The Beach Retreat Pty Ltd v Mooloolaba Marina Ltd
[2008] QCA 224
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- Unreported Judgment
- Appeal Determined (QCA)
- The Beach Retreat Pty Ltd v Mooloolaba Marina Ltd[2008] QCA 224
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The Beach Retreat Pty Ltd v Mooloolaba Marina Ltd[2008] QCA 224
The Beach Retreat Pty Ltd v Mooloolaba Marina Ltd[2008] QCA 224
SUPREME COURT OF QUEENSLAND
CITATION: | The Beach Retreat P/L & Anor v Mooloolaba Marina Ltd & Anor [2008] QCA 224 |
PARTIES: | THE BEACH RETREAT PTY LTD ACN 077 526 259 |
FILE NO/S: | Appeal No 3478 of 2008 SC No 2882 of 2006 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 8 August 2008 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 17 July 2008 |
JUDGES: | McMurdo P, Keane JA and Lyons J Separate reasons for judgment of each member of the Court, each concurring as to the order made |
ORDER: | Appeal dismissed with costs |
CATCHWORDS: | PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – AMENDMENT – where the appellants commenced proceedings in March 2006 – where the matter was placed on the supervised case list – where both parties indicated readiness for trial in October 2007 – where matter set down for a two week trial commencing 25 March 2008 – where on 5 March 2008 the appellants delivered a fourth amended statement of claim alleging, for the first time, fraudulent conduct on the part of the respondents – where the respondents claimed such amendments could only be made with the leave of the court and that leave should not be granted on this occasion – whether the learned primary judge erred in disallowing the amendments Property Law Act 1974 (Qld), s 228 Uniform Civil Procedure Rules 1999 (Qld), r 5, r 367, r 377, r 378 Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39, cited Australian Coal and Shale Employees' Federation v The Commonwealth (1953) 94 CLR 621; [1953] HCA 25, cited Barker v Linklater & Anor [2007] QCA 363, considered Cannane v J Cannane Pty Ltd (1998) 192 CLR 557; [1998] HCA 26, applied Cropper v Smith (1884) 26 Ch D 700, cited Dennis v Australian Broadcasting Corporation [2008] NSWCA 37, considered Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478; [2002] HCA 22, cited Hardie v Hanson (1960) 105 CLR 451; [1960] HCA 8, applied Menzies & Anor v CRCI Pty Limited [2007] NSWCA 118, applied Swindale v Babic (No 2) [2007] WASCA 262, cited Queensland v J L Holdings Pty Ltd (1996) 189 CLR 146; [1997] HCA 1, considered |
COUNSEL: | M M Stewart SC, with C Jennings, for the appellants B D O'Donnell QC for the first respondent D B O'Sullivan for the second respondent |
SOLICITORS: | Sajen Legal for the appellants Thompson McNichol for the first respondent Clayton Utz for the second respondent |
- McMURDO P: The appeal should be dismissed with costs for the reasons given by Keane JA.
- KEANE JA: On 20 March 2008 the learned primary judge disallowed some amendments to the appellants' statement of claim. These amendments had recently been made to add a claim involving allegations of fraud. The relief sought pursuant to these amendments involved the retransfer by the first respondent of shares in the second respondent to the second appellant on the basis that an earlier transfer of the shares by the second appellant to the first respondent was void as a fraudulent transfer pursuant to s 228 of the Property Law Act 1974 (Qld).
- The appellants' action had been on foot for two years, and no allegation of fraud on the part of either of the respondents had previously been made by them. The relief sought by the appellants included a claim for the retransfer of the shares; but this claim was supported by a theory of liability different from s 228 of the Property Law Act. Many other kinds of relief were pursued. When the action was called on for trial on 25 March 2008, the appellants by their Counsel declined to lead evidence in support of the claims which had previously been pleaded by them, and the appellants did not oppose the dismissal of their claims. The appellants also made admissions in respect of the second respondent's counterclaim against the second appellant, and did not oppose judgment being entered on the counterclaim for the amount of $41,000. In these circumstances, the learned primary judge gave judgment for each of the respondents on all claims made against it, and for the second respondent on its counterclaim against the second appellant in the sum of $41,000.
- By a notice of appeal dated 15 April 2008, the appellants sought to appeal against the judgment given on 25 March. The principal ground of the appeal was that the learned primary judge erred in law in the exercise of his discretion to disallow the amendments. In particular, it is asserted that the judge erred in failing to appreciate that the prejudice suffered by the appellants by being shut out from arguing what was said to be an arguable case for the return of the shares clearly outweighed any prejudice which might have been suffered by the respondents if the amendments were allowed to stand. The principal orders sought by the notice of appeal were that the disallowance of the amendments be set aside, that the judgment of 25 March 2008 be set aside and the matter remitted to the Supreme Court for rehearing. It may be noted immediately that this relief, if granted, would have the extraordinary effect of allowing the appellants to litigate again claims which they chose not to support at trial. In the appellants' written submissions in reply, they seemed to suggest that they did not seek to set aside the judgment of 25 March. During the course of the hearing of the appeal, the appellants' position changed again when attention was drawn to the difficulty of allowing the appellants' claim to a retransfer of the shares in question to proceed while the judgment stood dismissing that very claim. This was not the only difficulty which confronts the appellants.
- The order of 20 March, on which the appellants focus their attack, involved a matter of practice and procedure. It was an exercise of a discretionary judgment by the learned primary judge. There are formidable obstacles which confront an appeal against such an order.[1] The appellants seek to surmount these obstacles by asserting that they have suffered a substantial injustice as a result of being shut out from litigating the s 228 case which was a fairly arguable claim. Despite the beguiling simplicity of this contention, the circumstances in which it falls to be considered are complicated. I will, therefore, summarise the issues raised by the appellants in the proceedings below and the course of the proceedings, before turning to deal with the arguments advanced by the appellants in support of their appeal.
The issues in the action
- Near the mouth of the Maroochy River at Mooloolaba is a parcel of land currently leased by the Crown to the second respondent. The first respondent operates a marina on part of that land. The second appellant operated a clubhouse on another part of the land until it went into voluntary administration in May 2005. The first appellant is a secured creditor of the second appellant.
