JL Holdings Pty Ltd v The State of Queensland

[1997] FCA 507

CATCHWORDS

PLEADINGS - Amendment - during course of trial - seeking to raise allegations of fraud - procedural fairness

Land Act 1962
Defence Service Homes Act 1918

Nelson v Nelson  (1995) 184 CLR 538
Gould v Vaggelas (1985) 157 CLR 215
Brown v Dunsmuir  (1994) 3 NZLR 485

JL Holdings Pty Ltd v The State of Queensland and South Bank Corporation
No SG 1 of 1994
Kiefel J Brisbane 20 March 1997

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION

No SG 1 of 1994

BETWEEN:

JL HOLDINGS PTY LTD

Applicant

AND:

THE STATE OF QUEENSLAND

Respondent

JUDGE MAKING ORDER:          Kiefel J
DATE OF ORDER:  20 March 1997
WHERE MADE:  Brisbane

MINUTES OF ORDERS

THE COURT ORDERS THAT:

1. The application for leave to amend be dismissed.

Note:Settlement and Entry of Orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION

No SG 1 of 1994

BETWEEN:

JL HOLDINGS PTY LTD

Applicant

AND:

THE STATE OF QUEENSLAND and SOUTH BANK CORPORATION

Respondents

CORAM:Kiefel J

DATE:20 March 1997

PLACE:Brisbane

REASONS FOR JUDGMENT

(ON APPLICATION FOR AMENDMENT)

On Friday 14 March 1997 Senior Counsel for the respondents foreshadowed an application to amend their defences by raising allegations of fraudulent conduct on the part of the applicant, such that it ought be disentitled to the relief it seeks.  The justification for the amendment was said to be admissions made by the applicant’s principal witness, Mr Mantle, in cross examination.  The principal part of the cross-examination when this is said to have occurred, was on 6 and 7 March 1997.  The cross examination of Mr Mantle was concluded and he was re-examined the following Tuesday, 11 March 1997.  The question of amendment had not at that point been raised.  By letter dated 12 March 1997 the solicitor for the respondents advised the applicant of the prospect of a plea of fraud based upon “admissions” in Mr Mantle’s evidence, but without any detail.  It was then said that the matter was under consideration.  On 14 March 1997, whilst cross examining the applicant’s second principal witness, and after enquiry as to the relevance of a part of it, Senior Counsel for the respondents adverted to the possibility of amendment.  Some other matters had been flagged by the respondents, since the commencement of this trial, as potential issues.  Evidence was halted at this point whilst it was determined what amendments were necessary to the pleadings and what amendments ought to be allowed. 

I propose firstly to deal with the defence sought to be raised and the submission that it cannot succeed. 

The proposition of law, upon which the defence is said to be founded, is that the law will not recognise causes of action founded upon unrighteous acts.  The complexity of the law in this area is given as the explanation for the delay in formulating the plea. 

The starting point for an understanding of what is proposed to be pleaded is the identification of the documents given by the applicant to the Brisbane City Council in September and November 1987, when it tendered with respect to the development in question in the action.  In addition to the tender document itself, which was in response to an invitation from the Council, they included a brochure and a video.  The documents and the video are referred to in paragraph 6 of the statement of claim.  In them, it is alleged, the fraudulent misrepresentations, as to what the applicant intended to construct and provide for in its proposed development, are contained.  I add here that the tender process was not in fact pursued by the Council.  It is common ground that, thereafter, the applicant was granted “preferred tenderer” status, which enabled it to negotiate with the Council and with the first respondent with respect to the Crown Reserve lands.  The documents provided to the Council were then sent to the first respondent and by this process the respondents allege the representations were repeated and reinforced.  On 16 January 1989 the Cabinet resolved to approve the proposal on the basis of the documents forwarded to it.  That approval, and the representation about it which followed, founds the estoppel for which the applicant contends.  That is in the alternative to its case brought upon an approval of the lease itself.  That approval is alleged to have been obtained from the then Minister for Lands in November 1989, and before the change of government in December 1989.  The following government declined to endorse the lease under the Land Act 1962, thereby preventing the development proceeding further.  The applicant’s claim is brought for compensation or for loss of profits with respect to the development as it would have operated.

So far as the influence of the conduct in question is concerned, one might consider it to have ended by November or December 1989.  But it is of some importance, in understanding the nature of the case sought to be raised, that the conduct is said to retain its relevance, at least so far as a denial of relief is concerned, into 1990 when the applicant was attempting to persuade the then Government of its proposal.  This is because the defence focuses not upon the effect it is said to have had, but upon notions of wrongfulness in the conduct itself which, on “public policy” grounds, are said to produce such a sense of outrage that the Court would deny any relief.

