In the Matter of ACN 092 745 330 Pty Ltd

Case •

[2018] NSWSC 1185

•

03 August 2018

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the Matter of ACN 092 745 330 Pty Ltd [2018] NSWSC 1185
Hearing dates: 26 July 2018
Decision date: 03 August 2018
Before: Ward CJ in Eq
Decision:

1. Pursuant to ss 64 and 65 of the Civil Procedure Act 2005 (NSW), grant leave for the plaintiffs to file an amended originating process and an amended points of claim in, or substantially in, the form of the documents annexed to the affidavit of Michael Edward France sworn 2 July 2018 and marked “MEF-1” and “MEF-2”, respectively.
2.   Direct that the amended originating process and amended points of claim be filed and served by 10 August 2018.
3.   Direct that the defendants file and serve points of defence to the amended points of claim by 7 September 2018.
4.   Order that the costs of this application be costs in the cause.
5.   List the matter before the Corporations List judge for further directions on 10 September 2018.

Catchwords: CIVIL PROCEDURE –Originating process – Amendment
Legislation Cited: Civil Procedure Act 2005 (NSW), ss 56, 64, 65
Corporations Act 2001 (Cth), ss 588FDA, 588FE
Limitation Act 1969 (NSW), ss 14, 23
Cases Cited: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27
Azzi v Volvo Car Australia Pty Ltd [2006] NSWSC 249
Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423
Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7
Gilles v Palmieri [2017] NSWCA 320
Great Investments Ltd v Warner [2016] FCAFC 85; (2016) 114 ACSR 33
Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709
HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 2) [2016] FCA 446
Horton v Jones (No 2) (1939) 39 SR (NSW) 305
In the matter of ACN 092 745 330 [2017] NSWSC 241
Kelly v Mina [2014] NSWCA 9
Linnell v Channel Seven Sydney Pty Ltd [2014] NSWSC 20
McGuirk v University of New South Wales [2009] NSWSC 1424
Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia [2018] NSWCA 67
Wardley Australia Limited v Western Australia (1992) 175 CLR 514; [1992] HCA 55
Weston v Publishing and Broadcasting Ltd [2011] NSWSC 433
Young v Queensland Trustees Ltd (1956) 99 CLR 560; [1956] HCA 51
Texts Cited: Peter Handford, Limitation of Actions: The Laws of Australia (3rd ed, 2012, Thomson Reuters)
Category:Procedural and other rulings
Parties: Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (In Liquidation) (First Plaintiff)
ACN 092 745 330 Pty Ltd (In Liquidation) (Second Plaintiff)
Vince Bruno Battaglia (First Defendant)
Karen Lee Battaglia (Second Defendant)
Fellmane Pty Ltd (Third Defendant)
Representation:

Counsel:
D R Stack (Plaintiffs)
T Bagley (Defendants)

  Solicitors:
Watson Mangioni Lawyers Pty Ltd (Plaintiffs)
Mills Oakley (Defendants)
File Number(s): 2016/0098899
Publication restriction: N/A

Judgment

  1. HER HONOUR: In this matter, by amended interlocutory process filed in Court on 26 July 2018, the plaintiffs seek leave pursuant to ss 64(1) and 65(2)(c) of the Civil Procedure Act 2005 (NSW), to file an amended originating process and an amended points of claim in the form of documents annexed to the affidavit of Michael Edward France sworn 2 July 2018. The defendants oppose the grant of leave to amend but, in the event that leave is to be granted, seek an order that the amendments take effect only from the date leave is granted (or, to be more precise, from the date of the directions hearing at which the plaintiffs’ application was listed for hearing before me) so as to preserve limitations defences they wish to maintain in respect of at least part of the claims now sought to be introduced by the amendments.

Background

  1. The procedural background to this matter is not uncomplicated, in that the matter has already proceeded to a contested hearing once (see In the matter of ACN 092 745 330 [2017] NSWSC 241); the judgment and orders made by the primary judge later having been set aside by the Court of Appeal, which remitted the proceedings to this Court for a new trial on all issues (see Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia [2018] NSWCA 67). Following the remittal of the proceedings, directions have been made in relation to the preparation for hearing of the matter but, as I understand it, the progress of the matter to hearing in accordance with those directions has been, in effect, interrupted by the present application for leave to amend. Thus the evidence for the remitted hearing is not at this stage complete.

  2. As to the factual background to the dispute, I note the following (which is largely drawn from the proposed amended points of claim and the submissions filed by the plaintiffs on the present application; and which is not here put forward as constituting any factual finding on contested matters) by way of summary.

  3. The first plaintiff (the Liquidator) is the official liquidator of the second plaintiff (to which, as has been done in earlier judgments of this Court in these proceedings, I will refer as 330Co, by reference to the last three digits of its Australian Company Number), having been so appointed by order of this Court on 30 September 2013. 330Co is one in a series of companies with which the first defendant (Mr Battaglia) is or was at relevant times involved in some capacity (the precise nature of his role being a matter in dispute). (The reference to various companies in this and the earlier judgments by reference to the last three digits of their respective ACNs is perhaps indicative of the suggested Phoenix type activity involving those companies to which I refer below, since all at various times operated under the same company name – SX Projects Pty Limited.)

