Equuscorp Pty Ltd and Sintoff Pty Ltd v Acehand Pty Ltd & Ors
[2010] VSC 89
•30 March 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
Nos. 7711, 7712, 7713,
7714 and 7715 of 2000
| EQUUSCORP PTY LTD and SINTFOFF PTY LTD (in liquidation) (receiver appointed) | Plaintiffs |
| v | |
| ACEHAND PTY LTD and OTHERS | Defendants |
---
JUDGE: | Hollingworth J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9-10 September 2009 | |
DATE OF RULING: | 30 March 2010 | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 89 | |
---
Practice and procedure – Statement of claim – Application for leave to amend – Proceedings against multiple defendants – Certain claims determined at trial in favour of two defendants – Plaintiffs seeking to amend to plead alternative claims against remaining defendants – Whether plaintiffs prevented from amending by Anshun principles – Whether abuse of process for plaintiffs to raise alternative claims – Leave to amend granted
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Scott | Phillip Kotsanis |
| For the Defendants | Mr D M B Derham QC with Mr J Tsalanidis | Mills Oakley |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 2
Relevant legal principles.................................................................................................................. 4
Amendment................................................................................................................................... 4
Anshun principles.......................................................................................................................... 7
Abuse of process........................................................................................................................... 8
The proposed amendments............................................................................................................ 10
The alternative contractual claims............................................................................................ 10
The restitutionary claim............................................................................................................. 14
History of the proceedings............................................................................................................. 16
Explanation for not raising the alternative claims before........................................................ 20
General case management considerations.................................................................................. 23
Prejudice............................................................................................................................................ 24
Inconvenience and stress........................................................................................................... 24
Costs.............................................................................................................................................. 26
Further evidence.......................................................................................................................... 27
Summary and conclusions............................................................................................................. 28
HER HONOUR:
Introduction
The defendants were all investors in forestry schemes, which were offered to the public between 1989 and 1993. In order to participate in the schemes, investors signed a series of leases and entered into a management contract and a works and services contract.
There was a succession of assignments of the rights of the lessor under the leases. The first plaintiff (“Equuscorp”) is the ultimate assignee of the rights of the second plaintiff (“Sintoff”), as lessor under the leases.
Despite attempts to salvage them, the forestry schemes had collapsed by the mid-1990s. The investors ceased paying rent in 1997. By April 1998, the investors’ leases had been terminated by the lessor, and the pine plantations re-leased to Furies Capital Ltd.
In 2000, Equuscorp commenced these five proceedings against the investors, seeking to recover unpaid rent to April 1998 and damages for wrongful repudiation of the leases.[1] The total amount claimed by Equuscorp was more than $36 million. These are not representative proceedings under order 18 of the Supreme Court (General Civil Procedure) Rules 2005 (“the rules”), or group proceedings under Part 4A of the Supreme Court Act 1986. Rather, they are hundreds of separate claims, which have been joined together in five proceedings – apparently for convenience, and without any objection from the defendants.
[1]Each proceeding relates to a different year’s scheme. Each scheme had its own, common documentation, including the prospectus and contract documents.
By the mid 1990s, Mills Oakley were acting as solicitors for many of the investors, through an incorporated association called the Seymour Softwood Growers Group (“the growers group”). After these proceedings were commenced, more than half of the original defendants grouped together and have been represented by Mills Oakley (“the Mills Oakley defendants”).
Sintoff was later added as a plaintiff, after the Mills Oakley defendants asserted that Equuscorp was not the proper plaintiff.
Through a case management process, the plaintiffs and Mills Oakley defendants agreed to there being a trial of the plaintiffs’ claims against two defendants, George Antonopoulos and Mauro Belperio (“the AB defendants”), who were parties in proceedings 7113 and 7112 of 2000, respectively. These were not formal test cases, although the parties and court undoubtedly hoped that they would have the practical effect of resolving the claims against the remaining defendants.
On 6 February 2006, Hargrave J held[2] that the plaintiffs could not recover from the AB defendants for the following reasons:
(a) The leases were void for uncertainty, because the leased land was not sufficiently identifiable; and
(b) The leases were unenforceable, because they constituted a subdivision entered into in contravention of ss 323 (1) and 327 (2) of the Local Government Act 1919 (NSW) (“the LGA”), which Act applied because the land was in New South Wales.[3]
[2]Equuscorp Pty Ltd v Belperio [2006] VSC 14.
[3]In broad terms, the LGA provided that a lease or agreement to lease for a period exceeding five years would constitute a subdivision for the purposes of the LGA, and a subdivision may not occur except in accordance with the LGA.
His Honour also rejected the plaintiffs’ submissions that the AB defendants were estopped from disputing the validity and enforceability of the leases.
On 16 September 2008, the Court of Appeal upheld[4] the judgment of Hargrave J in relation to Antonopoulos, the plaintiffs’ claim against Belperio having been discontinued prior to the hearing of the appeal.
[4]Equuscorp Pty Ltd v Antonopoulos [2008] VSCA 179.
In mid-October 2008, the plaintiffs wrote to Mills Oakley, informing them that the plaintiffs would be seeking to amend their statement of claim against the defendants other than the AB defendants, so as to include the following matters:
(a) By reason of the fact that the lease agreements entered into by each defendant were incapable of taking effect as leases (because of the decisions in the AB defendants’ cases), each such agreement operated as a licence or a mere contractual right;
(b) Further and in the alternative, the plaintiffs are entitled to recover on a restitutionary basis, because each of the defendants has been unjustly enriched.
The Mills Oakley defendants did not consent to the proposed amendments, in so far as they sought to add the alternative claims.[5] On 21 May 2009, an associate judge dismissed the plaintiffs’ application for leave to amend.[6] This is an appeal from that decision,[7] pursuant to r 77.06 of the rules.
[5]There has been no objection to the proposed amendments, in so far as they involve deleting matters which have been determined by Hargrave J and the Court of Appeal.
[6]The applications are made by summonses dated 24 December 2008 and 15 January 2009.
