In the matter of Polish Club Limited

[2019] NSWSC 708

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Polish Club Limited [2019] NSWSC 708
Hearing dates:	16 January 2019
Decision date:	16 January 2019
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Grant leave to the Plaintiffs to file and serve a Second Further Amended Statement of Claim in a form as indicated.  The Plaintiffs pay the Defendants’ costs thrown away.
Catchwords:	CIVIL PROCEDURE – pleadings – application to file and serve a second further amended statement of claim – where hearing date has been allocated for some time – where application is sought very late – where some amendments raise new issues – whether leave should be granted to file and serve second further amended statement of claim.
Legislation Cited:	- Civil Procedure Act 2005 (NSW) ss 56, 57, 58, 64 - Corporations Act 2001 (Cth) s 232
Cases Cited:	- Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 - Bi v Mourad [2010] NSWCA 17 - Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230
Category:	Procedural and other rulings
Parties:	Kazimiera Lukaszewicz (First Plaintiff) Mick Wykrota (Second Plaintiff) Waclaw Jagoszewski (Third Plaintiff) Dariusz Plust (Fourth Plaintiff) Polish Club Limited (First Defendant) Ryszard Borysiewicz (Second Defendant) Hania Geras (Third Defendant) Robert Czernkowski (Fourth Defendant) Mateusz Konopka (Fifth Defendant) Eleonora Olivia Danuta Paton (Sixth Defendant)
Representation:	Counsel: M Evans (Plaintiffs) R Notley (Defendants)   Solicitors: Knap Lawyers (Plaintiffs) Wotton & Kearney (Defendants)
File Number(s):	2017/90789 (011)

Judgment – ex tempore (revised 17 january 2019)

1. By Interlocutory Process filed on 11 December 2018, the Plaintiffs, who are members of or persons associated with Polish Club Limited (“Club”) seek leave to file and serve a Second Further Amended Statement of Claim (“SFASC”) in the terms of a document exhibited to an affidavit of their solicitor, Mr Pawel Knap, dated 11 December 2018. They seek to confirm the hearing dates for this matter, which is listed to commence from 29 January 2019. I will refer further to the content of the proposed amendments below. It should, however, immediately be noted by way of introduction that these proceedings have been on foot since at least March 2017; that a hearing date has been allocated in them for some time, presently due to commence on 29 January 2019 and continue through to 8 February 2019, and then to continue for several further days from 27 February until 8 March 2019. On any view, these amendments are sought very late.

The affidavit evidence and terms of the proposed Second Further Amended Statement of Claim

2. In his affidavit in support of the application, Mr Knap notes that the amendments comprise the deletion of several paragraphs, which is not contested, and substantive amendments set out in some 80 additional paragraphs, namely paragraphs 164-244 of the proposed SFASC. Mr Knap refers to an outline of the evidence sought to be relied upon in respect of the amendments, which was sent to the Defendants on 6 December 2018, and a significant part of that material appears to be documentary in character. There has been a suggestion that some further affidavit evidence would be filed by the Plaintiffs, although the extent of such further evidence would no doubt depend upon the extent of the amendments that are permitted. Mr Knap also refers to the production of documents on subpoena, and notes that general access to those documents had been given on 30 July 2018, some five months before the amendment application was brought.

3. An exhibit to Mr Knap’s affidavit attaches the proposed SFASC, which is some 55 pages in length, excluding its schedules. By way of background, paragraphs 157-160C of the existing Further Amended Statement of Claim, pleads a deterioration in the financial circumstances of the Club to the point that its financial viability is threatened; identifies the matters which are said to have brought about that deterioration; contends that those matters flowed from decisions made by the Second Defendant as president of the Club; refers to a borrowing of sums of at least $2.5 million “to fund the cost of these decisions”, apparently referring to the decisions said to have been made by the Second Defendant as president, and otherwise deals with issues as to the membership of the Club. Paragraph 161 of the existing Further Amended Statement of Claim in turn pleads an oppression case, one component of which is said to be the degradation of the financial position of the Club under the presidency of the Second Defendant.

