Dugan v Process Holdings Pty Ltd (No 3)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2019 04063

CRAIG FRANCIS DUGAN and others	Plaintiffs
v
PROCESS HOLDINGS PTY LTD (ACN 138 041 488) and others	Defendants

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JUDGE:	LYONS J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 October 2021
DATE OF JUDGMENT:	12 November 2021
CASE MAY BE CITED AS:	Dugan v Process Holdings Pty Ltd (No 3)
MEDIUM NEUTRAL CITATION:	[2021] VSC 737

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PRACTICE AND PROCEDURE – Whether amendments to defence should be allowed – Whether amendments to defence have real prospect of success – Factors to be taken into account in the exercise of the Court’s discretion – Amendment allowed.

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APPEARANCES:

Counsel

Solicitors

For the Plaintiffs

Mr S. Marks QC with
Mr B. Gibson

Thomson Geer

For the Second to Thirteenth and Fifteenth Defendants

Mr P. G. Cawthorn QC with

Mr S. Freire

Cornwalls

HIS HONOUR:

INTRODUCTION

I delivered reasons for judgment in relation to three applications in this proceeding on 9 September 2021.[1] For convenience, I will use the terms defined in the Reasons. Relevantly, I dealt with the plaintiffs’ strike out application seeking to strike out certain paragraphs of the amended defence and the defendants’ amendment application made in response to the strike out application.
[1]Dugan v Process Holdings Pty Ltd [2021] VSC 555 (‘Reasons’).

Each application was allowed in part. Relevantly, I struck out paragraphs of the amended defence:

(1) seeking to rely upon a proportionate liability defence under the ACL on the basis that it was not available at law;

(2) alleging a failure to mitigate loss without any material facts or particulars; and

(3) alleging positive defences to allegations of reliance and causation without pleading the material facts.

As to the issues of reliance and causation, in the Reasons I indicated that it may be open for the defendants to plead and establish such issues but that, on the basis of the allegations in the amended defence, these issues had not been identified or articulated in the amended defence or the amendments proposed in the PFAD.[2]
[2]Reasons, [187].

In accordance with the orders made pursuant to the Reasons, on 27 September 2021, the defendants filed amended defences. I will refer to these collectively as the ‘further amended defence’.

The defendants now seek leave to amend the further amended defence to address the issues identified in [2] above. I will refer to the proposed amended pleadings as the proposed second further amended defence (‘PSFAD’) and the amendments in them as the PSFAD amendments.

The plaintiffs oppose the PSFAD amendments for a number of reasons. First, the PSFAD amendments do not disclose arguable defences. Second, the PSFAD amendments relating to reliance, causation and loss would expand the factual issues at trial delaying the hearing and determination of this proceeding. This is in circumstances where the proceeding was issued in September 2019 and witness outlines and expert evidence were filed by mid-2021.

In response, the defendants submitted that the PSFAD amendments disclose arguable defences. As to any expansion of issues, they noted that some of the factual issues raised by the PSFAD amendments have been the subject of discovery and of witness outlines. In these circumstances, where an outstanding discovery and privilege application remains to be determined and no trial date has been fixed, they submitted that the Court should exercise its discretion to allow the PSFAD amendments to ensure the real issues in dispute are determined in this proceeding.

For the reasons that follow, I have determined that the PSFAD amendments for the most part should be allowed.

EVIDENCE

The defendants relied upon the affidavits of Radhika Kanhai affirmed on 11, 15 and 25 October 2021 (the ‘seventh Kanhai affidavit’, ‘eighth Kanhai affidavit’ and ‘ninth Kanhai affidavit’). The defendants also relied upon some of the affidavits in previous applications, namely the affidavits of Radhika Kanhai affirmed on 14 and 20 May 2021 (the ‘second Kanhai affidavit’ and ‘third Kanhai affidavit’) and 9 August 2021 (the ‘fifth Kanhai affidavit’), and the first Barrett affidavit.

The plaintiffs relied upon the affidavit of Michael Barrett sworn on 19 October 2021 (the ‘fifth Barrett affidavit’).

SUBJECT MATTER AND HISTORY OF THIS PROCEEDING

3.1. Events to April 2020

As to the subject matter of this proceeding, I refer to sections 2.1 and 2.2 of the Reasons. In summary, the plaintiffs’ claims relate to the sale of their interests in the Process Group to the defendants by a share sale deed entered into on 6 September 2013 (the ‘share sale deed’). The plaintiffs make claims in respect of the conduct of the defendants between April and September 2013 in which the defendants failed to disclose the true nature and extent of negotiations for the sale of the Process Group to a third party, Degremont, at the same time as the plaintiffs were negotiating to sell their share of the Process Group to the defendants. The claims include a number of positive representations and representations by silence, defined as the ‘Representations’.

The plaintiffs allege that the defendants’ failure to provide information about the Degremont negotiations prior to the share sale deed was a breach of fiduciary duties owed by the second to seventh defendants, that the Representations were made in contravention of s 18 of the Victorian ACL and were fraudulent and deceitful, and that the defendants thereby breached a duty of care owed to the plaintiffs.

Relevantly, the plaintiffs have at all times alleged that, but for each of the Representations, they would not have entered into the share sale deed but they would have sold their interests in the Process Group ‘to Degremont on the same terms as the other’ defendants.[3] Consistent with this allegation, the particulars of loss and damage under [61], as from the ASOC, relevantly provide:

OPS [the second plaintiff] has lost the difference between the $3,265,000 paid by PG Evolution for the OPS shares in Process Holdings and the value of those shares had they been sold to Degremont being 16.22% of $32,966,122.77 or $5,347,105.11, being $2,082,105.11.
OPS has lost the difference between the $753,000 paid by PG Evolution for the OPS units in the PGH Trust … and the value of those shares [sic] after the Degremont Acquisition, being 16.22% of 40% of USD$45,484,252.65 or USD$2,951,018.31 or A$3,146,745.91 (at an exchange rate of 0.9378), being $2,393,475.91.[4]

[3]See [51] of the statement of claim dated 5 September 2019 (the ‘statement of claim’) and the amended statement of claim dated 21 September 2020 (the ‘ASOC’).

[4]A similar plea was contained in [61] of the statement of claim.

As is evident, the events relating to claims in this proceeding took place between 2012 and 2014. This proceeding was issued on 5 September 2019, almost six years to the day after the share sale deed was entered into.

By early April 2020, the defendants had filed defences. They relevantly alleged in [46A] that any loss was the result of Mr Dugan’s failure to protect the plaintiffs’ interests. They also alleged in [46C] that, before the share sale deed was entered into, Mr Dugan had misused confidential information of the Process Group, including to obtain rights to Capstone products for the benefit of Mr Dugan’s own business (the ‘Capstone opportunity’). I will set out the details of the allegations in [46C] below.

On 17 April 2020, the defendants’ solicitors sought discovery of various documents said to be relevant to the allegations contained in [46C] of the defences. It would appear that some discovery was provided, including the Distributor Agreement between Capstone and Optimal Group Australia Pty Ltd (‘OGA’) dated 15 February 2013 (the ‘Capstone Distributor Agreement’).

3.2. The ASOC and Amended Defence

On 21 September 2020, the plaintiffs filed and served the ASOC. It contained allegations of causation and loss as set out in section 3.1 above.

On 18 November 2020, the defendants filed an amended defence. The amended defence made changes to [46A]. It also added further references to the Capstone opportunity, to a release and to an exemption from the restraint clause imposed on Mr Dugan in the share sale deed at [15A(h)], [15A(q)] and [51(b)(iv)]. I will now address these paragraphs.

First, in [15A] the defendants pleaded that after his resignation as managing director on 20 March 2012, Mr Dugan made offers to either sell the plaintiffs’ interests in the Process Group to the defendants and/or a third party, or acquire the defendants’ interests in the Process Group. A number of attempts to either sell or acquire interests in the Process Group were listed in [15A(a)]-[15A(q)]. Relevantly, in [15A(h)] of the amended defence, the defendants pleaded:

In February 2013, [Mr Dugan], who controlled each of the other plaintiffs set up a company, Optimal Group, which became the agent for Capstone in or about March 2013 in competition with the Process Group and in breach of the restraint provisions of the Security Holders Deed and Unitholders Deed.

