Bufalo Corporation Pty Ltd (rec & manager app'td) (in liq) v Primelife Corporation Ltd
[2004] VSC 68
•15 March 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6668 of 1999
IN THE MATTER of s 246AA and 461(1)(k) of the Corporations Law
- and –
IN THE MATTER of Wattletree Road Developments Pty Ltd
- and –
IN THE MATTER of Sale Manor Gardens Pty Ltd
BETWEEN
| BUFALO CORPORATION PTY LTD (Receiver and Manager Appointed) (In Liquidation) and Ors | Applicants |
| - and - | |
| PRIMELIFE CORPORATION LTD and Ors | Respondents |
AND BETWEEN:
| PRIMELIFE CORPORATION LTD | Applicant by Counterclaim |
| - and - | |
| BUFALO CORPORATION PTY LTD (Receiver and Manager Appointed) (In Liquidation) and Ors | Respondents by Counterlaim |
| - and - | |
| DARRER MUIR FLEITER (a firm) | Third Party |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 August 2003 | |
DATE OF JUDGMENT: | 15 March 2004 | |
CASE MAY BE CITED AS: | Bufalo Corporation Pty Ltd v Primelife Corporation Ltd | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 68 | |
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PRACTICE – Amendment of statement of claim
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APPEARANCES: | Counsel | Solicitors |
| For the First Applicant | Mr J R Dixon | Tress Cocks & Maddox |
| No appearance for the 2nd to 4th Applicants | ||
| For the 1st and 4th Respondents | Mr S K Wilson QC and Mr W E M Lye | Russell Kennedy |
| No appearance for the 2nd and 3rd Respondents | ||
| For the 5th Respondent | Ms A J Evans | Minter Ellison |
| For the 6th Respondent | Mr M Koroneos | Holding Redlich |
HIS HONOUR:
The liquidator of Bufalo Corporation Pty Ltd ("BC") seeks leave to file and serve a third amended statement of claim. The application is made by an interlocutory process dated 20 May 2003 by which BC also sought an order adding Darrer Muir Fleiter ("DMF"), a firm of solicitors, and Gideon Isaac Rathner, the receiver and manager of BC, as respondents to the proceeding. On 23 May 2003 I ordered that DMF and Rathner be added as respondents. I also ordered that BC provide a proposed amended statement of claim and adjourned the application to amend. A proposed third amended statement of claim having been provided, I heard argument on the application to amend on 1 August 2003. DMF and Rathner neither opposed their joinder as respondents nor opposed the application to amend. The application was opposed by two respondents, Primelife Corporation Ltd ("Primelife") and Eduard Christiaan Sent. Sent is alleged to have been a director of Primelife since at least March 1997.
The proceeding arises out of a commercial relationship between BC and Primelife which broke down in 1999. BC commenced the proceeding by Notice of Motion (Special Application) on 30 August 1999. Initially BC was the sole applicant. Subsequently John, Joe and Tony Bufalo (“the Bufalos”) were added as applicants. John and Joe were directors, and Tony the general manager, of BC. Initially, the respondents to the proceeding were Primelife, Wattletree Road Developments Pty Ltd ("Wattletree Road") and Sale Manor Gardens Pty Ltd ("Sale Manor"). Sent was added as a respondent. They were the respondents until the joinder of DMF and Rathner. The joinder of DMF arose out of having acted as solicitors for BC, the Bufalos and Primelife, as appears from the pleadings referred to below.
At an early stage in the case pleadings were ordered. For present purposes the following is a list of the relevant Court documents:
(a)Notice of Motion (Special Application) filed 30 August 1999. An amended Notice of Motion was filed on 27 June 2003, the amendments not altering the statement of orders sought, but rather amending the title and showing the added respondents.
(b) Statement of claim dated 22 September 1999.
(c) Second amended statement of claim dated 26 October 1999.
(d) Defence of Primelife and Sent dated 10 December 1999.
(e)Counterclaim of Primelife dated 8 March 2000, and filed on 29 June 2000, by which Primelife sought orders against BC, John and Joe Bufalo and Sale Manor. Subsequently Tony Bufalo was added as a fifth respondent to the counterclaim.
(f) Defence to counterclaim dated 12 April 2000.
(g)Third party notice dated 11 May 2000 by which BC and John Bufalo claimed damages against DMF.
(h) Defence to third party notice dated 10 July 2000.
(i)Further and better particulars of the second respondent by counterclaim of the third party notice dated 16 October 2000.
(j)Claim between respondents: by Primelife against DMF for contribution/indemnity in respect of any recovery by BC, and other relief, dated 8 August 2003.
I have referred to the history of the litigation in two judgments and will repeat it only to the extent necessary.[1]
[1]Re Bufalo Corporation Pty Ltd (rec and mgr apptd) (in liq) [2002] VSC 107; on appeal (2003) 6 VR 317; Re Bufalo Corporation Pty Ltd (No 2) [2002] VSC 450; (2002) 43 ACSR 241.
On 10 August 2000 Rathner was appointed receiver and manager of BC by Primelife pursuant to a debenture charge dated 21 December 1998. He remains as receiver and manager. On being appointed, Rathner instructed solicitors, Holding Redlich, to act on behalf of BC in lieu of the solicitor who had previously acted for the applicants.
On 13 November 2000 the solicitors acting for John, Joe and Tony Bufalo ("the Bufalos"), Rosendorf Lawyers, acting pursuant to a direction of Warren J (as her Honour then was) filed a proposed third amended statement of claim. On 16 November 2000 Holding Redlich informed Rosendorf Lawyers that the amendments purported to amend BC's claim, that they had not been authorised by the receiver and manager, and that contemporaneous documents were inconsistent with the allegations. In the absence of substantiating evidence, the receiver and manager would take steps to discontinue the proceeding of BC at a directions hearing on 17 November 2000. At that hearing her Honour was informed that the receiver and manager wished to apply to discontinue BC's proceeding. The Bufalos responded to this by filing, on 27 November, an application for leave for them to continue the proceeding in the name of BC. Primelife and Sent responded, on 11 December, with an application for security for costs against BC and its directors if they were given leave to continue the claim. On 13 December the receiver and manager filed an application for leave to discontinue BC's proceeding or for an order that its proceeding be stayed until the directors indemnified BC. In an affidavit, the receiver and manager stated that he had legal advice that it was in the interest of BC to discontinue. The applications were referred to the Listing Master before whom they came on for hearing on 15 August 2001.
In the meantime, on 27 June 2001 the directors of BC, John and Joe Bufalo, appointed Gregory Stuart Andrews as administrator of the company. At the second meeting of creditors of BC held on 24 July 2001 it was resolved that BC be wound up and Andrews became liquidator, in which office he remains.
On being appointed administrator, Andrews commenced to seek information as to the affairs of BC, including the matters the subject of the proceeding. It was a large and difficult task.
On the basis that he needed more time in which to establish the nature and extent of BC's assets and liabilities and, in particular, the claims the subject of the proceeding, he sought an adjournment of the hearing before the Listing Master on 15 August. The adjournment being opposed, the hearing proceeded. It is sufficient to note the following.
