EFM Pty Ltd v New Zealand Steel (Aust) Pty Ltd (No.2)
[2000] VSC 290
•14 July 2000
| SUPREME COURT OF VICTORIA |
| Not Restricted |
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 20787 of 1997
F.4840
| EFM PTY LTD | Plaintiff |
| v | |
| NEW ZEALAND STEEL (AUST) PTY LTD | Defendant |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 June 2000 | |
DATE OF JUDGMENT: | 14 July 2000 | |
CASE MAY BE CITED AS: | EFM P/L v New Zealand Steel (Aust) P/L (No.2) | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 290 | |
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Amendment to pleading– judgement on liability delivered – judgement entered with damages to be assessed - whether new claims raised – whether open to Plaintiff to amend after determination of liability and prior to assessment of damages – prejudice to defendant – substantial increase in damages – new claim for exemplary damages – whether proposed amendments bad at law – term of agreement to further negotiate – whether a contractual right of renewal of contract – doctrine of merger in judgement – whether a cause of action arising from defendant's conduct of trial on liability – exercise of the discretion to grant leave to amend.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | C. Gunst QC | Merlo Richards |
| For the Defendant | G. Nettle QC with P.W. Collinson | Holding Redlich |
HER HONOUR:
This proceeding was commenced on 12 December 1997. The matter came on for trial on the issue of liability only in August and September 1998 over nine sitting days. Chernov J (as he then was) found in favour of the plaintiff and delivered reasons on 17 December 1998.
The plaintiff claimed damages for the repudiation by the defendant of an alleged supply agreement made on 8 September 1997 ("the supply agreement"). Pursuant to that agreement the defendant appointed the plaintiff as its exclusive freight forwarding agent in relation to steel products imported by the defendant from New Zealand for delivery in Melbourne and Sydney. The defendant repudiated the agreement by letter dated 26 September 1997 before the plaintiff performed any aspect of that agreement. The plaintiff issued the proceeding on 12 December 1997 claiming damages for breach of contract being loss of profit for a period of one year in the sum of $492,000. The statement of claim for the purposes of the trial and, indeed, the current statement of claim, alleged an express term of the supply agreement that the agreement would endure for one year commencing on 15 September 1997. By its amended defence dated 17 July 1998 the defendant raised defences of duress and lack of authority. The facts of the matter are set out in greater detail in the reasons for judgement of Chernov J delivered on 17 December 1998. Ultimately, the learned Judge concluded that the defendant breached that contract and that, as a consequence, the plaintiff is entitled to judgement with damages to be assessed.
Following the publication of his Honour's reasons the matter came back before Chernov J on 23 December 1998. An examination of the transcript of that day reveals that the learned judge contemplated the matter returning before a judge in the Commercial List early in the year 1999. Furthermore, and relevantly for present purposes, on 23 December 1998 counsel for the defendant raised the issue that the plaintiff may only succeed on an order for damages for an amount less than one half of the jurisdictional limit of the County Court. Accordingly, it was submitted that in so far as the plaintiff may ultimately be entitled to costs following its success on the trial on liability it may only be entitled to costs at the appropriate County Court scale
The transcript of 23 December 1998 reveals that Chernov J declined to make an order for costs as sought by the plaintiff up to that date and considered that it was at least arguable that the defendant's position with respect to costs may succeed. Furthermore, on 23 December 1998 after hearing from the parties Chernov J indicated his view was that the matter should proceed before a judge in the Commercial List with respect to the determination of the issue of quantum. On 23 December 1998 Chernov J ordered, among other matters, that the parties discover documents relevant to the issue of damages by 1 February 1999, the plaintiff file any affidavit material in support of its claim for damages by 8 March 1999 and that the defendant file any affidavit in opposition by 29 March 1999. The defendant made discovery of relevant documents on 19 January 1999 in accordance with the orders made by Chernov J. The plaintiff was late in the provision of its discovery, it not being effected until 8 February 1999. Nothing further happened in the proceeding until the plaintiff filed on 29 October 1999, some eight months later, an affidavit of one Carlos Alberto Domingos sworn 27 October 1999. The affidavit of Mr Domingos purported to constitute the plaintiff's evidence on affidavit as to damages. Exhibited to the affidavit were two documents. First, a document entitled "Revenue lost due to legal action with New Zealand Steel". Second, a list of loss of business of clients. A further affidavit sworn by one Frederick Reginald Carl sworn on 27 October 1999 on behalf of the plaintiff set out certain matters relating to damages and ultimately assessed loss at over $2.5m. Hence, at that stage the damages claimed had increased in the order of $2M. over and above the damages contemplated during the trial on liability.
