HRNG ADELAIDE, 11, 12, 18 to 21 December 1990 #DATE 7:2:1991 Counsel for Plaintiff: Mr Wells QC and Mr Lipman Solicitor for Plaintiff: Fisher Jeffries Counsel for Defendant: Mr Lander QC with Mr Taylor and Mr Besanko Solicitor for Defendant: Mouldens Counsel for Third Party: Mr Shand QC with Mr Meagher and Mr Clayton Solicitor for Third Party: Finlaysons

JUDGE1 The defendant applies to amend its defence. 2. The trial of the action commenced on 11th September 1990 and has now run for 39 sitting days. I have already published rulings on various points, in the course of which I have explained in general terms the nature of the claims pursued by the plaintiff. It is sufficient for present purposes for me to note that the plaintiff's claim is in negligence and breach of contract for damages and other relief arising out of the preparation by the defendant, a firm of accountants, of a report submitted to shareholders of the plaintiff and considered at a general meeting of the company held on 16th June 1988. The meeting was called for the dual purpose of satisfying the requirements of rule 3J(3) of the Australian Stock Exchange Listing Rules and s.12(g) of the Companies (Acquisition of Shares) (South Australia) Code. 3. The transaction which the shareholders were invited to approve was the entry by the plaintiff, then known as Kia Ora Gold Corporation N.L. ("Kia Ora"), into an agreement for the acquisition of certain shares in and assets owned by various companies in what was then known as the Duke Group of companies. 4. Part of the consideration for the purchase was the allotment by Kia Ora of approximately 60 million fully paid ordinary shares. The effect of the issue of shares was to give effective control over Kia Ora to interests associated with the Duke Group, and for that reason the transaction was described as a "reverse takeover". 5. Since the implementation of the reverse takeover, the plaintiff has been placed in liquidation. 6. The proposed amendments to the defence are extensive and if permitted will have a substantial effect on the trial in that a number of issues will be raised which have not previously been raised. Some of those issues would involve an examination of transactions of no little complexity and the need to consider allegations as to the conduct of certain former directors of companies in the Duke Group who, in the wake of the implementation of the transaction in question became directors of the plaintiff. Those persons have been joined by the defendant as Third Parties, but in a ruling given on 5th February 1991, I declined to permit the trial of those and certain other Third Party claims (as opposed to the Third Party claims against Peat Marwick Hungerfords) to be held concurrently with the trial of the issues struck between the plaintiff and the defendant. 7. The plaintiff opposed all of the proposed amendments. 8. I approach the task of considering the proposed amendments with the following principles in mind: (1) An amendment should be allowed at any stage of proceedings to enable the real matters in controversy to be addressed, provided that the amendment can be

effected without injustice to the other party; Cropper v. Smith (1884) 26 ChD 700 cited in Clough and Anor. v. Frog (1974) 4 ALR 615, and see Leotta v. Public Transport Commission (N.S.W.) (1976) 9 ALR 437. (2) In dealing with an application to amend made during the course of the trial, the amendment should be allowed if the proposed amendment could have been pleaded when the defence was first filed, provided that to allow the

amendment at the stage when the application is made does not give rise to prejudice to the plaintiff which

cannot be redressed by an order for costs or for an adjournment. (3) An amendment to pleadings should not be permitted in circumstances where, if pleaded initially, it could have been struck out as a plea bad in law or on some

other ground. (4) In the case of a plea wanting in particularity, before trial the usual (although not invariable) order would be to allow the defect to be cured by directing appropriate particulars to be given. However, in the case of such a plea sought to be made by way of amendment after the commencement of the trial, there is

a discretion to refuse the amendment if to allow it would inevitably give rise to an application for better particulars, with the resultant disruption of the orderly progress of the hearing. 9. Mr Gray QC put forward the argument that on an application by the defendant to amend his defence, the Court may not only refuse the amendment but may strike out parts of the defence not sought to be amended, if to do so would be consistent with the reasons for disallowing the proposed amendment. He cited in support of that contention The Morgan Crucible Company v. Hill Samuel Bank Limited and Others ("Morgan Crucible") an unreported judgment of Hoffman J. sitting in the Chancery Division of the High Court of England (24th July 1990). 10. In my opinion the contention is unsound, and is not supported by Morgan Crucible. 11. That case concerned a successful takeover of one company by another. The plaintiff, who was the offeror, sued the target company's bank, together with its accountants and directors, for damages on the basis that certain financial statements and profit forecasts upon which it had relied when formulating its bid were negligently prepared or published by the defendants. The plaintiff alleged that had it known the true facts, it would never have made the bid, or increased it to the amount at which it was eventually accepted. 12. Following the decision of the House of Lords in Caparo Industries P/L v. Dickman [1990] UKHL 2; (1990) 2 WLR 358, the plaintiff perceived that it might have some difficulty in establishing the necessary degree of "proximity" to found the relevant duty of care. It applied to amend its Statement of Claim in a manner designed to overcome the perceived difficulty. 13. It is clear from the published reasons for his decision, that Hoffman J. did no more than consider the proposed amendments, which he disallowed. He approached the matter by addressing the question whether, if the amendments were allowed, they would survive an application to strike them out as disclosing no cause of action. The following passage appears in the concluding paragraph of his reasons:

"In my judgment, despite the proposed amendments, the entire case based on the tort of negligence is bound to fail ... The amendments will therefore be disallowed." (The underlining is mine) 14. At this stage of the trial, the plaintiff must accept the defence in the terms in which it is pleaded, and it is too late for the plaintiff to attempt to strike out parts of it which have stood since the time when the defence was first filed, by some sort of side wind in the course of an application for an amendment. Certainly, Morgan Crucible is no authority for such a manoeuvre. Generally speaking, applications to strike out pleadings should be made before trial, and before the pleadings have closed. 15. The arguments pursued in opposition to the proposed amendments gave rise to the need to consider certain questions of law, and a general question as to alleged abuse of process. I will deal with those matters before dealing with the particular proposed amendments. Liquidator's acceptance of proofs of debts 16. In order properly to understand how this point arose, it is necessary first to have regard to the manner in which the plaintiff pleads its claim for damages. 17. In its Statement of Claim the plaintiff claims the following heads of loss: " 43. In consequence of the matters referred to in paragraph 42 Kia Ora has suffered the following loss and damage which was within the contemplation of Arthur Young at all material times between April and June 1988. 43.1 $131,964,000 being the loss of shareholders equity immediately prior to the reverse takeover; 43.2 $42,572,296 being the approximate excess of liabilities over assets upon the liquidation of Kia Ora; 43.3 Loss of use of available money; 43.4 The costs of the Official Liquidator Mr John Sheahan incurred in the administration of the liquidation of Kia Ora." 18. As to the claim in paragraph 43.1, the plaintiff has opened on the basis that the "shareholders equity" for the purposes of that paragraph is to be regarded as the excess of the assets of the plaintiff company over its liabilities before the reverse takeover. An estimate has been given of approximately $40,000,000 rather than the amount shown in paragraph 43.1. 19. As to paragraph 43.2, the sum of $42,572,296 is alleged to be the excess of liabilities over assets on liquidation of the plaintiff, taking the liabilities of the company as the amounts shown in Schedule B of the Statement of Claim and the assets to be the amounts set out in Schedule C. 20. As to Schedule B, this is no more or less than a list of the proofs of debt lodged in the liquidation. 21. Schedule C comprises the assets which the liquidator of the plaintiff has got in or is presumably in the process of getting in, during the course of the liquidation. 22. It is the plaintiff's contention that it is entitled to prove the liabilities of the plaintiff company by adducing evidence of the amounts at which the various proofs of debt have been admitted. 23. Without resiling from its contention that the manner in which the plaintiff invites the Court to assess its damages is not in accordance with principle, the defendant wishes to argue that the amount at which the various proofs have been admitted is not relevant, that the onus is on the plaintiff to prove the debts of the company in the ordinary way, and further, the defendant wishes to challenge both the existence of and the quantum of various of the debts for which proofs have been admitted by the liquidator. 24. The respective contentions of the plaintiff and the defendant to which I have referred emerged during the course of argument directed to the admissibility of proposed amendments to the defence in which the defendant wishes to raise its various pleas as to such of the alleged liabilities as it wishes to challenge. 25. It became obvious during the course of argument that there was an advantage in the Court ruling finally on those contentions at this stage, as the matter not only affects the legitimacy of the terms of the proposed amendments to the defence, but also the manner in which the plaintiff presents this aspect of its case. 26. In the result, counsel agreed that my ruling as to the question of law involved should be regarded as finally concluding that question as though it was raised as a preliminary issue to be determined at this stage. The terms of the agreement reached between counsel are as follows: " (1) The defendant seeks to amend its defence to raise a

