Papadoulis v Pappas and Associates (A Firm)
[2009] WADC 22
•20 FEBRUARY 2009
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: PAPADOULIS -v- PAPPAS AND ASSOCIATES (A FIRM) [2009] WADC 22
CORAM: SLEIGHT DCJ
HEARD: 30 JANUARY 2009
DELIVERED : 20 FEBRUARY 2009
FILE NO/S: CIV 1144 of 2006
BETWEEN: EMMANUEL MICHAEL PAPADOULIS AND MARGARET VALMA PAPADOULIS
Plaintiffs
AND
PAPPAS AND ASSOCIATES (A FIRM)
DefendantEMMANUEL MICHAEL PAPADOULIS
Third Party
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram :REGISTRAR KINGSLEY
Citation :PAPADOULIS -v- PAPPAS AND ASSOCIATES (A FIRM) [2008] WADC 166
File No :CIV 1144 of 2006
Catchwords:
Appeal against Registrar's decision to disallow amendment to statement of claim - Applicability of O 21 r 5(5) of the Rules of the Supreme Court and s 79(2) of the Fair Trading Act 1987 (WA) - Turns on its own facts
Legislation:
Fair Trading Act 1987(WA)
Income Tax Assessment Act 1936 (Cth)
Limitations Act 1985 (WA)
Rules of the Supreme Court 1971 O 21 r 5, O 21 r 5(2), O 21 5(5)
Result:
Appeal allowed
Representation:
Counsel:
Plaintiffs: Mr S G Leslie
Defendant: Mr J C Yeldon
Third Party : No appearance
Solicitors:
Plaintiffs: Talbot Olivier
Defendant: Sparke Helmore
Third Party : Not applicable
Case(s) referred to in judgment(s):
ABB Service Pty Ltd v Hetherington & Anor [2001] WASCA 417
Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473
Coleman v Gordon M Jenkins & Associates Pty Ltd (1989) ATPR 40-960
Dye v Griffin Coal Mining Co (1998) 19 WAR 431
Fenech v Sterling (1983) 79 FLR 244
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
James v ANZ Banking Group Ltd (1986) 64 ALR 347
Morgan v Banning (1999) 20 WAR 474
Papadoulis v Pappas and Associates (A Firm) [2008] WADC 166
SLEIGHT DCJ: This is an appeal against a decision of Registrar Kingsley delivered on 21 November 2008 whereby the learned Registrar disallowed amendments to the plaintiffs' statement of claim contained in pars 18 to 22 of a Minute of Proposed Further Re-Amended Statement of Claim dated 22 August 2008 ("the proposed amendment").
The proposed amendment pleads an additional basis for a claim for damages under the Fair Trading Act 1987 (WA) as a result of alleged misleading and deceptive conduct. It is common ground that if a writ had issued on 22 August 2008 seeking the relief contained in the proposed amendment, then the relief would have been statute barred under s 79(2) of the Fair Trading Act 1987 (WA). The question then on the appeal is whether the amendment ought to be allowed so as to include the claim in the existing proceedings.
The appeal is a complete review of the matter de novo (see Hazart Pty Ltd v Rademaker (1993) 11 WAR 26, Malcolm CJ at p 28).
Background
At all material times the plaintiffs in this matter were directors of a company, Feature Australia Pty Ltd. I will refer to this company in this decision simply as "Feature".
The defendant is a firm of accountants and was the accountant and registered tax agent for both the plaintiffs and Feature.
The third party is the chief executive officer of Feature and did not participate in this appeal.
Between 1 April 2002 and 30 April 2003 Feature incurred a taxation liability to the Commonwealth government in the sum of $218,301.57. Feature failed to pay its liability and the Commissioner of Taxation issued two notices served on the plaintiffs under s 222AOE of the Income Tax Assessment Act 1936 (Cth). The first notice was dated 28 February 2003 for the sum of $127,956.57. The second notice was dated 17 June 2003 in the sum of $90,345.00.
The effect of the notices was that the plaintiffs became liable to pay the taxation liability of Feature unless within 14 days of receipt of the notices either the plaintiffs or Feature did one of four things:
(1)discharged the liability;
(2)entered into a written agreement with the Commissioner of Taxation pursuant to s 222ALA of the Act to pay the liability;
(3)placed Feature into administration;
(4)effected a wind up of Feature.
