Morris v Hanley

[2000] NSWSC 513

CITATION:	Morris v Hanley [2000] NSWSC 513
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2650/97
HEARING DATE(S):	14 April, 8 & 23 May 2000
JUDGMENT DATE:	23 May 2000
PARTIES :	Janine Morris (P) Jack Norman Hanley (D1) Geoffrey Donald Reid (D2) Lynda Maree Cole (D3) Christine Valmae Hayward (D4) Anthony Bodycote (D5) Robyn Janelle Haydon (D6) Daphne Olive Boyd (D7) Beverley Joy Armfield (D8) Gayle Hanley (D9) Cecil Bellchambers (D10) Mariana Holdings Pty Limited (D11) All defendants also cross claimants Malcolm Rodgers (XD1) State of New South Wales (XD2)
JUDGMENT OF:	Hamilton J

COUNSEL :	D J Higgs SC and J R Clarke (P) P T Taylor and D R Stack (D1-11 & XC1-11) M R Petrucco, sol (XD1) J-J Loofs (XD2)
SOLICITORS:	Mark Fraser (P) Parker & Kissane (D1-11 & XC1-11) The Argyle Partnership (XD1) I V Knight (XD2)
CATCHWORDS:	PROCEDURE [101] - Supreme Court procedure - Practice under Supreme Court Rules - Amendment - Late application to amend statement of claim - Adjournment of trial probably necessary - Order for costs to compensate prejudice - Plaintiff's doubtful ability to pay - Requirements of justice.
LEGISLATION CITED:	Supreme Court Rules Pt 20 r 1(2) & r 4 Supreme Court Rules Pt 52A r 9
CASES CITED:	Brunninghausen v Glavanics (1999) 46 NSWLR 538 Cohen v McWilliam (1995) 38 NSWLR 476 Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 The State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146
DECISION:	Leave to amend statement of claim granted.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

TUESDAY, 23 MAY 2000

2650/97 JANINE MORRIS v JACK NORMAN HANLEY & ORS

JUDGMENT

HIS HONOUR:

1    This is a belated application by the plaintiff to amend her statement of claim in these proceedings. The precise form of the application is that the plaintiff seeks leave to file a third amended statement of claim indicating that the statement of claim has been amended twice already. Even during the course of the hearing of this application the plaintiff has abandoned the third amended statement of claim originally proposed and replaced it with another as the subject of this application. The proceedings are currently fixed for hearing before me commencing on 31 July 2000, this being a refixing consequent on the vacation of an earlier fixture.2 It is most unfortunate that quite radical amendments to the plaintiff's statement of claim are made at this late stage and without any good reason assigned as to why the amendments, which do not depend on recent events or discoveries, are being made so late. For reasons put to me on behalf of the defendants during the course of argument it is probable that as a result of the amendment, if granted, the fixture on 31 July 2000 will also have to be vacated. Applications in these circumstances pose for the courts situations in which it is difficult to do justice to all parties in the circumstances. Against the features weighing against the granting of the amendment, which I have already adverted to, the Court must squarely bear in mind the provisions of Part 20 r 1(2) of the Supreme Court Rules:

“All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, or of correcting any defect or error in any proceedings, or of avoiding multiplicity of proceedings.”

It must also bear in mind the decision of the High Court in The State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146; see also the decisions of the Court of Appeal in Cohen v McWilliam (1995) 38 NSWLR 476; and M acquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543.

3 An additional complication in the present case is that the new causes of action sought to be pleaded may well be brought outside the period prescribed by statutes of limitations, whereas they would have been in time if comprehended in the proceedings when originally brought. In such circumstances such as the present, Part 20 r 4 of the Rules provides as follows:

“4(1) Where any relevant period of limitation expires after the date of filing of a statement of claim and after that expiry an application is made under rule 1 for leave to amend the statement of claim by making the amendment mentioned in any of subrules (3), (4) and (5), the Court may in the circumstances mentioned in that subrule make an order giving leave accordingly, notwithstanding that that period has expired.

...