plea that certain of the alleged liabilities of the plaintiff to creditors set out in schedule B to the

Statement of Claim (referred to in paragraph 42 of the Statement of Claim) are not liabilities of the

plaintiff. (2) The plaintiff contends that the liability of the plaintiff to those creditors in the sense of the existence and quantum of its legal obligation for such debts is conclusively established for all

relevant purposes in this action, in the absence of any exercise by the defendant or by other persons of rights it or they might have within the administration of the liquidation, by the acceptance by the liquidator of the plaintiff of the proofs of debt of such creditors and that accordingly it is not open to the defendant to plead otherwise. (3) Accordingly the plaintiff opposes the proposed amendment to the defence insofar as it raises pleas purporting to put in issue the existence and quantum (or either of those things) of the alleged

liabilities set out in schedule B, on the ground that any such amendment would, for the reason stated in

(2), be bad in law. (4) Counsel for all parties agree that His Honour's ruling upon the contention of the plaintiffs noted in (2) is to be regarded as finally concluding that question of law as though it was an issue separately raised for the court's consideration at this stage." 27. It is necessary therefore for me to address the question whether or not the contention advanced by the plaintiff which finds expression in paragraph (2) of the matters agreed by counsel, is correct. 28. During the course of the argument as to this aspect of the matter, I was taken to the various provisions in the Companies Code ("the Code") and the Companies Regulations touching on the procedures governing the winding up of a company, and in particular the receipt of proofs of debts. 29. Those provisions are principally to be found in Part XII Division IV Subdivision C of the Code, which encompasses ss.437 to 450, and Part XI of the Regulations and in particular Regulations 109 to 129. 30. It is unnecessary for present purposes for me to attempt to make any extended summary of those provisions. It is sufficient to observe that they create a statutory procedure to ensure the orderly getting in of the assets of a company in liquidation, and for the rateable distribution of those assets amongst its creditors. 31. It is a central feature of those provisions that generally speaking, upon the liquidation of a company a creditor is denied a right which he might otherwise have to sue for his debt and in substitution for that right he is given a right to participate in the distribution of the company's assets; Motor Terms Co. Pty. Ltd. v. Liberty Insurance Ltd. (In Liquidation) [1967] HCA 9; (1967) 116 CLR 177 at p 180. 32. The ordinary method by which a liquidator informs himself of the existence of a particular debt is by calling upon creditors by public announcement to come forward and "... formally to prove their debts or claims" (Regulation 120). Following such a notice, a creditor who wishes formally to prove his debt is obliged to furnish a proof of debt or claim in accordance with Regulations 121 and 122. 33. Pursuant to Regulation 119, a liquidator "may decide to admit a debt or claim without formal proof where he is satisfied that the debt or claim is valid". 34. If a formal proof of debt is rejected, the creditor must be notified (Regulation 126) following which the creditor has a right of appeal to the Court against the rejection. 35. It appears that a creditor who wishes to complain about the liquidator's admission to proof of another creditor's debt may either apply to the Court for relief under s.377(5) of the Code, pursuant to which a broad discretion is given to the Court to control "the exercise or proposed exercise" by the liquidator of any of the powers conferred by s.377 (which arguably include the power to admit proofs of debt), or if the creditor is "a person aggrieved" within the meaning of s.538 of the Code, he may appeal to the Court against any "act, omission or decision" of, inter alia, the liquidator, which again, arguably includes the admission of another creditor to proof. 36. Against the background of the statutory scheme surrounding the liquidation of the company, the plaintiff's argument was that the debts due to the various creditors of the plaintiff company should be regarded as in the relevant sense merged in the liquidation; that the debts in the relevant sense did not exist outside of the liquidation; and that the relevant provisions of the Companies Code and Regulations should properly be regarded as a Code within which any contention as to the propriety of the admission to proof by the liquidator of any particular creditor's debt or claim must be confined. 37. It is the plaintiff's case that in order to establish the liabilities of the plaintiff now that it is a company in liquidation, all that one does is to have regard to the amount at which the liquidator has admitted the claims of the various creditors. 38. The plaintiff's contention is that in attempting to challenge the plaintiff's plea as to the existence of and quantum of any alleged liability of the plaintiff, the defendant is confined to its rights under the Companies Code and in particular the right either to apply to the Court under s.377(5) for an order reviewing the exercise by the liquidator of his power to admit a proof of debt, or the defendant's right as "person aggrieved" to appeal to the Court pursuant to s.538. 39. Absent of any application by the defendant to invoke the jurisdiction of the Court pursuant to either of those sections, for the purposes of the present proceedings both the existence and quantum of any particular liability is, so the plaintiff contends, conclusively established by the action of the liquidator in admitting a particular creditor to proof. 40. Fortunately for the plaintiff's argument, the defendant has in fact proved in the liquidation of the plaintiff company for a relatively small debt of $12,500. The defendant, accordingly, has the status of a "creditor" within the meaning of s.377(5). 41. Be that as it may, the plaintiff's submissions in my opinion represent a misconception of the legal effect of the relevant provisions dealing with the liquidation of a company. 42. It is true as the plaintiff contends, that when exercising his power to reject or accept a proof of debt, the liquidator is exercising a quasi-judicial function. This is so in the sense that he has a duty to act impartially (see McPherson The Law of Company Liquidation, 3rd ed., p 217). 43. Furthermore, it is true that his acceptance or rejection of a proof of debt may only be challenged by the various processes to which I have referred. 44. It is true also that subject to any successful challenge being mounted, his decision as to the acceptance or rejection of a proof of debt is conclusive for the purposes of the liquidation, subject to the liquidator's power to revoke or amend his admission or rejection of a proof, pursuant to regulation 127. It is likewise true, as the plaintiff put it, that the "road to relief for an aggrieved creditor be he secured or unsecured or a contributory who wishes to challenge a decision of a liquidator" is via the two sections of the Code to which I have referred; see Leon v. York-O-Matic (1966) 1 WLR 1450, Re Teller Home Furnishes Pty. Ltd. and Ors. [1967] VicRp 35; (1967) VR 313, Re Mineral Securities Aust. Ltd. (1973) 2 NSWLR 207, and Re Wyvern Developments (1974) 1 WLR 1097. 45. But in seeking to raise the pleas by which it wishes to put in issue either the existence or quantum of particular liabilities said to be liabilities of the plaintiff company which have arisen by reason of the defendant's negligence or breach of contract, the defendant is not seeking to impugn any decision which may have been made in the course of the liquidation by the liquidator as to the admission of the claims of particular creditors to proof. 46. The defendant's concern rather is that facing a claim at Common Law which is in part quantified by reference to various alleged liabilities of the plaintiff company, he seeks to challenge either the existence or quantum of particular liabilities asserted against him, and in doing so to put the plaintiff to proof of the various debts under challenge. 47. While it is true that the defendant is a creditor in the liquidation of the plaintiff company, his concern in challenging various alleged liabilities of the company in these proceedings in no way relates to a desire to vary the distribution of assets amongst the creditors in the liquidation. If the defendant wished to do that, no doubt it could take appropriate action within the liquidation. 48. On the contrary, the defendant's concern is to ensure that it does not pay out any more by way of damages to the plaintiff at Common Law than it is legally obliged to. 49. If in the course of adjudication upon the issues raised in these proceedings, the Court came to a conclusion that particular liabilities asserted by the plaintiff either did not exist or if they did, should be quantified at an amount less than that asserted by the plaintiff, it will be for the liquidator to consider what steps to take with respect to his admission of any particular creditor to proof at an amount at variance with the Court's decision in the case. 50. The defendant's further contention is that this Court must approach the resolution of the issue as to the alleged liabilities of the plaintiff by applying ordinary Common Law principles in assessing whether or not a debt exists, the amount of it and the other claims made with respect to it by the defendant. 51. In my opinion, the defendant's contentions are correct. 52. Recognition of the correctness of the plaintiff's contention that the only challenge possible by a creditor against the liquidator's acceptance of a proof of debt is pursuant to the relevant provisions of the Code, throws no light on the soundness of or otherwise of the defendant's contentions. The defendant is not in these proceedings challenging the acceptance by the liquidator by the plaintiff company of any proofs of debt. 53. The manner of discharge by the liquidator of his responsibilities with respect to admission or rejection of proofs of debt is, for the purposes of these proceedings, res inter alios acta. 54. Observations such as that made by Kitto J. in Motor Terms Co. Pty. Ltd. v. Liberty Insurance Ltd. (in liquidation) (supra) that "a creditor's right to recover his debt by ordinary legal proceedings is taken from him at sequestration ..." (116 CLR p 180) must be regarded correctly to identify the exchange of a right of action at the suit of a creditor against the debtor for a right to prove in the debtor's liquidation. But that exchange of rights does not speak to the question whether or not the debt continues to exist at Common Law. 55. It seems to me that the fact that the Court may, pursuant to s.137(1) of the Code, give leave to a creditor to proceed by way of ordinary action in the Courts against a company in liquidation, points very strongly to the fact that the existence of a debt at Common Law survives an order for liquidation. Indeed, in Pacific Produce Company Limited v. Franklin Cooperative Growers Limited (in liquidation) (1969) NZLR 65, the Court of Appeal of New Zealand went so far as to hold that, in the case of a disputed claim rejected by a liquidator, the existence of the debt is not to be tested by proceedings for review of the liquidator's decision pursuant to procedures laid down in the Companies Act (N.Z.), but should be determined by action in an ordinary court of law brought by leave. 