It seems that in November 1999 the plaintiff served a copy of a proposed amended statement of claim upon the defendant and informed it that application would be made to the court at the next directions hearing for leave to amend the statement of claim. The proposed statement of claim introduced new causes of action and expanded the claim for damages from the sum of $492,000 to the sum of $5,339,842.00. The defendant informed the plaintiff that it did not consent to the proposed amendments. Correspondence ensued between the parties. Ultimately the plaintiff did not pursue the amendment foreshadowed in November 1999. By April 2000 the plaintiff had not taken any step to expedite the proceeding. Hence, on 20 April 2000 the defendant issued a summons seeking further directions in the proceeding. The matter before me is whether leave to amend the statement of claim as presently proposed by the plaintiff ought to be allowed. The application for leave to amend is opposed by the defendant. The proposed amended statement of claim has increased the claim for damages of $420,000 on the trial on liability to over $4.5m. There is a claim before me also for exemplary damages and costs as between solicitor and client. In an affidavit sworn by Mario Anthony Merlo on 26 May 2000, the solicitor for the plaintiff the deponent deposes as to the fact of attaining expert accounting advice. The affidavit does not provide any explanation for the dramatic increase in damages sought or the basis upon which the plaintiff now seeks exemplary damages and costs on a solicitor client basis. None of those matters were raised before Chernov J on 23 December 1998. Significantly there is no explanation on behalf of the plaintiff for the delay in the matter coming back before the court. I note that the delay from 23 December 1998 to the defendant's summons dated 20 April 2000 whereby the proceeding was reactivated, is a period of almost one and a half years.
In the proposed amended statement of claim before me the plaintiff seeks to introduce matters that are tantamount to new allegations and claims for damages. First, there is an allegation that by clause 3.8 of the supply agreement the term of the agreement would be "renewed subject to negotiation" such that the plaintiff is entitled to damages corresponding to its loss of profit for the period from June 1999 to May 2002. In effect, therefore, the plaintiff has shifted or altered its claim from one of loss of profit for a period of one year to a claim based upon loss of profit taking account of alleged renewal rights under the agreement. It is convenient to describe this proposed claim as the "renewal claim". Second, the plaintiff alleges in the proposed amended statement of claim that it suffered a loss of clientele by reason of clients ceasing to trade with it as a result of allegations made by the defendant and its employees in the proceeding itself thereby resulting in lost profit in the sum of $630,885.00. It is convenient to refer to this further claim as the "loss of clientele claim". Third, there is a claim for exemplary damages based upon allegations that the defendant persisted to the end of the trial before Chernov J with its defence of duress and that through the defendant's witnesses, Messrs. Allcock and Howard, the defendant concealed discoverable documents from the plaintiff. It is convenient to describe this claim as the "exemplary damages claim". Fourth, the plaintiff seeks an order against the defendant that it pay the plaintiff's costs of the proceeding up to and including 23 December 1998. The plaintiff seeks the order for costs now. It seeks, also to ultimately claim costs on a solicitor client basis. It is convenient to refer to this component of the claim as the "costs claim".
In essence, 18 months after achieving judgement on liability on the basis of a claim in the order of $492,000 the plaintiff seeks to introduce amendments to support the expansion of a claim for damages to the sum of $4,501,764, an increase in the order of over $4m. together with exemplary damages and costs on a solicitor client basis.
Before considering whether it is appropriate to exercise the discretion to grant the leave to amend it is appropriate at the outset to consider whether the amendments ought be allowed as a matter of law. The defendant submitted that each of the amendments was bad in law and, accordingly ought not be allowed: Commonwealth v Verwayen (1990) 170 CLR 394, 456; Ginson v Victorian WorkCover Authority (1995) 1VR209,215-216. I consider each of the proposed heads of claim separately.
