National Mutual Life Association of Australasia Limited v Chris Poulson Insurance Agencies Pty Ltd (No 3)

[1998] TASSC 5

5/1998

PARTIES:  NATIONAL MUTUAL LIFE
  ASSOCIATION OF AUSTRALASIA LIMITED
  v
  CHRIS POULSON INSURANCE AGENCIES
  PTY LTD (NO 3)

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  1648/1991
DELIVERED:  6 February 1998
HEARING DATE/S:  4, 5 February 1998
JUDGMENT OF:  Underwood J

CATCHWORDS:

Contract - General contractual principles - Construction and interpretation of contracts - Other matters - Intention of parties to be ascertained from the words of the document if read by an intelligent bystander placed in the situation of the parties.

Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989, followed.

Hospital Products Limited v United States Surgical Corporation (1984 - 1985) 156 CLR 41, applied.

Aust Dig Contracts [120]

Procedure - Supreme Court procedure - Tasmania - Practice under the Rules of Court - Amendments - Counterclaim - Amendment to plead new cause of action - Made after expiry of limitation period - Nature of the Court's discretion - What are "peculiar circumstances".

Weldon v Neal (1887) 19 QBD 394, followed.
Crafter v Webster and Guston (1979) 23 SASR 61; Tanti v Davies (No 2) [1996] 2 Qd R 591; Renowden v McMullen (1970 - 1971) 123 CLR 584, referred to.
Aus Dig Procedure [276]

REPRESENTATION:

Counsel:
             Plaintiff:  D J Habersberger QC and G G McArthur
             Defendant:  M W D White QC, R J Oliver and G L Sealy
Solicitors:
             Plaintiff:  Page Seager
             Defendant:  Piggott Wood & Baker

Court Computer Code:  
Judgment ID Number:  5/1998
Number of pages:  7

Serial No 5/1998
File No 1648/1991

NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED v CHRIS POULSON INSURANCE AGENCIES PTY LTD (NO 3)

REASONS FOR JUDGMENT  UNDERWOOD J

6 February 1998

The issue

Should the defendant be permitted to amend its counterclaim by inserting the following paragraph:

"28In breach of the Agency the Plaintiff refused or failed and has continued to refuse or fail to pay to the Defendant the operational allowance in respect of the Z policies."

On behalf of the defendant it was contended that the amendment should be allowed because:

_    proposed par28 had been pleaded in the counterclaim until it was omitted by inadvertence during the course of making a large number of amendments to the defence and counterclaim; and

_    the plaintiff will suffer no prejudice if the amendment is allowed.

On behalf of the plaintiff it was contended that the amendment should not be allowed because:

_    as the proposed amendment seeks to raise a new cause of action, prejudice arises by reason of the plaintiff not being able to plead the defence provided by the Limitation Act 1974, s4(1); and

_    by an agreement made on 19 November 1997, the defendant released the plaintiff from all claims other than those pleaded in the counterclaim annexed to the agreement.  This annexure did not include the proposed par28.

Some background

The defendant was an agent of the plaintiff life assurance company.  The statement of claim pleads that the agency agreement between the plaintiff and the defendant was entered into in June 1988.  The defence pleads that the date was February 1989.  For present purposes nothing turns on this difference.  It was common ground that the agency agreement came to an end in September 1990. 

When the agreement came to an end, the plaintiff calculated that the defendant owed it just over $50,000 being money paid under a mistake of fact and commissions advanced.  Although the defence puts these claims in issue, it is now common ground that the defendant is indebted to the plaintiff in a sum of money which the parties have agreed.  This litigation now concerns only the defendant's counterclaim and an order has been made that the defendant is to begin at trial. 

During the course of the Agency, the defendant sold a number of policies of assurance known as "Z policies".  The agent's potential earnings from these policies was very substantial.  The commission was payable over the first five years of the life of the policy.  In addition, the sale of a Z policy attracted a number of other payments to be made by the plaintiff to the agent.  There is a dispute between the parties as to the extent of these other payments which are known as bonuses or allowances.

In substance, the defendant's case on the counterclaim is that not long after the Z policies were put on the market, the plaintiff realised that ultimately they were going to cause it to suffer substantial losses.  The defendant claims that accordingly the plaintiff took certain action and by the end of the second year that the Z policies had been on the market, all those issued had been terminated and no further proposals were accepted by the plaintiff.  The defendant's complaint about this is that the plaintiff thereby deprived it of the commission it would otherwise have earned from those policies in the third, fourth and fifth years of their existence.  The defendant also complains that the plaintiff's action similarly deprived it from earning some of the bonuses or allowances that would have been paid had the policies not been terminated. 

