PG Nominees Pty Ltd v WBHO Infrastructure Pty Ltd
[2020] VSC 48
•20 February 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S ECI 2019 01160
BETWEEN:
| PG NOMINEES PTY LTD (ACN 623 480 473) ATF RYAN FAMILY TRUST | Plaintiff |
| v | |
| WBHO INFRASTRUCTURE PTY LTD (ACN 089 434 220) | Defendant |
AND BETWEEN:
| WBHO INFRASTRUCTURE PTY LTD (ACN 089 434 220) | Plaintiff by First Counterclaim |
| PETER RYAN | Plaintiff by Second Counterclaim |
| v | |
| PG NOMINEES PTY LTD (ACN 623 480 473) ATF RYAN FAMILY TRUST | Defendant by First Counterclaim |
| PETER RYAN | Defendant by First Counterclaim |
| WBHO INFRASTRUCTURE PTY LTD (ACN 089 434 220) | Defendant by Second Counterclaim |
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JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 February 2020 |
DATE OF RULING: | 20 February 2020 |
CASE MAY BE CITED AS: | PG Nominees Pty Ltd v WBHO Infrastructure Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 48 |
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PRACTICE AND PROCEDURE – Adoption of rules for employee share plan – Application by defendant for leave to withdraw admission concerning board approval of rules relied upon by plaintiff in statement of claim – Application to cross-examine solicitor who made the admission – Supreme Court (General Civil Procedure) Rules 2015 (Vic) rr 25.02(4)–(5), 40.04(1), (3) – Matthews v SPI Electricity Pty Ltd (No 6) [2013] VSC 422 applied – Gregorich v Khouri [2020] VSC 5 applied.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr M Clarke QC with Mr H Kirimof | Bartlett Workplace Lawyers and Consultants |
| For the Defendant | Mr S R Senathirajah QC with Ms R Preston | Corrs Chambers Westgarth |
HER HONOUR:
Prior to trial, the defendant seeks to withdraw an admission made in its defence. The application is opposed by the plaintiffs. I will allow the application to withdraw for the reasons below.
During the course of the application to withdraw the admission, the plaintiffs sought to cross-examine the defendant’s solicitor in respect of an affidavit he has sworn in support of the application. This ruling records the ex tempore reasons given for refusing that application.
Background
The admission concerns the adoption of rules by the defendant’s board regarding an employee share plan. The defendant is WBHO Infrastructure Pty Ltd (‘WBHO’), the former employer of Mr Peter Ryan.[1] He was employed as WBHO’s managing director from 2015 until his employment was terminated on 18 December 2018. It is common ground that Mr Ryan was invited to participate in the WBHO Employee Share Plan (‘ESP’) and did so.
[1]He is the plaintiff by second counterclaim. For convenience, in this ruling ‘the plaintiffs’ refers both to Mr Ryan and the plaintiff WBHO Infrastructure Pty Ltd.
The plaintiff, PG Nominees Pty Ltd (‘PG Nominees’), is an entity controlled by Mr Ryan. In this proceeding, it seeks approximately $1 million. It claims that it has not been paid out a fair market value of the shares as required by the ESP rules. WBHO denies the ESP rules mandated payment out.
WBHO says that Mr Ryan engaged in serious misconduct and counterclaims against PG Nominees and against Mr Ryan personally in respect of a loan given for the purchase of shares, payment of a short term incentive bonus and excess annual leave. Mr Ryan counterclaims for a payment of accrued and untaken annual leave.
WBHO wishes to withdraw an admission that its board approved the ESP rules relied upon by PG Nominees and Mr Ryan. WBHO says they were draft rules and only one version of ESP rules was approved by the board. PG Nominees and Mr Ryan dispute this. The dispute is a critical one because the different versions relied upon by the parties may have different consequences. In particular, different consequences as to whether or not WBHO had the discretion to reject any deemed disposal request in respect of shares allocated under the ESP.
Pleadings
Turning now to the specific pleadings.
Paragraphs 7–9 of the statement of claim filed on 19 March 2019 follow.
7.On 15 December 2017, Ryan received a letter from Gray, in his capacity as Director of WBHO Infrastructure, entitled ‘Invitation to apply for Plan Shares’ (Invitation).
Particulars
The Invitation is in writing and in possession of both parties.
8. The Invitation said, relevantly, that:
(a)Ryan was invited to participate in the WBHO Infrastructure Employee Share Plan (ESP);
(b)if Ryan accepted the Invitation, he could apply for 200,000 fully paid ordinary shares in WBHO Infrastructure for a purchase price of $3.38 per share;
(c)the Invitation was made to Ryan personally, however, subject to approval by WBHO Infrastructure, he may nominate an entity that he controls to receive the shares on his behalf;
(d)the offered shares were to be paid for in cash or, if WBHO Infrastructure agreed, WBHO Infrastructure would lend Ryan or any approved nominee part or all of the funds to acquire the shares;
(e)the shares, and any loan, were offered on the terms and conditions set out in the Invitation, and the rules of the ESP (ESP Rules), and if there is any inconsistency between the terms of the letter of 15 December 2017 from WBHO Infrastructure to Ryan that set out some of the terms of the Invitation and the ESP Rules, the ESP Rules would prevail;
(f)on acceptance of the Invitation, Ryan (or any approved nominee) agreed to be bound by all of the terms of the Invitation and ESP Rules;
(g)any shares purchased by Ryan or his nominee were to be transferred, bought back and cancelled or redeemed or sold to a third party nominated by WBHO Infrastructure if Ryan ceased to be employed by WBHO Infrastructure or a related body.
9.On 8 March 2018, the ESP Rules were adopted by the Board of WBHO Infrastructure.
Particulars
The ESP Rules are in writing and contain the following three attachments:
(a) Attachment 1: Pro Forma Acceptance Form;
(b)Attachment 2: Fair Market Value of Initial Plan Shares and June 2017 Audited Accounts;
(c)Attachment 3: Shareholder Rules.
