Re Allmine Group Ltd (in liq)
[2021] VSC 125
•16 March 2021 (Ex tempore); Revised 17 March 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2018 02986
BETWEEN:
| MICHAEL CHARLES HIRD IN HIS CAPACITY AS LIQUIDATOR OF ALLMINE GROUP LTD (IN LIQUIDATION) (ACN 128 806 271) | First Plaintiff |
| ALLMINE GROUP PTY LTD (IN LIQUIDATION) (ACN 128 806 271) | Second Plaintiff |
| -and- | |
| SCOTT ALEXANDER WALKEM (and others according to the Schedule) | Defendants |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 March 2021 |
DATE OF JUDGMENT: | 16 March 2021 (Ex tempore); Revised 17 March 2021 |
CASE MAY BE CITED AS: | Re Allmine Group Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 125 |
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PRACTICE AND PROCEDURE — Application for amendment under r 36.01(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — Application of r 36.01(6) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — Application of r 36.04(1)(a) and r 36.04(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — Amendment application general principles — Whether leave to amend required — Breach of director’s duty — Section 180 of the Corporations Act 2001 (Cth) — Circumstances of the corporation.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D Mackay | Aptum Legal Pty Ltd |
| For the First Defendant | Ms S Gory | Colin Biggers & Paisley |
| For the Second Defendant | Ms N Papaleo | Keypoint Law |
| For the Third Defendant | Mr M Crommelin (solicitor) | Murfett Legal |
| For the Fourth Defendant | Ms E Bennett | DLA Piper Australia |
HIS HONOUR:
Introduction and Summary
The first plaintiff is the liquidator of the second plaintiff (Allmine Group) which was an ASX listed mining services company.[1] All current defendants are alleged to have been directors of Allmine Group at various times.
[1]It was placed in administration on 20 June 2013, receivers were appointed the following day, and a liquidator was appointed on 18 October 2013.
By their amended summons the plaintiffs seek to join Cloud Holdings Pty Ltd (Cloud Holdings) as the fifth defendant, seek leave to file and serve a further amended writ, and seek leave to file and serve an amended statement of claim.[2]
[2]To the extent that such leave is required, which is discussed further below.
The proceeding was commenced by a generally indorsed writ filed in December 2018, which was not served on the defendants until late 2019 and early 2020, with public examinations of the former directors and others taking place in the meantime.[3] The original statement of claim was filed on 11 December 2019 and all defendants filed appearances by March 2020.
[3]Orders were made extending the period of the validity of the writ for service and substituted service orders were made against the fourth defendant, Mr Kreppold.
During 2020 there were extended communications between the parties regarding alleged deficiencies with the statement of claim and related matters, which the court requested the parties to seek to resolve or narrow as between themselves. This ultimately resulted in the form of the proposed amended statement of claim now under consideration (Proposed Claim).
The first, second and third defendants do not now oppose the applications. The fourth defendant (Mr Kreppold) opposes the application for leave to amend the statement of claim insofar as it relates to him. He also submitted that no further opportunity should be given to the plaintiffs to re-plead the claim against him.
No party opposed the joinder of Cloud Holdings.
For the reasons that follow:
(a) The plaintiffs’ application to join Cloud Holdings as the fifth defendant should succeed.
(b) To the extent that leave is required, leave to file and serve the Proposed Claim should be granted.
(c) To the extent that leave is required, leave to file and serve the proposed further amended writ recording Cloud Holdings as a party should be granted.
(d) The plaintiffs should pay the defendants’ costs thrown away (if any) by reason of the amendments to the statement of claim.
Subject to hearing any further submissions from the parties, the costs of and associated with the plaintiffs’ application by its amended summons should be each party’s costs in the proceeding.
Affidavits
The plaintiffs relied upon an affidavit of their solicitor, Mr Walter, sworn 24 December 2020. Mr Kreppold relied upon an affidavit of his solicitor, Ms Bishop, sworn 5 February 2021, which in turn referred to two affidavits of another solicitor, Mr Maclean, affirmed 11 June and 27 July 2020.
The Proposed Claim
It is not necessary to address or recite the detail of the Proposed Claim as relevant aspects are addressed when dealing with the submissions of the parties, and material parts of the Proposed Claim deal with claims against parties other than Mr Kreppold. That said, some brief insight is of assistance given the issues raised.