56. Mr Lander submitted that to yield to the plaintiff's argument would result in a situation where the liquidator of the plaintiff could, by his own decision, determine the quantification of this part of the damages, and that this would place him in a position of conflict of interest. 57. There is much to be said for that contention, and it is not answered by reference to the fact that the liquidator is obliged to act judicially. On the contrary, it is highly desirable that, given that he is obliged to act judicially, the appearance of impartiality is not affected by the creation of a situation in which he is faced with an apparent conflict of interest. However, I do not determine this aspect of the matter by reference to that consideration. 58. Neither is it necessary for me to determine the highly contentious question whether the defendant would have standing to challenge the liquidator's admissions to proof of the creditors whose debts are in issue in these proceedings, either under s.377(5) or s.538 of the Code. It is sufficient to observe that it is not to be thought that I accept the plaintiff's contentions as to the defendant's standing under either section. 59. In my view, the question of law reserved for my consideration is answered by the considerations which lead me to the view that the liquidator's acceptance of a proof of debt does not have any effect either upon the continued existence at Common Law of the debt or liability the subject of the proof, or upon the defendant's right to challenge the existence of or quantum of any alleged liability of the plaintiff in these proceedings. Mitigation of damages 60. Certain of the amendments proposed by the defendant are pleas which in one way or another, amount to an assertion that the plaintiff has failed to take all reasonable steps to mitigate its loss, and that its damages should be reduced accordingly. 61. The plaintiff contended that however this aspect of the matter was approached, the pleas were untenable and should not be allowed. To understand the arguments it is necessary to have regard to some of the statements of principle relating to the plaintiff's duty to mitigate his loss. 62. It is convenient to start with the oft quoted dictum of Viscount Haldane LC in British Westinghouse Electric and Manufacturing Co. Ld. v. Underground Electric Railways Co. of London Ltd. (1912) AC 673 at p 689 where his Lordship defines the principle as one imposing on a plaintiff "the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and debars him from claiming any part of the damage which is due to his neglect to take such steps". Although that statement of principle is expressed in terms apt for the law of contract, it applies equally in tort. 63. The question whether a plaintiff has failed to act reasonably is a question of fact, not of law - see Halsbury, 4th ed. vol. 12, p 478 para.1194: " The plaintiff is only required to act reasonably and whether he has done so is a question of fact in the circumstances of each particular case, and not a question of law" citing Payzu Ltd. v. Saunders (1919) 2 KB 581. 64. It is sometimes said that in cases of breach of contract "the plaintiff is under no obligation to do anything other than in the ordinary course of business ..." See Halsbury op cit, para.1194 and the cases there cited. 65. That formulation hardly seems apt to apply to situations such as the present where the question is whether the plaintiff should have taken action against third parties. Few people conduct a business of suing third parties. 66. The learned author of McGregor on Damages, 14th ed., p 169, para.233, prefers the formulation - " ordinary course or of the ordinary course of events". 67. When one comes to apply the principles to situations where it is asserted that the plaintiff should have taken action against third parties, there seems to have grown up two quite separate lines of authority. 68. One line of authority starts with the premise that "a plaintiff need not risk his money too far" (McGregor op cit, para.234(1)). In that line of authority, the Courts have held consistently that the plaintiff is under no duty to embark upon complicated, difficult or expensive litigation; see for example Halsbury op cit, para.1194: " ... He need not seek to lessen his loss by embarking on complicated and difficult litigation against a third party, even if he was given an indemnity as to costs by the defendant" (citing Pilkington v. Wood (1953) Ch 770). 69. In the context of an action against a third party, it has been observed: " ... The lender's conduct in not taking steps to reduce the loss will not be weighed in nice scales at the instance of the party who has occasioned the loss"; see Stephenson L.J., London and South of England Building Society v. Stone (1983) 3 All ER 105 at p 121. See also Segenhoe Ltd. v. Akins and Ors (1990) 8 ACLC 263, which I refer to at greater length later in these reasons where Giles J. observed (p 272): "In fulfilling its obligation to mitigate its loss Segenhoe is only required to act reasonably and the standard of reasonableness is not high in view of the fact that DHS is the wrongdoer ... In particular Segenhoe was not obliged to take the risk of bringing uncertain litigation against the shareholders ..." 70. The other line of authority applies to situations in which the Court has turned its face against recognising any obligation whatever for the plaintiff to bring proceedings against a third party. For example, a tort feaser cannot insist that another tort feaser be sued first or at all. See the Liverpool (No. 2) (1963) P64 per Lord Merriman at p 76: " Let me say at once that this is not a question of one tort feaser making the hopeless attempt to insist that another tort feaser shall be sued first, or at all, as a condition of determining his own liability; or indeed of the tort feaser dictating to the board whom else they shall sue or in what order." 71. Likewise if there are successive conversions of the same goods, the owner may sue all or any of those responsible, and judgment against one will be no bar to an action against any other. However, there can only be one satisfaction for the one loss and damages recovered against one must be brought into account in any recovery against the others; see Morris v. Perrott and Bolton (1945) 1 All ER 567. 72. I have experienced some difficulty in distinguishing between the situations as to which one or other of the lines of authority to which I have referred may be taken to apply. Counsel on both sides attempted to offer guidance as to how the line should be drawn, but I do not pause to analyse that aspect of the matter further. I refrain from doing so because I must keep steadfastly in mind that at this stage of the proceedings I am doing no more than ruling upon the application to amend the defence. Clearly, I should refrain from coming to a final decision as to any question of law unless it is necessary in order to fulfil the exercise in hand. 73. The two main areas of the proposed amended defence in which the question of mitigation of damages arises, are with respect to the allegation that the plaintiff has failed to mitigate its loss by failing up to now to seek orders under s.129 and s.130 of the Code to set aside the issue of shares to Duke Holdings Ltd. (see proposed paragraphs 37-40 and 42.3), and the allegation (see proposed paragraphs 62.2 and 62.4) that with respect to the guarantee given by the plaintiff to National Australia Bank and the very substantial losses said to have resulted from its execution of the guarantee, the plaintiff has failed to mitigate its loss by taking action to avoid it. 74. As to the first matter, namely the s.129 and s.130 arguments, even dealing with them on the basis that they raise a purely factual question, namely whether it was reasonable for the plaintiff to have refrained from bringing action under s.130, it will be seen when I come to deal in detail with the proposed amendments to the defence relevant to that aspect of the matter that I have come to the view that the plaintiff has satisfied the onus of demonstrating that the plea is untenable on any possible view of the facts. 75. As to the second matter, namely the alleged failure to avoid the National Australia Bank guarantee, I am not prepared at this stage of the action to deal with it on the basis that as a matter of law there was no duty on the plaintiff to take such action. If the matter was to be dealt with simply as a question of the reasonableness of the plaintiff's conduct in refraining to take the suggested action before now, it raises questions of fact which should await the final determination of the action. 76. In those circumstances, while not putting the plaintiff out of Court on its arguments that the plea comes within the category of which the Liverpool (No.2) (supra) is an example, the proper course is to allow the plea and determine all arguments with respect to it at the conclusion of the trial. Abuse of Process 77. Mr Gray QC put an argument that almost all of the proposed amendments were an expression of a collateral purpose, namely, an attempt to widen the base of the issues struck between the plaintiff and the defendant so that the defendant's case to have a joint trial of those issues and of its claims against a number of recently joined Third Parties would be strengthened. To pursue such a collateral purpose would, so he contended, be an abuse of process and the application to amend should be dismissed as such. 78. It is true that there is a substantial measure of commonality between many of the pleas sought to be raised in the proposed amendments, and the pleas advanced against the Third Parties. However, it would be darting at shadows to infer from that circumstance the improper motivation which the plaintiff suggests. 79. I am unable to read anything more into the application to amend the defence, and for that matter, the joinder of Third Parties, than an understandable desire on the part of the defendant to raise and pursue every possible defence to the claim and, in the event that it should be held liable, to spread its liability as far as possible. 