Casey v Loone
[2019] TASSC 47
•10 December 2019
[2019] TASSC 47
COURT: SUPREME COURT OF TASMANIA
CITATION: Casey v Loone [2019] TASSC 47
PARTIES: CASEY, James Timothy
CASEY, Vicki Maree
WATTLE PARK RURAL PTY LTD (ACN 139 998 897)
v
LOONE, Janice May
JANGRA PTY LTD (ACN 072 000 189)
CROWE HORWATH (AUS) PTY LTD (ACN 006 466 351)
FILE NO: 2418/2015
DELIVERED ON: 10 December 2019
DELIVERED AT: Hobart
HEARING DATE: 2 December 2019
JUDGMENT OF: Holt AsJ
CATCHWORDS:
Procedure - Civil proceedings in State and Territory courts – Court's supervision – Amendment – Originating process, pleadings etc – Amendment of defence – To raise proportionate liability defence – Leave granted.
Supreme Court Rules 2000 (Tas), r 427.
Aust Dig Procedure [1107]
REPRESENTATION:
Counsel:
Plaintiffs: S B McElwaine SC
First and second defendants: A Rodbard-Bean
Solicitors:
Plaintiffs: Shaun McElwaine + Associates
First and second defendants: Douglas & Collins Lawyers
Judgment Number: [2019] TASSC 47
Number of paragraphs: 28
Serial No 47/2019
File No 2418/2015
JAMES TIMOTHY CASEY, VICKI MAREE CASEY and
WATTLE PARK RURAL PTY LTD v JANICE MAY LOONE,
JANGRA PTY LTD and CROWE HORWATH (AUS) PTY LTD
REASONS FOR JUDGMENT HOLT AsJ
10 December 2019
The first and second defendants have applied for leave to amend their defence by including an allegation at par 5A that the claims of the plaintiffs are apportionable claims, so that any liability of the defendants is limited to an amount reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of the defendant's responsibility for the damage or loss.
The following is not in controversy on the pleadings. By an agreement made 10 November 2009 the first defendant, Mrs Janice Loone, sold to the first and second plaintiffs, Mr James Casey and Mrs Vicki Casey, real estate at Westbury on which the second defendant, Jangra Pty Ltd (formerly Loone's Rural Services Pty Ltd) conducted the business of selling rural supplies and services. By the agreement, the second defendant sold to the third plaintiff, Wattle Park Rural Pty Ltd, the business and the plant and equipment used in the conduct of the business. The agreement further provided that the third plaintiff would purchase from the second defendant the stock of the business at valuation on the completion date. The purchase price for the real estate was $650,000. The purchase price for the plant and equipment was $480,000 and the purchase price for the stock, as subsequently valued, was $571,365. The total was $1,701,365. The contract contained warranties given by the first and second defendants, whereby they agreed to indemnify the purchaser against any loss incurred or suffered in connection with any inaccuracies in financial information provided by or on behalf of the first and second defendants. Prior to the execution of the agreement the vendors provided the purchasers with financial information for the business. The contract was completed on 3 March 2010.
The plaintiffs say that the financial information provided induced them to enter into the contract and then to settle it and that the financial information was inaccurate with the result that the plaintiffs have suffered loss and damage and are entitled to damages and are entitled to an indemnity under the warranties. There is a further claim for damages against the second defendant, a company, for misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (which was in force at the relevant time) and a similar claim for damages against the first defendant, Mrs Loone, and the second defendant under the Fair Trading Act 1990 (Tas).
The proposed amendment contains an allegation that the plaintiffs' accountant, being the third defendant is a concurrent wrongdoer. It goes on to allege that the accountant, Paragon BDS Pty Ltd, prepared the financial information for the second defendant which was provided to the plaintiffs. Facts giving rise to a claimed duty of care owed by Paragon to the plaintiffs are set out along with facts giving rise to a claim that if the first and second defendants are liable to pay damages to the plaintiffs then so to is Paragon liable.
The plaintiffs' case has always been that the first and second defendants contracted to indemnify them in full for any losses which they may suffer as a result of inaccuracies in the accounting information provided. In other words, the claim included the claim that the first and second defendants had contracted out of the proportionate liability provisions. See Aquagenics Pty Ltd v Break O'Day Council [2010] TASFC 3, 20 Tas R 239.
The warranties alleged in the statement of claim filed 2 August 2016 are set out at par 3.4 which was and is as follows:
"The second schedule to the agreement titled 'Vendor Warranties' expressly provided, amongst other things as follows and under the heading 'Financial Information and Takings':
'(a) all the written information provided by or on behalf of the Vendor to or on behalf of the Purchaser, relating to past or current turnover, profits, expenses and any other financial information, is true, accurate and complete to the best of the Vendor's knowledge.