The claims made in the proceeding include:
(a) Insolvent trading claims pursuant to s 588G of the Corporations Act 2001 (Cth) (Act) against the first, second and third defendants.
(b) Breach of directors’ duty claims against all current defendants, being claims in respect of statutory duties under the Act and an alleged common law duty of care.
(c) A breach of fiduciary duty claim against the third defendant, Mr Wilde.
(d) A knowing receipt claim and constructive trust claim against Cloud Holdings regarding the alleged knowing receipt by it of shares in Allmine Group that is linked to the breach of fiduciary duty claim against Mr Wilde.[4]
[4]Who it is alleged is and was the sole director and a shareholder of Cloud Holdings, which is said to be the trustee of the ‘Wilde Family Trust’.
The only claims against Mr Kreppold are expressed to be in the alternative to establishing that Allmine Group was insolvent as at 13 December 2012 or 23 January 2013 and making good the insolvent trading claims against others. Briefly, in that event it is apparent from the Proposed Claim that it is alleged that:[5]
[5]See Proposed Claim at [120], [121], [125], and [153]–[156].
(a) Mr Kreppold was a director of Allmine Group between 26 April and 20 June 2013 (Kreppold Director Period).
(b) During the Kreppold Director Period, Allmine Group was a corporation in the ‘circumstances’[6] described in paragraphs 1 to 101 of the Proposed Claim (Allmine Group Circumstances).
[6]See s 180(1)(a) of the Act.
(c) The degree of care and diligence that a reasonable person would exercise if they were a director of Allmine Group in the Allmine Group Circumstances during the Kreppold Director Period would require them to take the steps referred to in paragraph 121(c) to (n) of the Proposed Claim (Kreppold Director Steps). In broad terms these steps relate to financial management, internal controls, holding meetings, reporting systems, governance, cash flow monitoring, addressing capital raising, loan procedures, and related matters.[7]
[7]See Proposed Claim at [121]. See also the parallel but less detailed allegations in the particulars to paragraph 66 of the statement of claim and paragraph 22 of the general indorsement.
(d) Mr Kreppold breached s 180 of the Act and his common law duty to exercise care and diligence by failing to take all or any of the Kreppold Director Steps during the Kreppold Director Period.
(e) By reason of the breaches of duty Allmine Group suffered loss and damage.[8]
(f) Had Mr Kreppold taken one or more of the Kreppold Director Steps, loss and damage would not have been suffered by Allmine Group.[9]
(g) Allmine Group is entitled to a compensation order against Mr Kreppold pursuant to s 1317H of the Act in respect of the loss and damage and/or is entitled to damages at common law.
[8]The quantum of which has not yet been particularised and which is said will need to await the filing of expert reports.
[9]Counsel for the plaintiffs confirmed that for each of the defendants it was alleged that each pleaded failure constituted a separate breach of duty and that it was not a claim of a single breach constituted by a failure to take all of the steps in the aggregate. This had been referred to in the Plaintiffs’ Written Submissions but was helpfully raised for clarification by counsel for each of the first and second defendants as there was some ambiguity in the language of the Plaintiffs’ Written Submissions and a different position had been expressed in recent correspondence sent to the second defendant’s solicitors.
Parallel breach and duty of care claims are made against the other director defendants in respect of the periods that they were each directors of Allmine Group. The other defendant former directors each have varying additional statutory duty and other claims made against them, including insolvent trading claims.
No additional claims are made against Mr Kreppold in the Proposed Claim, whether in the manner made against the other defendants or otherwise. This was confirmed by counsel for the plaintiffs during the hearing.
One feature of the Proposed Claim warranting mention is that the amendments sought to be introduced include a detailed recitation of various circumstances of Allmine Group, which are then relied upon in the context of the claims made against Mr Kreppold and the other defendants. In part it appeared that these revisions were introduced so as to make clear and specify the circumstances that are relied upon by the plaintiffs, noting in this regard that s 180 of the Act expressly requires the degree of care and diligence to be considered by reference to the ‘circumstances’ of the corporation in question. The plaintiffs’ counsel confirmed this to be the position. These Allmine Group Circumstances cover events and periods of time earlier than the Kreppold Director Period and the references to them in the Proposed Claim featured centrally in the submissions made on Mr Kreppold’s behalf.