80. The plaintiff's abuse of process argument is rejected. 81. I will now deal with the proposed amendments. 82. I preface that exercise by the observation that I have not dealt expressly with every argument put forward by Mr Gray QC To do so would be unnecessarily to prolong an already over long judgment on interlocutory matters. 83. For example, Mr Gray argued that a number of proposed amendments were bad through a failure to plead material facts. Where I have allowed pleadings in spite of that and other arguments, it may be assumed that I have addressed but rejected the plaintiff's contentions. Proposed para. 10.6 (implied terms) para.34, proposed para.34A (Contributory negligence) 84. In proposed paragraph 10.6, the defendant pleads that the agreement pursuant to which it was retained by the plaintiff for the purposes of preparation of the report in question contains certain implied terms. The terms which the defendant asserts should be implied, include a term that the plaintiff would inform the defendant during the course of the preparation of its report of any information of which the plaintiff became aware which "materially affected the accuracy or reliability of the views expressed" in the report, and further that the plaintiff would inform the defendant of any changes to the detail of the proposed transaction which occurred after the preparation of the report. 85. The defendant seeks to plead a number of particulars of "facts, matters and circumstances" which it asserts gives rise to the implied terms. These include the matters alleged in paragraph 22 of the defence which in large measure relate to facts and matters which occurred after the defendant was engaged to prepare the report, and indeed, in most instances after the report was prepared. 86. The allegations in the proposed paragraph 10.6 provide a basis for further allegations to be found in paragraph 34. Except for a consequential deletion of a few words in paragraph 34, that paragraph is not the subject of any application to amend. 87. Paragraph 34 asserts that by reason of breaches of either express or implied terms of the agreement, the implied terms being those asserted in paragraph 10.6 and of certain warranties asserted elsewhere in the defence, the plaintiff caused or alternatively contributed to the loss the subject of the action. 88. In paragraph 34 the defendant furnishes particulars of alleged breaches of express or implied terms of the agreement and of the alleged contributory negligence, under one heading. 89. The proposed paragraph 34A relates to an alleged failure by the plaintiff to avail itself of a provision in the heads of agreement pursuant to which the reverse takeover was effected and by virtue of which, if an assessment of the "recoverability of the Receivables/Commercial loans portfolio as at the completion date required a provision for doubtful debts in excess of 2% of that portfolio", the agreement was of no force in effect. 90. The defendant asserts in the proposed amended paragraph 34A that the plaintiff failed to carry out an assessment of the recoverability of receivables as at the completion date and that if it had done so, it would have been obvious that the agreement was at least voidable in the sense that the plaintiff could have called off the transaction, having regard to the fact that, so the defendant asserts, the "doubtful debts" exceeded 2% of the "Receivables/Commercial loans portfolio" as at the completion date. 91. The various pleas in proposed paragraph 34A are brought together in paragraph 34A.7, which makes it clear that the assertion by the defendant is that the plaintiff's alleged failure to carry out an assessment of the recoverability of the receivables as at the completion date constituted contributory negligence on its part. 92. Mr Gray argued that on no view of the facts pleaded could the defendants succeed in its contention that terms should be implied as asserted in paragraph 10.6. Although paragraph 34 was not the subject of any relevant amendment, Mr Gray also attacked paragraph 34 on various grounds. It is unnecessary for me to detail those grounds as in my opinion his attack on paragraph 34 is misconceived insofar as he attempted to justify it by reference to the case of Morgan Crucible (supra). 93. Mr Gray attacked the proposed paragraph 34A on the basis inter alia that it was "confusing and embarrassing". In my opinion, that attack fails. Looking at paragraph 34A in the context of the defence as a whole, it is a clear enough pleading. 94. Mr Gray further contended that insofar as the proposed plea in paragraph 34A.7 is one of contributory negligence "no such plea is available in defence of a breach of contract". 95. In my opinion, the state of the authorities is such that where the duty said to have been breached is coextensive in both tort and contract, the allegation of contributory negligence may arguably lie as to both causes of action; see Walker and Ors. v. Hungerfords and Ors. (1987) 44 SASR 532 per Bollen J. at p 553 and see Bains Harding Construction and Roofing (Aust) P/L v. McCredie Richmond and Partners P/L (1988) 13 NSWLR 437. 96. It was further argued by the plaintiff that the plea in paragraph 34A was in certain respects inconsistent with the assertions pleaded elsewhere in the defence. 97. The defendant is entitled to plead matters in the alternative which are inconsistent with each other. However, it would be better if the defendant expressly said in its proposed defence that the relevant allegations were made by way of alternative. 98. As to proposed paragraph 34A.7, Mr Gray QC challenged the use of the word "caused" when it appears in the course of the expression, "The loss ... was caused or alternatively contributed to by the plaintiff's ... failure to exercise reasonable care in and about the conduct of its affairs". The word "caused" used in that expression is invariably used in allegations or pleas of contributory negligence and in my opinion there is no reason why it should not be allowed to remain. 99. Returning to proposed paragraph 10.6, the plaintiff contended that insofar as events which occurred subsequent to the entry into the agreement by which the defendant was retained were relied upon by the defendant as providing a basis for the implication of terms, this was a legally untenable plea. 100. It must be conceded that the circumstances in which reference may be made to facts and matters occurring after the formation of a contract in support of the implication of any terms must necessarily be limited, if permissible at all. However, the discussion in Greig, Davis "The Law of Contract" at p 436 leads me to the view that it is proper to allow the amendment to stand. Of course, it remains to be seen whether or not at the end of the day the defendant is able to satisfy the Court that the suggested terms should be implied, and furthermore, I leave open to be argued at the stage of final addresses the question of just what material may be relied upon by the defendant in support of its argument that the suggested terms should be implied. 101. In the result, proposed amended paragraph 10.6 will be allowed. The plaintiff's attack on paragraph 34 fails and the proposed amended paragraph 34A is allowed with the qualification that words be added to make it plain that it is a plea of contributory negligence and that alone, and that where assertions of fact are made in the alternative, this is made express. Paragraph 30A 102. In this paragraph the defendant seeks to plead that the plaintiff is "by its conduct estopped and precluded from denying that the defendant's report was prepared in accordance with the agreement between the plaintiff and the defendant". 103. That plea is supported by a number of particulars of various alleged acts and omissions on the part of the plaintiff which are said to give rise to the estoppel. 104. I accept the assurance of Mr Lander QC, of counsel for the defendant, that this plea was in what might be described as earlier "editions" of the defence (and in particular, the defence filed on 19th April 1990, Document 20, where it appears as paragraph 35) but was inadvertently not engrossed in the Second More Explicit Defence filed on 7th September 1990. 105. In those circumstances, I reject the submission of Mr Gray that it is "too late to reintroduce it". The defendant clearly did not, as Mr Gray suggested, "elect" to omit the paragraph. 106. It is strictly unnecessary to deal with Mr Gray's submission that the plea contained in paragraph 30A is untenable, but if it was necessary to deal with that argument, I would hold against him. Of course, I do not mean to suggest that the alleged estoppel is likely to be made out. At this stage, I deal only with the question whether the defendant should be entitled to raise it. Proposed paras. 37-40; 42.3 (s.129 claim) 107. Various matters are alleged in paras. 37, 38 and 39 which are intended to lay the ground work for the plea in paragraph 40 that by engaging in the transaction in question in the action, and in particular having regard to the circumstances of the issue of approximately 60mil. shares to Duke Holdings Ltd., the plaintiff committed a contravention of s.129 of the Code in that within the meaning of the provisions of that section, it gave financial assistance for the acquisition of the shares. 108. The facts and matters said to give rise to the breach of s.129 are complex and it would serve no useful purpose for me to set them out in these reasons. It is sufficient to observe that the thrust of the plea is the assertion that the assets being acquired by Kia Ora were valueless and that the issue of the shares was therefore for an inadequate consideration. 109. In proposed paragraph 40 the defendant pleads as follows: "40. In the premises alleged in paragraphs 37, 38 and 39 above: 40.1 the giving effect to of (sic) the transactions identified in the Memorandum of Transactions constituted the making of a contract or, alternatively the engaging in of a transaction, in contravention of Section 129 of the Companies Code (SA) 1981 40.2 If, as alleged in paragraphs 42.2 and 42.3 of the Statement of Claim Kia Ora has suffered loss, (which is not admitted) then it has suffered that loss by reason of the making or performance of the contract or the engaging in of the transaction. 40.3 By reason of Section 130(4) of the Companies Code (SA) 1981 Kia Ora is entitled to seek orders against any party to the contract or against any person who aided, abetted, counselled or procured or who was by any act or omission in any way directly or indirectly knowingly concerned in or a party to the contravention and in particular was at all times

