Klein Way Pty Ltd v Seajarra Pty Ltd
[2000] VSC 136
•5 May 2000
| SUPREME COURT OF VICTORIA | |
| PRACTICE COURT | Not Restricted |
No. 5654 of 1997
| KLEIN WAY PTY. LTD. | Plaintiff |
| v. | |
| SEAJARRA PTY. LTD. AND OTHERS | Defendants |
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JUDGE: | BEACH, J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 3 APRIL 2000 | |
DATE OF JUDGMENT: | 5 MAY 2000 | |
CASE MAY BE CITED AS: | KLEIN WAY PTY. LTD. v. SEAJARRA PTY. LTD. & ORS. | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 136 | |
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CATCHWORDS: Practice and procedure – Amendment of pleadings – Amendment of statement of claim to add new head of damage – Prejudice to defendants – Amendment disallowed.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr. R. McK. Robson QC and Mr. P.H. Clarke | Adams Maguire Sier |
| For the Defendants | Mr. P.J. Riordan | Deacons Graham & James |
HIS HONOUR:
This is an appeal from the order of Master Evans made on 21 March 2000 whereby the Master gave the plaintiff leave to add one Roy McDonald as a defendant to the proceeding and to deliver an amended statement of claim.
No point is made by the Master's order giving leave to add McDonald as a party to the proceeding and that aspect of the Master's order can be disregarded for present purposes.
The plaintiff claims damages arising out of the purchase by the plaintiff of the first defendant's tattslotto agency and cards and gifts business at Brandon Park in early 1996. The claim is founded in contact, negligence, and misleading and deceptive conduct under the Trade Practices Act.
Throughout the proceeding the plaintiff has alleged that a profit and loss statement for the year ended 30 June 1995 provided to it by the first named defendant prior to the purchase of the business was false and inaccurate in that it overstated the turnover and profit of the business.
Pursuant to the agreement to purchase the business the plaintiff paid the sum of $634,915 in respect of the goodwill of the business. It now contends that having regard to the true profit of the business for the financial year ended 30 June 1995 the goodwill of the business was in fact only worth $149,406.
The first defendant, and the second and third defendants who are the proprietors of the first defendant, by their defence, have denied the falsity of the information contained in the 1995 profit and loss statement. They have further asserted that the plaintiff has suffered no loss and damage in any event as the gross profit made by the business on the sale of cards and gifts for the financial year ending 30 June 1996 exceeded the gross profit disclosed in the 1995 profit and loss statement.
Following service of the proceeding on them the first, second and third defendants joined their agents Richard Seles Pty. Ltd. and I.L. Wollerman Pty. Ltd., and their accountant Roy McDonald as third parties to the proceeding seeking indemnity or contribution in respect of the plaintiff's claim.
The third party I.L. Wollerman Pty. Ltd. then joined the first, second and third defendants' solicitors Tress Cocks & Maddox as a fourth party to the proceeding seeking indemnity or contribution from it in respect of the defendants' claim pursuant to the third party notice served on it. Tress Cocks & Maddox was subsequently joined by the defendants as a fourth third party to the proceeding.
The proceeding was fixed for hearing before Mandie, J. on 1 June 1999.
Up until that stage of the proceeding the plaintiff's claim against the defendants had been for the difference between the sum it had paid for the goodwill of the business and what it contended was the true value of the goodwill. That that was so is clear from the further and better particulars of the plaintiff's statement of claim dated 30 April 1998 and a second further amended statement of claim it served on the defendants in May 1999.
During the months of April and May 1999 the defendants were advised by their legal advisers that having regard to the nature of the claim made against them, they should endeavour to settle their third party proceedings against the four third parties. The defendants accepted that advice and settled their claims against the four third parties thereby releasing them from the proceeding.
Immediately before the hearing before Mandie, J. on 1 June 1999 the defendants served on the solicitors for the plaintiff a proposed amended defence and outlines of the evidence various witnesses would give during the course of the trial.
In the proposed amended defence the defendants no longer denied the allegation that the information contained in the 1995 profit and loss statement was false but admitted that it was. The defendants pleaded by way of particulars the following, and I quote:
"The figures appearing in the 1995 Profit and Loss Statement in respect of the 1995 year were not true and accurate in all respects. The true and accurate 1995 Profit and Loss Statement is set out in schedule A."
The proposed amended defence then deletes the plea that the gross profit made by the business on the sale of cards and gifts for the financial year ending 30 June 1996 exceeded the gross profit disclosed in the 1995 profit and loss statement and at a later point admit that the defendants are liable to the plaintiff for any amount in respect of which the value of the business was less than $650,000 (see paragraph 13 of the proposed amended defence).
At the commencement of the hearing before Mandie, J. counsel for the defendants informed his Honour that the defendants admitted liability both in tort and contract and that the matter would proceed as an assessment only.
Counsel for the plaintiff then sought an adjournment of the proceeding to enable him to consider the effect of the defendants' change of position.
In granting the application Mandie, J. gave leave to the plaintiff to deliver an amended statement of claim in the form of the second further amended statement of claim the plaintiff had served on the defendants in May 1999, and gave the defendants leave to amend their defence in the form of the proposed amended defence counsel for the defendants had handed him that morning.
I repeat the earlier observation I made in relation to the second further amended statement of claim, that is, that the claim the plaintiff was making in that statement of claim was for the difference between what it had paid for the goodwill of the business and what it contended was the true value of the business.