It may also be noted that the substance of the breach of the s 180 statutory duty claim against Mr Kreppold appeared in the general indorsement on the writ — as well as other claims against him that are not now pursued — and in the statement of claim.[10] As the evidence showed, other defendants and Mr Kreppold had been critical of the form of those and other claims in the statement of claim. It was apparent, and counsel for the plaintiffs confirmed, that the approach taken by the plaintiffs to the Proposed Claim had been influenced by points raised by the other parties, including in relation to what was said to be insufficient detail regarding the circumstances of Allmine Group and the steps it is alleged should have been taken by the former director defendants. Although based on the same factual framework and allegations, the breach of common law duty claim was said to be new.
[10]See paragraphs [21]–[24] of the general indorsement and paragraphs [64]–[68] of the statement of claim.
Submissions
The plaintiffs relied on written submissions filed on 24 December 2020 and 12 February 2021 (Plaintiffs’ Written Submissions), which were supplemented orally. Mr Kreppold relied on a written submission filed on 5 February 2021, which was also supplemented orally at the hearing.
No written submissions were filed or relied upon by the other parties and no oral submissions were made on the substantive issues except to seek clarification regarding the disjunctive or conjunctive nature of the allegations in paragraph 121 of the Proposed Claim, to which I have referred above.[11] As is usually the case, the party sought to be joined, Cloud Holdings, was not a respondent to the application.[12]
[11]See above n 9.
[12]As earlier mentioned, it is alleged that the third defendant Mr Wilde is and was a director and shareholder and that Cloud Holdings was the trustee of the ‘Wilde Family Trust’.
It is convenient first to turn to the submissions of Mr Kreppold in opposition to the grant of leave to amend insofar as the amendments related to him.
Mr Kreppold’s Submissions
It was submitted that there were a number of difficulties with the pleading against Mr Kreppold and that, as a result, it was inconsistent and incoherent. Reference was made to well-known pleading principles and those relating to amendment.[13] Shortly stated, the particular matters of substance raised were said to be as follows:
[13]Which need not be recited here but see Kreppold Written Submission at [2]–[10]. See also the principles and observations addressed later in these reasons.
(a) Mr Kreppold having been a director of Allmine Group from only 30 April 2013 to 20 June 2013, it being emphasised that this was only a period of 51 days.
(b) The case against Mr Kreppold, as reflected in part in paragraph 153 of the Proposed Claim, being framed by reference to a much longer period than he was a director and being framed by reference to other directors.
(c) The central claims against Mr Kreppold being based on the matters in paragraphs 120, 121 and 125 of the Proposed Claim which, it was submitted, do not precisely or carefully identify facts or matters going to a case against Mr Kreppold, as opposed to the other former director defendants. In this context it was further submitted that:
(i) Paragraph 120 — which incorporates paragraphs 1–101 of the proposed claim in paragraph 120(a) — does no more than ‘recite a long history of corporate conduct’ as the ‘very basis’ for the allegations, when Mr Kreppold was not a director during the relevant period, which so it was submitted, made the pleading incoherent, inconsistent and embarrassing.
(ii) The allegation that Mr Kreppold should have taken the Kreppold Director Steps (referred to in paragraph 121 of the Proposed Claim) was similarly flawed because the steps encompassed a period after December 2012 / January 2013 and Mr Kreppold was only appointed a director in April 2013.
(iii) Although paragraph 125 of the Proposed Claim expressly pleads that the steps Mr Kreppold failed to undertake were only steps required to be taken in the period from 26 April 2013 when he was appointed a director, this was ‘entirely insufficient to cure the defect’ and that it cannot be cured by ‘semantics’. This, so it was said, was because the fact remained that the alleged breaches span a time well before his directorship.
(iv) There was no pleading attempting to identify which of the Allmine Group Circumstances is ‘imputed’ to Mr Kreppold.
(v) The incorporation of the numerous events that pre-date the appointment of Mr Kreppold is an example of a pleading that incorporates unnecessary or irrelevant allegations and does not lead to the making out of a cause of action.
(vi) The approach taken by the plaintiffs tends to obfuscate rather than clarify the issues to be determined and it was no answer to say that the allegations can be admitted or denied.
(vii) Given the reference in paragraph 153 of the Proposed Claim to paragraphs 120, 121 and 125, it was not clear that the allegation of breach of duty against Mr Kreppold is limited to the Kreppold Director Period because the other paragraphs were not so confined.