Further, in [15A(q)] of the amended defence, the defendants pleaded:

The Plaintiffs were prepared to offer sale prices and sell their interests in the [Process Group] at a discount from the prices and values assessed personally by [Mr Dugan] without third party valuations so as to:
(i)obtain a release and exception to be able to continue to act as agent for Capstone and to obtain indemnities which are contained in the Sale Deeds; and

(ii) obtain funds quickly to develop the business with Capstone.

Second, in [46A]-[46B] of the amended defence, in response to the claim for breach of fiduciary duty, the defendants alleged that any loss has been suffered by Mr Dugan’s own fault with the result that any award of equitable damages or compensation is to be reduced to the extent the Court thinks just and equitable.

Third, in [46C] of the amended defence, in response to the claim for breach of fiduciary duty, the defendants alleged that the plaintiffs are ‘estopped from seeking equitable relief on account of the conduct of [Mr] Dugan, detrimental to the interests of the Process Group, between 20 March 2012 and 6 September 2013’. The particulars to [46C] were as follows:

Dugan’s conduct includes, among others, the following:
(i)Accessing and utilising Process Group confidential information to negotiate and obtain rights to Capstone products, for his own Business and/or in association with Hardchrome Engineering, in conflict with his duties to Process Group;
(ii)Accessing and divulging Process Group commercially sensitive information to a third party. Dugan incorrectly represented to Wes Tech Engineering Inc (by forwarding emails to Wes Tech that Dugan had accessed) that Process Group was considering making a claim for delay against Wes Tech Engineering in the context of a contractual arrangement, which caused Wes Tech Engineering to retain legal advice and put the contractual relationship on hold. Dugan’s access to the database was revoked after this incident;
(iii)On behalf of Optimal Group, negotiating and entering into an employment agreement with Antti Kilpikoski of Process Group, in competition with Process Group; and
(iv)Making representations to the National Australia Bank that the Second to Sixth Defendants were seeking to vary the terms of Process Groups’ facilities with the NAB, without Board approval, which caused the NAB to freeze Process Group’s facilities.[5]

[5]For convenience, I will refer to the allegations concerning representations made to Wes Tech Engineering Inc in [46C(ii)] as the ‘Wes Tech statements’, the conduct relating to Mr Kilpikoski in [46C(iii)] as the ‘employee enticement’, and the representations made to the NAB in [46C(iv)] as the ‘NAB statements’.

Further, in [51] of the amended defence, in response to the claim that but for the Representations the plaintiffs would not have entered into the share sale deed but would have sold their interests to Degremont, the defendants denied that the plaintiffs relied upon the Representations and alleged that the plaintiffs would have entered into the share sale deed in any event. Further, the defendants relevantly alleged for the first time that:

(iii) In association with Hardchrome Engineering, [Mr Dugan] was anxious to develop his own business, as agent for Capstone established in February 2013, in competition with the Process Group and he needed the money from the sale proceeds to pursue his own business interests which was in breach of the provisions of the Security Holders Deed, the Unitholders Deed and a breach of the Plaintiffs’ fiduciary duty to Process Holdings;[6]
[6] Amended defence, [51(iii)].
(iv) The plaintiffs were prepared to sell their interests in Process Holdings at a discount on the value of such interest as assessed by the Plaintiffs on 21 September 2012 in order to secure:
(i) an insurance indemnity,
(ii)a release in respect to the said breach of the provisions of the Security Holders Deed, the Unitholders Deed and said breach of fiduciary duty;
(iii)a release in respect to the conduct referred to in paragraph 46C hereof; and

(iv) an exemption from the restraint clause.[7]

[7]Amended defence, [51(iv)]. I note that similar factual allegations were also contained in [35(e)] and [35(f)] of the amended defence.

For convenience, I will refer to the releases referred to in [51(iv)(ii)-(iii)] as the ‘Dugan releases’, which are relevantly contained in cl 15 of the share sale deed, and the exemption from the restraint clause referred to in [51(iv)(iv)] as the ‘Dugan exemption’, which is relevantly contained in cl 9 of the share sale deed.

In the amended defence, the defendants denied the allegations of loss in [61] and referred to, among other paragraphs, [35], [46C] and [51] of the amended defence.

I note in passing that, on 30 November 2020, the plaintiffs filed a reply alleging that [46A]-[46C], which were in substantially the same form as in the original defence, were embarrassing and liable to be struck out. In response to the allegations in [15A(h)], the plaintiffs alleged that OGA was registered on 5 July 2012 and admitted that OGA entered into the Capstone Distributor Agreement on 15 February 2013.

The defendants sought further discovery of documents relating to [46A]-[46C]. By letter dated 14 December 2020, the plaintiffs’ solicitors wrote to the defendants’ solicitors refusing to provide discovery and inviting the defendants to withdraw [46A]-[46C] of the amended defence. The defendants declined to do so. As noted below, the plaintiffs did not issue the strike out application until 14 May 2021.

3.3 Orders for Evidence and Evidence Filed

On 16 November 2020, I made orders by consent for the filing of witness outlines and expert reports. The plaintiffs were ordered to file their witness outlines by 18 December 2020 and their expert reports by 29 January 2021. The defendants were ordered to file their witness outlines by 1 March 2021 and their expert reports by 5 March 2021. I note that the consent orders submitted sought that the proceeding be listed for trial. However, given that the evidence had not been filed, I declined to do so.

On 23 December 2020, the plaintiffs filed their witness outlines, including outlines of Mr Dugan, Mr Kenneth Dugan and Mr Brooks. On 29 January 2021 and 12 February 2021, the plaintiffs filed expert reports of Brian Morris. The plaintiffs’ witness outlines relating to issues of causation were consistent with the ASOC. As recorded in the Reasons, the outlines of Mr Dugan and Mr Brooks provide that:

(1) had Mr Dugan known the true position he would not have sold his interests to the defendants pursuant to the share sale deed;

(2) Mr Brooks has informed Mr Dugan that if he had known of the true position regarding the Degremont negotiations between mid-April 2013 and 6 September 2013, Mr Brooks would not have given Mr Dugan advice to complete the share sale deed but would instead have advised Mr Dugan not to sell his interests in the Process Group until the Degremont negotiations were concluded, or alternatively to include in the share sale deed an uplift provision in the event that the business was on-sold; and

(3) had Mr Brooks given that advice to Mr Dugan at the relevant time, Mr Dugan would have followed it.[8]

[8]Dugan outline, [49], [61]-[62]; Brooks outline, [29]-[30].

There was a directions hearing on 19 February 2021. I made orders extending the time for the defendants to file their witness outlines to 25 March 2021 and their expert reports to 7 April 2021. At the directions hearing, the plaintiffs also sought orders that the matter be set down for trial. I declined to do so but asked the parties to confer about the length of trial prior to the next directions hearing.

The defendants filed their lay witness outlines between 26 March and 29 April 2021 and filed an expert report of Owain Stone on 14 May 2021. Relevantly, at [146] of Mr Stone’s report, in the context of assessing the plaintiffs’ loss, he referred to the benefit provided by the Dugan exemption but opined he was unable to quantify its value. He said that in order to do so he would need, amongst other things, the documents showing the forecast, if any, prepared by Mr Dugan at around the time of the share sale deed of future profits he expected to derive from the business he planned to conduct under the Dugan exemption (i.e. the Capstone opportunity), and the financial performance of the business conducted as a result of the Dugan exemption.

In addition, there was a directions hearing on 30 April 2021. The plaintiffs again submitted proposed orders that the matter be set down for trial. I declined to do so in light of the interlocutory application filed by the defendants by that time. I will now turn to that application and the other interlocutory applications issued in 2021.

3.4 The 2021 Applications

Between February and August 2021, a number of interlocutory applications were issued in this proceeding.

First, on 22 February 2021, the defendants’ solicitors wrote to the solicitors for the plaintiffs asserting for the first time that Thomson Geer should cease to act for the plaintiffs in this proceeding. Thomson Geer refused to do so. As a consequence, by summons dated 29 March 2021, the defendants issued the restraint application. That was heard before me on 10 August 2021.

Second, on 14 May 2021, the plaintiffs issued the strike out application seeking to strike out certain paragraphs of the amended defence. These included [46A]-[46C] of the amended defence. It also included [53(a)] (which pleaded a failure to mitigate loss without particulars), [53(b)]-[53(c)] (which pleaded proportionate liability pursuant to s 137B of the Competition and Consumer Act 2010 (Cth) i.e. the Commonwealth ACL) and the italicised parts of [51] set out in [23] above. The plaintiffs did not seek to strike out [15A(q)] and only sought to strike out part of [15A(h)].