In its defence and counterclaim filed on 13 May 2019 (‘the defence’), WBHO admitted paragraph 9 of the statement of claim. It did so again on 18 June 2019 when it filed its amended defence and counterclaim (‘the amended defence’).
WBHO now seeks to withdraw the admission and plead paragraph 9 as per its further amended defence and counterclaim filed on 16 August 2019 (‘FADAC’):
It
admitsdenies paragraph 9, and states that:(a)the draft ESP Rules that were prepared in about March 2018 were never adopted by the Board of WBHO Infrastructure; and
(b)the ESP Rules were adopted by the Board of WBHO Infrastructure on or around 20 June 2018.
Particulars
The ESP Rules as adopted by the Board of WBHO Infrastructure are in writing.
On or about 16 May 2018, Duggan discussed with Tracey McMullen (who was representing the proposed employee participants in the WBHO Infrastructure employee share plan, including Ryan) the ESP Rules containing the input of Charles Henwood, and she was informed that those rules would be adopted by WBHO Infrastructure.
The ESP Rules were adopted by the Board on or around 20 June 2018, by a majority of the directors of the Board of WBHO Infrastructure being informed of, agreeing to, the proposed ESP Rules, which incorporated the input of Charles Henwood. A copy of the email attaching the ESP Rules and noting their finalisation is available from the solicitors for WBHO Infrastructure.
The agreement of the majority of the directors of the Board of WBHO Infrastructure is to be implied/inferred from the contemporaneous email correspondence passing between various directors of the Board of WBHO Infrastructure (and other employees of WBHO Infrastructure).
A copy of the ESP Rules as adopted by the Board of WBHO Infrastructure are in the possession of the solicitors acting for WBHO Infrastructure, and may be inspected by appointment.
(emphasis in original)
The filing of the FADAC was consequential to orders made by consent on 16 August 2019. Paragraph 2 of those orders follows.
PG Nominees Pty Ltd and Peter Mr Ryan consent to WBHO Infrastructure Pty Ltd filing and serving a further amended defence, in the form provided on 31 July 2019, by 4.00pm on 16 August 2019. (emphasis omitted)
On the same date that the FADAC was filed, the WBHO’s solicitors filed a proper basis certificate in respect of it.
By summons filed on 15 November 2019, WBHO seek leave to withdraw its admission in paragraph 9 and rely instead on paragraph 9 of the FADAC. The application is supported by the affidavit of Mr John Tuck, solicitor, sworn on 12 November 2019 (‘the Tuck affidavit’).
Mr Ryan and PG Nominees oppose the summons and seek leave to cross-examine Mr Tuck on his affidavit. They rely upon the affidavits of Mr Ryan sworn on 3 February 2020 (‘the Ryan affidavit’) and Ms Hui Meng Ong, solicitor, sworn on 11 February 2020 (‘the first Ong affidavit’) and 13 February 2020 (‘the second Ong affidavit’).[2]
[2]Paragraphs [8]–[9] of the second Ong affidavit are not relied upon by the plaintiffs.
Application to cross-examine solicitor
Plaintiffs’ submissions
WBHO should not be permitted to rely on the affidavit of Mr Tuck and if it is so permitted, very little weight should be accorded to it. Mr Ryan and PG Nominees are put at an unfair forensic advantage if they cannot cross-examine the person who is the primary source of Mr Tuck’s instructions, namely Mr Brad Duggan. Mr Duggan is the chief financial officer of WBHO Australia Pty Ltd, which is the parent company of WBHO.
If WBHO are permitted to rely upon the Tuck affidavit, then Mr Tuck should be cross‑examined for the following reasons.
First, authorities provide that a defendant who seeks leave to withdraw an admission must provide a sensible explanation based on evidence of a ‘substantial and solid character’. The question of whether Mr Tuck’s evidence constitutes a substantial and solid evidentiary basis for the application requires resolution.
Second, the inadequacies of the evidence in the Tuck affidavit, particularly the instructions from his client, raise a real question as to Mr Tuck’s credit (in the sense of reliability, as opposed to honesty). It is in conflict with the evidence given in the Ryan affidavit.
Third, it is inappropriate for WBHO to give evidence through Mr Tuck. It is Mr Duggan that Mr Tuck asserts made the alleged error regarding adoption of the rules by the board, not himself. WBHO is required to present evidence justifying its application which includes satisfying the Court that the admission was an error, and not deliberate. Yet it has unfairly shielded that evidence from being tested. It is not clear whether or not the error that WBHO says was made in making the admission is solely Mr Duggan’s error or not.
Fourth, it is irrelevant that there will be the opportunity to cross‑examine Mr Duggan and others at trial on a question of whether the ESP rules were adopted. The application to cross‑examine is not a ‘dry run’ of cross‑examination issues that may arise at trial. It will be essentially limited to the instruction gathering and pleading drafting process.
Fifth, the only explanation by WBHO for seeking to withdraw its admission is inadvertence. The credit of its evidence must therefore be of central importance.
Sixth, without cross‑examination of Mr Tuck, there can be no way of testing whether his evidence has the requisite quality. However, since serious issues of credit have been raised in the Ryan affidavit over the explanation proffered by WBHO as to its change of position, cross‑examination is doubly justified. Absent it, the necessary factual issues cannot be resolved.
Defendants’ submissions
Leave to cross‑examine Mr Tuck should be refused for the following reasons.
First, this is an interlocutory proceeding and cross‑examination should be granted ‘somewhat sparingly’ and on proper grounds.
Second, the application concerns a matter of practice and procedure.
Third, there is no factual dispute as between the parties suitable for resolution at an interlocutory stage. No affidavit evidence has been filed contradicting the evidence deposed by Mr Tuck as to the instructions received from WBHO.
Fourth, if objection is taken to the content of Mr Tuck’s affidavit (which is in any event based on hearsay evidence), those matters are most suitably addressed through submissions.