[7]By notice of appeal dated 27 May 2009.
The primary submission of the Mills Oakley defendants is that leave to amend should be refused in the exercise of the court’s inherent jurisdiction to prevent an abuse of process. They also oppose the amendments on the bases that: an Anshun estoppel[8] arises; the alternative claims are not arguable; and the defendants would suffer prejudice of a type not compensable by an order for costs.
[8]Based on the principles enunciated in Port of Melbourne Authority v Anshun (1981) 147 CLR 589, which will be considered shortly.
Relevant legal principles
Amendment
The application to amend is made pursuant to r 36.01 of the rules, which relevantly provides:
36.01 (1) For the purpose of—
(a) determining the real question in controversy between the parties to any proceeding; or
(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.
…(3) An indorsement of claim or pleading may be amended under paragraph (1) notwithstanding that the effect is to add or substitute a cause of action arising after the commencement of the proceeding.
…
(6) The Court may, notwithstanding the expiry of any relevant limitation period after the day a proceeding is commenced, make an order under paragraph (1) where it is satisfied that any other party to the proceeding would not by reason of the order be prejudiced in the conduct of that person’s claim or defence in a way that could not be fairly met by an adjournment, an award of costs or otherwise.
Further, r 1.14 provides:
In exercising any power under these Rules the Court—
(a) shall endeavour to ensure that all questions in the proceeding are effectively, completely, promptly and economically determined;
The principles applying to applications to amend pleadings have been recently clarified by the High Court in Aon Risk Services Australia Limited v Australian National University (“Aon”).[9] In that case, the plaintiff, ANU, sought to make substantial amendments to its statement of claim, on the third day of a four week trial, after it had settled its case against some of the defendants. The supporting affidavit, sworn by ANU’s solicitor, did not offer any explanation for the need to amend.
[9](2009) 239 CLR 175.
The trial judge granted an adjournment and ultimately allowed the amendments, relying on the earlier High Court decision in Queensland v JL Holdings (“JL Holdings”)[10] as authority for the proposition that, although case management considerations were not irrelevant, justice was the paramount consideration in determining the application for leave to amend. The majority of the Court of Appeal of the Supreme Court of the Australian Capital Territory upheld that decision. The High Court unanimously overturned that decision.
[10](1997) 189 CLR 146.
In Aon, the plurality in the High Court said that an application for leave to amend “should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement.”[11] In doing so, the court rejected the approach which had been taken in JL Holdings.
[11]At [111] per Gummow, Hayne, Crennan, Kiefel and Bell JJ.
In Aon, the court identified the following matters as potentially relevant to the exercise of the court’s discretion on an application for leave to amend:
(a) The nature and importance of the amendment to the party applying;[12]
[12]Plurality at [102].
(b) Whether the amendment raises a clearly arguable claim or defence;
(c) The reason or explanation for the amendment;[13]
(d) Any prejudice to the other party, including non-compensable inconvenience and stress on individuals (personal litigants being more likely to feel the strain than business corporations or commercial persons);[14] and
(e) Case management considerations, including delay, prejudice to other litigants, waste of public resources or loss of public confidence in the legal system – for example, through the late vacation of a trial date.[15]
[13]French CJ at [14]; plurality at [103], [106]; Heydon J at [131]-[132].
[14]Plurality at [100]-[101].
[15]French CJ at [30], [35]; plurality at [95][102].
In Aon, the High Court ultimately refused leave because the application to amend had been made “late in the day”, was inadequately explained, necessitated the vacation or adjournment of the trial, and raised new claims not previously agitated (apparently because of a deliberate tactical decision not to do so). In the circumstances of that case, further delay would be such as to undermine confidence in the administration of justice.
There is no dispute that the proposed amendments to introduce a claim that the leases operate as licences or bare agreements will introduce new causes of action after the expiry of the relevant limitation periods applicable to them. As mentioned above, r 36.01(6) permits such an amendment where the court is satisfied that any other party to the proceeding would not by reason of the order be prejudiced in the conduct of that person’s defence in a way that could not be fairly met by an adjournment, an award of costs or otherwise.
Anshun principles
The Mills Oakley defendants say that the alternative claims would be barred by an Anshun estoppel, on the basis that they were so relevant to the subject matter of the claims against the AB defendants that it was unreasonable for the plaintiffs not to have relied on them at trial. The plaintiffs deny that any Anshun estoppel arises here.
An Anshun estoppel may arise where a matter sought to be raised by way of claim or defence in a later proceeding is so closely connected with the subject matter of an earlier proceeding, that it was to be expected that it would have been relied upon in that earlier proceeding.[16] No such estoppel arises unless it appears that the matter relied upon in the later proceeding was “so relevant to the subject matter of the first action that it would have been unreasonable not to rely upon it.”[17]
[16]Anshun at 604 per Gibbs CJ, Mason and Aickin JJ.
[17]Anshun at 602 per Gibbs CJ, Mason and Aickin JJ.
Although Anshun itself involved a failure to raise a defence in an earlier proceeding, the principle applies equally in respect of a proceeding on a cause of action which should have been raised in a previous proceeding.[18]
[18]See for example Bryant v Commonwealth Bankof Australia (1995) 57 FCR 287 at 297 per Beaumont, Wilcox and Moore JJ. Special considerations may arise in relation to cross-claims.
A significant factor in determining the unreasonableness of refraining from pursuing a claim relates to whether there arises the potential for conflicting judgments.[19]
[19]Anshun at 604; Gibbs v Kinna (“Gibbs”) [1999] 2 VR 19 at 27 per Kenny JA; Egglinshaw v Australian Crime Commission [2008] 243 ALR 177 at 184; Snowy Mountains Organic Dairy Products v Wholefoods Pty Ltd (“Snowy Mountains”) [2008] VSC 405 at 15-16.
In considering whether an Anshun estoppel arises, the question is not whether it would have been reasonable for the person in the present plaintiffs’ position to have taken a different course, but whether it was unreasonable for that person to pursue the course of action which they in fact took.[20]
[20]Gibbs at [2] per Ormiston JA, at [23]-[25] per Kenny JA.