As the company was then in liquidation, the Bufalos did not press their application for leave to continue BC's proceeding. Nor did they appear before the Listing Master and their application was dismissed with costs. Likewise, their application to further amend the statement of claim was dismissed with costs. The application of Primelife and Sent for security for costs against the directors was withdrawn with costs reserved and that application was otherwise adjourned to 14 November 2001[2]. On the receiver and manager's application the Listing Master gave him leave to discontinue BC's proceeding if the liquidator did not, by 4.00 pm on 30 October 2001, notify the receiver and manager that he proposed to continue BC's proceeding. If the liquidator notified that he proposed to continue the proceeding there would be a directions hearing on 14 November 2001.
[2]The question of security remains in abeyance.
The liquidator determined, on advice, that to facilitate his investigations he should have the benefit of examinations under s 596A and s 596B of the Corporations Act. On 8 November 2001 Byrne J made orders for the examination of nine persons including Sent and two other officers of Primelife, Anthony De Luca and Sandra Joy Porter. On 11 April 2002 I refused an application by Sent, De Luca and Porter to set aside the examination summonses directed to them; an appeal was taken from this decision to the Court of Appeal which, on 17 December 2002, ordered that the summonses be set aside[3]. All of the other examinees, who included Peter Mark Darrer, a partner in DMF, Rathner and the Bufalos, were examined.
[3]Re Bufalo Corporation Pty Ltd (rec and mgr apptd) (in liq) [2002] VSC 107; on appeal [2003] 6 VR 317.
In the meantime, the date by which the liquidator had to elect whether to continue with BC's proceeding had been extended, and it was ultimately extended to 16 May 2003.
Having taken legal advice, on 16 May 2003 the liquidator elected to continue the proceeding by BC and his solicitors wrote on that day advising of the election. The solicitors further advised that the liquidator intended to bring the matter on for directions on 23 May 2003 when orders would be sought for leave to join Rathner and DMF as respondents and to file and serve a further amended statement of claim.
I now refer in a summary way to the existing pleadings.
BC brought the Notice of Motion as a contributory of Wattletree Road and Sale Manor. As against Wattletree Road it sought: an injunction restraining it from giving effect to any resolution passed at a meeting of the Wattletree Road Syndicate scheduled for 31 August 1999; an injunction restraining it from signing any document relating to BC's purchase of the property at 410 Wattletree Road, Malvern; and an order that the company be wound up. As against Sale Manor it sought: an injunction restraining it from giving effect to any resolution passed to the meeting of the Manor Gardens Syndicate scheduled for 31 August 1999; an order that the shareholding of BC and Primelife in Sale Manor be recorded at 50 ordinary shares each; an order to the effect that BC and Primelife have an equal number of appointees on the board; an order regulating the conduct of the affairs of the company in the future including the negotiation of a contract of sale of the land at 57 Raglan Street, Sale with the vendor Confalo Enterprises Pty Ltd ("Confalo") as contemplated by Heads of Agreement between BC, John Bufalo, Primelife and Sale Manor, and the negotiation of a contract of sale of the business conducted by Newpark Pty Ltd ("Newpark") from premises on the said land with the vendor Newpark, the borrowing of monies due to the vendors to be secured by a mortgage over the said land, and the application of the borrowed monies (or such amount thereof as corresponds to the sum found to be owing by John Bufalo to Primelife) towards payment of Primelife in full satisfaction of the monies owing by John Bufalo to Primelife under a loan deed dated 21 December 1998. Pending completion of those matters concerning Sale Manor, BC sought an order restraining Primelife from taking any step against BC under the following documents dated 21 December 1998 – a guarantee given by John Bufalo to Primelife, and a debenture charge and a mortgage of securities granted by BC to Primelife.
Passing over, but not ignoring, the initial statement of claim, in summary the second amended statement of claim proceeded as follows. In or about March 1997 Primelife and BC made a joint venture agreement for the purchase, development, sale, management and/or operation of special accommodation homes and retirement villages. A raft of terms was pleaded with extensive particulars. BC's expertise was as a builder of such projects. Primelife had commercial experience in such matters and would arrange funding. There was a term as to sharing profits from the sale of developments. It was agreed that BC would become a shareholder in Primelife; and, as it transpired, BC became the holder of 563,202 ordinary shares and 258,712 convertible preference shares in Primelife. The statement of claim proceeded to refer to projects on a number of sites, in the course of which it dealt with the land at Wattletree Road, Malvern and Raglan Street, Sale. As to Wattletree Road, it was alleged that in about August 1998 Primelife and BC agreed to acquire and develop an aged care facility at the property. As to Raglan Street, in para 24 it was alleged that in about October 1998 Primelife and BC agreed that BC would procure Confalo and Newpark to sell Primelife a half interest in the property and business conducted thereat, and that BC and Primelife would further develop the property.
The reference to the various properties and related projects was followed by successive allegations of wrongful conduct in relation to them. Dealing only with the Wattletree Road and Raglan Street properties, the following allegations were made. As to Wattletree Road, Primelife had repudiated the application of the joint venture agreement to the project, which repudiation BC had accepted. In this respect the plea was similar to the other properties.
In relation to Raglan Street, the allegations were more complex. It was alleged that in breach of their agreement for equality, Primelife had caused to be allotted to it 51 per cent and to BC 49 per cent of the shares in Sale Manor; that Primelife had failed to pay John Bufalo, or BC, $320,000 in consideration of the allotment of shares; that Primelife had (wrongly) notified the Australian Securities and Investments Commission that John Bufalo had ceased to be a director and secretary and Joe Bufalo a director of Sale Manor; that Primelife had sought to sell the property and the business to Sale Manor notwithstanding the unequal shareholding; that Primelife had failed to join with BC to obtain funds in the name of Sale Manor secured over the property with which to retire a debt owed by John Bufalo to Primelife pursuant to a contract dated 21 December 1998 less the sum of $320,000; that Primelife had sold the property for $7M without the consent of John Bufalo or BC; and that Primelife threatened to enforce all security instruments given in its favour by BC, John, Joe and Tony Bufalo in connection with Primelife's loan to John Bufalo.
The loan to John Bufalo was pleaded thus: that by a loan deed Primelife agreed to lend John Bufalo $1,060,000. It was alleged that as security for the loan Primelife was provided the following – by Joe and Tony Bufalo and BC a guarantee; by BC a debenture charge over its assets and undertaking; by BC a mortgage of its interests in Confalo and Newpark; and by John Bufalo a mortgage of the shares held by him in Confalo and Newpark. The loan deed and the securities were dated 21 December 1998. It was then alleged that on 1 July 1999 Primelife made a demand on John Bufalo to pay $1,126,213.67 pursuant to the loan contract, and on the same day and subsequently made demands on BC and the Bufalos under the several securities. It was alleged that the demands were invalid as no amount was due under the loan contract.
The second amended statement of claim then alleged oppression against BC as a member of Wattletree Road and Sale Manor.
Then followed a quantum meruit claim by BC in relation to a number of the properties, followed by a plea of misleading and deceptive conduct against Primelife.
