Lockyer v Bermingham [No 2]

[2016] WASC 375

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   LOCKYER -v- BERMINGHAM [No 2] [2016] WASC 375

CORAM:   TOTTLE J

HEARD:   9 NOVEMBER 2016

DELIVERED          :   17 NOVEMBER 2016

FILE NO/S:   CIV 1726 of 2013

BETWEEN:   PHILLIP LOCKYER

Plaintiff

AND

MARY BERMINGHAM
First Defendant

BEPAD PTY TLD
Second Defendant

Catchwords:

Practice and procedure - Application for leave to amend pleadings - Defence - Particulars of defence - Turns on own facts

Legislation:

Nil

Result:

Application successful in part

Category:    B

Representation:

Counsel:

Plaintiff:     Mr J C Yeldon

First Defendant              :     Mr C Slater

Second Defendant         :     Mr C Slater

Solicitors:

Plaintiff:     Huggins Legal

First Defendant              :     Valenti Lawyers

Second Defendant         :     Valenti Lawyers

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

Nil

TOTTLE J: 

Introduction

1. These reasons concern an application brought by the defendants for leave to amend the amended defence filed and served by them on 3 March 2015.  The application was heard on 7 November and on 9 November I granted leave to make some amendments and refused leave in respect of others.  I said I would publish reasons for my decision and these are those reasons.  Leave is required because the trial of the action is due to commence on 16 November 2016.

Procedural background

1. There has been prolonged interlocutory skirmishing between the parties about the amended defence.  By an application brought by a letter dated 8 June 2016 the plaintiff sought orders to strike out particulars of various allegations pleaded in the defence.  In the hope that the strike out application might be resolved otherwise by argument, I directed that the defendants file a minute of further amended defence and a statement of issues facts and contentions.  The defendants filed and served a minute of proposed draft further amended defence on 23 August 2016 and a statement of facts issues and contentions on 7 September 2016. 

2. Unfortunately, neither of these documents resolved the plaintiff's concerns and following a hearing on 16 September 2016 I made an order striking out par 32(b)(iv) of the amended defence and gave the defendants leave to re-plead.  The plaintiff's application to strike out was otherwise unsuccessful. 

3. At the hearing on 16 September 2016, I expressed concerns about aspects of the amended defence, in particular concerns about the adequacy of the defendants' plea that the plaintiff's tax advisers were liable for the losses claimed by the plaintiff and in respect of which the defendants had invoked the various statutory provisions governing proportionate liability.

4. In accordance with a direction made by me, the defendants filed and served a further minute of proposed further amended defence on 19 September 2016. 

5. At a strategic conference held on 23 September 2016, the plaintiff made a number of criticisms of the further minute of proposed further amended defence.  The defendants' counsel agreed to make further amendments to proposed further amended defence in order to accommodate and resolve those criticisms.  I directed that the defendants file and serve a further minute on or before 24 October 2016 and adjourned the strategic conference to 2 November 2016.

6. The defendants filed and served a minute entitled 'Further Re Re Amended Defence' on 1 November 2016.  The result of the late filing and service of this minute meant that neither the plaintiff's counsel nor I had the opportunity to consider the minute before the strategic conference.  Consequently the defendants' application to amend the amended defence was adjourned for hearing on 7 November 2016.  In accordance with my further direction, the plaintiff's counsel filed and served a list of objections to the proposed amendments in point form. 

7. There is one further matter of background that is relevant to this application, and that is that, in accordance with standard trial directions made by me, each of the plaintiff and the first defendant has filed and served a witness statement setting out the evidence‑in‑chief he and she proposes to give at the trial.  The first defendant's witness statement was filed and served on 3 May 2016.

The nature of the claim

1. The plaintiff claims damages for losses he alleges he suffered from acting upon financial planning advice contained in two statements of advice provided by the defendants in 2007 and 2008 respectively.  The advice consisted of investment recommendations.

2. The essence of the plaintiff's claim is that the recommendations were premised on incorrect advice and/or erroneous assumptions about the plaintiff's tax liabilities arising from the grant of valuable share options to the plaintiff's wife by his employer and the subsequent exercise by her of those options.  The plaintiff alleges that he made a number of investments in reliance upon the 2007 and 2008 advice and suffered losses as a result of making those investments.