- Prior to December 2004, each of the second appellant and first respondent had leased part of the land from the Crown. On 1 December 2004 the second appellant and the first respondent entered into a Shareholders' Agreement whereby it was agreed that the second appellant and the first respondent were each entitled to appoint an equal number of directors of the second respondent. It was agreed that the shareholders would procure the second respondent to grant a sub-lease to the second appellant over the land then occupied by the second appellant and the first respondent on terms to be agreed. On this basis, the previously existing leases from the Crown to the second appellant and first respondent were surrendered.
- The second appellant and the first respondent had caused the second respondent to be incorporated. Each of the second appellant and first respondent held three shares in the second respondent. On 1 December 2004 the Crown granted the second respondent a lease of the land.
- It should be noted that, significantly for the arguments agitated on the appeal, cl 13.1 of the Shareholders' Agreement provided that if either of the second appellant or first respondent committed an event of default as defined, the defaulter would transfer its shares to the other shareholder. Under cl 13.2 of the Shareholders' Agreement, the entry by either party into voluntary administration is an event of default.
- On 19 April 2005 the second appellant and second respondent executed an agreement under which the second respondent agreed to sub-lease to the second appellant the land occupied by the second appellant subject to the consent of Queensland Transport.
- On 12 May 2005 the second appellant went into voluntary administration.
- On 7 June 2005 the creditors of the second appellant resolved to enter into a Deed of Company Arrangement ("the DOCA").
- The respondents then, acting on the footing that the second appellant was in default under the Shareholders' Agreement, removed the second appellant's nominees to the board of the second respondent, and purported to effect a transfer of the second appellant's shares to the first respondent.
- In the appellants' action, it was alleged that the DOCA was terminated on 30 August 2006 and that the second appellant was ready, willing and able to perform its obligations under the Shareholders' Agreement. The second appellant demanded the retransfer of its shares in the second respondent and the reinstatement of its nominees to its board.
- The respondents refused these demands, just as they refused to recognise the validity of the sub-lease of 19 April 2005.
- Until the controversial amendments to which I have referred were made, the appellants' claims were that:
- the transfer of shares in the second respondent contravened s 437D of the Corporations Act 2001 (Cth), as a transaction or dealing affecting the second appellant, a company under administration;
- the first respondent's refusal to return the shares to the second appellant, and to reinstate the second appellant's nominees on the second respondent's board was in breach of the Shareholders' Agreement and in breach of fiduciary duties owed by the first respondent to the second appellant;
- the second respondent was in breach of the sub-lease of 19 April 2005 by reason of its refusal to recognise its validity and to submit it to Queensland Transport for its consent;
- the first respondent, through its directors, Messrs Baker, Wagner and Jackson, knowingly participated in the second respondent's breaches of fiduciary duty;
- the respondents, by reason of the foregoing, acted oppressively to the second appellant within s 234 of the Corporations Act.
- Until the amendments were made, the appellants sought relief including:
- specific performance of the second respondent's obligations under the sub-lease of 19 April 2005;
- declarations that the transfer of the second appellant's shares in the second respondent to the first respondent were void;
- an order that the respondents do all things necessary to retransfer the shares and to reinstate the second appellant's nominees to the board of the second respondent.
The course of proceedings
- On 3 March 2006 the second appellant brought an originating application against the first respondent seeking a declaration that the transfer of the second appellant's shares in the second respondent to the first respondent were void and the winding up of the second respondent. Pursuant to consent orders made in March 2006, this proceeding continued as if started by claim. In April 2006 the first appellant brought its own proceedings to protect its interests as a secured creditor of the second appellant.
- During 2006 and 2007, the proceedings were consolidated and progressed through pleadings and interlocutory skirmishes. During this period, the appellants delivered three amended statements of claim.
- The consolidated action was placed on the supervised case list. The action was reviewed on nine separate occasions between December 2006 and February 2008 as the action was guided towards trial by the processes of case management.
- In October 2007 the parties indicated to the supervised case list manager that the matter was ready for trial, and, accordingly, on 29 November 2007 the matter was set down for trial for two weeks commencing on 25 March 2008.
- The matter was reviewed by the learned primary judge on 21 February 2008. In order to accommodate the expected absence of Mr Baker, a witness for the respondents who was then on a yacht somewhere in the Pacific Ocean, his Honour set aside two further days, 28 and 29 April 2008, to hear Mr Baker's evidence and to hear closing arguments. Both sides confirmed that the evidence would take all of the time allotted to the hearing.
- On 5 March 2008 the appellants delivered a fourth amended statement of claim. By new paragraphs 49B to 49E, they alleged, for the first time, that the transfer of the first appellant's shares in the second respondent involved an alienation of the first appellant's property with intent to defraud creditors which was voidable at the instance of either of the appellants pursuant to s 228 of the Property Law Act 1974 (Qld). These allegations were made in only general terms in the fourth amended statement of claim. The amendments were in the following terms:
"49B. Further and in the alternative, the transfer of the Club Shares to the Marina Company, as alleged in Part H of this pleading, was:
(a)an 'alienation' of the Club's property for the purposes of section 288(1) of the Property Law Act 1974;
(b)made without valuable consideration;
(c)made with the 'intent to defraud creditors' for the purposes of section 228 of the Property Law Act 1974.
49C. Further to paragraph 49B of this pleading, persons prejudiced by the transfer of the Club Shares to the Marina Company for the purposes of section 228 of the Property Law Act 1974 include:
(a)the Club;
(b) Beach Retreat.
49D. In the premises of the allegations contained in paragraphs 49B and 49C of this pleading the transfer of the Club Shares to the Marina Company, as alleged in Part H of this pleading:
(a) is voidable at the instance of:
(i)the Club;
(ii)Beach Retreat; and
(b)the Club and Beach Retreat hereby elects to treat the transfer of the Club Shares to the Marina Company as void.
49E. By reason of the matters in paragraphs 49B to 49D of this pleading, the Marina company holds the Club's shares on constructive trust for the Club."