In the plea of misleading and deceptive conduct it was alleged that Primelife, by Sent, had represented that it would arrange for the agreement made in about October 1998 relating to the Raglan Street property to be documented so as to give effect to it. For reasons stated in particulars it was alleged that there were no reasonable grounds for the representation. It was further alleged that on about 21 December 1998 Primelife presented to BC and Tony, Joe and John Bufalo, for their execution the following documents in purported pursuance of the October agreement concerning the Raglan Street property, namely, an agreement entitled Manor Gardens Syndicate Agreement (“Syndicate Agreement”) to which BC, Primelife and Sale Manor were parties, an agreement entitled Sale Manor Gardens Pty Ltd Shareholders’ Agreement (“Shareholders’ Agreement”) between BC and Primelife, Heads of Agreement to which BC, John Bufalo, Primelife and Sale Manor were parties, and the John Bufalo loan contract and the related securities referred to above. The first three mentioned documents were also dated 21 December 1998. It was alleged that the conduct in thus presenting the documents conveyed the meaning that they recorded the October 1998 agreement. However, the conduct was misleading and deceptive in that the documents did not record the agreement but an agreement of entirely different and unintended kind. The shareholding should have been equal, and the obligation of Primelife to pay John Bufalo, or BC, $320,000 (which represented the purchase price payable by Primelife for its equity stake in Confalo and Newpark) was not recorded, thus in effect producing the outcome that Primelife received a 51 per cent interest in the land and business without paying the agreed sum of $320,000 to John Bufalo or BC.
Pleading reliance on the representation and conduct, and being induced thereby, on or about 21 December 1998 BC, Tony, Joe and John Bufalo executed the documents referred to. In particulars it is stated that the Bufalos did not obtain any independent legal advice as to the meaning and effect of the documents, were not afforded an opportunity to read them before they were signed, and DMF did not offer an explanation of the documents. (In a later paragraph DMF are stated to have been Primelife's lawyers, and that Sent knew DMF would carry out his instructions notwithstanding that DMF was in a conflict of interest insofar as in acting in relation to the documents they had a duty to advise BC and the Bufalos as to the documents). Tony Bufalo, and through him BC and Joe and John Bufalo, reposed total trust and confidence in Sent. The documents would not have been signed if their true effect had been known. In the result BC or John Bufalo had suffered loss and damage being the failure of Primelife to pay $320,000 for 50 per cent of the issued capital of Confalo and Newpark.
It is then alleged that Sent made the representation knowing it was misleading and deceptive. In particular, it is alleged, in essence, that Sent knew that the Bufalos would sign whatever was placed in front of them because of the trust they reposed in him, that Sent knew that he could take advantage of Tony Bufalo's total trust and dependency on him to secure signatures to any documentation he desired, and that DMF would carry out his instructions notwithstanding they were in a position of a conflict of interest insofar as DMF had a duty to advise BC and the Bufalos as to the meaning and effect of any documentation to give effect to the agreement alleged in para 24[4]. In the circumstances Sent was involved in Primelife's contravention of the Trade Practices Act and by reason thereof was liable to BC or John Bufalo for their loss and damage suffered as a result. That was the failure to pay the $320,000.
[4]See [16].
The second amended statement of claim concluded with the following prayer for relief. BC sought the winding up of Wattletree Road and Sale Manor; injunctions to restrain Primelife from acting on the notices to pay served under the guarantee and the debenture; against Primelife, damages and an inquiry in relation to several properties (other than Wattletree Road and Raglan Street); against Primelife and Sent, $320,000 and damages under the Trade Practices Act 1974 (Cth), s 87, and an order setting aside the Heads of Agreement; against Primelife, a taking of accounts to determine the amount owing under the loan contract and an order that upon payment of the amount owing BC's debenture and mortgage and John Bufalo's mortgage be released. For his part, John Bufalo sought payment of the $320,000 and injunctions restraining Primelife from acting under the notice to pay served under the loan contract and his mortgage of shares. Joe and Tony Bufalo sought injunctions in relation to the notice to pay served under their guarantee.
The defence denied that Primelife entered into any joint venture agreement with BC. Among the pleas are the following. The agreement concerning Wattletree Road was admitted although on the basis that the interests in the joint venture vehicle that acquired the property were to be 51/49 per cent in favour of Primelife. The agreement made in about October 1998 concerning the Raglan Street property was denied. As to the Sale Manor allegations, it was denied that Primelife's 51 per cent interest was in breach of any agreement with BC, and save to admit that it threatened to enforce the security documents, and to deny that such threat was in breach of any agreement, and to say that it had corrected notices to the Australian Securities and Investments Commission, it denied the allegations concerning Sale Manor. It admitted the John Bufalo loan contract, and the service of notices to pay under the contract and the securities, which notices were valid. Passing to the claim based on the Trade Practices Act, the defence denied the allegations and made the following positive allegations. First, that Primelife stated to BC that documents would be drawn for consideration by the Bufalo interests, and which would reflect that BC's shareholding was 49 per cent. Secondly, Primelife admitted all of the 21 December 1998 documents and alleged that they were drawn by DMF, solicitors acting on behalf of BC, Tony, Joe and John Bufalo and Primelife, and which documents were presented to BC, Tony, Joe and John Bufalo for their execution by DMF. It was denied that Primelife presented the documents for execution.
Primelife's counterclaim sought to enforce the documents concerning the Raglan Street property and Sale Manor, namely, the Heads of Agreement, the Syndicate Agreement, the Shareholders' Agreement, the BC debenture charge and mortgage and John Bufalo's mortgage against the respective respondents to counterclaim, an order that BC sell its shares in Sale Manor to Primelife and injunctions as to the disposition of shares in Confalo and Newpark. In the introductory part of the pleading, events which occurred on or about 21 December 1998 are set out. A participant in certain of these events was DMF who in respect of the receipt and passing on of certain monies, is referred to as BC and John Bufalo's solicitor. Further on, there are allegations concerning the Wattletree Road project as to which it was alleged that BC repudiated its obligation. There is no reference to DMF in this part of the pleading.
In the defence to counterclaim it is alleged that when BC and the Bufalos signed the various written agreements relating to the Raglan Street property and Sale Manor, they believed they were acting in furtherance of the terms of the joint venture agreement and the agreement referred to in para 24 of the second amended statement of claim. Further, the documents were executed in the circumstances alleged in the misleading and deceptive conduct part of the pleading. The Heads of Agreement, which provided for the sale of the Raglan Street land and business to Sale Manor and the price therefor, was liable to be set aside. This pleading was consistent with the second amended statement of claim. As to BC's debenture charge, it was alleged that BC granted it in the belief that it was a security only for the obligations of John Bufalo under the loan agreement. As to the alleged role of DMF on or about 21 December 1998, it was alleged that in fact DMF acted for all of the applicants.
Finally, there is the third party proceeding of BC and John Bufalo against DMF. The claim is solely directed to DMF's role in relation to the Raglan Street property matter, in particular the preparation and execution of the written agreements dated 21 December 1998, the advice given (or not given) by DMF to BC and the Bufalos, and for whom DMF acted at relevant times. In para 6 it was stated that if, which is not admitted, DMF in truth acted as solicitors for BC, Tony, John and Joe Bufalo in the preparation of the documents, they seek the remedies and relief against DMF set out on the grounds in the statement of claim endorsed on the third party notice. The pleading proceeded as follows. On or about 29 or 30 October 1998 John Bufalo and BC instructed and retained DMF to:
(a) Advise them generally in relation to the legal aspects of giving effect to an agreement reached by John Bufalo with Frank Cotronea on 27 October 1998 whereby, in essence, John Bufalo was to purchase the shares held by Cotronea in the capital of Confalo and Newpark and to retire a debt secured over the Raglan Street property in favour of the ANZ Bank, for a total sum of $1.125M.
(b) Conclude all legal matters related or incidental to the agreement.
(c) Do all things necessary to assist the liquidators of Confalo and Newpark to terminate the liquidation of those companies.