General observations

1. Before turning to the paragraphs of the proposed amended pleading to which objection is taken, I will make some general observations.

2. First, although the plaintiff's counsel submitted that the proposed amendments raised new facts or a 'new alternative case' not previously raised, in my assessment, the overall effect of the amendments is to amplify the existing defences as opposed to raising new defences.

3. Secondly, many of the proposed amendments involve the pleading of evidence and argument and little regard has been given to the distinctions between material facts and particulars and evidence.  In the exercise of my discretion as the case manager, I consider that it is more important to have a settled defence before the commencement of the trial than to have a pleading that observes the distinctions between material facts, particulars and evidence.  I acknowledge that these distinctions may be hard to draw.

4. Thirdly, there are a number of paragraphs of the proposed further amended defence that are expressed in terms that make it difficult to understand the true nature of the defendants' case.  In the course of argument, the defendants' counsel has explained the case that the defendants wish to run.  I have suggested to the defendants' counsel that further consideration be given to whether various paragraphs in the proposed further amended defence might be recast in clearer terms.  With one exception (being the proposed amendments to paragraph 20) however, I am prepared to allow the amendments proposed by the defendants notwithstanding my concerns about the opacity of some of the pleas because of the pressing requirement to have a defence finalised before the commencement of the trial. 

5. Fourthly, the plaintiff has raised numerous objections to the proposed amended pleading.  For reasons of brevity, I do not propose to deal with each objection but will confine these reasons to the major points raised by the application.

No affidavit explaining the delay in bringing the amendment application

1. The plaintiff contended that the defendants should explain the reasons for the delay in bringing the application to amend the amended defence.  In my view, having regard to the procedural history, no such affidavit is required.  This application has its origins in the skirmishing about the amended defence that began in early June 2016.  There have been several hearings at which amendments to the amended defence have been considered.  I am aware of the history that lies behind the application.

2. I now turn to the proposed amendments.

Paragraph 5

1. The defendants propose a large number of amendments to par 5 of the amended defence. 

2. It is necessary to say something about the plaintiff's pleading.  For the purposes of establishing a foundation for a plea that the defendants owed him a common law duty of care in pars 3 and 4 of the amended statement of claim the plaintiff pleads that, between 1999 and 2012, the defendants acted as his financial advisers and received fees for their services.  As a result of those matters, the plaintiff pleads in par 5 of the amended statement of claim that the relationship of the plaintiff and the first defendant was such that the first defendant knew or ought to have known that she was being trusted by the plaintiff 'with respect to his financial position and financial planning'.

3. The defendants do not admit par 5 of the amended statement of claim and, in answer to it, in their proposed further amended defence plead a large number of matters they contend are relevant to the assessment to be made of the relationship between the plaintiff and the defendants.  Those matters appear in 30 sub-paragraphs to par 5.  Most, if not all, of these sub-paragraphs paraphrase various paragraphs in the first defendant's witness statement supplemented in some instances with argumentative material.

4. In my assessment, the proposed amendments do not raise new allegations of fact that will prejudice the plaintiff.  In my view, the amendments should be allowed. 

Paragraphs 14 and 24

1. In par 14 and par 24 of the amended statement of claim the plaintiff alleges that he relied upon the 2007 and 2008 statements of advice to make investments in 2007 and 2008 respectively.  In par 14 and par 24 of the amended defence the defendants do not admit these allegations.  They plead that 'the plaintiff acted in reliance on his specialist taxation advisers in instructing [the second defendant] as pleaded'.  In par 14 and par 24 of the proposed further amended defence this pleading is supplemented by the addition of sub‑paragraphs that plead the investments the defendants say the plaintiff made in 2007 and 2008.

2. The plaintiff's first complaint concerns the failure by the defendants to identify with any precision how he acted in reliance on the tax advisers.  In the defendants' statement of facts issues and contentions they contended the 2007 investments were made 'on the advice of the tax advisors'. 

3. In the course of argument the defendants' counsel gave an explanation of this aspect of the defendants' case that I found difficult to follow.  My understanding of the explanation was that the alleged reliance on the tax advisors was indirect, that is, the tax advisers did not give any specific advice to the plaintiff on whether to make the investments but they provided information to the first defendant as to the plaintiff's tax position in light of the issue and exercise of the options upon which she relied in formulating her recommendations.  The defendants' counsel suggested that this was a minor aspect of the defendants' case. 