Applicable Principles
Rules 40.04(1) and 40.04(3) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’) provide:
Examination on affidavit
(1) Where an affidavit is filed in any proceeding, the Court—
(a) may order that the deponent be examined before the Court; and
(b)may order that the deponent attend for that purpose at such time and place as it directs.
…
(3) Where a deponent in respect of whom an order is made under paragraph (1)… does not attend for examination the Court may order that the affidavit be not received into evidence.
Sections 9, 75 and 192 of the Evidence Act 2008 (‘Evidence Act’) are respectively as follows.
Application of common law and equity
(1) This Act does not affect the operation of a principle or rule of common law or equity in relation to evidence in a proceeding to which this Act applies, except so far as this Act provides otherwise expressly or by necessary intendment.
(2) Without limiting subsection (1), this Act does not affect the operation of such a principle or rule so far as it relates to any of the following—
…
(c)a court's power to dispense with the operation of a rule of evidence or procedure in an interlocutory proceeding.
…
Exception—interlocutory proceedings
In an interlocutory proceeding, the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source.
…
Leave, permission or direction may be given on terms
(1) If, because of this Act, a court may give any leave, permission or direction, the leave, permission or direction may be given on such terms as the court thinks fit.
(2) Without limiting the matters that the court may take into account in deciding whether to give the leave, permission or direction, it is to take into account—
(a)the extent to which to do so would be likely to add unduly to, or to shorten, the length of the hearing; and
(b)the extent to which to do so would be unfair to a party or to a witness; and
(c)the importance of the evidence in relation to which the leave, permission or direction is sought; and
(d) the nature of the proceeding; and
(e)the power (if any) of the court to adjourn the hearing or to make another order or to give a direction in relation to the evidence.
In Matthews v SPI Electricity Pty Ltd (No 6), Derham AsJ outlined the following principles, which I adopt:[3]
[3][2013] VSC 422 [25]–[29] (emphasis added) (citations omitted).
25There is a tension between the authorities in the United Kingdom and Victoria as to the circumstances in which leave to cross examine a deponent on his affidavit will be allowed. In Comet Products UK v Hawkex Plastics Ltd Megaw LJ observed that where there is a bona fide application to cross-examine a deponent on his affidavit in interlocutory proceedings, the application should normally be granted. In a number of decisions in Victoria the approach taken is to exercise the power to allow cross examination in interlocutory proceedings “somewhat sparingly”: Scanlon v American Cigarette Company (Overseas) Pty Ltd (No 1). This observation was followed by Branson J in Friends of Hinchenbrook Society Inc v Minister for Environment (No 1), and by Kenny J in Wu v Avin Operations Pty Ltd (No 3), and by Habersberger J in Talacko v Talacko (No 2).
26In Palmer Tube Mills (Aust) Pty Ltd v Semi Brooking JA (with whom Tadgell and Buchanan JJA agreed) commented in relation to the observation of Megaw LJ in Comet that the observation of his Lordship “may go further than the practise in Victoria”.
27In Yunghanns v Elfic Pty Ltd Warren J (as she then was) refused to allow cross examination on an interlocutory application by the plaintiffs for an order allowing them to inspect certain discovered documents in respect of which the defendants had claimed legal professional privilege. The defendants had sought to cross examine Mr Yunghanns in relation to alleged inconsistencies in his evidence and as to his legal and commercial knowledge, acumen and experience. Warren J refused leave, essentially for the reasons that:
(a)in so far as there were inconsistencies in Mr Yunghanns’ evidence, they were appropriate for submission;
(b)in so far as there was an allegation of recent invention this also was appropriate for submissions;
(c)it is undesirable except in special compelling circumstances for a court to permit a party to have the opportunity at an interlocutory stage to cross-examine an opposing party upon the issue of fact that goes to the core of the proceeding. This would enable a dress rehearsal of a vital component of evidence to be ventilated at trial;
(d) that she would not be assisted by the cross examination.
28An examination of the authorities shows that the variety of circumstances in which it may be appropriate to allow cross examination varies according to the nature of the application and the facts of the case. The overriding principle is that of procedural fairness. There are, however, a number of factors that have been found relevant to granting leave to cross-examine, as follows:
(a)where the credit of the witness is important to resolving the interlocutory application;
(b)the interlocutory application requires the establishment of material facts;
(c)there is a relevant factual dispute which requires cross examination for its resolution;
(d)the interlocutory application is unusual and it is difficult to know what issues will eventually be relevant.
29There are, of course, factors that will exclude or limit cross examination, including:
(a)that the application is not made bona fide to test an issue of material fact on the interlocutory application, but rather to engage in a rehearsal of issues relevant to the trial;
(b)the extent to which the pressure of the business of the Court permits cross-examination;
(c)the factors referred above from the decision of Warren J in Yunghanns.
Analysis
As the authorities cited indicate, the power to cross-examine in interlocutory applications should be exercised ‘somewhat sparingly’. I will not exercise power to grant the application to cross-examine Mr Tuck for the reasons below.
First, the nature of this application is relevant. It is an interlocutory application in respect of a procedural matter. It may be distinguished from some of the authorities cited by the plaintiffs; this is not a case where relief of a final nature is given.[4] Nor is a finding of substantive rights to be made. It may be distinguished from applications in which an injunction or similar relief is sought.[5]
[4]Scanlon v American Cigarette Company (Overseas) Pty Ltd (No 1) [1987] VR 261; Koumorou v the State of Victoria [1991] VR 265.
[5]Bracken Partners Limited v Graham Gutteridge [2001] EWHC (Ch) 568; Sent and Primelife Corporation Ltd v John Fairfax Publication Pty Ltd and Hills [2002] VSC 429.
Second, it is common ground that Mr Tuck’s affidavit contains hearsay. Section 75 of the Evidence Act provides an exception to the hearsay rule in respect of interlocutory applications. I accept that there are times when a change of position may, when considered with other factors, result in leave being given to cross-examine the relevant party.