Third, on 14 May 2021, the defendants issued a summons challenging the plaintiffs’ claim to privilege over documents set out in an affidavit of documents dated 7 May 2021, and seeking further categories of documents including in relation to [46C] of the amended defence (the ‘privilege and discovery application’).

On 11 June 2021, I ordered that all three applications be listed for hearing on 10 August 2021 but I indicated that the privilege and discovery application should be heard and determined after the restraint application and the strike out application.

Fourth, on 10 August 2021, the defendants made the oral amendment application to file the proposed further amended defence (i.e. the PFAD). As to the proposed amendments (the ‘PFAD amendments’), relevantly:

(1) no changes were made to [46A]-[46B] of the amended defence;

(2) the defendants pleaded that the particulars to [46C] gave rise to the defence of unclean hands;

(3) no further particulars were provided to the plea of failure to mitigate in [53(a)]; and

(4) there were no changes to the plea of concurrent wrongdoing under [53(b)]-[53(c)].

In the PFAD, the defendants sought to recast [51(iii)] and [51(iv)] in the terms set out in [25] of the Reasons. In summary, those paragraphs attempted to identify the relevant obligations and duties imposed upon the plaintiffs both at law and relevantly under the share sale deed, the way in which those obligations and duties were breached by reference to the Capstone opportunity, the Wes Tech statements, the employee enticement and the NAB statements, and how the plaintiffs were prepared to sell their interests in the Process Group to the defendants at a discount in order to secure the Dugan releases and the Dugan exemption. In the course of argument on 10 August 2021, the plaintiffs also objected to the form and substance of these paragraphs on the basis that they were embarrassing and did not disclose a cause of action.

3.5 Determination of Restraint, Strike Out and Amendment Applications

As set out above, I heard the restraint application, the strike out application and the amendment application on 10 August 2021. In the course of argument, I raised with counsel the form of the pleadings in [51(iii)] and [51(iv)] of the PFAD other than those parts opposed by the plaintiffs. I expressed the view that these paragraphs were vague and unclear. I also received further material and submissions after that time, including further written submissions dated 12 August 2021 from the plaintiffs and 24 August 2021 from the defendants.

In the Reasons, I determined to:

(1) allow [46A] and [46B] of the amended defence to remain in light of the competing legal submissions as to whether the Court might exercise its discretion to limit equitable compensation where a plaintiff’s other common law claims against the same defendant have been reduced;[9]
[9]Reasons, [156]-[163].

(2) strike out [46C] on the basis that it does not disclose the equitable defence of unclean hands and does not put the plaintiffs on notice of the case to be met at trial;[10]

(3) strike out [53(a)] which alleged a failure to mitigate loss and damage without any material facts or particulars;[11]

(4) strike out [53(b)] and [53(c)] in light of the concession of counsel for the defendants that, if the plaintiffs clarified that they only relied upon the Victorian ACL, then the defendants were unable to rely upon s 137B of the Commonwealth ACL.[12]

[10]Reasons, [164]-[170].

[11]Reasons, [190]-[191].

[12]Reasons, [192]-[193].

As to [51(iii)] and [51(iv)], I struck out the parts of those paragraphs as contended by the plaintiffs. This is because the defendants were not able to identify the relevant breaches of the Security Holders Deed, the Unitholders Deed and the fiduciary obligations relied upon. Indeed, I considered that the allegations in these two paragraphs were so vague and uncertain as to be unintelligible with the result that they did not identify the real issues for trial. As I stated in the Reasons:

… these paragraphs are premised on the basis that the plaintiffs were somehow in breach of existing or future obligations owed to the Process Group and sought to be relieved of those obligations as part of the share sale deed. Indeed, these paragraphs are premised on the basis that these issues were what motivated the plaintiffs to complete the share sale deed.
It may be that such a case can be established. However, on the basis of the allegations in the amended defence, such a case has not been identified or articulated in a clear or logical way. Further, the relevant material facts have not been alleged. This includes, by way of example, the relevant conduct on the part of Mr Dugan, how each category of conduct is alleged to give rise to the breaches of duty or of contract, and how the contractual terms secured as part of the share sale deed provided a relevant benefit to Mr Dugan. …
… Paragraphs [51(iii)] and [51(iv)] do not properly articulate those issues or the basis for them. Rather, I consider that allowing these paragraphs to remain in their current form will add to the issues explored and costs incurred at trial. As a result, I will strike out these paragraphs from the amended defence.[13]

THIS APPLICATION
[13]Reasons, [186]-[188].

4.1 Summary

In response to the Reasons, this application was issued on 11 October 2021. As set out above, the defendants seek to amend the further amended defence:

(1) to reintroduce in [53AA] a proportionate liability defence under the ACL (the ‘[53AA] amendments’);

(2) to reintroduce in [53AB] an allegation of a failure to mitigate loss (the ‘[53AB] amendments’); and

(3) to introduce in [65]-[95] allegations relating to reliance, causation and loss based in part on the factual issues raised in [46C] and [51(iii)]-[51(iv)] of the amended defence (the ‘[65]-[95] amendments’).

In summary, the defendants submitted that the PSFAD amendments should be allowed in order to determine the real issues in dispute between the parties. They submitted that the Court should not place any weight on the contention that the PSFAD amendments will delay the hearing given that the plaintiffs delayed issuing this proceeding until the statute of limitation was about to expire, and delayed issuing the strike out application until 14 May 2021. This is in a context where issues concerning the Capstone opportunity have at all times been live issues in the proceeding.

In summary, the plaintiffs opposed these amendments for a number of reasons. First, they noted the delay on the part of the defendants in bringing forward the PSFAD amendments. Second, they submitted that the PSFAD amendments do not disclose arguable defences. Third, they submitted that the [65]-[95] amendments would expand the factual issues at trial, delaying the hearing and determination of this proceeding. This is in circumstances where the proceeding was issued in September 2019 and where witness outlines and expert evidence were filed by mid-2021.

Indeed, the plaintiffs submitted that this proceeding has become protracted and increasingly convoluted due to the conduct of the defendants. The plaintiffs submitted that the defendants have demonstrated ‘disregard for their obligations to act promptly and minimise cost and delay’, and ‘their attempt to once again alter the parameters of their defences creates a degree of tension in terms of their overarching obligations to seek to narrow and resolve the issues in dispute’.[14]
[14]Plaintiffs’ submissions dated 22 October 2021, [88] (‘plaintiffs’ submissions’).

They further submitted that the defendants are not entitled to plead their case for a third time at the expense of the plaintiffs, other litigants and the Court itself. They submitted that, despite the proceeding being commenced in September 2019, it has no trial date and the parties are no closer to resolving the issues between them. They submitted that the interests of justice would be best served by refusing the application.

In light of the submissions I will deal with each category of amendment sought by the defendants. Before doing so, it is appropriate to set out the relevant legal principles which were not in dispute.

4.2 Relevant Legal Principles

Rule 36.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the ‘Rules’) gives the Court power to order at any stage that a party have leave to amend their pleading. It provides:

(1) For the purpose of –
(a)determining the real question in controversy between the parties to any proceeding;
(b)correcting any defect or error in any proceeding; or
(c)avoiding multiplicity of proceedings –

the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.

The Court’s power to allow an amendment is discretionary. The principles to be applied and the factors to be considered in determining whether to exercise the Court’s discretion to grant leave to amend pleadings were set out by the Court of Appeal in Northern Health v Kuipers[15] (‘Northern Health’). The Court of Appeal emphasised the importance of the Civil Procedure Act 2010 (Vic) (‘Civil Procedure Act’), in particular ss 7, 9 and 25.
[15][2015] VSCA 172, [28]-[32] (‘Northern Health’).

The factors to be considered in determining whether to exercise the Court’s discretion include:

(1) whether there will likely be substantial delay caused by the amendments;

(2) the extent of wasted costs;

(3) any element of irreparable unfair prejudice;

(4) concerns of case management; and

(5) whether a satisfactory explanation for seeking the amendment at the relevant stage has been given.

The Court of Appeal referred to the comments of the plurality in Aon Risk Services Australia Ltd v Australian National University[16] (‘Aon’) to the effect that:

(1) leave to amend should not be approached on the basis that a party is entitled to raise an arguable claim subject to the payment of costs; and

(2) matters such as substantial delay, wasted costs and concerns of case management are important in exercising the power to grant leave to amend.[17]

[16](2009) 239 CLR 175 (‘Aon’).

