Agricultural & Rural Finance Pty Ltd v Atkinson

[2010] NSWSC 425

CITATION:	Agricultural & Rural Finance Pty Limited & Anor v John Edward Atkinson & Ors [2010] NSWSC 425
HEARING DATE(S):	6/4/10, 13/4/10 - 16/4/10, 19/4/10, 21/4/10, 22/4/10, 28/4/10, 29/4/10, 3/5/10 - 6/5/10
JUDGMENT DATE :	10 May 2010
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Reasons given for findings limiting defendants Contract Review claim to pleaded claim.
CATCHWORDS:	Practice and Procedure - Reach of pleadings - Whether evidence sought to be adduced by defendants within Contracts Review Act pleading - Requirement for parties to be confined to their pleaded cases - Case management considerations
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) Contracts Review Act (1980) NSW Supreme Court Act 1970 (NSW) Trade Practices Act (1974) Cth
CATEGORY:	Procedural and other rulings
CASES CITED:	Aon Risk Services Australia Limited v Australian National University [2009] HCA 27
PARTIES:	Agricultural and Rural Finance Pty Limited (Plaintiff) John Edward Atkinson (1st Defendant) Peter Brakatselos (14th Defendant) Geoffrey Neville Frederickson (35th Defendant) Allan Patrick Holmes (52nd Defendant) Nicholas Charles Rowe (75th Defendant) Maria Francesca Russo (78th Defendant) David James Wardle (95th Defendant) Jennifer Dianne Wallace (124th Defendant) Franco Giannuzzi (149th Defendant) Gavin Winston Long (172nd Defendant) Maria Michael (177th Defendant) Robert John George Miles (179th Defendant) Maria Francesca Russo (189th Defendant) Christina Spyrakis (193rd Defendant) Oceania Agriculture Limited (Second Cross Defendant)
FILE NUMBER(S):	SC 2003/0092819
COUNSEL:	Mr T Hale SC, Mr C Bevan, Mr B Katekar (Plaintiff) Mr S Epstein SC, Ms A Tsekouras (1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants) Mr S Robertson (179th Defendant) Ms P Conway (Second Cross Defendant)
SOLICITORS:	Evangelos Patakas & Associates (Plaintiff) Abadee Dresdner Freeman ((1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants) Aitken Lawyers (179th Defendant) Peter Condon & Associates (Second Cross Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Monday 10 May 2010

2003/92819 Agricultural and Rural Finance Pty Limited & Anor v John Edward Atkinson & Ors

JUDGMENT

The state of these proceedings

1 Shortly after the defendants cross-examined Ms Edwards [a witness called by the plaintiff], the plaintiff made two broad objections to the admissibility of evidence sought to be adduced by the defendants’ counsel from Ms Edwards’ cross-examination, and from the defendants’ affidavits.

i. Firstly, the plaintiff objected to certain matters as constituting an attempt to reopen that which was the subject of determination in the Test Case.

ii. Secondly the plaintiff objected to material on the basis that it was not relevant to the defendants’ Contracts Review Act defence as pleaded.

2 In regard to both of these objections, it is common ground that my own judgment [2010] NSWSC 311 delivered on 21 April 2010 dealt generally with constraining the entitlement of the defendants to plead particular matters as a result of findings in the Test Case. In particular, the 21 April 2010 judgment struck out proposed paragraph (ba) of the Contracts Review Act defence. A deal of the reasoning given in the April 2010 judgment inform certain parameters of the matters presently dealt with.

3 The plaintiff’s complaints in relation to the cross-examination of Ms Edwards concerned issues about the transfer of money between ARF and OAL under the ARF funding arrangements. The plaintiff’s also complained about cross-examination directed to the reasons for the failure of the scheme and the projects.