On 3 June 1999 the plaintiff delivered an amended defence to the second further amended statement of claim. However, it was not in the form of the amended defence handed to Mandie, J. on 1 June in that the defendants had now added the following particulars to paragraph 13:
"The defendants say that the appropriate add backs are set out in schedule B and therefore on a net profit of $171,008 for the year ended 30 June 1995 as at the date of the Sale Agreement the true value of the business was approximately $600,000."
And so as the pleadings stood as at 3 June 1999 the plaintiff's basic or principal claim was for the sum of $485,509 being the difference between the sum it had paid for the goodwill of the business and what it contended was the true value of the business; the defendants' case in respect of the claim was that the difference in value was only of the order of $50,000.
What then occurred was that the plaintiff sought and was granted leave by Master Evans on 21 and 30 March 2000 to deliver a third further amended statement of claim.
By that further amended statement of claim the plaintiff claimed for the first time a sum of $948,209 which it alleged is the value of the bargain it claims it has lost.
The figure of $948,209 is calculated on the following basis.
If the business had earned a net profit of $211,531 for the financial year ended 30 June 1995 as shown in the profit and loss account for that year, the true value of the business would have been $1,208,960, being the sum of $211,531 multiplied 3.5 times.
As the actual value of the business was only $260,761 the plaintiff has suffered a loss of bargain of $948,209.
Not surprisingly the defendants contend that if that amendment is permitted to stand, they will suffer serious prejudice which cannot be compensated for by any award of costs.
They have now released the four third parties from the proceeding and can make no claim against them seeking indemnity in regard to the substantial claim the plaintiff now makes against them. Had they known that the plaintiff was contemplating an amendment to its statement of claim to seek damages for loss of bargain calculated on the basis it has calculated that claim, they would never have settled their claims against the third parties for indemnity and/or contribution at the time they did.
The plaintiff's answer to that argument is that the defendants have brought this situation on their own heads. Had they admitted the falsity of the information contained in the 1995 profit and loss account before they released the third parties from the proceeding, the plaintiff would have amended its statement of claim to raise a claim for loss of bargain much earlier than it did and at a time when the third parties were still involved in the proceeding.
Whilst that argument has certain attraction to it, on reflection I am not satisfied that it is valid. I say that for these reasons.
This proceeding was originally filed in the Federal Court on 25 September 1996. The plaintiff must have known at that time and indeed since February 1996 when it agreed to purchase the business, that the net profit as shown in the 1995 profit and loss statement was $211,531. Why then did it not make its claim for loss of bargain at the outset.
The fact that the defendants had not made any admission of liability in relation to the falsity of the 1995 profit and loss account does not seem to me to have any bearing upon the matter.
The proceeding was fixed for trial on 1 June 1999 by order of Master Kings made on 10 November 1998 and at a time when the four third parties were still parties to the proceeding.
Why was no application made to raise such a claim at that time?
When the decision was made by the defendants that it was pointless to deny liability to the plaintiff's claim as it stood in April and May 1999, the prudent thing for them to do was to endeavour to resolve their dispute with the third parties thereby significantly reducing the length and thus the cost of the trial of the proceeding.
After all, in the final analysis if the plaintiff succeeded in demonstrating that by reason of the falsity of the 1995 profit and loss statement it had paid more for the goodwill of the business than the goodwill was worth, it would be the defendants who, in the first instance, would be required to disgorge the amount the plaintiff had overpaid.
As Tadgell, J. (as he then was) said in Geelong Building Society (In Liquidation) v. Encel (1996) 1 V.R. 594 at p.608:
"The case was heard in the commercial list. As is well known, that list is dedicated to the prompt, efficient and economical resolution of commercial disputes. Consistently with that philosophy applications to amend pleadings, once they are put in proper shape for a trial, are discouraged and are very sparingly allowed, especially after the trial has begun. The reasons for that attitude are manifest and notorious. Compromise of cases in the commercial list is necessarily encouraged and, without a healthy rate of settlements, the List could not function. Of course, no undue pressure is exerted in order to achieve settlements but the incentive to achieve them is not to be undervalued or undermined."
As any actions of significance in the Causes List, such as this proceeding, are now handled by the Court in much the same way as cases in the Commercial List, I consider that similar observations to those made by his Honour can be made in respect of them.
In my opinion to permit the plaintiff to raise a claim for loss of bargain at this late stage of the proceeding and after the defendants have released the third parties, would cause the defendants such prejudice that the amendment should not have been permitted.
The appeal in relation to that aspect of the Master's order is therefore allowed.
The order made by Master Evans on 21 March 2000 whereby the plaintiff was given leave to deliver a further amended statement of claim is varied by adding to that order the words "but save that such amended statement of claim shall not make any claim for damages for loss of bargain".
In the circumstances I order that the plaintiff file and deliver a further amended statement of claim so as to give effect to the order I have just pronounced within 28 days of this date.
Before parting with this proceeding I wish to make one observation concerning the claim that the plaintiff did make for loss of bargain.
I have very grave doubts concerning the validity of such a claim in any event. It would seem to me to be somewhat extraordinary that the plaintiff can make such a claim based upon figures which it well knows are false. However, as the matter was not debated before me it is not necessary that I form any concluded opinion in the matter and I do not do so.
I order that the plaintiff pay the defendants costs of the appeal including any costs reserved.
I grant to the plaintiff an appropriate certificate under the Appeal Costs Act in respect of its costs of the appeal and the costs of the appeal it is required to pay to the defendants.
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CERTIFICATE
I certify that this and the 6 preceding pages are a true copy of the reasons for judgment of Beach, J. of the Supreme Court of Victoria delivered on 5 May 2000.
DATED this 5th day of May 2000.
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