The plaintiffs claim that on or about the date the plaintiffs received the notices (in further and better particulars of claim dated 17 August 2006 the date of service was particularised as "shortly after the dates of the Notices"), the plaintiffs sought advice from the defendant.
The plaintiffs allege the defendant's advice was to the effect that Feature should continue trading, try to repay the debt and submit a repayment proposal to the Australian Taxation Office.
The plaintiffs plead in the statement of claim indorsed on the writ that by such advice the defendant was in breach of the terms of its engagement as accountant and taxation agent for the plaintiffs which required it to exercise reasonable care, skill and attention; and/or alternatively in breach of a common law duty to exercise care, skill and attention.
In par 11 of the statement of claim indorsed on the writ the plaintiffs particularise the breach of duty (either contractual or tortious) by pleading in essence that:
(a)the defendant failed to advise the plaintiffs as to the options available under the notices;
(b)the defendant failed to advise the plaintiffs that they could be personally liable for the taxation liability if the notices were not complied with;
(c)the defendant failed to recommend to the plaintiffs that they have Feature put into administration within 14 days of receipt of the notices;
It is pleaded in par 12 that the plaintiffs failed to comply with the notices and in pars 13 and 14 that on 12 October 2003 the Commissioner commenced proceedings against the plaintiffs for recovery of the sum of $201,479.00 and obtained judgment on 6 November 2003. It is pleaded in par 15 that by reason of the breach of contract and breach of duty the plaintiffs suffered loss and damage by incurring a liability under the judgment.
In further and better particulars of claim dated 17 August 2006 in reply to a request as to the circumstances of the advice sought from the defendant the plaintiffs pleaded as follows:
"2.3Around the time the Notices were issued to the plaintiffs, Feature was receiving numerous correspondence and notices which were material to the financial viability of Feature. During this period the plaintiffs or Manny Papadoulis on behalf of the plaintiffs or both would regularly meet with Darcy Pappas or Carlo Celisano or other member of the defendant's staff.
In the course of these meetings, the plaintiffs or Manny Papadoulis on behalf of the plaintiffs provided Darcy Pappas or Carlo Celisano or other member of the defendant's staff all such correspondence and notices, or copies thereof, and sought the defendant's advice as to the effect of the various correspondence and notices, including the Notices, and asked what to do."
By consent orders dated 11 October 2007 the statement of claim was amended by adding a claim that the defendant by its conduct had engaged in misleading or deceptive conduct or conduct likely to mislead or deceive and seeking an alternative relief under s 79 of the Fair Trading Act1987 (WA).
Summary of history of proceedings
The history of this matter can be summarised as follows:
| (1) | Date of writ of summons with indorsed statement of claim | 14 June 2006 |
| (2) | Date of further and better particulars of claim | 17 August 2006 |
| (3) | Date of order giving the plaintiffs leave to amend the statement of claim as per a minute dated 12 June 2007 | 12 June 2007 |
| (4) | Date of consent order giving the plaintiffs leave to re‑amend statement of claim as per minute dated September 2007 | 11 October 2007 |
| (5) | Date of filing application by chamber summons to amend statement of claim as per a Minute of Further Re-Amended Statement of Claim dated 22 August 2008 | 22 August 2008 |
The Minute of Proposed Further Re-Amended Statement of Claim dated 22 August 2008 included an amendment by adding par 12(e) to the statement of claim. This amendment added to the particulars of the defendants' failure to exercise reasonable skill, care and attention the following allegation:
"(e)The defendants failed to
(i)advise the plaintiffs that Feature was, or was probably, engaging in insolvent trading; and
(ii)advise the plaintiffs that it was in the best interests of Feature, its directors, its shareholders and its creditors, for Feature to be placed into voluntary administration within 14 days of receipt of the notices."
The amendment by adding par 12(e) to the statement of claim was allowed by the order of Registrar Kingsley on 21 November 2008 and there is no challenge to this part of his order in this appeal.