4 In its 4 May submissions concerning the cross-examination of Ms Edwards the plaintiff contended and I accept that:

i. These issues were canvassed at considerable length during the course of the Test Case.

ii. In the Test Case the reason for the failure of the scheme was found to be “ the dramatic collapse in the market price for tea tree oil ”: see the judgment of Handley JA at paragraph 459: Red Tab 2 pages 150-151. The Chief Justice agreed with Handley JA: see paras. 137-138: Red Tab 2 page 40. The Chief Justice and Handley JA agreed with the findings of Young J at paras. 134 and 184: Red Tab 1 pages 33-34, page 45.

iii. Further, Basten JA found that any loss was due to the defendants’ failure to maintain the benefits available under the indemnity: see paragraph 345 (pages 1, 2 & 3).

5 In my own judgment earlier referred to, I accepted the plaintiff's submissions on these issues.

The plaintiff's summary of categories of the defendants’ affidavit evidence to which it objects [for convenience hereinafter referred to as the 6 categories]

6 The plaintiff provided the following summary of categories of the defendants’ affidavit evidence to which it objects:

i. evidence of representations made at investment seminars;

ii. representations made otherwise than at investment seminars;

iii. the management of the Port Macquarie Tea Tree Plantation Projects Numbers 1 and 2, including:

(a) what has been described as the ARF funding arrangement: see the judgment at Handley JA in the judgment of the Court of Appeal at para 422: Red Tab 2. These were the financial arrangements between ARF and OAL and the transfer of money between them;

(b) the use of ARF funds for the purposes of Claude Cassegrain and/or Gerard Cassegrain and Co Pty Limited (“GCC”);

(c) the reason for the failure of Projects 1 and 2.

vi. the reliance on an event or representation as being the reason for entering into the loan agreement;

v. the authority of Mr Lloyd and/or Mr Atkinson to make representations about the Projects which bind ARF;

vi. the state of mind or belief of the defendants as to the meaning and effect of the loan and indemnity agreements or other documents.

Whether the evidence sought to be adduced by the defendants is within the Contracts Review Act pleading

The correct starting point

7 The parties both made detailed submissions in relation to the impact of the Contracts Review Act upon the evidence which the defendants were entitled to lead. The Court must determine whether the proposed evidence is within the pleading of the Contracts Review Act defence by the plaintiff. However, this is not the occasion for the Court to examine in close detail the Contracts Review Act or the authorities which inform a proper appreciation of the operation of that Act. That exercise will of course be the subject of final address.

8 It is however appropriate to note that the relevant discretionary jurisdiction is available, under section 7 of the Contracts Review Act:

"Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made…"

9 The meaning of "unjust" is expanded by the definition in section 4 (1):

"'unjust' includes unconscionable, harsh or oppressive."

10 In determining whether or not a contract (or a provision in a contract) is "unjust" in the circumstances relating to the contract at the time it was made, the Court is required, under section 9 (1) to:

“have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract.”

The relevant pleading

11 In what follows I adopt the plaintiff’s analysis concerning the approach taken by the defendants to their pleading of the Contracts Review Act.

12 It is convenient to refer to the Atkinson defence in Blue Tab 1 paragraphs 30 - 31 at pages 9 - 19. The pleading of paragraph (ba) at pages 13 - 17 may be ignored since it is no longer part of the pleading. Both parties made their submission on the basis of the Atkinson defence and therefore it is accepted that the minor differences between that pleading and those of other defendants can be ignored for present purposes.

13 The following may then noted:

i. The structure of the pleading is that:


a) Issues going establishing that clauses 2(a) and 2(b) of the Indemnity Agreement were unjust in the circumstances that it was made are pleaded at paragraph 30 being matters (a) – (g) at pages 9-19;

b) Upon the assumption that the Court finds the contract is unjust at the time it was made and that it has jurisdiction, paragraph 31 sets out the relief they ask the Court to make under s. 7(1).


ii. The matters in paragraph 30(a) – (g) relied upon to establish that the contract was unjust in the circumstances relating to the contract at the time it was made appear to relate relatively closely to various subsections in s.9.