The Renewal Claim
The proposed claim for damages for lost profits based on the entitlement to renew the supply agreement is for the sum of $1,334,030.00. It rests upon a pleading that there was an express term of the supply agreement that:
"(c) The agreement was for 1 year commencing on 15 September 1997; and (Clause 3.8) would be renewed subject to negotiation."
Clause 3.8 of the supply agreement in fact states:
"3.8 The annual contract [be] renewed subject negotiation following the specified time table as a minimum period of notice".
Mr G. Nettle QC who appeared with Mr P. Collinson for the defendant submitted that the proposed plea with respect to the renewal claim is bad in law because the words in Clause 3.8 "subject to negotiation" do not mean that there is a contractual right of renewal. Rather, it was submitted, the proper construction of those words is that the parties merely agreed to defer that matter for later negotiations. There is a persuasive line of authority that where parties in an agreement agree to negotiate further on a matter on a later point in time it does not constitute a contractual right of renewal: Ignazio Messina & Co v Polskie Linie Oceaniczne (1995) Ll. LR. 566; CV Joint Proprietary Limited v CGA Trading Proprietary Limited, unreported judgement of Hanson J of this court delivered 17 March 1997; Barrett v IBC International Limited (1995) 3NZLR.170; CPC Consolidated Pool Carriers; G.n.b.h. v CTM CIA Transmediterraneasa, (1994) LI LR 168. Applying the approach of the authorities, I do not consider that the fact of the provision in Clause 3.8 of the supply agreement whereby the parties submitted the matter of renewal to later negotiation constituted a contractual right of renewal. I am persuaded, therefore, that the plea is bad in law and ought not be allowed.
In any event, there is a more compelling basis upon which the renewal claim ought be disallowed. The plaintiff by virtue of the order made by Chernov J on 17 December 1998 achieved a judgement on liability with damages to be assessed. Such judgement is final. The plaintiff is precluded from advancing the proposed amendment by virtue of the application of the doctrine of merger in judgement. A judgement on liability with damages to be assessed is final. A plaintiff's cause or causes of action merge in the judgement given in its favour: Hall v Busst (1960) 104 CLR 206, 218; National Australia Bank v Maher (1999) VSCA 189, paras 4-9 per Callaway J.A.
It follows that the leave sought by the plaintiff to amend its statement of claim in relation to the renewal claim is refused.
The Loss Of Clientele Claim.
The plaintiff seeks to amend its statement of claim by inserting amended particulars to include "loss of gross margin" in the sum of $172,147 and "loss of net profit" in the sum of $458,738, a total claim of $630,885. The proposed particulars in the amendment warrant further clarification before leave to amend could be granted. It is to be observed that in the earlier foreshadowed, amended statement of claim provided by the plaintiff to the defendant in November 1999 it was asserted that the plaintiff had lost revenue in the order of $2.8m. because it had "suffered a loss of clientele by reason of clients ceasing to trade with it as a result of grave and false allegations made by the defendant against it and its employees in this proceeding". It is to be observed, further, that if the new claim for damages as presently before the court in the sum of $630,885 rests upon the same allegation as previously pleaded in the draft provided in November 1999 such allegation would be untenable. A civil action does not lie against a party or its witnesses arising from their conduct in the course of proceedings: Cabassi v Vila (1940) 64 CLR 130, 138, 140 and 149; Metall & Rohanstoff v Ronaldson Inc. (1990) 1 QB 394, 470; and Cumberland v Clark (1996) 39 N.S.W.L.R. 514, 520. As the pleading presently stands it is not apparent as to the basis upon which the claim is to be supported. In my view on that ground alone the amendment with respect to the clientele claim should not be allowed at this point in time. However, in the course of argument Mr C. Gunst QC who appeared for the plaintiff did not explain or postulate any basis for the loss of clientele claim. He did not refute the suggestions by the defendant that the claim was based upon conduct of the trial on liability. In my view the amendment should be rejected on the basis that it is potentially or actually bad at law or, alternatively, because the basis for the claim is inadequately pleaded and particularised.
