Dolores Correa and the Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham (No 2)
[2012] NSWSC 794
•13 March 2012
Supreme Court
New South Wales
Medium Neutral Citation: Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham (No 2) [2012] NSWSC 794 Hearing dates: 13 March 2012 to 20 March 2012 Decision date: 13 March 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: The Spanish Club Limited removed as First Defendant and joined as Second Plaintiff in the proceedings. Detailed rulings on proposed amendments to pleadings. The Plaintiffs to pay the Defendant's costs thrown away by the amendments. Costs of the argument to be costs in the cause.
Catchwords: PRACTICE AND PROCEDURE - Joinder - Application for First Defendant to be removed as First Defendant and joined as Second and joined as Second Plaintiff in proceedings.
PRACTICE AND PROCEDURE - Amendment of pleadings - Whether amendments should be permitted under ss 58 and 64 of Civil Procedure Act 2005 (NSW).Legislation Cited: - Civil Procedure Act 2005 (NSW) ss 58, 58(2), 64
Corporations Act 2001 (Cth) Pt 5.3A, ss 182, 435C(3)(b)(i), 439ACategory: Interlocutory applications Parties: Dolores Correa (First Plaintiff)
The Spanish Club Limited (subject to Deed of Company Arrangement) (Second Plaintiff)
Kenneth Michael Whittingham (Defendant)Representation: Counsel:
V.R.W. Gray/M. Stevens (Plaintiffs)
S.D. Robb QC/N. Bearup (Defendants)
Solicitors:
Somerset Ryckmans (Plaintiffs)
Norton Rose (Defendants)
File Number(s): 09/290732
Judgment - EX TEMPORE
Joinder of The Spanish Club Ltd as plaintiff in proceedings
The Plaintiff, Ms Dolores Correa, applies, first, for an order that The Spanish Club Ltd (Subject to Deed of Company Arrangement) ("Club") be removed as First Defendant in the proceedings and joined as Second Plaintiff in the proceedings and, second, for an order that the Plaintiffs have leave to file a Second Further Amended Originating Process and Amended Points of Claim in the form marked "MFI 1".
The interlocutory process seeking such orders was filed on 20 February 2012, although it should be noted that the Amended Originating Process and Amended Points of Claim have been significantly amended since that time. The application was argued before me at the commencement of a 10 day hearing in these proceedings.
The application is supported by an affidavit of Mr Marc Ryckmans sworn 23 February 2012 which sets out the history of the proceedings. In particular, Mr Ryckmans notes that the proceedings were commenced by Ms Correa seeking an injunction to restrain a particular transaction in 2009. At that time, the Club was not joined as Plaintiff in them, since the Defendant, Mr Whittingham, in his capacity as deed administrator, had responsibility for its management. Control of the Club has subsequently reverted to its Board of Directors pursuant to a variation of the Deed of Company Arrangement and evidence has been led before me of a resolution of the Board authorising the application for the Club's joinder in the proceedings.
The application before me was not the first occasion on which the joinder of the Club as Plaintiff had been raised. By email dated 22 July 2011, Mr Ryckmans had raised that matter with the Defendant's solicitors, although the matter was not then resolved by consent and the application for an order joining the Club as Second Plaintiff was not brought until much later, in February 2012. It is unclear whether the joinder of the Club as Plaintiff will have any substantive effect in the proceedings. One possible impact noted in argument was on the question of defences of estoppel or waiver raised by Mr Whittingham, although Mr Robb, who appears for Mr Whittingham, noted in argument that any such impact may be limited since the Club has ratified Ms Correa's conduct of the proceedings in any event. Mr Robb has not identified any other specific prejudice to Mr Whittingham arising from the amendment, although he points to a potential interaction with other proposed amendments to the Originating Process and Points of Claim.
Section 64 of the Civil Procedure Act 2005 (NSW) permits the Court to order that leave be granted to a party to amend any document in the proceedings and provides that, subject to s 58 of the Civil Procedure Act, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings. Section 58 of the Civil Procedure Act in turn provides that, in deciding whether to make any order for the amendment of a document, the Court must seek to act in accordance with the interests of justice and may have regard to specified matters.
The application for the Club to be joined as Plaintiff was identified in correspondence some time ago and it plainly could have been made more promptly. However, it was also open to Mr Whittingham to restore the matter for directions in order to crystallise the issue at an earlier point and I do not consider that his complaint about lateness of the application has substantial force when that course was not taken. On balance, it seems to me that the joinder of the Club as Plaintiff is in accordance with the interests of justice so far as it will allow any challenge by the Club to Mr Whittingham's conduct to be determined on its merits and any defences raised by Mr Whittingham to be determined as between the Club and Mr Whittingham. In particular, it seems to me that the injustice to the Club of not permitting it to raise such claims as Plaintiff, and leaving open the risk that an issue might be taken as to Ms Correa's standing to do so, substantially exceeds any injustice to Mr Whittingham from the Club's joinder as Second Plaintiff, for the purposes of s 58(2) of the Civil Procedure Act. Accordingly, I propose to make the first order sought by Ms Correa.
