By notice of motion filed on 14 November 2022, the plaintiffs seek leave to discontinue these proceedings as against the second defendant pursuant to r 12.1(1)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
The plaintiffs' application is made in circumstances where they have reached a settlement with the second defendant on terms that provide for the matter to be discontinued against them without an order for costs, but the first and third defendants have not provided their consent to the discontinuance.
In support of their application, the plaintiffs rely on the affidavits of Ms Rachel Yunchang Zhang affirmed on 14 November 2022 and 13 March 2023, which set out some procedural background and exhibit correspondence between the parties, including in relation to notices to produce issued by the first and third defendants. The first and third defendants rely upon affidavits from their solicitor, Siyu Liu, dated 19 March 2021, 6 November 2022 and 8 December 2022. The parties also rely on written submissions that have been supplemented by oral submissions at the hearing.
These proceedings were commenced by the plaintiffs by statement of claim filed on 29 September 2020.
In broad terms, the plaintiffs' claims, which are now set out in a further amended statement of claim filed on 11 June 2021, involve allegations that the defendants made false, misleading or deceptive representations in relation to an English language school business in contravention of s 18(1) of the Australian Competition and Consumer Act 2010 (Cth) (ACC Act) and Schedule 2, Australian Consumer Law (ACL) which have caused the plaintiffs to suffer loss and damage from their investments in that business.
The pleaded representations comprise: three representations alleged to have been made by the first defendant, with the second defendant alleged to have been knowingly concerned in those contraventions; a further representation alleged to have been made by the first defendant in his own interest and on behalf of the second and third defendants; and a further three representations alleged to have been made by the second defendant in her own interest and on behalf of the first and third defendants.
In addition, the plaintiffs allege that the second defendant owed them a duty of care and was negligent, contending that the second defendant breached their duty by communicating to the plaintiffs incorrect financial information concerning the business which caused the plaintiffs' loss.
By way of relief, the plaintiffs seek declarations and orders to the effect that they are entitled to recover the sums of $930,000 and $150,000 from the defendants under s 236 of the ACL, equitable compensation and damages.
Defences have been filed by the second defendant on 15 September 2021 and by the first and third defendants on 26 October 2021, which deny any liability.
Relevantly, the defences filed by the first and third defendants plead that:
1. any loss or damage was caused by intervening events, including by the plaintiffs' own conduct and, as a result, any liability is to be reduced having regard to the plaintiffs' responsibility by reason of s 137B of the ACC Act; and
2. the loss or damage was caused by each of the plaintiffs, the second defendant and five other non-parties to the proceedings (including the staff members of the business) who are concurrent wrongdoers and the claim is apportionable within the meaning of the ACC Act.
The plaintiffs filed their evidence on 20 April 2022. The defendants have not filed any evidence in the proceedings. Their evidence was due on 22 August 2022, with the date subsequently extended to 12 December 2022. The first and third defendants are no longer permitted to serve evidence in relation to the current proceedings without leave of the Court.
On or about 20 October 2022, the plaintiffs and the second defendant reached a settlement agreement, which provided for the plaintiffs to discontinue their claims against the second defendant. Settlement occurred on the day before a hearing of the second defendant's notice of motion which sought to strike out parts of the proceedings against them. The plaintiffs' solicitor informed each party's legal representatives about the settlement and sought to obtain the defendants' consent, which was not forthcoming. As a consequence, the plaintiffs filed their notice of motion on 14 November 2022, which is the subject of this application.
On 17 November 2022, the first and third defendants served a notice to produce on the plaintiffs seeking documents that record the terms of the agreement between the plaintiffs and the second defendant relating to the discontinuance and the reasons for the settlement. No documents were produced by the plaintiffs, with a claim of privilege made.
There was debate at the hearing about the plaintiffs' privilege claim and a similar claim in relation to documents produced by the plaintiffs in response to a further notice to produce issued by the first and third defendants on 9 March 2023 that was returnable before the Court today. It is unnecessary to say anything further about that matter as the issues relating to the notices to produce have been dealt with for reasons that are recorded on the transcript.
The legal principles applicable to the grant of leave to discontinue are not in dispute.
Pursuant to r 12.1(1) UCPR, the plaintiffs may discontinue the proceedings so far as they concern a particular defendant with the consent of each other active party or the leave of the Court.
In their written submissions, the applicants referred to the principle that a plaintiff should not be compelled to continue litigation against any party against the plaintiffs' will, citing Ann Street Mezzanine Pty Ltd v Beck [2011] FCA 614, at [16], per Kenny J.
Both parties also referred to, and rely on, the statements of principle by Lee J in Trade Practices Commission v Manfal (No 3) (1991) 33 FCR 382; [1991] FCA 650 (Manfal) at [7]-[9], which have been cited in various decisions, such as Levy v Bablis [2009] NSWSC 740 (Levy), at [16], and Australian Bureau of Monitoring Pty Ltd v Rufford [2023] NSWSC 56, at [41].
