LK Law Pty Ltd v Karas (No 3)

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FEDERAL COURT OF AUSTRALIA

LK Law Pty Ltd v Karas (No 3) [2023] FCA 1464

File number(s): SAD 222 of 2021
Judgment of: O'SULLIVAN J
Date of judgment: 24 November 2023
Catchwords: PRACTICE AND PROCEDURE – application by the respondents for leave to withdraw a plea – r 26.11(2) of the Federal Court Rules 2011 (Cth) – whether the plea benefits the applicants – whether the plea was made in error – to what extent are the applicants prejudiced by the withdrawal of the plea – where leave granted to withdraw plea.
Legislation:

Corporations Act 2001 (Cth), ss 181, 182 and 183

Evidence Act 1995 (Cth), s 135(a)

Federal Court of Australia Act 1976 (Cth), ss 37M and 37N

Federal Court Rules (2011), rr 16.01(c), 26.11(2)

Partnership Act 1891 (SA), s 2(1)(c)

Uniform Civil Procedure Rules 2005 (NSW), rr 12.6(1) and (2)
Cases cited:

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175

Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214

Celestino v Celestino [1990] FCA 449

Chiu v Sheh [2021] NSWSC 19

Clough & Rogers v Frog (1974) 48 ALJR 481

Cropper v Smith (1884) 26 Ch D 700

Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309; 204 ALR 327

Juno Pharmaceuticals v Millennium Pharmaceuticals Inc [2019] FCA 526

Karas v LK Law Pty Ltd and Ors [2023] FCAFC 15; (2023) 296 FCR 39

Khouri v National Australia Bank limited [2007] NSWSC 987

Langdale & Anor v Danby [1982] 1 WLR 1123

LK Law Pty Ltd v Karas [2022] FCA 762

Nanevski Developments Pty Ltd v Slaveski [2020] NSWSC 617

Quirk v Suncorp Portfolio Services Ltd in its capacity as trustee for the Suncorp Master Trust [2022] NSWSC 398

Rochecoust v Tasman Rope Access Pty Ltd (No 2) [2021] FCA 1161

Selvaratnam v St George (No 2) [2021] FCA 486

Sergi v Sergi [2019] NSWSC 865

Tamaya Resources Ltd (in liq) v Deloitte Touche Tomatsu [2016] FCAFC 2; (2016) 332 ALR 199

W R Carpenter Holdings Pty Limited v Commissioner of Taxation [2008] HCA 33
Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 147
Date of last submission/s: 10 November 2023
Date of hearing: 2 November 2023
Counsel for the Applicants: Mr B Roberts KC with Mr T Besanko and Ms H Doyle
Solicitor for the Applicants: Kerrs
Counsel for the First, Second and Third Respondents: Mr A Sullivan KC with Dr G O’Mahoney
Counsel for the Fourth Respondent: Ms A Well
Solicitor for the Respondents: Piper Alderman

ORDERS

SAD 222 of 2021
BETWEEN:

LK LAW PTY LTD

First Applicant

SCIPIO JOHN LIPMAN

Second Applicant

LIPMAN FAMILY PTY LTD (ACN 627 125 580)

Third Applicant
AND:

JASON DEMETRIOS KARAS

First Respondent

J & A KARAS PTY LTD

Second Respondent

KARAS LLP (and another named in the Schedule)

Third Respondent

ORDER MADE BY:

O'SULLIVAN J

DATE OF ORDER:

24 NOVEMBER…

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Details
Case
[2023] FCA 1464
Decision Date

CaseChat Overview and Summary

In the case of LK Law Pty Ltd v Karas (No 3), the respondents sought leave to withdraw a plea from their amended defence in the Federal Circuit and Family Court of Australia. The nature of the dispute involved the respondents' desire to retract a specific plea related to a contractual arrangement, which they claimed was made in error. The applicants, LK Law Pty Ltd, opposed this withdrawal, arguing that it would prejudice their case. The court had to decide whether the respondents' plea was genuinely made in error and if its withdrawal would unfairly prejudice the applicants.

