JZ Lee Interiors Pty Ltd v Smith
[2015] VCC 426
•16 April 2015
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted |
EXPEDITED CASES LIST
Case No. CI-14-03345
| J.Z. LEE INTERIORS PTY LTD ACN 075 815 093 | Plaintiff |
| v | |
| BRENDON ASHLEY SMITH | First Defendant |
| and | |
| DONAMIS CONSULTANTS (VIC) PTY LTD ACN 125 343 268 | Second Defendant |
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JUDGE: | HER HONOUR JUDGE KENNEDY | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 March 2015 | |
DATE OF RULING: | 16 April 2015 | |
CASE MAY BE CITED AS: | JZ Lee Interiors Pty Ltd v Smith & Anor | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 426 | |
REASONS FOR RULING
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Catchwords: Practice and Procedure – Application to amend pleading – whether no reasonable prospects of success – Application granted
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I Upjohn QC | Webb Korfiatis |
| For the Defendants | Ms M Loughnan QC | Altus Lawyers |
HER HONOUR:
Nature of application
1 This is an application by the plaintiff to file and serve a proposed amended statement of claim.
Background
2 The plaintiff (JZ Lee Interiors Pty Ltd) is an entity within a group of companies controlled by members of the Vrapcenjak family which conducts a building and construction business. Its director is Mr Vrapcenjak.
3 Mr Smith (the first defendant) and Mr Vrapcenjak appear to have enjoyed a close business relationship for almost 20 years whereby Mr Smith managed JZ Lee’s business. The precise capacity in which Mr Smith was retained is in dispute though Mr Smith alleges that he effectively acted as CEO of JZ Lee.
4 Mr Smith is the director of the second defendant, Donamis Consultants Pty Ltd. Donamis also provided administration services to JZ Lee.
5 This current proceeding was issued on 11 July 2014. The plaintiff alleges that Smith engaged in various conduct which breached duties he owed to JZ Lee. This included serious allegations to the effect that he caused JZ Lee to make payments in connection with improvements to his own personal properties.
6 The current proceeding is also related to another proceeding issued in this court (CI-14-03344) wherein JZ Lee and Mr Vrapcenjak claim contribution from Mr Smith for paying more than their alleged proportionate share in relation to a property development at Mornington.
7 By orders made by consent on 5 December 2014, the two proceedings were listed to be heard for trial on 21 September 2015, with an estimate of 15 to 20 sitting days. (An earlier trial date of 9 February 2015 was vacated). The plaintiffs in both proceedings were also required to file any application to amend their statement of claim by 13 January 2015.
8 On or about 13 January 2015 JZ Lee served a copy of a proposed statement of claim on Smith and Donamis.
9 The application to amend was then listed before his Honour Judge Anderson on 23 January 2015. His Honour made provision for the delivery of a further draft pleading (which was delivered on 4 February 2015).
10 In its proposed amended pleading, the plaintiff now seeks to make amendments in two material ways: firstly, to include a set of “miscellaneous” claims in respect of the use of JZ Lee’s funds (at proposed paragraphs 13.1 through to 13.122). Second, to include a claim for “excessive payments by JZ lee to Donamis for administrative services” (at proposed paragraphs 43-51).
11 I will therefore deal with these two proposed amendments.
Principles
12 The defendants suggested that the test was whether the claim had “no reasonable prospects of success” citing Mathews v SPI Electricity Pty Ltd (Ruling No 6). In Mathews, Forrest J stated (footnotes omitted):[1]
[1]Mathews v SPI Electricity Pty Ltd (Ruling No 6) [2012] VSC 70, pages 9 -10.
“It is well established that an amendment will not be allowed if it is “so obviously futile that it be struck out if it appeared in an original pleading”. A court, on this type of application, will not engage in an examination of the merits of the case foreshadowed by the proposed amendment, but whether that amendment introduces a patently hopeless issue for determination then its inclusion will be futile and that will be a significant, and probably decisive, matter in the exercise of the court’s discretion.
Perhaps, given the terms of the Civil Procedute Act 2010, the test is best expressed in the words of s 63 of that Act: If the amendment has no reasonable prospect of success at trial then that would be a highly relevant factor in the exercise of the discretion to refuse the application.” (emphasis added)
It is also important to bear in mind that whether a claim ought to succeed is ultimately a matter for the judge at trial.[2]
[2]Abela v Giew (1964) 81 WN (Pt 1) (NSW) 344; Hall v National & General Insurance Co Ltd [1967] VR 355;
Commonwealth v Verweyan (1990) 170 CLR 394; Woodhead Australia (SA) Pty Ltd v Paspalis Group of
Companies (1991) 103 FLR 122 (NTSC).
