Bannon v Nauru Phosphate Royalties Trust (No 2)
[2016] VSC 558
•21 September 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S CI 2015 03354
| PAUL BANNON | Plaintiff |
| v | |
| NAURU PHOSPHATE ROYALTIES TRUST | Defendant |
| - and - | |
| NAURU PHOSPHATE ROYALTIES TRUST | Plaintiff by Counterclaim |
| v | |
| PAUL BANNON | Defendant by Counterclaim |
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JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 and 16 August 2016 |
DATE OF RULING: | 21 September 2016 |
CASE MAY BE CITED AS: | Bannon v Nauru Phosphate Royalties Trust (No 2) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 558 |
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PRACTICE AND PROCEDURE – Application to amend defence and counterclaim – Supreme Court (General Civil Procedure) Rules 2015, r 36.01 (1)(a)(c) – Mandie v Memart Nominees Pty Ltd applied – Relevant test whether amendment raises a claim or defence that has no real prospect of success – Amendments substantially allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T North QC with Mr M G Rinaldi | Lander & Rogers |
| For the Defendant | Mr R A Millar with Mr R J W Hooper | SLC Law Pty Ltd Lawyers |
HER HONOUR:
By way of summons filed 27 July 2016, the defendant sought leave to amend its defence and counterclaim.[1] The application was opposed by the plaintiff.
[1]There was some confusion about the date of the summons as it was served before it was filed. Nothing turned upon it. As 27 July 2016 is the date on which Registry stamped receipt of it, it may be relied upon as the applicable date.
Both parties made oral submissions. Additionally, the defendant made written submissions dated 12 and 19 August 2016. The plaintiff made written submissions dated 16 August 2016. It is unnecessary to reiterate all the submissions here, rather, reference is made to the parties’ submissions where applicable below.
Applicable principles
The application was made pursuant to r 36.01 (1)(a) and (c) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’). Rule 36.01 (1) states:
(1) For the purpose of -
(a)determining the real question in controversy between the parties to any proceeding; or
…
(c) avoiding multiplicity of proceedings—
the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.
In Mandie v Memart Nominees Pty Ltd (‘Mandie’),[2] the Court of Appeal outlined the following principles relevant to this application:
[2][2016] VSCA 4 (5 February 2016); Mandie considered Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27.
(1) The introduction of the Civil Procedure Act 2010 (‘the CPA’) brought into focus factors such as cost effectiveness and efficiency. Therefore some amendments which might previously have been allowed, are no longer allowed. Caution should be taken in relying on authorities which preceded the CPA.[3]
[3]Mandie v Memart Nominees Pty Ltd [2016] VSCA 4 (5 February 2016) [42].
(2) If a claim or defence has no real prospect of success then, subject to limited exceptions, summary judgment may be given pursuant to s 63 of the CPA. Therefore, a proposed pleading amendment rendering a claim or defence susceptible to a summary judgment should not be permitted. Granting leave to amend in those circumstances would be futile.[4]
[4]Ibid [43].
(3) The relevant test is whether the amendment raises a claim or defence that has no real prospect of success, in the sense of being fanciful:
Where the Court is considering an objection to a proposed amendment to a pleading on the basis that it would not survive a summary judgment application, the correct test is whether the amendments raise a claim or defence that has no real prospect of success, in the sense of being fanciful.[5]
(4) It is incorrect to say that the test for amendment is whether an amendment is futile because it is obviously bad in law. This submission, based on Commonwealth v Verwayen (1990) 170 CLR 394 was put in Mandie and rejected.[6]
[5]Ibid [47].
[6]Ibid [38], [41-42].
The plaintiff relied on Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 (‘Sugar’), particularly paragraph 118.[7] Sugar was a proceeding concerning an application for an interlocutory injunction. In the course of that application, the Court observed:
In an application for leave to amend a pleading, the court proceeds on the basis that the application will be granted (subject to other issues), provided that the amended pleading would not be one which would be liable to be struck out on a summary application. Thus, the court ordinarily allows an amendment, unless it is plainly demurrable. Self-evidently, those principles are significantly different to the principles that guide a court in determining a disputed question of law on an application for an interlocutory injunction, particularly where the application is to restrain recourse to a security provided under a building contract.[8]
[7](2015) 31 BCL 407; [2015] VSCA 98 (13 May 2015).