after 16 June 1988 and still is, entitled to orders against DHL for the cancellation of the shares

issued to DHL. PARTICULARS" 110. There then follows several pages of particulars setting out various circumstances surrounding the transaction and the alleged awareness of Duke Holdings Ltd. and its directors of various features of the transaction intended to demonstrate that the company and its directors were aware at the relevant time of the alleged breach of s.129. 111. In proposed paragraph 40.4, the defendant pleads that by reason of the existence of the alleged entitlement on the part of Kia Ora to orders under s.130(4) of the Companies Code consequential upon the alleged breach of s.129, the plaintiff "suffered no loss by reason of the issue of the 59,444,444 shares to DHL on or about 16 June 1988". 112. In proposed paragraph 40.5 the defendant seeks to allege in the alternative that the plaintiff has failed to mitigate its loss by failing to seek orders against Duke Holdings Ltd. for the cancellation of the shares issued to it. 113. In proposed paragraph 42.3, the defendant seeks to plead as follows: "The defendant ... 42.3 says that by reason of the matters referred to in paragraphs 37, 38 39 and 40 above

Kia Ora is, and was at all times after 16 June 1988, entitled to seek and ought to seek orders against DHL pursuant to Section 130(3) and (4) of the Companies (SA) Code 1981 setting aside the allotment to DHL and cancelling the shares issued and that accordingly Kia Ora did not suffer any loss by reason of the issue and allotment of the shares." 114. The first question to be addressed is as to the nature of the pleas advanced in 40.4, 40.5 and 42.3. 115. The terms of paragraph 40.5 clearly amount to a plea of mitigation of loss. But in the other two paragraphs, that is to say, 40.4 and 42.3, the defendant attempts to assert that by reason of the existence of the cause of action under s.130 of the Code to which it asserts that the plaintiff is entitled, it has "suffered no loss" by reason of the issue of the shares in question. 116. In my opinion, that plea is a disguised plea of failure to mitigate and should be regarded in the same way as a direct plea that the plaintiff has failed to mitigate its loss. 117. A somewhat similar situation was considered by Giles J. in the Supreme Court of New South Wales in Segenhoe Ltd. v. Akins and Ors (1990) 8 ACLC 263. 118. In that case, the plaintiff company sued the defendant auditors in negligence for a loss said to have been suffered when it paid out shareholders money which it would not otherwise have paid, by reason of an alleged failure by the defendants to detect an under provision for taxation in the accounts of the company. 119. In the course of his reasons for judgment, Giles J. observed (p 272): "The first submission for DHS was that the question of any right of recovery from the shareholders should not be seen as a question of mitigation of loss. It said that while Segenhoe's cash resources had diminished by $494,111, in

the place of that amount was a right of action against the shareholders to recover that sum, so that there was no diminution in the net assets of Segenhoe and accordingly it has suffered no loss. In support of this submission DHS pointed to the 1986 accounts of Segenhoe, saying that the amount for receivables therein included the right of action against the shareholders. That is not immediately obvious, and any right of action included may just as well have been the right of action against DHS. But even if it were so it would remain necessary to assess the value of the right of action to Segenhoe and, more important, to consider whether or not Segenhoe was required to endeavour to recover the dividend from the shareholders. A figure in a balance sheet is not the same as money in the bank. In my view the question is one of mitigation of loss." 120. Having regard to the course of the argument before me, I assume that there is nothing in the accounts of the plaintiff to suggest that it puts a value on any alleged cause of action under s.130. In any event, it is difficult to see, as Mr Gray contends, that any such course of action could have any value to the plaintiff, and in those circumstances, it could hardly be held against it that it has failed to bring such an action. In those circumstances, the reasoning adopted by Giles J. applies a fortiori. 121. However, the matter must, I suppose, be tested by accepting the defendant's assertion that the plaintiff would have something to gain by cancellation of the shares. Be that as it may, for the reasons which I have given, a similar process of reasoning to that adopted by Giles J. nonetheless applies to the allegations in proposed paragraphs 40.4 and 42.3. 122. It follows that the proposed amendments which I deal with under this heading should be regarded as raising a plea that the plaintiff has failed to mitigate its loss, and no more than that. 123. The plaintiff contended that the proposed pleas in 40.4 and 42.3 should be disallowed as a matter of law. In his written submissions Mr Gray QC contended that the proposed pleas "... amounted at best to a claim that the plaintiff should

have taken steps to remedy its loss from a party which in addition to the defendant is liable to the plaintiff. A