  4. Relevantly, for present purposes, the Liquidator contends that there were three companies which, in succession, carried on the same building and construction business: a company (to which I will refer as 450Co) then known as SX Projects Pty Ltd, which carried on the construction business between 2004 and 30 June 2011; 330Co, to which the construction business was transferred on about 1 July 2011 and which then changed its name to SX Projects Pty Ltd, which carried on the business from July 2011 until some later time (I note here that the plaintiffs’ written submissions state that the business was carried on by 330Co until September 2013, but the earlier primary judgment does not in fact refer to the date on which 330Co ceased to carry on the business); and a company (to which I will refer as 111Co) to which the construction business was transferred (and which in turn also changed its name to SX Projects Pty Ltd – 330Co having by then been renamed).

  5. The dispute which came before Barrett AJA for hearing in February and March 2017 related to a series of payments, totalling $1,108,277.54, made by 330Co in the period between 12 August 2011 and 15 May 2013 variously to the second defendant (Mrs Battaglia) (the wife of Mr Battaglia) and to the third defendant (Fellmane Pty Limited) (Fellmane), the Battaglias' family company.

  6. The impugned payments fall into the following categories:

  1. payments totalling $408,541.70 to an account held by Mrs Battaglia with Westpac Banking Corporation (the Schedule A Payments);

  2. 22 payments totalling $451,000 (each of $20,500), made variously to:

  1. an account held by Mrs Battaglia with the National Australia Bank (NAB) as trustee for the Battaglias’ two sons (the Schedule B Payments), in a total amount of $143,500; and

  2. an account held by Fellmane with the NAB (the Schedule C Payments) in a total amount of $307,500; and

  1. three payments to Monardo Solicitors, which were then subsequently transferred to the NAB bank account in Mrs Battaglia’s name as trustee for the couple’s two sons, totalling $248,735.84 (the Monardo Payments).

  1. As noted earlier, on 30 September 2013, an order was made for the winding up of 330Co and for the appointment of the Liquidator as liquidator of the company.

  2. On 1 April 2016, these proceedings were commenced. Broadly, it was alleged that: Mr Battaglia was a de facto or shadow director, officer and/or employee of 330Co; Mr Battaglia caused the impugned payments to be made by 330Co in breach of both his statutory and common law duties as a director, officer and/or employee of 330Co; and the impugned payments otherwise constituted unreasonable director related transactions, within the meaning of s 588FDA of the Corporations Act 2001 (Cth).

  3. Defences to the plaintiffs’ points of claim were filed on 6 May 2016. Those defences, to which I was taken in the course of the present application, comprised (apart from some limited admissions as to formal matters) a series of bald non-admissions and denials. What the defences did not do was to identify any facts, matters or circumstances on which any of the defendants relied in answer to the allegations in the points of claim (and they certainly did not raise any allegations as to any of the payments in question being made as loans or as repayments of loans).

  4. Two affidavits were initially served in support of the defences: an affidavit sworn by Mr Battaglia on 5 July 2016 and an affidavit affirmed by Mr Lewis Yazbek (a director of 330Co and various other companies in the group of companies of which 330Co formed part, and an associate of Mr Battaglia) on 7 July 2016. The evidence of those deponents was to the effect that Mr Battaglia was not a de facto director of 330Co and that the impugned payments were properly made “for wages, salaries and bonuses” owed by 330Co to Mr Battaglia (which, at his direction, were paid to Mrs Battaglia and Fellmane, respectively).

  5. On 10 October 2016, Brereton J fixed the proceedings for hearing for 3 days commencing on 14 February 2017. His Honour noted that the parties’ affidavit evidence was complete and ordered that no party could rely on any further affidavit without the leave of the Court.

  6. One week before the commencement of the hearing, the defendants served a further affidavit, that being an affidavit sworn by Mr Battaglia on 7 February 2017, to which affidavit Mr Battaglia exhibited various documents which he described as “various employment agreements” that he said he had only located (in folders relating to loans over his family home) on about 3 February 2017 (see [4] of his affidavit; pp 1-51 of the exhibit to that affidavit). The documents cover a period of time going back as early as November 2001 (hence the submission for the defendants to the effect that this evidence is irrelevant to the terms of Mr Battaglia’s employment by or remuneration from 330Co).

  7. In the material exhibited to that affidavit (which the Liquidator notes had not been seen by him or his lawyers before 7 February 2017) there was an email dated 23 October 2008 from Mr Battaglia’s accountant (the 2008 email) in which reference was made to “246,000 per annum as a loan from SX Projects LP to Vince Battaglia Family Trust No2 – paid monthly”. The Liquidator notes that this annual sum equates to $20,500 per month. The Liquidator says that prior to 7 February 2017 he and his lawyers were not aware of any allegation by the defendants that any of the impugned payments constituted loans to Fellmane and/or Mrs Battaglia.