(5) Where a plaintiff, in this statement of claim, makes a claim for relief on a cause of action arising out of any facts, the Court may order that he have leave to make an amendment having the effect of adding or substituting a new cause of action arising out of the same or substantially the same facts and a claim for relief on that new cause of action.

(5A) An amendment made pursuant to an order made under this rule shall, unless the Court otherwise orders, relate back to the date of filing the statement of claim.”

It is under this rule that the plaintiff asks me to act and the making of the order sought will, therefore, to the extent stipulated by the rule, have the effect of circumventing the relevant statute of limitations.

4    The suit is an unusual one. As it is likely that I shall be the trial Judge, it is undesirable that I go into the facts of the matter more than necessary. Suffice it to say that the plaintiff, by her original statement of claim, claimed that the defendants as shareholders or, in some cases, directors of a company had acted in breach of fiduciary duty as to the way that the company had been restructured constitutionally so as to destroy rights which the plaintiff, among others, may have had to shares under an employee share scheme, or other rights arising under that scheme. The general thrust of the plaintiff's then case, as I see it, was that the fiduciary duty arose from the shareholders, who were also the comparatively small number of employees of the company, in effect having the ultimate control over the company structure, including this scheme that provided special benefits to employees. It was suggested that they exercised their rights and behaved themselves, including in effect concealing the existence of the benefits from other persons potentially entitled, so as to arrogate those benefits to themselves to the disadvantage of others actually or potentially entitled to similar rights.

5    The three causes of action sought to be added by amendment are, first, a cause of action against directors for breach of fiduciary duty, the fiduciary duty sought to be established not being so much a director's conventional fiduciary duty towards the company or the general body of shareholders, but arising in the same framework as the shareholders’ fiduciary duty that I have already described. Such a duty may, it is said, lie upon the directors, as having greater and more immediate power over the affairs of the company in controlling the situation in relation to the rights or benefits in question: see Brunninghausen v Glavanics (1999) 46 NSWLR 538.

6    The second cause of action is probably not greatly differentiated from this. It is an action against the company itself on the same basis. It seems to me that if the cause of action against the directors is allowed to be added there is no great reason not to allow the cause of action against the company to be added.

7    The third cause of action is sought to be added against all the defendants. It is not of an equitable nature, but a common law cause of action in conspiracy. To establish a conspiracy it is not necessary, of course, to establish an actual contract and, in general terms, the case the plaintiff seeks to put forward is that, from the series of transactions, events and actions from which the relevant fiduciary duty and its breach may be inferred, there could also be inferred a conspiracy among the same participants which would give rise to a right to relief in the plaintiff.

8 It seems to me that although the evidence is far from fully developed, on the material available to me, it does seem that these causes of action are reasonably arguable in the circumstances and it does seem to me that within the meaning of Part 20 r 4(5) they arise out of the same or substantially the same facts as the existing cause of action.

9    In the circumstances, therefore, it seems to me that, even at this late stage, the amendment ought be allowed, unless it can be established that there is prejudice to the defendants which cannot be cured. That is generally, but not always, prejudice which an appropriate monetary award or remedy by way of costs cannot cure.

10    I have already adverted to the fact that there seems to be no substantial explanation as to why the causes of action now sought to be relied on were not brought forward earlier. In the circumstances, it seems to me clear that, if the amendment is to be granted, it must be at the price of an order against the plaintiff that she bear the costs of this application, of the costs thrown away by the amendment and of the costs thrown away by reason of the vacation of the coming fixture, if that fixture must be vacated as a consequence of the amendment.

11 In general terms, in my view an appropriate order for costs would substantially remove the prejudice in such a situation. However, a difficulty arises in this case. An application for security for costs by the defendants is being prosecuted in the Court but will not be determined by me. It will not be determined by me, first, because such applications are generally heard by the Registrar, and, secondly, because it would be undesirable that I, as the potential trial Judge, should hear an application where the credit of witnesses may be called into question. Discussion before me has suggested that that is likely upon the hearing of this security for costs application. However, as I understand it, that application will be conducted on the basis, and certainly it is common ground on the present application before me, that the plaintiff's financial situation is such that the making of an order for costs against her, if that order were to be immediately enforced, may well have the effect, in view of her financial situation, of precluding her from continuing to prosecute the litigation, and thus preclude her from seeking to enforce the rights that she says that she has. Of course, the usual rule is that an interlocutory order for costs cannot be immediately enforced; there is, however, a discretion to grant leave to enforce it immediately: Supreme Court Rules Part 52A r 9. Mr Philip Taylor, of counsel for the defendants, has argued that the defendants' prejudice in this case could conceivably be remedied by a costs order only if leave were given to enforce it immediately as it would otherwise prove nugatory, at least in the event that the defendants are successful in the substantive proceedings.