concurrent liability of this kind is no defence; a fortiori where the liability is determined by the exercise of a judicial discretion." 124. Mr Gray referred to passages in the judgments in the cases of Liverpool (No.2) (supra), London and South of England Building Society v. Stone (supra), and Meddick and Anor. v. Cutten and Harvey (1984) 36 SASR 542. 125. I have already made some general observations as to the difference between causes of action which a plaintiff may be obliged to pursue having regard to his obligation to mitigate his loss and causes of action which as a matter of law it is not open to the defendant to suggest that the plaintiff owed a duty to pursue. 126. In my opinion, the allegation that the plaintiff has failed to mitigate its loss by seeking orders under s.130 of the Code setting aside the issue of shares to Duke Holdings Ltd. is not within the second category. 127. However in the unusual circumstances of this case, it does not follow that the plea should be permitted. 128. In opposing the amendment it is open to the plaintiff to contend that on no view of the facts could the plea be sustained. 129. It is true that as I have already concluded above, a plea that the plaintiff has failed to mitigate its loss is a question of fact to be determined in all the circumstances of the case. In most instances it would be entirely inappropriate for the Court to take upon itself to rule, in response to a challenge to pleadings and before the evidence is completed, in favour of a submission that such a plea could not be sustained. 130. However even at this stage of the case, certain matters may be concluded with certainty. 131. There is no doubt that action pursuant to s.130 of the Code to seek an order for the cancellation of shares would be complex and expensive. 132. One only has to perceive the nature and extent of the various factual allegations offered by the defendant in support of this part of its defence to recognise that the plea would involve the examination of a number of issues of complexity. Furthermore, if one imagined the plaintiff bringing proceedings against Duke Holding Ltd. for orders under s.130, there would be a clear discretion in the Court as to whether or not relief should be granted at all and also as to the precise nature of the relief, if any, which might be granted having regard to the terms of s.130(4) and s.130(5) of the Code. Although at this stage the attitude of the liquidator of Duke Holdings Ltd. to an application to set aside the allotment of shares to that company is unknown, the exercise of the discretion in the Court to grant such relief would not turn on the attitude of the parties. 133. The conclusion I draw from those observations is that it is apparent from the very terms of the plea asserting a breach of the plaintiff's duty to mitigate its damages by bringing an action for cancellation of the share issue under s.130 of the Code, that it would have been apparent to the plaintiff and anyone advising the plaintiff, that any such litigation would be not only complex and expensive, but would be uncertain as to its outcome. 134. In those circumstances, in my opinion I can take the further step of concluding at this stage for the purposes of the application to amend the defence that on no view of the facts (taking the relevant facts to be those asserted by the defendant) could the defendant succeed on this ground of defence. 135. I do so in full awareness, as I have already observed, that the question whether the Court should find that the plaintiff owed a duty to pursue a particular cause of action should normally be determined at the end of the case in the light of the circumstances then disclosed in the evidence. I recognise therefore that it is a bold step for the trial Judge to take at an early stage of the proceedings a view such as that to which I have come. 136. The defendant must be allowed to plead and to pursue every line of defence which it wishes to raise unless the plaintiff can demonstrate that the particular ground of defence is untenable. But I owe a duty to avoid the proliferation of collateral issues if this trial is to be kept within bounds. 137. In this instance, the plea is untenable having regard to the very terms in which it has been pleaded. 138. A fortiori, if the plaintiff is correct in its contention that the plea is an example of the class of case which includes the Liverpool (No.2) (supra). 139. In my opinion, the proposed amendments contained in paragraphs 37-40 and 42.3 should not be allowed. 140. His Honour then proceeded to give rulings as to a number of other proposed amendments. Proposed paragraph 41 (Denials of insolvency and of alleged loss) 141. In this proposed paragraph the defendant wishes to plead that contrary to the allegations in the Statement of Claim, Kia Ora was not rendered insolvent, and that upon completion of the reverse takeover Kia Ora was solvent and further, wishes to deny that Kia Ora has suffered loss and damage. The defendant proceeds to traverse the various allegations to be found in paragraphs 42 and 43 of the Statement of Claim, but without asserting some other version of fact. 142. The plaintiff complains that to allow an amendment in that form would be to allow a pleading which was in breach of Rule 46.13 of the Supreme Court Rules which provides: "Where a party intends to prove a different version of facts than that relied upon by the opposing party, he shall plead his version of the facts." 143. In my opinion, that rule does not prevent a bare denial, as a party is entitled to deny a fact alleged without asserting a different version of fact. The fact that he denies the version of fact asserted by his opponent, does not mean that he necessarily wishes to undertake the onus of proving another version of fact. This proposed amendment will be allowed. Proposed paragraph 42 (other than 42.3) and paragraph 43 (Further denials and assertions as to facts relevant to quantum of damages) 144. In my opinion, the proposed amendments 42.1 and 42.2 are unexceptional and should be allowed. 145. As to 42.4, in my opinion, this plea is a disguised plea that the plaintiff has failed to mitigate its loss by taking action against Duke Overseas Ltd. for breach of warranty. I would not allow the plea as it stands, but I will give to the defendant the opportunity of rephrasing it to plead in express terms a failure to mitigate. If the defendant does not take up that opportunity, I will not allow the proposed amendment. 146. I reject the plaintiff's attack on proposed paragraph 42.5. 147. Furthermore, I reject the plaintiff's contentions against the allowance of proposed paragraphs 42.6 to 42.9 (inclusive), with the qualification that if the defendant wishes to persist with its plea in 42.8 that by reason of the matters there asserted Duke Overseas Ltd. "is now barred from claiming against the plaintiff", the defendant should indicate the ground upon which it is asserted that Duke Overseas Ltd. is so barred. 148. As to paragraph 43, this is consequential to paragraph 42 and should be allowed. Paragraph 44 (except 44.8) (Further allegations as to quantum of damages) 149. In my opinion, the plaintiff has not made out its objection to the allowance of these amendments. 150. Part of the argument put forward by the plaintiff was that some of the allegations in this paragraph constituted mere denials "without an alternative version of fact as required by Rule 46.13" a point upon which I have already ruled against the plaintiff with respect to paragraph 41. 151. Similar considerations apply to this paragraph. I do not pause to summarise the other contentions of the plaintiff, but they are rejected and this amendment will be allowed. Paragraphs 44.8; 45; 46-73 (inclusive) (Denial of indebtedness in Schedule B) 152. The common thread which links the relevant allegations in these proposed paragraphs of the defence is that they all in one way or other seek to deny that the plaintiff is indebted to the parties referred to in Schedule B to the Statement of Claim. 153. The principal basis upon which the plaintiff opposes the allowance of these proposed paragraphs is that they or most of them involve an attempt to circumvent the admission by the liquidator of proofs of debt with respect to the various creditors. 154. I have already given a ruling in general terms rejecting the argument of the plaintiff that the allowance by the liquidator of the claims of various creditors advanced in the proofs of debt in question establishes conclusively for relevant purposes the existence and quantum of the debts in question. 155. The most convenient course is to set out seriatim all of the various pleas and to indicate the ruling which I make upon the plaintiff's objection. I will not trouble to detail the grounds for the ruling in those cases where it is an expression of the reasons which I have given for rejecting the plaintiff's arguments as to the ability of the defendant to circumvent the receipt by the liquidator of the plaintiff of the various proofs of debt. I will give reasons only where it seems reasonably necessary to deal with any other argument of substance advanced by the plaintiff. Proposed paragraph 44.8 (Denial of Indebtedness) 156. This plea is allowed. Proposed paragraph 45 (Pre-cursor to 46-73) 157. This amendment is allowed. Proposed paragraph 46 (AEFC debt of $5,276,169.86) 158. I allow this amendment. As to paragraph 46.5 which reads: "Further it is expected that DPFL will pay not less than 50% of the debt", in my opinion this plea may properly be distinguished from the situation which was considered by the Court in Meddick and Anor. v. Cutten and Harvey (supra). 159. In that case, the Court was asked to bring into account in favour of the defendant an amount which the plaintiff might reasonably have been expected to receive from the liquidation of a company which was a joint tort feasor with the defendant and who by reason of the defendant's negligence, for which it was vicariously responsible, the same loss had been incurred as was the subject of the plaintiff's claim against the defendant. 