- Before particulars of these allegations were provided, the parties delivered statements of witnesses on whose evidence they intended to rely.
- On 19 March 2008 the respondents brought applications before the learned primary judge seeking, inter alia, further security for costs and to strike out parts of the statement of a Mr Robertson, a witness the appellants intended to call at trial. At this hearing, there was mention of the amendments which raised the claim under s 228 of the Property Law Act. In the course of this discussion, it emerged that the parties were at odds as to whether leave was required to make the amendments which raised the s 228 claim.
- In this regard, the respondents' position was that, pursuant to s 378 of the Uniform Civil Procedure Rules 1999 (Qld) ("the UCPR"), the appellants required leave to make the amendments because the action had been set down for trial when the amendments were first propounded. The appellants' position was that, because the action had been set down for trial without the filing of a request for a trial date, under r 378, each of the parties was entitled to amend its pleading as it saw fit. It may be noted here that r 378 of the UCPR provides: "Before the filing of the request for trial date, a party may, as often as necessary, make an amendment for which leave from the court is not required under these rules."
- The respondents also complained of the absence of particularity in the s 228 allegations. His Honour ordered that particulars be provided by 1.00 pm on the following day, 20 March 2008. His Honour reserved his conclusion on whether leave to make the amendments was necessary.
- The particulars of the appellants' s 228 case identified, for the first time, the individuals involved with the companies in question who were said to have had the intention to defraud creditors. One of those individuals was Mr Baker, the witness who was not then available. Another was Mr Jackson, a person on the witness list of neither side. The particulars continued:
"(d)those said persons with the 'intent to defraud', as particularised in paragraph 2(c) herein, thereby acted with the sole intent, or with the substantial intent, that upon an event of default, as defined in clause 13.2 of the Shareholders' Agreement (which included the appointment of a receiver, receiver and manager, administrator or liquidator and upon and the Club ceasing to pay its debts or becoming insolvent), the Club shares would be removed from the assets of the Club out of which the MYC creditors would be entitled to be paid a dividend in respect of what is owing to them or which would otherwise be applicable for their benefit;
(e)further, the 'intent to defraud', referred to therein and particularised herein, should be inferred in light of the following events known by those said persons, or which those said persons must reasonably have expected would come into existence:
(i) at the time the Club and the Marina Company entered into the Shareholders' Agreement, i.e. on 6 December 2004 (as pleaded in paragraph 9 of the Fourth Amended Statement of Claim):
A.the Club was unable to pay the debts then owed to its creditors, which included the Marina Company;
B. the Club was, or was likely to become, insolvent;
C.the Club was subject to a charge granted to the Bank of Queensland, the further particulars whereof are pleaded in paragraphs 20, 21 and 22 of the Fourth Amended Statement of Claim;
D.the transfer of the Club shares, by operation of clause 12 of the Shareholders’ Agreement, occurred without consideration passing from the Marina Company to the Club;
E.the necessary consequence of entering into the Shareholders' Agreement was that upon either the Club or the Marina Company committing an 'event of default' as defined in clause 13.2 of the Shareholders' Agreement, the Club shares would be transferred from the Club, and from the Club's creditors, to the Marina Company;
F.the Club shares were an asset against which the MYC creditors could obtain satisfaction of their respective debt or which would otherwise be applicable for their benefit;
(ii) at the time Mr Baker signed the Form 484 to effect the said transfer of the Club Shares to the Marina Company, i.e. on or about 20 June 2005 (as pleaded in paragraph 34 of the Fourth Amended Statement of Claim):
A.the Club was in Administration under Part 5.3A of the Corporations Act 2001, the further particulars whereof are contained in paragraphs 19, 30, 30A, 30B and 31 of the Further Amended Statement of Claim;
B. the Club was insolvent;
C. the Club was indebted to the MYC Creditors in the sum of approximately $1.4 million;
D.the Club was indebted to the Bank of Queensland in the sum of $264,500 (as pleaded in paragraph 22 of the Further Amended Statement of Claim);
E.the Club shares were an asset against which the MYC creditors could obtain satisfaction of their respective debt or which would otherwise be applicable for their benefit".
- 20 March 2008 was Easter Thursday, the last business day before the trial was due to commence. On that day, the learned primary judge ruled in favour of the appellants' view that leave was not required for the making of the s 228 amendments. The respondents then made an oral application instanter to have the amendments disallowed. The parties put their submissions to his Honour in relation to this application by statements of Counsel from the Bar Table. These statements were made by each side without objection from the other.
- The learned primary judge then summarised the position as he saw it in the following terms:
"The amendment made under rule 378 was made, according to the document I have, on the 5th of March 2008. This was some time after the matter had been entered for trial and some time after all parties had assured the Judge responsible for the supervised case list that they were ready and prepared for trial.
The amendment, which is contained in paragraphs 49B through to 49E, is essentially an assertion of fraud within the meaning of the term 'Intent to defraud creditors for the purposes of section 228 of the Property Law Act.' Particulars of the amendments were sought on the 9th of March by the second defendant and on the 14th of March by the first defendant and were not answered until today, the 20th of March, the last business day before the trial is due to commence next Tuesday.
Mr O'Donnell, speaking on behalf of both defendants has told me that the defendants are not in a position to meet the amendments in time. He points out that the amendments were made after the delivery of witness statements to the plaintiff. He submitted that neither of the parties for whom he spoke have had time to look into the facts arising from that amendment, nor have they had an opportunity to analyse the relevant law.
Mr Stewart answered that with a submission that it is not a complex matter, it is a simple one that arises partly by way of inference and certainly that appears in particular 2(e) in the particulars supplied today, where it is said that the intent to defraud should be inferred in the light of certain events. While those events might have been known to all parties, this is the first time that the plaintiffs have sought to draw an inference from that collection of facts set out in 2(e) and, in particular, to seek to draw an inference from them that they support an allegation of fraud."
- His Honour decided to disallow the amendments. He said:
"Mr Stewart answered my question with respect to why the amendments were late by saying that one of the witnesses and one of the persons named as having an intent to defraud only spoke to his clients, or his clients' solicitor, in February this year. Nevertheless, given that the particularisation of the intent to defraud is largely on the basis of an inference, that does not satisfactorily explain the delay.