  8. The day before the commencement of the hearing in February 2017, yet a further affidavit was served by the defendants: another affidavit sworn by Mr Battaglia, this time on 13 February 2017. Mr Battaglia exhibited various documents to this affidavit, including what he claimed to be a loan agreement dated 1 June 2008 between (among others) the defendants (as lenders) and 330Co, as borrower, with a stated facility limit of $1,3000,000.00 [sic]; (presumably meant to be $1.3 million) (see schedule 1 to the document headed Loan Facility Agreement at pp 1-28 of the exhibit), which Mr Battaglia deposed he had received from Mr Yazbek on Sunday 12 February 2017 (see [3]). Also exhibited to this affidavit was a copy of a Westpac bank statement for an account in Mrs Battaglia’s name recording a debit on 27 June 2008 in the sum of $1,362,489.82. Mr Battaglia deposed that, of that amount, the sum of $1.3 million was transferred to “the borrowers” at the request and direction of Mr Yazbek (see [3]).

  9. At [6] of this affidavit Mr Battaglia deposed that payments recorded in a copy of a trust ledger from Monardo Solicitors in amounts of $248,735.84 as being “Karen Loan Account” were part repayments of “the monies advanced by my wife and I on 27 June 2008” and says that no other payments of principal under the loan were made to him or his wife.

  10. At [7] of this affidavit Mr Battaglia corrected his first affidavit (where at [37] he had sworn that all of the payments in the Schedule of Payments set out in the points of claim and in the affidavits sworn by the Liquidator were for salary wages and bonus). He deposed that the majority of the impugned payments were for his salary, wages and bonus for the period in question but that he had forgotten about the loan and had only recalled the loan when he saw an unredacted version of the trust ledger on 11 February 2017.

  11. The loan agreement that was said to have existed (and which was exhibited to Mr Battaglia’s affidavit) was apparently the subject of hot dispute at the hearing before Barrett AJA (it being contended that it was fraudulently prepared after the event – based in part on the fact that the loan agreement made reference to credit legislation that only came into existence after the date on which the agreement was said to have been executed – see T 10.5-10). (Indeed, his Honour observed (at [130]) that the likelihood that the document was created in 2009 or later was “virtually irresistible”.)

  12. The Liquidator says that the material contained in Mr Battaglia’s 13 February 2017 affidavit had not been seen by him or his lawyers before 13 February 2017 and that, until that time, they had been unaware of any allegation by the defendants that the Monardo Payments were made as the repayment of loans made to 330Co.

  13. The first hearing of this matter commenced before Barrett AJA on 14 February 2017. I am informed that objection was taken to reliance by the defendants on the late evidence but that this objection was ultimately withdrawn and an arrangement was agreed whereby, if the proceedings were (as they ultimately were) dismissed, the Liquidator’s right to bring proceedings in relation to alleged voidable transactions would not be prejudiced. After judgment was reserved on the present application, and in accordance with a direction I had made when judgment was reserved, the solicitors for the Liquidator forwarded a copy of correspondence recording the undertaking given by the defendants to the Court on 14 February 2017 in that regard, that being:

The defendants undertake to the Court in regard to any action commenced by the plaintiffs against any or all of them for orders under section 588FF of the Corporations Act 2001 for recovery of unfair preferences paid to any or all of them by the second plaintiff for the transactions set out in paragraphs 17 and 19 to 26 of the Points of Claim:

(a)   Not to raise any objection or defence on the basis of an Anshun estoppel or a time bar; provided

(b)   The plaintiffs commence any such proceedings before the end of 6 months after the final determination of these proceedings or any appeal therefrom.

  1. For the reasons published by his Honour on 17 March 2017, the plaintiffs’ claims were dismissed. An appeal from his Honour’s decision was heard in February this year. In the course of that hearing, the appellants sought (and, other than in respect of one email, were granted) leave to adduce further evidence (see Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia [2018] NSWCA 67 at [49]-[94] per Gleeson JA, with whom Leeming JA agreed; Emmett AJA publishing a short concurring judgment). That material was relied on by the appellants as containing previous representations or admissions made by Mr Battaglia to the Australian Taxation Office that were contrary to the evidence of Mr Battaglia (accepted at the trial) that most of the Schedule C payments comprised part of Mr Battaglia’s remuneration for services rendered to 330Co (see at [51] per Gleeson JA). The Liquidator on the present application says that this evidence undermined the determination made by Barrett AJA that Mr Battaglia was not a director of 330Co.

  2. On 10 April 2018, the Court of Appeal handed down judgment upholding the appeal and, as already noted, it remitted the proceedings for a new trial on all issues.

Proposed amended points of claim

  1. As already noted, the plaintiffs now seek leave to file an amended originating process and an amended points of claim. I note that the defendants’ opposition to the proposed amended points of claim relates only to the amendments made at [54]-[63]. The defendants otherwise consent to the proposed amendments. Therefore, in these reasons I consider only the amendments at [54]-[63] of the proposed amended points of claim.

  2. Relevantly, the proposed amendments to which the defendants object are those relating to the introduction of a new unjust enrichment claim ([54]-[57]) and a new loan claim ([58]-[63]). I turn first to the latter, as this was the order in which Counsel for the Liquidator explained the basis of the new claims.

