Alford v Ebbage[2002] QSC 289

SUPREME COURT OF QUEENSLAND

[1] ATKINSON J:  This is an application by the plaintiffs in matter S3677 of 2000 for leave to amend their Statement of Claim against the first defendant, Raymond Joseph Ebbage.  The plaintiffs also seek an injunction restraining the first and ninth defendant so that they could:

(a) not dispose of, encumber or otherwise deal with or distribute any income or capital of the estate of the late Paul Gerrard Ebbage inclusive of, but not limited to, shares in Advanced Engine Technologies Limited held by the ninth defendant and/or Resolution Services Limited, a company under the control of the executor;

(b) not dispose of any proceeds from the sale of shares in Advanced Engine Technologies Inc held by the ninth defendant and/or Resolution Services Limited and/or any company, or entity, under the control of the executor holding assets for or on behalf of the estate until determination of these proceedings otherwise than with the consent of the plaintiffs.

[2] The first defendant opposes leave to amend the Statement of Claim on three grounds.  First, the first defendant claims the proposed amendments breach an undertaking given by the plaintiffs and recorded in an order of Byrne J dated 3 October 2000.  Second, the first defendant submits that the proposed claim has no substantial basis in law.  Third, it is submitted that the claims represent an abuse of process and will serve to delay the trial of the action.

[3] The first defendant opposes the injunction sought on the grounds that, whilst he admits there is a serious question to be tried, the balance of convenience does not favour the grant of an interlocutory injunction which would serve to effectively sterilize the first defendant’s defence of this action.  Before considering each of these matters, it will be useful to set out the relevant history of this proceeding.

The History of the Proceeding

[4] This proceeding was commenced by a claim filed 27 April 2000.  On that date, there were two plaintiffs (Anthony James Alford (“Alford”) and Dario Pty Ltd (“Dario”)) and three defendants (The Estate of the Late Paul Gerrard Ebbage (deceased), HPM Investments Pty Ltd (“HPM”), and Raymond Joseph Ebbage).  By the Statement of Claim, the plaintiffs alleged a beneficial interest in certain assets of the estate, and sought orders to give effect to that interest.

[5] Subsequently, the legal representatives of the plaintiffs realised that a claim against “The Estate of the Late Paul Gerrard Ebbage (deceased)” was misconceived, and an application was filed on 1 September 2000 seeking leave to file and serve an Amended Statement of Claim.  The draft Amended Statement of Claim deleted “The Estate of the Late Paul Gerrard Ebbage (deceased)” and “Raymond Joseph Ebbage” as defendants and substituted “Raymond Joseph Ebbage for himself and as executor of the Estate of Paul Gerrard Ebbage deceased” (“Raymond Ebbage”) as first defendant.

[6] Although the draft Amended Statement of Claim was significantly more complicated than the original Statement of Claim filed on 27 April 2000, the claims that it made were substantially the same: that Paul Ebbage and the first plaintiff, Alford, had been partners in a joint venture together with Steven Manthey;  that Manthey held a 50% interest in the joint venture and that Paul Ebbage and Alford each held a 25% interest in the joint venture; that Paul Ebbage improperly, dishonestly and in breach of fiduciary duty transferred the interest held by Alford to entities controlled either by himself or by Manthey; that these actions purportedly deprived Alford of any interest in the joint venture; that Paul Ebbage died on 2 December 1998 but that the first plaintiff’s rights are enforceable against his estate; that Raymond Ebbage is the executor and trustee of the Ebbage estate under Paul Ebbage’s last will and testament dated 19 February 1998; and that Raymond Ebbage as executor has not recognized the claims of the first plaintiff, and the other associated plaintiffs, upon the estate.

[7] When the application for leave to file the Amended Statement of Claim came on for hearing on 3 October 2000 before Byrne J, his Honour was informed that an agreement had been reached between the parties and that a draft order would be submitted.  This draft order was submitted after some further correspondence and negotiation between the parties and became the order of Byrne J dated 3 October 2000.  The order commenced with an undertaking in the following terms:

“Upon the undertaking of the plaintiffs and all those parties set out in paragraph 1 of these orders not to make any claim against Raymond Joseph Ebbage (the proposed First Defendant) in his personal capacity for monetary compensation or costs in relation to the matters referred to in the Amended Statement of Claim which is referred to in paragraph 4 of these orders”.