(b) the Vendor's accounts and financial statements which have been produced to the Purchaser have been prepared in accordance with generally accepted Australian Accounting Standards and Practices, give a true and fair summary of the financial position of the Business during those periods and are in all material respects true and correct to the best of the Vendor's knowledge.'
(the Warranties)."
The alleged inaccuracies in the accounts were originally set out at par 3.7(e) to (l) of the statement of claim of 2 August 2016. The plea was as follows:
"3.7 The sales memorandum, the trading account, the profit and loss account, the periodic trading account and the periodic profit and loss account contained:
(a) untrue, inaccurate and incomplete information;
(b)were not prepared in accordance with generally accepted Australian Accounting Standards and Practices;
(c)did not give a true and fair summary of the financial position of the business; and
(d)were not in all material respects true and correct to the best of the knowledge of Mrs Loone and LRS
in the following respects:
(e)asserted a gross margin of 16%, which was inconsistent with the margins disclosed in the trading account and the periodic trading account;
(f)disclosed sales for the business to 30 June 2008 in the sum of $4,317,441 when in fact such sales were $3,990,780;
(g)disclosed a gross profit amount of $793,116 to 30 June 2008 when in fact in that year the amount was $667,792;
(h)by calculation disclosed a gross profit margin for the year ended 30 June 2008 at 18.37% when in fact the amount was 16.73%;
(i)disclosed a net operating profit to 30 June 2008 in the sum of $70,925 when in fact the amount was a loss of $54,399;
(j)included for the years 30 June 2008 and 30 June 2009, sales revenue from other businesses conducted by LRS which were not the subject of the sale pursuant to the agreement and failed to make distinction between this revenue and revenue of the business the subject of the agreement;
(k)erroneously represented the gross margin percentage as at 31 March 2009 at 20.06% which, in turn, overstated the net profit to 31 March 2009 by $78,000;
(l)erroneously stated the level of trading stock as having increased from $785,097 as at 30 June 2008 to $985,700 as at 31 March 2009 which increase artificially inflated the total trading profit and total net operating profit to 31 March 2009."
Subparagraphs (e) to (l) have been redrafted by the plaintiffs in their amended statement of claim filed 18 July 2019. Paragraph 3.7 is now as follows:
"3.7The sales memorandum, the trading account, the profit and loss account, the periodic trading account and the periodic profit and loss account contained:
(a)untrue, inaccurate and incomplete information;
(b)were not prepared in accordance with generally accepted Australian Accounting Standards and Practices;
(c)did not give a true and fair summary of the financial position of the business; and
(e)were not in all material respects true and correct to the best of the knowledge of Mrs Loone and LRS
in the following respects:
(e)the financial statements to 30 June 2008 and to 31 March 2009 fail to accurately or correctly account for GST as they were prepared on a GST inclusive basis without a corresponding net GST adjustment to the derivation of the represented operating profit each of the periods in question;
(f)the effect of not accurately or correctly accounting for GST in the year to 30 June 2008 was to inflate the sales figure by $46,124.00 and for the period to 31 March 2009 to inflate the sales figure by $49,592.00;
(g)the further effect of not accurately or correctly accounting for GST was to reduce the net operating profit to 30 June 2008 from the disclosed figure of $70,925.00 to $24,801.00 and for the period to 31 March 2009 to reduce the disclosed net profit of $163,003.00 to $113,411.00;
(h)the failure to accurately and correctly account for GST had the further effect of distorting the gross margin to 30 June 2008 and to 31 March 2009;
(i)included for the years 30 June 2008 and 30 June 2009, sales revenue from other businesses conducted by LRS which were not the subject of the sale pursuant to the agreement and failed to make distinction between this revenue and the revenue of the business the subject of the agreement;
(j)the year-end financial accounts to 30 June 2008 and 2009 materially differed from the internal electronic records maintained for the business in that the 2008 financial year gross profit disclosed in the accounts was $793,116.00 when compared with the sum of $667,723.00 in the internal sales reports and the 2009 financial year gross profit as disclosed in the financial accounts was $934,043.00 when compared with the sum of $742,603.00 in the internal sales reports;
(k)the effect of the differences between the year-end financial accounts and the internal reports is to inflate the net profit as disclosed in the year-end financial accounts for the 2008 year by $125,393.00 and for the 2009 year by $191,440.00."