Here, to paraphrase, Mr Tuck deposes that there was inadvertence on the part of WBHO which resulted in the admission being wrongly given. Cross-examination is sought in respect of the instructions obtained by Mr Tuck. His credit is not challenged as to truthfulness. Reliability is challenged. However, if cross-examination is restricted to Mr Tuck obtaining instructions and the drafting pleading process (as submitted), it is not capable of ascertaining whether or not the instructions he was given were reliable. That would require evidence from Mr Duggan. That, in turn, would require testing of a critical and substantive issue, namely whether or not the board approved the ESP rules referred to in paragraph 9 of the statement of claim. That would potentially be a ‘dress rehearsal’ of the issues to be ventilated at trial. That outcome must be avoided.
Third, the conflict in the evidence between the Tuck affidavit and the Ryan affidavit is not in respect of the issue as to what instructions were given to Mr Tuck by Mr Duggan. It is in relation to the veracity of those instructions. Mr Tuck’s evidence as to his instructions is unchallenged. This is not an unusual or difficult case that requires cross-examination of a solicitor who has provided an affidavit regarding a procedural matter. I would not be assisted by such cross-examination at this hearing.
Fourth, if WBHO does not establish that the withdrawal is made by consent, the onus is on it to establish there is a proper foundation for its application. The parties will have the opportunity to provide submissions in relation to that issue, and in relation to the Tuck affidavit.
Application to withdraw admission
As paragraph 9 of the defence, amended defence and FADAC respond to PG Nominees’ statement of claim, reference below is made to PG Nominees, rather than Mr Ryan and PG Nominees. The latter are both represented by the same counsel and legal practitioners.
Defendant’s submissions
PG Nominees had already, in effect, consented to the withdrawal of the admission and accordingly leave is not required. The FADAC was filed in its current form, including the withdrawn admission, on notice to and with the consent of PG Nominees. It was the solicitor for PG Nominees who queried whether WBHO’s solicitors were operating from the wrong set of the ESP rules. Two days later, on 9 July 2019, solicitors for WBHO received the version that PG Nominees was relying upon. On 31 July 2019, WBHO’s solicitors wrote to PG Nominees’ solicitors indicating that it was apparent their respective clients were relying on different versions to different rules and sought consent to file the FADAC. The solicitors for PG Nominees were aware that the proposed FADAC was dealing with the disparate version. It was expressly identified by WBHO’s solicitors in the covering email.
It was unnecessary to request specific consent for the withdrawal of admission given the substance of the covering email and that it attached the proposed FADAC. The solicitors for the parties executed a consent minute and the consent orders of 16 August 2019 gave leave to file and serve the FADAC in the form provided to PG Nominees’ solicitor. PG Nominees’ subsequent denial of consent is unmeritorious and unreasonable conduct which has resulted in WBHO having to make this application.
If leave to withdraw the admission is required, it should be granted for the following reasons.
First, the admission was made in error, based on a false assumption, and the error is evident from the pleading viewed as a whole. It never intended or appreciated the admission as having the effect it has: namely, admitting that it approved the ESP rules relied upon by PG Nominees on or around 8 March 2018. Why would WBHO make an admission against its own interests if it was not a mistake? The substantive issue, namely whether it retains discretion to accept or reject any deemed disposal request, has always been disputed by WBHO. This is evident from paragraph 15 of its defence and amended defence.
Second, there is solid and substantial evidence of the fact the admission was made in error, and that the underlying facts entitle WBHO to dispute the allegation in question, as set out in the Tuck affidavit. Mr Duggan did not appreciate the significance of the date of adoption of the ESP rules. He made an assumption about the version that PG Nominees was relying upon. There is no proper basis for being critical of Mr Tuck deposing the affidavit because he and counsel, rather than Mr Duggan or Mr Peacock (group legal counsel), drafted the defence. PG Nominees are attempting to conflate the issues for determination at trial and the issues for determination on this application. The relevant question is what Mr Tuck believed when he made the admission in the pleading on behalf of WBHO, not what version of the ESP rules is adopted on any given date.
In response to the submissions by PG Nominees that there is evidence in the Tuck affidavit that Mr Duggan had both sets of ESP rules, WBHO says that was at a different point of time, some four months earlier, to when the defence was prepared in May 2019. He did not appreciate the document being relied upon by PG Nominees was a draft version. Mr Tuck deposes that upon receiving and reading the version of the ESP rules provided by PG Nominees, he became aware the parties were relying on different versions.
The proper basis certificate filed with the FADAC shows that it was certified by Mr Tuck as having a proper basis. It was filed before any complaint from PG Nominees concerning the withdrawal.
Third, and importantly, there is no relevant prejudice to PG Nominees in withdrawal of submissions in circumstances where the proceeding is still in its interlocutory stage. The loss of an opportunistic early forensic advantage in the form of the admission is not relevant prejudice. But for the admission, PG Nominees always had the onus of proving that their version of the ESP rules applied. Further, they have always been on notice that they had the burden of establishing that the ESP rules did not give any discretion to WBHO to reject a deemed disposal request by reason of paragraph 15 of the defence.
This is not a late application. No trial date is set. No evidence has been filed. There is no irremediable prejudice. The complaints about the evidence to be given by Mr Duggan and Mr Peacock can be ventilated at trial. If permission is given by the Court to withdraw the admission, it will not prevent or restrict PG Nominees from seeking to establish at trial that its version of the ESP rules applied. They will be able to cross‑examine witnesses, including Mr Duggan.
The Ryan affidavit and the first Ong affidavit do nothing more than show, for present purposes, that the parties dispute key facts in relation to the board’s approval of ESP rules. They are properly matters to be determined at trial and not on this interlocutory application. The Ryan affidavit does not contradict the evidence of Mr Tuck as to the instructions he received from WBHO for the purpose of drafting the defence and the circumstances in which the admission came to be made.