The new loan claim

  1. The proposed amended points of claim seek to introduce (in section K) a claim, further in the alternative, in relation to the impugned monthly payments (of $20,500) set out in Schedules B and C. The Schedule B payments (totalling $143,500) are those pleaded earlier at [18] of the points of claim (being the payments from the beginning of November 2012 to 15 May 2013 made to Mrs Battaglia’s NAB account as trustee for the sons). The Schedule C payments (totalling $307,500) are those pleaded earlier at [28] of the points of claim (being the payments made to Fellmane between 12 August 2011 and 12 October 2012).

  2. As pleaded in the existing points of claim, there is a claim for breach by Mr Battaglia of fiduciary and other statutory duties in relation to those payments and consequential claims against each of Mrs Battaglia and Fellmane in relation to such of the impugned payments as were received by them. Equitable compensation is sought from each of the defendants in respect of various of those payments. They are also claimed to be unreasonable director related transactions for the purposes of s 588FDA of the Corporations Act ([50]) and voidable transactions for the purposes of s 588FE(6A) of the Corporations Act ([51]).

  3. The new (further alternative) loan claim introduced by section K (at [58]-[63] of the proposed amended points of claim) is essentially a claim for repayment of the loan. It is said by the Liquidator to be defensive in nature (plaintiffs’ written submissions at [21]), resting on the 2008 email that was exhibited to Mr Battaglia's affidavit of 7 February 2017, to which I have referred above (at [14]). The claim is premised on an allegation that 330Co entered into a loan agreement with one or more of the defendants between about 2011 and 2012, pursuant to which 330Co agreed to loan $246,000 per annum payable in monthly instalments of $20,500 (see [58] of the proposed amended points of claim); that 330Co made the respective Schedule B and C payments pursuant to the alleged loan agreement ([59]-[60]); that on about 13 November 2015 and 16 March 2016 330Co demanded the repayment of all moneys paid to Fellmane and Mrs Battaglia ([61]) and they have failed, refused or neglected to make any payment to 330Co in accordance with the demand ([62]); by reason of which Fellmane and Mrs Battaglia are liable to repay 330Co the moneys claimed ([63]).

  4. In other words, against the possibility that it is found that there was a loan agreement in relation to the said moneys (i.e., that they did not represent payment of salary, wages or bonus to Mr Battaglia), the claim is that these payments were loaned by 330Co to Fellmane and/or Mrs Battaglia and are recoverable as such by 330Co.

  1. The Liquidator refers in his written submissions to the observations by Barrett AJA at [142] of the reasons for judgment to the effect that if, in truth, the payments were made as a loan then they must have been “accompanied by some form of repayment obligation”; and that 330Co had not sued for the recovery of a debt arising from the loan. The inclusion of the new loan claim is sought to overcome this deficiency in circumstances where the Liquidator maintains that the plaintiffs were completely unaware of the availability of such a claim until, at the very earliest, one week before the hearing.

The new unjust enrichment claim

  1. The proposed new unjust enrichment claim (introduced by section J of the proposed amended points of claim at [54]-[57]) is premised on the allegation that all or some of the Battaglia Payments (not seemingly defined in the proposed amended pleading) and the Fellmane Payments (defined at [28] as the Schedule C payments) were paid by 330Co in circumstances where: the payments were made in breach of fiduciary and/or statutory duties owed by Mr Battaglia to 330Co; where the payments were made by 330Co in the mistaken belief that one or more of the defendants was or were entitled to those payments; and that there was no, or no proper, entitlement on the part of the recipients to those payments (see [54]; [56]).

  2. It is alleged that, by reason of the matters pleaded in [54] in the case of Mrs Battaglia and [56] in the case of Fellmane, she or it has been unjustly enriched at the expense of 330Co and is liable to 330Co for the sum of the payments as moneys had and received and is otherwise liable for equitable compensation and/or damages (see [55] in the case of Mrs Battaglia; [57] in the case of Fellmane).

  3. As to the allegation just outlined that some or all of the impugned payments were made in breach of the common law and statutory duties owed by Mr Battaglia to 330Co, it is submitted for the Liquidator that a finding to that effect (subject to any defence raised by Mrs Battaglia and Fellmane) would give rise to an entitlement on the part of the plaintiffs are entitled to recover the payments on the basis of unjust enrichment (referring, by way of example, to Great Investments Ltd v Warner [2016] FCAFC 85 at [60]-[69]; (2016) 114 ACSR 33).

  4. As to the allegations at [54(c)-(d)] and [56(c)-(d)] (that the payments were made by 330Co in the mistaken belief that the recipients were entitled to them; and that the recipients had no or no proper entitlement to them), these are said to be advanced on the basis that the defendants may be unable to persuade the Court that the impugned payments were properly payable, meaning the argument could be made that there was a failure of consideration for those payments and/or that they were otherwise paid by 330Co on the mistaken belief that they were properly payable. It is submitted for the Liquidator that a finding to that effect (again, subject to any defence that may be raised by Mrs Battaglia and Fellmane) would give rise to an entitlement to recover the payments on the basis of unjust enrichment (there referring, by way of example, to Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 at [30]).