In particulars it is stated that the instructions to DMF were given by De Luca on behalf of John Bufalo and BC and that De Luca informed Darrer that he was to communicate with the Bufalos via De Luca and Primelife. The pleading alleges a number of matters were advised to Darrer concerning the transaction upon which he was retained and that, pursuant to his retainer, Darrer undertook negotiations with the liquidators of Confalo and Newpark, and Cotronea, and prepared agreements with them and the written documents dated 21 December 1998. Terms of the retainer of DMF are pleaded including the requirement to exercise due care, to advise John Bufalo and BC in relation to the subject matters including the documents needed to be prepared and their contents, meaning and effect, and that such documents would be prepared in a form as to protect the interests of John Bufalo and BC. At or about the same time as he prepared the documents Darrer also prepared the Heads of Agreement acting pursuant to instructions given by De Luca and Porter on behalf of Prime. In other words, Darrer acted for both parties. It is alleged that in various respects Darrer acted negligently and in breach of the firm's retainer. There was a failure to advise John Bufalo properly or at all as to the meaning and effect of his mortgage of securities, to advise BC properly or at all as to the meaning and effect of its guarantee, debenture charge and mortgage of securities. There was a failure to protect the interests of John Bufalo by drafting and allowing him to execute the BC mortgage of securities, and to protect the interests of BC by drafting and allowing it to execute the security documents. It was further alleged that negligently and in breach of the retainer Darrer failed to advise John Bufalo and BC properly or at all as to the meaning and effect of the Heads of Agreement and failed to protect their interests in drafting, on the instructions of Primelife, and allowing them to execute, the Heads of Agreement. As a result, John Bufalo and BC had suffered loss and damage. The loss and damage alleged to result from the negligence concerning the security documents is the liability alleged by Primelife in its counterclaim of $10.2M. The loss suffered as a result of the negligence in relation to the Heads of Agreement is stated in particulars to be as follows. The Heads of Agreement provided that John Bufalo and BC would procure Confalo and Newpark to sell the Raglan Street property and business to Sale Manor for $1,175,500, which was the same amount that John Bufalo had paid for only a one half interest in the land and business. Further, by reason of Prime holding 51 per cent of the equity in Sale Manor, it stood to gain a windfall interest in the Raglan Street land and business for no capital outlay. All this proceeded from the position that taken together John Bufalo and BC owned the entire capital of Confalo and Newpark.
It is convenient at this point to refer to the further and better particulars of the third party notice provided by John Bufalo. They identify the loss and damage which he claimed to have suffered as a result of the negligence of DMF in relation to the Heads of Agreement. The loss is: the failure by Primelife to pay the sum of $320,000 in consideration of the agreement for the allotment to enter the shares in Sale Manor, the failure by Primelife to join with BC to obtain funds in the name of Sale Manor to retire the debt the subject of the loan deed in the sum of $1,060,000, and consequential damages arising from a failure of the Heads of Agreement to reflect the true agreement reached between the parties.
DMF's defence to the third party statement of claim included the following. As to the allegation that on about 29 and 30 October 1998 John Bufalo and BC had instructed and retained DMF, who agreed to act for them, it was said that on 29 October 1998 De Luca of Primelife asked Darrer to act on behalf of BC and John Bufalo in relation to an agreement reached in principle with Cotronea and the liquidators of Confalo and Newpark. It denies acting pursuant to the alleged Bufalo retainer. It admits that it prepared the Heads of Agreement pursuant to instructions given by De Luca and Porter on behalf of Primelife.
It is convenient to make some reference to the proposed third amended statement of claim of the Bufalos dated 13 November 2000 in respect of which leave was never granted to amend, indeed the Bufalos' application to amend in accordance with it was dismissed. It was referred to in the argument before me because some of the pleas contained in it were a forerunner of, or foreshadowed, pleas made in the statement of claim in respect of which leave is now sought. Putting aside the areas in which the proposed amendment was in effect a recasting of the second amended statement of claim, the proposed amendment did the following things. It re-pleaded and expanded para 24 concerning the Raglan Street property to clarify the agreement (called the Sale Joint Venture Agreement) and the terms thereof. It deleted the section (paras 50 – 61) concerned with the loan by Primelife to John Bufalo and the giving of notices to pay. It expanded the section concerned with misleading and deceptive conduct to extend Primelife's representation to Tony Bufalo and through him to BC, John and Joe Bufalo, and alleged that the representation was that Primelife would arrange for the Sale Joint Venture Agreement to be documented. It alleged that Tony Bufalo, BC, John and Joe Bufalo relied on the representation and authorised Sent and De Luca to instruct DMF to act on their behalf. Alternatively, it was alleged that by reason of the terms of the joint venture agreement, the duty to act in good faith and in accordance with their joint interests, Primelife and Sent on the one hand and BC and Tony Bufalo on the other were under fiduciary obligations which in the case of Primelife and Sent meant that in giving instructions to DMF they would act in the interests of BC, Tony, John and Joe Bufalo, do all things reasonably necessary to ensure DMF acted in their interests, draw to their attention any respect in which the proposed documentation contained a provision adverse to their interests, draw to their attention any conflict of interest, and ensure that DMF received specific instructions from BC, Tony, John and Joe Bufalo. It alleged that Primelife and Sent knew that in preparing the documents dated 21 December 1998 DMF had preferred the interests of Primelife to those of BC, John, Tony and Joe Bufalo, that DMF had a conflict of interest in acting for the respective parties, and that the contents of the documents were not explained to them by Primelife, Sent or DMF. Finally, it alleged that it was just and equitable that all of the documents dated 21 December 1998 be set aside, alternatively that such order be made pursuant to s 87 of the Trade Practices Act, and that Primelife be ordered to take all steps necessary to remove the receiver and manager. The prayer for relief on behalf of each applicant was varied to request the setting aside of the relevant documents, in the case of BC being the Heads of Agreement, its guarantee, debenture charge and mortgage of securities. It also sought an order for the removal of Rathner as receiver and manager, damages and other relief. John Bufalo sought similar relief as to the setting aside of documents and damages, and Joe and Tony Bufalo sought similar relief.
I now refer to the proposed third amended statement of claim the subject of the present application. The first point to note is that it omits the existing pleading of the claims of the individual Bufalos. It includes only the claims of BC. Secondly, the amendment presents as though it is an initial statement of claim. There is no underlining or marking to indicate where the amendments occur. The length of it, running to 131 pages, in part due to the need to plead against Rathner and DMF, exacerbates the difficulty of identifying the amendments. As an aid to identifying the changes the liquidator's solicitors, pursuant to an order of Gillard J on 10 July 2003, provided a schedule which identified that which was new and that which was abandoned or, if maintained, where in the new pleading it was to be found[5]. The amendment is seen to recast the existing statement of claim, changing and reorganising much of it, omitting some claims, amending some claims, and adding others.
[5]The schedule is Exhibit LAW21 to the Affidavit of Leonard Adrian Warren affirmed 25 July 2003.
In his affidavit in support of the application the liquidator described the essence of the claims he intended to pursue, in addition or in advancement of those pleaded in the second amended statement of claim, and the resulting relief sought, against each respondent, as follows:
"13.1 Against Primelife …
(a)That a guarantee and debenture charge each executed by the Company on or about 21 December 1998 be set aside on the basis that the conduct of Primelife in obtaining the execution of such documents by the Company was unconscionable, involved undue influence, amounted to a breach of a fiduciary duty, and/or involved statutory misconduct in breach of the Trade Practices Act (Cth) 1974 by Primelife; and
(b)That Primelife compensate the Company for the losses suffered by the Company as a result of Primelife appointing a receiver and manager in circumstances where it was not entitled to do so.