(viii) Mr Kreppold ought not to be put to the expense of responding to a case that does not relate to him as a director and this should also not take up the court’s time and resources.
(ix)Meaningful particulars of the quantum of the loss and damage had not been provided.
(d) Insofar as the plaintiffs relied upon the decision of Robson J in ASIC v Flugge,[14] that case was wholly distinguishable on the facts and involved alleged director duty breaches over a period of about three years not 51 days.
[14][2016] VSC 779.
With respect to delay, in the written submissions Mr Kreppold placed emphasis on the High Court’s observations in AON Risk Services Australia Ltd v Australian National University (AON).[15] Reference was made to the timing of the events in question, the history of the proceeding, the communications between the parties, and the delay in identifying the case the plaintiffs wished to advance. It was observed that ‘delay looms large in this case’ and it was submitted that no further opportunity to plead the case against Mr Kreppold ought to be permitted. It was further submitted that there was no direct evidence from the plaintiff and no explanation for the delay in seeking leave to amend. Reference was made to the correspondence sent to the plaintiffs’ solicitors on the topic, including correspondence sent on 24 March, 21 May and 10 November 2020.
[15](2009) 239 CLR 175, 204–205 [69] (Gummow, Hayne, Crennan, Kiefel and Bell JJ).
This heavy emphasis on delay was materially but responsibly tempered during oral submissions with counsel for Mr Kreppold observing that the delay issues went more to the question of whether the plaintiffs should be entitled to try again with their pleading if leave to amend was refused. It was also submitted, in the alternative to the primary contention, that if leave to amend was granted revisions should be required to paragraphs 120, 121 and 153 to make clear the limitation of the breach allegations to the Kreppold Director Period and to address some related matters.
Plaintiffs’ Submissions
The plaintiffs submitted that leave to amend was not needed given the operation of r 36.04(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Rules) and the fact that pleadings had not yet closed. They further submitted that if leave was required then it was plain that it should be granted, and that leave was necessary to enable the determination of the real questions in controversy.
With respect to the alleged delay, the plaintiffs disputed that there had been any unreasonable delay and submitted that, in any event, Mr Kreppold had not suffered any material prejudice as a result of any delay. They pointed to, among other things: the filing of the proceeding in December 2018; the time and steps taken in the public examination proceeding; the public examinations of numerous examinees including the current defendants; the examinations concluding in November 2019; the original statement of claim being filed in December 2019; service challenges and the need to obtain substituted service orders against Mr Kreppold; the run of communications between the parties’ solicitors in relation to the proposed amendments; the position of the other defendants; the Court’s request that the parties work together to see if issues could be narrowed and resolved between the parties; the impact of COVID-19; and the relatively early stage of the interlocutory steps in the proceeding.
The plaintiffs submitted that it was readily apparent that the case brought against Mr Kreppold was for breach of duty under s 180 of the Act and a breach of his common law duty of care whilst he was a director during the Kreppold Director Period, which, so it was said, was clear from the Proposed Claim. They also referred to the substance of such claims having been made in the statement of claim, acknowledged that pleading a breach of duty at common law was new, and confirmed that broader claims against Mr Kreppold that were referred to in the general indorsement and the statement of claim were no longer being pursued against him, thereby narrowing the issues in dispute to some extent.
With respect to specific matters raised, the plaintiffs contended that the criticisms were misplaced, and the substance of their response included the following:
(a) The delay was explained, as was apparent from the affidavit of Mr Walter and the submissions. It was further submitted that the circumstances in AON were far removed from the present case and plainly distinguishable.
(b) Such delay as there had been had not caused prejudice of a kind that would warrant the refusal of leave to amend.
(c) The analysis is informed by the position of the other director defendants, none of whom oppose the grant of leave.
(d) The further refining and circulating of the Proposed Claim in September 2020 occurred in the context of the leave application not proceeding at that time due to COVID-19 related issues and the court requesting the parties to seek to resolve or narrow the issues. This, so it was said, proved fruitful because the Proposed Claim was prepared taking into account criticisms of a previous version, and leave to amend was now not opposed by any of the other parties.
(e) The central complaint about reference being made to events that pre-date Mr Kreppold’s appointment as a director was misplaced and, further, such analysis failed to recognise that paragraph 125 of the Proposed Claim expressly limits the breach allegations to the Kreppold Director Period.