This matter is set down for nine days commencing next Tuesday and for a further two days somewhat later. It is a complex matter. If the amendments stand there would be a requirement for the defendants to amend their pleading and no doubt seek instructions and seek leave to call oral evidence with respect to the matters that arise. It would probably result in some delay in commencing the trial.
The important issue that I rely upon is that the amendment causes prejudice to the defendant and that given the time available for the trial it would mean, or could possibly result in the trial being unsatisfactorily split over a long period of time. I have taken into account what Mr Stewart said, but given that it is an allegation of fraud that it is made very late, that the particulars have not been provided until the last day before trial, that they have been made in the light of confirmation to the Court that the matter was otherwise ready to proceed some time ago, I disallow the amendments."
- The learned primary judge's reference to the possibility of the trial "being … split over a long period of time" must be understood in light of matters raised in argument before his Honour. The trial had been set down for nine days with two further days in April to hear Mr Baker's evidence and to conclude the parties' addresses. It was said that the evidence would fully occupy the nine day period. His Honour intimated that if the matter was not fully heard by the end of the two days in April, he might not have sufficient further time to enable the matter to be concluded until some time in the following year.
The arguments on appeal
- It must be said immediately that the notice of appeal does not assert any error at all on the part of the learned primary judge in giving judgment for the respondents on 25 March 2008. Neither the notice of appeal, nor the appellants' submissions, suggest any basis for setting aside the judgment so far as the causes of action agitated in the appellants' pleadings as it stood after the disallowance of the amendments on 20 March 2008 are concerned. The appellants' Counsel have advanced no suggestion that the disallowance of the amendments on 20 March in any way prevented the appellants from pursuing those other causes of action.
- The appellants' ultimate position in relation to the relationship between their challenge to the order of 20 March 2008 and the judgment of 25 March 2008 was that if the order of 20 March 2008 were set aside, this court should set aside only so much of that judgment as would be inconsistent with a judgment on the s 228 case establishing the second appellant's entitlement to a retransfer of the shares in the second respondent. How that might be done, and, indeed, whether it might be done at all was not explained. But these difficulties do not arise unless the primary judge erred in disallowing the amendments.
Did the primary judge err?
- Accordingly, I turn to consider whether the learned primary judge erred on 20 March 2008 in disallowing the amendments on that date.
- The appellants argue that the learned primary judge failed to take into consideration that the amendments had been made by them "as of right", and that disallowing the amendments would prejudice them unduly by depriving them of the opportunity to litigate a fairly arguable cause of action. The appellants argue that the respondents could not have been disadvantaged by the late introduction of the s 228 claim into the case because the alleged intention to defraud was largely to be inferred from facts already pleaded. In any event, it is said, any prejudice which might have been caused to the respondents by the amendments could have been remedied by an order for costs.
- The appellants' criticisms of the learned trial judge begin in their written submissions with the assertion that the amendments had been properly made, there being no requirement for leave. His Honour's approach may well have been unduly favourable to the appellants. As Mr O'Donnell QC pointed out for the first respondent, the addition of the claim for relief under s 228 of the Property Law Act required leave under r 377 of the UCPR. Mr O'Donnell also pointed out that, insofar as the particulars of the s 228 case expanded the case beyond the actual transfer of the shares to the Shareholders' Agreement, these allegations should have been included in the statement of claim itself in conformity with r 150 of the UCPR.
- I should also say that, although it is not necessary to come to a firm view for the purposes of this case, it seems to me that there is something to be said for the view that where a case has been placed on the Supervised Case List, then pursuant to r 367 of the UCPR and Practice Direction No 6 of 2000, cl 11, cl 12 and cl 19, a party's entitlement to amend its pleadings is rendered subject to the court's control so that the general provision in r 378 no longer applies. Clause 19 of the Practice Direction expressly requires that once a matter on the Supervised Case List has been allocated a trial date, the Supervised List Manager must be notified forthwith by a party becoming aware of "any proposal to amend a pleading". That proposal can then be dealt with by the court. Until it is dealt with, it remains a proposal. Under r 367(1) of the UCPR, a court may make directions about the conduct of proceedings inconsistent with another provision of the UCPR including r 378. That this is so is hardly surprising. The case management regime established by Practice Direction No 6 of 2000 is elaborate and comprehensive. It plainly contemplates that a matter within the regime of the Supervised Case List is set down for trial, not in the general course contemplated by r 378 of the UCPR, but on the basis of the assurances to the parties that the matter is ready for trial and, in particular, that no further amendments to the pleadings will be sought.
- His Honour was unduly generous to the appellants in proceeding on the footing that the amendments had been properly made. It may be that nothing really turns on this because it is undeniably the case that if the learned primary judge had addressed the question whether leave should be given to appellants to make the amendments, that question would have been resolved against the appellants.
- The appellants place their principal reliance upon the decision of the High Court in Queensland v J L Holdings Pty Ltd.[2] In that case, the High Court allowed an appeal against a decision of the Full Court of the Federal Court which upheld the refusal of the primary judge to allow an application to amend a defence which was made some six months before the date for the commencement of a trial. Dawson, Gaudron and McHugh JJ summarised the reasons of the Full Court of the Federal Court as follows:
"Their Honours referred to the well-known passage in the judgment of Bowen LJ in Cropper v Smith ((1884) 26 Ch D 700 at 710) where his Lordship said:
'Now, I think it is a well established principle that the object of Courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself, and in conformity with what I have heard laid down by the other division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or of grace.'
The majority also referred to the decision of this Court in Clough and Rogers v Frog ((1974) 48 ALJR 481; 4 ALR 615) where applications for leave to amend the defences in two actions by adding a new defence had been refused. The actions had been commenced more than five years previously and the applications were made two days before the actions were listed for hearing. The Court in allowing the appeals before it adopted the words above of Bowen LJ in Cropper v Smith ((1974) 48 ALJR 481 at 482; 4 ALR 615 at 618) and said:
'As the defence, if established, would be a complete answer in either action, the amendments sought should have been allowed unless it appeared that injustice would thereby have been occasioned to the respondent, there being nothing to suggest fraud or improper concealment of the defence on the part of the appellants. With the exception of the suggestion of prejudice arising in respect of the loss of the possible claim against the nominal defendant, the matters relied upon by the respondent in opposition to the amendment sought go at the most to delay and irregularity only, matters which are relevant to costs but do not constitute injustice to the respondent in the sense in which that expression is used.'