[17]Northern Health (n 15) [31], quoting Aon (n 16) [111], [113].

Ultimately, the Court of Appeal concluded:

… ‘the primary question still remains: what do the interests of justice dictate?’; Aon reminds courts that ‘the prism through which these interests are viewed is wider than just that of the moving party’.[18]

[18]Northern Health (n 15) [33], adopting the comments of Forest J in Ultra Thoroughbred Racing Pty Ltd v Those Certain Underwriters at Lloyd’s, London [2011] VSC 370, [9].

Further, each case must be considered on its own facts: no one criteria is determinative. As the Full Court of the Federal Court noted in Cement Australia Pty Ltd v ACCC:

Aon Risk is not a one size fits all case. Whilst various factors are identified in the judgment as relevant to the exercise of discretion, the weight to be given to these factors, individually and in combination, and the outcome of that balancing process, may vary depending on the facts in the individual case. As the plurality in Aon Risk observed at [75], statements made in cases concerning amendment of pleadings are best understood by reference to the circumstances of those cases, even if they are stated in terms of general application.[19]

[19](2010) 187 FCR 261, [51].

As to the requirements of a proper pleading, I refer to [152]-[154] of the Reasons. As set out in [153], a pleading which does not disclose a cause of action or a defence will be struck out. The test is whether the pleading raises ‘a claim [or defence] that has no real prospect of success, in the sense of being fanciful’.[20] Further, in [154] I noted that the Court should not take a technical approach to pleadings, particularly ‘when the true nature of the case to be met is clear from reading the pleading as a whole and there is no embarrassment to filing a responsive pleading’.[21]
[20]Relying upon CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd (2017) 55 VR 62, 72 [24]. I note that in their submissions, the plaintiffs referred to the test being no reasonable prospect of success. However, to the extent that there is any difference I have applied the no real prospect of success test.
[21]Babcock & Brown DIF III Global Co-Investment Fund, LP v Babcock & Brown International Pty Ltd (No 2) [2017] VSC 556, [15].

I note that the defendants relied upon the comments of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority (‘Barclay Mowlem’).[22] In that case, his Honour was faced with an amendment application in a managed list. His Honour expressed the view that, given case management techniques and pre-trial directions involve, among other things, the exchange of lay and expert witness statements before the trial:

(1) pleading issues should ‘be approached in that context and therefore in a rather more robust manner, than was historically the case’ as pre-trial case management will aid in defining the issues to be met at trial; and

(2) as a result, case management techniques and pre-trial directions ‘should result in the court adopting an approach to pleading disputes to the effect that only where the criticisms of a pleading significantly impact upon the proper preparation of the case and its presentation at trial should those criticisms be seriously entertained’.[23]

[22](2006) 33 WAR 82.

[23]Ibid, [4]-[8].

These comments were adopted by White J in Verner v Giannaros[24] in the context of the managed equity list in New South Wales. Some of these comments were also referred to by Ferguson J in Bolitho v Banksia Securities Ltd.[25]
[24][2016] NSWSC 242, [2].
[25][2014] VSC 8, [36].

For my part, I consider that the comments of Martin CJ in Barclay Mowlem are generally consistent with the approach set out in [55] above. In my view, this approach does not mean that an amendment which fails to disclose a cause of action or a defence will be allowed. Rather, it means that proposed amendments should be considered as a whole and only those which might have a significant impact on the relevant party or the preparation of the case should be seriously considered in deciding whether they should be allowed.

I will now address each of the PSFAD amendments set out in [43] above.

4.3 The [53AA] and [53AB] Amendments

I will first address the [53AA] and [53AB] amendments. These amendments are based upon existing allegations of fact and, as such, many of the factors which the Court would take into account in exercising its discretion listed in [51] above are of limited relevance.

Indeed, the substance of the plaintiffs’ opposition in respect of these amendments was that they do not disclose a defence which has a real prospect of success. However, in considering these amendments, I am conscious of the time at which they are made in the context of the chronology of the proceeding as a whole. As a result, I will consider these two amendments in this context.

4.3.1 The [53AA] amendments

As noted in [41] above, I struck out the proportionate liability defence in [53(b)] and [53(c)] of the amended defence in light of the concession of counsel for the defendants that, if the plaintiffs clarified that they only relied upon the Victorian ACL, then the defendants were unable to rely upon s 137B of the Commonwealth ACL.

The defendants now seek in [53AA] to plead a defence of proportionate liability under the Wrongs Act 1958 (Vic) (‘Wrongs Act’) to the claim for contravention of s 18 of the Victorian ACL. The defendants submitted that pt IVAA of the Wrongs Act (referring in particular to s 24AF) allows for a proportionate liability defence to be raised in response to a claim made under s 18 of the Victorian ACL and the tort of negligence.[26]
[26]The Australian Consumer Law and Fair Trading Act 2012 (Vic) provides that the Australian Consumer Law, found in Schedule 2 to the Competition and Consumer Act 2010 (Cth), applies as a law of Victoria and may be referred to as the Australian Consumer Law (Victoria). As noted in the Reasons I referred to this as the Victorian ACL.

Section 24AF of the Wrongs Act provides that pt IVAA applies to:

(a)a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care; and
(b)a claim for damages for a contravention of section 18 of the Australian Consumer Law (Victoria).

None of the parties drew my attention to this provision of the Wrongs Act at the time of the strike out application or the amendment application. If they had done so, I would not have struck out [53(b)] and [53(c)] of the amended defence. Rather, I would have allowed the defendants to amend their defences to rely upon s 24AF of the Wrongs Act to plead proportionate liability in response to the plaintiffs’ claims for contravention of s 18 of the Victorian ACL.

The defendants submitted that Mr Dugan caused loss and damage to OPS by breaching his duty owed to OPS as a director under s 180(1) of the Corporations Act 2001 (Cth). The relevant facts giving rise to the breaches relied upon by the defendants are already pleaded in other paragraphs of the further amended defence, namely [46A(a)]-[46A(d)] and [53(A)]-[53(D)].

While the plaintiffs opposed the [53AA] amendments in their written submissions on the basis that the necessary element in establishing a defence of proportionate liability is missing, they did not press this opposition at the oral hearing. Nevertheless, I consider it appropriate to say something about the plaintiffs’ written submissions.

Relevantly, the plaintiffs submitted that there was no nexus between the plaintiffs’ loss in this proceeding and the conduct of Mr Dugan alleged to be in breach of the duty owed to OPS. For example, they submitted that, even if Mr Dugan made proper enquiries as to Degremont, the evidence of Mr Tuckett is that he would only have conveyed information ‘of significance’ to Mr Dugan,[27] and that nothing ‘of significance’ occurred until after the plaintiffs sold their interests in the Process Group to the defendants.[28]
[27]Referring to the Tuckett outline, [26], [62].
[28]Referring to the Tuckett outline, [68], [73] and [75].

The plaintiffs submitted that the only conduct which could have prevented the loss in question would have been disclosure by the defendants of the fact and extent of the Degremont negotiations. Further, the plaintiffs submitted that it is the defendants’ conduct alone which caused the plaintiffs’ loss and damage. The plaintiffs therefore submitted that [53AA] is destined to fail and should not be permitted.

In my view, I am not satisfied that the proportionate liability defence has no prospect of success and, in the exercise of my discretion, I consider that the [53AA] amendments should be allowed. I accept that a defence of proportionate liability under pt IVAA of the Wrongs Act is available at law to the plaintiffs’ claims for contravention of the Victorian ACL. In this regard, I refer to my comments in [65] above that I would not have struck out [53(b)] and [53(c)] if s 24AF had been drawn to my attention at the hearing of the strike out application and the amendment application.

Further, I am not satisfied that the proportionate liability defence has no real prospect of success on the facts. In this regard, it is significant that the factual matters relied upon to support the proportionate liability defence are the same factual matters as those already raised by [46A] and [53] of the further amended defence, which are not challenged. In any event, the points raised by the plaintiffs as to the sufficiency of the plea in these circumstances should not be determined on an interlocutory application such as this but should be determined at trial. For completeness, I consider that the example given by the plaintiffs referred to in [68] above as to what Mr Tuckett might have conveyed if proper enquiries had been made by Mr Dugan is a matter that should be tested at trial in light of all the evidence.

