Before the Court are competing motions. The defendant moves for dismissal of the proceedings for want of prosecution. The plaintiff moves to file an Amended Statement of Claim to replace the original Statement of Claim which was struck out in March 2014.
Zugic v Vesuvius Australia Pty Ltd [2017] NSWSC 1185 | Case summary | Zoe
The proceedings arise out of dealings in 2008 and 2009 between the defendant ("Vesuvius") and a company called V & M Davidovic Pty Ltd ("the Davidovic Company"). A receiver was appointed to that Company in February 2012. In August 2012, the receiver assigned certain rights with respect to the claim to Velibor (Boris) Davidovic and Miroslav (Mick) Davidovic. They had been directors or shareholders of the Company.
The proceedings were originally commenced in the name of Boris Davidovic. The present plaintiff, Mr Zugic, was substituted as plaintiff by order made in June 2017. He seeks to continue to prosecute the proceedings as assignee from Boris under a deed entered into in May 2015, and also as assignee from the trustee of Mick's bankrupt estate, also by assignment in May 2015. Mr Zugic is the grandson of Boris Davidovic and the nephew of Mick Davidovic.
The proceedings have a complicated and unfortunate procedural history. The background and course of events is set out in Davidovic v Vesuvius Australia Pty Ltd [2014] NSWSC 1066 (Darke J) ("the August 2014 judgment") and in Davidovic v Vesuvius Australia Pty Ltd (No 3) [2017] NSWSC 76 (Stevenson J) ("the February 2017 judgment"). These reasons assume familiarity with those judgments.
A brief summary is as follows. The proceedings were commenced in December 2013. The Statement of Claim was defective and was struck out in its entirety in March 2014. An application was made to file an Amended Statement of Claim. That application became the subject of the August 2014 judgment. The defendant contended that for various reasons the proceedings were untenable. However, Darke J rejected those contentions. He made an order granting leave to file the Amended Statement of Claim in its then form ("the 2014 Statement of Claim"), subject to certain amendments, but imposed a stay until costs owing to Vesuvius were paid.
Nothing appears to have happened for more than two years. In late August 2016, Vesuvius filed its notice of motion for dismissal. This apparently provoked an application by Mr Zugic to be substituted as plaintiff. After a false start before Darke J, a further notice of motion was filed which became the subject of the February 2017 judgment. Stevenson J decided to allow Mr Zugic to be substituted on the conditions that he first pay Vesuvius' costs to date and that he also provide security for the future cost of the proceedings. His Honour later fixed the costs at $125,000, and security at $275,000. Those sums have been paid, and, as I have mentioned, in June 2017 Stevenson J ordered that Mr Zugic be substituted as plaintiff.
Mr Zugic's notice of motion had asked, in addition to being substituted as plaintiff, for leave to file a new Amended Statement of Claim, there being none extant since the strike out of the original Statement of Claim in March 2014. This involved some amendment to the 2014 Statement of Claim, which had been the subject of the leave granted by Darke J.
The defendant has resisted the filing of that Amended Statement of Claim, and Stevenson J referred the question of whether leave should be granted to the Applications List. It came before me on 6 July when Vesuvius was represented by Mr PT Russell of counsel. After further debate, it was adjourned to allow further amendments to be made to the Statement of Claim. The motions came back before me on 29 August for determination. On that occasion, Mr BA Coles QC appeared for Vesuvius, leading Mr Russell.
Vesuvius' contention in resisting the amendment is that the claims propounded in the Amended Statement of Claim, that is, in its current form, are not tenable and should not be permitted by the Court. For practical purposes, the grant or refusal of leave to amend will determine the fate of Vesuvius' motion for dismissal.
The main objection developed orally by Mr Coles arose out of the 2012 assignment from the Davidovic Company to Boris and Mick Davidovic. Prior to the assignment, Vesuvius had brought proceedings against the Davidovic Company, and the Davidovic Company had brought a cross-claim. The Deed of Assignment provided that the Company assigned to the Davidovics "all its rights title and interest in the Proceedings". The Deed defined "the Proceedings" as proceedings numbered "2010/84991 in the Supreme Court of New South Wales, Equity Division with the Company as a Defendant/Cross Claimant and with the Plaintiff/Cross Defendant being Vesuvius Australia Pty Ltd (ACN: 003-691-241)".