13 As emphasised by the defendants, an amendment should also be denied if there is mala fides.[3]
[3]Tildesley v Harper (1878) 10 Ch D 393.
Miscellaneous claims
14 These claims arise in circumstances where Mr Smith is alleged to have paid certain amounts to various parties and then “caused JZ Lee to pay to him” a reimbursement of some of the expenses he incurred, which reimbursement has been in connection with Mr Smith receiving a benefit which did not in any way benefit JZ Lee. The plaintiff pleads that by reason of each of these transactions Smith has “had and received by him to the use of JZ Lee” the relevant amounts; alternatively that he has been “unjustly enriched”; alternatively that he “unconscientiously retains the amounts” (13.120). The plaintiff also alleged that Smith acted in breach of the duties he allegedly owed to JZ Lee (13.121).
15 The defendants submitted that there were three major defects in relation to this part of the claim:
(a)That it was not alleged that the reimbursement was done “without authority”;
(b)That six out of twenty-seven of the claims were statute-barred; and
(c)That there was a lack of bona fides, given there had been a pattern of advancing and abandoning claims, and given an absence of material (notwithstanding the orders of Judge Anderson).
16 Firstly, the defendants provided no authority for the proposition that the count for money had and received involves an allegation of no authority. Instead, the count for money had and received arises from a receipt of payment by the defendants for the use of the plaintiff and the breach of a promise to pay the debt on the plaintiff’s demand for payment.[4] In Moses v Macferlan[5] Lord Mansfield also categorised the cases recognised as ‘money had and received’ as including a ‘consideration which happens to fail’.[6]
[4] Mason, Carter & Tolhurst, Mason and Carter’s Restitution Law in Australia 2nd Ed, page 17.
[5] (1760) 2 Burr 1005.
[6] Mason, Carter & Tolhurst, Mason and Carter’s Restitution Law in Australia 2nd Ed, page 17.
17 The proposed pleading may still need some reworking, for example, to allege a debt rather than damages and also to remove the reference to “unjust enrichment” which is not a known cause of action.[7] However, the essential elements of a “moneys had and received” claim have been included.
[7]Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at page 665; Hendersons Automotive
Technologies Pty Ltd (in liq) v Flaton Management Pty Ltd (2011) 32 VR 539 at page 553
18 Next, in terms of the allegation that some of these claims are statute-barred, the court will ordinarily be cautious in deciding at an interlocutory stage that a cause of action is statute barred.[8] This is particularly so in this case wherein Senior Counsel for the plaintiff suggested that any limitation period may have been postponed by reason of concealment by fraud (see section 27(b)) such that the period of limitation would not run until the plaintiff had discovered the fraud or mistake or could, with reasonable diligence, have discovered it. By way of example, he cited a “Brendon Smith petty cash reconcilitation” document which described a transaction (job no 988) as “hardware and timber” though the invoices supporting it appeared to include unrelated items (a wood oven and a Miele oven).
[8]Wardley Australia Ltd v Western Australia (1992) 175 CLR 514.
19 It goes without saying that any allegation based on section 27 should not be made without clear instructions and evidence. However, I am unable to be satisfied that the claim should be excluded at this stage.
20 Finally, in terms of the alleged lack of bona fides, it is true that there appears to have been some reformulation of the pleading. Such reformulation is relatively common in a case such as this one, and I am unable to find an absence of bona fides simply on the basis of such reformulation.
21 In relation to material it is true that Judge Anderson ordered the plaintiff to provide a copy of documents relevant to each of the transactions. A folder of “petty cash documents” has duly been provided and handed to the court though the defendants now complain that some of the documents are incomplete.
22 However, the fact that the documents are not necessarily complete is not fatal. Rather it appears that the documents will need to be considered alongside the oral evidence as well as discovered documents.
23 Considered overall, I am not satisfied that the claim has no reasonable prospects of success.
Excessive charging
24 The second material claim is a claim entitled “Excessive payments by JZ Lee to Donamis for Administration Services” at paragraphs 43–51. The plaintiff alleges that Mr Smith caused JZ Lee to make certain payments to Donamis in connection with the provision by Donamis of administrative services to JZ Lee, which amounts “were excessive” and did not represent “a fair and reasonable value of the services provided” (at paragraph 45). Further, that by engaging in the conduct, Mr Smith acted in breach of the duties he owed JZ Lee (paragraph 46) and that Donamis was involved in and/or was a knowing accessory to these breaches (paragraph 49).