4.3.2 The [53AB] amendments

As noted above, the allegation of failure to mitigate loss was alleged in [53(a)] of the amended defence. No particulars were provided. As a result, in the Reasons, I determined to strike out [53(a)] of the amended defence on the basis that it contained a conclusion from unstated material facts.

In [53AB] of the PSFAD, the defendants seek to re-introduce that allegation. However, particulars as to the conduct relied upon are now provided. The defendants plead that, if the plaintiffs have suffered loss and damage (which is denied), the plaintiffs have failed, refused and/or neglected to mitigate the alleged loss and damage. As to the material facts, the defendants rely upon Dugan’s Own Negligence as defined and pleaded in [53] of the further amended defence.

In written submissions, the plaintiffs opposed this amendment on the basis that it did not give rise to a defence which had real prospect of success at law. However, in the course of oral argument, this was not pressed. Nevertheless, I consider it appropriate to say something about the plaintiffs’ written submissions.

First, the plaintiffs submitted the duty to mitigate arises only after the tort has been committed,[29] and is concerned with conduct (or failures) by the plaintiff that take place after the plaintiff is aware of both the breach and the fact that there is a loss to be avoided.[30] The plaintiffs submitted that the conduct comprising Dugan’s Own Negligence is conduct before the alleged tort or contravention in this case (being conduct that is also alleged to constitute contributory negligence) and, as a result, [53AB] is misconceived and should not be allowed.
[29]Relying upon, amongst others, Shindler v Northern Raincoat Co [1960] 1 WLR 1038, 1048 (Diplock J).
[30]Relying upon RW Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1992) 11 BCL 74, 141 (Giles J); Bak v Glenleigh Homes Pty Ltd [2006] NSWCA 10, [5] (Handley JA).

Second, the plaintiffs submitted that the defence of failure to mitigate provides no answer to a claim of misleading or deceptive conduct, relying upon Henville v Walker[31] (‘Henville’) and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd[32] (‘I & L Securities’).
[31](2001) 206 CLR 459, 482 [66], 505 [140] (McHugh J), 510 [166]–[167] (Hayne J).
[32](2002) 210 CLR 109, 117–18 [20] (Gleeson CJ), 128 [57] (Gaudron, Gummow and Hayne JJ), 138 [92], 141 [102] (McHugh J).

First, I accept there is some doubt about whether any conduct of the plaintiffs which occurred prior to the plaintiffs becoming aware of the alleged misleading and deceptive conduct could give rise to a failure to mitigate loss in law. However, I would not disallow the amendment to [53AB] on this basis alone. In my view, this is a matter which can be determined at trial. This is particularly so in circumstances where the same conduct is relied upon in [53]. Further, to the extent it might be suggested that the failure to mitigate only arises after the relevant contravention, I am conscious that in this case the first contravention occurred in or about April 2013.

Second, as to the submission of the plaintiffs that the defence of failure to mitigate provides no answer to a claim of misleading or deceptive conduct, in my preliminary view, there is doubt as to whether Henville and I & L Securities provides binding authority for the proposition that a duty to mitigate does not apply as a matter of law to a claim under s 18 of the Victorian ACL, such that the defendants’ plea in [53AB] has no real prospect of success.

In these circumstances, I am not satisfied that the [53AB] amendments have no prospect of success and, in the exercise of my discretion, I will allow the [53AB] amendments. This is particularly so given that the factual matters relied upon in support of the [53AB] amendments, namely Dugan’s Own Negligence, are the same factual matters already raised by the contributory negligence defence.

4.4 The [65]-[95] Amendments

4.4.1 The allegations

In summary, in the [65]-[95] amendments, the defendants seek to rely upon the conduct of the plaintiffs previously referred to in a general way in [15A(h)], [15A(q)], [46C] and [51] of the amended defence. They do so to contend, in summary, that:

(1) it was not the conduct of the defendants alleged in this proceeding that caused the plaintiffs to enter into the share sale deed, but the benefits obtained by virtue of terms of the share sale deed, including the Dugan releases and the Dugan exemption; and

(2) the benefits obtained by the plaintiffs, in particular the Dugan exemption, far exceeded any loss suffered by the plaintiffs as a result of their interests not being sold to Degremont.

The defendants rely upon the benefits from three kinds of terms in the share sale deed. First, they rely at [76] upon the term of the share sale deed which provided that the defendants released the plaintiffs in respect of conduct up to and including 20 March 2012, being the period when Mr Dugan was an employee (i.e. the Dugan releases). Second, they rely at [81] upon an agreed exemption from the restraint of trade obligation imposed by the share sale deed (the ‘Dugan restraint’), which had the effect of permitting Mr Dugan to carry on certain activities that would otherwise have been restrained (i.e. the Dugan exemption). Third, they rely at [89] upon an indemnity given to Mr Dugan in respect of a bank guarantee that he had given to the NAB (the ‘bank guarantee indemnity’).

In summary, the [65]-[95] amendments contain the following allegations:

(1) the duties which were imposed upon Mr Dugan as an employee and as a director and on Mr Dugan and OPS under the Security Holders Deed;

(2) the conduct of the plaintiffs which might constitute breaches of those duties, including:

(a) exploitation of the Capstone opportunity;

(b) the Wes Tech statements, the employee enticement and the NAB statements (collectively defined as ‘the Director conduct’);

(3) the terms of the share sale deed which relieved the plaintiffs of breaches of duty and/or allowed the plaintiffs to exploit the Capstone opportunity, namely:

(a)the Dugan releases; and
(b)the Dugan restraint and the Dugan exemption;

(4) the terms of the share sale deed which indemnified the plaintiffs in respect of the NAB guarantee;

(5) that similar terms to the Dugan releases, the Dugan exemption and the bank guarantee indemnity were not available in the sale to Degremont;

(6) that it was the Dugan releases, the Dugan exemption and the bank guarantee indemnity that caused the plaintiffs to enter into the share sale deed and not the conduct of the defendants alleged in this proceeding; and

(7) that the value of the benefits obtained by the plaintiffs, in particular by the Dugan exemption, far exceeded any loss suffered by the plaintiffs as a result of their interests not being sold to Degremont.

4.4.2 The defendants’ submissions

The defendants contended that issues concerning the conduct of the plaintiffs prior to execution of the share sale deed have been live issues in the proceeding since April 2020, in particular, concerning the Capstone opportunity.

As to the pleadings, the defendants submitted that even having regard to the strike out application, the plaintiffs were content to proceed to trial with allegations that:

(1) in February 2013 Mr Dugan set up OPS, which became the agent of Capstone in or about March 2013 in competition with the Process Group;[33]

(2) in association with Hardchrome Engineering, Mr Dugan was anxious to develop his own business as agent for Capstone in competition with the Process Group and he needed the money from the sale proceeds to pursue his own business interests;[34] and

(3) the plaintiffs were prepared to sell their interests at a discount to obtain a release and exemption to be able to continue to act as agent for Capstone and to obtain indemnities.[35]

[33]Amended defence, [15A(h)].

[34]Amended defence, [51(b)(iii)].

[35]Amended defence, [51(b)(iv)].

As noted above, the plaintiffs did not seek to strike out the whole of these paragraphs in the strike out application.

The defendants contended that this position was confirmed by the witness outlines filed in the proceeding prior to the strike out application. The defendants noted that Mr Dugan’s own outline dated 23 December 2020 raises issues which are the subject of the amendment. Relevantly, Mr Dugan’s outline provides in summary as follows:

(1) in early May 2013, Mr Dugan discussed with Mr Gow the scope of any restraint of trade and release of his personal guarantees to the NAB; and

(2) on 10 May 2013, Mr Dugan said that:

(a) he wanted to be clear that for the purpose of any non-compete clause, OPS was not to be viewed as a competitor of the Process Group. Mr Gow said he needed to take this to the group but ‘thought this would fly’; and
(b) Mr Gow subsequently called Mr Dugan and said that the directors agreed with Mr Dugan’s proposal. In response, Mr Dugan said to be clear ‘you are in gas processing and I am in power generation’ or words that effect. Mr Gow said that if that were so ‘we should be fine on this issue’ or words to that effect.

Further, in Mr Brooks’ outline, Mr Brooks stated that Mr Dugan wished to be free of any debts of the Process Group moving forward otherwise there would be no deal. Thus, the defendants submitted that the issues involving releases, in particular the Dugan exemption and the bank guarantee indemnity, arise in any event on the plaintiffs’ own case. Indeed, as noted above, the plaintiffs discovered the Capstone Distributor Agreement.

