McSeveny v Ultimate IP Holdings Pty Ltd

[2018] NSWSC 1197

Supreme Court

New South Wales

Medium Neutral Citation:

McSeveny v Ultimate IP Holdings Pty Ltd [2018] NSWSC 1197

Hearing dates:

6 April 2018

Date of orders:

07 August 2018

Decision date:

07 August 2018

Jurisdiction:

Common Law

Before:

Davies J

Decision:

(1) Grant leave to the cross-claimants to amend the Amended First Cross-Claim filed 16 March 2017 by:

 

(a) adding as the third and fourth cross-claimants Timothy Hennessy and Paul McCloskey respectively;

 

(b) preparing a Further Amended Cross-Claim in accordance with these reasons for judgment;

 

(c) serving the Further Amended Cross-Claim on the solicitors for the plaintiff/cross-defendant by 27 August 2018.

 

(2) The solicitors for the plaintiff/cross-defendant are to inform the solicitors for the defendants/cross-claimants by 7 September 2018 if they agree with the form of the Further Amended Cross-Claim.

 

(3) If consent is given to the form of the Further Amended Cross-Claim the Further Amended Cross-Claim is to be filed and served by 11 September 2018;

 

(4) The defendants/cross-claimants are to pay the plaintiff/cross-defendant’s costs thrown away by reason of the amendments.

 (5) Stand over the proceedings to 14 September 2018 to hear submissions on the costs of the Notice of Motion and any disputes concerning the form of the Further Amended Cross-Claim.

Catchwords:

CIVIL PROCEDURE – cross-claims – amendment – to set up cause of action barred by limitation period –cause of action conferred by Commonwealth statute – Australian Consumer Law ss 236, 237 – whether State statute permits amendment after expiry of limitation period – Civil Procedure Act 2005 (NSW) s 65

 

CIVIL PROCEDURE – cross-claims – amendment – claim of negligent misrepresentation – whether cross-claimant who obtained contractual warranties had requisite ‘vulnerability’ – whether claim futile – factual determination - inappropriate for interlocutory application – leave to amend granted

 

CIVIL PROCEDURE – parties – joinder – of cross-claimants – after expiration of limitation period – where no misnomer or misdescription of parties – date when addition takes effect – Civil Procedure Act 2005 (NSW) s 64 – UCPR rr 6.28, 19.2 – limitation period stayed where cross-claim made by persons party to the proceedings before expiration – Limitation Act 1969 (NSW) s 74

  CIVIL PROCEDURE – cross-claims – amendment – whether amendments work prejudice to cross-defendant – no hearing date fixed – prejudice minimal

Legislation Cited:

Competition and Consumer Act 2010 (Cth) Sch 2 – Australian Consumer Law ss 237, 239, 243
Civil Liability Act 2002 (NSW) Pt 4
Civil Procedure Act 2005 (NSW) ss 56-58, 64, 65
Fair Trading Act 1987 (NSW)
Limitation Act 1969 (NSW) s 74
Supreme Court Act 1970 (NSW) s 75
Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005 (NSW) rr 6.19, 6.24, 6.28, 19.2

Cases Cited:

Agtrack (NT) Pty Ltd v Hatfield (2005) 223 CLR 251; [2005] HCA 38
Ahmed v Harbour Radio Pty Ltd [2010] NSWSC 676
Air Link Pty Limited v Paterson (No. 2) (2003) 58 NSWLR 388; [2003] NSWCA 251
Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27
Australia and New Zealand Banking Group Ltd v Larcos (1987) 13 NSWLR 286
Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36
Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261; [2010] FCAFC 101
Creevey v Barrois [2005] NSWCA 264
East West Airlines Ltd v Turner (2010) 78 NSWLR 1; [2010] NSWCA 53
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Greater Lithgow City Council v Wolfenden [2007] NSWCA 180
Idoport Pty Ltd & Anor v National Australia Bank Ltd & Ors [7] [2000] NSWSC 599
In the matter of Bias Boating Pty Ltd [2017] NSWSC 1524
Jones Lang LaSalle (NSW) Pty Limited v Taouk [2012] NSWCA 342
McGee v Yeomans [1977] 1 NSWLR 273
Nelson v Wyong Shire Council (1989) 68 LGRA 164
PSL Industries Ltd v Simplot Australia Pty Ltd (2003) 7 VR 106; [2003] VSCA 7
Street & 7 ors v Luna Park Sydney Pty Ltd [2006] NSWSC 230
Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514
Weldon v Neal (1887) 19 QBD 394
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16

Category:

Procedural and other rulings

Parties:

David McSeveny (Plaintiff/Cross-Defendant)
Ultimate IP Holdings Pty Ltd (First Defendant)
Timothy Joseph Hennessy (Second Defendant)
Paul Brian McCloskey (Third Defendant)
Matthew Damon Nielsen (Fourth Defendant)
2Chillies Pty Ltd (formerly Patima Pty Ltd) (Fifth Defendant)
Millenium Properties International Pty Ltd (Sixth Defendant)

Representation:

Counsel:
J Burnett (Plaintiff/Cross-Defendant)
M Condon SC & P Sharp (First, Second, Third, Fifth and Sixth Defendants and Cross-Claimants)
No appearance (Fourth Defendant)

  Solicitors:
Anderson Boemi Lawyers (Plaintiff/Cross-Defendant)
Dibbs Barker (First, Second, Third, Fifth and Sixth Defendants and Cross-Claimants)
Self-represented (Fourth Defendant)

File Number(s):

2015/310240

Publication restriction:

Nil

Judgment

1. The cross-claimants, by a notice of motion filed 15 March 2018, seek leave to amend their amended cross-claim in the form of a document attached to the notice of motion. The plaintiff/cross-defendant opposes leave being given. A slightly altered document was put forward at the hearing of the motion. That document was marked MFI1, and it is that document which forms the basis for this judgment.

History of the pleadings

2. The proceedings commenced by the filing of a statement of claim on 22 October 2015. The plaintiff claimed an amount of $2,060,000 together with interest, then amounting to $304,350 from four defendants. The first defendant, Ultimate IP Holdings Pty Ltd (Ultimate IP), was said to owe the money under an arrangement constituted by two agreements called an Asset Sale Agreement and a Licence Fee Agreement made on 3 July 2011. The agreement involved a parcel of intellectual property rights comprising ten registered trademarks. The second, third and fourth defendants (respectively Timothy Hennessy, Paul McCloskey and Matthew Nielsen) were sued as guarantors of the obligation of Ultimate IP.

3. The claim was that Ultimate IP would pay a licence fee to the plaintiff in the sum of $3,000,000. Payments were to be made by instalments in the sum of $50,000 per calendar month commencing 30 August 2011. Various payments, most being less than $50,000 per calendar month, were made until 4 March 2014. Thereafter, it is alleged that Ultimate IP failed to make any further payments.

4. A defence was filed on behalf of the first, second and third defendants which, in substance, asserted that: (1) until 29 July 2011 the trademarks were registered in the name of a company called Sevcoy Pty Ltd in respect of which the plaintiff was a director; (2) from 29 July 2011 the trademarks were transferred to a company called Patima Pty Ltd of which Mr Hennessy and Mr McCloskey were directors; (3) there was a total failure of consideration by the plaintiff; (4) an express condition of the Licence Fee Agreement that there be a satisfactory completion of the Asset Sale Agreement was not fulfilled; and (5) payments made of $390,000 to the plaintiff by the first defendant were made under a mistake. No appearance or defence has been filed by the fourth defendant.