13.2Against … DMF:
(a)In addition to claims based on breach of retainer and duty of care in the current third party proceeding to the counterclaim it will be alleged that Mr Mark Darrer, amongst other things failed to abide by his duty to act in the best interests of the Company in respect of the transactions evidenced by documents dated 21 December 1998 which resulted in the Company giving to Primelife the guarantee and debenture charge. Accordingly DMF should be obliged to compensate the Company for the subsequent losses suffered by it.
13.3 Against Mr Rathner as receiver and manager of the Company:
(a)That Mr Rathner, on the basis that the debenture charge pursuant to which he was appointed, should be [set] aside, and accordingly he is a trespasser to the Company's assets which trespass has caused the Company to suffer loss and damage;
(b)Alternatively, if the court finds that the debenture charge was properly created and that Mr Rathner was properly appointed as receiver and manager, that Mr Rathner breached his duties to the Company by engaging in conduct which preferred the collateral interests of his appointor. It will be alleged that the moneys secured by the charge were limited to $1.06m plus interest and incidentals. Rathner did not comply strictly with the term of his appointment and did not use his powers for sale for the purpose of repaying the second debt. He preferred the interests of Primelife as unsecured creditor to have its initial damages claim paid by the Company as a secured debt and as a result of such conduct the Company has suffered loss;
(c)accordingly Mr Rathner should compensate the Company for the losses so suffered."
The new statement of claim is so extensive and pleads so many matters that it commences with an index of 39 headings to facilitate reference.
Insofar as Primelife and Sent are concerned, the pleading commences in Section 2 with discussions between Tony Bufalo and Sent between about March 1997 and about April 1999 regarding the basis for a business relationship and which resulted in BC and Primelife becoming involved in transactions involving the development of aged care facilities at 12 identified locations, including the Wattletree Road, Malvern and Raglan Street, Sale properties. It is alleged that in the circumstances Tony Bufalo and Sent, and BC and Primelife were parties to a relationship of mutual trust and confidence. It is alleged, in essence, that in this relationship Primelife attended to the necessary documentation and formalities, and that BC relied on Primelife and Sent in these respects, and that to their knowledge BC mostly did not consult solicitors or other professional advisers to advise, negotiate or document its commercial relations with Primelife. The statement of claim proceeds to deal with the various properties. It does so in a seemingly more felicitous and informative way than hitherto, in particular concerning the Wattletree Road and Raglan Street matters.
The pleading in respect of the Raglan Street property matter, called the Sale Joint Venture Project[6] is extensive. Commencing with the agreement made on 23 October 1998[7], there is a long section[8] dealing with the events between October 1998 and March 1999 in respect of the Project. This brings in Darrer, who had acted for Primelife in relation to other of the projects, and who commenced to act for BC and the individual Bufalos on Sent's recommendation and representation that they needed a skilled commercial solicitor. Darrer received instructions from Primelife only, however, it did not instruct him with the 23 October 1998 agreement or as to its status. Nor did Darrer seek instructions from BC or the Bufalos. At all times BC and the Bufalos believed, and intended, that he act exclusively for them. There is an allegation that Primelife instructed Darrer to act, and that he appear to act, as solicitor for BC and the individual Bufalos. Darrer prepared the 21 December 1998 documents and left them with Primelife for it to present them to the Bufalos for execution. In fact, apart from the agreement with the liquidator of Confalo and Newpark, the documents were executed at a meeting with Porter on or about 22 January 1999, with no explanation being provided of their contents and believing they were considered by Darrer as that required by the 23 October 1998 agreement and which implemented the Sale Joint Venture Project. It is alleged that neither BC nor the individual Bufalos intended to give Primelife any security for the obligations of John Bufalo under the loan deed or intended to give Primelife a controlling interest in Sale Manor. In several respects the documents do not implement the Project and the 23 October 1998 agreement but a different agreement. In addition, Darrer acted in breach of Rule 10(2) of The Victorian Lawyers RPA Limited Professional Conduct and Practice Rules in acting for financier and borrower in connection with a loan or the provision of finance without obtaining the agreement of BC after fully informing it of the potential disadvantages to it of Darrer so acting. In January 1999 Darrer rendered an account for fees in respect to his services to Primelife, but never to BC or the Bufalos.
[6]Section 13.
[7]Para 13.1-13.3.
[8]Section 14.
Sections 23 and 24 are concerned with fiduciary obligations of Primelife. By reason of the matters alleged in Sections 2 and 14, Primelife undertook on behalf of BC to complete the negotiation and documentation of the Sale Manor Project with the liquidators and the Cotronea interests, instruct solicitors on behalf of BC, and document the agreement for the Sale Joint Venture Project. Further, Primelife and BC were joint venture partners, and BC expected that Primelife would act in its interest, and was further under a fiduciary obligation on and from 23 October 1998 not to pursue or obtain for itself any collateral advantage in relation to the Sale Joint Venture Project without the knowledge and consent of BC. Primelife breached its fiduciary obligations to BC in essence because the documents, contrary to the 23 October 1998 agreement and belief of the Bufalos, produced a situation that was commercially favourable to Primelife to the disadvantage of BC and the Bufalos. It was thus unconscionable for Primelife to enforce the debenture charge and guarantee given by BC.
Sections 25 and 26 plead fiduciary obligations and their breach by Darrer. Sections 27 and 28 plead contractual and tortious duties and their breach by Darrer. In essence, the breaches consist of a failure to advise or properly act for BC and the Bufalos, and to have acted in a manner that preferred the interest of Primelife.
Section 29 alleges unconscionable dealing by Primelife, based on BC, in respect of the events between October and December 1998, being at a special disadvantage in its dealings with Primelife. Particulars identify a list of matters as establishing a situation of special disadvantage. It was thus unconscionable for the debenture and guarantee to be enforced. Section 30 raises a plea of undue influence by Primelife by reason whereof the debenture and guarantee are void and ought be set aside. Section 31 pleads an estoppel against Primelife, based on an expectation of BC, induced by Primelife, that the relationship documented in the 23 October 1998 agreement existed between it and Primelife, and that Primelife was not free to withdraw or materially vary that legal relationship. On this basis Primelife could not assert an entitlement to any right or security other than that granted to Primelife by the 23 October 1998 agreement.
In Section 32 it is alleged that by reason of the invalidity of the debenture and guarantee Primelife was not entitled to serve notices to pay or demands on BC, or to have appointed a receiver and manager for BC.
The Trade Practices Act claims against Primelife and Sent are contained in Section 34. It is alleged[9] that the conduct of Primelife alleged in Section 14 was deceptive or misleading or likely to mislead or deceive, and that Sent knew it was, in contravention of s 52. It was also alleged[10] to have been unconscionable in contravention of s 51AA. Further to damages, BC was entitled to orders pursuant to s 87 declaring the debenture and guarantee void ab initio, or orders varying the documents or directing Primelife and Sent to pay BC its loss and damage. Sent's liability is based on him being involved in Primelife's contravention of the Act.
[9]In para 34.1.
[10]In para 34.4.
In Section 35 it is alleged that the conduct of Darrer alleged in Section 14 was deceptive or misleading in contravention of s 9 of the Fair Trading Act, and unconscionable in contravention of s 7 and s 8 of that Act, as a result of which BC had suffered loss and damage.