[8] Subsequent to the order of 3 October 2000, the plaintiffs became dissatisfied with the manner in which Raymond Ebbage was administering the estate.  By that time, the supervised management of the case had been allocated to me.  An application was brought to amend the Statement of Claim to include claims for conversion and devastavit against Raymond Ebbage in his personal capacity.  The proposed amendments were to add the following to the claim:

“(pp) As against the executor personally, damages arising from his failure to properly administer the estate of the late Paul Gerrard Ebbage and damages for conversion of shares in Advance Engine Technologies Inc to which the plaintiffs claim an immediately [sic] entitlement.”

[9] It was held that the amendments proposed by the plaintiffs would contravene the undertaking contained in the order of 3 October 2000.  The claim for damages for conversion was in effect another legal characterisation of a claim that had already been made in the Amended Statement of Claim.  The claim that Raymond Ebbage had failed to properly adminster the estate (the devastavit claim) was likewise within the scope of the undertaking because it relied primarily on the facts pleaded in the Amended Statement of Claim.

[10] The undertaking, in my view, recorded an antecedent contract between the parties which could not be varied or terminated by the court “unless it was given by mistake, obtained by fraud, or the parties consented to its variation.”  Therefore, at first instance, the amendments were not allowed.  As I was of the opinion that the court had no power to relieve the plaintiff of its undertaking, it was not necessary to go on to consider any of the discretionary grounds for refusing leave to amend a statement of claim.

[11] The plaintiffs appealed against that decision.[1]  Each of the members of the Court of Appeal agreed that the proposed amendments were within the scope of the undertaking.[2]  However, Fryberg and Wilson JJ held, following Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc,[3] that the court has inherent power in the exercise of its discretion to release a party from an undertaking contained in a court order.  Therefore, the matter was remitted to me for the exercise of the discretion as to whether the amendments should be allowed.  Notably, Wilson J stated that: “In the absence of circumstances rendering the contract void, voidable or otherwise unenforceable, it seems all but inevitable that the discretion would be exercised against the [plaintiffs].”[4]  Although the court has the power to release the plaintiffs from their undertaking in whole or in part, it has no apparent power in these circumstances to release them from the contract.

The Current Application for Leave to Amend

[12] On 14 June 2002, a further application to release the plaintiffs from the undertaking given on 3 October 2000 and to allow amendments to the Statement of Claim came before me.  On this occasion, the plaintiffs changed the proposed amendments by removing the claim for devastavit and altering the particulars of the claim for conversion.  The altered particulars relate to shares in Advanced Engine Technology Inc (“AET”), which came under the control of the estate in March 2001 (after the date of the undertaking).  The proposed amendments include the following addition to the prayer for relief:

“(pp) As against the executor personally:

(i)the sum received by the executor being the proceeds from the sale of the AET Inc shares by Macro referred to in the statement of claim (as amended);

(ii)the sum of $377,000;

(iii)interest pursuant to statute;

(iv)a direction to the executor to present a petition for the sequestration of the assets of the estate;

(v)costs”

[13] It is first necessary to consider whether the new proposed amendments are within the scope of the undertaking.  If the proposed amendments are within the scope of the undertaking, the plaintiffs seek to be released from that undertaking.  This would not, however, release the plaintiffs from the obligations of the antecedent contract between the parties which led to the undertaking being proffered.  Whether or not the amendments come within the scope of the undertaking, the plaintiffs seek leave to file an amended statement of claim:  see UCPR r 375(1), r 378 and r 379.  The plaintiffs quite properly seek to have this application determined, in accordance with my directions, prior to filing the amended statement of claim as the amendments are opposed. 

[14] In the Court of Appeal, Williams JA set out some general principles for interpreting the phrase “in relation to”, as used in the undertaking of 3 October 2000.  Fryberg and Wilson JJ both agreed with the reasons of Williams JA on this point.  While the expression “in relation to” is of wide import, it “must be read in context and generally in the light of what the parties were intending to achieve by its use.”[5]  Williams JA made some further comments about the meaning of the undertaking given in this case:

“It is clear that the compromise or release could not extend to a claim against the respondent personally arising out of a transaction not pleaded in the relevant statement of claim.  That could either be because the transaction in question occurred subsequently to the agreement to release being made or because, though the transaction occurred before that date, it was not a matter referred to in the relevant statement of claim.  It is clear that the release is not a blanket one, releasing the respondent personally from all possible claims which might result in personal liability for matters associated with his administration of the estate in question.”