There was no term in the agency agreement to prevent the plaintiff doing what it did, but by the original defence and counterclaim dated 23 September 1993, par29, the defendant alleged that the agency agreement contained an implied term "that the plaintiff would not do or cause to be done, anything which might result in the lapse or early termination of the two policies".  Paragraph 30 pleaded a breach of that implied term and par31 pleaded resultant damage, viz, loss of commission, loss of volume business bonus and loss of general manager's bonus.  The grand total claimed in the original pleading, par31 was $3.42m.

One of the bonuses was called an "operational allowance" or an "office allowance".  With respect to this bonus, the original counterclaim, par26, pleaded (inter alia) that it was an express term of the agency agreement that it was payable in respect of the Z policies and the original counterclaim, par28, pleaded a refusal or failure to pay (inter alia) the operational allowance totalling $896,400.  (Although this does not appear on the face of the pleadings, I was told on the hearing of this application that it was common ground between the parties that the defendant has no entitlement to payment of the operational allowance after the agency agreement came to end.)

The original defence and counterclaim dated 23 September 1993, underwent many amendments, one of which was to add a claim for damages for breach of fiduciary duty that the plaintiff allegedly owed the defendant.  This, too, was put in issue by the plaintiff.  The damages claimed under this cause of action are the same as those claimed for breach of implied term.

The original counterclaim and its many subsequent amendments also pleaded a myriad of other claims against the plaintiff, including, at one stage, fraud.  The counterclaim raised many complex issues.  At the beginning of 1996, I took over court management of the interlocutory progress of this litigation by way of the Rules of Court, O32A.  There have been at least fourteen directions hearings or pre-trial conferences.  Not surprisingly, discovery was long, complex and often the subject of disputation.  In reasons for judgment that I gave on 10 June 1997 (63/1997), I observed:

"Interlocutory skirmishes have loomed large in this litigation. The purpose of many of them has been far from clear to me, but there is no doubt that their effect has been the postponement of a resolution of the ultimate disputes between the parties."

Eventually, by the end of 1997, the parties said they were ready for trial.  All claims other than those based on breach of implied term and breach of fiduciary duty had been eliminated from the pleadings by agreement.  The court lists were arranged to accommodate a reasonably long trial.  I was appointed the trial judge.  The trial began before me as scheduled on 4 February 1998.  Before he opened the defendant's case on the counterclaim, senior counsel for the defendant raised a number of matters with respect to documents which made it clear to me that the carefully made pre-trial plans to facilitate the admission of documents into evidence had not been properly followed.  At the same time, this very late application to amend the pleading was made.  Whilst these matters were being discussed, counsel told me the name of one of the witnesses.  It was a person well known to me and when senior counsel for the plaintiff said that this witness's credit was in issue, I was reluctantly compelled to disqualify myself.  I cannot understand why all these matters were not attended to earlier.  Efficient disposition of trials requires good case management.  Good case management requires co-operation on the part of the parties and their legal advisers, as well as on the part of the Court.  The Court's obligations include providing advance notice of a certain trial date.  The parties' obligations include making sure that, barring unforeseen events, they are ready to start on the scheduled date.  That has not happened in this case with resultant expense to the parties and waste of time and public resources.  Fortunately, arrangements have now been made for the trial to start before another judge next week. 

Meantime, I agreed to determine, as an interlocutory matter, this application upon counsels' undertaking that they would not seek to delay the start of the trial upon the basis that an appeal had been lodged against the order that I am about to make.

The essential facts for this application

Affidavit evidence establishes that from the outset the defendant intended to include as part of his counterclaim an allegation that the plaintiff was in breach of the express term of the agency agreement concerning the payment of operational allowances.  With respect to that allegation, the plaintiff has always maintained that the agency agreement contained no such express term.  As mentioned earlier, the allegation was pleaded in the original counterclaim, pars26 and 28, and put in issue by the plaintiff's defence to counterclaim.  A memorandum dated 21 February 1990 from a general manager of the plaintiff to a director of the defendant, Chris Poulson, provides (inter alia) that no office allowance will be paid with respect to the Z policies.  On the face of it, the memorandum was signed by Mr Poulson on 22 February 1990 but the defendant claims that the signature is a forgery. 