In the proposed defence, it is alleged that the applicant fraudulently represented that it intended to:

“(a)build a development with a standard of finish and fit-out as described therein;

(b)         provide amenities for visitors to handle koalas;
(c)         build and utilise a reproduction of an old Brisbane tram;
(d)         build a fully operational opal mine, with train ride;
(e)         display live sharks and fishes;
(f)          display 2000 species of bird;

(g)operate an office in Japan for the sole purpose of promoting Brisbane and the Naval Stores development;

(h)engage a chef to be brought from Thailand for the development;

(i)          provide completely outfitted accommodation for artisans; 

(j)maintain an ongoing program of research to rid koalas of disease;

(k)build a theatre where patrons would experience the smell of what was being exhibited on film;

(l)          display platypus, dingos and crocodiles.”

((i) and the reference to crocodiles in (l) were later abandoned).  It would also follow that it is alleged that the applicant did not have such intentions when Cabinet considered the documents in 1989 and when they were forwarded again in 1990.  The representations pleaded are not further particularised, but I was taken to the parts of the documents in question and to the evidence of Mr Mantle which was relied upon.  I had earlier viewed the video.  Despite the fact that I had been assured at the outset that his evidence amounted to admissions of a lack of intention in each respect this was not the case.  In reality the respondents’ case is that it might, assisted by a view I take of the answers given and of the credit of Mr Mantle, come to that conclusion.  I shall return to this matter later.

As to the potential effect the representations may have had, it is to be alleged that each of the Brisbane City Council and the State Governments could have been influenced in deciding to approve.  As I have said, the focus of the proposed plea is not upon influence in fact but conduct.  This is made apparent by reference to the government which later did not, in any event, endorse the project. 

The basis for the relief, in its further amended form, is in these terms:

“In the premises, relief should not be granted to the applicant on the ground of public policy by reason of the following matters:

(a)     if an agreement for lease or lease was made between the applicant and the first respondent (which is denied), the said agreement was induced by the applicant’s fraud;

(b)     if the first respondent made representations to the applicant as alleged in paragraph 16 of the Statement of Claim (which is denied), the said representations were directly or indirectly induced by the applicant’s fraud;

(c)     the applicant seeks to rely upon its own fraud by claiming a loss of profits calculated by reference to a development other than as represented, and contrary to its obligation under the Agreement for Lease;

(d)     all claims for relief are based upon an allegation that it had an entitlement to a lease of the Crown Reserve;

(e)     the fraud was substantial in that the applicants sought to obtain control of public lands by means of fraud.”

The legal warrant for this defence, based upon wrongful conduct in the context of considerations of public policy, was said to be found in Nelson v Nelson (1995) 184 CLR 538. There the appellant had purchased a house in the names of her son and daughter. She did not make apparent her interest in it so that she would be eligible for a subsidy under the Defence Services Homes Act 1918 (Cth).  She then obtained a substantial loan, falsely declaring that she did not own or have a financial interest in another house.  When the first house was sold she claimed an interest in it and that it had been held on trust for her.  That was found to be the case.  The question was whether the son and daughter could defend her claim by reference to her wrongdoing.  The Court held (by Deane, McHugh and Gummow JJ) that the relief sought, in equity to enforce the trust, should only be granted on condition that the appellant repay the benefit received from the house she had wrongfully obtained.  The reason for conditioning the relief was because her conduct contravened the policy or “equity” of the Defence Service Homes Act (see in particular the judgment of Deane and Gummow JJ).  In this regard however the critical element was in the identification of the policies of the Act.  The scheme of the Act showed that it was founded upon a recipient of a subsidy having only the one house.

One may at this point observe that the case was concerned with the ascertainment and application of public policy to be derived from statute.  The “illegality” of the conduct was derived by reference to the policy disclosed by the statute.  The case further confirms, in my view, that equity will mould relief according to the circumstances of the case.