25 The plaintiff filed an affidavit in support of this part of the pleading by Bishoy Hanna, solicitor sworn 19 February 2015.
26 This affidavit alleges that the arrangement between JZ Lee and Donamis (similar to the previous arrangement with JZ Lee Administration) was not recorded in a written services agreement (paragraph 12). Further, that the fees were excessive by means of a comparison between services provided immediately prior to, and after, the provision by Donamis. Thus it is said that the level of wages paid were substantially higher in respect of wages paid to Smith and also in respect of other Donamis employees between July 2007 and June 2013 (paragraph 19). Further that for the year ended June 2014 wages were $482,142.47 less than wages which had been paid to Donamis employees in the previous year (paragraph 27).
27 The affidavit does not articulate the precise amount claimed pending discovery by Donamis of its accounts (at which time operating expenses can be identified (paragraph 41)). However, assuming no increase in operating costs, the mark up applied by Donamis was alleged to be over 20% in the year ended June 2008 which was in excess of rates suggested in ATO guidelines (paragraph 42).
28 There were two major complaints of the defendants in relation to this part of the pleading. Firstly, that there is no basis for a quantum meruit claim, given the evidence overwhelmingly pointed to the existence of an agreement.
29 Secondly, that there was insufficient evidence for the making of the claim in circumstances where the plaintiff could not precisely quantify the amount of the claim. In so saying, the defendants highlighted that Judge Anderson had ordered that this claim was disallowed “without proper articulation of the amount claimed and the basis of the claim which would ordinarily require affirmation by affidavit material before an amendment was allowed.”
30 In relation to the first complaint, the defendants relied upon an affidavit of Lyndal Gaye Mews, solicitor, sworn 24 March 2015. Paragraph 9 of that affidavit suggests that an administrative agreement was in existence which was signed by Mr Smith and Mr Vrapcenjak. The affidavit also alleges that the billing procedure prior to 2009/10 involved a process whereby invoices were processed by the Vrapcenjak group’s accounts clerk (paragraph 38). Further, that in June 2009 the administrative arrangement was varied (orally) so Donamis would be paid a monthly fee that would meet all its expenses plus a 10% profit margin (paragraph 18). The process for the billing procedure in June 2009 was also addressed to Mr Vrapcenjak (paragraph 39).
31 This evidence might be compared with that of the plaintiff. Thus, paragraph12 of the Hanna affidavit suggests that no agreement was in existence. The plaintiff also highlighted that the defendants were unable to produce any written agreement (relying instead on a “reconstructed” version).
32 The question of whether an agreement should be inferred or found is ultimately one for trial. It is not appropriate for determination on an interlocutory basis.
33 In terms of the suggestion that there is insufficient evidence for the claim, the defendants objected to much of the Hanna affidavit and also sought to challenge the analysis contained in it.
34 Insofar as much of the material was objected to on the basis of section 69 of the Evidence Act 2008 (Vic), I accept the response of the plaintiff that the affidavit was to be considered at an interlocutory hearing wherein hearsay evidence is admissible.[9]
[9]Evidence Act 2008 (Vic), section 75.
35 Insofar as the Mews affidavit contained a wide-ranging attack as to the methodology adopted (which included the suggestion, for example, that some of the fees were generated by family members and/or were generally authorised) I do not consider this is appropriate for a determination at this juncture.
36 The fact that no quantum was precisely given is also not fatal given the Hanna affidavit provides some basis for the allegation made.
37 Again, then, I unable to be satisfied that there are no reasonable prospects of success in relation to this claim.
Conclusion
38 It cannot be said, at this interlocutory stage, that the amendments do not have a reasonable prospect of success at trial.
39 I have also generally considered case management principles and the overarching purpose contained the Civil Procedure Act 2010 (Vic).[10] However, the fact that the amendment might extend the trial is not a sufficient reason to deny the amendment, particularly given the timing of the application is well in advance of the trial date.
[10]Civil Procedure Act 2010 (Vic), section 7: to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute
40 The plaintiff will therefore be given leave to file and serve the proposed amended statement of claim substantially in the form provided, consistent with these reasons.
41 The parties should draw up formal proposed orders to give effect to these reasons.
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