At relevant times the Davidovic Company had owned land referred to in earlier judgments as the Doyle Land and the Sylvester Land. The Company had leased the Doyle Land to Vesuvius. Negotiations took place in 2008 and 2009 with a view to Vesuvius giving up that lease and taking a lease of the Sylvester Land instead.
In 2010 proceedings, Vesuvius sought to establish that it had validly terminated the lease over the Doyle Land, and to recover the security deposit that it had provided pursuant to that lease. By its cross-claim, the Davidovic Company sought declarations that the purported termination by Vesuvius was invalid and orders for forfeiture of the security deposit on the basis of repudiation.
The Amended Statement of Claim as now formulated propounds a claim of equitable estoppel. It alleges that:
(1) Vesuvius promised, or otherwise created the expectation, that it would take a lease over the Sylvester Land;
(2) in reliance on this, the Davidovic Company undertook work on the land and incurred expenses associated with the proposal;
(3) Vesuvius failed to enter into the lease, as a result of which the Company suffered loss. Equitable compensation is claimed for the Company's losses.
Mr Coles QC made criticisms of the form of the pleading, but if he did submit that a claim of equitable estoppel was not disclosed in the pleading, it was a faint submission, and I am satisfied that the pleading does disclose a claim recognisable as one for equitable estoppel.
The language of the Deed of Assignment was clumsy and elliptical. Proceedings are not property and cannot be assigned. What can be assigned are causes of action or choses of action, legal or equitable, litigated in proceedings, or debts such as judgments or costs resulting from proceedings. This means that it is necessary to identify the property in the form of causes of action or choses in action, which was comprehended by the description "the Proceedings". Clearly there must be some link between the cause of action in question and the Proceedings, but the nature of the link is not expressly stated and must be determined by a process of, or akin to, implication.
Counsel for Vesuvius accepted that the assignment covered causes of action then being propounded by the Davidovic Company in the Proceedings. Counsel submitted, however, that the equitable estoppel claim had not been propounded in the cross-claim and therefore, so it was submitted, it was not covered by the assignment.
In the 2010 cross-claim, the Davidovic Company pleaded the 2008 and 2009 negotiations concerning the Sylvester Land. The Company alleged that in the course of negotiations it had been led to believe that because Vesuvius was going to lease the Sylvester Land, the Company need not comply with its obligations under the lease of the Doyle Land, and claimed on that basis that it should be relieved, on the basis of misrepresentation, from its obligations under that lease. Claims were made under the Trade Practices Act 1974 (Cth), ss 80, 82 and 87. The Company expressly pleaded that it suffered loss from work done on the Sylvester Land.
I agree with counsel that the specific cause of action (equitable estoppel sounding in equitable compensation) was not identified in the cross-claim, but facts supporting that cause of action (representations, reliance and the resulting loss) were, and an award of damages was claimed for that loss.
In these circumstances, I think it is open to argue that as a matter of substance the cause of action now propounded was sufficiently articulated in the 2010 cross-claim to pass under the assignment. A party is only required to plead the facts which support its entitlement to relief. A party does not need to plead the legal characterisation of those facts.
Furthermore, I do not necessarily accept that the assignment was limited to causes of action which had then been propounded in terms in the 2010 cross-claim. The amendment of claims is a basic feature of litigation. It may be that the reference to "Proceedings" should be understood as including the assignment not just of causes of action then being expressly propounded, but also of causes of action that might properly be propounded by way of amendment.
As a result, I think there is clearly room for argument about whether the causes of action passed under the assignment. I do not think that the contentions put forward by Vesuvius are clearly enough correct to justify summary rejection of the plaintiff's claim. It is ultimately a question of interpretation, but it is not a pure question of law. The outcome may ultimately be effected by the factual matrix in the form of the surrounding circumstances known to the parties, and thus on the evidence led at trial.
The second argument for Vesuvius which was addressed orally was limitation. Counsel submitted that if the proceedings were commenced now, or had been commenced in 2016 when Mr Zugic sought to revive the proceedings, they would be statute-barred, and the Court should not permit an amendment which would defeat what counsel characterised as a statute-barred claim.