However, it is apparent from affidavit material filed on behalf of the plaintiff in relation to its damages that the proper plaintiff, if there is any cause of action with the respect to the loss of clientele claim, is not the plaintiff rather it is a related entity known as Evergreen International Forwarding P/L ("Evergreen"). In the affidavit sworn by Mr Domingos on 27 October 1997 he exhibits a list of clients who are described as having ceased trading directly with "Evergreen" due to the action between the plaintiff and the defendant. In the course of argument it was submitted that there was evidence at trial that the plaintiff was a special purpose company with no prior trading history and that it was set up to manage operations pursuant to the supply agreement with the defendant. The assertion was not challenged or rebutted by Mr C. Gunst QC who appeared on behalf of the plaintiff. I am satisfied that it is inappropriate to allow the amendment in relation to the loss of clientele claim in the absence of clarification of these matters.
The Exemplary Damages Claim.
The proposed amended statement of claim raises for the first time the issue of exemplary damages. The matter was not pleaded in the original statement of claim upon which the trial was conducted before Chernov J. It is not entirely clear from the pleading as to the basis upon which exemplary damages are now to be claimed. In so far as the claim rests upon the finding by Chernov J that Mr Allcock, a witness for the defendant at the trial, was an "unreliable witness" and "a person who practised deceit", a civil action does not lie against witnesses, parties, judicial officers and advocates for the manner in which proceedings are conducted: See Cabassi v Vila, supra. Furthermore, exemplary damages will not be awarded arising from the manner of conducting litigation for the further reason that there is insufficient factual link between the conduct constituting the cause of action and the conduct about which complaint is made: David v Russell McVeagh McKenzie Bartleet and Co. (1994) 2NZLR175.
It is not entirely apparent as to the basis upon which the plaintiff now seeks exemplary damages now for the first time. The only reason or foundation that can be gleaned is the basis contemplated. The amendment in so far as it seeks to pursue a claim for exemplary damages, will not be allowed because it is either bad at law or, alternatively, is insufficiently particularised.
The Costs Claim
The plaintiff seeks at this point an order for its costs up to and including 23 December 1998. It seeks also to reserve the right to claim costs on a solicitor client basis. This matter was considered on a party /party basis before Chernov J in December 1998. In my view it is apparent from the transcript on both occasions that Chernov J declined to make the order for costs at that point in time rather, considered it was appropriate to deal with the matter after the assessment of damages. I am not persuaded that there is any basis upon which I could properly interfere with the view taken by Chernov J in December 1998. I was informed by Mr Nettle QC on behalf of the defendant that its position remains that at the trial on damages the defendant's case will be that damages awarded to the plaintiff, if any, will fall significantly below the sum of $100,000 and accordingly the defendant will seek an appropriate order under the Rules with respect to costs. With all these matters in mind, I further consider it is inappropriate to interfere with the view taken by Chernov J in December 1998 with respect to costs. The entire matter of costs, including any application for costs on a solicitor client basis, ought be left for determination by the trial judge on damages.
The Exercise Of The Discretion
Moving on from the issue as to whether the amendments proposed are good or bad in law, it is appropriate in any event to consider whether the discretion ought to be exercised in favour of the plaintiff. Mr Nettle QC urged that I ought not exercise the discretion to grant leave to amend in favour of the plaintiff on the primary basis that the defendant would suffer "overwhelming prejudice" that could not be compensated for by an order for costs. In the event that I am so satisfied, on the basis of the authorities, leave to amend ought not be granted: Commonwealth v Verwayen, supra 456, 464, 482; Howarth v Adey (1996) 2 VR 535, 542.