In addition, the defendants noted that their own witness outlines raised these issues and had not been the subject of objection. For example, Mr Rundell’s outline provides in summary that:

(1) by late 2012, Mr Dugan commenced a business as the Australian distributor for Capstone. This opportunity was previously identified by Mr Tuckett prior to Mr Dugan’s resignation as an employee of the Process Group in March 2012 and was discussed in at least two business development meetings that Mr Dugan attended;

(2) Mr Rundell was worried that Mr Dugan had accessed Process Group’s confidential and/or commercially sensitive information to assist him to pursue the Capstone opportunity given what had occurred with Wes Tech;

(3) in about May 2013, Mr Dugan wanted releases of the non-compete provisions of the Security Holders Deed and the Unitholders Deed to enable him to pursue the Capstone opportunity and power generation opportunities generally, and releases from any claims against him as a director or unitholder;

(4) Mr Dugan’s insistence on these releases confirmed in Mr Rundell’s mind that Mr Dugan had diverted the Capstone opportunity to himself and wished to pursue it without the risk of being prosecuted by the Process Group;

(5) as a result, Mr Rundell believed that by agreeing to the Dugan releases and the Dugan exemption, the defendants were providing a financial benefit greatly in excess of the price in the share sale deed due to the Capstone opportunity providing Mr Dugan with an additional multimillion dollar profit opportunity;

(6) in August 2012, Mr Rundell was informed that Mr Dugan had accessed the company’s database and transferred a tranche of confidential emails to Wes Tech as part of the Wes Tech statements;

(7) in around August 2012, Mr Dugan contacted the NAB and made the NAB statements. The NAB told Mr Rundell that it would be freezing all of the Process Group facilities; and

(8) in around November 2012, Mr Rundell was told that Mr Kilpikoski resigned to take up ‘a major opportunity for equity participation in an engineering business’. In early 2013, Mr Rundell became aware that he had joined OGA.

Further, the defendants submitted that the plaintiffs’ own claim involves a comparison between the benefits conferred on the sale of the plaintiffs’ interests in the Process Group under the share sale deed on the one hand and the sale to Degremont on the other, relying on [51] and [61] of the ASOC. Indeed, they noted that the plaintiffs alleged that they lost the difference between what was paid under the share sale deed and what would have been paid to it under the Degremont sale deed. The defendants submitted that an evaluation of the comparative outcomes to the plaintiffs under the two alternative transactions is, in any event, relevant to the quantum of any loss suffered by the plaintiffs.

4.4.3 The plaintiffs’ submissions

The plaintiffs submitted, first, that the defences raised by the [65]-[95] amendments had no real prospect of success and/or are not relevant to reliance, causation or loss and should be refused. They then submitted that, if these arguments were not accepted, the amendments should nevertheless be refused in the exercise of the Court’s discretion.

By way of introduction, the plaintiffs contended that the [65]-[95] amendments raise for the first time an allegation that the defendants purchased the plaintiffs’ interests in the Process Group on more favourable terms than Degremont would have agreed to, thereby conferring on the plaintiffs a benefit that the defendants contend is relevant to the questions of reliance, causation and loss. They contended that, under the guise of establishing the value of these more favourable terms, the defendants seek to expand the proceeding exponentially to include wide ranging allegations of breaches of Mr Dugan’s duties as an employee and director, and of the restraints and confidentiality provisions in the Security Holders Deed.

4.4.3.1 Prospect of success

The plaintiffs contended that there are a number of deficiencies in [65]-[95] of the PSFAD. First, they submitted that the allegation that the Dugan releases would not have been given by Degremont suffers from a fatal flaw because the Dugan releases are limited to the period up to and including 20 March 2012, whereas the conduct relied upon by the defendants as being the subject of the Dugan releases is conduct after that date.

In oral submissions, the plaintiffs referred to Mr Rundell’s outline, in particular:

(1) the heading to [25]-[30], namely ‘Dugan’s conduct post March 2012’;

(2) by contrast, the heading to [15], namely ‘Craig Dugan – conduct pre resignation on 20 March 2012’; and

(3) the text of [30], which does not indicate when Mr Tuckett introduced and discussed the Capstone opportunity with Mr Dugan.

They submitted that on Mr Rundell’s own evidence the relevant conduct relating to Capstone and the Director conduct occurred after 20 March 2012, with the result that the Dugan releases could not have been relevant to the plaintiffs’ decision to enter into the share sale deed.

In any event, the plaintiffs submitted there is no evidence that the Process Group would have prosecuted such claims, particularly once those entities were acquired by Degremont.

Second, the plaintiffs submitted that the [65]-[95] amendments have no relevance to the question of reliance or causation and were unlikely to be relevant to loss. As to reliance, they submitted that this is a question of fact to be determined by reference to the state of mind of the plaintiffs at the time of the share sale deed. They noted that it is clear that it is sufficient if the Representations were a real or material factor affecting the plaintiffs’ decision. However, they submitted that the fact that any agreement with Degremont may not have included the Dugan releases, the Dugan exemption or the bank guarantee indemnity is beside the point because none of these matters could have been in the mind of Mr Dugan at the time of the share sale deed.

As to causation, they submitted that the relevant factual question is whether the defendants’ wrong caused or materially contributed to the loss for which the plaintiffs seek damages. Again, they noted that it is clear that the conduct of the defendants need not be the sole cause of the loss. Where there are two or more causes, it is sufficient to satisfy the element of causation if the conduct of the defendants was one of those causes or a decisive consideration for taking the course of action in question, relying upon Henville. However, they submitted that matters not known to the plaintiffs at the time of the share sale deed, such as a comparison between the terms offered by the defendants and the terms that may have been offered by Degremont, cannot be relevant to whether the Representations were a cause of the plaintiffs entering into the share sale deed.

As to loss, they submitted that ‘it is also doubtful’[36] that a valuation of the Dugan releases and the Dugan exemption is relevant to the quantification of loss, which is to be measured by the difference between the price for which the plaintiffs sold their interests to the defendants and the true or real value of those interests at the time they were sold. In the course of oral argument, counsel clarified their written submissions by contending that the valuation issues were not relevant to quantification of loss as there was no evidentiary foundation that the same or materially same terms could not have been obtained from a third party purchaser such as Degremont.

4.4.3.2 The Court’s discretion

[36]Plaintiffs’ submissions, [82].

The plaintiffs submitted that, in the exercise of its discretion, the Court should not allow the [65]-[95] amendments. In summary, they submitted that if these amendments were permitted, they would significantly increase the scope of the issues in the proceeding, further delay the determination of the real issues in the proceeding and add significant time and costs. This was in the context where the proceeding has already become protracted and the defendants’ pleadings increasingly convoluted. The plaintiffs submitted that, at this stage of the proceeding, where evidence has been filed and discovery has been given, the defendants have had ample opportunity to plead their case and, if necessary, amend their pleadings.

As to the expansion of the ambit of discovery and evidence, they relied upon the fifth Barrett affidavit. In his affidavit, Mr Barrett raised three issues. First, he relied upon the course of this proceeding and, in particular, the various requests by the plaintiffs for a trial date. Second, he expressed the view that there is a ‘potential’ for the parties’ discovery obligations to expand significantly and for the trial of the proceeding to be further delayed. Third, he considered that the length of the trial will expand and the costs of all parties will increase.

Mr Barrett deposed that the extent of any additional discovery is dependent upon whether the plaintiffs are required to make discovery of the business records of OGA and Optimal Group International Pty Ltd, companies of which Mr Dugan is, with other parties not involved in this proceeding, a director but which are not parties to this proceeding.

Mr Barrett also deposed that further expert evidence would be required to value the Capstone opportunity, including undertaking a forensic analysis of the business dealings of OGA. Mr Barrett noted that OPS indirectly controls 20% of the shares in OGA. As a result, if the proposed amendments were permitted, it would have a significant impact on a company which is not a party to the proceeding and which is substantially controlled by non-parties.

In oral submissions, counsel for the plaintiffs emphasised the delays of the defendants, relevantly since November 2020 after the amended pleadings were filed by the parties. Counsel referred in particular to the delays in formulating the PSFAD in light of the strike out application and the amendment application. Counsel submitted that these case management concerns were relevant to the exercise of the Court’s discretion.