160. In the proposed pleading 46.5, however, what is sought to be alleged is that a debt alleged to be due by the plaintiff to AEFC is not due, at least in the amount asserted by the plaintiff in the Statement of Claim, owing to the likely receipt of certain monies by AEFC. 161. Of course, I cannot finally rule on the question whether that plea will ultimately be made out, and I reserve to the parties the opportunity to argue whatever questions of law are involved in the plea. But it is inappropriate in my opinion to yield to an argument that the plea is untenable and should not be permitted by way of defence. Proposed paragraph 47 (ANZ Travel - $41,798.89) 162. As to this I will allow proposed subparagraph 47.1 but not 47.2. As to the latter proposed paragraph, there is insufficient particularity for the plea to be allowed. Proposed paragraph 48 (Australian Stock Exchange (Adel) Ltd - $32,642.97) 163. I allow this plea. Proposed paragraph 49 (Barker Gosling - $79,747.47) 164. This plea is so devoid of particularity that it cannot be allowed. It is no avail to the defendant to suggest that particularity as to the claim against Barker Gosling appears in the third party proceedings against it. It must plead with proper particularity in its defence against the plaintiff, for the defence to be allowed. Proposed paragraph 50 (Debts alleged due to former directors) 165. This proposed plea will be disallowed on the same basis as I have indicated with respect to paragraph 49. Proposed paragraph 51 (Debts due to various creditors, Mr M. Dowling and Ors) 166. I allow this proposed amendment. Proposed paragraph 52 (Debts due to Draper $82,263.60) 167. I allow this plea. Proposed paragraph 53 (Duke Holdings (in liquidation) - $1,017,951) 168. I allow this except as to 53.3 which falls in the light of my ruling as to paras. 37, 38, 39 and 40. Proposed paragraph 54 (Duke Properties Pty Ltd. - $374,684.18) 169. I allow this proposed plea. Proposed paragraph 55 (Esanda Finance Corporation Ltd. - $226,257.94) 170. I allow this plea. Proposed paragraph 56 (Foster Hayle and Quill Pty. Ltd. - $1,050) 171. I allow this plea. Proposed paragraph 57 (Freehill Hollingdale and Page - $5,004.75) 172. I allow this plea. Proposed paragraph 58 (Mr Gardiner - $397,017.92) 173. I allow this plea except as to 58.4 and 58.5 which will not be allowed for want of particularity (apart from any other ground). Proposed paragraph 59 (Mr Hyde - $223,863.89) 174. I allow this plea. Proposed paragraph 60 (Jarden Europe Finance Ltd. - $2,068,108.68) 175. I allow this plea. Proposed paragraph 61 (Colonial Mutual Life Assurance Society Ltd. - $261,060.65) 176. I allow this plea. Proposed paragraph 62 (National Australia Bank Ltd. - $22,233,156.42) 177. My ruling that the defendant is entitled to go behind the reception by the liquidator of the plaintiff of a proof of debt by the various creditors, means that it cannot be said that the defendant is out of Court in challenging as it does in this proposed paragraph, the indebtedness of the plaintiff to the bank. 178. However, it is not sufficient in this instance for the defendant simply to say as it does in 62.1 "the plaintiff is not indebted to the bank for $22,233,156.42 or any sum". It is incumbent upon the defendant to specify the grounds of its defence, and in order to comply with that obligation (see Rule 47.01), the defendant should say upon what basis it claims that the plaintiff is not indebted to the bank. 179. Furthermore, to the extent that the defendant asserts that the bank has been paid, it should separately plead what it is able to say as to its knowledge of repayment. 180. In view of the very substantial amount involved in this plea and its importance to the defendant, I will not rule the proposed amendment out of order or disallow it on the grounds which I have mentioned so far, but to the extent that I allow a plea that the plaintiff is not indebted to the bank the defendant will have to specify the particular grounds upon which it asserts that it is not indebted, and to the extent that the defendant asserts if it was ever indebted to the bank, the indebtedness has been reduced by payments to the bank, it should indicate in its pleading what it says has been repaid and when, and give such particularity as it can, or if it is unable to give full particularity, to say so. 181. The balance of this paragraph, namely 62.2 to 62.24 amounts to an assertion by the defendant that the guarantee and indemnity executed by the plaintiff on 7th April 1989 (a considerable time after the reverse takeover had been effected), is or was by reason of various alleged derelictions of duty on the part of the plaintiff's directors of which the defendant wishes to assert the bank had notice, voidable by the plaintiff. 182. In 62.22, the defendant pleads that "in the premises the plaintiff is entitled to avoid the guarantee and is not liable thereunder", and in 62.23 it pleads in the alternative that "if the plaintiff no longer has the right to avoid the guarantee it has failed to mitigate its damages and the defendant is not liable for any liability the plaintiff may have to the bank under or by virtue of the guarantee". 183. In my opinion, the pleading between 62.2 to 62.21 should be allowed, as it seems to me that the defendant is entitled to plead in the context of the alleged debt due to the National Australia Bank Ltd. that the plaintiff has failed to mitigate its loss by taking action to avoid the guarantee. 184. It is true that the allowance of that plea will enable the defendant to adduce evidence and explore what is essentially a collateral issue, namely the circumstances surrounding the execution by the plaintiff of the guarantee in April 1989. But it seems to me that consistently with the view which I take as to the appropriate legal principles, in this instance, the plaintiff has failed to discharge the onus upon it of satisfying me that the plea is untenable. 185. The terms in which the plea is advanced in 62.22 and 62.23 are a matter of concern. 186. As to 62.22, it seems to me that it cannot sensibly be suggested that a mere entitlement to avoid a guarantee creates a situation where the person giving it is no longer liable upon it. If the guarantee is liable to be avoided but has not yet been avoided, it remains valid and binding. On the other hand, if the plaintiff has failed to exercise a right to avoid it even if that right still subsists, in certain circumstances it may properly be contended that it has failed to mitigate its loss. Bearing that in mind, I am puzzled that the plea in 62.23 confines the assertion that the plaintiff has failed to mitigate its damages to an assumption that the plaintiff no longer has the right to avoid the guarantee. 187. As I see it, and bearing in mind the argument put forward by Mr Lander, I think that what the defendant is attempting to put forward and has not expressed in clear language in 62.22 and 62.23 is that the plaintiff has a duty to mitigate its damages; that it either has a right to avoid the guarantee or had a right, since lost, to avoid it, and in either event, its failure to avoid it amounts to a failure to mitigate its damages. 188. In this instance, I will allow the plea to be advanced provided that paragraphs 62.22 and 62.23 are redrafted so as to express the plea in proper form. If I have not understood the defendant's contention correctly, I will allow such further argument on that limited aspect of the matter as may be necessary in order to clarify the pleading which is to be made and I will rule further on whether it is to be allowed after any such argument. 189. The spirit of my approach to this aspect of the matter is that if the defendant has grounds to raise a plea that the plaintiff has failed to mitigate its damages in the relevant respect with regard to the indebtedness alleged to be due to the National Australia Bank, it should be allowed to put its pleading in order as a term of the allowance of the amendment. 190. Proposed paragraph 62.24, raises another matter, namely that on the assumption that the guarantee is valid and binding on the plaintiff (which is denied), the defendant asserts that the plaintiff is not liable as all amounts "due and owing by Duke Pacific to the bank have been or will be paid by persons other than the plaintiff". That plea is wanting in particularity and I will only allow it to be raised if it is accompanied by such particulars as the defendant is able to give of the persons said to have paid or who it is alleged will pay the debt, and such other circumstances as are known by the defendant at this time, or by a statement that the defendant is unable to give further particularity. Proposed paragraph 63 (Peat Marwick Hungerfords - $41,120) 191. The defendant does not in this proposed paragraph attempt to deny the particular debt due to Peat Marwick Hungerfords, but wishes to assert that the plaintiff is entitled to a set off "or an award of damages or compensation for a figure substantially greater than the amount claimed by Peat Marwick Hungerfords". The claim for a set off or damages or compensation is said to arise by reason of negligence and/or breach of contract on the part of Peat Marwick Hungerfords in the giving of advice to the plaintiff. 192. The defendant does not give any particularity as to the alleged negligence or breach of contract of Peat Marwick Hungerfords, but it pleads in 63.3 in the following terms: "The defendant repeats the matters alleged in the defendant's Statement of Claim directed to Peat Marwick Hungerfords." 193. That plea is bad and I am not disposed to allow the proposed paragraph 63. 194. It is not for the plaintiff to have to sieve through a Statement of Claim directed to another party to determine which of the allegations are to be regarded as applying to it. Proposed paragraph 64 (Porter Western Ltd. $1,245.98) 195. I allow this plea. Proposed paragraph 65 (Mr Reid - $77,292) 196. I allow this plea. Proposed paragraph 66 (Rivian Investments Pty Ltd. - $600.90) 197. This will be allowed as to 66.1 but disallowed as to 66.2 and 66.3, the latter two proposed subparagraphs containing an allegation that the plaintiff is entitled to a set off or claim for damages or compensation which is completely unparticularised and bad for that reason. Proposed paragraph 67 (Rush International - $13,136) 198. The proposed paragraph is allowed. Proposed paragraph 68 (Shell Company WA Ltd. - $11,625.09) 199. This amendment will be allowed. Proposed paragraph 69 (Short - $39,642) 200. This amendment will be allowed. Proposed paragraph 70 (Deputy Commissioner of Taxation