(f) The Proposed Claim is lucid, Mr Kreppold is able to understand the case he has to meet, and it was misconceived to suggest that Mr Kreppold ought not have to plead to factual allegations regarding the company that pre-date his appointment — which it was submitted would be an absurd position. It was submitted that the setting out of the circumstances and the particular alleged steps to be taken exposed the case to be met by Mr Kreppold and responded to criticisms of the statement of claim as filed.
(g) The Proposed Claim revealed, among other things, that Mr Kreppold was appointed at a critical juncture for Allmine Group — when it had also engaged consultants to assist with its challenged position. It was said that it is alleged that, given the circumstances of the company, Mr Kreppold ought to have taken the steps in paragraphs 121(c) to (n) of the Proposed Claim but that he breached his duties because he failed to take any of them. Reference was also made in oral and written submissions to the allegation in paragraph 6 of the Proposed Claim, noting that Mr Kreppold was not a stranger to the business and that he had been the general manager of its engineering and construction division since shortly after Allmine Group was listed.
(h) The approach taken in the Proposed Claim was consistent with that taken in ASIC v Flugge.[16]
[16][2016] VSC 779.
The plaintiffs submitted that Mr Kreppold’s resistance to the grant of leave was without merit and that although the plaintiffs should pay any costs thrown away by reason of the amendments of the parties, Mr Kreppold should pay the plaintiffs’ costs of the application to amend. However, following constructive exchanges with counsel during the hearing, and understandably, this position was not ultimately pressed.
The joinder of Cloud Holdings was not opposed by any party. The plaintiffs, at least implicitly, submitted that its presence as a party is necessary to ensure that all the questions in the proceedings are effectually and completely determined upon and also that there existed questions between Allmine Group and Cloud Holdings arising out of, related to, and connected with, the claims in the proceeding which it is just and convenient to determine in this proceeding.
Cloud Holdings was understandably not a respondent to the joinder application and did not appear or seek leave to appear. The solicitor who appeared on behalf of the third defendant, Mr Wilde, informed the court that he did not currently hold instructions to act on behalf of Cloud Holdings.[17]
Principles and Observations
[17]The proposed joinder of Cloud Holdings is without prejudice to such rights as it may have in relation to the same and the pleading, noting also that pursuant to r 9.11(3) of the Rules the proceeding will be taken to have commenced against it upon the date of the filing of the further amended writ.
There was no dispute between the parties about applicable principles with reference being made in written and oral submissions to a number of the well-known authorities. In Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (No 2)[18] I referred to some general principles and observations relevant to amendment applications which are convenient to set out again, as I do below.
[18][2020] VSC 284.
Rule 36.01(1) provides that:
(1) For the purpose of—
(a) determining the real question in controversy between the parties to any proceeding; or
(b) correcting any defect or error in any proceeding; or
(c) avoiding multiplicity of proceedings—
the Court may, at any stage order that any document[19] in the proceeding be amended or that any party have leave to amend any document in the proceeding.
[19]The inclusive definition of ‘document’ in r 36.01(2) includes a pleading.
The general principles relating to the grant or refusal of leave to amend pleadings are well known. They were succinctly referred to by Elliott J in Cargill Australia Limited v Viterra Malt Pty Ltd (No 18)[20] as follows:[21]
The principles relating to the granting or refusal of leave to amend pleadings are well established.[22] Rule 36.01(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) empowers the court to grant leave to any party to amend any document for the purpose of “determining the real question in controversy between the parties to any proceeding”. Leave may be granted at any stage of the proceeding.
In deciding whether to grant leave to a party to amend its pleadings, the court must consider whether the proposed amendments facilitate the identification of the real issues in dispute and the just resolution of the proceeding.[23]
The power to grant leave to a party to amend its pleading to raise an arguable issue is a discretionary power. There is no right or entitlement for a party to amend its pleading subject to the payment of costs referable to the amendment.[24] The nature and importance of the proposed amendments must be considered.[25] This factor must be weighed against case management considerations such as cost, delay and the potential for unfair prejudice to other parties to the proceeding, the court and other litigants that might arise if the proposed amendments are allowed.[26]
Further, in exercising the power to grant leave, the court may give any direction or impose any term or condition it thinks fit.[27]
[20][2018] VSC 772.