[8](2015) 31 BCL 407; [2015] VSCA 98 98 (13 May 2015) [118] (Citations omitted).
This is not authority for the proposition asserted by the plaintiff, that if a pleading was liable to be struck out under r 23.02, leave should not be granted to amend.[9] Nor is Sugar authority for the proposition asserted by the plaintiff that the entire defence and counterclaim should be struck out.[10]
[9]Plaintiff, ‘Written submissions’, Submission in Bannon v Nauru Phosphate Royalties Trust (No 2), SCI 2015 03354, 16 August 2016, (‘Plaintiff’s submissions’) [15].
[10]Ibid [14b].
Rule 23.02 relates to striking out and states:
23.02 Striking out pleading
Where an indorsement of claim on a writ or originating motion or a pleading or any part of an indorsement of claim or pleading—
(a) does not disclose a cause of action or defence;
(b) is scandalous, frivolous or vexatious;
(c) may prejudice, embarrass or delay the fair trial of the proceeding; or
(d) is otherwise an abuse of the process of the Court—
the Court may order that the whole or part of the indorsement or pleading be struck out or amended.
Consideration
Plaintiff’s strike out submissions
The plaintiff’s submission that r 23.02 is applicable is rejected. This summons was not an application for strike out by the plaintiff. Rather, it was an application for amendment pursuant to r 36.01 (1). The Court rejects the plaintiff’s assertion that the task of the Court is to determine whether the amendments can stand according to the rules of pleadings.[11] The correct test is whether the amendment raises a claim or defence that has no real prospect of success, in the sense of being fanciful, as discussed above.
[11]Ibid [5].
During his submissions, the plaintiff objected to the amended defence and counterclaim, submitting that it should be struck out. In doing so, the plaintiff objected to the entire pleading on the basis of lack of authority, in addition to various parts of the defence and counterclaim. The objections included objections to pleadings in the defence and counterclaim which were unchanged in the proposed amended defence, indicating a misapprehension by the plaintiff as to the nature of the application. It was an application seeking leave to amend pleadings, not a strike out application. Accordingly, the plaintiff’s objections to paragraphs which were not the subject of the application for amendment, and which were not before the Court, are rejected. Relevant paragraphs in the pleadings are those that are sought to be amended. These are discussed further below.
Plaintiff’s submissions on authority to act
The plaintiff expended much time in his written and oral submissions suggesting that there was ‘significant doubt as to whether the counterclaim was properly authorised’ and submitted that the defendants ‘do not have any specific current instructions at all’.[12] It was inappropriate to raise these issues in an application by the defendant to amend pleadings. The proper course would have been for the plaintiff to bring his own application if he wished to agitate the issue.
[12]Plaintiff’s submissions, above n 9, [22], [24]; Transcript of Proceedings, Bannon v Nauru Phosphate Royalties Trust (No 2) (Supreme Court of Victoria, SCI 2015 03354, Ierodiaconou AsJ, 12 August 2016) 1-3.
In addition to being inappropriate, the plaintiff’s submission about authority was also misconceived. It relied upon Nauruan legislation, namely s 6 of the Ronwan Consolidation (Amendment) Act 2016 (Nauru) (‘Nauruan Amendment Act’) to assert that the Cabinet of the Republic of Nauru had assumed all functions and powers of the defendant from 31 July 2016.[13] On 16 August 2016, the defendant’s counsel produced legislation from Nauru to the Court, being the Ronwan Consolidation (Amendment No 2) Act 2016 (Nauru) (‘Nauruan Amendment No 2 Act’). Its veracity was not challenged by the plaintiff. The effect of ss 3 and 6 of the Nauruan Amendment No 2 Act is that the date in s 6 of the Nauruan Amendment Act is 31 July 2017, not 31 July 2016. Further, the defendant’s solicitor also filed an affidavit sworn 15 August 2016, confirming that she is being instructed by the Chair of the defendant’s board.
[13]Plaintiff’s submissions, above n 9, [22]-[24]; Plaintiff, ‘Affidavit of Kate Louise Wilkinson’, Bannon v Nauru Phosphate Royalties Trust (No 2), SCI 2015 03354, 11 August 2016 (‘Affidavit of Kate Louise Wilkinson sworn 11 August 2016’), Exhibit ‘KLW-34’.