The majority in the Full Court dismissed these remarks saying that 'times have changed since 1884, and even since 1974'. They referred to a passage from the judgment of Toohey and Gaudron JJ in Sali v SPC Ltd ((1993) 67 ALJR 841 at 849; 116 ALR 625 at 636) where their Honours said:
'The contemporary approach to court administration has introduced another element into the equation or, more accurately, has put another consideration onto the scales (See GSA Industries Pty Ltd v NT Gas Ltd (1990) 24 NSWLR 710. For the implications of this aspect for the amendment of pleadings, see Ketteman v Hansel Properties Ltd [1987] AC 189; The Commonwealth v Verwayen (1990) 170 CLR 394). The view that the conduct of litigation is not merely a matter for the parties but is also one for the court and the need to avoid disruptions in the court's lists with consequent inconvenience to the court and prejudice to the interests of other litigants waiting to be heard are pressing concerns to which a court may have regard.'
The majority concluded:
'Unless we are to mouth the repeated cautions about discretionary judgments, case management, efficiency, practice and procedure, and the advantages of the managing judge, only to ignore them when it comes to the crunch, this appeal must be dismissed.'"[3]
- Dawson, Gaudron and McHugh JJ, having thus summarised the approach of the Full Court of the Federal Court, went on to hold that this approach was erroneous in according such importance to considerations of efficient case management that they can be allowed to trump the demands of substantial justice. Their Honours said:
"It may be said at once that in the passage which we have cited from Sali v SPC Ltd Toohey and Gaudron JJ are not to be taken as sanctioning any departure from the principles established in Cropper v Smith and accepted in Clough and Rogers v Frog. Sali v SPC Ltd was a case concerning the refusal of an adjournment in relation to which the proper principles of case management may have a particular relevance. However, nothing in that case suggests that those principles might be employed, except perhaps in extreme circumstances, to shut a party out from litigating an issue which is fairly arguable. Case management is not an end in itself. It is an important and useful aid for ensuring the prompt and efficient disposal of litigation. But it ought always to be borne in mind, even in changing times, that the ultimate aim of a court is the attainment of justice and no principle of case management can be allowed to supplant that aim.
The majority emphasised that the primary judge, Kiefel J, was the trial judge, had been responsible for the management of the present case since 1994 and was in the best position to judge the effect of the proposed amendment. Even so, the application for leave to amend was made before a date was fixed for hearing. The date when fixed was six or so months ahead. It is not apparent that any complex issues of fact are raised by the amendment sought, but even if they are, in a hearing that is estimated to last some four months, they must surely be able to be accommodated. The fact that the new defence which the applicants seek to put in issue may possibly be met on reply by a plea such as that of estoppel or waiver does not suggest any reason for the refusal of the amendment. Moreover, whatever the state of the pleadings, the point which the applicants seek to raise by the amendment may not be avoided on trial if, as seems to be so, it would be apparent from the documents themselves. The purpose of the amendment was, according to the applicants, merely to avoid taking JLH by surprise. But if the amendment sought does raise a new defence and not merely a matter which JLH is required to prove in any event, it constitutes a substantial, if not complete, answer to JLH's claim. If it is arguable, the applicants should be permitted to argue it, provided that any prejudice to JLH might be compensated by costs. No doubt prejudice to JLH may also be averted, as Carr J in dissent in the court below pointed out, by appropriate orders expediting such procedures as the parties might seek to employ as a result of the amendment."[4]
- Their Honours concluded that, because the late amendment in that case would not occasion prejudice to the other party which could not have been cured by an order for costs, the need to ensure that a fairly arguable issue was resolved on its merits was not outweighed by considerations of efficiency in the administration of justice.
"The majority in the Full Court considered that costs are not these days considered the 'healing medicine' they once were. They referred to the speech of Lord Griffiths in Ketteman v Hansel Properties Ltd ([1987] AC 189) and the decision of this Court in The Commonwealth v Verwayen ((1990) 170 CLR 394 at 464 – 465, 482). In Ketteman Lord Griffiths said (Ketteman [1987] AC 189 at 220):
'justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes ... '
In this case, which is of a commercial nature, the litigants are on the one side a developer and on the other side government, and there is nothing which would indicate any personal strain which would justify the conclusion that costs are not an adequate remedy for prejudice caused by the amendment sought to the pleadings.
In our view, the matters referred to by the primary judge were insufficient to justify her Honour's refusal of the application by the applicants to amend their defence and nothing has been made to appear before us which would otherwise support that refusal. Justice is the paramount consideration in determining an application such as the one in question. Save in so far as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or for its delay in making the application. Case management, involving as it does the efficiency of the procedures of the court, was in this case a relevant consideration. But it should not have been allowed to prevail over the injustice of shutting the applicants out from raising an arguable defence, thus precluding the determination of an issue between the parties. In taking an opposite view, the primary judge was, in our view, in error in the exercise of her discretion."[5]
- The appellants brandish the decision of the High Court in J L Holdings as if it were authority to the effect that, however gross a party's disregard of the requirements of fair play, a court must nevertheless allow that party to pursue any arguable claim that may be advanced by it. In my respectful opinion, the decision in J L Holdings affords a litigant no such licence.
- The present case is, of course, readily distinguishable from J L Holdings. In this case, the amendments here were made on the eve of trial and raised factual issues which had not hitherto been addressed. That having been said, this Court cannot fritter away the authority of the High Court's decision, and, subject to one potential qualification, must give effect to the principle for which J L Holdings stands, that is, that the considerations of convenience and efficiency in the administration of justice advanced by a system of case management, must give way to the fundamental obligation of the courts to do substantive justice between the parties.