It is to be observed that when the defendant went to trial in this proceeding it faced a claim for damages for repudiation of the supply agreement in the order of $492,000. It was submitted before me on behalf of the defendant that at no time in the course of the running of the trial was any suggestion made on behalf of the plaintiff that it might seek to introduce further amendments to expand the claim for damages to a sum in the order of $4.5m. It was stated, further, that the plaintiff's case was expressly opened at trial by its counsel on the basis that the supply agreement was to endure for a term of one year only. These matters were not rebutted or challenged by the plaintiff in the application before me. Mr Nettle QC submitted for the defendant that if it had faced the claims which it now potentially faces arising from the application for leave to amend the defendant may well have chosen to conduct its defence of the proceeding in a number of different respects. First, the defendant may have chosen to attempt to compromise the proceeding. Second, different witnesses may have been called on behalf of the defendant. Third, evidence would in all likelihood have been adduced to meet squarely the new allegation that Messrs. Allcock and Howard, defendant witnesses, deliberately concealed discoverable documents from the plaintiff during preparation for the trial on liability. Fourthly, in the trial on liability before Chernov J the defendant was represented by two new counsel only. If the present circumstance had been known the defendant may have briefed senior counsel or for that matter a different legal team. Overall, the conduct of the defence may well have adopted a different course. Fifthly, further defences may have been investigated by the defendant and raised on its behalf at trial.
When all these factors are considered together a set of circumstances are presented very much analogous to those considered by the Court of Appeal in National Australia Bank v Maher, (1999) VSCA 189 (23 November 1999). In that case, following on from a successful judgement on liability a party was granted leave by the trial judge on the hearing of an assessment for damages to amend the statement of claim to encompass causes of action for trespass and on the case, and both aggravated and exemplary damages. Callaway J.A., in the course of delivering the primary judgement on behalf of the Court of Appeal observed (at para 31):
"In the present case it is unnecessary to choose between the competing views. Even if the judgement in paragraph 9 of the Full Court's orders was interlocutory, it was too late to permit the amendments that his Honour did. The trial culminating in the judgment of 16th December 1992 extended over several weeks. It was fought on a further amended statement of claim that did not allege a trespassory entry or seek damages on the case or exemplary damages. As to the last, see Rule 13.07(3). Had the pleading encompassed any of those matters, the appellant might well have conducted its defence differently. The decision to permit an amendment is discretionary, but with respect the discretion could not be exercised as it was. A substantial change to the respondent's case was objectively unfair to the appellant and, given the stage at which it occurred, inconsistent with the orderly conduct of the litigation. Liability had been determined. The introduction of new causes of action meant that it had to be determined again, but that was done only for the purpose of justifying the amendments. The hearing that began on 24th November 1997 proceeded as an assessment. For these reasons, too, the assessment must be set aside."
Furthermore, in considering the possibility of compromise it is relevant that the plaintiff claims interest at the rate prescribed under the Penalty Interest Rates Act 1983 on the amount of its claims for damages. The statutory entitlement arises under Section 60 of the Supreme Court Act 1986. As a consequence of the amendments sought by the plaintiff, the defendant is now exposed to a much larger claim for statutory interest if the amendment is allowed. The defendant would face the lost opportunity to consider its option to compromise the proceeding in the light of the continuing liability under the interest provisions than it would otherwise have faced if the present claim for damages had overshadowed the trial on liability. In this regard two observations can be made. First, the trial proceeded in the Commercial List and is subject to the strictures and rigours that prevail in that list bearing in mind, in particular, that the plaintiff elected to issue the proceeding in the Commercial List. It is a well known fact of litigation life in the Commercial List that amendments to pleadings are discouraged. Second, if the plaintiff was allowed to amend its claim in the manner it proposes it would give rise to unfairness to the defendant of a very high degree in that it was deprived of the opportunity to consider its option to compromise the proceeding at a much earlier point in time. Here, I am guided by the observations of Tadgell J.A. in Geelong Building Society (in liq) v Encel (1996) 1VR594 where the learned judge observed with respect to an application by a party to amend a defence at the end of an appeal (at 608):
"The case was heard in the commercial list. As is well known, that list is dedicated to the prompt, efficient and economical resolution of commercial disputes. Consistently with that philosophy applications to amend pleadings, once they are put in proper shape for a trial, are discouraged and are very sparingly allowed, especially after the trial had begun. The reasons for that attitude are manifest and notorious. Compromise of cases in the commercial list is necessarily encouraged and, without a healthy rate of settlements, the List could not function.