The statement of claim concludes with sections relating to Rathner, Corporations Act relief in respect of Wattletree Road and Sale Manor, and damages and an accounting.
There is now one composite prayer for relief commencing with the claims for the winding up of Wattletree Road and Sale Manor. That is followed by paras F-I which are concerned with the documents dated 21 December 1998. Paragraph F seeks a declaration that the debenture charge, guarantee, mortgage of securities and Heads of Agreement between BC and Primelife is and always was void, or alternatively be set aside. Paragraph G seeks a declaration that Primelife is estopped from enforcing the agreement. Paragraph H seeks an order pursuant to s 87(2) of the Trade Practices Act that the agreements are void ab initio, or alternatively on and after such date as the Court may specify. Alternatively, para I seeks a declaration that the monies secured by the debenture are limited to the monies owing under the loan deed.
A series of orders are then sought concerning the receivership. Paragraph J seeks against Primelife and Rathner a declaration that each has trespassed on the assets and undertaking of BC by the enforcement of the debenture. Paragraph K seeks an order that Primelife terminate the receivership, paragraph L seeks orders declaring the receivership is ended, restraining Rathner from continuing, and requiring him to deliver up possession of the assets and records. Paragraphs M and N are directed to Primelife being liable for the costs of the receivership, and for damages for the wrongful appointment.
Paragraphs O and P seek against Primelife and Darrer equitable compensation and damages.
Paragraph Q seeks against Primelife and Sent damages pursuant to s 82 of the Trade Practices Act.
Damages and accounts in respect of the projects referred to in Sections 3-9 are sought against Primelife, and an amount on the quantum meruit referred to in Section 10. Finally, there is a claim against Primelife for exemplary damages.
Submissions
Primelife and Sent provided written submissions in opposition to the application to amend. Their solicitor, Leonard Adrian Warren also made affidavits in opposition to the application. Counsel for the liquidator provided a written submission which responded to the submission of Primelife and Sent.
In short, the submission of Primelife and Sent raised several matters, namely:
(a) Preliminary matters –
(i)the claims of John, Joe and Tony Bufalo, whose claims are not included in the amendment, should be dismissed with costs.
(ii)BC should pay the costs of claims now abandoned by it, together with the costs of the application and costs thrown away by reason of any order to amend.
(b) Defects in the pleadings –
(i)the pleading of the claim against DMF under the Fair Trading Act 1999 is flawed because it relates to events that occurred prior to the commencement of the Act.
(ii) A list is provided of deficiencies in particular paragraphs.
(c)It would be unjust in all the circumstances to permit the amendments for the following reasons –
(i)Primelife may be denied a right of contribution and/or indemnity against DMF pursuant to the Fair Trading Act 1985, in particular –
· the right to claim pursuant to s 11,
· the ability to rely upon the statutory evidentiary presumption pursuant to s 10A,
· the ability to claim relief pursuant to s 37 and s 41,
· the right to avoid contribution claims at common law by DMF (which are not available under the Trade Practices Act 1974).
(ii)Primelife may be denied the right to cross-claim/counterclaim for relief under the Trade Practices Act by way of setting aside the loan agreement and security documents ab initio with all relevant monies advanced being repaid, and in particular –
· the right to claim pursuant to s 52,
· the ability to rely upon the statutory evidentiary presumption pursuant to s 51A,
· the ability to claim relief pursuant to s 82 and s 87.
· the ability to obtain relief upon a successful argument of estoppel against Primelife.
(iii)BC is estopped from seeking the amendments to set aside the security documents in circumstances where it has previously affirmed the proper making of the security documents, brought proceedings to enforce aspects of the security documents, and made admissions in its defence to Primelife's counterclaim as to the proper making of the security documents whereupon Primelife has acted to its detriment by, inter alia, appointing the receiver and manager and maintaining his appointment including indemnifying him, and further by expending monies by way of legal costs in the proceeding to date. BC's previous affirmations of the security documents have extended to other proceedings where decisions of the Court have been predicated upon the parties' proper entry into the security documents and where now if BC was entitled to resile from its previously stated position there could be inconsistent judgments and rulings in the Court.
In response, counsel for the liquidator submitted that all of the matters raised by Primelife and Sent are appropriately to be raised in a defence to the amended pleading. It was submitted that the factual basis of the claims has not materially changed, although it has been re-defined. Careful analysis of the existing pleadings demonstrates this. There cannot be any surprise to Primelife and Sent who had a broad outline of the evidence supporting the amended statement of claim since they were represented at and throughout the public examinations and had copies of all documents provided to the liquidator. It is the legal consequences of the facts that have now been more extensively pleaded. The amendment is necessary to allow the real questions in controversy between the parties, as now identified by the liquidator following an extensive investigation, to be decided. It has not been suggested that the amendments are futile or so obviously untenable that they ought not be permitted. Rather, Primelife and Sent rely on alleged prejudice to oppose the application.
Conclusions
I deal first with the preliminary matters raised by Primelife and Sent. The submission that the Bufalos' claims be dismissed was based on the fact that the omission of their claims appeared to involve their removal from the litigation. There should be an order disposing of the claims and dealing with the related costs to properly effectuate what the liquidator appeared to desire. Counsel for the liquidator stated that the Bufalos' claims had been removed on the understanding that their claims had already been dismissed with costs. If that was not the case, the claims could be put back in and remain pending their disposition. As counsel said, however, he did not act for the Bufalos and he could neither make an application, nor consent to an order, on their behalf. In these circumstances, and for the further reason that as I understand it, no notice of intention to seek such orders had been given to the Bufalos I would not make the order sought. I do not overlook that each of the Bufalos is now bankrupt, having been made such on the application of Rathner as receiver and manager, and that their trustee has abandoned their claims. Nevertheless I am of the view that proper notice should be given to the Bufalos before orders are made dismissing their claims. It would be convenient if this aspect could be clarified in order that, if the Bufalos' claims are able to be terminated, the case can proceed uncluttered by those claims.
The second preliminary matter was a request for costs in respect of the claims now abandoned by BC. I will deal with costs after hearing counsel in light of the resolution of the substantive matters.
The second broad area of complaint is defects in the pleading. The first aspect concerns the pleading against DMF. Counsel for Primelife and Sent recognised, and conceded that this was a matter to be raised by DMF and, in light of DMF's attitude to the proposed statement of claim, did not press the point.
The second area concerned a number of alleged deficiencies in particular paragraphs of the proposed statement of claim. On the basis that counsel for the liquidator would consider these matters, together with other such matters suggested by other parties, in finally settling the amendments before delivery, counsel for Primelife and Sent did not press the submission. If and to the extent that leave to amend is granted, it will be on terms that BC may file and serve an amended statement of claim substantially in the form of the proposed amended statement of claim. That is the form of order sought by counsel for the liquidator.
I now turn to the substantive grounds of opposition.
The amendments which concern Primelife and Sent are those which lead to the claim for the setting aside or variation of the BC security documents dated 21 December 1998. The documents came into existence in relation to the Sale Manor Project. Thus it is only the amendments relating to that project that are in question. Those amendments include the pleading concerning the retainer of DMF and DMF's acting up to the execution of the security documents. The amendment is significant in the context of the litigation. In the existing pleadings BC has sought the setting aside of the Heads of Agreement but not the security documents. BC has conceded the execution of the security documents, which continues to be the case, and disputed the amount that may be payable thereunder. If BC were to succeed on the amendment at trial, the amount payable by BC to Primelife and recoverable under Primelife's counterclaim would be reduced accordingly. To that extent the amount recovered by BC in the proceeding would not be liable to be paid to Primelife under the debenture.