4.4.4 The defendants’ reply submissions

The defendants raised a number of matters by way of reply. First, as to the sufficiency of the pleading, counsel referred to the decision of Martin CJ in Barclay Mowlem set out in [56] above. They submitted that the purpose of the [65]-[95] amendments was to better articulate the legal basis of the factual issues relating to the Capstone opportunity and the Director conduct which had already been the subject of allegations in the proceeding and which had not been challenged by the plaintiffs.

Second, as to the issue of whether the Capstone opportunity was made known to Mr Dugan prior to 20 March 2012, the defendants submitted that [30] of Mr Rundell’s outline had to be read in the context of [47] and [48] of that outline, as referred to in the particulars to [70] of the PSFAD. Further, to the extent that there was any doubt, counsel for the defendants advised that he had obtained instructions in the course of oral argument that Mr Dugan became aware of the Capstone opportunity in at least two business development meetings he attended while he was an employee and managing director.[37]
[37]T148.7-13.

As a result, they submitted that the Dugan releases were relevant to the Capstone opportunity and were of real value to Mr Dugan at the time he entered into the share sale deed. Further, they noted that the Capstone Distributor Agreement was entered into in 2013 while Mr Dugan remained a director of Process Holdings. They submitted that it could not have been entered into or had continued operation without the Dugan exemption. In this regard, they noted that, as set out above, [146] of Mr Stone’s report referred to the Dugan exemption and the need to quantify its value to Mr Dugan.

Third, in so far as the plaintiffs asserted that there may be no evidence to support some of the allegations in the [65]-[95] amendments, the defendants submitted that the plaintiffs were confusing pleadings and evidence. They noted that the major complaint of the plaintiffs was that there was no evidence that Degremont would not have offered to the plaintiffs something akin to the Dugan exemption or the bank guarantee indemnity. They submitted in response that there is prima facie evidence to that effect, namely cl 14 of the Degremont sale deed which contained a restraint provision which was far more restrictive than the Dugan restraint let alone the Dugan exemption.

As to the plaintiffs’ submission that there is no evidentiary basis for the allegation in [75] that the Process Group would have taken action against Mr Dugan for the alleged breaches, the defendants submitted that the witness outlines of Mr Dugan, Mr Rundell and Mr Tuckett record that both parties were alive to potential claims and wanted to release all parties from them.

Fourth, the defendants strongly disputed the suggestion that the [65]-[95] amendments were not relevant to issues of reliance, causation or loss. The defendants submitted that the plaintiffs’ claim, the amended defence and the witness outlines made the [65]-[95] amendments relevant to all those issues. They noted again that the plaintiffs’ own case involves a comparison between the sale price under the share sale deed and the Degremont sale deed. Such a comparison revealed that it was necessary to take into account the other benefits obtained by the plaintiffs and, in particular, Mr Dugan under the share sale deed, namely the Dugan releases, the Dugan exemption and the bank guarantee indemnity.

As to reliance and causation, the defendants referred by way of example to [45]-[47] of Mr Dugan’s outline where Mr Dugan refers to discussions with Mr Gow regarding the scope of the restraint and a release from liability to the NAB at the time of negotiating the share sale deed. In particular, counsel referred to [45] of Mr Dugan’s outline to the effect that Mr Dugan will give evidence that he said to Mr Gow he would not sell his interests unless he was released from liability to the NAB. Further, Mr Brooks’ outline at [26] notes that Mr Brooks will give evidence that Mr Dugan said to him that if Mr Dugan was to be liable for the debts of the Process Group going forward, there would be ‘no deal’.

Further, the defendants submitted that, as this case is about non-disclosure, the plaintiffs must prove a counterfactual i.e. had the non-disclosed facts in fact been disclosed, the plaintiffs would have acted in a particular way. They referred by analogy to the comments of Maxwell P in Findlay v State of Victoria (‘Findlay’).[38]In that case, Maxwell P agreed with the plurality but added that, in a case of negligent failure to act, the causal link between the breach of duty and the claimed damage can only be established by means of a counterfactual hypothesis identifying what the defendant would have done had reasonable care been exercised and how the taking of that action would have averted the loss or damage which the plaintiff in fact suffered.[39]
[38][2009] VSCA 294.
[39]Ibid, [2].

Finally, the defendants submitted that, in the exercise of the Court’s discretion, case management concerns were not particularly determinative in this case. They conceded that perhaps in the past the [65]-[95] amendments had not been well articulated but that had now been addressed in the PSFAD.

4.4.5 Consideration
4.4.5.1 Prospect of success

I will first deal with whether the proposed amendments have no real prospect of success. In considering the arguments raised by the plaintiffs in relation to the prospect of success of the [65]-[95] amendments and the form of them, I am conscious of the principles referred to in section 4.2 above.

Before addressing the particular deficiencies raised by the plaintiffs, I wish to comment on the plaintiffs’ submissions to the effect that the [65]-[95] amendments:

(1) are entirely new, raising for the first time that the defendants purchased the plaintiffs’ interests in the Process Group on more favourable terms than Degremont would have agreed to; and

(2) have no relevance to reliance, causation and loss issues in this proceeding.

First, based upon the plea of causation in [51] and of loss and damage in [61] of the statement of claim and the ASOC, the plaintiffs’ claim has always involved a consideration of the price paid under the Degremont sale deed and the price under the share sale deed. This is because, as set out above, it is central to the plaintiffs’ claims that:

(1) but for the Representations, the plaintiffs would not have entered into the share sale deed but would have sold their interests in the Process Group ‘to Degremont on the same terms as the other’ defendants; and

(2) their loss is to be assessed by comparing the price paid under the share sale deed with the price that would have been paid had those shares been sold to Degremont.

Thus, [51] and [61] of the statement of claim and the ASOC set out the plaintiffs’ counterfactual for causation and loss purposes. Based on the plaintiffs’ own claim, in relation to issues of causation and loss, it is and has always been relevant to consider and compare the benefits obtained under the share sale deed and the Degremont sale deed.

In addition, since the time of the amended defence, the defendants have pleaded in [51(iii)] and [51(iv)] that the plaintiffs did not rely upon the Representations but that the plaintiffs would have entered into the share sale deed in any event to secure the Dugan releases and the Dugan exemption in respect of the Capstone opportunity. A similar allegation was also contained in [15A(q)] and [35(e)]-[35(f)] of the amended defence. Further, as set out above, in [61] of the amended defence, the defendants relied upon [35] and [51] when disputing the loss and damage plea.

Thus, in my view, the subject matter of the [65]-[95] amendments are relevant to, and since at least the amended defence have had relevance to, causation (including reliance) and/or loss issues in this proceeding.

I acknowledge that the precise nature of the [65]-[95] amendments was not previously articulated and identified in this proceeding. I am also conscious that any benefit obtained by the Dugan releases, the Dugan exemption and the bank guarantee indemnity was not explicitly raised in any defences to the plea of loss before this time. However, as discussed in argument, the nature of the plaintiffs’ claim for loss calls for a comparison between the price paid for the plaintiffs’ interests under the share sale deed and what would have been paid under the Degremont sale deed. That assessment was open to be challenged at trial on the basis that it was not truly a ‘like for like’ comparison in light of the other terms of the share sale deed. The [65]-[95] amendments now articulate that case.

For completeness, I wish to note that contrary to the submissions of the defendants, in my preliminary view, issues relating to the benefits obtained under the Degremont sale deed are not relevant to the ‘reliance issues’ per se. In my view, issues of reliance (as opposed to the broader issues of causation) depend upon the factors in the mind or knowledge of a plaintiff which played a part in the relevant decision. With respect, I do not consider that the comments of Maxwell P in Findlay relate to issues of reliance per se but relate to the broader issue of causation. This is because it is the broader issue of causation, not reliance, that gives rise to an inquiry as to what a plaintiff would have done but for the relevant negligence or misrepresentation. In this regard, I refer to my analysis of questions of causation under the ACL in Delaney v Delaney.[40]
[40][2021] VSC 365, [442]-[443].

It is correct, as the plaintiffs submitted, that the plea of no ‘inducement’ or reliance in [92] of the PSFAD refers back to the allegations in [79], [88] and [91] to the effect that the Dugan releases, the Dugan exemption and the bank guarantee indemnity would not have been obtained as part of any sale to Degremont. For the reasons expressed in the previous paragraph, those allegations are not relevant to issues of reliance as I perceive them, but are nevertheless relevant to issues of causation and loss. However, that is in my view no reason to strike out the allegation of no inducement or reliance. Consistent with the principles referred to in [55]-[58] above, the inclusion of these allegations in the reliance plea will not have a significant impact on the plaintiffs or the preparation of the case.

