Management 3 Group Pty Ltd (in liq) v Lenny's Commercial Kitchens Pty Ltd (No 1)
[2011] FCA 662
•18 April 2011
FEDERAL COURT OF AUSTRALIA
Management 3 Group Pty Ltd (in liq) v Lenny’s Commercial Kitchens Pty Ltd (No 1) [2011] FCA 662
Citation: Management 3 Group Pty Ltd (in liq) v Lenny’s Commercial Kitchens Pty Ltd (No 1) [2011] FCA 662 Parties: MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036) and ANDREW REGINALD YEO AND GESS MICHAEL RAMBALDI (AS LIQUIDATORS OF MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036) v LENNY'S COMMERCIAL KITCHENS PTY LTD (ACN 009 044 295) and SINO IRON PTY LTD (ACN 058 429 708) File number: VID 350 of 2009 Judge: DODDS-STREETON J Date of judgment: 18 April 2011 Catchwords: PRACTICE AND PROCEDURE – Pleadings – Statement of claim – Application to amend after parties’ cases closed – Principles applicable to grant of leave to amend Legislation: Federal Court Rules (Cth) O 13 Cases cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 considered
Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 cited
Miller v Cameron (1936) 54 CLR 572 cited
State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 citedDate of hearing: 18 April 2011 Date of publication of reasons: 10 June 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 24 Counsel for the Applicants: Mr F Tiernan SC Solicitor for the Applicants: Russell Kennedy Counsel for the First Respondent: Mr A Segal Solicitor for the First Respondent: DLA Phillips Fox Counsel for the Second Respondent: Mr J Digby QC with Mr N Hopkins Solicitor for the Second Respondent: Johnson Winter & Slattery
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 350 of 2009
BETWEEN: MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036)
First ApplicantANDREW REGINALD YEO AND GESS MICHAEL RAMBALDI (AS LIQUIDATORS OF MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036)
Second ApplicantAND: LENNY'S COMMERCIAL KITCHENS PTY LTD (ACN 009 044 295)
First RespondentSINO IRON PTY LTD (ACN 058 429 708)
Second Respondent
JUDGE:
DODDS-STREETON J
DATE OF ORDER:
18 APRIL 2011
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The applicants pay the respondents’ costs of the application to amend the applicants’ statement of claim dated 18 December 2009, which costs shall include the costs of the day, being 18 April 2011.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 350 of 2009
BETWEEN: MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036)
First ApplicantANDREW REGINALD YEO AND GESS MICHAEL RAMBALDI (AS LIQUIDATORS OF MANAGEMENT 3 GROUP PTY LTD (IN LIQ) (ACN 100 863 036)
Second ApplicantAND: LENNY'S COMMERCIAL KITCHENS PTY LTD (ACN 009 044 295)
First RespondentSINO IRON PTY LTD (ACN 058 429 708)
Second Respondent
JUDGE:
DODDS-STREETON J
DATE:
18 APRIL 2011
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
(REVISED FROM TRANSCRIPT)
EX TEMPORE
INTRODUCTION
In this proceeding, following the conclusion of evidence and the closing of each party’s case, on 13 April 2011 I directed that the applicants and the respondents file and serve written submissions not to exceed 15 pages by 1.00pm and 6.00pm respectively on 15 April 2011 and adjourned the hearing of oral final submissions to 18 April 2011 with the parties to have equal time for final submissions. The applicants did not comply with that order, but provided a late written submission which considerably exceeded the specified page limit. The applicants also, on the afternoon of 15 April 2011, filed and served an affidavit of Leonard Warren affirmed on 15 April 2011 exhibiting a proposed second further amended statement of claim.
The proposed amendments included in the document were numerous. Some were complex and added a number of additional claims. At the commencement of the day allocated for final submissions, that is today, the applicants made an oral application for leave to amend in the terms proposed. The application was opposed by the respondents. By his affidavit, Mr Warren, of the solicitors for the applicants, deposed to explanations of the various proposed amendments for which leave is sought at this very late stage.