It seems that an Anshun estoppel may arise even though the parties to the second proceeding are not the same as the first. However, as McColl JA (with whom Giles and Campbell JJA agreed) said in the recent decision of the NSW Court of Appeal in Habib v Radio 2UE Sydney Pty Ltd[21]:
Although there may be “no question … of oppression and unfairness” where the parties in the second action “were not parties to the earlier action”, the new proceedings may threaten the integrity of the administration of justice if they raise the prospect of conflicting judgments.[22]
[21][2009] NSWCA 231.
[22]At [83].
Abuse of process
The Mills Oakley defendants also argue that the amendments should not be allowed because they would amount to an abuse of process.
In the recent High Court case of Jeffery & Katauskas v SST Consulting[23] the majority affirmed that:
[23](2009) 239 CLR 75.
(a) Courts have a broad inherent power to prevent misuse of their procedures in a way which, although not inconsistent with the literal application of procedural rules of court, would nevertheless be “manifestly unfair to a party to litigation … or would otherwise bring the administration of justice into disrepute among right-thinking people;”
(b) The categories of abuse of process are not closed;
(c) But that does not mean that abuse of process is “a term at large and without meaning.”[24]
[24]These statement all come from para [28] of the joint judgment of French CJ, Gummow, Hayne and Crennan JJ.
The majority made those observations having regard to many of the cases to which the Mills Oakley defendants referred me in this case, including Walton v Gardiner[25] and Batistatos v Roads and Traffic Authority (NSW).[26]
[25](1993) 177 CLR 378.
[26](2006) 226 CLR 256.
In Aon, French CJ noted that “abuse of process principles may be invoked to prevent attempts to litigate that which should have been litigated in earlier proceedings as well as attempts to re-litigate that which has already been determined.”[27] In doing so, he also relied upon the Walton v Gardiner line of authority.
[27]At [33].
There had been some debate – before me and in other cases – as to whether such abuse of process principles are the same as or broader than Anshun estoppel principles.[28] Anshun estoppel arises from the old case of Henderson v Henderson,[29] itself an abuse of process case. I assume, without deciding, that the current abuse of process principles (based on guiding considerations of oppression and unfairness and concern for the administration of justice) may be broader than Anshun estoppel principles.
[28]See for example the interesting discussion by Beach J in the Snowy Mountains case.
[29](1843) 3 Hare 100; 67 ER 313.
Many of the abuse of process cases to which I was referred turn on their own facts. However, the Mills Oakley defendants placed considerable reliance on the decision of the UK Court of Appeal in Ashmore v British Coal Corporation (“Ashmore”).[30] In that case, about 1,500 female colliery workers, including the applicant, complained to an industrial tribunal that they were employed in less favourable terms than men, in breach of relevant equal pay legislation. The tribunal went to great lengths to select the best cases, so that as many common issues could be tried. The tribunal ordered that the decisions in the cases selected for trial, although persuasive, would not be binding on other claimants. The selected claimants failed in their cases. The applicant (who had not been a selected claimant) then sought to proceed with her claim. The Court of Appeal upheld the decision at first instance to the effect that, although the selected cases were not binding on the applicant, it would be an abuse of process for her to re-litigate the factual issues raised.
[30][1990] 2 QB 338.
The decision in Ashmore has been approved in Victoria in Equus Financial Services v Jackson,[31] as authority for the proposition that it is an abuse of process for parties to acquiesce in the conduct of a test case, and then pursue their own claim in the face of the decision in the test case, unless they can demonstrate that their case is materially different to the test case.
[31](1994) ASC 56-288 per Smith J.
It is highly probable that if the plaintiffs tried to re-litigate against the remaining defendants the lease claims which they lost against the AB defendants, that would be held to be an abuse of process, on the same reasoning as in Ashmore. But that is not what the plaintiffs are seeking to do with their proposed amendments. Here, they wish to litigate claims which have not been litigated against any of the parties to these five proceedings.
The proposed amendments
There is no dispute that the proposed amendments raise claims that are new and substantial.
The alternative contractual claims
The plaintiffs seek to plead the following alternative claims:
4A The lease agreements entered into by each defendant were incapable of taking effect as leases.
PARTICULARS
The plaintiffs rely on [the Hargrave decision].
4B By reason of the matters set out in paragraph 4A above, each such agreement:
(a) operated as:
(i) a profit à prendre, or as an interest in the nature of a profit à prendre;
PARTICULARS
If no profit à prendre or interest in the nature of a profit à prendre is created by the general law, the plaintiffs rely upon s 88AB of the Conveyancing Act 1919 (NSW).
(ii) alternatively, a licence;
(iii) alternatively, a mere contractual right,
which authorised the relevant defendant to use, further or alternatively have access to, further or alternatively enjoy the fruits of, a portion of the relevant parcel of land for the purposes and in the manner set out in the prospectus and the lease agreements, in return for (inter alia) payment by the relevant defendant of the amounts described in the lease agreements as “rental”; and
(b) did not render the relevant portions of each parcel “available for separate occupation or disposition” for the purposes of the LGA.
The existing pleadings in relation to the non-payment of rental under the lease agreements, and the alleged repudiation and termination thereof, remain. The prayer for relief continues to seek the same amounts by way of unpaid rental, and damages for repudiation, as had been sought under and in respect of the lease agreements as binding leases. That is to say, the plaintiffs seek to enforce the lease agreements as agreements of a type other than a lease.
The plaintiffs argue that the basis upon which a lease unenforceable as such might otherwise be enforced, such as a profit à prendre, licence or bare contractual right, is “well-established”. That rather overstates the position, in my opinion.