5. On 31 October 2016 an amended statement of claim was filed. The amended statement of claim added two further defendants being 2Chillies Pty Ltd -formerly Patima Pty Ltd - (the fifth defendant), and Millenium Properties International Pty Ltd (the sixth defendant).

6. The amended statement of claim made the same claim but pleaded a far more complicated arrangement, or alternative arrangements, involving various combinations of the defendants. As a further alternative way of pleading the claim, the money was said to be owing as a result of estoppel arising from representations made by the defendants, estoppel by convention and promissory estoppel.

7. A further claim was added against Millenium based on a contract of sale between the plaintiff and a company called ZOC Holdings Pty Ltd as vendors, and Millenium as purchaser, in relation to land at 15 Millenium Circuit, Helensvale, Queensland. The claim was said to be that, under the terms of the contract, the purchase price was to be paid in various ways and to various parties, with $260,365 ultimately due to the plaintiff. That amount was alleged not to have been paid giving rise to damages for breach of contract.

8. Defences were filed by the first, second and third defendants (in one pleaded document) and by the fifth and sixth defendants (in another pleaded document) both filed 14 February 2017. The defences referred to at [4] (1) to (4) above were again pleaded, but not the defence of the payment of $390,000 under a mistake of fact. In addition, the defendants denied the existence of an estoppel, asserted that the plaintiff could not demonstrate a detriment arising from the defendants’ resiling from the alleged representations, and asserted that the land sale contract claim had no connection with New South Wales with the result that this Court has no jurisdiction to determine the matter.

9. Prior to the amended statement of claim being filed, Ultimate IP filed a cross-claim against the plaintiff on 18 January 2016 claiming $390,000 which had been paid to the plaintiff arising out of the Asset Sale Agreement and the Licence Fee Agreement. The monies were said to have been had and received by the plaintiff to the use of the first defendant/cross-claimant. That cross-claim appeared to relate specifically to the substantive defence referred to at [4](5) above.

10. On 16 March 2017 Ultimate IP filed an amended cross-claim against the plaintiff. 2Chillies was joined as the second cross-claimant. The relief claimed was in the form of: (1) restitution; (2) damages; (3) interest; and (4) costs.

11. The amended cross-claim first sought repayment of the $390,000 on the basis that the plaintiff did not have and never had any interest in Sevcoy’s assets, with the result that no interest in those assets passed from the plaintiff to Ultimate IP. In that way there was said to have been a total failure of consideration with the result that the plaintiff had not received the sum of $390,000 to the use of Ultimate IP.

12. In the alternative, it was pleaded that the obligation on Ultimate IP to make payments to the plaintiff was subject to and conditional upon the satisfactory completion of the 3 July agreement. It was asserted that the 3 July agreement was not completed satisfactorily or at all with the result that the payments had been made under a mistake of fact. A claim was made for the sum of $390,000.

13. Those claims can be seen to be related to the defences set out above at [4].

14. An additional claim was included in the amended cross-claim called a warranty claim. This claim was pleaded on the basis of the plaintiff and the fourth defendant, Matthew Nielsen, being the guarantors of the Asset Sale Agreement. The amended cross-claim asserted that the plaintiff owed an unconditional and irrevocable principal obligation to guarantee to 2Chillies the due and punctual performance and observance by Sevcoy of all obligations contained in the Asset Sale Agreement, and to indemnify 2Chillies against any loss incurred by it out of any breach or non-observance by Sevcoy of a guaranteed obligation.

15. The amended cross-claim went on to assert that Sevcoy breached the warranties in Schedule 3 of the Asset Sale Agreement in the following ways:

22.   Sevcoy breached the Warranties in Schedule 3 of the Asset Sale Agreement as:

(a)   accounts receivable by Sevcoy as warranted were overstated;

(b)   accounts payable by Sevcoy as warranted were understated;

(c)   the value of the business was less than was warranted by Sevcoy;

(d)   the amount owed to Sevcoy by debtors as warranted by Sevcoy was overstated;

(e)   the amount owed by Sevcoy to creditors as warranted by Sevocy was understated;

(f)   Sevcoy, with the knowledge of the cross-defendant, dealt with stock other than in the ordinary and usual course of the business and for market value;

(g)   Sevcoy did not disclose the existence of photocopiers and printers that were rented or leased;

(h) Sevcoy did not disclose that it was not the legal or beneficial owner computer server and telephony systems;

(i) Sevcoy did not disclose a promotion under which customers were provided with an ipad upon certain conditions of purchase;

(j) Sevcoy did not disclose obligations it owed to Capital Finance;

(k) the value of assets of Sevcoy as warranted was overstated;

(I) Sevcoy's warranted position as to obligations in respect of employee superannuation contributions was misrepresented;

(m) Sevcoy's warranted position that it held a valid and current licence for "Netsuite" was inaccurate;

(n) Sevocy's warranted position as to insurance liabilities was understated.

16. The amended cross-claim then set out matters concerning the incurring of various indebtedness by 2Chillies as well as identifying other loss it had suffered. The amended cross-claim claimed an indemnity from the plaintiff pursuant to the guarantee he had given in respect of the Asset Sale Agreement. Damages and interest were claimed.

The proposed amended cross-claim

17. The cross-claimants now seek to amend the existing amended cross-claim in the following ways:

1. To add claims for relief under ss 236, 237 and 243 of Schedule 2 of the Competition and Consumer Act 2010 (Cth), (the Australian Consumer Law);

2. In the alternative to (1), to seek a declaration that the plaintiff is entitled to receive a specified shareholding in satisfaction of his claim for damages;

3. To claim damages for negligent misrepresentation;

4. To seek rescission of the Licence Fee Agreement;

5. To add the second and third defendants as cross-claimants.

18. The relief claimed is as follows:

1.   Restitution.

2. An order pursuant to sections 237 and 243 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) declaring void or unenforceable the Licence Fee Agreement.

3.   Further, an order pursuant to:

a. section 236 of the Australian Consumer Law that the cross-defendant pay damages to the first and second cross-claimant; and/or

b. section 237 of the Australian Consumer Law that the cross-defendant pay compensation to the first and second cross-claimant.

4.   In the alternative to the relief sought in prayers 2 and 3 above, a declaration that the cross-defendant is entitled to receive in satisfaction of his claim for damages a shareholding in a new company to be established by the second cross-claimant to hold the 2Chillies Trademarks, with the shareholding in said company to be allocated in the following proportions:

a.   first cross-claimant (59.1%); and

b.   cross-defendant (40.9%).

5.   Damages for negligent misrepresentation.

6.   Rescission of the Licence fee Agreement dated between the first cross-claimant and the cross-defendant dated 5 July 2011.

7.   Interest… .

8.   Costs.

9. Such further or other order as the Court thinks fit, including ancillary relief pursuant to sections 237 and 243 of the Australian Consumer law.

19. It may be noted that there is no other claim for damages than those in prayers 3a and 5, yet the warranty claim which seeks damages remains in the proposed amended cross-claim. I shall assume that the omission is inadvertent.