[15] In reliance on this passage, counsel for the plaintiff submits that the new proposed amendments are outside the scope of the undertaking because the facts sought to be pleaded occurred after the undertaking was given and were not contained in the Amended Statement of Claim filed on 6 October 2000.  However, the Amended Statement of Claim sought a declaration that the disputed shares the subject of the proposed amendments were held on trust for the plaintiffs (see prayer for relief (e), (f), (g)).  The success or failure of the proposed claim against the executor is entirely dependent upon the resolution of the claims made by the plaintiff in its Amended Statement of Claim filed on 6 October 2000.  Therefore, the claim sought to be pursued against Raymond Ebbage in his personal capacity is “in relation to the matters referred to in the Amended Statement of Claim”.  Specifically, it relates to the dispute over who holds the beneficial interest in specified shares.  The claims of the plaintiffs continue to be in relation to that question, notwithstanding that certain actions have been taken in relation to the administration of the estate since October 2000.  The proposed amendments are within the scope of the undertaking.

Discretion to Allow Amendment of Statement of Claim

[16] However, as the Court of Appeal held, this is not the end of the matter.  It is further necessary to consider whether the discretion to allow amendment of the Statement of Claim ought to be exercised, despite the undertaking.  In considering whether to allow amendment of the Statement of Claim, the existence of an antecedent agreement releasing the executor from personal liability is a significant factor to weigh in the exercise of the discretion, particularly as Raymond Ebbage may plead that the antecedent contract operates as a compromise of an action against him in his personal capacity.  However, this is not the only factor that must be considered.

[17] The House of Lords restated the principles for granting leave to amend a statement of claim in Ketteman v Hansel Properties Ltd.[6]  Lord Griffiths stated that in the exercise of the discretion to amend a judge should be guided by an assessment of where justice lies.[7]  His Lordship went on to say that: “Many and diverse factors will bear upon the exercise of this discretion.  I do not think it possible to enumerate them all or wise to attempt to do so.”[8]  In recent cases, the necessity for efficient conduct of litigation has been stressed by numerous courts.[9]  The purpose of case management is to facilitate the efficient determination of the real matters in controversy between the parties.  The overriding principle is, therefore, that justice ought to be done.[10]  In Rigato Farms Pty Ltd v Ridolfi,[11] Williams JA affirmed that “courts will, as far as possible, ensure that a party has a fair trial.”[12]  The discretion granted by the UCPR is exceedingly broad and authorizes the court to make “an order it considers appropriate”: r379.

[18] The defendants rely on three factors which they say militate against the exercise of the discretion to allow the amendment.[13]  The first is the existence of the antecedent agreement not to proceed against the executor personally which was given effect by the undertaking offered to the court by the plaintiff.  The second is that the claim for conversion of shares is misconceived in law and/or does not disclose a cause of action.  The third is that the amendments would be an abuse of process and would serve to delay the trial of the action.

[19] As to the claim for conversion of shares, the law on conversion may be simply stated.  Conversion is a dealing with chattels in a manner that is inconsistent with the proprietary interest of a third party who has an immediate right of possession over the chattels.[14]  While the general rule is that an action for conversion must relate to “goods” it has been recognized that an instrument such as a cheque or, by analogy, a share certificate is a good that may be converted and that the amount recoverable by the party wronged will be the value of the instrument.[15]

[20] The claim which the plaintiffs in this case seek to make is that the executor converted shares in AET by selling the shares and disposing of the proceeds, at a time when the plaintiffs had a right of ownership over those shares, of which the executor was aware.  It may be that the plaintiff will face a number of obstacles in proving this claim.  Apart from the disputed facts, the correct legal characterization of the numerous transactions that are alleged to have occurred is a matter that will not be easily resolved.  However, these obstacles are not matters that should deprive the plaintiffs of the opportunity to air their claim.  An action alleging conversion of shares is unusual but not so obviously untenable that it cannot possibly succeed[16] and therefore this is not a basis upon which leave to amend the Statement of Claim should be refused.