Counsel pointed to inconsistency between the current pleading, which asserts reliance on representations concerning the Sylvester land up to May 2013, and allegations in the 2014 Statement of Claim which asserted conduct by Vesuvius consistent with those representations only up to October 2010. This inconsistency may or may not embarrass the plaintiff's case at trial. However, I do not think that at this point this matters, because I do not necessarily accept the premise of Vesuvius's argument.
The claim of relief for equitable estoppel as a claim in equity will only be subject to limitation periods if there is a sufficiently close analogy to an action of law. Counsel submitted that the analogous claim was the statutory one of misleading or deceptive conduct or, alternatively, a claim for negligent misrepresentation. I am not convinced that this is so. Counsel did not refer to authority, and relied on general principle. In my view, it is possible that there is no analogy. On any view, it is unclear what the limitation period would be and when the cause of action accrual date would be. Nor do I accept that it is necessarily clear that even if it would now be statute-barred, the Court cannot or should not grant leave.
There are two potential avenues for the grant of leave. One is the Civil Procedure Act 2005 (NSW), s 65. This is available if the new cause of action being propounded arises from the same (or substantially the same) facts as those giving rise to the cause of action that has already been propounded in the originating process: s 65(2)(c).
There may be some difficulty with applying this position to the 2014 Statement of Claim, because it was never filed. I think that if the right comparison is between the present claim and the 2014 Statement of Claim, the Amended Statement of Claim now propounded is sufficiently similar to the 2014 Statement of Claim for the condition to be satisfied. In fact, in my view, the 2014 Statement of Claim did plead a claim of equitable estoppel, and that is the claim which is currently pleaded, so it may not be necessary even to rely on substantial identity of causes of action.
Even if the conditions of s 65 are not satisfied, the Court retains power to permit an amendment adding a statute-barred cause of action under its general power of amendment conferred by the Civil Procedure Act, s 64. Accordingly, I think the proceedings cannot be disposed of summarily at this stage on the ground that they are statute-barred.
Vesuvius contends, however, that the Court should exercise its discretion to order that the amendment should take effect at a date after the commencement of the proceedings, which is the date to which the amendments would ordinarily relate back, thereby making the proceedings, at least arguably, statute-barred. Vesuvius urged me to follow the approach of McDougall J in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 3) [2005] NSWSC 255 where his Honour granted leave to amend, but imposed a condition that the effective date of amendment should be reserved for determination by the Trial Judge.
I do not think the defendant can expect that in every case it will be able, by asking the Court to order that amendments take effect after commencement, in effect to reserve this as a point for defence at trial. In some, perhaps many, cases, the proper approach will be to decide the question when it is raised.
In the present case, the question whether the amendment should date back to the commencement of the proceedings depends on procedural issues and the course of events since 2014, which would not otherwise need to be considered by the Trial Judge. I think nothing is gained by deferring the issue and I proposed to deal with it now.
As I have mentioned, it is unclear whether there is any applicable time period or, if there is one, when it began to run. However, on no view could the period begin to run before Vesuvius acted inconsistently with the alleged promises. The Amended Statement of Claim alleges that Vesuvius represented that a lease of the Sylvester Land would be signed around the end of January 2009. Mr Coles QC submitted, based on that allegation, that reliance was not possible after the end of January 2009 when the lease in fact had not been signed. This gives rise to factual issues and questions of reasonableness of reliance which do not call for resolution on this application, but it does show that if a limitation period applies, the time cannot have started to run before late January 2009 and, accordingly, no question of the cause of action being statute barred can have arisen before late January 2015.
As mentioned, the 2014 Statement of Claim was the subject of a grant of leave to amend in August 2014. There could have been, and was not, any objection on limitation grounds to the claim so formulated being pursued at that time. The 2014 Statement of Claim included a claim for equitable estoppel based on conduct of Vesuvius with respect to the Sylvester land. Those alleged representations or promises by Vesuvius are essentially unchanged in the current version of the Amended Statement of Claim. It alleges a longer period of reliance, but this amendment is not relevant for present purposes. If the 2014 Statement of Claim had been filed in accordance with the leave of Darke J, no question of adding or substituting a statute-barred cause of action would arise. The amendments would, in accordance with the usual principle, have related back to the commencement of the proceedings.
In fact, the 2014 Statement of Claim was not filed. Accordingly, the leave granted by his Honour expired after 14 days: Uniform Civil Procedure Rules 2005 (NSW), r 19.3(b). It would have been open to the plaintiff to seek to have the Court extend that time, which could have been done after the time had expired, but the plaintiff has not sought to do so.
