Locke v Lepple Pty Ltd - [2009] WADC 60

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: LOCKE -v- LEPPLE PTY LTD [2009] WADC 60

CORAM: STEVENSON DCJ

HEARD: 15 APRIL 2009

DELIVERED : 16 APRIL 2009

FILE NO/S: CIV 987 of 2006

BETWEEN: MAXWELL THOMAS LOCKE
Plaintiff
AND
LEPPLE PTY LTD
Defendant

Catchwords:

Practice - Application for leave to amend statement of claim - Delay - Adequacy of proposed pleadings - Prejudice to parties - Application of positive case management principles

Legislation:

District Court Rules 2005, r 15
Rules of the Supreme Court 1971, O 1 r 4A, r 4B

Result:

Application allowed in part

Representation:

Counsel:

Plaintiff: Mr P A Kyle
Defendant: Mr A P S Hershowitz

Solicitors:

Plaintiff: Kyle & Company
Defendant: Griffiths & Godecke

Case(s) referred to in judgment(s):

Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82
Grljusich v Grljusich, unreported; SCt of WA; Library No 930253; 6 May 1993
Lepple Pty Ltd v Locke [2007] WASCA 170
Locke v Lepple Pty Ltd [2007] WADC 7
Tony Sadleir Pty Ltd v McLeod Nominees Pty Ltd (1995) 13 WAR 323

STEVENSON DCJ:

Introduction

This is an appeal by the plaintiff against a decision made by learned Deputy Register Harman on 19 February 2009 when he refused the plaintiff leave to amend his statement of claim in terms of a minute of amended statement of claim dated 23 October 2008.
The appeal is brought pursuant to r 15 of the District Court Rules 2005. This rule provides that a party dissatisfied with a decision of a Registrar may appeal to a Judge of the court.
It is common ground that the appeal is a hearing de novo, that is the matter is heard afresh and a decision is given on the evidence presented on the hearing of the appeal.
The plaintiff filed an outline of submissions and other relevant documentation all dated 3 April 2009 and relied on the plaintiff's affidavit sworn 23 October 2008 in support of the application for leave to amend the statement of claim.
The defendant filed submissions in opposition to the plaintiff's appeal filed 14 April 2009.
In the course of submissions both parties referred to and relied upon earlier affidavits filed in the proceedings.
On 23 October 2008 the plaintiff filed a chamber summons seeking leave to amend the statement of claim in terms of a minute of amended statement of claim also dated 23 October 2008.
The plaintiff's claim arises out of an oral agreement made by the plaintiff for Locke Holdings Pty Ltd ("Locke Holdings") and Mr Daniel Jones on behalf of the defendant on or about 27 June 2001. The agreement is evidenced by a letter signed by the plaintiff on behalf of Locke Holdings to Progressive Insurance Brokers (attention Mr Dan Jones) dated 3 September 2001 (affidavit of Daniel Jones sworn 18 August 2006, p 28).
I note both parties have pleaded the material terms of the agreement differently, but the essence is that the plaintiff agreed to purchase the goodwill of Locke Holdings including the particulars of its clients and other intellectual property on the basis that the purchase price would be an agreed percentage of the annual commissions payable for the financial years of 2002, 2003 and 2004 for insurance policies arranged by the defendant for the former clients of Locke Holdings. The percentage of the annual commissions payable is 70 per cent, 50 per cent and 30 per cent respectively.
As the pleadings presently stand the issues in the litigation are summarised by Muller DCJ in pars 2 and 3 of his reasons for decision at Locke v Lepple Pty Ltd [2007] WADC 7 (also reproduced by Buss JA at par 2 of his reasons for decision in Lepple Pty Ltd v Locke [2007] WASCA 170.
By its proposed amendments the plaintiff seeks to plead the implication of two terms which it says the defendant breached and as a result the plaintiff claims to have suffered loss and damage. Both implied terms are said to be necessary to give business efficacy to the agreement having regard to the relevant facts referred to in the particulars.
By par 3A the plaintiff seeks to plead an implied term of the agreement that the defendant would maintain records relevant to the basis for and calculation of the annual commissions said to be payable by the defendant to the plaintiff, to inform Locke Holdings of the insurance policies arranged by the defendant for the former clients of Locke Holdings and to allow Locke Holdings to inspect the defendant's records relating to the relevant clients and the renewal or failure to renew the existing insurance policies.
Further and separately, by par 3B the plaintiff seeks to plead an implied term of the agreement that the defendant would "use its best endeavours to maximise the commissions which might be earned by it" in respect of the insurance policies of the former clients of Locke Holdings during the years ending 30 June 2002, 2003 and 2004.
The need for and basis of the implication of the proposed terms for the purpose of business efficacy is outlined by the plaintiff in his affidavit sworn 23 October 2008. In summary, the plaintiff says that without the implication of the proposed terms set out in par 3A and par 3B the plaintiff has no way of knowing or ascertaining what insurances have been arranged by the defendant for the former clients of Locke Holdings in the relevant year.
The plaintiff says that the position is aggravated by the fact that the defendant has destroyed some of the relevant records relating to the insurances of the former clients of Locke Holdings. I say some because the evidence is that the defendant scanned the records and kept the information electronically of the former clients who did renew their insurance policies through the defendant, but not the records of those who did not. I note the evidence is that the parties were in dispute before the end of the 2001 about payments allegedly due under the agreement. It is therefore surprising, to say the least, that the defendant did what it did, presumably without obtaining legal advice. The plaintiff asserts that the need for and cause of the proposed amendments arises out of this action by the defendant. I will return to the timing of the plaintiff's knowledge of the destruction of the records in a moment.
Both counsel accepted in the course of submissions that it was only necessary for the plaintiff to satisfy the Court that from a pleading viewpoint the implication of the proposed implied terms was arguable. Obviously whether or not the plaintiff is successful in establishing the implication of the proposed terms is a matter for the trial Judge based on the evidence and argument at that time.
I note that in the course of submissions the plaintiff's claim was discussed on the basis that the annual payment was to be calculated on the renewal of insurance policies of the former clients of Locke Holdings which were in place as at 30 June 2001 and renewed in the relevant following year over the three year period. On further reflection it may be that the plaintiff in par 3(ii) of the statement of claim intends to catch a "wider net", namely the annual commissions payable in the relevant year in respect of any insurance policies arranged by the defendant for any former client of Locke Holdings. That is, it may not be limited to the renewal of existing policies. This was not canvassed in submissions.
However in the course of submissions the plaintiff's proposed par 3B was discussed on the basis that I raised a concern that the defendant should be entitled to know in respect of each of the former clients (all 288) which allegedly did not renew their insurance policies what action the defendant should have taken in order to fulfil its alleged obligation to use its best endeavours "to maximise the commissions". For example, does the obligation extend to requiring the defendant to do more than perhaps write a letter of reminder to the client or does it require the defendant to visit in person the client – how far is the defendant required to go in order to comply with its alleged obligation to use best endeavours. Presumably the obligation will vary depending on the nature of the client, the value of the insurance commission from the policy, the location of the client and no doubt many other factors peculiar to each client.