On 29 February 1996, I heard an application on behalf of the defendant to make a large number of amendments to the counterclaim.  One of the proposed amendments sought to raise allegations of fraud.  In this respect, the application was strenuously resisted on behalf of the plaintiff, but, with respect to most of the proposed amendments, no objection was raised.  Included amongst the proposed amendments was the deletion of the plea of breach of the express term, par28. Upon the final determination of the issue of whether fraud could be added to the counterclaim, an order was made giving leave to make all the proposed amendments which included the omission of par28.  Senior counsel told me, and I accept of course, that the omission of par28 was due to inadvertence of counsel when settling the pleadings.  This application seeks to undo the mistake.  Without par28, the defendant cannot recover any operational allowances.  Breach is an essential element in the cause of action breach of contract, and presently, it is not pleaded.  The term is pleaded and a claim for payment of operational allowances appears as a head of damage at the end of the counterclaim, but, absent an order of amendment, the omission to plead this critical fact is fatal to this aspect of the defendant's claim.

Senior counsel for the plaintiff submitted that the proposed amendment seeks to raise a new cause of action.  He submitted that if it was a term that an operational allowance was payable, that allowance should have been paid before the agency agreement came to an end in September 1990, more than six years ago.  Senior counsel for the defendant did not contend to the contrary but submitted that the proposed amendment was no more than "a particular" and did not seek to raise a new cause of action.  This raises some interesting and rather difficult questions concerning the operation of the rule established in Weldon v Neal (1887) 19 QBD 394. However, it is more convenient to deal first with the second point made on behalf of the plaintiff, namely, that by agreement, the defendant has released the plaintiff from the claim which it now seeks to raise.

The agreement made between the parties dated 19 November 1997

This agreement, which is in writing, is headed "partial terms of settlement" This document is responsible for the elimination of all causes of action from the counterclaim except for breach of implied term and/or breach of fiduciary duty.  Each of the abandoned causes of action are referred to in the agreement by name and by reference to the paragraphs in which they are pleaded.  With respect to each abandoned cause of action the agreement makes provision for the payment of the parties' costs.  The following are the critical clauses of the agreement:

"3   NMLA [plaintiff] and CPIA [defendant] agree that the claims which remain to be litigated are —

(a)NMLA's claim as pleaded and particularised in the Amended Statement of Claim herein.

(b)CPIA's claims for breach of contract and breach of fiduciary duty in relation to z policies as pleaded and particularised in the annexed proposed Defence and Counterclaim.

All claims other than those described above are released by paragraph 6 of these terms.

4    CPIA shall apply to amend its Amended Defence and Counterclaim in accordance with the annexed proposed Defence and Counterclaim.  NMLA shall consent to such application.

5...

6Save as provided by clause 3 —

(a)NMLA releases CPIA and Poulson from all claims —

(i)arising in this proceeding;

(ii)in respect of CPIA or Poulson being an agent of NMLA.

(b)CPIA and Poulson release NMLA from all claims —

(i)arising in this proceeding;

(ii)in respect of CPIA or Poulson being an agent of NMLA."

The annexed defence and counterclaim pleads, by par26, under the heading "Z Policies", as did the original, that it was an express term of the agency agreement that the defendant was entitled to be paid (inter alia) an operational allowance.  Paragraph 28 is shown as omitted.  Under the heading "Breach of Contract" par29 pleads, again as did the original, the alleged implied term and par30 pleads the breach of the implied term.  The next paragraph is 30D which pleads the claim for breach of fiduciary duty and the counterclaim concludes:

"Damages for Z Policies

31As a result of the matters referred to in 25 - 30D hereof the Defendant was deprived of commission and other payments to which it would otherwise have been entitled and has thereby suffered loss and damage."

The particulars set out thereunder list six heads of loss and damage being, loss of commission, loss of volume bonus, loss of persistence bonus, loss of general manager's bonus, related costs, commission and operational allowance in the sum of $896,400.  There is also a claim for equitable damages which is irrelevant for present purposes.

Therefore, the claim for operational allowances is pleaded as recoverable as a breach of the implied term and/or a breach of the fiduciary duty, although I was told on the hearing of this application that it was not recoverable as a head of either of those causes of action but only as a breach of an express term of the agency agreement.