The proposed amendment (which was disallowed by the Registrar and is the subject of this appeal) provided as follows:
"18.Further and in the alternative the defendant failed to:
18.1advise Feature that it was, or was probably, engaging in insolvent trading; and
18.2advise Feature that it was in the best interests of Feature, its directors, its shareholders and its creditors, for Feature to be placed into voluntary administration within 14 days of receipt of the Notices:
("Failure to advise Feature")
19.In the circumstances pleaded in paragraph 13, there was an exception that the defendant would give Feature the advice and the recommendations pleaded at paragraphs 18.1 and 18.2.
20.The defendant's conduct comprising the Failure to Advise Feature was conduct engaged in trade or commerce within the meaning of the Fair Trading Act 1987 (WA).
21.In the circumstances pleaded in paragraph 19, by the defendant's Failure to Advise Feature [and by the Repayment Advice], the defendant engaged in misleading or deceptive conduct, or conduct likely to mislead or deceive, in contravention of section 10 of the Fair Trading Act 1987 (WA).
The defendant's silence, failure to recommend that Feature be placed into administration, alternatively the defendant's advice to Feature to continue trading and attempt to repay the Penalty through a repayment plan with the ATO, led Feature:
(a)to infer that no detriment or risk of economic loss and damage to the plaintiffs, Feature or Feature's creditors existed in relation to the Notices;
(b)to believe that it was in the best interests of Feature, its directors, shareholders and creditors to continue trading; and
(c)to take no action in relation to the Notices within 14 days of the Notices.
22.Had Feature received the advice pleaded in paragraphs 18.1 and 18.2, Feature, alternatively the plaintiffs, would have taken steps to place Feature into voluntary administration within 14 days of receipt of the Notices."
In his reasons for disallowing the proposed amendment the Registrar stated as follows (see Papadoulis v Pappas and Associates (A Firm) [2008] WADC 166):
"5.I have already disallowed pars 18 to 22. In those paragraphs the plaintiffs seek to plead a case for Feature. In those paragraphs the plaintiffs sought to plead that the defendant failed to advise Feature that it was probably engaging in insolvent trading and the defendant failed to advise Feature that it was in the best interests of Feature, and its directors, shareholders and creditors, that Feature be placed in voluntary administration. The plaintiffs plead that had they been properly advised they would have taken steps to place Feature into administration.
6.The steps the plaintiffs were to take, and the purported effect of the lack of advice in relation to Feature relates to the plaintiffs in their capacity as directors of Feature.
7.This action is a personal action by the plaintiffs against the defendants. In my opinion the action sought to be pleaded in pars 18 to 22 is entirely new, and plead a cause by the plaintiffs in a different capacity. For this reason I have disallowed the amendments to pars 18 to 22."
The law
An amendment to a pleading is made pursuant to O 21 r 5 of the Rules of the Supreme Court which relevantly provides as follows:
"5. Amendment of writ or pleading with leave
(1)… [T]he Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleading, on such terms as to costs or otherwise as may be just and in such manner (if any) as the court may direct.
(2)Where an application to the Court for leave to make the amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.
(3)…
(4)…
(5)An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment."
Section 79 of the Fair Trading Act 1987 (WA) provides as follows:
"79. Actions for damages (TPA s 82)
(1)A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part II (sections 11 and 11A excepted), Part III, Part V or Part VI, may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
(2)An action under subsection (1) may be commenced at any time within 3 years after the date on which the cause of action accrued."
The defendant's position on this appeal is that it opposes the proposed amendments on the grounds that the Court does not have power to grant leave to amend under O 21 r 5(5) because a new cause of action is pleaded which does not arise out of the same facts or substantially the same facts as a cause of action already pleaded in the statement of claim indorsed on the writ and alternatively, if the Court does have power, then it ought to exercise its discretion to refuse leave.
The application of O 21 r 5(5) arises where the relevant limitation period had not expired at the commencement of the action, but has expired by the time an application is made to amend to plead an alternative basis of relief (see ABB Service Pty Ltd v Hetherington & Anor [2001] WASCA 417, McLure JA (with whom Wheeler J agreed) at [13]).
In this matter it is common ground that the writ was within the time limit contained in s 79(2) of the Fair Trading Act 1987 (WA) but that at the time of the application for the proposed amendment, the relief sought was out of time.