4. Turning now to the proposed amendments, paragraphs 164-192 of the proposed SFASC plead, at substantial length, the content of the financial statements of the Club for the financial years ending 30 June 2012 through to the financial year ending 30 June 2015. Notwithstanding the length of those paragraphs, it is not immediately apparent that they go any further than matters that would emerge from the tender of those financial statements, or that they are likely to be particularly controversial, so far as they are a paraphrase of those financial statements. Paragraphs 193-213 of the proposed SFASC refer to a loan by the Club from Eclipse Prudent Mortgage Corporation Ltd (“Eclipse”), which was negotiated and then made in the period from May 2015 through to January or March 2017. Those paragraphs plead correspondence between the parties, and it is not clear whether the Plaintiffs allege that the matters stated in that correspondence were the fact, or merely that they were stated in that correspondence. Putting aside that ambiguity, paragraph 206 of the proposed SFASC advances a new allegation that the moneys borrowed from Eclipse were not applied toward the purposes which had been stated for the borrowing, and in particular were not applied in any significant way towards the refurbishment of Club premises. That allegation appears to have implicit in it at least an element of misstatement in the Club’s dealing with Eclipse, as well as matters which are relied on in respect of the claim for oppression. Allegations are then made of the Club’s lack of financial capacity to repay the loans plus additional costs from its ordinary revenues, and allegations are made as to non-disclosure of matters to members of the Club. Allegations are in turn made as to the options which were available to the Club to repay the Eclipse loan, namely to refinance it, or to sell real estate of the club.

5. Paragraph 213 of the proposed SFASC then contains a lengthy allegation that, by taking some five enumerated steps, several Defendants acted in a manner that was contrary to the interests of the members of the Club as a whole and/or oppressive to or unfairly prejudicial or discriminatory against the members, for the purposes of s 232 of the Corporations Act 2001 (Cth). The first of those allegations is that the relevant Defendants burdened the Club with debts that it had no reasonable prospect of repaying from its ordinary revenue, and goes some way further than the existing allegation in paragraph 160 which referred to the borrowing of sums up to $2.5 million and to the manner in which the relevant funds had been applied as a matter supporting oppression. Paragraph 213(c) of the proposed SFASC alleges a failure to disclose the relevant matters to members, which Mr Evans (who appeared for the Plaintiffs) submitted “may” be a new allegation and is, as far as I can tell, plainly a new allegation included in the amendments. A new issue is also raised as to the fact that the application for and conduct of that borrowing had occurred despite qualifications made to the Club’s accounts by auditors, which raises the question as to how those qualifications would, or should, have been taken into account in determining to proceed with the borrowings. Paragraphs 214-229 of the proposed SFASC in turn advance allegations as to the content of the Club’s financial accounts for the years ending 30 June 2016 and 30 June 2017 and certain associated correspondence.

6. Paragraphs 230-239 of the proposed SFASC deal with the position in the Club’s accounts for the financial year ended 30 June 2018. Those paragraphs, as I note below, raise a somewhat different question, since it appears to be common ground that the Club’s accounts for the financial year 30 June 2018 were not distributed to members until 2 December 2018, and those matters therefore could not have been pleaded in any earlier version of a statement of claim filed prior to that date, and could likely now be raised in separate proceedings, if they were not raised in these proceedings.

7. Paragraphs 240-244 of the proposed SFASC in turn raise an allegation of oppressive conduct, primarily in respect of the Club’s entry into a new facility with a new lender, First Mortgage Capital Pty Ltd (“FMC”), in place of the previous facility with Eclipse, a matter which was, it appears, first disclosed by a note in the accounts for the year ended 30 June 2018 which became available in December 2018.

8. The Defendants in turn rely on the affidavits of their solicitor, Ms Philippa Austin, affirmed 13 December 2018 and 14 January 2019. In her first affidavit, Ms Austin draws attention to aspects of the chronology of events, including the issues of a subpoena to produce by the Plaintiffs to Eclipse, and the production of documents by Eclipse, to which general access was available from, it appears, late July 2018. Ms Austin also refers to the listing of these proceedings before Slattery J on 16 July 2018. That listing is significant, and I was taken to the transcript of it, for the recognition by the Plaintiffs at that time that, during the time the Second Defendant was the Club’s president, the amount of the Club’s debt had increased from $400,000 or $500,000 to $3 million, which the Plaintiffs’ then described as the debt having “ballooned” to that higher amount. It is apparent, from that transcript, that the increase in the liabilities of the Club were plainly apparent to the Plaintiffs by that time. There was also discussion, in the course of submissions before Slattery J, of what the Defendants recognised as an allegation that the Second Defendant had “somehow caused an over-inflation of the debt”, although that was not then squarely raised in those terms in the pleading.

9. Slattery J then indicated that he would require the Plaintiffs to confirm that their Amended Statement of Claim “is it”, which I take it to be a reference to finality of that version of the Amended Statement of Claim, and that he would refer the matter to the Expedition List, from which it has made its way to the Corporations List. That observation of his Honour was in turn formalised by a note made in the record of proceedings on 16 July 2018, which recorded that:

“The Court notes that the plaintiffs through their counsel have informed the defendant that the most recent version their proposed Further Amended Statement of Claim is the final version of that document” [sic].

That notation is consistent with the observation that had been made by his Honour in the course of the listing on that date.