In the meantime, more than two years went by during which, so far as Vesuvius and the Court were concerned, the proceedings were allowed to go to sleep. It is reasonable for Vesuvius to ask why the plaintiff should be immunised against an arguable limitation defence which arose during that period by allowing amendments made now to relate back to the commencement of proceedings. The plaintiff's delay was raised as an issue before Stevenson J. In the February 2017 judgment, his Honour said that the explanation offered by Mr Zugic (which was that he needed to reorganise the documents and that Mick and other witnesses had only recently indicated they would help) was "not entirely satisfactory." Nevertheless, his Honour granted the plaintiff's application to the extent of ordering that Mr Zugic be substituted on the conditions as to payment of costs and the provision of security, as I have mentioned. On limitation, his Honour said that any fresh proceedings would "likely" be out of time but added (at [45]):
However, I do not see this as denying Vesuvius a "valid or proper limitation defence", let alone (to adopt the language used in Mr Russell's oral submissions) to "trample over [Vesuvius'] right to plead limitation".
In these circumstances, I think that the defendant, in asking for an order fixing a later limitation period, is really asking me to second guess his Honour's decision. I see his Honour as having decided in substance that despite the delay, Mr Zugic should be allowed to come in as plaintiff to advance the claim propounded in the 2014 Statement of Claim the subject of the leave granted by Darke J. I do not read his Honour's observations which I have quoted as leaving open the question whether proceedings should only be permitted on the basis that they are taken to have been instituted at some later date.
I have read the transcript of the argument before his Honour, and it appears that the submission which provoked what his Honour said was directed towards the perceived unfairness of Vesuvius not being told about the 2015 assignments at the time that they were taken by Mr Zugic. His Honour could not see how this was relevant to limitation, and nor do I.
As I have mentioned, on 13 June his Honour made orders substituting Mr Zugic, but put the question of amendment over to the Applications List for further argument. I see this as merely reflecting the fact that the form of the Statement of Claim had not been debated before his Honour. His Honour no doubt appreciated that there might be debate about individual changes to the 2014 Statement of Claim, but I do not understand him to have been reserving the possibility of a debate about the relation back of the whole of the new pleading.
Accordingly, I will grant Mr Zugic leave to file the most recent version of the Amended Statement of Claim, subject to some amendments which were identified in argument, without any order that the amendments take effect after the commencement of the proceedings. I will dismiss the defendant's motion for dismissal of the proceedings.
(Counsel addressed on costs and on the form of orders)
As to costs, I am proceeding on the assumption that the costs of the two motions which had been incurred up until February 2017 are covered by the award of costs which his Honour made in the February 2017 judgment, and, accordingly, the costs with which I am concerned are the costs incurred on the two motions since that judgment.
By its application, the plaintiff was seeking an indulgence. On the other hand, the assignment point which was developed by Mr Coles QC orally was one which would have been available before Darke J. In fact, his Honour was pressed with other points concerning the 2012 assignment, although those points were somewhat different, and I have accordingly dealt with the argument presented to me on its merits.
I have also concluded in my judgment that in substance Stevenson J's decision in February 2017 represented a determination by the Court that the proceedings should be allowed to go ahead. Mr Russell observed that amendments continued to be propounded up to the hearing, but the position taken by Vesuvius was that the proceedings should be wholly terminated, even after the order was made substituting Mr Zugic. In this contention, I think Vesuvius has been unsuccessful. In the circumstances, I propose to make no order for the costs of the motions, except to the extent that they are covered by the orders made by Stevenson J in the February 2017 judgment.
The orders of the Court are:
I grant leave to the plaintiff to file the Amended Statement of Claim dated 20 July 2017, subject to further amendments which were conceded by counsel for the plaintiff at the hearing on 29 August 2017, and without any order that the amendments take effect after the commencement of the proceedings.
I dismiss the defendant's motion for dismissal for want of prosecution.
I direct that the Amended Statement of Claim be filed within seven days.
I fix the proceedings for further directions before the Registrar on 18 September 2017.
I order that there be no order as to costs of the motions, except to the extent already covered by the order of Stevenson J made on 21 April 2017.
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Decision last updated: 06 September 2017