The legal issues at hand centred on the conditions under which the court may grant leave to withdraw a plea under rule 26.11(2) of the Federal Court Rules 2011 (Cth). The court had to assess whether the plea offered any benefit to the respondents, whether the plea was made in error, and the extent to which the applicants would be prejudiced by the withdrawal of the plea. Additionally, the court considered objections raised by the applicants regarding the admissibility and sufficiency of the evidence provided by the respondents to explain the error.

The court ruled in favour of granting the respondents leave to withdraw the plea. The judge acknowledged the respondents' explanation for the error and deemed it sufficient for the purposes of the application. The judge found that while the respondents' evidence was not perfect, it was admissible and sufficient to establish that the error was made. The court also considered that the benefit to the respondents in withdrawing the plea outweighed the prejudice to the applicants. Consequently, the court concluded that it was in the interests of justice to allow the respondents to withdraw the plea. However, the court noted that the applicants had not yet indicated whether they accepted the proposed new plea, and thus further orders would be determined after the applicants had an opportunity to consider the new plea.

Orders

Orders of the court

1. By on or before close of business on Wednesday 29 November 2023, the parties are to provide draft minutes of order giving effect to these reasons.

2. Liberty to apply on short notice.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Alternatively, the applicants submit that the Court should exercise its discretion to exclude the evidence of Mr Grieve pursuant to s 135(a) of the Evidence Act 1995 (Cth). That provision provides that the Court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party. The applicants submit that Mr Grieve’s evidence is vague in so far as it does not disclose either the words used by Mr Karas or the effect of what Mr Karas said such that it is unfairly prejudicial to the applicants. I do not accept these submissions. Whilst the matters to which Mr Grieve at [6]-[9] of his second affidavit are undoubtedly hearsay, that evidence is admissible on the hearing of an interlocutory application. I do not accept that Mr Grieve is deposing as to his subjective understanding of his instructions. In [5] of his second affidavit, Mr Grieve deposes to his instructions by reference to the substance of the conversation with Mr Karas. Although it would have been preferable for Mr Grieve to have used direct speech, nonetheless Mr Grieve deposes to the effect of what Mr Karas told him. I overrule the objection on this first ground. The second ground is that the affidavit is from Mr Grieve and not Mr Karas and therefore contrary to the Full Court in Tamaya Resources Ltd (in liq) v Deloitte Touche Tomatsu [2016] FCAFC 2; (2016) 332 ALR 199 at [155] (Gilmour, Perram and Beach JJ) where in reference to a delay in making an amendment, the Full Court said that an explanation is required from the moving party and not merely their solicitor or counsel. There is no reason advanced why Mr Karas could not have sworn an affidavit in Hong Kong and provided it to Mr Grieve for filing or annexing it to an affidavit of Mr Grieve. I agree that the statement of principle in Tamaya is equally applicable to an amendment made as a result of an error although its significance will vary with the circumstances. Nonetheless, the objection goes to weight and not admissibility. The weight to be afforded to the affidavit of a party swearing an affidavit as opposed to that party’s solicitor or counsel will vary with the particular circumstances under consideration but the fact a solicitor or counsel swears an affidavit and not the client is a factor to be considered in the exercise of the discretion. I overrule the objection on this second ground. Third, the applicants submit the evidence given by Mr Grieve is neither responsive to the leave given by the Court nor sufficient to discharge the respondents’ onus of providing an explanation for the making of the error. I do not accept that submission. The explanation does not need to explain the error at the time the plea was made. An error may be discovered or realised as a result of subsequent matters coming to the attention of a party. Further, the objection goes to weight and not admissibility. I overrule the objection on this third ground. Fourth, the applicants refer to a letter by Mr Grieve to the applicants’ solicitors annexed to the second Day affidavit which the applicants seek to read on the application. Again, the complaints by the applicants are matters which go to the weight I should afford to the second Grieve affidavit.I do not consider the matters raised by the applicants in this fourth ground are such that the second Grieve affidavit should not be read on the application and I overrule the objection on this fourth ground.