• $319,919.88)

201. This amendment will be allowed. Proposed paragraph 71 (Western United Ltd. in liquidation - $1,075,236.10)

This will be allowed as to 71.1. As to 71.2 and 71.3, these proposed amendments are disallowed on the ground that they are under-particularised. Proposed paragraph 72 (Western United Management Services Pty Ltd in liquidation - $61,336) 203. This is allowed as to 72.1 and 72.2 but disallowed to 72.3 which under-particularised. Proposed paragraph 73 (Western United Mining Services Pty Ltd - $17,787.53) 204. This amendment is allowed. Proposed paragraph 74 (Allegation that plaintiff possessed of certain specified assets) 205. This is allowed as to 74.1 but disallowed as to 74.2 to 74.8 (inclusive). 206. The principal ground upon which those paragraphs are disallowed is that they amount to a disguised plea of mitigation of damages, and are in any event under particularised. 207. The allowance of paragraph 74.1 is conditional upon the defendant giving such better particularity as it is able to, particularly with reference to 74.1.3. (unnumbered) set off and counterclaim This proposed plea or prayer for relief is based substantially upon the allegations which are to be found in certain preceding paragraphs for the Statement of Claim, particularly paragraph 35 in which various acts or omissions on the part of the plaintiff or its directors constituted breaches of s.51 and s.52 of the Commonwealth Trade Practices Act. 208. Whether or not a set off with respect to any damages which might otherwise be recoverable if any such breaches of the Trade Practices Act were to be proved could be set off as claimed, is very much a matter which no doubt will be in contention. I have not received at this stage full argument from either side as to the legitimacy of the set off and counterclaim. Insofar as the paragraphs upon which it is based have either been allowed by me by way of amendment or have been in the defence throughout, I propose to allow the prayer for relief under the heading "Set off and counterclaim" to remain by way of amendment. However, the legitimacy of the plea and whether or not the basis for it is made out are matters which are completely open and remain to be addressed at the appropriate time during the course of the hearing.