- The potential qualification to which I refer is that, since the decision in J L Holdings, the UCPR have been introduced. Rule 5 of the UCPR provides:
"Philosophy – overriding obligations of parties and court
(1) The purpose of these rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.
(2) Accordingly, these rules are to be applied by the courts with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of these rules.
(3) In a proceeding in a court, a party impliedly undertakes to the court and to the other parties to proceed in an expeditious way.
(4) The court may impose appropriate sanctions if a party does not comply with these rules or an order of the court.
Example–
The court may dismiss a proceeding or impose a sanction as to costs, if, in breach of the implied undertaking, a plaintiff fails to proceed as required by these rules or an order of the court."
- In Dennis v Australian Broadcasting Corporation,[6] Spigelman CJ, with whom Basten and Campbell JJA agreed, speaking of the Civil Procedure Act 2005 (NSW) which contains language to the same effect as r 5(1) of the UCPR, said:
"The respondent invoked the authority of Queensland v J L Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 in support of its ability to amend, even for the fifth time. Case management practices in all Australian courts have changed significantly in the decade since that judgment. Although it remains binding authority with respect to the applicable common law principles, the circumstances of the case were significantly different from those in the present case and do not dictate its outcome. In any event, such principles can be, and have been, modified by statute both directly and via the statutory authority for Rules of Court.
In this State J L Holdings must now be understood as operating subject to the statutory duty imposed upon the courts by s 56(2) of the Civil Procedure Act 2005, which requires the Court in mandatory terms – 'must seek' – to give effect to the overriding purpose — to 'facilitate the just, quick and cheap resolution of the real issues in the proceedings' – when exercising any power under the Act or Rules. That duty constitutes a significant qualification of the power to grant leave to amend a pleading under s 64 of the Civil Procedure Act."
- It may be said that the provisions of r 5 do not signal a departure from the approach taken in J L Holdings because it remains the courts' function to achieve the "just … resolution of the real issues in the proceedings." That seems to have been the view taken by Muir JA, with whom Jerrard JA and Douglas J agreed, in Barker v Linklater & Anor.[7]
- For the purposes of this case, it is not necessary to reach a concluded view on whether r 5 of the UCPR is to be regarded as inviting some departure from the approach in J L Holdings. Even taking J L Holdings at its highest for the appellants, that decision recognises that late amendments should not be allowed where they are not fairly "arguable" or are "intended to overreach", in the sense used by Bowen LJ in his reasons in Cropper v Smith[8] which were referred to with evident approval by Dawson, Gaudron and McHugh JJ in J L Holdings.[9]
- The absence of a satisfactory explanation for the lateness of the amendments was a consideration relevant to the exercise of his Honour's discretion which was not necessarily outweighed by the absence of prejudice other than delay. In Menzies & Anor v CRCI Pty Limited,[10] Hodgson JA, with whom Tobias and Basten JJA agreed, said:
"It was put that, in accordance with JL Holdings, the Court should grant an amendment, unless prejudice was caused to the other side that could not be met by an adjournment and costs, and that any prejudice in this case could have been so met. However, in my opinion, where an amendment would require vacation of a hearing date which was set to take place within a few days, generally there is prejudice through prolongation of the litigation that is not entirely met by costs, and the imposition of that prejudice on the other party needs to be justified by the strength of the case made for the indulgence by the party applying for it. I do not think this was made out in this case, for the reasons I have given, especially in circumstances where no explanation was given for not complying with the terms of the previous indulgence granted."
- It is difficult to regard the absence of a satisfactory explanation by the appellants for their failure to make amendments setting up a case of fraud until the eve of trial as other than a breach of the undertaking referred to in r 5(3) of the UCPR and a species of "overreaching" of the kind referred to by Bowen LJ. The appellants told the learned primary judge that their case of fraud rests on inference from objective matters already pleaded, and, in particular, Senior Counsel for the appellants told the learned primary judge that the terms of cl 13 of the Shareholders' Agreement "provide the basis for the inference that having achieved that result, transferring the shares away so they couldn't be part of the insolvency of one or other of the two … sub-lessees – and that is the primary basis for the inference …". The respondents were, of course, entitled to a fair opportunity to prepare to rebut that inference by evidence from the relevant witnesses of their subjective intentions and appreciations. It is impossible to suppose that the appellants did not appreciate that on the making of allegations of fraud against the respondents (and their witnesses) further preparation of the respondents' case would be necessary, or that this further preparation would inevitably impede the commencement of the trial. Because, as the learned trial judge was told without objection, the time allowed for the trial was "tight", and the late commencement of the trial would inevitably cause substantial delays in its conclusion. It is not a misuse of language to describe this conduct on the part of the appellants as "overreaching".
- It was, to say the least, grossly unfair of the appellants to present the respondents with a choice between curtailing the proper preparation of their case or jeopardising the determination of the case promptly in accordance with the timetable which had been established. It was apparent that the prejudice to the respondents was not limited to delay alone: delay in this case continued the uncertainty as to title to valuable land and arrangements for its use. The learned primary judge could not be satisfied that, in the circumstances of this case, the adverse consequences of delay to the respondents would be curable by an order for costs.
- The appellants argue that the learned primary judge referred in his reasons to the bare "possibility" that allowing the amendments to stand would result in the trial being unfinished for a long period of time. But his Honour was well-placed to assess the strength of that possibility, and there is no basis on which this Court would conclude that his Honour was not entitled to regard that possibility as sufficiently strong to suggest various prejudice to the respondents.
- The appellants contend that the prejudice they suffered in being shut out of pursuing their s 228 case outweighed the prejudice suffered by the respondents. In the course of argument in this Court, the strength of the appellants' case as pleaded and particularised was subjected to scrutiny. In my respectful opinion, when one considers the case pleaded and particularised by the appellants closely, one is not left with any abiding concern that the loss of the opportunity to litigate that case occasioned any real prejudice to the appellants. The strength of the s 228 case was not considered in detail by the learned primary judge. His Honour seems to have assumed that it was fairly arguable. That assumption was unduly generous to the appellants.