20. I shall refer to Ultimate IP and 2Chillies as the existing cross-claimants and to Mr Hennessy and Mr McCloskey as the proposed cross-claimants.

21. It is not apparent from those prayers for relief what relief is sought by the proposed cross-claimants. However, an examination of the pleading shows that they seek the relief in prayers 4, 5 and 6. In addition, in the alternative to the claim for damages made by the existing cross-claimants under the ACL, all of the cross-claimants seek a declaration (paragraph 52 (d)) that the existing cross-claimants are not obliged to pay $3 million pursuant to the Licence Agreement, and the proposed cross-claimants are not obliged to guarantee such payment. Accordingly, that relief relates to the ACL claim.

22. In relation to the ACL claim and the claim for negligent misrepresentation, three representations are pleaded. The first is said to have been made on 22 July 2011 when the cross-defendant represented to 2Chillies, Mr Hennessy and Mr McCloskey that Sevcoy’s accounts payable balance was $1,004,193 or $1,181,913, and Sevcoy’s accounts receivable balance was $1,533,000 or $1,533,464.67.

23. The second representation was said to have been by the cross-defendant on 22 July 2011 to all of the cross-claimants that the Book Debts as defined in the Asset Sale Agreement were accurate as at the date of the Asset Sale Agreement and would be so at Completion.

24. The third representation was said to have been by the cross-defendant on 22 July 2011 to the cross-claimants that Sevcoy had disclosed to 2Chillies all information relating to the Assets and Sevcoy’s business necessary for 2Chillies to make an informed assessment of Sevcoy’s business. The cross-claimants claim that, in reliance upon each of the representations, 2Chillies executed the Asset Sale Agreement. Each of the representations was said to be false and untrue.

25. It was further pleaded, in addition to Ultimate IP and 2Chillies suffering loss and damage, that the Licence Fee Agreement was void or unenforceable and, in the alternative, that the obligation of Ultimate IP to pay the cross-defendant $3,000,000 with Mr Hennessy and Mr McCloskey guaranteeing such payment, was at all times unenforceable. The representations were alternatively pleaded as amounting to negligent misrepresentation.

Submissions

26. The cross-claimants submitted that the amendments would facilitate the purpose of s 64(2) of the Civil Procedure Act 2005 (NSW) by enabling the determination of the real questions raised by the proceedings. Those questions were reflected in the cross-claimants' evidence already filed. The cross-claimants pointed to what was contained in the evidence of Mr Hennessy and Mr McCloskey concerning the representations made by the cross-defendant during the negotiations that preceded the execution of the Asset Sale Agreement.

27. The cross-claimants submitted that the proposed amendments were being made for a proper purpose because they are consequential upon, and have been informed by, the preparation of the cross-claimants' evidence. The proposed amendments are not so obviously futile that they would be liable to be struck out if they had appeared in the original cross-claim.

28. The cross-claimants submitted that the new causes of action arise out of the same facts or substantially the same facts that underpin the amended cross-claim filed on 16 March 2017. The representations are said to be contained within three documents being:

(a)   a note on a whiteboard that was used in a meeting with Messrs Hennessy, McCloskey and a Mr Brendt Munro from PwC on 22 July 2011;

(b)   a document described as "Sevcoy Pty Ltd t/as Two Chillies A/P Aging Summary as of 22 July 2011" attached to an email from Matt Neilsen to Mr Hennessy sent on 22 July 2011; and

(c)   a document described as "Sevcoy Pty Ltd t/as Two Chillies A/R Aging Summary as of 22 July 2011" attached to an email from Matt Neilsen to Mr Hennessy sent on 22 July 2011.

29. The cross-claimants submitted that those representations also inform the content of the warranties as to Sevcoy's assets and liabilities that were made in the Asset Sale Agreement and which it is alleged were breached. The cross-claimants submitted that the ACL claim and the negligent misrepresentation claim are, in substance, alternative legal claims to the Breach of Warranty claim, as they all relate to the same wrongdoing.

30. The cross-claimants submitted that having regard to ss 56 to 58 of the Civil Procedure Act, the dictates of justice suggest that leave be given to the cross-claimants to amend their claim. Any delay in seeking leave to file a further amended cross-claim must be weighed against the potential prejudice to the plaintiff if the amendments are allowed. The cross-claimants submitted that the delay is explained in part by the retention of new counsel in late 2017 and the fact that it became apparent during the course of the preparation of the evidence of Messrs Hennessy and McCloskey that the pleadings would require amendment to reflect their evidence. The cross-claimants submitted that the delay will not result in any material prejudice to the plaintiff because no hearing date has been allocated. The cross-claimants submitted that the plaintiff has adduced no evidence of prejudice.

29. The cross-claimants submitted that, to the extent that possible limitation issues are raised, it is generally inappropriate to deal with the issue of limitation defences when application is made to amend pleadings at an interlocutory stage. Reference was made to Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514 at 533. The cross-claimants submitted that, in any event, negligent misrepresentation is a common law action which by dint of s 74 of the Limitation Act 1969 (NSW) would not be time-barred. The cross-claimants submitted that if it is ultimately determined that the proposed causes of action are statute-barred, the plaintiff will succeed in having those parts dismissed from the cross-claim at the final hearing.

30. The cross-defendant submitted that the proposed amendments to the cross-claim will inevitably delay the proceedings further. The cross-defendant submitted that the cross-claimants have not provided an adequate explanation for the delay in preparing the proposed amendments. That is particularly so when the cross-claimants argue that the source of the alleged representations in the ACL Claim and the Negligent Misstatement Claim are warranties that form part of the basis of the existing breach of warranty claim.

31. The cross-defendant submitted that the proposed amendments disclose no reasonable cause of action. This is because, in order to establish that the cross-defendant relevantly owed a duty of care to the cross-claimants, those parties must have been "vulnerable" in the sense of being unable to protect themselves from the alleged economic loss suffered. Reference was made to Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 and Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36. The cross-defendant said that, so far from the cross-claimants being unable to protect themselves, they specifically sought to protect themselves by obtaining contractual warranties relating to the risk to which they now say they were vulnerable.

32. The cross-defendant submitted that the claim for a declaration that the cross-defendant is entitled to receive a shareholding in a new company in satisfaction of his claim for damages is not available based on the terms of the Licence Fee Agreement. The cross-defendant submitted that while he has the right to request such an arrangement, that is a form of security available to him and is not a substitute remedy.

33. The cross-defendant submitted that a claim for relief under ss 236 or 237 of the Australian Consumer Law must be commenced within six years after the day on which the cause of action that relates to the conduct accrued. The cross-defendant submitted that the cross-claimants' case is that the alleged overstatement of debtors and understatement of creditors meant that the business acquired by 2Chillies was less valuable. In that way the loss was suffered upon the execution of the relevant transaction documents on 22 July 2011. At the latest, the cause of action accrued no later than 10 November 2011, being the date of an email and attachment sent from Mr Munro to the cross-defendant.

34. The cross-defendant submitted that where persons are added to a claim the date of commencement of the proceedings in relation to those persons is the date on which the order is made or such later date as the court may specify under r 6.28 Uniform Civil Procedure Rules 2005 (NSW). In that way, the cross-defendant submitted, the claim is statute-barred as far as the new cross-claimants are concerned.