Fourth, crucially, if WBHO is not permitted to withdraw the admission, it will likely be pre-emptively barred from submitting at trial that the ESP rules (as opposed to the ESP rules pleaded by PG Nominees) were in fact properly adopted by it and applied to the claim by PG Nominees. That would work a serious unfairness on WBHO and raise questions as to the integrity of its defence as a whole. It will be severely prejudiced. There would be no proper basis for the matters pleaded in other paragraphs of the FADAC. It is based on provisions in the ESP rules relied on by WBHO and which are not contained in the ESP rules that are relied upon by PG Nominees. Both sets of rules could not operate simultaneously. Justice demands that WBHO be entitled to ventilate the issue at trial.
Plaintiffs’ submissions
Consent to withdraw the admission was not provided. Consent to specific withdrawal of the express admission was never sought. The reply to paragraph 9 of the FADAC seeks to strike out the withdrawal on the basis that it is embarrassing because it is done without leave of the Court.[6]
[6]Reply to FADAC filed by the plaintiff on 21 August 2019.
Leave to withdraw the admission is opposed on the following grounds.
First, the admissions are clear, deliberate and made formally, and not the result of inadvertence or mistake.
Second, WBHO has failed to provide a sensible explanation for making the admission that is based on ‘evidence of a solid and substantial character’. A withdrawal of admission is not permitted easily. A necessary prerequisite for granting leave is adequate evidence to support the application for amendment. Where the facts in an interlocutory application are highly contentious, the correct practice is for the party, not their solicitor, to depose the supporting affidavit. This did not occur. There is no evidence from Mr Duggan or any director of WBHO. They are not on oath. A defendant’s act of making an unqualified admission would be meaningless if leave to withdraw could simply be obtained by their solicitor deposing as to the defendant’s inadvertence. Mr Tuck’s instructions are of little weight.
The evidence provided on behalf of WBHO must be attended with significant doubt for several reasons.
(a) Mr Ryan has given evidence that in March 2018 he made a cash payment for ESP ‘cash shares’, that he was advanced a loan in respect of ESP ‘loan shares’ and received share certificates. There is no explanation in the Tuck affidavit as to why WBHO say the ESP rules were adopted three months after that. Why would WBHO employees make payment and receive monies for ESP loan shares before the ESP rules were adopted?
(b) The version of the ESP rules that WBHO relies upon does not require WBHO to buy an employee’s ESP shares if they leave employment. This does not make sense as the scheme is to provide incentives for employees by having ‘skin in the game’. On the other hand, the March 2018 version of the ESP rules provides that cessation of employment is a deemed disposal request which the board must accept.[7]
[7]Clauses 11.1.3 and 12.1.1 of the ESP rules contained in Exhibit JTT-3 (80, 82) to the Tuck affidavit.
(c) There is an inconsistency between the Tuck affidavit which deposes that the ESP rules were adopted ‘on or about 20 June 2018’ as contrasted with the FADAC which pleads that they were adopted ‘on 20 June 2018’. There is no explanation for this inconsistency. Further, there is no evidence of any board resolution to adopt the ESP rules on that date. The trend was for quarterly meetings, held shortly before the board meetings of its parent company. The parent company board met on 4 June 2018 and accordingly it was unlikely there was another WBHO board meeting on 20 June 2018. Mr Ryan deposes he attended board meetings. He did not attend a board meeting on 20 June 2018. If there was a board meeting on 20 June 2018, there is no explanation of why he was not invited or provided with documents regarding it. On the other hand, there is compelling evidence that WBHO adopted the ESP rules in March 2018. Mr Ryan deposes that the board report of WBHO’s parent company, drafted in anticipation of its March 2018 meeting, noted in ‘other business’ that it had been advised by WBHO that it had ‘approved the eligible employees acceptance of the employee share offer’.
(d) There is no explanation as to why Mr Duggan did not carefully consider which ESP rules applied. The admission made in paragraph 9 is not simply an admission as to the substance of the ESP rules, but also the date on which they were adopted. No explanation has been provided for WBHO or its lawyers failing to recognise the significance of the date of adoption of the ESP rules.
(e) There is no explanation of how Mr Duggan had regard to both sets of ESP rules at different times of the drafting process, as deposed in the Tuck affidavit. There is no explanation as to how he had regard to two documents at all. Given this, there is no explanation as to why (the Tuck affidavit deposes) it was only on receiving and reading the ESP rules provided by PG Nominees that it became clear the parties were relying on different versions.
Third, the admission has stood for a long time. The original defence was filed after an extension of time was agreed. The defence was settled by counsel. Leave will not normally be granted where the admissions have stood for a long time. Leave will however normally be granted at the interlocutory stage if the proposed amendments will not occasion substantial prejudice.
Fourth, WBHO had all the relevant documents in its possession before deciding whether to make the admissions. The Tuck affidavit deposes that Mr Duggan had access to both sets of ESP rules. It may be inferred WBHO would also have access to draft rules via Mr Duggan who (the Tuck affidavit deposes) was connected to relevant events.
Fifth, Mr Ryan and PG Nominees will be prejudiced if leave to withdraw the admissions is granted. The prejudice is the prolongation of litigation. If leave is granted, there will be a real contest as to which rules apply. It is likely to extend the trial by several days, perhaps three to five days (as deposed in the first Ong affidavit).
Applicable Principles – Withdrawal
Rules 25.02(4)–(5) of the Rules provide:
Discontinuance or withdrawal of proceeding or claim
…
(4) At any time—
(a)the plaintiff may withdraw a defence to counterclaim or any part of it; and
(b)a defendant may withdraw the defendant's defence or any part of it.
(5) Paragraph (4) does not enable a party to withdraw an admission or any other matter operating for the benefit of another party without the consent of that party or the leave of the Court.[8]
…
[8]Emphasis added.
I adopt the following principles recently outlined by Nichols J in Gregorich v Khouri.[9] They summarise the factors to take into account in determining an application for leave to withdraw an admission.
[9][2020] VSC 5 [5]–[13] (Gregorich v Khouri).