12    The question is not an easy one, but the conclusion I have come to is that costs orders, as I have already indicated, must inevitably be made against the plaintiff as the price of her obtaining the amendment which she seeks. I have, however, come to the conclusion in all the circumstances that if I grant the amendment and make those costs orders I shall decline to order that the costs orders be immediately enforceable.

13    What then is the prejudice that the defendants put forward? I think it is fair to say that they cannot point to prejudice which is not essentially of a monetary sort. This is not one of those cases where, for instance, a trial has commenced and a party has made an election to conduct the trial in a particular fashion which is different from and inconsistent with the way that that party may have conducted the trial if a later sought amendment had always been part of the other side's case. Mr Taylor submits that the defendants who have to date succeeded in maintaining unified legal representation by a single set of solicitors and counsel would be put in a position where various of the defendants may have to be separately represented because of conflicts of interest which would arise were the case conducted on the proposed amended pleading. Worse still, Mr Taylor says, it may be that the present solicitors and counsel, who have already done a great deal of work in the case, may be obliged to retire from it and the price of their acquisition of knowledge of the case which has already been paid will be partly, if not wholly, lost. Further, if there is representation by more than one set of legal representatives, whether or not they include the present representatives, the cost of litigation for the defendants will be greatly increased.

14    The difficulty with the argument relating to multiple representation, as constituting a head of prejudice within the relevant concept, is that, had the plaintiff followed what is now put forward as its desired course of suing upon all these causes of action in the first place, the defendants would, in any event, have faced the difficulties they now face. They could not in those circumstances say that the plaintiff ought not be allowed to conduct her case in the way she desires because that would put them, at worst, to 10 sets of costs as opposed to one set of costs. So far as concerns the work of the present lawyers being thrown away, it is not clear on the present material that the present representatives will not be able to continue to represent at least some of the defendants, and, in any event, if it can be demonstrated that costs are wasted, they will be comprehended in the costs order that I seek to make.

15    Also it is put that the amendment ought not be allowed because of the small quantum of the monetary claim which, on the defendants' version of the matter, the plaintiff would be able to establish. However, the plaintiff continues to claim a considerably greater entitlement than that and I cannot, in the present state of the matter, come to the view that their version is inevitably wrong. It should also be borne in mind in this case that, even if it is only one plaintiff suing at the present time, there is a fund said to be as much as $3,500,000 that the defendants wrongly dealt with or arrogated to themselves, and in circumstances said to amount, among other things, to breaches of fiduciary duty, which a court of equity is always tender to remedy, if they be proved to have occurred.

16    In all the circumstances, despite the lateness of the hour, the considerable trouble to which the defendants will be put, certainly through no fault of their own and the potential loss of another fixture of the trial, I have come to the view that the interests of justice as between the parties will be best served if the amendment be allowed, but at the price of the costs orders that I have already adverted to.

17    The orders that I make are:

1 I grant leave to the plaintiff to file a third amended statement of claim.
2 I order that the plaintiff pay the defendants' costs of the application for leave to file the third amended statement of claim.
3 I order the plaintiff to pay the defendants' costs thrown away by the amendment.
4 I note that I shall in due course order the plaintiff to pay the defendants' costs thrown away by the vacation of the fixture of the trial for 31 July 2000 if that fixture is vacated by reason of the amendment.
5 I refuse the defendants' application for an order that the costs ordered by me in relation to the amendment be assessed and paid forthwith.
6 I reserve all questions of the cross defendants' costs arising from the plaintiff's application further to amend her statement of claim.

…oOo…

Last Modified: 09/26/2000