35. In relation to the negligence claim and the ACL claim, the cross-defendant submitted that if the proposed amendments are to be permitted, it would be appropriate to reserve to the trial judge determination of the date by which any amendments are to take effect so as to preserve the parties' positions in respect of the limitation period.

36. The cross-defendant submitted that he suffers prejudice by having to undertake factual and other inquiries for the purpose of preparing a defence to the amended cross-claim. He submitted that most of the germane documents would be the records of Sevcoy, and he has had no access to those records since they were made available to 2Chillies at the time of the transaction. In any event, it appears from the return of the subpoena issued to Sevcoy that some of the records no longer exist.

37. The cross-defendant submitted that the proposed amendments introduce for the first time apportionable claims. In that way it will be necessary to identify potential concurrent wrongdoers. Mr Munro has been identified as one such wrongdoer, but the cross-defendant submits that others may be identified.   

38. The cross-defendant submitted that the proposed amendments seek to raise for the first time a "no transaction" case. That involves a new, different legal and factual inquiry, requiring a comparison between the position of the cross-claimants having entered into the transactions, and their position if the transactions had not been entered into.

39. The cross-defendant submitted that there are certain pleading difficulties, particularly by the lack of particularisation of loss and damage and in relation to relief claimed concerning the Licence Fee Agreement.

Consideration

(1) The claim under the Australian Consumer Law

42. The cross-defendant accepted, for the purpose of this amendment application only, that s 65(2)(c) of the Civil Procedure Act could operate in the case of the ACL Claim so far as those claims relate to the existing cross-claimants, Ultimate IP and 2Chillies. The cross-defendant accepted that, if the proposed amendments in relation to those cross-claimants were permitted to be made, it would be appropriate to reserve to the trial judge determination of the date by which any amendments are to take effect so as to preserve the existing parties' positions in respect of limitation periods.

43. In those circumstances, subject to determining the question of prejudice to the cross-defendant if the amendments were allowed, leave should be given to the existing cross-claimants to add the claim under the Australian Consumer Law. I will deal with the question of prejudice to the cross-defendant later in this judgment.

44. As far as the further cross-claimants are concerned, the ACL claim is statute barred because loss could not have been sustained later than November 2011. The limitation period for bringing such a claim is six years after the day on which the cause of action accrued: Australian Consumer Law s 236(2) and 237(3). This matter scarcely admits of argument, and the admonition in Wardley (at p 533) is not apt for this proposed amendment. The only basis upon which the claim by the new cross-claimants could be brought would be if s 64 or s 65 of the Civil Procedure Act2005 (NSW) operated to permit the bringing of the claim.

45. Those sections provide as follows:

64 Amendment of documents generally

(cf SCR Part 20, rules 1 and 4; DCR Part 17, rules 1 and 4)

(1) At any stage of proceedings, the court may order:

(a) that any document in the proceedings be amended, or

(b) that leave be granted to a party to amend any document in the proceedings.

(2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.

(3) An order under this section may be made even if the amendment would have the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings but, in that case, the date of commencement of the proceedings, in relation to that cause of action, is, subject to section 65, taken to be the date on which the amendment is made.

(4) If there has been a mistake in the name of a party, this section applies to the person intended to be made a party as if he or she were a party.

(5) This section does not apply to the amendment of a judgment, order or certificate.

65 Amendment of originating process after expiry of limitation period

(cf SCR Part 20, rule 4; DCR Part 17, rule 4)

(1) This section applies to any proceedings commenced before the expiration of any relevant limitation period for the commencement of the proceedings.

(2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under section 64 (1) (b), amend the originating process so as:

(a) to enable the plaintiff to maintain the proceedings in a capacity in which he or she has, since the proceedings were commenced, become entitled to bring and maintain the proceedings, or

(b) to correct a mistake in the name of a party to the proceedings, whether or not the effect of the amendment is to substitute a new party, being a mistake that, in the court’s opinion, is neither misleading nor such as to cause reasonable doubt as to the identity of the person intended to be made a party, or

(c) to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action that, in the court’s opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process.

(3) Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced.

(4) This section does not limit the powers of the court under section 64.

(5) This section has effect despite anything to the contrary in the Limitation Act 1969.

(6) In this section, originating process, in relation to any proceedings, includes any pleading subsequently filed in the proceedings.

46. The Uniform Civil Procedure Rules are also relevant. The Rules relevantly provide:

6.19 Proceedings involving common questions of law or fact

(cf SCR Part 8, rule 2; DCR Part 7, rule 2; LCR Part 6, rule 2)

(1) Two or more persons may be joined as plaintiffs or defendants in any originating process if:

(a) separate proceedings by or against each of them would give rise to a common question of law or fact, and

(b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined.

(2) Leave under subrule (1) may be granted before or after the originating process is filed.

…

6.24 Court may join party if joinder proper or necessary

(cf SCR Part 8, rule 8 (1); DCR Part 7, rule 8 (1); LCR Part 6, rule 8 (1))

(1) If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party.

(2) …

…

6.28 Date of commencement of proceedings in relation to parties joined

(cf SCR Part 8, rule 11 (3) and (4); DCR Part 7, rule 11 (3); LCR Part 6, rule 11 (3))

If the court orders that a person be joined as a party, the date of commencement of the proceedings, in relation to that person, is taken to be the date on which the order is made or such later date as the court may specify in the order.

…

19.2 Amendments to add or remove parties

(cf SCR Part 20, rule 2 (4) and (5); DCR Part 17, rule 2 (4) and (5); LCR Part 16, rule 2 (3A) and (3B))

(1) Subject to subrules (2) and (3), the amendments that may be made under rule 19.1 include an amendment that would have the effect of adding a party to, or removing a party from, the proceedings.

(2) An amendment that would have the effect of adding a person as a plaintiff in proceedings in which a solicitor is acting for the current plaintiff may not be made unless, at the time the amendment is made, the same solicitor:

(a) is acting for the person to be added, and

(b) certifies on the amended document:

(i) that he or she is acting for the person to be added, and

(ii) that the person to be added consents to being added as a plaintiff.

(3) An amendment that would have the effect of removing a party from the proceedings may not be made unless that party consents to being removed from the proceedings.

(4) If a person is added as a party under this rule, the date of commencement of the proceedings in relation to that person is taken to be the date on which the amended document is filed.

47. Neither party addressed the question of whether s 65 enabled an otherwise statute-barred action to be added by way of amendment where that action was governed by Commonwealth law. My attention was drawn to Idoport Pty Ltd & Anor v National Australia Bank Ltd & Ors [7] [2000] NSWSC 599 where Einstein J rejected an argument that s 74 of the Limitation Act 1969 (NSW) applied to claims under the Trade Practices Act 1974 (Cth) and Fair Trading Act 1987 (NSW).

48. Agtrack (NT) Pty Ltd v Hatfield (2005) 223 CLR 251; [2005] HCA 38 would suggest that s 65 would not be available to permit a statute-barred claim under Commonwealth law to be made, and to that extent Australia and New Zealand Banking Group Ltd v Larcos (1987) 13 NSWLR 286 may no longer be good law. Although the decision of the Court of Appeal of the Supreme Court of Victoria in PSL Industries Ltd v Simplot Australia Pty Ltd (2003) 7 VR 106; [2003] VSCA 7 is to the same effect, and Larcos was said to be supportive of the decision, the decision in Larcos has been criticised by the NSW Court of Appeal in Air Link Pty Limited v Paterson (No. 2) (2003) 58 NSWLR 388; [2003] NSWCA 251 at [139]-[140].