Certainly, a number of cases have considered whether an agreement should properly be characterised as a lease or a licence, irrespective of how the parties have chosen to describe it. One of the primary considerations in such cases is whether the agreement grants exclusive possession of the land.[32] And, in Chaka Holdings Pty Ltd v Sunsim Pty Ltd[33], Young J said that the fact that the premises were imprecisely defined was another factor which tended to suggest that the relevant agreement was a licence not a lease. But none of those cases considered whether an agreement which was unenforceable as a lease might be enforceable as a licence.
[32]For example: Radaich v Smith (1959) 101 CLR 209; Lewis v Bell [1985] 1 NSWLR 731;
[33]BC8701174, Supreme Court of NSW, 3 September 1987.
The plaintiffs place particular reliance upon the decision of the New South Wales Court of Appeal in Silovi v Barbaro (“Silovi”).[34] In that case, the owners of land executed a lease for 10 years in respect of part only of their land; the lessees were the owners of an adjoining plant nursery. The lease could not be registered, by virtue of s 327AA of the LGA (one of the provisions which Hargrave J considered) because it was for a period of more than five years. The nursery owners lodged a caveat to protect their interests, and the land owners assured them they would not “break” the lease. The land owners then entered into an agreement to sell the land the subject of the lease, and the intending purchaser, knowing of the circumstances of the occupation, threatened to put the nursery owners off the land. The nursery owners sought relief based on equitable estoppel.
[34][1988] 13 NSWLR 466.
The Court of Appeal upheld the decision of Powell J that an equitable estoppel arose. The court held that the provisions of ss 327 and 327AA of the LGA did not prevent an equity of the kind asserted from coming into existence. The equity which arose from the equitable estoppel amounted to a personal licence coupled with an interest in the nature of a profit à prendre (in relation to some valuable palm trees which the nursery owners had planted on the land). As such, the equity was more than a mere personal interest, and was sufficient to prevent the later equitable interest of the purchaser – acquired under the contract of sale – from prevailing over the earlier equitable rights.[35]
[35]At p 475 per Priestley JA with whom Hope and McHugh JJA agreed.
The Silovi case is not on all fours with the current situation, in that it was concerned with the equitable rights of the nursery owners vis a vis the purchaser. The court did not consider whether the agreement, which was unenforceable as a lease, was enforceable at law as a licence, at the behest of the land owners.
The plaintiffs argue (in the alternative) that if the lease agreements are not licences, then as “a matter of logic” they must be enforceable as commercial agreements. The authorities to which they refer[36] as support for this proposition are not directly on point: those cases discuss the reluctance of courts to find contracts void for uncertainty, in preference to giving effect to the bargain made between the parties. Those cases have nothing to say about whether a lease agreement, which has been found to be void for uncertainty, can nevertheless take effect as a “bare agreement.”
[36]Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 and Meehan v Jones (1982) 149 CLR 571.
The final alternative claim in paragraph 4B is based on the allegation that the lease agreements operated as a profit à prendre. In general terms, a profit à prendre is a right to take from another’s land some part of the soil, minerals, produce or wild animals existing on that land.
An agreement for participating in the commercial enterprise of planting and harvesting pine trees on the land of another has been recognised as a valid profit à prendre – or something in the nature of a profit à prendre – in Australia.[37] And, under s 88AB of the Conveyancing Act 1919 (NSW), a “forestry right” (which term includes an entitlement to enter land and establish, maintain and harvest a crop of trees on the land) is deemed to be a profit à prendre. I assume for present purposes that the defendants had an interest in the land in the nature of a profit à prendre.
[37]Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 36 ALR 257 per Mason J; Gibbs CJ and Stephen J not deciding.
A profit à prendre may or may not be reflected in an enforceable agreement. Courts generally consider profits à prendre in a situation in which the holder of the right is seeking to enforce it against the owner of the land. I was not taken to any case in which a court has considered whether the owner of the land can recover payment in respect of a profit à prendre other than pursuant to an agreement (that is to say, I am not sure what the proposed profit à prendre pleading adds to the “mere contractual right” pleading). It is also not clear how any claim for damages could arise after the termination of the profit à prendre rights.
The application for leave to amend proceeded before the associate judge on the basis that the alternative claims were at least arguable. Although the Mills Oakley defendants’ written outline of submissions on appeal baldly asserted that the proposed amendments are not arguable, the defendants did not really elaborate on that in oral submissions. In particular, the defendants did not refer to any authority which would preclude the plaintiffs from raising the alternative contract claims. In making those observations, I am not suggesting that the defendants bear any onus of establishing that the proposed alternative claims are not arguable. Rather, I am pointing out that the parties’ arguments on appeal really focussed on whether the alternative claims ought to have been raised earlier, or had already been decided by Hargrave J or the Court of Appeal.
I assume, for the purposes of this application only, that at least some of the alternative contractual claims are arguable.
The restitutionary claim
The proposed restitutionary claim is pleaded as follows:
28A Alternatively …, if the lease agreements were illegal, void or unenforceable, then:
(a) each of the defendants had the use of that portion of the relevant parcel of land which was the subject of the lease agreement entered into by him, her or it, until the receiver entered into the leases with Furies Capital …;
(b) by:
(i) occupying and using that portion of the relevant parcel of land, ostensibly in accordance with the lease agreements and the prospectus;
(ii) further or alternatively, by claiming tax deductions in respect of expenses connected with his, her or its occupation and/or use of that portion of the relevant parcel of land,
each of the defendants was enriched.
(c) each defendant’s enrichment was at the expense of Sintoff, because it came about by reason of the defendant’s use of land belonging to Sintoff;
(d) in respect of all periods during which rental was not paid under the relevant lease agreement, the consideration which Sintoff was to receive in exchange for the relevant defendant’s enrichment has failed;
(e) alternatively to (d) above, Sintoff and each of the defendants entered into the lease agreements in the mistaken belief that each such lease agreement would be legal, valid and enforceable; and
(f) as a consequence, each defendant has been unjustly enriched at Sintoff’s expense, and Sintoff is entitled to recover the value of that enrichment from each defendant as restitution.