The relationship between O 21 r 5(5) and the limitation periods set out in the Limitations Act 1985 (WA) was considered by the Full Court in Morgan v Banning (1999) 20 WAR 474. Hetherington's case (supra) concerned the relationship between O 21 r 5(5) and the time limitation contained in s 79(2) of the Fair Trading Act1987 (WA). There does not appear to be any distinction that can be drawn between limitations under the Limitations Act 1985 (WA) and the limitation contained under s 79(2) of the Fair Trading Act 1987 (WA) insofar as the operation of O 21 r 5 is concerned.
The following relevant general principles emerge from these two above authorities:
1.The limitation provisions concern questions of whether the statutory limitation period had expired at the time of the issue of the writ rather than any subsequent proceeding (Morgan v Banning supra, Wheeler J at p 482 (with whom Ipp J agreed) and Owen J at p 476).
2.A "cause of action" is simply a factual situation, the existence of which entitles one party to obtain from the court a remedy against another party (see Morgan v Banning supra, Wheeler J at pp 484‑5 (with whom Ipp J agreed), and Owen J at pp 476-477, Hetherington's case supra, McLure JA at [9]).
3.Given the above definition of "cause of action", an amendment which seeks grounds of relief which would be statute barred if subject to fresh proceedings, may be allowed by way of amendment to a writ issued within the statutory limitation period, if the facts pleaded in the writ substantially coincide with the facts upon which the amended relief is sought. As stated by Wheeler J in at p 485 in Morgan v Banning (supra), this coincides with the principal purpose of statutory limitation periods that a defendant knows with finality what fact or facts are said to give rise to the action against him, rather than what label may be conveniently applied to these facts.
4.Accordingly, an amendment seeking an additional basis for relief may be allowed if the factual basis for the relief sufficiently coincides with the facts pleaded in the writ within time (Morgan v Banning supra, Owen J at p 476). If, however, the amendment seeks to raise a new basis for relief on a different set of facts, then no amendment is permitted (Morgan v Banning supra, Wheeler J at pp 486-487).
5.The purpose of O 21 r 5(5) is to avoid an overly technical and rigid investigation as to the degree of coincidence between the facts pleaded in the writ and those in any proposed amendment (see Morgan v Banning supra per Owen J at p 477; and Hetherington's case supra per McLure J at [20]). It is no objection to a proposed amendment that some of the facts out of which the new cause of action arises are peculiar to it and that some of the facts out of which the old cause of action arises are peculiar to it. It is enough if the overlap is so great that the new cause of action can be said to arise out of substantially the same facts as the old cause of action (McLure J in Hetherington supra at par [21]; Dye v GriffinCoal Mining Co (1998) 19 WAR 431 per Owen J at 434).
6.An amendment allowed does not preclude the other party from pleading in its defence and arguing at trial that the relief sought by the amendment raises a new cause of action and is statute barred. This recognises that the idea of "relation back" of an amendment cannot be used to defeat a limitations argument (Morgan v Banning supra, Wheeler J at 482; Hetherington's case supra, McLure JA at [9]).
7.The exercise of the court of the power to amend under O 21 r 5 is discretionary. When considering whether to exercise a discretion to allow an amendment under O 21 r 5(5) the court can take into account:
(i)that to disallow the amendment will prevent the plaintiff from bringing the issue to court at all;
(ii)the question of justice to the plaintiff, delay, reasons for delay, prejudice to the defendant or other persons, and possible abuse of process.
(see Morgan v Banning (supra), Wheeler J at p 486).
Central issue
The central issue in this matter is whether the proposed amendments raise new factual issues or whether the relief sought "arises out of the same facts or substantially the same facts as the cause of action in respect of which relief has already been claimed in the action".
The defendant argues that this requires a consideration of the facts pleaded in the statement of claim attached to the writ and not as expanded by subsequent amendments allowed such as those made on 12 June 2007, 11 October 2007 and 21 November 2008. There is some merit to this argument in view of Wheeler J's dicta in Morgan v Banning (supra) that the principle of "relation back" should not be used to defeat the statute of limitations and limitation periods relate to the time of the issue of the writ. Against this is the wording of O 21 r 5 which refers to the same facts pleaded "in the action". This is not qualified by wording "as at the time of the issue of the writ".
In my opinion there is no objection to taking into account facts pleaded in prior amendments made within the limitation period. However, whether facts pleaded in a prior amendment outside the limitation period can be taken into account is doubtful. Further, it is unclear as to whether further and better particulars of claim filed after the expiration of the limitation can be taken into account.