Amendment of Originating Process and Points of Claim
Ms Correa (and, to the extent relevant, the Club) also seek leave to file a Second Further Amended Originating Process and Amended Points of Claim in the form of "MFI 1". Whether the amendments should be permitted is also to be determined by reference to ss 58 and 64 of the Civil Procedure Act. The amendments were the subject of argument before me and fall into several categories.
The first, and probably the most substantial, of the amendments to the Originating Process seek declarations that the administration ended on 19 December 2008 pursuant to s 435C(3)(b)(i) of the Corporations Act 2001 (Cth) because no meeting was convened within the time period specified in s 439A of the Act and that the Deed of Company Arrangement dated 19 March 2009 is not a deed of company arrangement within the meaning of Pt 5.3A of the Corporations Act. Those amendments are consequential upon an amendment to the Points of Claim, which impacts on several paragraphs of that document, to contend that Mr Whittingham was appointed as administrator on 14 November 2008 rather than 17 November 2008. That contention turns upon the circumstances surrounding Mr Whittingham's appointment which are dealt with in his affidavit sworn 9 September 2011. The Plaintiffs contend that they were not aware of those matters prior to service of that affidavit and the contrary was not suggested in Mr Whittingham's submissions.
Again, the application to amend the Second Further Amended Originating Process and the Points of Claim could and should have been made more promptly and the amendments have also, as I have noted, been further expanded since the original version of the interlocutory process seeking to amend those documents.
Mr Whittingham identifies two reasons why, he contends, the amendments should not be permitted. First, Mr Whittingham contends that he has been deprived of the opportunity to investigate whether the evidence of Ms Yolanda Sanchez could have been led as to the relevant matters. It is by no means clear that such evidence is likely to be relevant, where the points raised depend upon the terms of a resolution of directors and an instrument of appointment of administrator which are in written form and Mr Whittingham's uncontested evidence as to when he received them. To the extent that Mr Whittingham considers that such evidence is necessary, it seems to me that it should be narrow in scope and I anticipate that any question as to leading it can be addressed either by a short adjournment or by allowing Ms Sanchez to be called later in the proceedings if necessary, where the proceedings are to be heard over 10 days over a three-week period.
The second basis of opposition to that amendment is the impact of a declaration of invalidity of the Deed of Company Arrangement on third-party creditors who have not been joined as party to the proceedings. It is a matter for the Plaintiff to join the parties whose interests are affected in the proceedings and a judgment will only bind those parties who are joined to the proceedings. I do not consider that this matter provides a basis on which to decline leave for those amendments.
In my view, the amendments which relate to the date of appointment of Mr Whittingham as administrator are potentially significant, although they relate to the legal consequences of facts which are substantially the subject of Mr Whittingham's uncontested evidence; the interests of justice favour permitting those amendments; and the prejudice to the Plaintiffs of shutting them out of that contention significantly outweighs any prejudice to Mr Whittingham of permitting it.
Mr Whittingham has acknowledged in submissions that the proposed amendments to paragraphs 14A-14D of the Amended Points of Claim are consequential upon the amendments in respect of the date on which he was appointed administrator and they should be allowed on the same basis. Similarly, an amendment to paragraph (c) of the particulars to paragraph 8 is consequential upon that amendment and should also be allowed for that reason.
Ms Correa and the Club also seek to insert new particulars (q) and (r) in the particulars to paragraph 8 of the Points of Claim. Mr Whittingham resists the amendment to insert those particulars, first on the basis that the relevant matters are not pleaded as material facts; second, that they are particularised as circumstances known to Mr Whittingham but not separately as matters going to invalidity; and third, on the basis that they raise new factual issues which would require additional inquiries on Mr Whittingham's part.
In my view, the third basis of objection is the most fundamental. The allegation that no AGM of the Club had been held since 2005 and accordingly there was no valid board of the Club as at 14 and 17 November 2008 clearly raises a factual question as to the circumstances in which returns as to the appointment of directors over that period had been lodged with the Australian Securities and Investments Commission and may be capable of being addressed by further evidence as to the circumstances of directors' appointment. In that situation, I do not consider that I should grant leave to insert particulars paragraphs (q) and (r) in the particulars to paragraph 8 at this stage in the proceedings, particularly where the consequences of the amendment are uncertain and where they are alleged, not as the fact, but only as matters said to be known to Mr Whittingham.