PARTICULARS
A reasonable sum for the use and occupation of each defendant’s portion of the relevant parcel of land, measured as the total rental payable by each defendant for the period from the commencement of the first of that defendant’s lease agreements to the termination of each of that defendant’s lease agreements, less any rental actually paid.
Alternatively, the value of any tax deductions claimed in respect of the defendant’s occupation and use of the relevant portion of the relevant parcel of land during any period for which rental was not paid, in the hands of the defendant. Particulars of that value will be provided following discovery.
In the prayer for relief, the plaintiffs seek restitution of the amounts described in paragraph 28A.
In support of their restitutionary claim, the plaintiffs rely upon the decision of the Court of Appeal in Ovidio Carrideo Nominees v The Dog Depot Pty Ltd (“Dog Depot”).[38] That case considered a tenant’s obligation to pay for the use and occupation of land governed by the Retail Tenancies Reform Act 1998 (Vic), in circumstances where the landlord had nor provided a mandatory disclosure statement. The tenant brought a proceeding claiming repayment of rent, which it had paid in ignorance of the fact that it was not liable to pay rent until the necessary disclosure statement was provided; the tenant’s claim was a restitutionary claim, for money had and received. The Court of Appeal held that the landlord had a good defence to the restitutionary claim, because it would not be unjust or unconscionable for it to retain the money.
[38][2006] VSCA 6.
According to Chernov JA, one of the reasons why it would not be unjust for the landlord to retain the money would be that:
… the landlord has a sound claim against the tenant for use and occupation of the premises for the relevant period, in an amount broadly equal to the rent reserved under the lease. As is explained in Woodfall’s Laws of Landlord and Tenant, a restitutionary claim based on use and occupation arises where the respondent has been given permission by the claimant to occupy its land without there being any binding term as to payment.[39]
[39]At [22].
Nettle JA agreed that this was the sort of situation in which the restitutionary principles in Pavey & Matthews Pty Ltd v Paul (“Pavey”)[40] would arise. His Honour considered in some detail the relevant authorities, and explained how the restitutionary principles differed from the position at common law in relation to recovery for use and occupation of land. He concluded that:
Logic implies that similar considerations should govern a lessor’s claim to recover restitution arising from a tenant’s acceptance of the benefits of occupation of demised premises under an unenforceable lease. The lease shows that the benefits of occupation were not intended as a gift, and the claim to recover reasonable compensation for use and occupation is to be characterised as a claim dehors the contract.[41]
[40](1986) 162 CLR 221.
[41]At [41]. Ashley JA agreed for relevant purposes with both Chernov and Nettle JJA.
The Mills Oakley defendants do not really dispute that the proposed restitutionary claim is arguable. Rather, their primary contention is that such a claim was always available to the plaintiffs, and ought to have been pleaded earlier.
History of the proceedings
The Mills Oakley defendants accept that there was no order or binding agreement that the cases against the AB defendants would be binding test cases, but say that it was the intention of the parties that all of the common issues between the parties would be determined by the court in order to achieve finality about the matters in dispute between them.
Equuscorp accepts that the parties hoped that the decisions against the AB defendants would have some practical effect on the claims against the other defendants, but says that both sides reserved the right to consider their respective positions after the first two cases had been determined.
Even before the proceedings were actually issued in late November 2000, Equuscorp had been communicating with Mills Oakley about how the cases might be commenced and run, given the large number of defendants.
In a letter to Mills Oakley dated 15 June 2000, Equuscorp proposed that all defendants would be required to enter an appearance, but that only a selected number of Mills Oakley defendants would be required to file defences and undertake interlocutory steps. There would then be a non-binding trial of the selected cases, after which each party would consider its position. At this stage, the proposal was that there be five selected cases.
It seems that Equuscorp tried to encourage as many defendants as possible to be represented by Mills Oakley, by informing them that Equuscorp’s claims against non-Mills Oakley defendants may not be delayed pending the determination of the “selected” cases. No doubt Equuscorp perceived that to be – and it undoubtedly was – a convenient way of dealing with such a large number of defendants.
By letter dated 23 November 2000, Equuscorp suggested to Mills Oakley that their respective clients should agree that the findings of fact and law in the five selected cases “be binding on the parties to the remaining proceedings.” Mills Oakley never agreed to that proposal.
Although Mills Oakley seem to have given some consideration to applying for the validity of the leases to be determined as a preliminary question under r 47.04, that proposal was not proceeded with, apparently because of a concern that a binding preliminary question could not be determined without all defendants pleading and/or agreeing to that course. It seems that it was regarded as logistically impracticable to obtain the consent of all the defendants to that course.
On 30 October 2001, Beach J made orders for various interlocutory steps to be completed between Equuscorp and two named defendants in each of proceedings 7712 and 7713. He also ordered that, save for the selected defendants, the defendants were not required to file and serve a defence or any counterclaim until further order.
Apparently as a result of ongoing disputes as to who would be appropriate selected defendants, on 25 March 2002, Beach J ordered that the parties’ lawyers convene and select by agreement “defendants against whom the proceedings are to be progressed to trial as test cases” for the purposes of each of the five proceedings.
By April 2002, Mills Oakley was suggesting that the number of proposed selected cases be reduced to two, in order to obtain a more cost effective and quicker means of progressing the litigation to trial. In putting forward the names of two suggested defendants, Mills Oakley said:
We have attempted to cover as many common issues that exist amongst all our clients. It is our view that the defendants we have identified below cover, to a significant extent, all of the common issues amongst the defendants to be determined by the court.[42]
[42]Letter to Equuscorp’s then solicitors, Wilmoth Field Warne, dated 29 April 2002.
Mills Oakley described the judgment which a trial judge could produce in respect of those two defendants as “persuasive” in respect of the other defendants.
Equuscorp queried the appropriateness of the particular suggested defendants and said:
Although we agree the selected defendants nominated raise many of the issues common to the defendants, they do not raise all of them. We are concerned that a failure to address all common issues in reasonable contemplation will not bring sufficient finality to this proceeding and will leave all concerned with the prospect of delay and expense in conducting a further trial which could be avoided if greater care is taken now.[43]
[43]Letter from Wilmoth Field Warne to Mills Oakley dated 1 May 2002.