I will now deal with the plaintiffs’ submissions to the effect that there is no evidence to support some of the key allegations in the [65]-[95] amendments. At the outset, I note that these issues are not usually addressed at the pleading stage. However, in this case, the underlying allegations which are the subject of the [65]-[95] amendments have been in issue for some time and have been the subject of witness outlines.

First, I will deal with the plaintiffs’ contention that the allegations relating to the Dugan releases must fail because the Dugan releases were in fact limited to the period up to and including 20 March 2012, whereas the conduct relied upon by the defendants which might be the subject of the Dugan releases is conduct that occurred after that date.

As to the allegations relating to the Capstone opportunity, I consider that there was some basis for the plaintiffs’ submission based on the outlines of Mr Rundell and Mr Tuckett. However, in light of the further instructions obtained by counsel for the defendants in the course of the hearing, I am satisfied that there is a proper basis for the allegation that Mr Dugan became aware of the Capstone opportunity prior to him ceasing to be an employee and managing director on 20 March 2012. As a consequence, I consider that there is clearly an arguable case that the Dugan releases were at least a relevant factor in the plaintiffs’ decision to enter into the share sale deed.

As to the allegations relating to the Director conduct, I am not satisfied that there is a proper basis for the allegation that the Director conduct occurred prior to Mr Dugan ceasing to be an employee and managing director on 20 March 2012 or that, as a result, there is a proper basis to allege a breach by Mr Dugan of his duties as an employee and director in respect of the Director conduct. Accordingly, I consider that there is no arguable case that the allegations in [71] of the PSFAD are relevant to the Dugan releases which only related to the period to 20 March 2012.

This was in substance conceded by counsel for the defendants in his oral reply submissions. However, counsel contended that the Director conduct in [71] formed ‘part of the narrative’ of the negotiations leading up to the conclusion of the share sale deed and should remain for the purpose of context. Given that I consider there is no arguable case, I do not agree that [71] should remain in the pleading for this purpose. That is not to say that the evidence in the defendants’ existing outlines relating to the Director conduct may not have some relevance to issues relating to the inclusion of the Dugan releases and/or the Dugan exemption, at least in the minds of the defendants’ witnesses. However, I am concerned that if the allegations relating to the Director conduct remain in [71], they may be the subject of further discovery and/or further protracted evidence at trial of peripheral relevance to the real issues in dispute. Subject to further consideration by counsel for the parties, it follows from my conclusion in relation to [71] of the PSFAD that [74] of the PSFAD should not be allowed.

Second, I do not accept the submission of the plaintiffs that the fact that there is no evidence that the Process Group would have prosecuted such claims, particularly once those entities were acquired by Degremont, means that the [65]-[95] amendments should be refused. In my view, the defendants are entitled to pursue these allegations. This is in a context where the outlines of evidence filed on behalf of the defendants raise issues in relation to the possibility of claims against Mr Dugan prior to execution of the share sale deed.

Third, I do not accept the submission of the plaintiffs that there is no evidence that Degremont would not have offered something like the Dugan releases, the Dugan exemption or the bank guarantee indemnity to Mr Dugan. I agree with the submission of the defendants that the terms of the Degremont sale deed are at least prima facie evidence that Degremont would not have offered the relevant terms contained in the share sale deed to Mr Dugan. In any event, this is ultimately a matter for trial.

In all these circumstances, I reject the submission of the plaintiffs that the [65]-[95] amendments have no real prospect of success, save for the allegations which are the subject of [71] of the PSFAD. For convenience, in the balance of these reasons I will continue to refer to all the amendments which have prospects of success as the [65]-[95] amendments, although I have determined to strike out [71] and (subject to the views of counsel) the related [74] of the PSFAD.

4.4.5.2 The Court’s discretion

I will now consider whether, in the exercise of the Court’s discretion, the Court should allow the [65]-[95] amendments. As noted above, this involves considering a variety of factors identified in the authorities based upon not only the provisions of ord 36 of the Rules but also ss 7, 9 and 25 of the Civil Procedure Act. However, like the exercise of any judicial discretion the ultimate question is what the interests of justice dictate.

Before doing so, as is evident from my comments at the commencement of this section of my reasons, I consider that the [65]-[95] amendments relate to the real questions in controversy between the parties in this proceeding, namely whether the plaintiffs relied upon the alleged misconduct on the part of the defendants in entering into the share sale deed and/or whether the alleged misconduct on the part of the defendants was a cause of any, and if so what, loss to the plaintiffs.

As to whether there will be a substantial delay caused by the [65]-[95] amendments, I am conscious that they are being put forward in this form two years after the proceeding was issued. However, I am also conscious that, as set out above, the underlying factual allegations which give rise to these amendments, in particular the Capstone opportunity, has been the subject of pleadings, discovery and outlines of evidence filed on behalf of the plaintiffs and the defendants in this proceeding.

Further, while this proceeding has been on foot for two years, not all the delays in the proceeding lie at the feet of the defendants. It was only approximately one year after the proceeding was issued that the plaintiffs filed the ASOC substantially revising the claims made in this proceeding. Further, it was not until 14 May 2021 that the plaintiffs filed the strike out application in respect of some but not all of the allegations relating to the issues of causation raised by the amended defence.

In my view, if the [65]-[95] amendments are allowed, there will be a need for further discovery and the need for further evidence, in particular, expert evidence. It is difficult to estimate the extent and nature of that evidence at this time. However, the extent of that evidence may be considerable.

As to the likely trial date, I am not in a position to fix this proceeding for trial until mid to late 2022. This is due to the fact that I did not consider it appropriate to fix this proceeding on 30 April 2021 in light of the restraint application. I wish to add that there was no delay on the part of the defendants in pursuing the restraint application. As is evident from the Reasons, the restraint application was raised within two months of the witness outline of Mr Brooks being filed in this proceeding. In my view, this did not involve any unreasonable delay on the part of the defendants. For completeness, even if I had been in a position to fix this proceeding on 30 April 2021, I doubt I would have been able to fix it until the second half of 2022 in light of my existing commitments at that time.

As to wasted costs, I note that the plaintiffs did not submit that there are any wasted costs. In my view, there are no wasted costs.

As to any elements of irreparable or unfair prejudice by reason of the [65]-[95] amendments, the plaintiffs did not submit that there is any such prejudice. Of course, the plaintiffs submitted that there will be additional costs incurred by the plaintiffs in defending the allegations. I agree that is so, although the extent of those costs is uncertain. However, the plaintiffs’ entitlement to recover those costs will depend upon their success in this proceeding as a whole.

As to whether satisfactory explanation has been given for the [65]-[95] amendments, in light of the circumstances set out in sections 3.5 and 4.1 above, it is clear that the explanation for these amendments arises as a result of the decision to strike out [51(iii)] and [51(iv)] of the amended defence as recorded in the Reasons. Further, the decision to introduce [53AA] and [53AB] were also a result of the success of the strike out application as recorded in the Reasons. There has been no delay on the part of the defendants in seeking to raise these amendments in this context.

As to case management concerns, I am not satisfied that this is a decisive issue in the circumstances of this case. This is in circumstances where no trial date has been fixed. As noted above, the plaintiffs submitted in the context of case management concerns that there has been delays caused by the defendants’ conduct since the time the amended defence was filed in November 2020. To the extent this is relevant to case management concerns, I refer to my comments about the progress of this proceeding since late 2020. In short, while there have been some delays in the last 12 months, the cause of those delays cannot be attributed solely to the defendants, let alone any unreasonable conduct by them.

In these circumstances, I reject the submission of the plaintiffs that the defendants have demonstrated a disregard for their obligations to act promptly and minimise costs and delay.

As set out in [53] above, the primary question in respect of an amendment application is what do the interests of justice dictate. In my view, for the reasons set out in this section, the interests of justice dictate that the [65]-[95] amendments should be allowed.

There is one final matter to address. The plaintiffs submitted that [15A(q)] should not be included in any defence filed with the leave of the Court on the basis that its inclusion is inconsistent with my Reasons. In light of my conclusions in respect of the [65]-[95] amendments, in my view, [15A(q)] is now otiose and ought not be included.

I will hear from the parties on the question of costs and the form of order as a result of these reasons.

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Citations

Dugan v Process Holdings Pty Ltd (No 3) [2021] VSC 737

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[2021] VSC 737

12 November 2021