MR WARREN’S AFFIDAVIT
Mr Warren asserts that the changes are required, among other things, in order to:
(a) accord with amendments already advised, which are minor;
(b) substitute obsolete exhibit references with court book references;
(c)accord with the applicants’ concession that the retention of title clause operated to maintain the title of the first respondent, Lenny’s Commercial Kitchens Pty Ltd (“Lenny’s”), to the kitchen goods prior to their transfer on 17 April 2009 to the second respondent, Sino Iron Pty Ltd (“Sino”);
(d)correct an erroneous date;
(e)more accurately describe the purported effect of the transfer agreement dated 17 April 2009;
(f)more accurately reflect the evidence of two witnesses, Messrs Halliday and Stoney, given at trial;
(g)more accurately reflect certain other evidence and to change allegations and particulars to accord with the evidence;
(h)address alternative legal conclusions that may arise from the facts and/or evidence of Mr Peter Lenny; and
(i)to clarify (despite, I note, the express terms of the existing statement of claim) that damages in conversion are sought in respect of both the kitchen goods and the additional goods, irrespective of whether Lenny’s validly exercised its retention of title rights.
In relation to the application to substitute for a qualified or contingent claim an unconditional claim in conversion, Mr Warren deposed to his understanding of the scope of the applicants’ claim pursuant to s 440C of the Corporations Act2001 (Cth) (“the Act”) as at 15 May 2008 and 18 December 2009 – that is the date of the pre-existing pleading – which view has since changed, but which is said to explain the apparent qualification which the applicants now seek to withdraw. Mr Warren deposed that when Mr Tiernan SC was retained by the applicants, he informed Mr Warren that the existing statement of claim lacked clarity, and Mr Warren has since revised his view of the effect of s 440C of the Act. Mr Warren also deposed that the applicants now seek to plead that any consideration received by Lenny’s can be apportioned, as a response to the bare denial in Lenny’s defence that there was a total failure of consideration.
APPLICANTS’ SUBMISSIONS
Senior counsel for the applicants, Mr Tiernan, submitted that the proposed amendments would occasion no prejudice and should be allowed. Although they were numerous, they fell into two broad categories, the first of which reflected concessions already made, the correction of typographical errors, the updating of references and clear statements of uncontroversial matters. The second category of amendments was, he said, broadly speaking, simply new or alternative characterisations of the legal consequences of undisputed facts. Insofar as the proposed amendments raised new claims, they could, Mr Tiernan said, be addressed simply by legal argument as cross‑examination had already occurred on the relevant factual matters. Such legal argument would be, he submitted, relatively simple and should require little time and preparation on the respondents’ part.
Mr Tiernan, having taken the Court sequentially through the bulk of the proposed amendments, further submitted that the new matters could take no-one by surprise, as questions such as, for example, the exercise of the rights under the retention of title clause had always been in issue, yet the first respondent had failed to characterise its basis. Mr Tiernan conceded, however, that if any substantial aspect of the application were allowed, the respondents would require the opportunity to re-plead in response, to consider and formulate any necessary legal argument and to consider and prepare any additional evidence, albeit Mr Tiernan submitted that it was unlikely that any such evidence would be required.
Mr Tiernan conceded that the principles of restitution the applicants sought to invoke in the proposed amended pleadings were complex and difficult. He acknowledged that the applicants now sought to withdraw their denial that rights under the retention of title clause were exercised and to substitute a concession that such rights were validly exercised, with the consequence that the applicants’ claims of money had and received and related claims against Lenny’s would no longer be based on a contingency which the applicants had, up to this point, denied. Mr Tiernan conceded that the proposed amendments introduced a new restitution claim against Sino which had not previously been foreshadowed.
In the light of those matters, Mr Tiernan conceded that, given the availability of hearing time, the matter would necessarily go off were any substantive amendments permitted. Mr Tiernan did not, in that context, deny that the first respondent’s controller, Mr Lenny, was seriously ill, but submitted that the impact of delay would be minimised by Lenny’s indemnity from Sino in the litigation. From the bar table, Mr Tiernan rejected the respondents’ submission that Mr Warren’s affidavit in support of the application had been prepared from the date it bore of 7 April 2011, thus suggesting that this application was made when it was for strategic reasons.