It was common ground that the correct way to approach this issue is to ascertain the intention of the parties from the words used in the written agreement.  It is clear that junior counsel for the defendant, who signed the agreement as counsel, executed the agreement under a mistake.  However, a unilateral mistake of that sort will afford the defendant no relief.  The contrary was not contended.  The intention is to be ascertained from the words of the document if read by an intelligent bystander (which, presumably in common with the reasonable person, must include the judge determining the issue) "if placed in the situation of the parties" per Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 996. See also Hospital Products Limited v United States Surgical Corporation (1984 - 1985) 156 CLR 41 at 62; Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 375.

It seems to me that the words of the agreement are perfectly clear.  Clause 3 provides that it is agreed that the claims which remain to be litigated on behalf of the defendant are the defendant's claim for breach of contract and breach of fiduciary duty in relation to the Z policies "as pleaded and particularised in the annexed proposed Defence and Counterclaim".  It means what it says.  It does not say or mean the defendant's claims as pleaded and particularised after amendment. Further, cl 3 goes on to provide that, "all claims other than those described above are released by paragraph 6".  The claims "described above" are those "pleaded and particularised" in the annexure.  There is a claim for payment of operational allowances, but it is "pleaded and particularised" as damage arising from breach of an implied term and/or breach of fiduciary duty.  It is not pleaded or particularised as arising from a breach of an express term.  Finally, cl 6 puts the matter beyond doubt by providing that save as provided by cl 3, each party releases the other from all claims as described in that clause.  It seems to me that this is the end of the matter.  If the amendment is allowed, the claim that it supports would fail because the amendment would be met successfully by a plea that the claim had been released by the agreement made on 19 November 1997.  Of course, it would be an erroneous exercise of the discretion to allow an amendment to plead a cause of action that is doomed to fail.

The Limitation Act1974, s4(1)

The threshold question is whether the proposed amendment seeks to raise a new cause of action.  I think it does.  If the defendant established every fact pleaded in the counterclaim, it would not succeed on a claim based on a breach of an express term.  It is not to the point that the existing counterclaim contains a plea of a breach of implied term of the same contract.  The facts that will be relied upon to establish the breach of an implied term are quite distinct from those that will be relied upon to establish a breach of the express term.  Further, as Mr Habersberger QC submitted, any damages that flow from a breach of the express term will be quite distinct from any that flow from a breach of the implied term. 

There has been some conflict among the authorities about what amounts to a new cause of action for the purposes of the rule in Weldon v Neal (supra).  There is authority for the approach that the question is simply whether a new cause of action in a technical sense is involved, regardless of whether a new case is being set up.  There is also authority for the approach that the question is whether there is an attempt to set up, in substance, a new case, a departure, a new head of claim or cause of action.  For my part, I think the preponderance of authority is in favour of the former conservative view, although in the light of rule changes in most Australian jurisdictions, this question is assuming less and less significance.  The authorities and arguments are all set out in an excellent article, Amendments and Limitations: the Rule in Weldon v Neal by Susan Campbell (1980) 54 ALJ 643. Some of the authorities were also gathered together and discussed by me in Devonshire Managements & Anor v ANZ Banking Group Ltd B3/1992, a decision approved by the Full Court in Tasmania Mines v Merrywood Coal Company Pty Ltd A97/1996.  It is not necessary to canvass them again.  On either approach, I am satisfied that the proposed amendment, if allowed, will create a new cause of action.  In Kingston Earthworks Pty Ltd v Iles (1996) 6 Tas R 433, there was an attempt to amend a statement of claim to allege a breach of statutory duty after the expiration of the period of three years prescribed by the Workers Rehabilitation and Compensation Act 1988, s135, but before the expiration of the period of six years referred to in that section. In his judgment, Zeeman J, with whose reasons the other two members of the Court expressed agreement, referred to the authorities dealing with the application of the rule in Weldon v Neal and noted that although the statement of claim already pleaded a breach of a statutory duty, the proposed amendment sought to plead a breach of a different statutory duty and held that this was a new cause of action and not a particular of a so called general cause of action, "breach of statutory duty".

His Honour said at 438:

"There is no such thing as a cause of action constituted by breach of statutory duty in general terms, leaving it as a function of particulars to describe the actual duty or duties and the breach or breaches thereof. That is implicit from the judgments of the majority in John Pfeiffer Pty Ltd v Canny (1981) 148 CLR 218."

Similarly, it seems to me that there is no such thing as a cause of action constituted by a breach of contract in general terms.  The cause of action arises from a breach of a particular term, either express or implied, and, accordingly, each breach gives rise to a separate cause of action.  However, this is not the end of the matter.