A cause of action under s 79 of the Fair Trading Act 1987 (WA) arises at the time loss or damage is suffered as a result of the breach [Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40‑473; Fenech v Sterling (1983) 79 FLR 244, James v ANZ Banking Group Ltd (1986) 64 ALR 347; Coleman v Gordon M Jenkins & AssociatesPty Ltd (1989) ATPR 40-960]. In this matter it might be argued that the cause of action arose at the time of failing to comply with the notices issued under s 222AOE of the Income Tax Assessment Act 1936 (Cth) or at the time judgment was entered against the plaintiffs in proceedings commenced by the Commissioner of Taxation (which according to the allegations contained in the statement of claim occurred on 3 November 2003). In either case the amendments dated 11 October 2007 and 22 August 2008 (and possibly the amendments dated 12 June 2007) were made after the expiration of the time limitation in s 79(2) of the Fair Trading Act 1987 (WA). The further and better particulars dated 17 August 2006 may also be outside the limitation period.
However, for reasons set out below I conclude I need not resolve this issue of whether facts pleaded in earlier amendments and/or the further and better particulars can be taken into account when considering whether the proposed amendments come within O 21 r 5(5).
Do the proposed amendments arise "out of the same facts or substantially the same facts" as pleaded in the statement of claim indorsed on the writ of summons?
In my opinion the basal facts which are pleaded in the original statement of claim attached to the writ (and within time under s 79(2) of the Fair Trading Act 1987 (WA)) are as follows:
(a)That at all material times the defendant was the accountant and tax agent of the plaintiffs and Feature.
(b)The plaintiffs received notices under O 222AOE of the Income Tax Assessment Act 1936 (Cth) the effect of which was the plaintiffs would be liable for the taxation liability of Feature unless the plaintiffs complied with the notices, one method of which was to place Feature into administration within 14 days.
(c)The defendant ought to have given advice to the plaintiffs that Feature should be placed into administration in the 14 day period.
(d)The failure to give such advice meant that Feature was not placed into administration within 14 days of the notices and the plaintiffs incurred a personal liability to pay the taxation liability of Feature.
In my opinion the proposed amendments raise two new issues not pleaded in the statement of claim indorsed on the writ:
1.that the defendant ought to have advised Feature that it was probably engaging in insolvent trading; and
2.that the defendant ought to have advised Feature that it was in the best interests of Feature, its directors, its shareholders and its creditors for Feature to be placed in voluntary administration within 14 days of receipt of the notices.
A significant feature of the proposed amendment is that it relies upon an alleged failure to advise Feature rather than the plaintiffs. This is the feature of the pleading which lead the Registrar to conclude that the proposed amendment pleaded a cause of action "in a different capacity" (see Papadoulis v Pappas and Associates (A Firm) (supra) at [7]). However, in my opinion the plaintiffs rely upon the same capacity as pleaded in the statement of claim indorsed on the writ, that is, that they suffered loss as directors of Feature as a result of Feature not being placed into administration within 14 days of receipt of the notices.
In my opinion a cause of action by the plaintiffs based upon a failure to advise Feature to go into administration within 14 days of receipt of the notices arises out of substantially the same facts in the pleaded cause of action in the statement of claim indorsed on the writ whereby the plaintiffs claim they have suffered loss as a result of the plaintiffs as directors of the company not being advised to place Feature into administration within 14 days of receipt of the notices.
Accordingly I find that the proposed amendments come within the scope of O 21 r 5(5).
On the issue of the exercise of the discretion I take into account that if the proposed amendments are not allowed the plaintiffs may be defeated on any claim under the Fair Trading Act1987 (WA) on the basis that the obligation to give advice in relation to the notices was to the company and not the directors as individuals. By allowing the proposed amendments the plaintiffs at least are given the opportunity to argue against this legal nicety which might otherwise interfere with justice being done to the parties.
As earlier stated, the defendant is not prejudiced by an order giving leave to allow the amendments because its right to raise in its defence limitation periods is not prejudiced.
In all the circumstances I believe the discretion should be exercised to allow the amendments and accordingly I allow the appeal.
I will hear from counsel as to the terms of consequential orders.
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