On 15 May 2003, Master Kings, as she then was, fixed proceedings 7712 and 7713 for trial on 17 November 2003; the first trial date was vacated and Equuscorp was ordered to pay the defendants’ costs. The trial was re-fixed for 8 November 2004; that second trial date was vacated, after Equuscorp reinstated and joined Sintoff as the second plaintiff, after the Mills Oakley defendants had pleaded that Equuscorp was not the proper plaintiff (an allegation which the AB defendants withdrew at trial). In June 2005, Master Kings re-fixed for trial on 29 August 2005; the trial ultimately proceeded before Hargrave J in August and September 2005.
Hargrave J noted in his reasons for decision that there was no order of the court or agreement between the parties that the defendants other than the AB defendants would be bound by the decision. However, his Honour said that it was accepted that the decision against the AB defendants has “the capacity to have a significant bearing upon the cases against other defendants and, in particular, as to whether those cases should proceed to trial. In this sense, the Antonopoulos proceeding and the Belperio proceeding can be loosely described as test cases.”[44]
[44]At [17].
In an affidavit filed in relation to the appeal against Hargrave J’s judgment, the plaintiffs’ solicitor, Phillip Kotsanis, described the case as “informally it is a kind of test case” to which the hundreds of parties were looking for “persuasive guidance on their rights and liabilities.” He also said that “the intention was to avoid a multiplicity of proceedings and obtain a resolution without running every case against every defendant,” and the AB defendants had been chosen “on the basis that the issues raised in those two active cases were reasonably representative of the defendants.”
On 1 November 2007, prior to the determination of the appeals, the plaintiffs and the AB defendants entered into a deed of compromise in relation to outstanding costs orders between them. Recital C to that deed noted:
By agreement made between the parties and pursuant to pre-trial management orders of the Court, a selection was made enabling the trial in proceeding number 7712 of 2000 to proceed separately against Mauro Belperio and the trial in proceeding number 7713 of 2000 to proceed separately against George Antonopoulos, there being no order of the Court, or agreement of the parties, binding any other defendant to the judgment given in the case against those two selected defendants.
It is clear from the above summary that, in proceeding with the cases against the AB defendants, the parties and the court were trying to find a way of progressing the proceedings in an economical and efficient manner, in order to enable the commercial, if not the legal, resolution of the remaining cases. However, the fact that not every conceivable issue would be determined by the selection of sample defendants was a predictable risk that both sides were prepared to run. Had the AB defendants been unsuccessful in their defences, the other defendants would have been free to raise alternative defences. There is no reason in principle why the plaintiffs would not have been free to recast their claims against other defendants.
Explanation for not raising the alternative claims before
The plaintiffs have amended the statement of claim on a number of occasions over the years:
(a) The first amended statement of claim is dated 4 November 2002. It made minor amendments, to add a contractual claim to interest on unpaid rent;[45]
[45]Prior to the amendment, only statutory interest had been claimed.
(b) The second amended statement of claim is dated 31 May 2004. The primary amendments to this pleading were to reflect the fact that Sintoff was being added as second plaintiff. Particulars of loss were provided and other minor amendments were made;
(c) The third amended statement of claim was dated 21 October 2004. It added further paragraphs dealing with the alleged repudiation of the leases by the defendants; and
(d) Leave was given during the trial before Hargrave J to deliver a fourth amended statement of claim dated 5 September 2005.[46] It made minor amendments to refer to a deed connected with the ultimate assignment to Equuscorp.
[46]The court file does not contain any record of a fourth amended statement of claim dated 20 June 2005, referred to by the Mills Oakley defendants’ solicitor, Roger Jepson, in his February 2009 affidavit at [38]. The plaintiffs’ solicitor, Mr Kotsanis, says in his affidavit of March 2009 at [15] that he is not aware of such a document.
At no stage prior to the trial before Hargrave J had the plaintiffs foreshadowed the possibility of raising the alternative claims.
The plaintiffs offered the associate judge the following explanation for their failure to seek to raise the alternative claims earlier:
The proposed amendments to the statements of claim sought by this application arise as a consequence of the decision of the trial judge upheld by the Court of Appeal, that the “leases” were insufficiently certain to constitute leases. Given that the plaintiffs had appealed the finding of uncertainty to the Court of Appeal, it would have been premature for the plaintiffs to have sought to amend the statement of claim prior to the determination of the appeal.[47]
[47]Affidavit of Phillip Kotsanis sworn 10 March 2009, para [17].
That was hardly a satisfactory explanation, and it is not surprising that the associate judge was not impressed by it.
I granted the plaintiffs special leave to rely upon a redacted[48] further affidavit of their solicitor, Phillip Kotsanis, sworn 1 September 2009, which sought to clarify that explanation and explain why the proposed amendments were not sought earlier. In part, Mr Kotsanis relied upon things he had been told by the late Mr Russo, former managing director of Equuscorp, including the following:
[48]I ruled that the last two sentences in para [7] thereof were inadmissible.
6. From those discussions, I also understood that Mr Russo had considered making alternative claims on the basis that the leases might be licences, but these claims were not included because they would present an unnecessary complication to those trials.
…
8. To be clear, prior to the decision [of Hargrave J and the Court of Appeal], neither I, nor to my knowledge Mr Russo, considered alternative claims that the “lease agreements” gave rise to claims for breach of (mere) contractual right, profits a prendre or unjust enrichment. … The first time I became aware of the possibility of making these claims was in 2006 following a detailed consideration by me of the reasons for judgment of [Hargrave J].