The Manfal principles recognise that:
1. an application for leave to discontinue proceedings against a defendant will normally be granted;
2. consideration must be given to the need to refrain from compelling a party to litigate against its will, but the extent to which the proceedings have developed and whether discontinuance against one party may impose injustice on another defendant by removing an advantage they may otherwise enjoy or by imposing a disadvantage must also be considered;
3. it is relevant to have regard to whether the discontinuance would make any difference to the burden of litigation undertaken by the plaintiff and whether it results from a conclusion that the litigation cannot succeed or is inspired by other reasons; and
4. in some cases, the grant of leave should be attended with conditions, with a rare case determining that leave should be refused.
At the start of the hearing, the first and third defendants opposed the grant of leave on the basis that the plaintiffs had failed to disclose any documents in response to 17 November 2022 and gave only a limited response to a notice to produce in the same terms that had been issued on 9 March 2023 and was returnable before the Court today.
By the end of the hearing, the first and third defendants' position was that they neither opposed nor consented to leave being granted to the plaintiffs to file the notice of discontinuance. This change occurred in circumstances where, during the course of the hearing, further documents were produced by the plaintiffs in response to the notice to produce, which relevantly included documents that record the terms of the agreement between the plaintiffs and the second defendant relating to the discontinuance and the agreement pursuant to which they settled the proceedings.
Notwithstanding their change in position, in considering the plaintiffs' application, I have taken into account the matters raised by the first and third defendants' submissions in opposition to the grant of leave. Those matters can be summarised as: disadvantages to the first and third defendants on the basis that the loss of the second defendant may adversely affect their current right to contribution and the establishment of co-ordinate liability without a cross-claim; having to file a cross-claim against the second defendant, which would result in them incurring increased costs and delay in the proceedings; and losing the benefit of the second defendant's evidence, which it was expected she would adduce if she remained a defendant in this case.
Having considered the parties' submissions, I am not persuaded that the matters raised by the first and third defendants outweigh the undesirability of forcing the plaintiffs to continue to litigate against the second defendant and have concluded that leave to discontinue should be granted in the circumstances of this case. This is for the following reasons.
First, I am not persuaded that the absence of the second defendant caused by the grant of leave to discontinue would likely lead to a significant injustice to the first and third defendants given the matters they are advancing by way of defence. Regardless of whether the second defendant is a party or not, the first and third defendants will be able to claim that the second defendant is a concurrent wrongdoer and seek to have their liability limited or reduced under the proportionate liability regime and rely on the operation of ss 87CD and 137B of the ACC Act. Further, even if found to be a concurrent wrongdoer, the second defendant could not be required to contribute or indemnify the first and third defendants in respect of the apportionable claim they raise: ACC Act, s 87CF.
Second, in circumstances where none of the defendants have filed any evidence and the first and third defendants are subject to a guillotine order, I fail to see what actual disadvantage, in terms of evidence, would result by granting leave to discontinue against the second defendant in this case. Given the history of the proceedings, I do not accept the first and third defendants' submissions that it can be expected that the second defendant would necessarily adduce evidence if leave to discontinue was not granted. Further, there is nothing to suggest that the second defendant, or any documents she holds, would not be readily amenable to the compulsory processes of the Court if she were not a party, in contrast to the position of the principal of the second defendant in Levy.
Third, to the extent that the first and third defendants consider that their current defence does not adequately protect their position, they are entitled to seek leave to bring a cross-claim against the second defendant, noting that they have not considered it necessary to take that step to date. Other than the inconvenience of time, costs and the prospect that leave is required, no practical or legal impediment has been raised that would prevent them from doing so, such as a statute of limitation issue.
Fourth, I accept the plaintiffs' submission that the present case is different to the positions in Manfal and Levy, and that this Court cannot be guided by the outcomes of those decisions having regard to the circumstances of this case. These proceedings have not yet been allocated a hearing date and the plaintiffs will not necessarily have to bring the same case as they would be required to present against the second defendant if they are to satisfy the grounds to establish liability against the first and third defendants. Relevantly, liability against the first and third defendants may be established, at least insofar as four representations are pleaded, based on the conduct of the first defendant alone.
Fifth, the plaintiffs have identified and explained that a settlement is the reason for seeking leave to discontinue, the terms of which have now been produced to the first and third defendants. This allows the first and third defendants to rely on those terms to the extent that they are relevant to the issues in the proceedings and any defences they wish to raise.
Finally, in my view, granting leave would be consistent with general case management principles and the overriding purpose specified in s 56 of the Civil Procedure Act 2005 (NSW) for the just, quick and cheap resolution of the real issues in the proceedings. I also consider that there is a significant legitimate interest in not requiring a party who has settled a dispute on commercial terms to compel them to continue to litigate against the other party to that settlement.
For these reasons, I grant the plaintiffs leave under r 12.1(1)(b) UCPR to discontinue the proceedings against the second defendant, with the notice of discontinuance to be filed and served within seven days.
The parties accept that the costs of the plaintiffs' notice of motion filed 14 November 2022 and the first and third defendants' notice to produce should be costs in the cause, and I so order.
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Decision last updated: 24 March 2023