Plaintiff’s submissions regarding further discovery and particulars
A directions hearing had been concurrently listed on the first day of hearing of this application. At the outset of that hearing, the Court indicated to the parties that it was hearing the summons to amend, and would deal with directions afterwards. Despite that, the plaintiff persisted in making submissions about discovery and particulars. This unnecessarily lengthened the hearing time.
Further observations regarding the plaintiff’s conduct
The plaintiff filed voluminous affidavit material. For instance, the affidavit of Kate Louise Wilkinson, solicitor, sworn 11 August 2016, contained 49 exhibits. There was no reference to most of the exhibits during oral submissions.
The plaintiff’s solicitors also prepared a ‘pleading matrix’ of 42 pages. It was not helpful to the Court.
Given this, and the matters discussed above, it is evident that overall the plaintiff’s response to this application was disproportionate to the issues in controversy. The consequence of such a response is that costs were unnecessarily incurred by both parties.
Amendments in contention
Amendments to the following paragraphs in the proposed amended defence and counterclaim were in contention:
Paragraph 15(b)(iv)
The plaintiff objects to paragraph 15(b)(iv) on the basis that there was no obligation on the plaintiff, even if he was under a fiduciary obligation, to inform the defendant that he claimed his contractual entitlement, being a right he had at law. It is common ground that the plaintiff was the Secretary of the defendant.[14] The defendant says in paragraph 5 of the defence, that while the plaintiff was acting as Secretary he owed the defendant fiduciary obligations. In paragraph 9 of the defence, the defendant admits the plaintiff was employed as Secretary of the defendant and says that as a Secretary, further or alternatively as an employee with the duties described in Schedule 1 to the Contract of Employment dated 24 August 2007, the plaintiff at all material times owed the defendant fiduciary obligations. Fiduciary obligations are defined in paragraph 5, including not acting in a position of conflict and not making an unauthorised profit. In paragraph 10, the defendant asserts that clause 2(a) of the employment contract required the plaintiff to act honestly and always in the best interests of the employer. Given these allegations, it is not fanciful for the defendant to assert that the plaintiff failed to act in its best interests by bringing to the attention of the Board the actual or prospective liability for director/secretarial fees and the substantial quantum of that liability. It cannot be said that these allegations have no real prospect of success. Whether or not the plaintiff had that duty of disclosure as a contractual obligation or a fiduciary one will be a matter for the trial judge to determine. Accordingly, the amendment to paragraph 15(b)(iv) is allowed.
[14]Plaintiff, ‘Statement of claim’, Bannon v Nauru Phosphate Royalties Trust, SCI 2015 03354, 29 June 2015, [5]; Defendant, ‘proposed Amended Defence’, Bannon v Nauru Phosphate Royalties Trust (No 2), SCI 2015 03354, 12 August 2016 (‘proposed Amended Defence’), [5].
Paragraphs 16A and 16B
Paragraph 16A of the proposed amended defence makes an assertion of waiver and estoppel. The defendant alleges the plaintiff relinquished any entitlement to the director/secretarial fees by not seeking them between August 2007 and 25 September 2014. Paragraph 16B says that by reason of the matters pleaded in paragraph 16A, the plaintiff’s claim for those fees is barred in equity by operation of laches.
The plaintiff says that the allegations of waiver, estoppel and laches do not follow from the alleged representations. Further, there is a ‘paucity of pleading’. The alleged waiver representation is defined in 16A(a). It cannot be said to be fanciful or to have no real prospect of success. Whether or not it is to be inferred by the plaintiff’s conduct is a matter for the trial judge to determine. Accordingly, the amendments to paragraphs 16A and 16B are allowed.
Paragraph 16C
Paragraph 16C is an allegation of representation and estoppel. The plaintiff objects to this amendment on the basis that the email relied upon did not support the representation alleged. The alleged representation is that the written employment contract presented by the plaintiff for execution was to formalize his employment and provided for remuneration consisting of a base salary of $80,000 per annum, with superannuation at 9% and the use of a company car. The email in question is exhibit ‘KLW-44’ to the affidavit of Kate Louise Wilkinson, sworn 11 August 2016. It states in part:
It can be seen from the contract the basis of my employment consists of a base salary of $80,000 per year, with superannuation at 9% and the use of a company car. Having reviewed the basis of my remuneration, I would like to highlight a number of issues for the benefit of the Board …[15]
[15]Affidavit of Kate Louise Wilkinson sworn 11 August 2016, above n 13, Exhibit ‘KLW-44’.