Pursuant to rule 36.01 of the Supreme Court (General Civil Procedure) Rules 2015 the Court may at any stage order that any party have leave to amend any document in the proceeding, for the purpose of determining the real question in controversy between the parties, correcting any defect or error in the proceeding or avoiding multiplicity of proceedings.[10]
Whether an amendment should be permitted is [a] matter of discretion, to be exercised according to an assessment of where justice lies. While it is neither possible nor desirable to delimit the factors that the Court may take into account in exercising the discretion, [11] some considerations that should inform the exercise of the discretion have been considered in the authorities.
An amendment will not be permitted where it would cause irremediable prejudice to the other party. On an application to amend the applicant bears the burden of persuasion that the amendment will not cause such prejudice, while the party opposing the amendment bears an evidential onus of adducing evidence on the question of prejudice. The question is whether the possibility of prejudice or injustice to the opposing party has been excluded. If it has not, the application must be refused. It must also be refused if the Court concludes that it cannot decide whether it is just to allow the amendment. [12]
The loss of an opportunity to take a step in the proceeding in response to a denial may constitute relevant prejudice.[13] An order for indemnity costs may not always undo the prejudice a party suffers by a late amendment.[14] Case management considerations may inform the justice of the grant or refusal of an application to amend.[15]
A court will usually require an explanation for the change in position.[16] In McKenzie v Commonwealth[17] and in Jeanes vCommonwealth[18] Gillard J said that it is not the law that a defendant is not permitted to withdraw an admission unless it was shown to have been made inadvertently or through error, and that the absence of a reasonable or adequate explanation will not determine the outcome of an application in the face of compelling reasons of justice[19]. As Gillard J observed, the criteria for the exercise of the discretion conferred by Rule 36.01(1) are those articulated in the Rule itself.[20] Accordingly, there is no separate rule that the reasons for and explanation of a change of position will of themselves dictate the outcome of an application to withdraw an admission.
Nevertheless, an explanation is ordinarily called for in recognition of the fact that the making of an admission is regarded as a serious step for a party to take – its effect being to remove the admitted fact from the arena of controversy between the parties.[21] Thus it has been said that a party will not be permitted to withdraw an admission in a pleading “without good cause”.[22]
That is a more particular emanation of the principle that generally speaking, where a discretion is sought to be exercised in favour of one party and to the disadvantage of the other, an explanation will be required. An explanation is required in order to permit the court to see that the application is brought in good faith and to weigh the circumstances against the effects of an amendment and the objectives of the relevant rule.[23] In Aon Risk Services[24] French CJ said that one consideration in the exercise of an interlocutory discretion is the potential loss of public confidence in the legal system which arises where a court is seen to accede to applications made without adequate explanation or justification.[25]
It has been often said in the context of applications to withdraw admissions, that the explanation proffered should be based on evidence of a “solid and substantial character”.[26] However, what is adequate will depend upon the circumstances of the particular case.
Finally, it is now understood (at least since the High Court’s decision in Aon) that parties must be given a fair trial and a sufficient opportunity to identify the issues they seek to agitate, but according justice in an application to amend is not to be equated with a requirement to afford a party an unlimited opportunity to amend its case.[27]
[10]Rule 25.02(5) provides that rule 25.04(b) (which permits a defendant to withdraw a defence or any part of it at any time) does not enable a party to withdraw an admission operating for the benefit of another party without the consent of that party or leave of the court.
[11]Burkett v Bendigo and Adelaide Bank(No 3) [2019] VSC 45 (Burkett), [14] and the authorities there cited.
[12]Amcor Packaging (Australia) Pty Ltd & Ors v Australian Corrugated Box Co Pty Ltd & Ors [2013] VSCA 223, [65], [66].
[13]Burk v Commonwealth of Australia (No 3) [2004] VSC 210, [70] and the authorities there cited.
[14]Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 (Aon), [99]–[100].
[15]Aon, [94]–[98]; Burkett, [15].
[16]McKenzie v Commonwealth of Australia [2001] VSC 361 (McKenzie), [45].
[17]McKenzie.
[18]Jeanes v Commonwealth of Australia [2005] VSC 488 (Jeanes).
[19]McKenzie, [44]–[45]; Jeanes, [19].
[20]McKenzie [23].
[21]Collie v Merlaw Nominees Pty Ltd (in liq) & Anor [2001] VSC 39 (Collie), [94]–[95] and the authorities there cited.
[22]Collie [94]–[95].
[23]Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 (Aon), [103].
[24]Aon.
[25]Aon [30].
[26]Celestino v Celestino [1990] FCA 299, [12] (Celestino); Ridolfi v Rigato [2001] 1 Qd R 455; Permanent Trustee Co Ltd v Gulf Import and Export Co [2006] VSC 110, [10].
[27]Aon [94]–[99], [112].
Further, Nichols J held that all things being equal, it is desirable that inconsistencies in pleadings be resolved, although that is not necessarily determinative of the application.[28]
[28]Gregorich v Khouri [77].
PG Nominees submits that the facts in Gregorich vKhouri are reasonably close to the facts here. On the other hand, WBHO says the facts are distinguishable.
In Gregorich vKhouri, Nichols J held that the justice of the case did not favour withdrawal of the defendants’ admissions. The defendants did not advance any substantive or coherent explanation as to how the admissions in the defence came to be made.[29] The defendants sought to advance a case ‘substantially different from and inconsistent with that made to date’.[30] It was especially incumbent upon them to explain their change of position in circumstances where the first defendant had given evidence in seeking to persuade the Court to make orders in the defendants’ favour in a freezing order application and in a caveat proceeding. The admissions that the defendants sought to withdraw were consistent with that evidence. However, the first defendant did not go on oath as to his change of position. Rather, the second defendant, his wife, gave evidence that he had not carefully read one of the affidavits (‘the 30 November 2018 affidavit’) that the defendants had earlier relied upon in their freezing order application. Nichols J rejected this hearsay evidence for a number of reasons, including that it did not provide ‘a coherent or credible account’ of how the first defendant came to give the evidence in the 30 November 2018 affidavit and it was ‘devoid of any meaningful content’[31]. Nichols J held that while in ‘other circumstances, more confined evidence as to change of position may have sufficed’, this was not a circumstance where the change of position may be described as a correction of a slip or a mistake.’[32] Her Honour held that ‘the circumstances themselves do not in this case, explain or support the defendants’ change of position’.[33] As discussed below, the circumstances are very different here.