49. It is not necessary to decide this point, and I should not do so in the absence of full submissions from the parties. In any event, the reservation of the limitation point as far as the existing cross-claimants are concerned to the trial judge will enable the matter to be argued at that time with respect to the proposed cross-claimants.

(2)   The declaration

50. The cross-defendant opposes this amendment being allowed on the basis that the proposed amendment has no reasonable prospects of success.

51. The Licence Agreement relevantly provides:

The directors acknowledge a licence fee payable to David McSeveny for 2 Chillies trademarks for the sum of $3,000,000.00 (Three Million Dollars), we intend to pay this amount on the basis of a minimum payment of $50,000.00 per calendar month starting on 30th August 2011.

Payment will be made to an ANZ bank account in the name of David McSeveny BSB 012-220 A/C No 953234842.

If any of the payments are not paid within 30 days of the due date for payment, interest will accrue at the rate of 9% PA on the late payment amount until the payments are brought back into line.

This agreement will be considered in default if for 3 consecutive months no payments are made i.e. $150,000.00 in arrears, David McSeveny has the right to request his percentage interest remaining in the 2 Chillies trademarks revert to him, until payment is made in full, at which time the trademarks will revert back to Ultimate IP Holdings Pty Ltd.

If this agreement is in default, the parties agree to set up a new company and transfer the 2 Chillies Trademarks to that company and provide a shareholding in that company to David McSeveny at the percentage of any unpaid funds. Practically the percentage will be calculated as follows.

52. It is not easy to determine what the parties intended by this arrangement. In the first place, it is not clear if a default occurs prior to the passing of three consecutive months in which no payments are made. Alternatively, it is not clear if two events of default are being referred to with different results. The last quoted paragraph might be referring to a default in a single month’s payment in which case the new company would be set up. However, the penultimate paragraph might be providing for the trademarks to revert to the cross-defendant in the event that no payment is made for three consecutive months. That does not appear to be a practical result if a new company has been set up and the trademarks were transferred to that company.

53. If there is only one event of default, namely three consecutive months with no payments, it is not clear if alternative remedies are being provided with the cross-defendant first having the right to request that the trademarks revert to him.

54. In my opinion, it is not necessary to try to construe the Licence Agreement. No purpose would be served by permitting this claim to go forward because the declaration would not resolve any issue in dispute between the parties. All that the cross-claimants seek is that the cross-defendant is “entitled” to receive in satisfaction of his claim for damages the shareholding in the new company. That is reinforced by the pleading in paragraph 54 of the proposed amended cross-claim. The declaration does not seek that the cross-defendant is “required” to receive the shareholding in the new company in satisfaction of his claim for damages as the last quoted paragraph in the Licence Agreement might suggest. If the declaration as sought were made, it would still be open to the cross-defendant to refuse to accept the new shareholding and insist on his right to damages.

55. The penultimate paragraph quoted from the Licence Agreement appears, as the cross-defendant submits, to be a form of security to him until payment is made in full, but he has no obligation to require the trademarks to revert to him until payment is made in full in lieu of seeking damages as he has done.

56. This amendment is disallowed.

(3) & (4)   Negligent misrepresentation and rescission

57. The cross-defendant resists this proposed cause of action on the basis of what might be called the doctrine of vulnerability from cases such as Woolcock and Brookfield.

58. In the first instance, and subject to the cross-defendant’s submissions on prejudice, I consider that the existing cross-claimants should be permitted to make the claim based on negligent misrepresentation because s 65(2)(c) is satisfied. I consider that the representations which are pleaded to give rise to this cause of action are the same as or sufficiently similar to the matters pleaded in respect of the existing breach of warranty claim.

59. However, it is at that point that there is a need to consider the cross-defendant’s submission concerning the doctrine of vulnerability on the basis that, if that argument is upheld, amendment to make the negligent misrepresentation claim would be futile and therefore disallowed.

60. In Woolcock the joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ said:

[23] Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company.

[24] In other cases of pure economic loss (Bryan v Maloney is an example) reference has been made to notions of assumption of responsibility and known reliance. The negligent misstatement cases like Mutual Life & Citizens' Assurance Co Ltd v Evatt and Shaddock & Associates Pty Ltd v Parramatta City Council [No 1] can be seen as cases in which a central plank in the plaintiff's allegation that the defendant owed it a duty of care is the contention that the defendant knew that the plaintiff would rely on the accuracy of the information the defendant provided. And it may be, as Professor Stapleton has suggested, that these cases, too, can be explained by reference to notions of vulnerability. (The reference in Caltex Oil to economic loss being "inherently likely" can also be seen as consistent with the importance of notions of vulnerability.) It is not necessary in this case, however, to attempt to identify or articulate the breadth of any general proposition about the importance of vulnerability. This case can be decided without doing so.

61. In Brookfield, Hayne and Kiefel JJ said at [57]:

… [V]ulnerability is concerned with a plaintiff’s inability to protect itself from the defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.

62. In the same case, Crennan, Bell and Keane JJ said at [130]:

… Vulnerability, in this field of discourse, is concerned not only with the reasonable foreseeability of loss if reasonable care is not taken by the defendant, but also, and importantly, with the inability of the plaintiff to take steps to protect itself from the risk of the loss.

63. In his written submissions, counsel for the cross-defendant put the matter this way:

12.   This is not a case where the proposed cross-claimants were unable to protect themselves and were vulnerable. The position is in fact the opposite. The cross-claimants specifically sought to protect themselves by obtaining contractual warranties relating to the very risk that they now say they were vulnerable to, and obtained certain warranties in this regard.

...

14.   There can be no serious suggestion that the cross-claimants were unable to protect themselves from suffering the alleged economic loss by, for example, obtaining contractual warranties. There is no reasonable basis on which the cross-claimants could contend that Mr McSeveny owed them a duty of care.

64. I accept the force of those submissions. It may well be that the provision of warranties in that way will ultimately be found to be a complete answer to the claim for negligent misrepresentation. The difficulty is, however, that this is an interlocutory application for leave to amend. The resistance to this claim is that it is so obviously futile that it should not be permitted to go forward. It is generally accepted that the test of futility in relation to amendment is the same test as is applied on an application for summary judgment or summary dismissal, namely that it fits within a description in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129.

65. In order to determine whether the cross-claimants were vulnerable in a way that would entitle them to succeed in this claim, it would be necessary to consider the evidence of the relationship between the parties leading up to the making of the arrangement. That is a factual matter which it is inappropriate to explore on an interlocutory application to amend pleadings. I do not think that it is so clear that the existence of the warranties is a complete answer to this claim.

66. That, however, leaves for consideration the position of the new cross-claimants. As an alternative to the claim for damages made by the existing cross-claimants, all of the cross-claimants seek a declaration that they are not and never were bound to perform the Licence Fee Agreement and, in the alternative, they seek rescission of the Licence Fee Agreement. That relief is sought on the basis that the cross-claimants establish the cause of action for negligent misrepresentation. It is not clear how relief in the form of a declaration is appropriate if negligence is established but, presumably, s 75 of the Supreme Court Act 1970 (NSW) may enable such a declaration to be made.