In these circumstances it is understandable that, subject to the alleged deficiencies in the pleading referred to earlier, the submission did not take the form of an attack upon particular paragraphs as not disclosing a cause of action or as being embarrassing in the pleading sense. Rather, the objection was:
(a) based on prejudice
(b)on the ground that new claims under the Trade Practices Act were barred by the effluxion of time, and
(c) that any amendment should take effect from the date of the order.
It is perhaps worth developing the above observations on the opposition a little more. It was not submitted that BC's application to amend must fail in relation to a particular paragraph or paragraphs of the proposed amendments, or as to a claim or claims stated in the prayer for relief, or part thereof. The submission was thrown in the air, so to speak, with heavy and generalised reference to the amendments constituting a "back flip" without engaging in a close consideration of the terms of the amendments themselves. The change of course in the pleading to seek the setting aside of the security documents, as distinct from raising issues as to the amount that might be payable thereunder, is evident, although it must be noted that the same amendment had been sought in the proposed third amended statement of claim dated 13 November 2000 put forward by the Bufalos. In other words, to that extent Primelife and Sent have been on notice since then. Indeed the point can be taken further, because the second amended statement of claim sought the setting aside of the Heads of Agreement, being one only of the documents executed on 21 December 1998, at least according to the date of the document.
It was submitted that it was unjust to permit "the amendments". But, to be precise, what were "the amendments"? Was it the whole or only a paragraph here or there? It became apparent that it was the former. In other words, it was the pleading of the claim relating to Sale Manor. The blanket form of counsel's oral and written submissions made this clear. The written submission referred to the principal areas in which BC seeks to make new claims arising from the facts and circumstances in Sections 12, 13 and 14 which give rise to the security documents including the alleged retainer of DMF. The written submission stated that the causes of action arising from these principal areas are: breach of fiduciary obligation (Sections 23 and 24), unconscionable dealing (Section 29), undue influence (Section 30), equitable estoppel (Section 31), trespass (Section 32), wrongful appointment of receiver and manager (Section 33), and Section 51 of S 51AA of the Trade Practices Act. In other words, none of this was to be permitted. That is the best I can do in attempting to identify the actual part or parts of the amendments in respect of which leave should be denied.
With these observations I turn to the objections commencing with the submission that it would be unjust to permit the amendment. In considering these and the other submissions I have regard to the authorities to which counsel referred.
The first basis of objection is that Primelife might be denied a right of contribution and/or indemnity against DMF pursuant to the Fair Trading Act 1985. It was submitted that if the submission "could be" right there was, ipso facto, non-compensable prejudice and the amendments must be refused accordingly.
Primelife submitted that if BC's claims regarding the validity of the security documents were made out, Primelife would wish to seek contribution from DMF. The essence of the claim would be that in acting for Primelife and simultaneously providing advice to BC, DMF had a duty to properly advise Primelife and not act in conflict with their duty to Primelife. Any representations DMF made to Primelife are matters for which Primelife would be entitled to claim relief under s 11 of the Fair Trading Act 1985. The representations by DMF to Primelife include that BC was told to obtain independent legal advice, which was false according to BC. It was submitted that any claim that Primelife might now have against DMF under the Fair Trading Act 1985 would be extinguished as the limitation period for an action under that Act is three years, which time had expired.
Primelife's counsel acknowledged that Primelife would have, as he described it, rights at common law and equity against DMF, its solicitors, which would enable "a claim in contract, and so forth". But, he said, the issue would be whether Primelife would be able to obtain the same relief as it would under the Fair Trading Act, or any relief other than damages. The essential point seemed to be, based on the decision in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd[11], that DMF could not seek contribution from Primelife on a claim by Primelife for contribution under the Act.
[11](2002) 210 CLR 109.
There seem to me to be several answers to this submission.
In the first place, Primelife has rights independent of the Fair Trading Act to seek contribution from DMF. Counsel did not elaborate upon the nature of those rights, other than as I have mentioned, but they seemed clearly enough to follow from the solicitor/client relationship. It is not at all clear to me that in the circumstances any relief that Primelife might obtain, or have been able to obtain, under the Fair Trading Act would be anything other than monetary as a measure of the loss sustained by the upholding of BC's claim. Furthermore, the making by Primelife of a claim under the Fair Trading Act would not preclude it from seeking such contribution from DMF by way of its rights outside the Act.
Further, Primelife's submission is premised upon the time for claiming under the Fair Trading Act having expired. On that issue counsel for Primelife relied upon Keen Mar Corp. Pty Ltd v Labrador Park Shopping Centre Pty Ltd[12] where the instrument under which losses occurred was a lease and the lessee claimed damages relying on representations which induced entry into the lease. The present case, however, concerns security documents under which there is a contingent liability or loss, and in such a case the High Court held in Wardley Australia Limited v The State of Western Australia[13] that time does not begin to run under s 82(2) of the Trade Practices Act until the loss crystallises, in that case by the ascertainment and quantification of the amount to be indemnified. Counsel for BC submitted that in this case time commenced to run on the practical enforcement of the securities constituted by the appointment of the receiver and manager on 10 August 2000. Prior to that appointment, the Fair Trading Act had been repealed with effect from 1 September 1999 and replaced by the Fair Trading Act 1999 under which the limitation period is six years. It seems to me that this analysis is correct subject only to argument as to when time commenced to run. As to that, however, I do not accept Primelife's submission that time commenced to run on the execution of the documents. Primelife's counsel suggested several other dates in 1999 or the date of the counterclaim in March 2000, but in the absence of the security documents these are mere asserted dates unrelated to the terms of the documents, and any related facts, to all of which attention must be had to determine the issue as to when time commenced to run.
[12](1988) ATPR 40 – 853 at 49, 185.
[13](1992) 175 CLR 515.
The failure of Primelife to be more specific as to its claims under the Fair Trading Act renders limits to the present discussion. I have ventured my view as to the nature of the claim. On that view Primelife is not prejudiced even if a claim under the Fair Trading Act is barred by time. But I am not satisfied that any such claim would be barred by time or that the Fair Trading Act 1985 is applicable. Indeed, as BC submitted, time may not have commenced to run in respect of loss resulting from Darrer's alleged conduct until October 2000 when notice of intention to challenge the validity of the debenture was given, or even later. The fundamental point is that Primelife's submission involved a degree of speculation as to the nature of a contribution claim that had not been drawn or more precisely identified when I heard the argument. It seemed to me at the time that there was an element in Primelife's submissions that if sufficient was thrown in the air as to raise doubt as to whether time had run then the proper course for the court to take was simply to refuse the application. In my view the circumstances as they were placed before me do not provide a satisfactory basis on which to find prejudice or a sufficient risk thereof which, as submitted by Primelife, warrant the wholesale rejection of the application to amend.