[29]Ibid [35].
[30]Ibid [29].
[31]Ibid [32]–[33].
[32]Ibid [46].
[33]Ibid [55].
Analysis
Turning first to the issue of whether PG Nominees provided consent for the withdrawal of admission. It is necessary to consider the background to this application.
On 2 July 2019, WBHO’s solicitors wrote to PG Nominees’ solicitors asking for a copy of the ESP rules referred to in the statement of claim.[34] On 7 July 2019, PG Nominees’ solicitor responded:[35]
I am instructed that we are operating from the only set of rules ever approved by the Board.
Given some of the statements made by your client, you must be operating from the wrong set of ESP rules?
…
There are clearly material differences in the Rules each party is working off, including clause 18. Are you able to provide the Board resolution approving the amendments that you rely upon and what date they are said to have taken effect?
[34]Exhibit JTT-2 (59) to the Tuck affidavit.
[35]Ibid.
On 8 July 2019, WBHO’s solicitors responded, reiterating the request and stating that they would need to seek instructions.[36] PG Nominees’ solicitors responded the same day confirming they would send through the rules.[37] On 9 July 2019, WBHO’s solicitors received ESP rules from PG Nominees’ solicitors via a Dropbox link.[38]
[36]Exhibit JTT-2 (58) to the Tuck affidavit.
[37]Ibid.
[38]Exhibit JTT-2 (61) to the Tuck affidavit.
On 31 July 2019, WBHO’s solicitors wrote to PG Nominees’ solicitors attaching the proposed FADAC and consent minute. The cover letter stated:[39]
It has become apparent that our respective clients are relying upon different versions of the ESP Rules. Accordingly, our client seeks your client’s consent to file and serve the attached Further Amended Defence.
In the event your client consents, we attach a proposed minute of consent providing for an updated timetable for the future conduct of this proceeding, for your consideration.
We would be grateful to receive your response within 7 days.
[39]Exhibit JTT-7 (126) to the Tuck affidavit (emphasis in original).
On the same date, PG Nominees’ solicitors replied and asked for the documents referred to in the proposed FADAC so that they could obtain instructions.[40] On 2 August 2019, they requested the documents again.[41] On 5 August 2019, WBHO’s solicitors provided PG Nominees’ solicitors with various documents and noted the ESP rules that WBHO relied upon had been provided previously, on 18 June 2019.[42]
[40]Exhibit JTT-8 (155) to the Tuck affidavit.
[41]Exhibit JTT-8 (154) to the Tuck affidavit.
[42]Ibid.
On 14 August 2019, PG Nominees’ solicitors wrote to WBHO’s solicitors with updated proposed consent minutes truncating the timetable as they noted the FADAC was ready to be filed.[43] They requested the minutes be signed so that they could promptly forward them to the Court. WBHO’s solicitors responded that day, replying with the signed consent minute attached.[44] As discussed in the background section above, the consent orders were made on 16 August 2019.
[43]Exhibit JTT-9 (221) to the Tuck affidavit.
[44]Ibid.
PG Nominees filed a reply to the FADAC on 21 August 2019. Paragraph 6 states:
As to paragraph 9, it denies the allegations and says that it is embarrassing because the defendant seeks to withdraw its earlier admissions made in the defence dated 13 May 2019 and the amended defence dated 18 June 2019 without the leave of court [sic]. Accordingly, paragraph 9 ought be struck out.
On 27 August 2019, WBHO’s solicitors wrote to PG Nominees’ solicitors expressing surprise at paragraph 6 of the reply.[45] They referred to the FADAC, noting it had been provided on 31 July 2019, and to the consent orders. WBHO’s solicitors sought clarification as to whether PG Nominees consented to paragraph 9 of the FADAC. The letter stated that if consent was not given, they would have no choice but to make an application to the Court to ‘regularise the situation’ and in that event would seek the costs of the application on an indemnity basis.
[45]Exhibit JTT-11 (231) to the Tuck affidavit.
On 2 September 2019, PG Nominees’ solicitors responded by email.[46] They stated that seeking consent to file a further amended defence is very different from seeking consent to withdraw an express admission (made twice before). They asserted, amongst other things, that ‘it was your professional obligation to draw out attention that you were specifically seeking our consent to withdraw an admission’. Referring to authority, they sought an explanation for making the admission by 9 September 2019, saying that the Court would require a sensible explanation for making the admission, with evidence of a solid and substantial character.
[46]Exhibit JTT-12 (233) to the Tuck affidavit.
On 3 September 2019, WBHO’s solicitors responded with its explanation for the withdrawal.[47]
[47]Exhibit JTT-13 (236–7) to the Tuck affidavit.
On 6 September 2019, PG Nominees’ solicitors responded, rejecting the explanation.[48] There was a flurry of further correspondence between the parties’ solicitors. The issue was not resolved and the summons was filed.
[48]Exhibit JTT-14 (239-40) to the Tuck affidavit.
I find that Mr Ryan and PG Nominees consented to the withdrawal. Their solicitors signed a consent minute[49] which gave leave for the filing of the FADAC in the form previously provided to them and including the withdrawal of admission. Following this, consent orders, reflecting the consent minute, were made on 16 August 2019.
[49]The unsigned consent minute forms Exhibit JTT-7 (151–2) to the Tuck affidavit. It is common ground it was signed by the parties’ solicitors.
Given the background above, I reject the suggestion that WBHO ought to have expressly sought specific consent for the withdrawal of the admission. The parties were legally represented. The issue concerning different versions of the ESP rules was evident from the correspondence referred to above that had been exchanged between solicitors. Importantly, the amendment containing the withdrawal was evident on the proposed FADAC.