The defence here sought to be raised seeks to derive some “public policy” from the fact that the agreement for lease or Cabinet representation might have been induced by fraud (and the claim following it then also having that connection) or because the applicant sought, by fraud, to obtain control of public lands.  There is nowhere identified any policy from the scheme of an Act which is said to be relevant.  None was adverted to in the substantial argument before me.  It was simply submitted that the conduct was such that the Court would not lend its aid to what was an attempt to obtain public lands (and it would follow, deny relief based upon the applicant hypothetically having obtained and used them).  What is complained of is not however said to be illegal, either directly by statute or by reference to the scheme of a statute.  The wrongdoing spoken of underlies relief which may be given at law or in equity.  There is no basis given for importing any public policy considerations.  The fact that the lands in question were Crown reserves would not suffice. 

The other aspect of the proposed plea is that it does not, in relation to the relief which might be withheld, or conditioned, permit regard to be had to the circumstances surrounding the approvals or representations which the applicant seeks to rely upon.  The relief sought by the applicant depends upon an agreement for lease or a Cabinet representation which (public policy considerations aside) are alleged to have been induced by fraud.  The difficulty is that the case sought to be advanced is not one which has regard to the effect the representations in fact had in producing any approvals.  It is only to be asserted that it might have been influential.  In my view, that would not provide a sufficient foundation for the relief sought.  What the respondents propose is that the applicant be denied all compensation or relief because, to take an example, there was a possibility that what had been said about tourists being able to hold koalas or being able to view an aquarium might have been influential, to an unknown extent, with someone in the Brisbane City Council or the State Government.  It was reinforced in argument before me that it was not considered necessary, in reliance upon what was to be deduced from Nelson v Nelson, to look to what the conduct produced.  The conduct itself was reprehensible and therefore ought be the basis for denial of relief.  No case to which I have been referred confirms such an approach.  The test referred to in Meagher Gummow & Lehane on Equity 3rd ed para [326], requires a more direct and immediate connection between the conduct and the relief sought by the wrongdoer. 

I should add that, at one point in the submissions and in connection with whether the representations need to be material, reference was made to the decision of Gould v Vaggelas (1985) 157 CLR 215. It was submitted that, so far as was necessary, it would be contended that each of the representations were of the kind referred to by Wilson J (238) namely such that commonsense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract. On the basis of the matter as pleaded I am unable to see how this could be so. The matters referred to are of their nature the very sorts of matters upon which minds will differ and influence vary, if they operated at all as influential. No other fact is pleaded to support any inference. I was informed that no evidence would be led by the respondents as to the question of inducement. In any event, it was not suggested that should the representations be of the quality spoken of in Gould v Vaggelas, the respondents would succeed in showing any more than that some influence would follow.

I was also referred to the decision of Brown v Dunsmuir (1994) 3 NZLR 485. In my view it does not take the matter any further. It does not warrant the extension of principle, for which the respondents contend, in connection with alleged reprehensible conduct. There the act of trespass sued upon had been brought about by the respondents own illegal act of excavation. At a factual level the case confirms the relevance of the relationship between a wrongful, illegal, act and the relief sought by the person guilty of it.

In my view the prospect of the defence being made out is so unlikely as to justify refusal for leave to amend.  There is however another substantial reason for refusal of leave to amend at this point, that based in procedural fairness. 

At no point during the cross examination of Mr Mantle was it made apparent to him, or to his legal representatives that the issue loomed even as a possibility.  That was despite my enquiry as to the relevance of some of the questions.  By that I do not intend to suggest that Senior Counsel was not being frank when he replied that the questioning was then being undertaken in connection with the issues of loss and damage and at some point, also as to credit.  A view had not then been formed as to the state of the witness’ evidence.  What it does however  is to confirm that, during cross examination, the witness and the parties were all focused upon the questions as relating to costings, and that what was being tested was what was there going to be developed as compared with what is now costed by quantity surveyors.  The respondents might have been alert to some of the discrepancies now highlighted because their quantity surveyor, who had produced his report over a year ago, had highlighted some of the aspects.  This was, it seems to me, likely to have been provided some foundation for the enquiry in cross-examination.  Additionally the applicant’s expert reports contained detail which was different from some representations especially pictorial ones.  What was said to have occurred in the process of questioning and which could not earlier have been ascertained, were statements of the applicant’s true intention at the time of tender.  Whether that be so, it remains the case that re-examination was conducted without reference to this plea.  It was undertaken without reference to any of these matters.  I accept that, so far as the cross-examination had challenged Mr Mantle’s credit, they took place in a different context.  It was therefore adjudged safe to leave the matters as Mr Mantle had answered them.  It seems to me, however, that the addition of a claim so serious as that sought to be advanced alters the whole complexion of the matter. 