The jurisdiction of the Court to make the order sought is conferred by the Rules of Court, O31, r1 in the following terms:

"The Court or a judge may, at any stage of the proceedings, allow any party to alter or amend ... his pleadings, in such manner and on such terms as may be just, and all such amendments shall be made as may be necessary for the purpose of determining the real questions in controversy between the parties."

The rule says nothing about any statute of limitations, but, as I understand Weldon v Neal, the common law has established that it will be an erroneous exercise of the discretion to allow an amendment which will raise a new cause of action which, if a writ were issued with respect to that cause of action at the time of the order of amendment, would be barred by the Limitation Act 1974. I think that states the rule in general terms, but it is not an absolute rule. In Weldon v Neal, the general proposition is stated by Lord Esher at 395 and followed by these words:

"Under very peculiar circumstances the Court might perhaps have power to allow such an amendment, but certainly as a general rule it will not do so."

Lindley LJ said that he was of the same opinion and added:

"I do not think it would be just to the defendant to allow these amendments, the effect of which would be to deprive him of his defence under the Statute of Limitations."

The other member of the Court said that he was also of the same opinion and referred to the general injustice of allowing an amendment which deprived the defendant of a defence under the Statute of Limitations. Thus, the issue is what is just between the parties and there is no doubt that in most cases it would be unjust to allow an amendment that deprives the defendant of the right to plead a Statute of Limitation.

Crafter v Webster and Guston (1979) 23 SASR 61 and Tanti v Davies (No 2) [1996] 2 Qd R 591 are cases that began in courts of disputed returns. In Crafter, reference is made to Lord Esher's exception of "very peculiar circumstances", but the court said that there were none in that case and added "We are aware of no case in which such 'very peculiar circumstances' have been found to exist".  However, in Tanti, Ambrose J found (600) that there were sufficient peculiar circumstances to exempt the matter before him from the application of the general rule in Weldon v Neal.  In Renowden v McMullen (1970 - 1971) 123 CLR 584, Owen J, who wrote the judgment of the majority, confirmed at 608 - 609 that the rule in Weldon v Neal is not in absolute terms and there may be "very peculiar circumstances" which would permit an amendment to be made which would have the effect of depriving the unsuccessful party from pleading the statute.  However, his Honour noted that "no one has suggested that any such circumstances existed in the present case".  See also Mahfoud v Minister for Immigration, Local Government and Ethnic Affairs (1993) 115 ALR 603 at 608. I think that the principle was well expressed by Rogers J in the New South Wales Supreme Court in ANZ v Larcos Unreported 23 December 1987 at 10 - 11 of the printed judgment:

"In any event, it is important to recognise that the doctrine in Weldon does not suggest that the Court lacks power to allow the amendment but rather that, in the absence of very peculiar circumstances, a judge is bound in the proper exercise of discretion to refuse the application (Hale v Meynick [1957] 2 QB 455 at 481)".

The circumstances of this case make it easy to illustrate what might constitute such peculiar circumstances.  Suppose that the day after the amendment had been made and par28 had been deleted by a slip counsel realised that a mistake had been made and immediately notified the other side and made prompt application to undo the error.  Surely the proper exercise of the discretion would require that an order re-instating the omitted paragraph be made.  What if a week went by before the error was noticed?  What if it was a month? In Krueger v Jansen Northern Territory Supreme Court Unreported 11 April 1990, Asche CJ observed (obiter dicta) that inadvertent error, coupled with delay by the other side, constituted peculiar circumstances to which Lord Esher referred in Weldon v Neal.  I think that there are peculiar circumstances in this case sufficient to exempt it from the general rule laid down by Weldon v Neal.  The amendment formed part of the defendant's counterclaim and was pleaded to by the defence to that counterclaim from September 1993 until some three years later.  The plaintiff was then unable to meet that claim by pleading the provisions of the Limitation Act 1974, s4(1) and did not try to do so. The plaintiff was and is prepared to meet the claim based on breach of an express term of the agency agreement and did not assert on this application that if the amendment was made, it would suffer any prejudice other than the inability to successfully plead the Limitation Act.  The ability to make that plea was caused by inadvertent error on the part of the defendant's legal advisers and it seems to me that it would be unjust in all the circumstances to permit the plaintiff to take advantage of that error and provide it with a defence that it did not have until that error was made.

However, for the reasons given earlier, the application to amend is dismissed.