10. The question of “financial management” of the Club remained a focus for the parties after the listing before Slattery J. In October 2018, when the matter was listed before me in respect of a question as to whether leave to lead certain expert evidence should be granted, the Plaintiffs again referred to the increase in the sum borrowed by the Club, by reference to the application of Club funds to the matters then pleaded in paragraphs 158 and 159 of the Further Amended Statement of Claim. The Plaintiffs then observed that the Defendants “do not, otherwise, plead any facts that justify the additional massive borrowings, nor do they plead any facts that even suggest how these additional borrowings have been applied for the benefit of the Club or its members.” That observation rather neglected the fact that, whether or not the Defendants pleaded any justification, the Plaintiffs did not then plead any direct attack upon the level of borrowings their purpose. In those circumstances, it is perhaps not surprising that the Defendants have not felt it necessary to justify what had not been attacked.

11. Ms Austin’s second affidavit in turn refers to the view of the Second Defendant as to the Club’s present financial position and as to its capacity to repay the amount now borrowed from FMC. It does not seem to me that that evidence substantially advances the question whether the amendments should be allowed or not.

Applicable principles

12. The principles that are applicable in dealing with an amendment of this kind are well established and were recognised by both parties in their submissions. I am required to exercise my discretion whether to allow the amendment having regard to the provisions of ss 56-58 and 64 of the Civil Procedure Act 2005 (NSW). Section 58 requires the Court to have regard to the dictates of justice when considering an order for the amendment of a document and requires the Court to have regard to the provisions of ss 56 and 57. Section 56 identifies the overriding purpose of the just, quick and cheap resolution of the real issues in dispute in the proceedings and s 57 requires proceedings to be managed having regard, inter alia, to the just determination of the proceedings. Section 64 relevantly provides that, at any stage of the proceedings, the Court may order that leave be granted to a party to amend any document in the proceedings and that, subject to s 58, all necessary amendments are to be made for the purposes of determining the real questions raised by the proceedings and avoiding multiplicity of proceedings.

13. I have had regard to the relevant provisions of the Civil Procedure Act and the treatment of those principles in the case law. Both parties rightly refer to Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, where the joint judgment observed, in relation to rules of court that are similar to s 56 of the Civil Procedure Act, that speed and efficiency are seen as essential to a just resolution of the proceedings, and although that should not detract from a proper opportunity being given to the parties to plead their case, it indicates that limits may be placed upon repleading, when delays and costs are taken into account. The joint judgment also there recognised that an order for costs will not always provide sufficient compensation and achieve a just resolution, and it cannot be said that a “just resolution requires that a party be permitted to raise an arguable case at any point in the proceedings, on payment of costs”. The High Court also there recognised, in the context of a late amendment application, the effect of delay upon the opposing party and the fact that a costs order should not be treated as an automatic solution to problems created by failures to conform with the objectives of case management. The decision also drew attention to the fact that justice cannot always be measured in money and a judge is entitled to weigh the strain that litigation imposes on litigants, who are here natural persons.

14. I have also had regard to the observations of the Court of Appeal in Bi v Mourad [2010] NSWCA 17 and in Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230 at [36], which emphasised the significance of delay, not only for the parties, but for the delay of justice more generally, and other parties with proceedings before the Court.

The parties’ submissions

15. The Plaintiffs submit that the matters which they seek to now plead, in respect of the Eclipse loan, are already raised by their existing Further Amended Statement of Claim. It will be apparent from the observations that I have made above in respect of the proposed SFASC that I do not wholly accept that submission. In particular, so far as the Eclipse loan is concerned, the present Further Amended Statement of Claim raises an allegation as to the increase in the borrowings, and the manner in which they were applied to fund the cost of decisions attributed in particular to the Second Defendant. The existing Further Amended Statement of Claim does not raise allegations of the kind that are now raised, in particular that the borrowings were not applied for the purposes which had been stated, plainly a serious allegation, or as to non-disclosure to members as to those borrowings.

16. The Defendants in turn submit that the matters now raised were not raised by the present Further Amended Statement of Claim, and also that the amendment sought is not “necessary” so far as it is not directed to matters already raised in the proceedings. They emphasise, significantly, that there is no explanation for the delay by the Plaintiffs in applying to make the amendments. As to the former submission, it does not seem to me that it can be put that an amendment is not “necessary”, simply because it raises a new issue, since many amendments will raise a new issue, and the question is whether the amendment is necessary for the just resolution of the proceedings. So far as the latter matter is concerned, the Plaintiffs’ evidence provides no real explanation for the delay by the Plaintiffs as to the amendments in respect of the Eclipse loan, which they, of course, submit are merely a clarification of the existing allegations. The Defendants’ evidence and submissions do not address, with any specificity, the extent of evidence that would be necessary to respond to the amendments, or how long that would take. It is, however, apparent that at least the amendments in respect of the Eclipse loan, so far as they raise serious allegations as to the manner in which the funds were applied, would have to be addressed with some care.