4. Although this sentence as it appears in par 14 and par 24 of the amended defence is not the subject of any application to amend, the plaintiff presses for an order that the allegation of reliance on the tax advisers be struck out as it is unsupported by particulars.  The plaintiff supports his application by references to earlier requests for particulars in relation to this plea that have gone unanswered.

5. I am troubled by this aspect of the defendants' pleading and, even though it is not the subject of an application to amend, I consider that the defendants should provide proper particulars of the allegation of reliance on tax advisers before the commencement of the trial.  I will direct that the defendants file and serve particulars specifying each fact relied upon by them to support the plea in par 14 of the amended defence that 'the plaintiff acted in reliance on his specialist taxation advisers' when giving the second defendant instructions to make the investments referred to in par 14 of the amended statement of claim.  I will make a direction in similar terms in respect of the like plea in par 24 of the amended defence.

6. The plaintiff's second complaint is that the defendants have pleaded that the plaintiff relied upon a stock broker in selecting shares to be purchased using share purchase/margin lending facilities that defendants recommended that the plaintiff enter into.  The plaintiff says that this is a new defence.  How the shares were selected is a subject dealt with by the first defendant in her witness statement.  The plaintiff has responded to the first defendant's evidence on this subject in a supplementary witness statement.  It is not an issue the resolution of which will determine the outcome of the claim.  Indeed, on one view, how the shares were selected is entirely irrelevant to the plaintiff's case. Even though I have some concerns about whether the proposed amendments raise an irrelevant and thus false issue, I am reluctant to prevent the defendants from agitating the issue at trial and will allow the amendment. 

Paragraph 19

1. Paragraph 19 of the amended statement of claim pleads that in the 2007/2008 financial year the plaintiff's wife exercised 200,000 options.  In pars 19A to 19D of the amended statement of claim the plaintiff pleads, in summary, that in response to a suggestion made by the first defendant, he, the plaintiff, asked the first defendant to obtain a second opinion about the tax treatment of the exercise of the options and that a second opinion in the form of oral advice given over the telephone by an accountant was obtained.

2. Paragraph 19 of the proposed amended pleading consists of a non‑admission of pars 19 to 19D of the amended statement of claim 'save for' various facts that are pleaded in sub-pars (a) to (f) and (i).  This approach to the pleading does not make for clarity as a number of admitted facts are not pleaded in pars 19 to 19D. 

3. The plaintiff's principal complaint is that the matters pleaded in sub‑pars (b) to (e) of the proposed amended pleading are not relevant to any aspect of the plaintiff's pleaded case.  The relevance of the contents of these sub‑paragraphs is not apparent to me, but they do not involve an expansion of the factual matrix, nor do they create any obvious prejudice to the plaintiff, and I will allow the amendments.

Paragraph 20

1. In the amended defence this paragraph comprised a plea to the effect that the defendants' investment recommendations were based on opinions or predictions about which the defendants held an honest belief based on reasonable grounds constituted by information provided by the plaintiff to the defendants.  By the proposed amendments, the defendants seek to expand the plea by giving more detail of the information that constituted the 'reasonable grounds', but the 'information' identified in the amended part of the paragraph appears to comprise the defendants' own materials rather than materials or information provided by the plaintiff or anyone associated with the plaintiff.  I am not prepared to allow the amendment in its present form.  Re‑drafting is required to make clear precisely what the defendants wish to allege.

Paragraphs 29 and 30

1. The plaintiff pleads that the 2007 and 2008 advices were based on erroneous assumptions about the plaintiff's tax liability in each of those years.  In the amended defence the defendants plead that the plaintiff knew of the erroneous assumption as he or his tax advisers knew or ought to have known of the correct position.  By the proposed further amended defence the defendants seek to supplement the plea in two respects.  First, the proposed amended pleading purports to give 'particulars of knowledge' and, secondly, the defendants raise alternative pleas. 

2. The proposed particulars of the plaintiff's actual knowledge do not constitute particulars of actual knowledge, and I will not allow the amendment.  The proposed particulars of the specialist tax advisers' knowledge are no more than a repetition in a marginally more detailed manner of existing pleading and they do not justify the appellation 'particulars of knowledge' and I will not allow the amendment.