Decision

Reasons for decision

As to the plea contained in [31(a)] of the amended defence, the applicant accepted that amendment will stand or fall with the application for leave to withdraw the contractual plea.CONCLUSION In view of the matters I have set out, I consider it to be in the interests of justice to grant leave to the applicants to withdraw the contractual plea. However, I am not prepared to allow the applicants to file the further defence with [22] in its current form. As I have noted previously, the plea in [22(e)] that the allocation of further dividends as agreed by Mr Karas and Mr Lipman was voluntary is vague. That being the case, after I had reserved judgment, I provided an opportunity to the respondents to explain what is meant by the word “voluntary” in the context in which it is used and to provide a further draft pleading which clarifies that ambiguity. The respondents have taken that opportunity but the applicants have not yet indicated if the proposed new [22] is acceptable to them. I will give them the opportunity to consider their position in light of my decision. There will be an order granting leave to the respondents to withdraw the plea in paragraph 22 of the amended defence that the arrangement for the sharing of profits was “contractual”. In view of the other difficulties with paragraph 22 I have identified, I will hear the parties as to any further orders.

Ratio Decidendi

Legal Principle Established

Case management principles are also relevant. I deal with those matters later in these reasons.The parties’ submissions and consideration The respondents read or refer to:(a)The affidavit of Jason Demetrios Karas sworn 11 March 2022, filed 15 March 2022 (Karas injunctions affidavit);(b)The affidavit of Jason Demetrios Karas, sworn 29 September 2023 (Karas trial affidavit);(c)The affidavit of Gordon Grieve sworn 25 October 2023 (first Grieve affidavit); and(d)The affidavit of Scipio John Lipman sworn 31 July 2023 (Lipman trial affidavit). The applicants read the affidavit of Nathan Peter Day sworn and filed 27 October 2023 (first Day affidavit).The reason for the error The respondents submit that the contractual plea was made in error. The authorities are clear that an explanation as to how the contractual plea was made in error needs to be provided. The affidavits upon which the respondents read and rely do not address that issue directly. In particular, the first Grieve affidavit is silent on the point. Under those circumstances, after I had reserved judgment I provided a further opportunity for the respondents to file affidavit evidence explaining how it is that the error occurred. On 8 November 2023, the respondents filed and served the affidavit of Gordon Grieve sworn that day (second Grieve affidavit) in which Mr Grieve deposes to Mr Karas’ instructions at [6]-[9]. On 10 November 2023, the applicants filed a responding affidavit of Nathan Peter Day sworn 10 November 2023 (second Day affidavit). Mr Grieve deposes in the second Grieve affidavit that he spoke with Mr Karas by telephone on 7 November 2023 for the purposes of taking instructions as to how the “error” in making the contractual plea occurred. Although not stated, as I understand the position, Mr Karas is in Hong Kong and I infer that is the reason why Mr Grieve spoke to Mr Karas on the telephone. The applicants object to the Court receiving [6]-[9] of the second Grieve affidavit on a number of grounds. First, instead of providing a direct account of Mr Karas’ statements to him, whether in the form of direct speech or words to the effect of what Mr Karas said, Mr Grieve states his understanding of the overall effect of the instructions received by him from Mr Karas on 7 November 2023. Whilst accepting hearsay evidence is admissible on the hearing of an interlocutory application, the applicants submit that Mr Grieve deposes to his subjective understanding of his instructions and does not depose to what Mr Karas said to him was the reason for the respondents seeking to withdraw the contractual plea. Alternatively, the applicants submit that the Court should exercise its discretion to exclude the evidence of Mr Grieve pursuant to s 135(a) of the Evidence Act 1995 (Cth). That provision provides that the Court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party. The applicants submit that Mr Grieve’s evidence is vague in so far as it does not disclose either the words used by Mr Karas or the effect of what Mr Karas said such that it is unfairly prejudicial to the applicants.