Determination

17. It is necessary to deal with the amendments that are sought separately, having regard to the categories of those amendments.

18. The first of those categories involves, as I have noted, deleting certain allegations which are not pressed and there is no contest that that amendment should be permitted.

19. The second category of amendments relates to the additional matters raised in respect of the Eclipse loan. I am comfortably satisfied that those amendments should not be permitted. On the Plaintiffs’ case, they are merely a clarification of matters that are already raised. The Plaintiffs are free to put any case that they have already pleaded, some time ago, in the Further Amended Statement of Claim in that respect. I have noted above that I do not accept the proposition that the amended claims are limited to those which were already raised but, to the extent that matters are already raised, no amendment is required. To the extent that new matters are introduced, and, in particular, an allegation that moneys were applied in a manner that was not properly disclosed to Eclipse, or new allegations of non-disclosure to members are raised, it seems to me that that matter cannot properly be raised, some two months before the commencement of the proceedings, in a matter that has been under way for a lengthy period, where the Court has already addressed, both before Slattery J and in the argument before me in October 2018, the extent of the matters that were already in issue in the proceedings. The Plaintiffs’ attention has been focused, for a considerable period, upon the increase in the borrowings by the Club, and it seems to me that no satisfactory explanation has been given of why any additional allegations that are now sought to be raised in respect of those borrowings could not have been raised at an earlier time.

20. It is very likely that, in the present circumstances, the raising of those allegations would interfere with the existing hearing dates, both so far as the Plaintiffs seek to lead new evidence, and so far as the Defendants would seek to do so in response. The impact upon the hearing dates would be adverse to the parties, so far as it would continue the personal strains which litigation imposes upon them, but would also be adverse to the community, so far as it raises the risk that significant hearing time that has been allocated to this hearing would be wasted, and potentially lost to other members of the community whose hearings could otherwise have been allocated over that period.

17. It seems to me that the position in respect of the refinancing of the Eclipse loan with FMC falls within a different category. As I noted above, it is common ground that that matter only came to the Plaintiffs’ attention in December 2018, when it was first disclosed to members. The Plaintiffs emphasise, with some force, that that matter could have been disclosed previously, including in evidence led by individual Defendants in the proceedings. It seems to me that there could be no question of any Anshun estoppel that would prevent the Plaintiffs raising those matters in new proceedings; where they could be raised in new proceedings, then it is likely to be in the interests of the just, quick and cheap resolution of all issues between the parties, and likely to avoid a multiplicity of proceedings, if they are raised and determined in these proceedings. There is no suggestion, either in evidence led by the Defendants or in Mr Notley’s submissions, that the scope of those matters is such that the Defendants could not respond to them within a reasonably short time, even if the Defendants are allowed a short period into the hearing to lead evidence as to those matters.

18. For these reasons, it seems to me that the amendments in respect of the FMC facility should be permitted, in a manner which, as I have noted, will avoid a multiplicity of proceedings between the parties and should have little if any adverse impact upon the hearing of the proceedings on the dates already allocated for them.

Orders

23. For these reasons, I will grant leave to the Plaintiffs to file and serve a SFASC in a form which deletes or removes paragraphs or parts thereof 5(a), 6(a), 7-8, 12(a), 19, 36-37, 45, 47-56, 60-66, 68-72, 77, 112, 159(a) and 161(a); excludes proposed paragraphs 164-229, as to which I do not grant leave; includes paragraphs 230-239, excludes paragraph 240, as to which I do not grant leave; includes paragraph 241; includes paragraph 242 (but excluding the words “from Eclipse and subsequently”) and includes paragraphs 243-244. I should note, by explanation of those orders, that I have not granted leave for paragraph 240, which repeats paragraphs 193-213 as to which I have not granted leave. I have not granted leave for an amendment referring to the words “from Eclipse and subsequently” in paragraph 242, so far as that matter would introduce allegations as to Eclipse, beyond those which may already have been pleaded in the existing Further Amended Statement of Claim. These amendments will be permitted, of course, on the usual basis that the Plaintiffs must pay the costs thrown away by the amendments.

24. I will briefly adjourn to give the Plaintiffs the opportunity to indicate how long is required to serve any evidence on which they seek to rely, recognising that only a short period will be permitted, for the Defendants to indicate their best estimate of how long will be required to respond, since it is necessary to make directions as to that question now and not later; and for the parties to indicate whether they wish to have, for example, a short deferral of the commencement of the proceedings to take account of the amendments which have been permitted.

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Decision last updated: 24 June 2019