3. The proposed additional alternative plea in par 29 is to the effect that the assumption on which the 2007 advice was based was itself based on information provided to the defendants by the plaintiff and his advisers and it was reasonable for the defendants to rely upon that information.  The plea is not entirely easy to follow, but the substance of the case the defendants raise is tolerably clear and follows on from the matters that the defendants seek leave to add to par 5 of the amended defence.  The defendants wish to amend par 30 of the amended defence to raise a similar allegation in relation to the assumption on which the 2008 advice was allegedly based.  I will allow that amendment.

4. In addition, the defendants seek to amend par 30 of the defence to plead that if the basis for the 2008 advice was incorrect, then it was based on advice provided by the accountant whom the second defendant's staff consulted in 2008.  This plea involves a recasting of the facts pleaded in the amended defence and a reliance on advice from the accountant in a different context, but it does not raise new factual issues and I will allow the amendment.

Paragraph 31

1. In response to the plaintiff's pleas to the effect that by providing the 2007 and 2008 advices the defendants had engaged in misleading conduct contrary to various statutory prohibitions the defendants pleaded, in par 31 of the amended defence, that the plaintiff or his tax advisers knew of the correct position.  In this paragraph of the proposed further amended defence the defendants refer to the particulars of knowledge given under par 29.  For the reasons I have given in relation to those particulars of knowledge in the context of par 29, I will not allow this amendment.  By the proposed amendments the defendants also seek to expand par 31 to include a plea to the effect that they relied upon information provided to them by the plaintiff's tax advisers.  I will allow that amendment.

Paragraph 32(b)(iv)

1. In par 32 of the amended defence the defendants denied that the plaintiff suffered loss and damage, but said that if he did, then he must credit against any such damage the benefit received by him from having acted on the defendants' advice, including 'the benefits received by the clients as a result of the defendants' advice'. 

2. For reasons given by me on 16 September 2016, I struck out par 32(b)(iv) of the amended defence and granted the defendants leave to re‑plead. 

3. The defendants' proposed further amended defence contains a new par 32(b)(iv) that asserts that the plaintiff must give credit for the benefits flowing to him, his wife and his superannuation trustee as a result of following the advice given by the defendants in 2005 and the 2007 advice, which the defendants contend included the acquisition of shares following the exercise of the options and the net proceeds of the sale of such shares.  The defendants contend that the net proceeds were used for the following purposes: to pay tax; to establish a family trust; to pay for various private expenses; and to make contributions to the plaintiff's superannuation fund.  These monies so expended are not quantified in the proposed further amended defence.  The proposed plea is an improvement on the former par 32(b)(iv) because it identifies with a greater level of specificity the benefits that the defendants say must be credited against the plaintiff's claims for losses albeit that there is still no quantification.

4. I have reservations about whether the plaintiff must off-set these alleged benefits against his claim for damages as the defendants contend, but this is an issue that should be resolved at trial.  Thus, I am prepared to allow the amendment, but on the basis that the defendants provide particulars specifying the amounts of the credits that they say the plaintiff should give and how those amounts have been calculated.  I will order that the defendants file and serve particulars specifying the amounts by which they allege the plaintiff has benefited by reason of the matters alleged in sub-pars 1 and 2 of par 32(b)(iv) of the further amended defence and, as is required, stating how those amounts have been calculated.

Paragraph 33

1. In par 33 of the amended defence the defendants pleaded that 'the plaintiff with his specialist taxation advisers are concurrent wrongdoers and the claim is an apportionable claim ...'.  The defendants did not plead out the facts relied upon in support of this plea.  In the proposed further amended defence an attempt has been made to remedy this omission by adding 'Particulars of basis for apportionment to specialist tax advisers'.  Under the heading of these particulars the defendants have set out the matters upon which they rely to support the concurrent wrongdoer plea.  Amongst other things, the defendants plead in particular (ii) that the 'relationship between the plaintiff and the specialist taxation advisers 'gave rise to a duty to take reasonable care'.  The plaintiff's complaint is that the use of the word 'relationship' means that the plea is vague and uncertain.  I agree with the substance of the complaint.  I will, however, allow the amendment but on the basis that the defendant provide particulars of all facts and matters alleged to be encompassed by the word 'relationship' in particular (ii) under par 33. 

1. The plaintiff had other complaints of a more minor nature that were not controversial and which the defendants' counsel agreed to address by minor refinements to the wording of the particulars to par 33.