iii. Paragraph 30(a) relies on the fact that the provisions were not the subject of negotiation. The pleader appears to refer to the matters in s. 9(2)(b).

iv. Paragraph 30(b) appears to relate to the matters in s.9(2)(g) and (i). It pleads: “The provisions are part of a complex agricultural investment scheme having the following features:” Those features are set out in subparagraphs (i)-(vi). They do no more than this. There is nothing in the pleading about how the scheme was managed. In para 30(b)(vi)(M) Mr Atkinson pleads that “the defendant made payment of the amount referred to in clause 2(a) of the Indemnity Agreement on a date later than that provided for”. [It appears that it should be an independent subparagraph as it is in the case of the defences of Mr Brakatselos (the fourteenth defendant) and Mr Holmes (the second defendant). A similar paragraph appears at sub-para (c).]

v. Paragraph 30(c)-(e) (on page 18) are directed to the matters summarised in the heading on that page that is:

“Provisions not reasonably necessary for protection of legitimate interests of OAL.”
These are matters which appear to be referable to s.9(2)(d). Sub-para (c) directs attention to clause 2(a) and (b) of each Indemnity Agreement, that is, the circumstances in which the Indemnity Agreement shall be “effective and enforceable”. 51. Subparagraphs (d) and (e) of para 30 flow from subparagraph (c).

vi. Paragraph 30(f) and (g) (page 18-19) are pleaded under the heading of:

“Loss of indemnity grossly disproportionate to OAL’s detriment.”

Paragraphs (f) and (g) appear to be referrable to s.9(1)(a) and s.9(2)(d). They each look to the consequences or results that arise in the event of non-compliance with the contractual obligation of punctual payment in the Loan Agreement. Subparagraphs (f) and (g) of para 30 rely solely on the legal effect of the Indemnity Agreement and the Loan Agreement, in the circumstances of the Project or scheme identified in the four transaction documents and the prospectuses.

14 The plaintiffs have also put forward in minute detail, their analysis of the several paragraphs of the remaining Contracts Review Act defence with appropriate annotations aimed at pointing up the essential proposition, which subject to only minor concessions, contended that the only relevant evidence required to establish the defendants pleaded case were contract documents and the prospectus.

15 I proceed to set out the plaintiffs said submissions with appropriate editing from myself:

i. Para 30 pleads that clause 2 of the “Indemnity Agreement” was “unjust in the circumstances relating to the Indemnity Agreement at the time it was made”. Paragraph 30 pleads that it was “unjust in the circumstances … for the following reasons.”

ii. The reasons relied upon are then set out in subparagraphs (a), (b), (c), (d), (e), (f) and (g).

Subparagraph (a)

iii. The first of the reasons relied upon is set out in para 30(a), namely, “the provisions were not the subject of negotiation, and it was not reasonably practicable for the defendant to negotiate their alteration”. This subparagraph relies upon or is in the terms of s 9(2)(b) and (c) of the Act.

iv. The matters pleaded in subparagraph (a) of the defence are not in dispute. The defendant either subscribed on the terms offered in the prospectus or he or she did not. Of course, evidence explaining why the contract was not open for negotiation may be relevant. For example, the ATO ruling and the registration of the prospectus (including the pro forma loan agreement, indemnity agreement and licence and management agreement) with ASC (as ASIC then was).

Subparagraphs (b)

v. Para 30(b) of the defence relies upon the matters in s 9(2)(g) and (i). The defence pleads that:


“The provisions are part of a complex agricultural investment scheme having the following features:”

Those features are set out in subparagraphs (i)-(vi).
vi. With one exception, each of the features in subparagraphs (i)-(vi) accurately state what is apparent from the four agreements referred to in para 30(b)(vi)(A) (Blue Tab 1 page 10), namely:

a) the Project Deed;

b) the Loan Agreement;

c) the Indemnity Agreement;

d) the Licence and Management Agreement.

vii. The exception and only point of disagreement in subparagraph (i)-(vi) is what is contained in subparagraph (L) (Blue Tab 1 page 12).