RESPONDENTS’ SUBMISSIONS
The respondents opposed the application to amend. As a preliminary point, they objected to the very entertainment of the application, given its volume and complexity, within the very short time (which was essentially the weekend prior to scheduled final submissions) in a context where, whatever the ultimate outcome, it could, due to court availability, cause the conclusion of this hearing to go off for a prolonged period. The respondents not only submitted that the application had been brought at a time when it could not be properly addressed, but also opposed it as a matter of substance, contending that on the principles articulated in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 (“Aon”) it should be dismissed.
The second respondent relied on the affidavit of Christopher Connor sworn on 18 April 2011 in relation to the problems of adequately addressing the amendment application within the available timeframe. Mr Connor deposed to the background to the matter, the applicants’ earlier application to amend on a relatively minor scale on 6 April 2011, which was not persisted in, and the problems and prejudice occasioned to the second respondent by the current application, including lack of time to:
(a)consider the proposed amendment;
(b)consider whether and if so what responsive pleadings were required; and
(c)consider, give advice or take instructions, or prepare submissions in relation to the late notified proposed amendments.
Mr Connor also deposed to potential costs consequences.
Irrespective of the lack of time adequately to address the application, the respondents submitted, as a matter of substance, that it should be rejected in circumstances where: it was egregiously late; was not only not satisfactorily explained, but also bore indications of having been made at this juncture for strategic reasons; and posed grave prejudice to the respondents in that it raised not merely one, but multiple complex new cases or claims against the respondents which would require significant consideration, responsive pleading, legal research and submissions and the consideration of whether and what further evidence would be required, in circumstances where such evidence would probably be required, where the conclusion of the hearing would be imperilled, and the controller of one party, Mr Lenny, was seriously ill and would suffer the prejudice of the stresses and indeterminacy consequent upon delay.
The respondents submitted that they had prepared their cases and incurred costs in relation to the existing case against them. They should not now be prejudiced by the loss of the conclusion of the hearing and the other detriments entailed by allowing the applicants to recast and plead new cases or claims after the conclusion of the evidence. The first respondent relied, in particular, on the circumstances of Mr Lenny, and pointed out the applicants’ repeated non-compliance with timetables which had posed difficulties for the respondents in the preparation and running of their case.
RELEVANT PRINCIPLES
Order 13 of the Federal Court Rules (Cth) confers on the Court a power to permit the amendment of pleadings. The scope of and principles relevant to the exercise of the power to permit amendment have been authoritatively considered by the High Court in Aon. The precise application of that decision to the relevant Federal Court rule has been recently analysed in detail by the Full Federal Court in Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261.
In Aon, the vacation of a trial date was occasioned by late amendment applied for at the commencement of trial before evidence had been given, in circumstances where the proposed amendments introduced entirely new issues, and were unsatisfactorily explained. The High Court rejected the hitherto prevailing views supported by State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 that parties should be readily granted leave to amend or raise arguable issues subject to the payment of costs. The plurality’s judgment made clear (at 217) that:
[a]n application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim subject to the payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendments should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend.
The High Court recognised the importance of case management, the deleterious effects of delay, the impact and prejudice upon other litigants seeking a resolution of their case, and the non-compensable strains imposed on individual litigants from the very fact of delay.
An essential function of pleadings remains to alert the Court to the issues in dispute, and the opponents to the case they must prepare to meet. In modern commercial cases in particular, the notification function is sometimes supplemented or assumed by written submissions or statements of facts and contentions. Similarly, in the opening or in the course of the hearing it may be made clear concessions are made, or that there is some alteration in or departure from the pleaded case. Where the other parties are placed on notice with appropriate clarity as to an alteration or additional claim, whether it be new allegations of fact or legal argument or both, they may elect to meet it in the course of the trial, or they may oppose the amendments because, inter alia, they require time to meet the new or altered matters which would entail the loss of the trial date. The Court in such circumstances must determine whether, taking into account the loss of the hearing date, together with other relevant matters, the amendments should be allowed. It is well established that pleadings do not govern rigidly or absolutely the issues in dispute, if it is clear that a case has changed in a material respect during the running of the trial and the opponents have elected to meet it, as discussed in, for example, the early case of Miller v Cameron (1936) 54 CLR 572. Fundamental in this context is, however, a prohibition on surprise or ambush constituted by, inter alia, the late raising or reliance on issues or claims which the opponents would have been entitled to meet with further or different evidence or argument, had they been properly notified.