Given the finding above, it is unnecessary for leave to be given for the withdrawal of admission. However, had I not found there was consent to the withdrawal, I would have given leave for it anyway. Justice favours leave to withdraw for the following reasons.
First, WBHO has established good cause to withdraw its admission. I accept the explanation of inadvertence. I find Mr Tuck’s direct evidence is adequate in the circumstances of this case. In particular, it provides an explanation for the defence, which has always pleaded that WBHO’s board has a discretion as to whether or not to accept a deemed disposal request.
Paragraph 15 of WBHO’s defence says:
(a)it states that under clause 11.1.3 of the ESP Rules, the Board must accept a Disposal Request if:
(i) the Disposal Request relates to:
(i) the Disposal of Cash Shares during the Holding Lock Period (being a period of five years from the date that PG Nominees acquired the Loan Shares, or such shorter period of time determined by the Board); and
(ii)the Disposal Request is received within the Disposal Request Period (being the period of 14 calendar days commencing from the date on which the Company advised Participants of a new prevailing Fair Market Value (FMV));
(b)it otherwise denies the paragraph; and
(c)subject to clause 11.1.3 of the ESP Rules and in accordance with clause 11.1.2 of the ESP Rules, the Board retains the discretion to decide in relation to Loan and Cash Shares, whether to accept any Disposal Request (including, for the avoidance of doubt, any Deemed Disposal Request).
(emphasis in original)
Paragraph 15 is only explicable with reference to the version of the ESP rules relied upon by WBHO.[50] It is not explicable with reference to the version relied upon by PG Nominees.[51] This is because cl 11.1.3(b) of the ESP rules relied upon by PG Nominees requires the board to accept a deemed disposal under cl 12. Clause 12.1.1 provides that cessation of employment by an eligible employee will be treated as a deemed disposal request. In other words, there is no discretion by the board to reject the deemed disposal request.
[50]These are contained in Exhibit JTT-1 to the Tuck affidavit.
[51]These are contained in Exhibit JTT-3 to the Tuck affidavit.
On the other hand, in the version of ESP rules relied upon by WBHO, there is no cl 11.1.3(b). Further, in that version, cl 11.1.2 refers to a range of factors the board may take into consideration (including ‘anything else the Board considers relevant’) in deciding whether to accept ‘any Disposal Request or Deemed Disposal’ in relation to ‘Loan and Cash Shares’. On the other hand, in the version relied upon by PG Nominees, there is no express reference to a ‘Deemed Disposal’ in cl 11.1.2. Further, it is only in relation to ‘Loan Shares’ not ‘Loan and Cash Shares’. Paragraph 15(c) of the defence refers to ‘Loan and Cash Shares’ and pleads cl 11.1.2 in relation to the board’s retention of discretion.
I accept Mr Tuck’s evidence that he became aware the parties were relying upon two different versions of the ESP rules upon receiving and reading the version from the other party’s solicitor.[52] This evidence is not challenged. Further, a proper basis certificate signed by Mr Tuck has been filed with the defence, amended defence and FADAC. The correspondence between the parties, outlined above, is consistent with inadvertence concerning the different versions of the ESP rules.
[52]The Tuck affidavit [15].
For completeness, I make no finding in respect of which version of the ESP rules applied at the time that Mr Ryan ceased employment. As discussed above, his counsel challenged the hearsay evidence of Mr Duggan. I make no finding about that hearsay evidence. The veracity of Mr Duggan’s evidence concerning the ESP rules will be an issue for trial. The issue of what versions of the ESP rules were in the possession of WBHO at particular times may also be an issue for trial.[53]
[53]Cf Coopers Brewery Ltd v Panfida Foods Ltd [1992] 26 NSWLR 738 (Rogers CJ), where there was no issue that the defendant clearly had documents available to it at the time it made the admission, and in addition had been alerted, in mid-November 1991, to the possibility that the admission initially made by its solicitor’s letter of 8 November 1991 should not have been made. Notwithstanding this, the defendant’s senior counsel repeated the admission again in Court on 21 November 1991, and the application for leave to withdraw the admission was not until some three months later. Further, Rogers CJ concluded the admissions had been correctly made.
Second, I find that there would be irremediable prejudice to WBHO if it were not permitted to withdraw its admission. It would be unable to run its defence that it had the discretion as to whether or not to accept a deemed disposal request. Further, the FADAC would be internally inconsistent.
Third, I find that there is no serious prejudice to Mr Ryan and PG Nominees if WBHO is permitted to withdraw its admission. I accept the evidence in the first Ong affidavit that the trial may be prolonged two days or more. On the other hand, the real issues in dispute are evident now, at least to all the legal practitioners, and had the issue of the different versions of the ESP rules not been identified at this pre-trial stage of proceedings, it may itself have resulted in a longer trial. Even accepting the trial is prolonged by two days or more, with attendant legal costs, this prejudice is not irremediable. It could be met by a costs order.
Fourth, it is consistent with the overarching principles in the Civil Procedure Act 2010 to provide leave. It is just, efficient, timely and cost-effective to do so. The proceeding is at pre-trial stage. No trial date is listed.[54] There is no disruption to the existing Court timetable. The next step will be mediation.[55] The application was made in a timely manner, soon after the issue was identified, and after attempts by solicitors to resolve the issue were unsuccessful.
[54]Cf authorities where the application to withdraw was made at trial: Celestino [5]–[13], Jupiters Ltd v UAERJ Pty Ltd [2013] NSWSC 1469, [54]–[59]; Collie [88] and SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd [2005] NSWSC 816, [26]–[30] (where the application was made three weeks before trial).
[55]Orders made on 20 November 2019.
For completeness, PG Nominees referred to Collie v Merlaw Nominees Pty Ltd,[56] saying that a delay of some months may be significant. I accept that. However, here, the application to withdraw has been made in a timely manner after the issue came to light, as discussed above.
[56]Collie [93].
Conclusion
I will give the parties an opportunity to make submissions on orders consequential to this ruling.
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