viii. Subparagraph (vi) (L) is intended to be a summary “of the above arrangements”. It says so in terms. Subparagraph (L) begins “the substance of the above arrangements was… ”.

ix. This is a contention based upon the interpretation of the four documents referred to in para 36 above. This paragraph of the pleading does not depend upon any evidence other than the terms of those four documents . Whether or not the defendants are able to establish what is pleaded in subparagraph (L) will depend upon the defendants being able to persuade the Court as to the correctness of the contention based upon the effect of the four documents. No other evidence is necessary or relevant for that purpose. For example, evidence of what Mr Lloyd or others did leading up to the prospectus and the contractual documents.

x. Similarly the contention in the opening words of defence para 30(b) that the provisions “are part of a complex agricultural investment scheme” will require the Court, based upon the proper interpretation of the four documents relied upon, to determine whether the investment scheme was indeed “complex”.

[I interpolate to note that although it may not be necessary to identify the issue of dispute on the proper construction of the documents relied upon in subparagraph (L), the plaintiff has foreshadowed that it will submit in final submissions that subparagraph (L) is too simplistic a summary of the arrangement because:

a) OAL accepted the commercial risk that the Projects would be self-funding after 13 months. That is, sales of tea tree oil would fund the payment of licence and management fees for the next 15 of the 17 year life of the Project (as two years’ licence and management fees were payable by investors within the first 13 months of the Projects utilising funds borrowed from ARF for financed investors which were payable to ARF under clauses 3 and 4 of the loan agreements in years 1 and 2 of each loan);

b) ARF bore no commercial risk in the Projects as it was entitled to be repaid by either the borrower (those who were unpunctual and had no indemnity from OAL) or by OAL as their indemnifier (those who were punctual and who were entitled to indemnity).

c) For these reasons the only relevant evidence to establish subparagraph (L) are the four documents referred to in (vi) (A). Nothing else is relevant or admissible with the possible exception of the prospectus]

Subparagraph (M)


xi. Subparagraph (M) of para 30(d)(vi) appears to be added to subparagraph (d) in error. It appears that it should be an independent subparagraph as it is in the case of the defences of Mr Brakatselos (the fourteenth defendant) and Mr Holmes (the second defendant). A similar paragraph appears at sub-para (c).

xii. In para 30(b)(vi)(M) Mr Atkinson pleads that “the defendant made payment of the amount referred to in clause 2(a) of the Indemnity Agreement on a date later than that provided for”.

xiii. This admission of unpunctual payment is not a matter of dispute. The particulars relied upon do not appear to be relevant given the Court’s judgment of 21 April 2010.

Subparagraphs (c), (d) and (e)

xiv. Attention is drawn to paragraphs 30(c), (d) and (e) and the heading in the pleading under which they are grouped, namely:

“Provisions not reasonably necessary for protection of legitimate interest of OAL.”

xv. The defence relies upon s 9(2)(d) of the Act and does so in terms in subparagraph (c).

xvi. Sub-para (c) directs attention to clause 2(a) and (b) of each Indemnity Agreement, that is, the circumstances in which the Indemnity Agreement shall be “effective and enforceable”.

xvii. Whether or not at the time of the contract was made the operation of clauses 2(a) and (b) was not reasonably necessary for the protection of the legitimate interests of OAL will depend upon the analysis of the Project as is revealed in the four agreements, namely, the Project Deed, the Loan Agreement, the Indemnity Agreement and the Licence and Management Agreement.

xviii. Subparagraphs (d) and (e) of para 30 flow from subparagraph (c). The unfairness and any injustice in the circumstance is determined by the operation of the Indemnity Agreement in the circumstances of these agricultural investment schemes established by the contractual documentation.