The Mills Oakley defendants chose not to cross-examine Mr Kotsanis, arguing instead that I should give little weight to his evidence. Certainly, the plaintiffs’ explanations are not entirely satisfactory:
(a) There was no attempt to explain what the “unnecessary complication” would have been, in raising an alternative claim that the leases might be licences, or when consideration was given to that matter. It is not clear to me why that alternative claim would have been unnecessarily complicating;
(b) Nor is it clear what it is about the decision of Hargrave J that is said to have prompted consideration of the possibility of the alternative claims other than the licence claim;
(c) Further, Mr Kotsanis was not the solicitor on the record for the plaintiffs throughout the entire life of the proceedings, and some of what he said is only his understanding based on unspecified conversations with the late Mr Russo.
The plaintiffs mentioned the Silovi case before Hargrave J and the Court of Appeal in the context of one of their estoppel arguments.[49] They argued that Silovi was authority for the proposition that an estoppel can stand in the face of a breach of the relevant provisions of the LGA. They did not rely upon it as authority for the proposition for which they now contend, namely that an agreement which is unenforceable as a lease, because of the LGA, may nevertheless be enforceable as a licence. But they were undoubtedly aware of that case.
[49]Hargrave J considered the arguments at [277]-[294]; he distinguished Silovi at [290]; Buchanan JA discussed Silovi at [24]-[29].
The Dog Depot decision was handed down on 8 February 2006, two days after Hargrave J’s decision. The Dog Depot case was mentioned before the Court of Appeal. The plaintiffs tried to argue on appeal that they were entitled to payment for use and occupation based on that case.[50] It seems – from the brief discussion by Buchanan JA - that the Court of Appeal was not prepared to entertain that argument, as it had not been raised before Hargrave J.
[50]At [20]-[22].
The Mills Oakley defendants say that the Dog Depot case did not decide anything new, that it really just applied the principles laid down by the High Court in the late 1980s in Pavey. Whilst much of the modern Australian law of restitution can be traced back to the principles enunciated in Pavey, that case was not concerned with the question of restitution for use and occupation of land. However, the possibility of a restitutionary claim for use and occupation had at least been canvassed in some of the authorities referred to by Chernov and Nettle JJA in the Dog Depot case. But, the question is not whether the plaintiffs ought reasonably to have been aware of the existence of a restitutionary claim prior to the Dog Depot case, but whether it was unreasonable for them not to have raised it.
There is no evidence that the plaintiffs had turned their mind to the possibility of making a restitutionary claim prior to the decision in Dog Depot; on the contrary, the evidence is that they had not.
I accept that prior to the trial before Hargrave J the plaintiffs were not aware of, and had not made a deliberate tactical decision not to run, the alternative claims, other than the licence claim. Once the plaintiffs had embarked on the process of appealing to the Court of Appeal from the decision of Hargrave J, the Court of Appeal was unlikely to entertain any argument which had not been pleaded or run below. The first real opportunity to plead the alternative claims (other than the licence claim) was after the unsuccessful appeal to the Court of Appeal.
General case management considerations
Over the years during which these proceedings have been on foot, the plaintiffs have filed notices of discontinuance against many defendants, as a result of agreeing terms of settlement with them. As at April 2009, the total number of remaining defendants in the five proceedings was around 380. That total has since been reduced by further settlements, the precise number of which is not known to me. It is sufficient for present purposes to note that there are undoubtedly still hundreds of defendants across the five proceedings.
If leave to amend is granted, the parties would either need to reach agreement about proceeding with further selected defendants, or else all remaining claims would need to proceed through interlocutory stages to trial.
This is an unusual situation compared to that in many other cases, in that there is no question of a fixed trial date having to be vacated if the amendments are allowed (with consequential effects on litigants other than the parties to these proceedings). On the contrary, the proceedings against all remaining defendants other than the AB defendants have simply been dormant for many years. Those remaining defendants have not yet filed defences or given discovery, so there is no question of duplication of interlocutory steps already taken by them in relation to their individual cases.
Prejudice
The Mills Oakley defendants argue that they will be prejudiced in several ways, if leave to amend is given.
Inconvenience and stress
As mentioned earlier, these proceedings relate to long-term investments which were entered into between 1989 and 1993, the viability of which had become questionable by the early to mid-1990s. These proceedings were all commenced in 2000, after attempts to resolve the disputes between the parties failed.
The chronology of the selection of the AB defendants, previous pleading amendments and delays in the hearing of the trial, has been set out earlier. In so far as any of those steps involved delays which were attributable to somebody’s fault, such matters were reflected in previous costs orders.
The Mills Oakley defendants are not completely blameless when it comes to delay. As mentioned earlier, the AB defendants took a defence about Equuscorp’s standing, which required the reinstatement and joinder of Sintoff, with all the attendant delays; they ultimately abandoned that defence at trial. They also brought counterclaims, seeking the recovery of money paid by them under the leases, which were abandoned at trial.
No doubt some of the delays may have been due to court listing considerations.
I accept that the Mills Oakley defendants (and, indeed, other defendants) may be extremely disappointed in relation to the delay in finally determining these proceedings. It is perfectly understandable that they would want their legal position clarified once and for all.
I also accept that the lack of resolution of the legal position between the parties is likely to have created or added to psychological and financial pressure on the parties, particularly on the defendants (many of whom are individuals).
The plaintiffs’ attempt to paint the defendants as greedy investors, engaged in a tax minimisation scheme (therefore, presumably, deserving of less consideration), is unnecessary and unfounded. Hargrave J noted that the legitimacy of the schemes under taxation and company law was not in question[51], and there is no evidence before me which would justify such a characterisation of the defendants. I proceed on the basis that the defendants were legitimate investors who participated in a long-term investment, expecting to receive both investment returns and tax benefits.
[51]At [1].
According to Roger Jepson, the solicitor for the Mills Oakley defendants, of the 381 defendants remaining in April 2009, there were 24 whose investments were for less than $10,000, 175 whose investments were for between $10,000 and $50,000, 83 whose investments were between $50,000 and $100,000, and the remaining 100 whose investments are more than $100,000. I do not know the backgrounds of the individual investors, but am prepared to assume for the purposes of this appeal that they include some relatively unsophisticated or inexperienced investors. Even for the more experienced investors, there would be pressure in defending Supreme Court proceedings for what is, in many cases, not a large amount for this jurisdiction.