An amendment is also sought to paragraph 19 of the Points of Claim, which Mr Whittingham contends amounts to the withdrawal of an admission that a second meeting of creditors convened on 22 December 2008 occurred pursuant to s 439A of the Corporations Act. It seems to me that the relevant pleading, so far as it is sought to be amended, relates to a matter of law and the withdrawal, if it is properly characterised as relating to an admission, is consequential upon the matters alleged as to the date on which Mr Whittingham was appointed. As I have noted above, it is not suggested that the Club was aware of those matters prior to service of Mr Whittingham's affidavit. In these circumstances, to the extent that leave were required to withdraw the admission, I consider that I should grant it and I consider that I should also grant leave to amend paragraph 19 in the manner that is sought.
Application is also made to allege a breach of cl 5.1 of the Deed of Company Arrangement, for example, in paragraph 53(d) of the Points of Claim. It seems to me that amendment is consequential on facts which are already pleaded and alleges a legal consequence of those facts. Accordingly, I see no prejudice to Mr Whittingham in permitting the amendment.
An amendment to paragraphs 71-71B of the Points of Claim seeks to introduce an alleged nondisclosure to creditors of the Club of the inclusion of a release of Mr Whittingham in variations to the Deed of Company Arrangement. It appears that the fact that such a release was included in the Deed of Company Arrangement is not contested, but there may be a contest as to whether that matter was disclosed at the time the variation to the Deed of Company Arrangement was put to creditors for their approval. It seems to me that any evidence of such disclosure, whether by way of the tender of documents or further affidavit evidence, would be in narrow scope, and again any prejudice can be addressed by a short adjournment or by case management in respect of the order in which witnesses are called. Again, it seems to me that the prejudice to the Plaintiffs of not permitting the amendment would exceed any prejudice to Mr Whittingham of allowing it.
In these circumstances, I make the following orders:
1. The Spanish Club Ltd (Subject to a Deed of Company of Arrangement) be removed as First Defendant in the proceedings and be joined as Second Plaintiff in the proceedings.
2. The Plaintiffs have leave to file a Second Further Amended Originating Process, and an Amended Points of Claim, in the form of the documents marked as "MFI 1", but excluding particulars (q) and (r) to paragraph 8 of the proposed Amended Points of Claim.
I propose, subject to hearing from counsel, that the costs of the application be costs in the cause but I will hear counsel on that question and I would also hear counsel on any question of adjournment or other steps which may arise from the amendments that have been permitted.
Further amendment to paragraph 71B of the Points of Claim
The amended paragraph 71B of the Points of Claim provided that the administrator failed to expressly disclose to creditors that a release would be included as part of the DOCA variations prior to the creditors voting in favour of variations to the DOCA. That matter was pleaded as a matter of fact. There was no express pleading as to the legal consequences of it but Mr Robb, who appears for the Defendant, has fairly acknowledged that the potential consequences of a non-disclosure to those voting on a resolution are unlikely to cause great surprise.
After I delivered judgment in respect of that amendment, the Plaintiffs indicated that they sought to make a further amendment to amend paragraph 71B to plead that the administrator failed to expressly disclose to members (as distinct from creditors) that a release would be included as part of the DOCA variations prior to the creditors voting in favour of the DOCA variations.
Mr Robb fairly pointed out that the immediate question posed by that amendment was the assumption, which is not otherwise pleaded by the Points of Claim, that there was a duty to disclose to members that a release would be included in circumstances that it was creditors rather than members who were voting on the relevant resolution. Mr Gray, who appears for the Plaintiffs, contends that the amendment is directed to an allegation of either a contravention of s 182 of the Corporations Act or, alternatively, a breach of fiduciary duty arising from a conflict of interest on the part of the Defendant or a preference of his own interests over the interests of members or possibly the interests of the corporate entity.
It must be borne in mind that the function of pleadings is not only to plead the material facts on which a party relies but also to give the other party fair notice of the case which it has to meet. It seems to me that an allegation of either breach of statutory duty or breach of fiduciary duty involving a conflict of interest is a significant allegation, which would need to be expressly pleaded if its consequence is not merely to found an attack upon validity of the resolution by reason of non-disclosure to the persons voting upon it but also to plead an independent cause of action against the Defendant. It is, I have noted, not pleaded in the Amended Points of Claim. In these circumstances I would not give leave to further amend the Points of Claim to introduce the allegation of a failure to disclose to members where there is no further pleading of its legal consequences.
I should note that such an amendment would, in any event, raise significant questions as to potential prejudice to the Defendant from being made at that late stage, even if it had been adequately pleaded. Mr Gray has indicated that his client seeks to maintain the pleading of paragraph 71B in its amended form, if the further amendment is not allowed. Although I am troubled by the suggestion made by Mr Gray in submissions that the allegation of failure to disclose is based on an allegation of possible inadequacy of disclosure rather than an allegation that a matter was not disclosed at all, I do not consider that that gives rise to a need to revisit the leave that I have earlier granted.
Costs
Both parties accept that I should make the usual order that the Plaintiffs pay the Defendant's costs thrown away by the amendments and I make that order.
I also order that the costs of this application be costs in the cause.
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Decision last updated: 19 July 2012
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