Given this, the allegation could not be said to be fanciful or to have no real prospect of success. It is arguable. Accordingly, the amendment to paragraph 16C is allowed
The plaintiff refers to a contract of employment dated 24 August 2007, which is four days after the email, and suggests that the representation could not be supported. How the negotiations to that contract, the email in exhibit ‘KLW-44’, and the contract of employment are interpreted are a matter for the trial judge to determine.
As to the plaintiff’s other objections to this amendment, the Court refers to and repeats its reasoning above in relation to paragraph 15(b)(iv).
Paragraph 16D
Paragraph 16D makes allegations of representation and estoppel. The representations are said to be in writing and contained in a document that the parties identify as exhibit ‘KLW‑45’. The plaintiff says that document does not support the allegation. The allegation by the defendant is that the plaintiff represented ‘that, upon approval by the defendant of a proposed salary increase to $140,000 per annum, the total amount payable to the plaintiff would increase above the amounts paid since April 2003 by $36,000’.[16] Exhibit ‘KLW‑45’, on its plain and ordinary meaning, refers to a base salary. The defendant’s submission that it refers to an increase in a salary, that questions why reference was not made to the largest component of the remuneration package which fundamentally changed his case for a salary increase, is rejected. One must go to the document relied upon, and the natural and ordinary meaning of it does not support the representation alleged. It is not reasonable or necessary to infer such a representation.
[16]Proposed Amended Defence, above n 14, 16D(a).
Proposed paragraph 16D is fanciful and has no real prospect of success therefore the amendment will not be allowed.
Paragraph 16E
Paragraph 16E, save for paragraph 16E(c)(ii), relates to a representation that the plaintiff allegedly made relinquishing any claim to fees in March 2013. The document relied upon is exhibit ‘KLW-46’. It states, relevantly:
Although payable under my contract of employment, I have not sought payment of the fees payable to myself under Schedule 2 Item 4, as a result of the continued receivership of the Trust and the associated tight financial liquidity associated with it.[17]
[17]Affidavit of Kate Louise Wilkinson sworn 11 August 2016, above n13, Exhibit ‘KLW-46’.
The plaintiff says that this document does not support the representation alleged. Schedule 2 Item 4 of the contract of employment relates to director/secretarial fees claimed. The passage referred to above from exhibit ‘KLW-46’ cannot be said to support the allegation that the plaintiff had relinquished any claim to the fees. Although he states that he has not sought payment, he does not state that he has relinquished any claim. The natural and ordinary meaning of the document relied upon does not support the representation alleged. It is not reasonable or necessary to infer such a representation.
Paragraph 16E(c)(ii) is an allegation, in the alternative, that there were terms of a variation to a contract or a collateral contract that were partly in writing and partly implied. It is alleged that the terms which were partly in writing are in exhibit ‘KLW-46’. The allegation is that an increase in remuneration was paid and the consideration from the plaintiff included a waiver to the director/secretarial fees. Exhibit ‘KLW-46’ does not, on its plain and ordinary meaning, provide any support for this allegation. This is not cured by the allegation that the terms are to be implied by law in order to give business efficacy to the arrangement between the parties.
Paragraph 16E is fanciful and has no real prospect of success therefore the amendment will not be allowed.
Paragraphs 28D and 43
Paragraph 28D alleges that the defendant has suffered loss and damage because of a direction by the plaintiff to its agents (or those of its subsidiaries) not to recover electricity payments in relation to a building tenanted by Jacobs Technology in Texas, United States of America.
Paragraph 43 of the counterclaim includes a proposed amendment to make reference to paragraph 28D. The plaintiff objects to this allegation on the basis that it is vague. Certainly, dates are not specified, save for prior to 2012, nor are the agents identified. The loss and damage is alleged to be not less than USD$396,416.66, with particulars said to be provided prior to trial. It cannot be said, however, that this claim is fanciful or that it has no real prospect of success. Further details will potentially be a matter for a request for further particulars, and perhaps subject to discovery. It will be for the defendant to prove this allegation.