Subparagraphs (f) and (h)

xix. Para 30(f) and (g) of the defence are grouped under the heading:

“Loss of Indemnity grossly disproportionate to OAL’s detriment.

xx. These subparagraphs rely upon s 9(1)(b) and 9(2)(d) of the Act. They each look to the consequences or results that arise in the event of non-compliance with the contractual obligation of punctual payment in the Loan Agreement.

xxi. Subparagraphs (f) and (g) of para 30 rely solely on the legal effect of the Indemnity Agreement and the Loan Agreement, in the circumstances of the Project or scheme identified in the four documents referred to in [36] above and the prospectuses.

16 It is also appropriate to include the plaintiffs summary of paragraphs 30 (a)-(g):

i. Subject to two exceptions, the only relevant evidence required to establish sub-paras 30 (a)-(g) are the four contract documents and the prospectus itself.

ii. The only exceptions to this are subparagraphs (a) and subparagraph (vi) (M).

iii. Evidence going to any attempt to negotiate the terms of the scheme might be relevant and admissible. The defendants have not sought to lead any such evidence. In any event, for the reasons earlier referred to, the terms of the contract documentation were not able to be individually renegotiated under the relevant corporate and tax law regimes analysed at length by the Chief Justice in the Gardiner Test Case in the Court of Appeal (see Spigelman CJ at pars 35-90 (Red Tab 2 pp. 12-29)).

iv. Subparagraph (M) would enable evidence of payments of principal and interest made to the plaintiff to be admitted. In any event this is the subject of evidence on the question of punctual payment.

Turning to the plaintiff's principal propositions

17 The plaintiff's principal propositions each of which I accept it of substance, may be put in the following terms:

i. There is nothing in paragraph 30(a)–(g) which refers to any events subsequent to the time of the making of the contract. There is nothing which would make relevant for cross-examination the payments made between OAL and ARF or the manner in which the scheme was managed including the circumstances relating to the termination of the projects.

ii. The relief claimed in para.31 of the defence (at page 19) relies upon the “ unjust consequence referred to in para.30 above ”. Paragraph 31 does not seek to introduce any new matters upon which the defendants rely in addition to those pleaded in para.30.

iii. As pleaded the defendants’ contracts review claim depends upon the terms of the documents (the loan agreement, the indemnity agreement and the other documents referred to in paragraph 30(b)), the fact that payments were accepted after the due date and that the provisions were not the subject of negotiation.

iv. It is of significance and consistent with the pleading that none of the defendants have sworn affidavits going to the facts and circumstances of the contracts review pleading, other than identifying the extent or otherwise of their experience with schemes such as this.

v. There is nothing in the pleading about how the scheme was managed.

vi. The Contracts Review Act defence is generic relying upon the terms of the contractual documentation and not upon the circumstances of individual defendants

18 In taking issue with the defendants approach to cross-examination the plaintiffs have further made the following valid points:

i. The defendants orally submit they are entitled to raise any matters they wish notwithstanding that they have not been pleaded due to the width of s.9(1). The reference to “ all the circumstances of the case ” must be a reference to the circumstances of the case that have been pleaded. The Contracts Review Act must be read with the Civil Procedure Act and the Supreme Court Act .

ii. The defendants must be confined to the pleaded case.

iii. Were it otherwise neither the plaintiff nor the Court would be in a position to know what the issues are in the proceedings and what evidence is relevant and admissible and what is not. The plaintiff would not know the case against it until the defendants’ final address.

iv. To permit such a course would be contrary to all notions of fairness it would be contrary to ss.56-58 of the Civil Procedure Act , and would not be in accordance with the dictates of justice under s.58.

The defendants’ position

19 On more than one occasion Mr Epstein SC attempted from the bar table and later in written submissions to apprise the Court of his submission as to the matters which he contended remained open to his client to be litigated in relation to the Contracts Review Act.

20 Although Mr Epstein put the matter in a number of different ways, to my mind the burden of his submission concentrated on the proposition that the effective operation of the indemnity agreement was a central feature of the investment scheme. Hence he submitted that the investment scheme in the pleading must be regarded by the Court has going beyond the mere consideration of the text of the loan agreement and indemnity agreement and possibly the prospectus.