The defence, filed 12 August 2019, of the first and second defendants to the amended statement of claim contains the new assertion that the matters now pleaded as the alleged inaccuracies in the financial statements were not known to the first and second defendants. Paragraph 3.8A of the 12 August 2019 defence is as follows:
"3.8A Further and/or in the alternative to paragraph [3.8] above, the First and Second Defendants say that if:
(a)the sales memorandum, the trading account, the profit and loss account, the periodic trading account and the periodic profit and loss account were not 'true, accurate and correct' [as required by the Vendor Warranty at clause 3(a) of the second schedule to the agreement]; and/or
(b) the financial statements produced to the Plaintiffs:
(i)had not been prepared in accordance with generally accepted Australian Accounting Standards and Practices; and
(ii)did not give a true and fair summary of the financial position of the business conducted by the Second Defendant during those periods; and
(iii)were not in all material respects true and correct;
[as required by the Vendor Warranty at clause 3(b) of the second schedule to the agreement];
then
(c)the First and Second Defendants had no knowledge of the same as is specifically required to invoke the Warranties properly construed, and thus the terms of the Warranties have not been breached.
PARTICULARS
The First and Second Defendants refer to the wording of the Vendors Warranties set out in clause 22 of the agreement for the sale of the business and clause 3 of the second schedule to the said agreement.
The trading account, the profit and loss account, the periodic trading account and the periodic profit and loss account were all prepared by the Second Defendant's accountant then known as Paragon BDS Pty Ltd (now known as ACN 090 022 656 Pty Ltd] ('Paragon BDS') for inclusion in the sales memorandum.
The First and Second Defendants relied upon the truth and accuracy of the financial information prepared by Paragon BDS in providing the same to the Plaintiffs and did not know of the matters that are now alleged [which are not admitted but specifically denied]."
It is apparent from the foregoing that the first and second defendants were initially content to simply deny in their pleading the accounting inaccuracies as alleged. These alleged inaccuracies have now been replaced by a redraft including the introduction of a claim that some of the inaccuracies arose by reason of the incorrect treatment of GST. In relation to the alleged inaccuracies, as now pleaded, the first and second defendants say that they fall outside the contractual warranty as they were not inaccuracies known to them.
The first and second defendants' legal advisers take the view that the defence filed 12 August 2019 is confined to being responsive to the new allegations of accounting inaccuracies in the amended statement of claim and that they were entitled to file and deliver the new defence, under r 434, without first obtaining leave to amend. However, the plaintiffs filed a reply on 11 September 2019 taking a contrary view. Paragraph 2 of the reply is as follows:
"2It is not open to the first and second defendants to plead, and to rely upon, the defence that is pleaded at paragraph 5A, to the extent that it contends that Paragon BDS is a concurrent wrongdoer because:
(a) This defence is not a pleading of the first and second defendants to the amended pleading of the plaintiffs as set out in the further amended statement of claim filed on 18 July 2019, within the meaning of Rule 434 of the Supreme Court Rules 2000;
(b) Accordingly, the first and second defendants were required, but failed, to obtain leave to amend their pleading to introduce this defence;
(c)In consequence, this defence is of no effect; and
(d) The plaintiffs have suffered prejudice by reason of the failure of the first and second defendants to seek leave to amend for the reason that any claim that the plaintiffs may have had against Paragon BDS was barred by operation of the Limitation Act 1974, prior to the delivery by the first and second defendants of their amended defence."
Counsel for the first and second defendants made it clear that the position remains that the first and second defendants do not consider that leave to amend is required. He informed the Court that the amendment application has only been brought as a matter of precaution.
In support of the amendment application, counsel for the first and second defendants submitted that the defence was delivered promptly after the plaintiffs introduced the GST allegations and that the amendment application was filed promptly after receipt of the plaintiffs' reply.
Further, it was submitted that the existence and role of Paragon had been known to the plaintiffs from a time prior to the execution of the contract on 10 November 2009. This assertion was not in dispute. Counsel submitted that the plaintiffs could have joined Paragon when the writ issued in November 2015 and chose not to do so. Accordingly, if a claim by the plaintiffs against Paragon is now statute barred, that is the result of the plaintiffs' failure to issue the writ until a little over six years after they had executed the contract, a failure to serve the writ on the first and second defendants until 28 April 2016, being more than six years after the date of settlement of the contract and a failure to include the complaint about accounting for GST until almost ten years after the date of the contract.
As to prejudice, counsel for the plaintiffs submitted that any assertion on behalf of the defendants that the plaintiffs had lost the opportunity of successfully proceeding against Paragon by about the time the proceedings had commenced should not be accepted on the hearing of the amendment application. He referred to Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, where the plurality said at 533:
"We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question."
I accept counsel's submission and decline to express a view at this stage as to whether time had expired for the bringing of a claim by the plaintiffs against Paragon by the time the writ had been served on the first and second defendants.
However, if a claim by the plaintiffs against Paragon could now be met with a successful limitation defence that would be the result of the plaintiffs' decision not to join Paragon when the writ issued and then, if time had not yet expired, not to attempt to add Paragon when the plaintiffs had been given notice, in October 2016, of the intention of the first and second defendants to raise a proportionate liability defence.