  5. The allegations raised by [54(c)-(d)] and [56(c)-(d)] are said (plaintiffs’ written submissions at [29]) to rely, in essence, on: first, the 2008 email (which the Liquidator accepts pre-dates 330Co’s acquisition of the business and thus may not represent any agreement between 330Co and Mr Battaglia, but which it is nevertheless said makes plain that the alleged loan payments were not paid as wages, salaries and bonuses to Mr Battaglia); and, second, the assertion made by Mr Battaglia in his affidavit sworn 13 February 2017, that the Monardo Payments were paid “as part payment [sic; the word used in Mr Battaglia’s affidavit (at [6]) is “repayments”] of the monies advanced by my wife and I on 27 June 2008”.

  6. The Liquidator in his written submissions points to the observation by Barrett AJA, at [138] of the earlier reasons for judgment in this matter, that the difficulty that confronts this assertion by Mr Battaglia is that even on the facts asserted by the defendants, the relevant loan was not made to 330Co and it otherwise had no obligation make any repayment to Mrs Battaglia.

Defendants’ position

  1. The defendants argue that the application to amend the proposed amended points of claim to introduce the new loan claim and new unjust enrichment claim should be refused on the basis: first, that some of the new causes of action are statute barred; second, that the claims are hopeless; and, third, that the late amendment is contrary to the case management principles set out in s 56 of the Civil Procedure Act and the principles articulated in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon). Each of those arguments may be summarised as follows.

Statute barred claims

  1. The limitations argument is based on the proposition that the limitation period in respect of a loan that is payable on demand commences from the date the loan was advanced and not from the date of the demand (see Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566-567; [1956] HCA 51). It is submitted that the claims for repayment of loan funds advanced before 9 July 2012 are thus barred by s 14(1)(a) of the Limitation Act 1969 (NSW). (Pausing here, the Liquidator accepts that if the alleged loans were loans repayable on demand then a number of the claims in relation to the impugned payments would now be statute barred but says this depends on whether it was a term of the agreement that the making of a demand was necessary before the loan became repayable – see T 11.20-33; and, in any event, says that s 65(2)(c) permits the Court to grant leave for the amendment.)

  2. As to the claim based on unjust enrichment, it is submitted by the defendants that, on the basis that claims for money had and received and claims for restitution are actions founded on quasi contract, the limitation period is six years from the date on which the cause of action accrues to the plaintiff (see s 14(1)(a) of the Limitation Act).

  3. The defendants accept that there is power to allow amendments to introduce statute barred claims if the claims arise from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process (see s 65 of the Civil Procedure Act) but say that the new claims do not satisfy this condition. It is submitted that although the payments themselves were impugned in the original pleading, the facts relied on to make out the new causes of action are not the same (or substantially the same). In particular, it is submitted that the allegation of the loan agreement (at [58]) is a new fact and that this is a critical element of the new cause of action, dependent on the making of factual findings about conduct in 2008, 2011 and 2012.

The claims are hopeless

  1. The defendants’ submission that the claims are hopeless relates both to the new loan claim ([58]-[63]) and to the unjust enrichment claim to the extent that the latter depends on the allegations at [54(c)-(d)] (and presumably [56(c)-(d)]).

  2. In this regard, the defendants emphasise that the plaintiffs are seeking to rely on the terms of Mr Battaglia’s 2008 employment contract with a separate legal entity (450Co) to allege that payments made pursuant to his 2012 employment contract (with 330Co) were a loan.

  3. It is submitted that reliance on the terms of the 23 October 2008 email for the allegation that payments made in 2012 and 2013 were loans must fail because: the express terms of the email dated 23 October 2008 were that it only governed amounts paid from 1 July 2008 to 31 December 2008; by the time that the impugned payments were made, there was a new set of employment conditions contained in the 16 August 2012 correspondence (referred to by Barrett AJA in the reasons for judgment at [56]), and those employment conditions did not include a loan; and the 2008 email related to a different corporate entity “being the limited partnership known as the SX Projects LP”.

The claims are late

  1. The defendants also object to the amendments on the basis that: there has already been a hearing of the matter; there has been no explanation provided about the reason for delay in pleading the moneys had and received and unjust enrichment claims (to the extent that those relate to breach of duty rather than the loan issue) (it being said that the explanation provided by the solicitor for the liquidators could only provide a basis for the late inclusion of the loan allegations); although the plaintiffs only received the 2008 email 7 days before the hearing, no explanation is provided as to why the amendments were not made at that time; and there is presumptive prejudice that flows from delay particularly where the allegations depend on documents that are 10 years old and relate to payments that are either statute barred or are close to statute barred.

Plaintiffs’ submissions

  1. The Liquidator has referred to Azzi v Volvo Car Australia Pty Ltd [2006] NSWSC 249, where Brereton J said (at [11]) that the power to grant leave under s 64 of the Civil Procedure Act should be exercised in a manner which is consistent with the interests of justice, and not in a manner which punishes a party for its pleadings.