21 His contention was that the pleaded case is that the investors/borrowers invested in the scheme, knowing that if the project failed to provide the income predicted by OAL (as its promoter), the investors would not be liable to make relevant loan repayments to ARF, because OAL had assumed that obligation under the Indemnity Agreement.

22 His further submission was that the application of an effective indemnity was a "central feature" of the investment scheme.

23 His contention was that the reach of his pleading permitted there to be litigated

i. the means by which investors became apprised of the scheme, through the licensed representatives of the promoter at investment seminars;

ii. this including what appreciation investors obtained through what they were told by the promoter through PowerPoint presentations and other presentations which they received and through the reading of the relevant material.

24 In short Mr Epstein's submission was that the existing defences made it a proper matter for evidence to have regard to

i. how investors came to understand the offer which was made to them;

ii. what appreciation they in fact gained, about how the tax effective scheme would work;

iii. reference to matters concerning to do with the wider commercial context

25 On a number of occasions he emphasised that the pleading had propounded the operation of the complex agricultural scheme.

Further examining the problems for the plaintiff in case management terms

26 The plaintiff has also pointed out the following matters, each of which is accepted as correct:

i. A number of the defendants now wish to lead evidence of pre-contractual representations made to them: see categories (i), (ii) and (iv) of the six categories identified earlier in these reasons. It is beyond argument that the Contracts Review Act pleading makes no reference to any representations made or relied upon. The defendants did not do so notwithstanding that:


a) the “carve out” to the undertaking required as part of the Test Case authorised such a defence to be maintained under paras 2, 3 and 4 of the Test Case orders (Green Tab 7 pp.1-2):

b) para 2 stated that para 1 was “subject to the Defendant seeking to rely upon surrounding circumstances, upon which the agreement entered into by that Defendant is to be construed, being different to the surrounding circumstances relied upon by Bruce Gardiner”.

c) para 3 stated that “The Court Further Notes that this does not preclude any Defendant from bringing a further Cross Claim based upon any representations or statements made to that defendant which induced them to invest in the Project, subject to any available limitation point;”

d) para 4 stated that “The Court Further Notes that the defendants are not precluded from raising any contention based upon the particular circumstances of a defendant in answer to any contention that a failure to strictly comply with clauses 3.2, 3.3(a) and 4.1 of the Loan Agreements denied the Defendant an entitlement to be indemnified by reason of the operation of clause 2(a) and 2(b) of the Indemnity Agreement.”


ii. In the Gardiner pleadings and in the subsequent defences filed by the defendants the pleading of estoppel relied upon representations made at investment seminars by Mr Lloyd and others representing OAL: see the defence in the Test Case (Green Tab 2 paras 26 and 30 at page 7-8). In the defences originally filed by the defendants corresponding paragraphs were pleaded.

iii. The plaintiff was entitled to prepare for trial on the assumption that the defendants would seek to establish the defence on the basis pleaded in the defence. The very purpose of pleadings and particulars is to enable the parties to know the case they have to meet and the evidence that may be relevant to the issues joined on the pleadings.

iv. If the evidence about pre-contractual representations made by OAL’s officers is received, the plaintiff will neither be in a position to lead evidence in reply or to make enquiries for the purpose of assisting cross-examination of the defendants on the accuracy of their evidence.

v. The same may be said about the category of evidence concerning the reliance on an event or representation as being the reason for entering into the loan agreement.

vi. Category (vi) above is that category evidence going to the state of mind or belief of the defendants. There is no allegation in the defence which pleads any particular defendant’s state of mind . The defence is a “generic” defence. There is nothing in the pleading which picks up the circumstances in s 9(2)(i). If the defendants wish to rely upon “whether or not that party understood the provisions and their effect” within the meaning of s 9(2)(i) this was required to be pleaded.

vii. It appears that most, if not all, of the defendants entered into the contracts at the suggestion or, upon the introduction of, their accountants in order that they might take the benefit of the tax advantages of the scheme.

