Kyle House Pty Ltd v ACN 000 016 213 Pty Ltd

[2007] NSWSC 470

CITATION:	Kyle House Pty Ltd v ACN 000 016 213 Pty Ltd [2007] NSWSC 470
HEARING DATE(S):	15/03/07
JUDGMENT DATE :	11 May 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Costs of interlocutory process to be costs in the cause
CATCHWORDS:	PROCEDURE - costs - application by plaintiff for leave to amend - amendment rendered futile after initiation of application and before application heard - whether plaintiff should have persisted beyond that point
CASES CITED:	Kyle House Pty Ltd v ACN 000 016 213 Pty Ltd [2007] NSWSC 224
PARTIES:	Kyle House Pty Ltd - Plaintiff ACN 000 016 213 Pty Ltd - Defendant
FILE NUMBER(S):	SC 4937/06
COUNSEL:	Mr G.M. Drew - Plaintiff Mr J.T. Johnson - Defendant
SOLICITORS:	Danny Sankey - Plaintiff Watson Mangioni Lawyers Pty Limited - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY, 11 MAY 2007

4937/06 KYLE HOUSE PTY LTD v ACN 000 016 213 PTY LTD

JUDGMENT

1 I am dealing with the question of costs in relation to the plaintiff’s application for leave to amend its statement of claim. That leave was refused on 15 March 2007: Kyle House Pty Ltd v ACN 000 016 213 Pty Ltd [2007] NSWSC 224.

2 The plaintiff’s application for leave to amend was pursued on the footing that a deed of company arrangement affecting the first defendant was in force. The amendment, if allowed, would have added a claim for an order having the effect of excluding the plaintiff from the operation of the deed of company arrangement.

3 Leave to amend was refused because it was shown that the deed of company arrangement was no longer in force – or, more precisely, because it had terminated. The termination occurred when Form 5056 was lodged with ASIC. That happened on 9 March 2007. The foundation upon which the proposed amendment rested was thereby destroyed.

4 It is noteworthy, however, that destruction of the foundation occurred some seventeen days after the filing of the plaintiff’s application for leave to amend and almost three months after the plaintiff’s solicitors had approached the defendant’s solicitors seeking consent to the amendment. That consent was first sought on or about 14 December 2006. The request was renewed by letters dated 23 and 31 January and 8 February 2007. On 9 February 2007, the defendant’s solicitors pointed to a need for the plaintiff to seek leave to amend. The defendant’s solicitors replied on the same day:

“It is necessary for the plaintiff to file a notice of motion only if your client does not consent to an order granting leave. Is your client refusing consent?”

5 On 12 February 2007, it was indicated in a telephone conversation that the defendant would not consent to the grant of leave. By letter dated 15 February 2007, the plaintiff’s solicitors sought reasons for the refusal to consent. There was no response to this and, on 20 February 2007, the plaintiff’s solicitors filed the interlocutory process seeking leave to amend. It was made returnable on 12 March 2007, being the day previously suggested by the defendant’s solicitors as suitable for a further directions hearing. Three days before that return date (that is, on 9 March 2007), the defendant’s solicitors informed the plaintiff’s solicitors that the deed administrators had that day lodged the Form 5056.

6 On the basis of this sequence of events, the plaintiff says that there was no good reason for the defendant to refuse consent to the amendment, at least until the point where its foundation was destroyed in the way I have described. That foundation existed when the plaintiff first sought consent on 14 December 2006 and, the plaintiff contends, there was then no good or valid reason to think that the amendment application would not succeed if the plaintiff were forced to pursue it.

7 The defendant, however, submits that the seeds of the destruction of the foundation of the application for leave to amend were sown when, on 20 December 2002, the deed administrators and the plaintiff entered into the deed referred to in the principal judgment as “the December deed”. It is pointed out that the December deed contained the following provision:

“Upon execution of this document, the Administrators will immediately effectuate the DOCA by paying a final dividend to creditors.”

8 From that point forward, the defendant says, the plaintiff must have known that the life of the deed of company arrangement was limited and that any actions taken by it on the footing of that deed’s continuation would soon prove futile. The plaintiff further says that the futility of continuing with the amended application was squarely put to the plaintiff’s solicitors on 9 March 2007. The defendant adds that, had it consented to the amendment when asked to do so, the amendment would still have become futile on 9 March 2007.

9 Against this background, each party submits that it should be given the benefit of a costs order in respect of the interlocutory process – the defendant on the basis that costs should follow the event; and the plaintiff on the basis that the plaintiff should have consented to the amendment when it was first proposed, it being beside the point that a subsequent event rendered the amendment futile.

10 There is a measure of substance in both these contentions. It is, however, significant that, according to the defendant’s solicitors, the defendant was not aware of the December deed until 9 March 2007. It may be inferred, therefore, that the defendant did not know of the deed administrators’ covenant to “immediately effectuate the DOCA” until they also became aware, on the day it happened, of the termination of the deed of company arrangement. It must follow that the defendant’s continuing refusal to consent to the grant of leave to amend was not, at least before 9 March 2007, the product of knowledge of the impending futility of the amendment.

11 Nor, in my view, was the deed administrators’ covenant necessarily to be understood by the plaintiff as carrying within it the seeds of that futility. Immediate “effectuation of the DOCA” by payment of a final dividend would not of itself have brought about termination of the deed of company arrangement.

12 My overall conclusion is that the plaintiff was justified in pursuing the application for leave to amend until 9 March 2007 but should then have recognised that there was no point in its continuing to press for amendment in the particular form. Furthermore, since the defendant (which, of course is quite separate from the deed administrators) apparently did not see the December deed or become aware of the lodgment of the Form 5056 until 9 March 2007, there was not, before that day, any real reason to think that the leave sought would be refused (it is to be noted here that the defendant’s resistance to the amendment application was based on the December deed – of which it first learned on 9 March 2007 – as well as the Form 5056 of that date). After 9 March 2007, however, the defendant was justified in resisting the application for leave to amend and the plaintiff should not have persisted with it.

13 In the circumstances, the appropriate outcome on costs of the interlocutory process is that they be costs in the cause. I so order.

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