67. On the other hand, it is not clear on what basis rescission of the Licence Fee Agreement would be ordered on the basis of a finding that negligent misrepresentations had been made by the cross-defendant. Ordinarily, the remedy for negligence is damages. No point was taken about that at the hearing of the application. I shall assume, for present purposes, that such relief is available.

68. The relief, nevertheless, depends on negligence being established. In those circumstances, the claim ought to have been made within six years of the suffering of damage, which seems to be accepted as being no later than November 2011. The question in those circumstances is whether ss 64 or 65 of the Civil Procedure Act permit the claiming of such relief by the proposed cross-claimants.

69. Although s 65(2)(c) would permit the existing cross-claimants to bring the claim for negligent misrepresentation, the application by the new cross-claimants is not within s 65(2) at all. The words in the chapeau to the sub-section refer to the “plaintiff in any such proceedings” which in the present case must mean “the existing cross-claimants”. Nor can the application be regarded as one by the existing cross-claimants to correct a mistake in the name of a party to the proceedings.

70. Section 64 is the basis of the jurisdiction to amend generally. Thereafter, the right to amend by adding a party to the proceedings is governed by the Rules. Rule 19.2(4) makes clear that if a person is added as a party under that Rule, the date of commencement of the proceedings in relation to that person is taken to be the date on which the amended document is filed. Rule 6.28 is to similar effect if the Court orders that a person be joined as a party. However, the Rule enables the Court to specify a date after the date of joinder.

71. The cross-claimants submitted that the joinder the proposed cross-claimants seek is more akin to r 6.19 than 6.28, with the result that the date of the commencement of the proceedings on the claim brought by them is the date of filing the original cross-claim: In the matter of Bias Boating Pty Ltd [2017] NSWSC 1524. I do not agree. In Bias Boating the defendants had been joined in the originating process, but leave was subsequently sought to join them in the same proceedings pursuant to r 6.19. As Brereton J made clear, the joinder in the originating process, although irregular, was not a nullity. In that way, they were not being joined by order of the Court but were joined as an act of the plaintiff: see at [4]-[11] and [16].

72. The cross-claimants also rely on s 64 of the Civil Procedure Act and the width of the power contained therein as established by Greater Lithgow City Council v Wolfenden [2007] NSWCA 180; East West Airlines Ltd v Turner (2010) 78 NSWLR 1; [2010] NSWCA 53 and Jones Lang LaSalle (NSW) Pty Limited v Taouk [2012] NSWCA 342.

73. In Greater Lithgow, a plaintiff had commenced proceedings in the District Court within time alleging that his epilepsy was caused by his exposure at work to chemicals. He did not in his original statement of claim rely on a frank injury which he had suffered. After the limitation period expired for a claim based on the frank injury he was granted leave to amend his statement of claim in the District Court to make that claim against the same defendant. The defendant sought leave to appeal against that decision. The defendant had argued that s 65 was a code governing the right to amend where a statute barred cause of action was to be added.

74. In dismissing the appeal Handley AJA (with whom Campbell JA and Young CJ in Eq agreed) said at [12]:

Kearns DCJ held that the provisions of s 65(4) displaced any rule of construction which would have treated s 65 as a special provision in the nature of a code displacing the general provisions in s 64 so that the only power to allow a statute barred cause of action to be added would be that conferred by s 65. As a matter of statutory construction that view seems to me to be clearly correct. Mr King SC, with his customary skill, did his best to throw doubt on what seems to me to be the clear effect of the language of s 65(4) but he failed to persuade me that the subsection did not have the operation that it appears clearly to have.

75. His Honour then discussed the history of the previous Rules of Court that are now to be found as ss 64 and 65 of the Civil Procedure Act and the overturning of the rule in Weldon v Neal (1887) 19 QBD 394. His Honour quoted from the judgment of Glass JA in McGee v Yeomans [1977] 1 NSWLR 273 at 280 where Glass JA said:

I am driven to the conclusion that the Supreme Court Rules, upon their proper construction, displace the settled rule of practice laid down in Weldon v Neal (1887) 19 QBD 394 and all the finespun distinctions which it engendered. In its place there has been substituted a general discretion to allow an amendment, notwithstanding that it raises a barred cause of action, whenever justice so requires. The exercise of the discretion is unfettered by any rules of practice. It is not possible by judicial decision to establish in advance categories of amendments which it would be just or unjust to allow.

76. Justice Handley then went on to say:

[17]   This Court reaffirmed that view of the operation of Pt 20 rr.1 and 4 in Proctor v Jetway Aviation Pty Limited [1984] 1 NSWLR 166 at 171, 180-1, and 183 and said in clear terms that McGee v Yeomans was a binding decision of this Court that sustained the wider power of amendment under rule 1 in cases where a plaintiff sought to add a statute barred cause of action. This Court maintained that view in Fernance v Nominal Defendant (1989) 17 NSWLR 710, 719 in the judgment of Gleeson CJ and in Bebonis v Angelos (2002) 56 NSWLR 127, at 138-9.

[18] Parliament, by using substantially the same language in ss 64 and 65 of the Civil Procedure Act, and in particular in the provisions of s 65(4), must be taken to have endorsed this line of authority. In my view the Court should apply the settled construction of the former rules to those sections.

77. East West Airlines Ltd v Turner concerned proceedings where the parties agreed and the Court of Appeal held that the prospective defendant sought to be added fell within s 64(4), namely, that there was a “mistake in the name of a party”. The defendant sought to argue, however, that r 6.28 applied so that the date of commencement of the proceedings against the defendant was the date on which the order was made adding the defendant as a party. In that way the claim would have been statute barred.

78. The present proceedings do not involve s 64(4). However, it is significant that the Court of Appeal, in accepting the plaintiff’s argument in the case, said at [54]-[55] that the defendant’s argument would mean that a statutory enactment, s 64(4), would give way to subordinate legislation, namely, r 6.28 UCPR. The Court said further that there was no reason for r 6.28 to apply to the exclusion of other rules or the Act itself because the legislative scheme included both the Act and Rules).

79. In Street & 7 ors v Luna Park Sydney Pty Ltd [2006] NSWSC 230 Brereton J said:

[46]   It is true that ordinarily “an amendment, duly made, takes effect, not from the date the amendment is made, but from the date of the original document which it amends” [Baldry v Jackson [1976] 2 NSWLR 415, 419 (Samuels JA)]. Since Baldry v Jackson, there has been considerable judicial discussion of this “relation-back” doctrine, in the context of limitation periods [Liff v Peasley [1980] 1 All ER 623, 641-643 (CA); [1980] 1 WLR 781, 802-804; Ketteman v Hansel Properties Ltd [1987] AC 189 (HL); Wenham v General Credits Ltd (NSWSC, McLelland J, 16 December 1988, unreported); Fernance v Nominal Defendant (1989) 17 NSWLR 710 (NSWSC); Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514, 559-562 (HCA); Morgan v Banning (1999) 20 WAR 474 (WASC, FC); Agtrack (NT) Pty Ltd v Hatfield (2003) 7 VR 63 (VCA); Agtrack (NT) Pty Ltd v Hatfield (2005) 218 ALR 677 (HCA)]. Generally, these cases have dealt with the relation-back doctrine in the context of two categories of amendments: those which would add a new defendant after the applicable limitation period against that defendant had expired, and those which would introduce a new cause of action after the limitation period for its commencement had expired.