viii. Had lack of understanding of the transaction been pleaded by any defendant, then the defendants’ accountants would have been subpoenaed to produce documents relating to the advice he gave and other documents would have been subpoenaed directed to obtaining evidence about the defendants’ knowledge and sophistication in commercial transactions. If the defendant is permitted to read evidence in this category then the plaintiff may well be disadvantaged by the lack of such material at this state of the trial.

ix. The evidence concerning the management of Projects 1 and 2 referred to in category (iii) of the so-called 6 categories is now not relevant to any pleaded matter. It was, however, central to paragraph (ba) of the Contracts Review Act defence which was struck out. Notwithstanding this, the defendants seek to now read the evidence which was clearly prepared for the purposes of establishing the matters in subparagraph (ba).

x. The actual management of Projects 1 and 2 over a period of more than two years was a matter of some complexity. It is for this reason that the evidence before the primary judge in the Test Case was so extensive. The complexity is also revealed in the judgments of Handley JA and Basten JA in the Court of Appeal (Red Tab 2).

xi. The Court would not allow the defendants to open up such complex issues without first giving precise particulars of what is being alleged. That is, the issue must be pleaded.

xii. Moreover, the Court of Appeal and the primary judge have made findings in the Test Case that neither Mr Lloyd nor any other person speaking on behalf of OAL at the investment seminars had any authority to bind ARF. Further, any evidence of representations made by Mr Lloyd or Mr Atkinson must be outside the case as pleaded. This is the category of evidence referred to in para (v) of the so-called 6 categories set out earlier in these reasons.

xiii. In any event, in the Court’s judgment of 21 April 2010, the Court found at para 85 that the defendants are bound by the undertaking to be bound by the finding made in the Test Case that Mr Lloyd had no authority to make representations on behalf of ARF.

Decision

27 At the end of the day the matter inheres in an examination of so much of the Contracts Review Act pleading [discussed above] as survived the 21 April 2010 orders.

28 The finding is as follows:

i. There is nothing in paragraph 30(a)–(g) which refers to any events subsequent to the time of the making of the contract. There is nothing which would make relevant for cross-examination the payments made between OAL and ARF or the manner in which the scheme was managed including the circumstances relating to the termination of the projects.

ii. The relief claimed in para.31 of the defence (at page 19) relies upon the “ unjust consequence referred to in para.30 above ”. Paragraph 31 does not seek to introduce any new matters upon which the defendants rely in addition to those pleaded in para.30.

iii. As pleaded the defendants’ contracts review claim depends upon the terms of the documents (the loan agreement, the indemnity agreement and the other documents referred to in paragraph 30(b)), the fact that payments were accepted after the due date and the provisions were not the subject of negotiation.

iv. It is of significance and consistent with the pleading that none of the defendants have sworn affidavits going to the facts and circumstances of the contracts review pleading other than identifying the extent or otherwise of their experience with schemes such as this.

29 I accept that the reference to “all the circumstances of the case” must be a reference to the circumstances of the case that have been pleaded. The Contracts Review Act must be read with the Civil Procedure Act and the Supreme Court Act.

30 The defendants must be confined to the pleaded case. I accept that the plaintiff has prepared for, and conducted its case on the Contracts Review Act claim in reliance upon the pleadings and the belief that the only relevant and admissible evidence to establish the defendants’ pleaded case are the contract documents and the prospectus. Cross-examination of the defendants on the voir dire has also been conducted in reliance on that belief.

31 The categories of evidence to which the plaintiff objects are outside the pleaded defence and cross-claim. Were the defendants permitted to now lead this evidence, the Contracts Review Act defence would substantially change mid-trial.

32 Were it otherwise neither the plaintiff nor the Court would be in a position to know what the issues are in the proceedings and what evidence is relevant and admissible and what is not. The plaintiff would not know the case against it until the defendants’ final address.