[21] The defendants submit also that an amendment of the Statement of Claim at this stage in the proceedings would be an abuse of process and would delay the trial of the action.  On their submissions the proposed amendment would lead to an examination at the trial of the action of whether Raymond Ebbage was entitled to rely on legal advice as to whether he should defend the action and, if so, the manner in which the action should be defended.  It was argued that the validity of the plaintiffs’ existing claims should be determined in the present proceedings prior to the determination, if it be necessary, of the propriety of defending those claims.  Both Raymond Ebbage and his present solicitors may be put in an untenable position if the court were required to examine the advice they have given to him for the purpose of determining the validity of the claim against him.  Such a course may well lead to his present solicitors having to withdraw from his representation.  In such a case, grave and unnecessary delay as well as prejudice to the first defendant would be occasioned in the determination of the action as presently constituted.

[22] There appears to be no reason in principle why the proposed amendments cannot be the subject of a separate action once the present proceedings are determined.  If the plaintiffs are unsuccessful in their proprietary claim against the estate, such an action would not be necessary.  If they are successful in their claim against the estate, then the court would be able to determine whether the dealing in the shares by Raymond Ebbage amounted to unlawful conversion so as to give rise to a claim against him personally.  This is a collateral issue which can be determined discretely.  If this issue is considered alongside the determination of the matters which are presently at issue in this action, it has the capacity to prejudice the first defendant’s conduct of his defence.  Reserving the collateral question question until after this action is determined will not cause irreparable prejudice to the plaintiffs.  If that question then comes to be determined, the court will also be able to determine the issue, if it is pleaded, of whether there was an accord and satisfaction between the parties which applies to the matters raised.  In my view it would, for the reasons given, not be appropriate to allow the new proposed amended statement of claim.

Injunction

[23] The injunction is sought because the plaintiffs assert that, if they succeed, the estate of Paul Ebbage will not be able to meet any judgment in full.  They argue that the first defendant could, at an early time in these proceedings, have met the plaintiffs’ claim by paying the debt claimed and transferring to the plaintiffs the shares over which a proprietary claim is made.  The only asset of the estate is now some 5,000,000 shares in AET.  The plaintiffs argue that if they are successful in their proprietary claim, the shares in AET will be declared as being  held in trust for them and so will not fall into the estate.  The estate would be then without any assets to pay the monetary claim against it.  Further the plaintiffs say that, to prevent the fruits of any order in their favour being dissipated, the first defendant should not be able to sell the shares or, if they be sold, not disburse the proceeds of sale by, for example, using the proceeds to defend this action.

[24] While it is conceded, as it must be, that there is a serious question to be tried, as to the beneficial ownership of the shares in AET, the question as to whether or not an interlocutory injunction of the kind sought ought to be granted falls to be determined on the balance of convenience.

[25] The first defendant has given an undertaking not to dispose of or encumber any of the shares in AET without first giving notice to the plaintiffs.  Notice has now been given of an intention to sell shares.  It appears that the market price of the shares has been dropping subsequent to the fall of the NASDAQ and so it is appropriate they be sold.  It is also appropriate that the proceeds not be used for any other purpose than the proper administration of the estate, which at present appears to be limited to the defence of this action.

[26] The defence of this action is an incident of the administration of the estate by Raymond Ebbage.  If the estate were to be frozen, then the first defendant would not be able to defend this action which would not be consistent with his duties as executor of the estate.  In those circumstances the balance of convenience favours limited injunctive relief.

[27] In all of the circumstances, I propose the following draft orders:

(1)         Refuse the application for leave to amend the statement of claim.

(2)Refuse the application to release the plaintiffs from their undertaking given to the court on 3 October 2002 except that they may commence proceedings against the first defendant, Raymond Ebbage personally, or the ninth defendant, without being the subject of an application for contempt, but that the defendants may plead the undertaking and antecedent contract in any such proceedings.

(3)         Order that the first defendant Raymond Joseph Ebbage, as executor of the estate of the late Paul Gerrard Ebbage, and the ninth defendant, Macro Management Group Limited, not dispose of any proceeds from the sale of the shares in Advanced Engine Technologies Inc held by the ninth defendant and/or Resolution Services Limited and/or any company, or entity, under the control of the executor holding assets for or on behalf of the estate until determination of these proceedings otherwise than for the proper administration of the estate limited to the reasonable costs of defending these proceedings and any other legal proceedings brought against the first or ninth defendants by any of the plaintiffs.

(4) Should any further proceedings be brought by any of the plaintiffs against the first or ninth defendants in this court, those proceedings be set down for directions before me within seven days of such proceedings being filed.

(5) Liberty to apply to vary any of the orders set out herein on two clear days’ notice.

[28] I shall hear submissions as to the form of these orders and as to costs.