[47]   As to the first, it is clear that the relation-back principle does not apply to an amendment which adds a party: where a party is added, proceedings against it are commenced only at the date of its joinder, so that the relation-back doctrine does not deprive a party joined after expiry of a limitation period of its limitation defence [Liff v Peasley; Ketteman v Hansel Properties; Wenham v General Credits; Fernance v Nominal Defendant].

80. Further, in Ahmed v Harbour Radio Pty Ltd [2010] NSWSC 676 the plaintiff sought to amend a statement of claim by adding a party outside the limitation period. The plaintiff relied on s 64(1)(b) and s 65(2)(c) of the Civil Procedure Act. Justice Simpson, in rejecting the application, said:

[60]   The amendment here sought is for the addition of Mr Hadley to the existing statement of claim in such a way as to make him a defendant.

[61]   Counsel identified no case in which leave has been granted to amend a statement of claim in such a way as to add an additional defendant in circumstances where that defendant would otherwise have had the benefit of a limitation provision.

[62] In my opinion, s 64(1)(b) was never intended to reach so far. Such an order would override entirely a relevant statutory limitation provision.

[63] It is of some interest that s 65, to which I will shortly come, does, in one respect have:

“… the practical effect of an amendment to the Limitation Act 1969.”

(see Greenwood v Papademetri [2007] NSWCA 221 at [27])

That, however, is the subject of explicit statutory provision: s 65(5).

[64] I am quite satisfied that s 64(1)(b) is not available as a source of power to permit the joinder of Mr Hadley to these proceedings.

[65]   Even if the section could be read as extending so far, an order remains discretionary, and it would rarely be a proper exercise of discretion to eliminate the right of the proposed defendant given to him or her by a limitation statute.

[66] I refuse to grant relief under s 64(1)(b).

Section 65(2)(c)

[67]   The plain language of s 65(2)(c) does not support the plaintiff’s claim. It permits the addition or substitution of a new cause of action arising from the same or substantially the same facts as those giving rise to an existing cause of action. What is implicit and clearly intended is that the additional cause of action permitted is a cause of action against an existing defendant, and not a new defendant.

[68] As mentioned above, s 65(2)(c) does incorporate a provision which, to an extent, is capable of overriding a limitation period provided for in the Limitation Act. That suggests to me that all that was intended by s 65(2)(c) was to permit the formulation of causes of action arising out of facts already pleaded so that the defendant is not deprived of any right otherwise conferred.

[69] In any case, as with s 64(1)(b), the power is discretionary, and for reasons already given, it would rarely be exercised in such a way as to deprive a person who was not already party to the proceedings of a right conferred to a limitation statute.

[70]   I refuse relief under s 65(2)(c).

81. In Jones Lang LaSalle Meagher JA (McColl JA and Sackville AJA agreeing) said at [19]:

Section 64(1) of the Civil Procedure Act 2005 gives the District Court power to grant leave to a party to amend any document in the proceedings. That power includes the power to grant leave to make an amendment that has the effect of adding a party to the proceedings; even if, which was not the case here, the claim is statute barred and not covered by the specific power to amend given by s 65 of the Act: Greater Lithgow City Council v Wolfenden [2007] NSWCA 180; East West Airlines Ltd v Turner [2010] NSWCA 53; 78 NSWLR 1. …

82. The decisions in Ahmed and Street are reconcilable with the decision in Greater Lithgow because in Greater Lithgow all that was sought to be added was a further cause of action against the same defendant. They are not inconsistent with East West Airlines because that case was concerned specifically with a mistake in the name of the party and s 64(4).

83. However, it is not easy to reconcile what was said by Meagher JA in Jones Lang LaSalle at [19] with those decisions. Although Jones Lang LaSalle did not involve the joinder of a party where the claim against the party was statute-barred, Meagher JA said that the power in s 64(1) enabled the adding of a party even if the claim was statute barred and was not covered by s 65. Nothing was said suggesting that Street or Ahmed were wrongly decided, probably because there was no issue in that case about adding a defendant where the cause of action against it was statute-barred.

84. It is, nevertheless, difficult to see how Street and Ahmed can be correct if I have correctly understood Meagher JA’s statement in Jones Lang LaSalle. It seems to me, with great respect, that neither Greater Lithgow nor East West Airlines support the width of the statement that s 64 enables a statute-barred party to be added, except in the case of a mistake in the name of the party. That was the situation in East West Airlines, whereas all that was permitted by way of amendment in Greater Lithgow was a further claim against the same defendant.

85. Nor is it apparent to me what work rr 6.28 and 19.2(4) have to do if s 64 enables the adding of a party where there is a statute-barred cause of action, and the usual principle applies that the amended claim takes effect from the date of the originating process . I well understand the point made in East West Airlines at [54] that a statutory enactment should not give way to subordinate legislation. However, the court there made the further point at [55] that the legislative scheme consisted of both the Act and Rules, with the result that they had to work together. In that case, the court was dealing with a mistake in the name of a party where provisions dealing with that issue had to be given the “widest interpretation which language will permit”: Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231. Both ss 64 and 65 dealt specifically with that issue and, in the light of what was said in Bridge Shipping, it was clear that the rules were subject to those provisions.

86. Neither ss 64 nor 65 deals specifically with adding a party other than where there has been a mistake in the name of a party. It appears to be the case that the Rules deal with that issue, in reliance on the general power found in s 64(1) and (2).

87. However, I am bound by judgments of the Court of Appeal, and I should not decline to follow unanimously declared obiter dicta.

88. It should also be noted that none of the cases deal with the addition of a plaintiff, in contradistinction to a defendant, where the plaintiff’s claim was statute barred.

89. For the reasons I have given, s 65 would not appear to be relevant because the new cause of action is relevantly that which the proposed cross-claimants (and not the existing cross-claimants) wish to bring against the cross-defendant. While s 64(1) has been held to be a wide power, that has been in the context of an existing party seeking leave to amend either by adding a cause of action against the existing defendant or by adding a further defendant. On its face, s 64(1) says nothing about the right of a new party to join an existing party to bring a new claim.

90. I do not consider that it is necessary for me to resolve this proposed amendment by the proposed cross-claimants by reference to ss 64 and 65, because s 74 of the Limitation Act 1969 (NSW) appears to provide its own answer.

91. Section 74 of the Limitation Act relevantly provides:

74 Set off etc

(1) Where, in an action (in this section called the principal action), a claim is made by way of set off, counterclaim or cross action, the claim, for the purposes of this Act:

(a) is a separate action, and

(b) is, as against a person against whom the claim is made, brought on the only or earlier of such of the following dates as are applicable:

(i) the date on which the person becomes a party to the principal action, and

(ii) the date on which the person becomes a party to the claim.

92. The situations where s 74 has application were discussed by Giles J (as his Honour then was) in Nelson v Wyong Shire Council (1989) 68 LGRA 164 at 168 where his Honour said this:

Section 74 deals with three situations.

