smiths appealed from that decision. Prior to the hearing of the appeal, a series of questions were settled for the consideration of the Full Court, and the appeal was conducted by reference to those questions.

14 Some of those questions concerned whether the parts of the proposed 1997 pleading to which I have referred disclosed an arguable cause of action. Templeman J, with whom the other members of the court agreed, concluded that they did not (Smith v McCusker QC [2000] WASCA 320 at [175] - [186]). In the view of the Full Court, the matters alleged would only give rise to an arguable cause of action if it could be established that the defendant in fact acted so as to advance his own interests in preference to those of the Smiths [183]. Such a claim was made in the pleading proposed in 1997. However, in the view of the Full Court because the claim was, in substance, an allegation of fraud, some evidence was necessary to sustain the allegation, and there was no such evidence [184].

15 Although couched in different terms, the amendments now proposed are substantially the same as those proposed in 1997, save that the current amendments do not assert the fact considered by the Full Court to be critical to their arguability - namely, that the defendant acted so as to advance his own position in preference to that of the Smiths. It follows from the decision of the Full Court, by which both I and the parties to these proceedings are bound, that the proposed amendment fails to disclose an arguable cause of action. It must be rejected for that reason alone.

16 The matters said to have been 'discovered' by the Smiths in 2008 do not materially alter the character of the assertions made in the proposed amended pleading. They go only to the precise extent of the relationship between the Bank and the Town and Country Permanent Building Society. The extent of that relationship was not material to the decision of the Full Court. The Full Court decision was based upon an assumption that the facts asserted in the pleading proposed in 1997, to the effect that there was a significant commercial relationship between the Bank and the Town and Country Permanent Building Society of which the defendant was a director, were correct. The matters said to have been discovered in 2008 do not therefore alter, in any material way, the substance of the causes of action asserted against the defendant.

17 These proceedings have been on foot for 14 years. The evidence establishes that the Smiths have been aware of the substance of the matters which they now wish to assert against Mr McCusker QC for the entirety of that period, and indeed, for more than 20 years now. The Smiths sought, unsuccessfully, to raise these matters as part of these proceedings in 1997. They have recently renewed that attempt without proffering any explanation for the delay in bringing this application to amend their pleading. It might perhaps be inferred from the terms of the pleading that the Smiths justify their delay by reference to the matters which are said to have been discovered during 2008. However, as I have observed, those matters go only to the detail of the relationship between the Town and Country Permanent Building Society and the Bank, and do not affect the fundamental character of the issues asserted by the proposed amendments. Unexplained delay of this magnitude is, of itself, a powerful reason for disallowing the amendments proposed, especially when a trial is imminent.

18 The amendments, if allowed, would raise factual issues relating to events which occurred more than 20 years ago. It can be inferred that the defendant would have difficulty in responding in detail to the allegations now made, as a consequence of the lapse of time and the likely loss or destruction of documents that may be relevant to those issues. Further, the allowance of the amendments would significantly expand the ambit of the issues to be addressed at trial, in a context in which he has been required to respond to these proceedings for an inordinately lengthy period. The fact that the Smiths are impecunious and unable to satisfy any costs orders made against them is also relevant in this context, as is the very real prospect that, if the amendments were allowed, the proposed trial may have to be deferred to enable the parties to prepare for trial on the issues the subject of the proposed amendments.

19 For the reasons I have indicated, in the management of this case I have allowed the Smiths considerable latitude in relation to the terminology of their pleadings, with a view to moving the matter forward to resolution. However, there comes a point at which the vagueness and imprecision with which the Smiths' case is enunciated occasions an unacceptable degree of prejudice to the defendant. In my view, the proposed amendments cross that line, and are unacceptably vague and confusing. This provides a further reason why the amendments proposed must be disallowed.

20 For these various reasons, I have concluded that the contentious amendments proposed by the Smiths, and the various ancillary orders said to depend upon those amendments, including the orders for disclosure and inspection of documents, must be disallowed.