The plaintiff's affidavit of 23 October 2008 sets out the background and circumstances giving rise to the application for leave to amend the statement of claim. It is plain from the affidavit that following completion of an analysis by the plaintiff of the defendant's discovery and the defendant's further and better particulars of defence dated 25 June 2008 that the plaintiff formed the view based on this material and on documents in his own possession that "at least 288 former clients of Locke Holdings, who had insurance in the year ending 30 June 2001 are not recorded by the defendant as having renewed their insurances or entered into new contracts of insurance through the defendant in any one of the years ending 30 June 2002, 2003 or 2004" (par 4).
In par 3 of the affidavit the plaintiff expresses the opinion that based on his analysis he "found that the records of 288 former clients of Locke Holdings Pty Ltd ("Locke Holdings") have been destroyed by the defendant".
Mr Daniel Jones in his affidavit sworn 12 May 2008 on behalf of the defendant explains in detail the circumstances in which the defendant destroyed the records and documents of the former clients of Locke Holdings. In short the defendant maintains an electronic filing system and upon scanning the files of the clients of Locke Holdings who renewed their policies of insurance through the defendant's brokerage during the year ending 30 June 2002 it then shredded all of Locke Holdings' files including those scanned and those not scanned.
Further, Mr Jones deposes in the affidavit that the plaintiff handed over the files relating to Locke Holdings then current clients after the agreement in June 2001 had been concluded. It seems that the agreement could only ever have been in respect of those clients on the basis that Mr Jones deposes that the defendant was not given a comprehensive list of the clients of Locke Holdings for any period preceding the agreement (pars 11 and 14).
The plaintiff relies heavily on the defendant's destruction of documentation as the basis for justifying its application for leave to amend the statement of claim. However, with respect, it seems to me that there is no reason why the plaintiff could not have pleaded the implication of the proposed implied terms at the commencement of the proceedings. This observation applies more in respect of proposed par 3B which if allowed and if the plaintiff was successful at trial in respect of any former clients would give rise to additional damages being payable by the defendant which would not have been caught by the plaintiff's initial claim. It arguably gives rise to an additional claim and basis for recovery of damage from the defendant.
Subject to the adequacy of the proposed amendments from a pleading viewpoint, in my opinion, it is arguable that both implied terms might be said to arise as a matter of business efficacy from the agreement between the parties. As mentioned, whether or not this is the case is something which would need to be determined at trial but for present purposes it is sufficient that there is an arguable basis for the implication of the proposed terms. In my view, for present purposes concerning the application for leave to amend, there clearly is an arguable case in respect of par 3A.
However, the position in relation to par 3B is far less clear and points up the contradistinction between an agreement where the defendant merely agrees to take the benefit of the existing "insurance roll" of Locke Holdings and an agreement where it undertakes an obligation to invest time and resources in maintaining, developing and increasing the commissions obtainable from the former clients of Locke Holdings.
The plaintiff's application for leave to amend must also be determined on the basis of the adequacy of the proposed amendments from a pleading viewpoint and whether the prejudice to the defendant is so overwhelming that it should not be permitted in the exercise of the Court's discretion. There is also another relevant consideration and that is the need to determine whether the proposed amendments should be allowed having regard to caseflow management principles and the objects stated in O 1 r 4A and r 4B Rules of the Supreme Court 1971. There is also a need to give consideration to the public interest. In these respects the defendant relies on Tony Sadleir Pty Ltd v McLeod Nominees Pty Ltd (1995) 13 WAR 323.
From a pleading perspective in my view proposed par 3A is adequate and sufficiently clear in its terms, although I note no breach of par 3A(b) is pleaded in par 6A.
However, in my opinion, as mentioned, par 3B if permitted will open up a line of inquiry in respect of each of the 288 former clients of Locke Holdings and a factual inquiry as to why, and the reasons for, non‑renewal or arrangement of any other policy of insurance with the defendant. In my view the content or extent of the best endeavours obligation may vary from client to client.
Assuming the plaintiff was able to provide particulars of the best endeavours in respect of each client it contends that the defendant should have used, then it will be necessary for the defendant to make inquiries of and presumably even possibly issue subpoenas to each of the 288 clients (on the assumption their identity is specified by the plaintiff). The relevant period of inquiry concerns the financial year 1 July 2001 to 30 June 2002 and thereafter for a further two years in respect of each former client who did not renew or take out other insurance policies through the defendant.
In my view such an inquiry at this late stage in these proceedings which were commenced on 25 May 2006 would cause irreparable prejudice to the defendant from a costs viewpoint and forensic viewpoint.
The plaintiff says that any prejudice suffered by the defendant is a direct result of its own actions, namely the destruction of the relevant files which on the evidence appears to have occurred in the period July 2001 to about 2005: affidavit of Daniel Jones sworn 19 March 2007, par 5. The plaintiff says that on receipt of this affidavit in March 2007 this was the first time the plaintiff became aware that the defendant had destroyed files and documents relevant to the issues between the parties. Even if the documentation had not been destroyed the defendants own business records and minutes of meetings and diaries would all potentially be caught by the wide scope of the factual inquiry that would be opened up at great cost and time – so the amendment proposed by par 3B goes further just the documents and records of Locke Holdings. It would cover the reasons why the defendant did not do "A or B" in respect of each of the 288 former clients sought be inquired into by the plaintiff.