- In order to establish an intention to defraud creditors, the appellants must plead and prove that "present or future creditors of the [second appellant] will, if the intent [of the respondents] is effectuated, be cheated of their rights."[11] Allegations of fraud must be pleaded with precision: the s 228 case presented by the amendments as particularised was not.
- The first point to be noted here is that the circumstance that cl 13 contemplated that the shares might not be available to the creditors of the second appellant in the event of its financial failure does not mean that the individuals who agreed to cl 13 intended that the second appellants' creditors would be cheated of their rights. It was not alleged by the appellants that the respondents, or anyone acting on their behalf, procured the insertion of cl 13 in the Shareholders' Agreement with the intention that it should provide a trigger for the compulsory transfer of the second appellant's shares in the second respondent to the first respondent.
- Secondly, it must be appreciated that cl 13 is, on its face, a provision intended to preserve control of the second respondent in those original parties to the establishment of the enterprise to be conducted per the medium of the second respondent. It was apt to ensure that either of those original parties could maintain ultimate control and ownership of that enterprise should the other fail. It was for the benefit of both parties. It can fairly be seen as an unremarkable adjunct to an ordinary commercial dealing. A fraudulent intent on the part of the parties to the Shareholders' Agreement cannot fairly be inferred from the bare terms of cl 13.
- The third point to be noted here is that the appellants contend that the inference of fraudulent intent could be drawn from the terms of cl 13 and allegations of fact pleaded before the s 228 amendments were propounded. It is tolerably clear that the terms of the Shareholders' Agreement reflected the intentions of the parties underlying the establishment of the second respondent and the allotment of shares in it to the second appellant and the first respondent. Indeed, far from alleging that the Shareholders' Agreement does not reflect the intentions of the relevant parties, the appellants rely upon the Shareholders' Agreement to demonstrate the intention of the parties. To the extent that the Shareholders' Agreement reflects the intention which informed the allocation of shares in the second respondent, the activation of cl 13 could not disadvantage the creditors of the second appellant. That is because those shares were never "available" because they were subject to the right of compulsory transfer. There is no suggestion in the pleading or particulars that any of the parties ever intended that the position should be different. The appellants' pleading does not raise an arguable case at all. This deficiency in the appellants' s 228 case can be illustrated by reference to the decision of the High Court in Cannane v J Cannane Pty Ltd.[12]
- In that case, the High Court was concerned with s 121(1) of the Bankruptcy Act 1966 (Cth) which rendered void as against the trustee in bankruptcy "a disposition of property … with intent to defraud creditors". In that case, John Cannane and a family company he controlled each held one $1 share in a shelf company. These two shares constituted its entire issued share capital. At a time when John Cannane and the family company were experiencing financial difficulties, they transferred their shares in the shelf company to Mr Cannane's wife and one of his sons for $1 in each case. Mr Cannane had been involved in a proposal for the "back door listing" of another company, CCI, of which he was a director. The shelf company bought the shares in CCI and sold them for valuable consideration. Mr Cannane was thereafter made bankrupt and the family company was wound up. In proceedings to have the share transfers in the shelf company to Mr Cannane's son and wife rendered void, Mr Cannane gave evidence that, at the time of these transfers, he intended that the shelf company would be the vehicle by which his family acquired an interest in CCI, and that he fully intended to ensure that, if he became bankrupt or the family company was wound up, neither his creditors nor the creditors of the family company would have access to what he intended to ensure were valuable shares in the shelf company. It was found by the trial judge that, at the time of the transfer of the shares in the shelf company to the wife and son, the value of each of the shares was no more than $1.
- The High Court, by majority, reversed the decision of the Full Court of the Federal Court, and held that the transfer of the shares in the shelf company was not informed by an intent to defraud creditors even though, but for the transfer, the creditors of Mr Cannane and the family company would have been entitled to the value of the benefits obtained by the shelf company from CCI. The view of the majority in the High Court was that the intention which informed the transfer was "not to cheat the creditors of the benefit of the CCI transaction but to provide the vehicle for conveying the benefit of the CCI transaction to [Mr Cannane's family members] when the benefit of that transaction could be taken."[13]
- In the present case, on the best view for the appellants of the amendments as pleaded and particularised, it can be said that cl 13 of the Shareholders' Agreement shows that the parties thereto contemplated that, in the event of either of the original shareholders being placed in administration – which might occur by reason of its financial failure, or indeed for other reasons – that party's shares in the second respondent should be transferred to the first respondent. On the basis of the appellants' pleaded case one cannot see a coherent basis for concluding that the fund of assets available to the second appellants' creditors would ever have included the beneficial interest in the shares in the second respondent which were issued to the second appellant free of the rights of the first respondent to a retransfer in the events described in cl 13 of the Shareholders' Agreement.
- The terms of cl 13 did not themselves operate automatically to affect the second appellants' creditors detrimentally. That is so even in the factual milieu which the appellants allege existed when the Shareholders' Agreement was made, at least insofar as it is correct to say that the Shareholders' Agreement reflects the basis on which the shares in the second respondent were originally allocated. It was always the intention of the parties that the benefits to each of them of their association as shareholders in the second respondent should not be available to third parties. To intend that result was not to intend to defraud anyone.
- Thus in Cannane v J Cannane Pty Ltd,[14] Gaudron J said:
"'Fraud' involves the notion of detrimentally affecting or risking the property of others, their rights or interests in property, or an opportunity or advantage which the law accords them with respect to property. Conversely, it is not fraud to detrimentally affect or risk something in or in relation to which others have no right or interest or in respect of which the law accords them no opportunity or advantage. And there is no intent to defraud if the person in question believes that others have no right or interest in or in relation to the property concerned and that the law accords them no opportunity or advantage with respect to that property.
It is to be remembered that the operation of s 121(1) depends on the intent of the bankrupt or, where it is applied in a company winding up, the intent of the company concerned. What is in issue in each case is, as Dixon J said in Williams v Lloyd; In re Williams ((1934) 50 CLR 341 at 372), a 'real intent'. And as Starke J observed in the same case, '[f]raud … is not to be presumed' (Williams (1934) 50 CLR 341 at 361). That is not to deny that it may take very little to justify a finding of fraud or intent to defraud for the purposes of s 121(1) of the Act if the person or company concerned disposes of assets when facing financial difficulties. Even so, the real intent must be ascertained.