I note that following the hearing, in fact only seven days later on 8 August 2003, Primelife filed its claim against DMF for contribution and other relief. It may be seen as giving content to the general submissions as to the nature of the claim at the hearing. The claim is expressed to be premised on leave to amend being granted. It is stated that if BC's allegation as to DMF taking instructions exclusively from Primelife while acting for BC and the Bufalos including preparing the 21 December 1998 documents is upheld, and BC is entitled to claim the relief in paras F – Q of the proposed claim, Primelife claims that DMF acted:
(a) in breach of the contract of retainer between Primelife and DMF,
(b) negligently in breach of DMF's duty of care to Primelife;
(c)in breach of s 11 of the Fair Trading Act by virtue of express or implicit representations by DMF to Primelife, and
(d) in breach of DMF's fiduciary duties to Primelife.
In those premises Primelife claims to be entitled to contribution and/or indemnity from DMF to the extent that BC recovers any damages or other monetary relief against Primelife, damages, relief pursuant to the Fair Trading Act, interest and costs. The notice does not specify whether the Act of 1985 or 1999 is referred to.
The notice must be intended as a notice given under rule 11.15 of the Supreme Court Rules and, as such, it was required to be endorsed with a statement of claim. While a statement of claim is not endorsed, the notice has triggered a process of pleadings which will identify the issues between DMF and Primelife including any issue as to whether the claim under s 11 of the Fair Trading Act 1985 is time barred and if so as to when, and as to damage including as to when it might have been suffered. The issues thus raised can then be determined in light of the facts ascertained at trial.
Finally, it is hardly to be overlooked that since the 13 November 2000 proposed third amended statement of claim, Primelife has had notice that the BC directors at least wanted the securities set aside, and there are the earlier allegations in the second amended statement of claim and third party notice concerning Darrer which are included in the present amendment. Of course there is a difference, from the point of view of an opposite party, between taking steps to meet a claim made, and the action if any to be taken in relation to a claim that may be anticipated. Nevertheless there was notice and the point could not have been very surprising.
I now deal with the submission that Primelife may be denied the right to claim for relief under the Trade Practices Act. Counsel did not argue the estoppel point under this heading. The concern expressed by the submission is this. Primelife wants to be able to meet BC's claim to set aside the securities with a claim that any setting aside be conditional upon account being taken of the benefit of Primelife's loan to John Bufalo or BC. In other words, BC should not be able to achieve a windfall gain of the benefit of the loan to obtain a shareholding in Confalo and Newpark, without the need to repay or otherwise account for the benefit. It was submitted that a way of Primelife obtaining an order that any setting aside be on condition of repayment of monies advanced, or other appropriate terms, was pursuant to s 87 of the Trade Practices Act. It was, however, acknowledged that there were other ways to such relief in the proceeding, and that is plainly so. A court will not set aside a security instrument willy nilly. It will ordinarily only be on terms that avoid the borrower achieving a windfall gain; see, for instance, Maguire v Makaronis[14]. It is not essential that the lender have a formal claim, under s 87 of the Trade Practices Act or otherwise. A court of equity and a court being invited to exercise power under s 87 will seek to achieve a just result including by the imposition of terms. That the Bufalos are now bankrupt and would apparently be unable to repay what the court may conclude should be paid, if anything, is a matter for the court to consider in reaching a conclusion.
[14](1997) 188 CLR 449.
The next submission concerned prejudice that arose from an estoppel in the circumstances referred to above. In particular, the circumstance that by not previously seeking the setting aside of the BC security instruments, BC had led Primelife to the view that the instruments were valid and it could act thereunder. At the outset of his submissions Primelife's counsel stated that any prejudice on this account could be met by a pleading in the defence. That is, the issue could be dealt with in the pleadings. I agree, and add that in my view all of the matters that are raised under this heading in the written submission may, and should, be dealt with in the pleadings and determined at trial in light of the facts as they are found to be. There is no relevant prejudice in that course.
Lest it be thought I have overlooked the submission I note the following. The submission as to inconsistency of pleading or withdrawing an admission misses the point. It is permissible to amend. Inconsistency is avoided by amending the first pleading and making claims in the alternative. A later pleading of a party in the proceeding can be amended to produce harmony. Further on the matter of inconsistency, and I consider this generally also in relation to discretion, the transcript of an interview with Tony Bufalo is not an adequate basis on which to conclude that the proposed claim should be rejected as inconsistent with the fact, or to warrant denying the liquidator an amendment to bring the case he considers appropriate for determination. There is no substance in the "about face" or "back flip" argument as a party is permitted to amend if it is otherwise just to do so, which depends upon all of the circumstances. The matters of approbation and reprobation and other proceedings are among the points proper for pleadings and factual analysis. The reliance on case management is utterly without substance. The effect of Primelife acting on the basis of BC's pleadings is a matter for pleading and the ascertainment of the facts at trial including the basis upon which Primelife acted at any relevant time.
For these reasons I am of the view that it is just that leave be granted to permit BC to amend as sought. In that event Primelife submitted that in order to preserve its right to rely on the period of limitation in s 82(2) of the Trade Practices Act, the amendment should take effect from the date of the order. The exception was not sought in respect to the amendments that relate to the other bases of claim. Indeed there was no suggestion of a time bar in relation to them, and none has been pleaded. Nor, it must be pointed out, was it suggested that the existing claims under the Trade Practices Act are at risk because of the time bar in s 82(2) or any other provision in the Trade Practices Act, and no such bar has been pleaded in the defence to date.
The claim against Primelife and Sent under the Trade Practices Act, as it is presently expressly stated in the pleading, is for damages suffered as a result of the pleaded contraventions of the Act. The Trade Practices Act pleading and the prayer for relief do not expressly state that the Heads of Agreement should be set aside under the Trade Practices Act. Yet it was plainly open on the pleading to seek such relief under s 87 of the Trade Practices Act, and so much must have been apparent. The proposed third amended statement of claim dated 13 November 2000 got itself to this position by including a claim under s 87 in the prayer for relief. It has been taken further in the presently proposed third amended statement of claim by including in para 34.6 and para 34.10 and in the prayer for relief claims to set aside the documents under s 87. That has served to draw out from the stratum of facts in the pleading what has been there, namely, serious allegations which if correct could provide the basis for a claim for the setting aside of the BC security documents. Those allegations include ample reference to DMF and its role, and were sufficient to have caused Primelife and Sent to make some positive pleas about DMF in their defence and counterclaim.
The point of Primelife's submission is to ensure that it is able to rely on the time bar in s 82(2) in its defence to the presently proposed Trade Practices Act claim. Putting aside whether, since the 2001 amendment to the Trade Practices Act the relevant period is now six years, the present claim was instituted within the period of three years specified in the former s 82(2). Hence no question of the limitation period can arise in relation to the Trade Practices Act claim as found, expressly or inferentially, in the present pleading. Primelife's repeated reference to a "back flip" in the case cannot alter that fact. That which is now in the pleading is to remain and, as to that, there cannot be any question of a time bar. What is now sought to be done is to incorporate expressly a claim under s 87 that the BC security documents be set aside. It is to that extension only that Primelife's contention can apply. In other words, in relation to the claim in paras 34.6 and 34.10, that the amendment have effect from the date of the order granting leave.
In my view, considering all the circumstances of the case, it is just and equitable that the amendment operate in the usual way, and that no order should be made that the amendments or any part of them take effect from the date of the order or any other date subsequent to the commencement of the proceeding. Accordingly, and being of the view that there is no prejudice to Primelife and Sent that cannot be met by an order for costs and appropriate directions for the conduct of the case, I will give leave to BC to amend. I will hear counsel as to costs and directions for the further conduct of the proceeding.
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