In the first situation where the defendant cross-claims (to use the present term) against the plaintiff, a counter-claim is put in the same position as a set-off in that lapse of time will not bar the counter-claim unless the relevant period expired prior to the plaintiff bringing the proceedings against the defendant. In the second situation where the defendant cross-claims against someone not already a party to the proceedings, and who becomes a party to the proceedings when he becomes "a party to the claim", that is, joined as cross-defendant to the cross-claim, time runs in favour of that cross-defendant until he is so joined. In these two situations apparently it was felt right that by bringing the proceedings the plaintiff should be taken to have stopped time running in his favour for any proper cross-claim back against him by the defendant, but not right that by bringing the proceedings within which the cross-claim might be brought the plaintiff should also stop time running in favour of potential third parties. The third situation of a cross-claim by the defendant against a co-defendant, that is someone already a party to the proceedings but not the plaintiff, is treated in the same manner as the first situation, so that the plaintiff by bringing the proceedings also stops the time within which the cross-claim must be brought running in favour of the co-defendant.

93. That approach of Giles J was impliedly approved by the Court of Appeal in Creevey v Barrois [2005] NSWCA 264 at [47] as follows:

[47]   The Court’s attention was drawn to a number of authorities, although none was definitive of the construction issues under consideration. In the earliest, Nelson v Wyong Shire Council (1989) 68 LGRA 164, Giles J considered the inter-relationship of ss 26 and 74 of the Limitation Act, holding that the effect of s 74 was, in effect, to allow the limitation period provided by s 26(1) to be avoided where a cross-claim was made against a person already party to the proceedings, where that person had been joined prior to the expiration of the limitation period for a claim of contribution by another party. For present purposes, his Honour’s reasons do no more than affirm that s 74 will provide no benefit to a cross-claimant, where the proposed cross-defendant is a third party, not earlier joined in the proceedings.

94. In the present case Mr Hennessey and Mr McCloskey were named as defendants in the original statement of claim filed 22 October 2015. At that date any claim they might have for negligent misrepresentation had not expired. The bringing of the action against those parties by the plaintiff stopped time running for any cross-claim that they may wish to bring against the plaintiff.

95. Section 74, as I have already noted, is not available to the proposed cross-claimants in respect of the ACL claim: Idoport Pty Ltd & Anor v National Australia Bank Ltd. That is because s 74 operates only for the purposes of the Limitation Act.

96. It should be added that, since the existing cross-claimants will be permitted to amend to bring the claim under the ACL and the negligent misrepresentation claim, which, in the latter case involves the claim for rescission of the Licence Fee Agreement, and since Mr Hennessey and Mr McCloskey are defendants in the claim made by the plaintiff, it seems somewhat artificial to preclude them being allowed to claim rescission of the Licence Fee Agreement along with the existing cross-claimants. Section 74 of the Limitation Act appears to cater for that situation.

97. The amendment by the proposed cross-claimants to join the negligent misrepresentation claim should, subject to consideration of matters of delay and prejudice, be allowed.

Prejudice

98. I was informed by senior counsel for the cross-claimants that, at the time the application to amend was made, the evidence had closed, the amendments would not require new evidence, and no hearing date had been allocated. I was advised by counsel for the cross-defendant that the position with regard to the service of evidence was that the defendants/cross-claimants have served their evidence but the plaintiff/cross-defendant has not served his evidence in reply or in response to the cross-claim. Counsel for the cross-defendant appeared to accept that the limited nature of the damages being sought by the cross-claimants would obviate the need for expert evidence.

99. In circumstances where the ACL claims and the negligent misrepresentation claim by the existing cross-claimants arise out of the same or similar facts as the existing warranty claim, it is difficult to see how the cross-defendant is prejudiced by having to meet the new claims. The cross-defendant said that there is concrete prejudice in relation to the availability of documents, particularly in relation to Sevcoy. However, the position in that regard has not changed and will not change as a result of the amendments. Further, it is not easy to see what real prejudice is suffered by the cross-defendant having to identify other persons who might have a liability under Pt 4 of the Civil Liability Act 2002 (NSW). That is the more so when evidence is only at the stage I have mentioned.

100. The likelihood of a case of this order being heard prior to 2019, or the very end of 2018, seems remote. In that way, the finalisation of pleadings and the service of any further evidence that may needed should not delay the hearing.

101. As to the explanation for the late application to amend, senior counsel for the cross-claimants frankly said that the amendments are put forward because he recently came into the matter and saw a need to amend in the ways put forward particularly to make the pleadings consonant with the evidence. Although on one level that is not an entirely satisfactory explanation, it is a reason for amending that is frequently put forward. Whether in a particular case it is a satisfactory explanation might turn on the history of the proceedings and, particularly, the stage that the proceedings have reached when the amendment is sought.

102. It is of course necessary to bear in mind what was said in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27. Nevertheless, I also have regard to what was said by the Full Court of the Federal Court in Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261; [2010] FCAFC 101 at [51]-[52] as follows:

[51]   Aon Risk is not a one size fits all case. Whilst various factors are identified in the judgment as relevant to the exercise of discretion, the weight to be given to these factors, individually and in combination, and the outcome of that balancing process, may vary depending on the facts in the individual case. As the plurality in Aon Risk observed at [75], statements made in cases concerning amendment of pleadings are best understood by reference to the circumstances of those cases, even if they are stated in terms of general application.

[52]   The responsibility as to how the respondent’s case was pleaded, having regard to the available evidence and the applicable law, ultimately belonged to counsel for the respondent. In our opinion, the explanation from them, accepted albeit in the limited sense as it was by senior counsel for the appellants, was in this circumstance a sufficient explanation capable of acceptance by the primary judge. There was no need for an enquiry beyond that given by the counsel whose responsibility it was to plead the ACCC’s case. This is a very different position to that in Aon Risk. There the reason the claim introduced by amendment had not been raised before was the result of a deliberate tactical decision on the part of the ANU: Aon Risk 239 CLR 175 at [4] and [24]. The delay in proposing the amendment in Aon Risk was such as to demand an explanation. As the plurality noted at [106] none was given.

103. The rather weak explanation of a new counsel’s eye on the proceedings must be balanced particularly against prejudice that might be suffered by the opposing party, and by reference to the stage the proceedings have reached. In the present case, I have determined that the prejudice is minimal, particularly because of the nature of the amendments and by reason of the fact that no hearing has yet been allocated for the matter. The fact that a hearing date is some distance away favours the party seeking to amend.

Conclusion

104. I make the following orders:

1. Grant leave to the cross-claimants to amend the Amended First Cross-Claim filed 16 March 2017 by:

1. adding as the third and fourth cross-claimants Timothy Hennessy and Paul McCloskey respectively;

2. preparing a Further Amended Cross-Claim in accordance with these reasons for judgment;

3. serving the Further Amended Cross-Claim on the solicitors for the plaintiff/cross-defendant by 27 August 2018.

2. The solicitors for the plaintiff/cross-defendant are to inform the solicitors for the defendants/cross-claimants by 7 September 2018 if they agree with the form of the Further Amended Cross-Claim.

3. If consent is given to the form of the Further Amended Cross-Claim the Further Amended Cross-Claim is to be filed and served by 11 September 2018;

4. The defendants/cross-claimants are to pay the plaintiff/cross-defendant’s costs thrown away by reason of the amendments.

5. Stand over the proceedings to 14 September 2018 to hear submissions on the costs of the Notice of Motion and any disputes concerning the form of the Further Amended Cross-Claim.

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Decision last updated: 07 August 2018