Counsel for the plaintiffs submitted that the delay had not been explained.
Evidence was adduced on behalf of the plaintiffs which plainly shows that the first and second defendants were intending to amend the defence to include a proportionate liability claim from as early as October 2016. A letter from the solicitors for the first and second defendants to the solicitor for the plaintiffs dated 27 October 2016 was tendered. It included the following:
"I note at some point in the proceeding I will need to plead in the First and Second Defendants' Defence apportionment and concurrent wrongdoing. I simply give notice of that; it seems to me it would be more efficient to make that amendment after consideration of any expert reports as further amendment to the Defence would be likely then."
By late 2018 there had still been no application to amend. In a letter dated 28 November 2018 sent to the solicitor for the plaintiffs, the solicitors for the first and second defendants said:
"I refer to this matter, which was for mediation in September 2018. I note the Third Defendant's solicitors have written to you recently.
At the conference, it was indicated that you intended to amend.
I note we are holding off on our foreshadowed amendments to the defence, including the raising of concurrent wrongdoing by the accountants (both the Plaintiff's accountants at the time and the Third Defendant's) until after you finalise your pleading.
Are you able to give an indication about when you might provide your amended Statement of Claim?"
The uncontradicted evidence in an affidavit of the solicitor having carriage of the matter for the first and second defendants is that the last of the plaintiffs' expert reports was not delivered until about 5 September 2018. A scheduled mediation conference followed shortly thereafter on 18 September 2018 at which an amendment to the pleadings was foreshadowed by the plaintiffs. In my view, this evidence does disclose an explanation for the delay. The first and second defendants were awaiting detailed expert reports before formulating their proposed proportionate liability defence and within a short time after delivery of the last of the reports, the plaintiffs' solicitor had advised that it was intended to amend the statement of claim. The solicitors for the first and second defendants thought it best to await the amended pleading from the plaintiffs.
I consider it to have been reasonable for the first and second defendants, having given notice in October 2016 of the intention to plead a proportionate liability defence, to have deferred drafting the plea until the receipt of the plaintiffs' proposed accountancy evidence. The precise identification in the witness statements of the inaccuracies alleged was important to a consideration, in the context of the warranties, of whether or not the inaccuracies were of a type which it might be expected would be known to the first and second defendants. Having received the witness statements the first and second defendants were almost immediately informed that the statement of claim would be amended. In my opinion it was reasonable to await the final form of the plea asserting the accounting inaccuracies before submitting the proportionate liability defence.
There has been a satisfactory explanation for the delay.
There was evidence that it was likely that a considerable amount of time and money had been spent on the litigation between the time of notification of the intention to plead a proportionate liability defence, being October 2016, and the present. It was submitted that this may have affected the way in which the case was being prosecuted with the result that prejudice to the plaintiffs was self-evident. I accept that such prejudice has arisen.
Further, in opposition to the amendment application, counsel placed reliance on the observations made in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27, 239 CLR 175 where the plurality said at [111] – [113]:
"111 An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in J L Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court's earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future.
112 A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.
113 In the past it has been left largely to the parties to prepare for trial and to seek the court's assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings."
An order was made on 3 October 2019 directing that the action be set down for trial. A date is yet to be allocated, but I was advised by counsel that the trial is likely to be listed for hearing in April or May 2020. Counsel for the plaintiffs did not assert that the defence fails to comply with the rules of pleading and counsel did not assert that the amendment, if allowed, would delay a trial.
There is nothing to suggest that the lateness of the plea prevented the plaintiffs at the outset, or upon receiving notice in October 2016 of the intention to plead a proportionate liability defence, from joining or adding Paragon as a defendant. I have already said that I consider that the delay has been satisfactorily explained. As to the prejudice by way of wasted costs, referred to by counsel for the plaintiffs, the extent of that prejudice may be mitigated by an order, if it is just to make it, that the first and second defendants pay the plaintiffs' costs occasioned by or thrown away by reason of the amendment. Although the amendment application has been brought at a very late stage in the proceeding, if permitted, it will not delay the trial of the action and will not have an impact on other cases awaiting trial. Having regard to these considerations, I am persuaded that the justice of the case rests with the grant of leave to amend as sought.
I make the following orders:
(1)The first and second defendants have leave to amend the defence in terms of the document filed 12 August 2019.
(2)The requirement that the amended defence be delivered and filed as a consequence of the grant of leave is dispensed with.
(3)Any application as to the costs of the amendment application and the costs occasioned by or thrown away as a result of the amendment is to be listed for hearing at the request of any of the parties.
(4)I certify for the attendance of counsel on the hearing of the application.
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