I am told by the plaintiff's counsel and accept that on the plaintiff's realisation that the defendant had destroyed the documentation attempts were made by administering interrogatories and requesting particulars to ascertain relevant information and details. But the fact remains that the plaintiff did not until October 2008, over 18 months later, make an application for leave to amend the statement of claim.
In weighing whether to grant belated amendments the Court will consider not only prejudice to the applicant but prejudice to the public interest and prejudice to the opponent. The prejudice to the applicant of the refusal of leave does not predominate over prejudice to the public interest and the opponent: Seaman J in Tony Sadleir Pty Ltd v McLeod Nominees Pty Ltd (supra) at p 334 where his Honour refers to Grljusich v Grljusich, unreported; SCt of WA; Seaman J; Library No 930253; 6 May 1993.
In the course of submissions I endeavoured to ascertain the extent of the prejudice to the plaintiff if the application for leave to plead par 3B is refused. This is a relevant consideration in considering prejudice to the parties. I accept that subject to the principles which govern the courts exercise of its discretion to allow late amendments, generally parties should be allowed to amend their pleadings to allow all the issues to be properly defined and ventilated at trial. In response to my inquiry I was directed to par 6B of the proposed amendments which pleads that the plaintiff is unable to quantify the amount of damage suffered as a result of the alleged breach by the defendant. In the course of submissions the figure of $99,835 referred to in par 6B(a) of the statement of claim was referred to, being the amount of commissions admitted by the defendant to have been earned by it on insurance policies arranged by it for former clients of Locke Holdings during the year ended 30 June 2002.
There is no evidence of the amount of commissions the plaintiff says was separately payable by the 288 clients. It is not clear whether this information will ever be known with certainty given the destruction of the records of Locke Holdings by the defendant. Regard, however, to the issue is, perhaps found, in the plaintiff's claim for damages on the basis that it seeks 150 per cent on the difference between the commissions earned by Locke Holdings during the year ended 30 June 2001 and the commissions alleged by the defendant to have been earned during the year ending 30 June 2002, being the sum of $149,750.
In my view the prejudice to the plaintiff of not being allowed to amend its statement of claim at this late stage of the proceedings is not significant having regard to the cost that both parties will incur if the amendment is allowed. This view assumes that the plaintiff will in any event be able to provide proper particulars of the "best endeavours" relied upon in respect of each of the 288 former clients which in my view is necessary to enable the defendant to know the case it must meet in respect of each of those clients. I am not persuaded it is necessarily a matter of expert evidence in a generic sense. The plaintiff has not satisfied me that his prejudice if the amendment is not allowed is off a magnitude which will approach the possible benefit to of allowing him, and that this might approach anywhere near the prejudice that the defendant will suffer.
The defendant will obviously be prejudiced by cost and delay if the proposed par 3B is allowed to stand (even though in my opinion it is not pleaded sufficiently to allow the defendant to know the case it must meet at trial).
There will also be prejudice to the public interest caused by the delay it will cause to the timely conclusion of these proceedings. I note that the action was commenced in May 2006, and that the parties and their legal advisors have not yet achieved a point where the matter has been for trial. The delays to date in this matter are the antithesis of the positive case flow management principles which must be called in aid by the courts when the need arises to ensure the objects set out in O 1 r 4A and r 4B Rules of the Supreme Court 1971.
In my view the plaintiff's delay has been too lengthy to allow the statement of claim to be amended to include par 3B having regard to the caseflow management principles which must be applied by the Court and which practitioners are now fully familiar with: see Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82. I would observe that that decision, which is relied upon by the plaintiff in this case, concerned a request for further and better particulars of a pleading. In my view having regard to what Martin CJ said in that case par 3B does not properly identify the issues and apprise the defendant of the case that it has to meet in respect of the matters sought to be raised.
It was accepted by the plaintiff that pars 3A and 3B might stand or fall independently of each other. The prejudice which the defendant will suffer and taking into account caseflow management principles including delay to the proceedings and potential length of trial, and weighing the prejudice to both parties, in my view, admits to the possibility of a different disposition.

The issues to be raised by par 3A do not require any new factual inquiry and would cause little prejudice to the defendant if permitted. None has been identified.
In summary, I would allow the plaintiff to amend the statement of claim to include par 3A but not par 3B.
Paragraph 3B as presently pleaded is ambiguous and uncertain and even if particulars were provided, the prejudice to the defendant at this late stage in these proceedings is so great that in my view it should not be permitted to stand.
As a result of my determination it will be necessary for the plaintiff to make consequential amendments to the minute of proposed amended statement of claim dated 23 October 2008 and I would allow the plaintiff to do so in accordance with and having regard to the reasons for this decision.
Finally, I would observe that I have not concerned myself with the reasons for decision of the learned Registrar as both parties agreed that the matter could be argued and resolved without the need to do so.
I will hear the parties as to the appropriate orders.