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Apart from that, to allow the amendment sought would in my opinion be manifestly unfair to the respondent: cf. Banbury v Bank of Montreal (1918) a.c. 626 AT 705, per Lord Parker of Waddington. If it be right to say that some aspects of the relevant rule "may have their genesis in estoppel by election in the conduct of litigation" and, if so, "the relevant consideration is not that the other party is put in a worse position but that he or she may have been so placed" [Mason C.J. and Gaudron J. (1990) 169 C.LR. 279 at 284], I think it plain that the respondent would be placed in a markedly worse position than if the reply had been properly framed in the first place. If the application were now allowed and the new point were to succeed so that the appellant obtained judgment, the respondent would be liable by way of interest for over $1 million in excess of that for which he would have been liable had he failed first at first instance. It is reasonable to suppose that, had the respondent been faced with the point that is now sought to be made against him, he could well have taken a different attitude to the appellant's claim from that which he did. Thus, to allow the amendment now sought would be to put the respondent at risk of incurring a very large extra liability without having an appropriate opportunity to consider avoiding it by way of compromise or other means. That is a disadvantage for which an order for costs of the appeal in the respondent's favour could not compensate him."
Finally, it must be emphasised that Commercial List practice requires that in allowing an amendment an affidavit should be filed explaining the delay or other reason for amendment : see Guide to Commercial List Practice. No explanation has been provided on affidavit by the plaintiff to support the application for leave to amend at this time. When a specific inquiry was directed to Mr Gunst QC for the plaintiff he informed the court that there were difficulties in assembling affidavit material on the question of damages and, also, that there was further difficulty in obtaining documents from the defendant to enable the damages preparation to be completed. I consider the explanation to be entirely unsatisfactory. In my view given the elapse of 18 months since the judgement on liability was delivered and following the directions made by Chernov J on 23 December it behoved the plaintiff to provide a satisfactory explanation to the court for the reason for the delay of 18 months and, furthermore, provide a satisfactory explanation as to why the amendments it now seeks to ventilate were not before the court during the trial on liability.
When all these matters are considered, I am satisfied that substantial prejudice will be rendered to the defendant if the plaintiff is allowed to pursue the amendments it seeks. Mr Gunst QC for the defendant, sought to rely upon the principles with respect to leave to amend considered by the Court of Appeal in Howarth v Adey, supra. In that case Winneke P (at 541) considered that the trial judge at first instance in refusing a plaintiff leave to amend a statement of claim in a medical negligence claim gave very little emphasis, if any, to the prejudice that would be suffered by the plaintiff in the event of the refusal of the application to amend. Winneke P considered that inappropriate weight was given by the trial judge to the fact that if the amendment was allowed the trial would be adjourned off with consequential prejudice to the defendant and disruption to the business of the court. In my view, in this matter, the prejudice to the defendant is entirely different to that contemplated as being potentially suffered by the plaintiff in Howarth v Adey. Here a trial as to liability has been concluded on an entirely different basis to that which the plaintiff now seeks to pursue. For the reasons already stated the defendant finds itself in a position where it has cast its defence in a particular way on the basis of one case and is now faced by a different case that it may have fought differently or compromised earlier in time. The prejudice is so real and significant that in my view it far outweighs the prejudice to be suffered by the plaintiff if leave to amend is refused. Furthermore, the observation must be made that the prejudice potentially suffered by the plaintiff is very much of its own making in having delayed bringing the application for leave to amend to this point in time.
For these reasons I consider that aside from the legal validity of the amendments the discretion in any event should not be exercised in favour of the plaintiff and that the application for leave to amend should be refused.
I turn to consider whether or not it is appropriate that the proceeding remain within the Commercial List. The plaintiff urged that it should and the defendant expressed the desire for the matter to remain in the list but acknowledged that ultimately it was a matter for the court. With considerable reluctance I will allow the matter to remain in the Commercial List at this time. It is apparent from the transcript of 23 December 1998 that Chernov J contemplated the matter returning before the court quickly so that it could be dealt with by a judge in the Commercial List. The plaintiff has not taken up that opportunity. However, I consider it desirable that the List remain seized of the matter but that the position be reviewed on an on-going basis.
I will make orders accordingly.
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