  2. Reference is also made to Kelly v Mina [2014] NSWCA 9, where Barrett JA (with whom Leeming JA and I agreed) identified (at [47]) the following matters as being material to an application for leave to amend: whether there will be substantial delay caused by the amendment; the extent of wasted costs that will be incurred; whether there is an irreparable element of unfair prejudice caused by the amendment (arising, for example, by inconvenience and stress caused to individuals or inordinate pressures placed upon corporations) for which adequate compensation is not possible, whatever costs may be awarded; concerns of case management arising from the stage in the proceeding when the amendment is sought, including the fact that the time of the court is a publicly funded resource, and whether the grant of the amendment will result in inefficiencies arising from the vacation or adjournment of trials; whether the grant of the amendment will lessen public confidence in the judicial system; and whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought.

  3. In relation to the issue of delay, the Liquidator maintains that both the loan claim and (in part) the unjust enrichment claim arise as a consequence of the very late service of Mr Battaglia’s affidavits shortly before the commencement of the first hearing, through which evidence Mr Battaglia sought to justify the impugned payments on grounds outside the original assertion that the payments were all in relation to wages, salaries and bonuses due to him. It is submitted that the plaintiffs had no real opportunity to amend the pleadings before the commencement of the hearing and, consequently, should not be criticised for not having made this application sooner.

  4. As to the other matters identified in Kelly v Mina, it is submitted that in the unusual circumstances of these proceedings these matters do not loom large; the Court of Appeal having ordered that there be a new trial on all issues and the parties thus now having the opportunity to file and serve such further affidavit evidence as considered appropriate.

  5. The Liquidator notes that s 65(2)(c) of the Civil Procedure Act permits amendments to add a new cause of action after the expiration of a limitation period where, in the Court’s opinion, the new cause of action arises from the same or substantially the same facts as those giving rise to an existing cause of action; and submits that the authorities indicate that this is a question of “fact and degree” (referring to the observation to that effect by Beech-Jones J in Linnell v Channel Seven Sydney Pty Ltd [2014] NSWSC 20 at [24]). The Liquidator also notes that s 65(3) of the Civil Procedure Act provides that, unless the Court otherwise orders, any amendment made under this section is taken to have effect on the date when the proceedings were commenced.

  6. As adverted to earlier, the Liquidator accepts that since some of the payments were made more than six years ago there could be an argument that they are subject to a limitation period that may have expired but submits as follows.

  7. First, in relation to the new loan claim, it is submitted that there is an argument that the cause of action did not arise until demand was made by the plaintiffs (depending on what are found to be the terms on which the loan was made – as I have adverted to above, this was elaborated upon in oral argument).

  8. Second, in relation to the new unjust enrichment claim, it is submitted that given that the claims arise, in part, as a consequence of a breach of duty and, in part, from the absence of any obligation on the part of 330Co to make the payments, it is arguable that the Limitations Act does not apply to them (referring to Peter Handford, Limitation of Actions: The Laws of Australia (3rd ed, 2012, Thomson Reuters) at [5.10.720]-[5.10.730] and to the observations in Equuscorp Pty Ltd vHaxton per Gummow and Bell JJ at [102]). The passage just cited (Limitation of Actions: The Laws of Australia at [5.10.730]) states in part:

With the exception of common law claims in quasi-contract, the Limitation Acts do not generally contain limitation periods which deal expressly with claims based on unjust enrichment. Provisions on quasi-contract, successive conversion, trusts, fraud and fraudulent concealment, and mistake may be capable of application to particular kinds of claim based on unjust enrichment. … In [New South Wales] …, no Limitation Act provision may be applicable to particular claims based on unjust enrichment, and it may be necessary to rely on the doctrine of analogy or on equitable principles such as laches and acquiescence. [Cross-references omitted]

  1. In any event, the Liquidator contends that the amended pleadings are permissible even if the new claims fall outside the relevant limitation period because, as provided for in s 65(2)(c) of the Civil Procedure Act, the proposed amendments arise from the same or substantially the same facts as those giving rise to the claims in the pleadings. It is submitted that the existing claims rest, in short, on the proposition that there was no proper basis for 330Co to make any of the impugned payments to Mrs Battaglia and Fellmane and that, consequently, those payments are recoverable from the defendants; and that the amendments now sought do not change this primary assertion – rather, they identify other bases upon which the defendants may be liable to repay the payments.

  2. It is also submitted that both the new loan claim and (in part) the new unjust enrichment claim are defensive in nature, in that they respond to Mr Battaglia’s late assertion that the Loan Payments were loaned to Fellmane and that the Monardo Payments were repayments due on moneys loaned by Mr and Mrs Battaglia.

Determination

  1. Section 64 of the Civil Procedure Act relevantly provides:

64    Amendment of documents generally

(1)   At any stage of proceedings, the court may order:

(a)   that any document in the proceedings be amended, or

(b)   that leave be granted to a party to amend any document in the proceedings.

(2)   Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.

…

  1. Section 65 relevantly provides:

65    Amendment of originating process after expiry of limitation period

(1)   This section applies to any proceedings commenced before the expiration of any relevant limitation period for the commencement of the proceedings.