For completeness, reference is made to the plaintiff’s submission that paragraphs 41, 43 and 28C should be struck out. The crux of the submission was that the defendant had no standing to bring a claim for receiver’s fees on behalf of associated entities. However, no amendment was sought to paragraph 28C or paragraph 41, and accordingly they are not the subject of this application. As to paragraph 43, the only amendment is to make reference to uncollected electricity payments in the heading, and to make a reference to paragraphs 28C and 28D. Given that paragraph 28C is not being amended, and it is therefore not the subject of this application, reference to it should be allowed. Regarding the reference to paragraph 28D, as that paragraph is being allowed, reference to it in paragraph 43 should be allowed. Further, it is noted that 28D relates to the allegation of uncollected electricity payments, not the receivership.
The amendments to paragraph 28D and paragraph 43 are allowed.
Paragraphs 42A and 42B
Paragraphs 42A and 42B concern allegations that during his employment by the defendant, unauthorised payments were made to the plaintiff or on his behalf which exceeded $2 million in total. The plaintiff made oral submissions that some of these claims were statute barred. The plaintiff was not able to identify exactly which of the claims were statute barred.
These allegations are not fanciful nor do they have no real prospect of success. If the plaintiff wishes to rely on Limitations of Actions Act 1958, then he can plead to that in his defence to the counterclaim. Whether or not that applies will then be a matter for the trial judge to determine, considering the application of that Act.
Paragraphs 42C and 42D
The allegations in 42C and 42D concern an alleged back payment made by the defendant to the plaintiff and a consequential tax remittance to the Australian Taxation Office for the plaintiff’s benefit. The plaintiff objects to them as being statute barred. The Court refers to and repeats its reasoning in the preceding paragraph. The plaintiff also objects to them on the basis that the alleged unauthorised back payment is not, he says, particularised. There are particulars provided to the allegation in paragraph 42C(b). If the plaintiff wishes to seek further particulars he can do so in the usual way.
Paragraphs 42C and 42D cannot be said to be fanciful or to have no real prospect of success. The amendments are allowed.
Amendment of the summons
On the first day of hearing, 12 August 2016, the defendant sought leave to amend its summons to refer to an updated version of the proposed amended defence and counterclaim. That proposed amended defence and counterclaim was handed up on 12 August 2016 and the Court was informed that it had also been given to the plaintiff’s solicitors the previous evening. The plaintiff objected to the amendment to the summons and submitted that the application is not supported by any affidavit.
The amendment to the summons will be allowed. The plaintiff cannot be said to be prejudiced by the amendment to the summons as he had the opportunity to consider the amendments and make submissions on 16 August 2016. Indeed, he did so and made comprehensive written and oral submissions on that date in response to the amended defence and counterclaim. The defendant’s summons was not supported by any affidavit at the time of filing. This is not fatal to the defendant’s summons. A draft proposed amended defence and counterclaim was filed with the summons.
Given the above, it would be contrary to the overarching obligations of the CPA to refuse the defendant’s application to amend the summons. It would mean that an earlier version of the defence and counterclaim that was filed with the summons would be the defence and counterclaim considered by the Court. That would not be cost-effective and nor would it be an efficient administration of justice. Further, the plaintiff made submissions on the proposed defence and counterclaim handed up on 12 August 2016. It is disappointing that the plaintiff, in those circumstances, did not take the sensible course and agree to the summons being amended.
The Court will allow the amendment to the summons.
Conclusion
The Court will make the following orders:
(1) The defendant has leave to amend its summons filed 27 July 2016 to refer to the amended defence and counterclaim handed up in Court on 12 August 2016; and
(2) The defendant has leave to file and serve an amended defence and counterclaim in the form handed up in Court on 12 August 2016 save for paragraphs 16D and 16E which are not allowed.
The parties will be given an opportunity to make submissions on costs if they wish to do so. At first sight, it appears to the Court that costs should be reserved as the pleadings raise Fair Work Act 2009 (Cth) allegations and the application of s 570 of that Act on any costs orders will need to be determined by the trial judge in due course.
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