Aon Risk Services Australia Limited v Australian National University [2009] HCA 27

33 The reasonably recent decision of the High Court of Australia in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27 dealt with matters concerning the discretion to allow amendments to pleadings, but at the same time set the touchstone appropriate to the principled exercise of the discretions essentially where the Court is dealing with case management and fairness.

[I am unable to discern any particular inconsistency as between the reasons given by the Chief Justice and those given by the majority].

34 The majority judgment [Gummow, Hayne, Crennan, Kiefel and Bell JJ]:

i. At 89, dealt with the concept of discretion:

"'Discretion' is a notion that 'signifies a number of different legal concepts'. In general terms, it refers to a decision-making process in which 'no one [consideration] and no combination of [considerations] is necessarily determinative of the result'. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made."
[citing the observations by Gleeson CJ, Gaudron and Hayne JJ in Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission as apposite]


ii. The majority in Aon further observed that Gleeson CJ, Gaudron and Hayne JJ in Coal and Allied Operations went on to point out that the latitude as to choice may be considerable or it may be narrow .

iii. At 92, the majority observed that case management by the courts is now an accepted aspect of the system of civil justice administered by the courts in Australia, adding:

It was recognised some time ago, by courts here and elsewhere in the common law world, that a different approach was required to tackle the problems of delay and cost in the litigation process. In its report in 2000, Managing Justice: A review of the federal civil justice system , the Australian Law Reform Commission noted that: "Over the last ten years Australian courts have become more active in monitoring and managing the conduct and progress of cases before them, from the time a matter is lodged to finalisation".

iv. At 93 the majority pointed out that "the achievement of a just but timely and cost-effective resolution of a dispute has an effect upon the court and upon other litigants. In Sali v SPC Ltd Toohey and Gaudron JJ explained that case management reflected:

"[t]he 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 ...".

vi. At 98, the majority observed as follows:

Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a "just resolution" is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. The Rule's reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs.

35 The defendants have no entitlement to litigate matters which fall outside their pleaded case. The active defendants are left with only a two pronged case:

i. that concerned with showing that the payment was made punctually;

ii. that consisting of the Contracts Review Act defence contending that the relevant clauses of the Indemnity Agreement - which had the effect of making the indemnity unenforceable if any payment was not paid by the due date - were unjust within the meaning of the Act and should be varied by the Court. The latter limb of the defendants’ case is constrained by the above reasons.

36 Finally it is appropriate to observe as follows:

i. As pointed out earlier in these reasons there are clearly shades of the matters dealt with in the 21 April 2010 judgment which have surfaced in the current debate [albeit that the current debate has been all about the reach of the defendants contract review act pleadings];

ii. The short minutes of order made following the 21 April judgment, in addition to ordering sections of the pleadings of a number of the active defendants to be struck out , also gave liberty in certain instances to replead particular parts of the defence is in accordance with Schedule A to the short minutes;
iii. It is apparent that the evidence concerning the management of Projects 1 and 2 referred to in category (iii) of the so-called six categories, is now not relevant to any pleaded matter. It was, however, central to paragraph (ba) of the Contracts Review Act defence which was struck out. That notwithstanding, the defendants seek now to read the evidence which was clearly prepared for the purposes of establishing the matters in subparagraph (ba).

An aside

37 In a sense, notwithstanding that the present controversy concerns no more than a proper examination of the reach of the remaining pleading, there is a sense of déjà vu at least in terms of the observation [at paragraph 52] of April judgment in the following terms:

"Mr Epstein's contention was that notwithstanding the Justice Handley [and majority of the Court of Appeal] finding that Mr Lloyd was not proven to be the agent of ARF… that is not to say that he was not the agent of ARF for any purpose on any other occasion"

38 It at least appears from Mr Epstein's submissions that this matter is sought to be re-agitated. But as the above reasons make clear, the active defendants remaining pleadings do not permit this course to be followed.

Short minutes of order

39 As before the parties will be required to bring in short minutes of order to deal with the findings in these reasons.

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