(2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under section 64(1)(b), amend the originating process so as:

…

(c)   to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action that, in the court’s opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process.

(1)   Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced.

(2) This section does not limit the powers of the court under section 64.

(3)   This section has effect despite anything to the contrary in the Limitation Act 1969.

…

  1. In Aon (at [102]), the factors to be weighed in the exercise of the Court’s discretion to permit an amendment of pleadings were said to include the nature and importance of the amendments to the plaintiff; the effect of the proposed amendments on the defendant; the delay in making the amendments; and, where there is delay in applying for amendment, whether an adequate explanation for the delay has been given. There, the plurality (Gummow, Hayne, Crennan, Kiefel and Bell JJ) said (at [98]) that the requirements for speed and efficiency should not detract from a proper opportunity being given to the parties to plead their case and (at [102]) that the objectives stated (in the relevant rule there under consideration) do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay “as it inevitably will”; and that one factor to be weighed in the balance is the stage the litigation has reached, relative to the trial, when the application to amend is made.

  2. More recently, in Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423, at [7]-[8], it was said, with reference to both s 64 and s 65 of the Civil Procedure Act, that:

The exercise of the discretion to grant or refuse leave must not only be in accordance with s 64(2) of the Civil Procedure Act (Greenwood v Papademetri [2007] NSWCA 221 (at [35])), it must also adhere to the “dictates of justice” (ss 56, 57 and 58 of the Civil Procedure Act). Those matters will generally require consideration of the nature and degree of any prejudice that may be suffered by the grant or refusal of the application (Itek Graphix Pty Ltd v Elliott [2002] NSWCA 104; (2002) 54 NSWLR 207). Where the proposed amendment to the pleading satisfies the express criteria in s 65(2) of the Act, it is suggested that it will be unlikely that a person opposing the grant of leave will be able to demonstrate material prejudice (Ritchie's Uniform Civil Procedure at [65.45]).

The exercise of discretion necessarily involves a balancing exercise (Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 at [51] and [66]) having regard to the circumstances of the particular case.

  1. See also Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709 (at [46]-[47]; and the cases referred to at [53]); Weston v Publishing and Broadcasting Ltd [2011] NSWSC 433 (at [524]-[526]).

  2. Turning to the factors considered relevant to an application to amend as articulated in Kelly v Mina, the stage at which this amendment application is made (in the context of the order for the remittal of the matter for a new trial on all issues) is such that it will not result in any vacation or adjournment of the hearing (no hearing date has yet been set) and it cannot be said that substantial delay or wasted costs will be incurred as a result of the amendment. Rather, the delay in final disposition of the proceedings and any wasted costs incurred in now having to address new claims are matters referable in large part if not wholly to the remittal of the matter for a new hearing consequent upon the late evidence adduced for the defendants shortly prior to the first hearing and the discovery by the Liquidator of the evidence that was admitted on appeal.

  1. As to the complaint by the defendants that the loan claim (and so much of the unjust enrichment claim as is based on the allegations as to the payments being made under a mistaken belief as to the entitlement to those payments and where there was no entitlement to the payments) is hopeless (a submission based on the distinction between whatever were the remuneration arrangements evidenced by the 2008 email at that time and the arrangements in place in 2011/2012), I am not persuaded that the proposed amended claim is so untenable as to warrant a refusal of leave to amend.

  2. I accept that, as I noted in Hastie Group Ltd (in liq) v Bourne (at [236]), the Court will not grant leave to allow an amendment if it would be liable to be struck out had it appeared in the original pleading (see Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 310; McGuirk v University of New South Wales [2009] NSWSC 1424 at [18]); and that it may be a wrong exercise of the discretion to allow an amendment for which there is no arguable basis in fact (HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 2) [2016] FCA 446 at [56] per Foster J). However, I am not persuaded that the proposed new claims would have been liable to be struck out had they appeared in the original points of claim. Nor do I consider that it can be said that there is no arguable basis in fact for the amendments sought to be made.

  3. As I understand it, the Liquidator argues that the 2008 email may inform an understanding of the remuneration arrangements in place in subsequent years (notwithstanding that there was a different company by that time) and, given the succession of companies through whom the business was operated, it may be that such an inference could be drawn. The new claims are admittedly defensive in nature and, given the difficulty of the position faced by the Liquidator (in not having personal knowledge of the relevant facts and circumstances), some latitude should be given in relation to the pleading of claims of this kind.