In the present case, the intention of Mr Cannane and JCPL with respect to the share transfers was not to detrimentally affect the assets then available for the payment of his or its debts or to prejudice or risk the right or interest of creditors in the fund constituted by those assets, or any opportunity or advantage which the law accorded them with respect to that fund. Rather, in each case, their intention was to ensure that the fund was not enhanced by the inclusion of the CCI shares or the assets to be derived from those shares in the event that the CCI venture was brought to a successful conclusion.
The creditors had no right or interest in or in relation to the CCI shares and the law accorded them no opportunity or advantage with respect to them unless Mr Cannane, JCPL or one or more companies in which one or other or both were shareholders later acquired those shares. In my view, the creditors were no more defrauded by the steps taken to ensure that they did not obtain any such right, interest, opportunity or advantage than they would have been if Mr Cannane had simply let the CCI venture lapse. More to the point, it cannot be said that the steps taken by Mr Cannane and JCPL were taken with intent to defraud for there is nothing to suggest that they believed that their creditors had any right or interest in or in relation to the CCI shares or that the law accorded them any opportunity or advantage with respect to them."
- The new pleading and particulars were deficient in another respect. In the new allegations, there was no suggestion that the shares in question had a substantial value which might have been realised so as to afford any real benefit to the creditors of the second appellant. The thesis of the appellants' s 228 case is that the purpose of cl 13 and of the transfer pursuant to it, was to deny to the creditors of the second appellant the value of its shares in the second respondent. But this thesis is not supported by a specific allegation that the second appellant's shares in the second respondent had some substantial value. It is not self-evident that shares in the second respondent were intended to have, or did have, any substantial value. The new case which the appellants sought to litigate was benefit of essential particularity. Facts necessary to support the inference central to that case were not alleged. That being so, it cannot be said that the appellants' case of fraud was arguable
- The transfer of property at an undervalue or for no consideration is, of course, a fact "relevant to the intent to be attributed to the disponer in disposing of the property"[15]; but whether or not an inference of fraudulent intent may be drawn depends on the circumstances. Thus, in Cannane v J Cannane Pty Ltd,[16] Brennan CJ and McHugh J explained:
"The value of property at the time of disposition may reflect, of course, the prospect of its future increase or decrease in value. But disposition of property at an undervalue is only a fact from which, dependent on the surrounding circumstances, an inference of fraudulent intent may be drawn. In Williams v Lloyd; In re Williams ((1934) 50 CLR 341 at 372, 377, 378), a majority of the Court declined to draw that inference when the disponer was in a financially sound position and transferred property to his wife and children because his wife sought to have the family property preserved against the hazard of loss by her husband."
- The absence of an allegation that the shares in question had some identified substantial value meant that the new case of fraud was deficient. On the appellants' behalf, it was argued on the appeal that shares in the second respondent have value because of the valuable lease held by it. But the value of the shares can only be determined if one takes into account the liabilities and expenses incurred by the second respondent in connection with the lease and otherwise. The appellants' pleading makes no attempt to address this point. While it may be said that this deficiency might be cured if the s 228 case were allowed to proceed, the sufficiency of that case must be determined for present purposes by reference to the case which was actually pleaded and particularised.
- For these reasons, I conclude, not only that the learned primary judge did not err in disallowing the amendments, but that he was plainly correct in doing so.
And if the primary judge did err?
- If the learned primary judge did err in disallowing the amendments, the question would arise as to how this Court should now exercise its discretion whether or not to permit the amendments to stand. There is a powerful case in favour of exercising the discretion in the same way in light of the circumstances as they appear to this Court.
- The course taken by the appellants on 25 March 2008 was not explained, either at the trial or on appeal. It may be that it should be seen as an acknowledgment by the appellants of the absence of substance in the allegations with which the appellants had vexed the defendants between the commencement of their proceedings and the making of the amendments. There was nothing to prevent the appellants continuing with the trial on 25 March 2008 and appealing against the order of 20 March 2008 as part of an appeal against any final judgment.[17]
- In the absence of a satisfactory explanation for the course taken by the appellants on 25 March 2008, this Court should now be slow to permit the appellants to seek a judgment which would be inconsistent with the judgment to which they meekly submitted on 25 March. It would occasion great prejudice to the respondents in that it would oblige them to relitigate issues determined in their favour by a judgment the entry of which was not attended by any error. That would, it seems to me, involve the Court in sanctioning "overreaching" of a gross kind.
- It is not necessary to reach a concluded view on this question, however, because the learned primary judge's decision must stand.
Order
- The appeal should be dismissed with costs.
- LYONS J: I have had the advantage of reading the reasons for judgment of Keane JA. I agree with the reasons and the order proposed by his Honour.
Footnotes
[1] Cf Australian Coal and Shale Employees' Federation v The Commonwealth (1953) 94 CLR 621 at 627; Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177.
[2] (1996) 189 CLR 146.
[3] (1996) 189 CLR 146 at 152 – 154.
[4] (1996) 189 CLR 146 at 154.
[5] (1996) 189 CLR 146 at 154 – 155.
[6] [2008] NSWCA 37 at [28] – [29].
[7] [2007] QCA 363 [53] – [55].
[8] (1884) 26 Ch D 700 at 710.
[9] (1997) 189 CLR 146 at 153.
[10] [2007] NSWCA 118 at [27].
[11] Hardie v Hanson (1960) 105 CLR 451 at 456.
[12] (1998) 192 CLR 557.
[13] (1998) 192 CLR 557 at 568 [16], 572 [31] – [33], 579 – 580 [56] – [58].
[14] (1998) 192 CLR 557 at 572 [30] – [33].
[15] Cannane v J Cannane Pty Ltd (1998) 192 CLR 557 at 567 [13].
[16] (1998) 192 CLR 557 at 567 [13].
[17] Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478. See also Swindale v Babic (No 2) [2007] WASCA 262 at [18] – [19].