[21]At [31]–[34], footnotes included as in original.
[22]The relevant principles have been set out previously in Cargill Australia Ltd v Viterra Malt Pty Ltd (No 10) [2018] VSC 439, [16]–[18]. They are repeated here for convenience.
[23]AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 204–205 [69] (Gummow, Hayne, Crennan, Kiefel and Bell JJ). See also ABL Nominees Pty Ltd v Mackenzie (No 2) [2014] VSCA 529, [17] (Derham AsJ).
[24]AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 212 [96], 213 [98]–[99], 217 [111].
[25]Ibid, 214 [102].
[26]Ibid, 213 [98]–[99], 214–215 [102], 217 [111]; Civil Procedure Act 2010 (Vic), s 7.
[27]Supreme Court Rules, r 1.14(1)(b).
A helpful summary was also set out in ABL Nominees Pty Ltd v MacKenzie (No 2):[28]
[28][2014] VSC 529 [17]–[22], footnotes included as in original (Derham AsJ).
The power to amend in r 36.01 (1) of the Supreme Court (General Civil Procedure) Rules 2005 (Rules) authorises the court to order that a party have leave to amend any pleading for the purpose of determining the real question in controversy between the parties to any proceeding, correcting any defect or error or avoiding multiplicity of proceedings.
It is common ground that an amendment which is futile because it is obviously bad in law will not be allowed: Commonwealth v Verwayen.[29] Similarly, if a proposed pleading would be liable to be struck out if it had been contained in an original pleading, either because the pleading is bad in law or is defective as a pleading, then leave to file the proposed pleading will not be allowed: Horton v Jones (No.2);[30] Gimson v Victorian WorkCover Authority.[31] The court, on this type of application, will not engage in an examination of the merits of the case foreshadowed by the proposed amendment, but where that amendment introduces a patently hopeless issue for determination then its inclusion will be futile and that will be a significant, and probably decisive, matter in the exercise of the court’s discretion.[32]
[29](1990) 170 CLR 394, 456.
[30](1939) 39 SR NSW 305, 310.
[31](1995) 1 VR 209, 215.
[32]Matthews v SPI Electricity Pty Ltd (Ruling No 6) [2012] VSC 70, [33].
As J Forrest J observed in Matthews v SPI Electricity Pty Ltd (Ruling No 6),[33] having regard to the terms of the Civil Procedure Act 2010 (CPA), the test is best expressed in the words of s 63 of that Act: if the amendment has no real prospect of success at trial then that would be a highly relevant factor in the exercise of the discretion to refuse the application.[34]
[33][2012] VSC 70, [34].
[34]As to the test see Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 [29] per Warren CJ and Nettle JA (Neave JA agreeing).
In Namberry Craft Pty Ltd v Watson,[35] Vickery J summarised the relevant factors to be considered, as a result of the decision in AON Risk Services Australia v Australian National University,[36] as follows:
[35][2011] VSC 136.
[36](2009) 239 CLR 175.
[T]here are to be limits placed upon re-pleading. The High Court in AON Risk Services Australia referred to a range of other considerations which need to be weighed in the balance in the exercise of the discretion to grant an amendment to a pleading. The High Court made reference to the following factors:
(a) Whether there will be substantial delay caused by the amendment;
(b) The extent of wasted costs that will be incurred;
(c) Whether there is an irreparable element of unfair prejudice caused by the amendment, arising, for example, by inconvenience and stress caused to individuals or inordinate pressures placed upon corporations, which cannot be adequately compensated for, whatever costs may be awarded;
(d) Concerns of case management arising from the stage in the proceeding when the amendment is sought, including the fact that the time of the court is a publicly funded resource, and whether the grant of the amendment will result in inefficiencies arising from the vacation or adjournment of trials;
(e) Whether the grant of the amendment will lessen public confidence in the judicial system; and
(f) Whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought.[37]
This list of factors is not exhaustive. It is made against the background of the earlier decision of the High Court in Queensland v JL Holdings Pty Ltd,[38] and the authorities that preceded it, including the famous case of Cropper v Smith,[39] where the liberal approach to the amendment of pleadings finds its lead in the dissenting judgment of Bowen LJ.