  4. As to the complaint by the defendants that the loan claims (or the bulk of them) and corresponding restitution claims are statute barred, I bear in mind the caution sounded in Wardley Australia Limited v Western Australia (1992) 175 CLR 514; [1992] HCA 55 (albeit in a different context – there as to summary dismissal of claims based on limitation defences) as to the need to consider limitation periods in light of the whole of the circumstances of a case. Here, as to the claims made in section K of the proposed amended points of claim, the Liquidator argues that it may be (depending on the evidence as to the alleged loan agreement) that there was a condition to the effect that the making of a demand was a necessary precondition to the loan being repayable. As to the claims made in section J of the proposed amended points of claim, I also note that (as explained by the passage to which the plaintiffs referred (set out in part above at [51])) there is some complexity to the question whether the Limitation Act applies to the entirety of the claim (which, though including a claim for moneys had and received, also claims that the recipients were unjustly enriched by the payments and makes a claim for equitable compensation). For example, the resolution of this issue may involve the question whether the limitation statute ought to apply by analogy (see s 23 of the Limitation Act). I note, in this regard, that it has been said that “[p]articular caution should be exercised in deciding limitation issues at an interlocutory stage”, and that the step of deciding such an issue on an interlocutory basis should be taken only in the “clearest of cases” (Gilles v Palmieri [2017] NSWCA 320 at [43] per Barrett AJA (with whom McColl and White JJA agreed)).

  5. In any event, s 65(2)(c) of the Civil Procedure Act permits the Court to grant leave to amend a pleading to introduce claims that are statute barred if they arise out of the same or substantially the same facts as existing claims. I consider that this precondition is satisfied in the present case. True it is that the allegation that the impugned Schedule B & C payments were made pursuant to a loan agreement is a new allegation. However, the underlying factual dispute in both the existing claims and the proposed new claims as to the impugned loan payments is that the payments were made by 330Co (in circumstances where there was no entitlement to them). It is the legal characterisation placed on the same or substantially the same set of facts that differs in the proposed amended pleading. In my opinion there is sufficient similarity in substance in the underlying facts on which the claims are based to permit the Court to grant leave for the introduction of the amended claims even to the extent that they may be statute barred. (I consider below the discretionary matters raised in relation to the granting of leave for such an amendment.)

  6. As to the complaint of delay, it hardly lies in the mouths of the defendants to raise such a complaint. The Liquidator had no personal knowledge of the facts; the defendants chose to file points of defence in essence simply putting the Liquidator to proof of the claim and in no way elucidating the factual basis on which they denied liability; and then the defendants sought to rely on evidence served only in the week before the hearing in which they raised for the first time a different explanation for at least some of the relevant payments. The submission that the Liquidator should now be precluded from raising claims (based on a different characterisation of the underlying facts but deriving at least in part from evidence served at the last moment by the defendant) because the Liquidator did not seek at the outset of the hearing leave to amend the pleading to encompass a claim based on that late-served evidence is unpalatable. One might well anticipate that such an application would have forced a vacation of the first hearing (something that would no doubt have been seen as undesirable in the interests of proper case management and the very principles in Aon that the defendants now invoke to gainsay any amendment of the pleading).

  7. I am not persuaded that the presumptive prejudice to which the defendants point is sufficient to outweigh the desirability of the real issues relating to the impugned payments now being dealt with in the remittal hearing. To take into account (as was made clear in Aon by French CJ (at [5]) and by the plurality (at [99])) that costs are not a panacea for all ills is not of practical assistance to the defendants in the present case, since it is not apparent that there will be any substantial costs thrown away by the proposed pleading amendment at this stage in the remitted proceedings.

  8. In my opinion, the mandate for the just, quick and cheap resolution of the real issues in dispute requires the Liquidator’s claims in relation to the impugned payments to be comprehensively pleaded so that further time (and unnecessary cost) is not incurred in the final determination of these proceedings.

  9. Finally, I have concluded that there should be no order (of the kind suggested by the defendants) limiting the grant of leave to amend to take effect only from the present date (or, perhaps, from the time at which the Liquidator was first placed on notice of the loan contention by the defendants in February 2017). I accept the Liquidator’s submission that this would defeat the very purpose of s 65(2)(c) which permits the introduction of statute barred claims with retrospective operation in the circumstances there contemplated. Moreover, the suggestion that the Liquidator was sufficiently on notice of the existence of some loan arrangement by a cryptic reference in the accounts (in circumstances where the position of the defendants in their affidavit evidence up to February 2017 was that all the payments were referable to salary, wages and bonus; and there was no pleading of any loan agreement in the points of defence) is, again, hardly an attractive proposition.

Orders

  1. For the above reasons, I make the following orders:

  1. Pursuant to ss 64 and 65 of the Civil Procedure Act 2005 (NSW), grant leave for the plaintiffs to file an amended originating process and an amended points of claim in, or substantially in, the form of the documents annexed to the affidavit of Michael Edward France sworn 2 July 2018 and marked “MEF-1” and “MEF-2”, respectively.

  2. Direct that the amended originating process and amended points of claim be filed and served by 10 August 2018.

  3. Direct that the defendants file and serve points of defence to the amended points of claim by 7 September 2018.

  4. Order that the costs of this application be costs in the cause.

  5. List the matter before the Corporations List judge for further directions on 10 September 2018.

**********

Decision last updated: 03 August 2018

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Cases Citing This Decision

2

Willcocks v Croft [2021] NSWSC 1610
Galati v Deans (No 2) [2018] NSWSC 1813
Cases Cited

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Statutory Material Cited

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In the matter of ACN 092 745 330 [2017] NSWSC 241
Hillig v Battaglia [2018] NSWCA 67
Great Investments Ltd v Warner [2016] FCAFC 85