A late amendment of pleadings may sometimes be permitted without occasioning an adjournment, if it would not entail new or different evidence, but simply involved legal argument or construction, which would not itself require undue time or preparation. Mr Tiernan submitted that the bulk of the amendments proposed in this case fall into that category. The outcome may be different, however, if the opponent would need to prepare and put on further or different evidence to meet the amended case, resulting in an adjournment which is not justified in the circumstances, or if, in such a case, the complexity and extent of the new matters, irrespective of whether new evidence were required, could not be effectively met in the available time allocated to the case.
DISCUSSION
In the present case, the evidence is now complete, and the parties’ cases have closed. The applicants, in opening, in my view, as the respondents submitted, made some concessions, but also propounded a case which appeared to depart in some substantial respects, particularly in emphasis, from the pleaded case and the written statement of facts and contentions. In particular, the applicants foreshadowed that total failure of consideration, which was referred to in a rudimentary and oblique fashion in the pleadings, rolled up in an allegation of money had and received, unsupported by any allegations of material facts or particulars, and which was largely ignored in the written contentions, would be a primary aspect of the case, albeit counsel submitted it would be a simple and straightforward one.
The applicants also, on the first day of trial, sought informally to amend the pleading by omitting the stated contingent qualification on the scope of the kitchen goods subject to the conversion claims, and some other claims made against Lenny’s. That course was opposed, and I required the applicants to make a formal application supported by an affidavit. On the second day of the trial, senior counsel for the applicants informed me that the application to amend the pleadings would not be pursued.
In so far as the current proposed amendments seek to correct minor errors or state concessions already made, they are of limited utility at this stage of the proceeding, and in my view would not justify derailing the making of the final submissions. Further, I was not persuaded of the applicants’ claim that certain of the proposed amendments improved the clarity of what had already been pleaded.
Most fundamentally, however, the proposed amendments seek to introduce complex and substantive new claims and allegations against both respondents after the parties’ cases have closed, which have never been previously made plain, broached, or in some cases even hinted at. One such matter is the introduction of a restitution claim against Sino. The proposed amended pleading also seeks to expand the scope of the goods subject to the alleged conversion, and, to that extent, replicates the informal application to amend made on the first day of trial, which was subsequently abandoned. The expanded case and new claims incorporated in the proposed amendment are also addressed in the written submissions accompanying them, including the alleged rescission and repudiation of the purchase agreement, an implied term of that contract, breach of that contract, novation, the expansion of the claim against Sino to include unjust enrichment and elaboration of the pleaded claim of money had and received, together with its extension to Sino.
In my view, these are new allegations which constitute substantial additions to the case. There was, in my opinion, no satisfactory explanation or justification for raising them at this exceedingly late juncture. Indeed, Mr Warren deposed that he had been aware of deficiencies in the pleading from the time of retaining and receiving advice from Mr Tiernan. The emergence of evidence in the course of trial which would support a different case or claims, had they been pleaded or indeed otherwise notified, does not justify a grant of leave to amend after the closure of the parties’ cases, or in circumstances where it cannot be known what the state of the evidence would have been, had the opponents been notified of the new case, and had had the opportunity to lead respective evidence and to cross-examine accordingly, and where the price of affording the opponents such a necessary opportunity would include a prolonged adjournment.
It is clear that the complex re-pleading involved, which may be subject to challenge on other bases (see, for example, the allegation of unjust enrichment), will, if allowed, necessarily require an opportunity for the respondents to consider, re-plead and respond, whether by legal argument in the context of a complex area, or also by preparing new and leading new evidence. That would entail a prolonged adjournment. Mr Lenny, the controller of the first respondent, is indisputably ill, and I take into account the impact on him of the delay and continued pendency of the litigation, as well as the uncertainty of his availability to give evidence at a later date if necessary. I also take into account the impact on the administration of the Court, and its ability efficiently to conduct its business in the interests of other litigants.
In all the circumstances, in my opinion, the application should be refused.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton. Associate:
Dated: 10 June 2011
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