Equuscorp chose to acquire its interest in the land, well aware of the problems with the schemes and the likelihood of disputes with the investors. It is also a company which regularly engages in litigation. I infer that it would be better able to withstand the pressures of ongoing litigation than many of the defendants.
I have no doubt that the remaining defendants would have hoped that the determination of the claims against the AB defendants would have the practical effect of determining once and for all the question of their own legal position. However, if the remaining defendants believed that the cases of the AB defendants were going to be legally decisive of their own cases, such a belief would have been quite wrong.
The defendants other than the AB defendants have had the practical benefit of decisions in their favour in relation to the leases, without having to be actively involved in the proceedings.
Costs
Prior to trial, the plaintiffs had been ordered to pay the costs of various interlocutory steps, which costs were taxed and paid.
At trial, Hargrave J ordered the plaintiffs to pay the costs of the AB defendants.
As mentioned earlier, prior to the Court of Appeal decision, a deed of compromise was entered into between the plaintiffs and the AB defendants. By that deed, each party agreed to bear their own costs of the litigation, including of the appeal and any other costs not already paid, regardless of the outcome. That is to say, the AB defendants agreed not to pursue the costs of the trial which had been ordered in their favour but not yet paid.
The evidence is that defendants who are members of the growers group collectively funded the cost of defending the cases against the AB defendants, for which they had each paid $8,610 up to February 2009. How the Mills Oakley defendants chose to allocate the costs between themselves is a matter for them, and not something to which the plaintiffs or the court are privy.
There is no evidence as to how much, if anything, the non-Mills Oakley defendants may have paid in legal costs to date.
As a result of some defendants resolving their individual claims with the plaintiffs, it seems that the growers group membership has been reduced from 291 in February 2001 to about half that number in February 2009. That means that there will be fewer defendants to share the costs burden of any further trial.
The deed of compromise has no legal effect on the defendants other than the AB defendants, because they were not parties to it. That means that if the remaining defendants are successful in defending the alternative claims, there is nothing to prevent them from recovering their legal costs of doing so from the plaintiffs.
The plaintiffs argue that running the claims against the AB defendants has been “a productive exercise and reduced the costs and court time that otherwise would have been expended.” That seems to oversimplify the position. It is true that the remaining defendants have the practical benefit of the decisions of Hargrave J and the Court of Appeal, without the need to defend each and every lease case. On the one hand, it is likely that it will be more expensive and will take more court time to run the alternative claims in a separate trial from the lease claims, than it would have been to simply add them on at the end of the trial against the AB defendants. On the other hand, had the plaintiffs succeeded on the lease claims against the AB defendants, there would have been no need to run the alternative claims at all.
Further evidence
There will clearly be a need for discovery and further evidence in relation to the restitutionary claim.
As far as the alternative contractual claims are concerned, the plaintiffs say that “no additional evidence would be required if the parties could agree on an agreed statement of facts which would facilitate a trial of short compass.” They acknowledge that the facts are not strictly the same because different agreements are involved, but say that the scope of dispute “ought be capable of being narrowed by sensible negotiation in the light of the findings of fact and law between the plaintiffs and Mr Antonopoulos.” If the parties are able to reach such agreement, well and good. But, for the purposes of this appeal, I proceed on the assumption that discovery will need to be made, and evidence led, in relation to the alternative claims.
The Mills Oakley defendants have not led evidence or suggested that they would be prejudiced in the conduct of their defences if leave to amend were to be granted, through the loss of witnesses or other evidence.
Summary and conclusions
There has been no trial involving any of the defendants in proceedings 7711, 7714 or 7715 of 2000. There has been a trial of the lease claims against two defendants in proceedings 7712 and 7713 of 2000; however, the decisions in those cases are not legally binding on the remaining defendants.
The plaintiffs are not seeking to re-litigate against the remaining defendants the lease claims which they lost against the AB defendants. Were they to try to do so, they would almost certainly be prevented on abuse of process principles.[52]
[52]Unless they could point to something materially different about that defendant’s case.
Nor are the plaintiffs seeking to raise the alternative claims against the AB defendants. Were they to try to do so, they may well be prevented on Anshun principles.
What the plaintiffs wish to do is raise the alternative claims against defendants whose cases have not yet been heard, and in respect of whom there was no order or agreement that the parties be bound by the decisions involving the AB defendants.
There has been no finding by any court as to whether the plaintiffs are entitled to recover on the basis of any of the alternative claims. There is no suggestion that there is a possibility of inconsistent findings.
The proposed alternative claims are new and substantial, and would have a significant impact on the rights of the parties. I proceed for present purposes on the basis that they are at least arguable.
The plaintiffs were aware of the alternative licence claim prior to the trial before Hargrave J, but chose not to run it, for reasons which have not been satisfactorily explained. Were that the only proposed amendment, I would seriously consider refusing leave to amend. However, I accept that the plaintiffs were not aware of the other alternative claims prior to the trial before Hargrave J, and did not deliberately make a tactical decision not to run those alternative claims.
There is no suggestion that the defendants would be prejudiced in defending the alternative claims (including those which are otherwise statute-barred) through the loss of witnesses or other evidence.
I have no doubt that the remaining defendants would prefer that these proceedings were at an end. I also accept that the defendants are more likely to feel the inconvenience and strain of the ongoing litigation than the plaintiffs, and that costs will not compensate them for such matters. Balanced against that, I note that the remaining defendants have had the benefit of the lease cases being run against the AB defendants, without having to undertake any interlocutory steps or undergo a trial themselves.
In so far as there are any additional costs in fact incurred by the alternative claims proceeding separately from the lease claims, I am not persuaded that they cannot be compensated for in due course with appropriate costs orders.
Whilst the decision is not an easy one, on balance I have concluded that the interests of justice would best be served by granting the plaintiffs leave to amend.
I will hear from the parties as to the precise form of orders and as to costs.
---
11
13
0