Senior Counsel for the respondents submitted that the evidence has been led from Mr Mantle and there is nothing which he could now usefully add.  Such a submission in my view overlooks a number of significant factors.  Firstly, in my view, the matter was not squarely put, on each occasion, to Mr Mantle in cross examination.  He was not, for the reasons I have earlier adverted to, given the opportunity of responding to what are now said to be lies, save on one or two occasions.  And, in my view, it was not made plain to either him or his legal advisors that he was being asked to comment upon intention, with respect to each representation, at a particular point of time.  The cross examination shifted between the tender documents, various brochures (and which ranged beyond those provided to the Council or the government) and the video, and he was asked to comment about what was intended to be built.  Answers were given in that connection and with respect to a period potentially over many years.  He was not asked what was intended at the time he placed the tender with the Council;  what was intended when the matter went to Cabinet in January 1989 and what was intended when he discussed the matter with the following Government in 1990.  It is to be recalled that all of these periods are said to be relevant to the plea to be raised.  I am also of the view that if there has been substantial damage done to Mr Mantle and his credit by the evidence with respect to these representations, as is contended for by the respondents, it cannot now fairly be remedied by Mr Mantle returning to the witness box.  I am not even satisfied that the matter can be properly dealt with by way of re-examination. 

It was also submitted by Senior Counsel for the applicant that, in a number of respects the respondent knew of the differences now highlighted.  I have touched upon this matter.  I think the submission is correct in a number of respects. For example, the quality of finish disclosed was such as to enable Mr Lowry, the respondents’ expert, to assert that it was not consistent with what was referred to in the tender; the applicant’s reports disclosed that the themed or mini-trams were costed on a basis which used fuel not electricity, which says much about what the mode of locomotion was to be;  and the species of bird in the aviary were said now to be limited to 200.  The respondents say, however, that the missing element, and which enables the plea now being revised, was whether it was ever intended that what the documents had spoken of was to be provided.  I am not satisfied that this follows in each respect, given the apparent discrepancies, the importance which the respondents say each of them had with respect to the viability of the project, and the identification of the project by the applicant in its pleadings according to the documents which the respondents now seek to rely upon.  Another possibility which occurs is that whilst the conclusions now sought to be drawn were earlier available, they were not reached.

As I have said, the basis upon which the application to  amend was initially put was that the admissions made by Mr Mantle, as to the applicant’s lack of intention to do that which it had promised, were so clear that the amendment would merely reflect what was already a real issue in the proceedings.  As was conceded subsequently in argument, in most cases there was not a clear admission at all.  The respondents clearly hoped to make out a case of fraud following argument, at the conclusion of the trial, that denials made by Mr Mantle ought be disbelieved or that I ought draw inferences as to his credibility, in determining the necessary lack of intention.  This process was to be assisted by other cross examination, yet to be undertaken, of other witnesses to be called by the applicant.  And in the few cases where a clear admission was made, (for example, that it was never intended to have tourists handle koalas), the representation alleged was not clear.  The approach undertaken by the respondents in the main was to focus upon aspects of the brochures or video suggestive of overstatement but to ignore any contrary representations or context contained in other documents, such as the tender.  Possible explanations were ignored.  This is by way of saying that the case of fraud alleged was not in any sense a clear or an obvious one.  The relevance of this however is no doubt more obvious in connection with costs, with which I shall deal later. 

I should add that Senior Counsel for the applicant submitted that the prejudice that the applicant would suffer ought also to be taken into account.  It was submitted that because of Mr Mantle’s commitments no adjournment could be contemplated.  It was then said that since the course undertaken by the respondents would be to force the applicant to interview many persons associated with the Council, Cabinet and following governments, the applicant would be severely disadvantaged because its solicitor would be distracted from the trial whilst this considerable task was undertaken.  I concede this as a possibility.  The difficulty I have is in discerning what the ultimate decision as to the need for other evidence, would be given that the respondents were not intending to call any evidence s to the effect any of the representations had.

I shall hear Counsel as to the question of costs.

I certify that this and the preceding twelve pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel.

Associate

Date: 20 March 1997

Counsel for the applicant:   Mr T Gray QC and Mr T Matthews
Solicitors for the applicant:   Minter Ellison

Counsel for the respondent:   Mr R Hanson QC and Mr J McKenna and Mr R Derrington

Solicitors for the respondent:  Crown Solicitor for the State of Queensland

Date of Hearing:  17, 18, 19 March 1997
Place of Hearing:  Brisbane
Place of Judgment:  Brisbane
Date of Judgment:  20 March 1997