On the other hand, pleadings are not an end in themselves. They are a means of ensuring that real issues of controversy are raised for determination in a way that is procedurally fair, both to a plaintiff and a defendant. This allows claims and defences to be clearly articulated, granting parties an opportunity to present their case properly prepared, on clear notice of allegations and defences raised in the proceedings. On this basis, the authorities clearly establish that, absent extraordinary circumstances, leave to amend will be granted.[40]
[37]Ibid [38]. Equuscorp Pty Ltd and Sintoff Pty Ltd v Acehand Pty Ltd & Ors [2010] VSC 89, [19].
[38](1997) 189 CLR 146.
[39](1884) 26 Ch D 700.
[40]ACN 074 971 109 v The National Mutual Life Association of Australasia Ltd [2010] VSC 186, [28].
In Ultra Thoroughbred Racing Pty Ltd t/as Baree Stud v Those Certain Underwriters at Lloyd’s (Ultra Thoroughbred),[41] J Forrest J observed that, following the High Court’s decision in AON, courts must consider: the wider public interest and the efficient use of limited court resources when deciding whether to grant applications to amend pleadings; that parties will not be permitted to raise any arguable case in any stage of proceedings subject only to payment of costs; and that amendments that produce delay impact on the entire court system and affect parties desirous of utilising that particular court system. As his Honour noted, in Aon, the High Court said as follows:[42]
An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in JL Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases…
A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to the parties having a sufficient opportunity to identify the issues they seek to agitate.
In the past it has been left largely to the parties to prepare for trial and to seek the court’s assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.
[41][2011] VSC 370.
[42][2011] VSC 370, [7], citing AON (2009) 239 CLR 175, 217, [111]–[113].
In Northern Health v Kuipers (Northern Health),[43] Kyrou and McLeish JJA referred to the above extract, the reasons of J Forrest J in Ultra Thoroughbred, and echoed the observations of the High Court regarding the just resolution of proceedings being a paramount consideration:[44]
It has been said by this Court that Aon may have ‘reinvigorated the procedural paradigm’ insofar as time, costs and limited judicial resources are relevant consideration in the determination of whether to allow certain interlocutory processes.[45] However, as J Forrest J observed in Ultra, ‘the primary question still remains: what do the interests of justice dictate?’; Aon reminds courts that ‘the prism through which these interests are viewed is wider than just that of the moving party’.[46]
[43][2015] VSCA 172, footnotes included as in the original. See also the recent references to AON and Northern Health by the Court of Appeal in Billington v Sussan Corporation Australia Pty Ltd [2020] VSCA 12, [25]–[26] (Beach, Kaye JJA and Croucher AJA) (Billington).
[44]Ibid. [33].
[45]Trevor Roller Shutter Service Pty Ltd v Crowe [2011] VSCA 16, [42].
[46]Ultra Thoroughbred [2011] VSC 370, [9].
The court must also have regard to the relevant provisions of the Civil Procedure Act 2010 (Vic) (CP Act) when addressing case management matters, including applications for leave to amend. This was emphasised by Kyrou and McLeish JJA in Northern Health, where the CP Act was described as ‘… pivotal to the resolution of disputes about case management issues in civil proceedings to which the Act applies …’, and it was stressed that ‘… it is important that … trial judges engage with the Act’s provisions in balancing the competing interests of the parties and those of the administration of justice more generally.’[47]
[47]Northern Health, [22]. Considerations of this kind were further referred to in Mandie v Memart Nominees Pty Ltd [2016] VSCA 4 [36]–[48] (Kyrou, Ferguson and McLeish JJA), and more recently reinforced in Billington at [25] (Beach, Kaye JJA and Croucher AJA).
Their Honours were also swift to recognise that procedural rulings must often be made promptly with succinct reasons, noting that engaging with the provisions of the CP Act ‘… does not mean that trial judges must set out each applicable provision of the Act and state reasons in relation to it … [but that] it must be apparent from the reasons for the ruling — either expressly or inferentially — that the judge took into account the applicable provisions.’[48]
[48]Northern Health, [22].
Consideration and Disposition
I deal first with the application for leave to amend insofar as it relates to Mr Kreppold and then address briefly those aspects of the application that are not opposed, namely the joinder of Cloud Holdings and the further amendment of the writ to reflect such joinder.
Amendment Application
The plaintiffs are correct that, strictly speaking, by reason of the operation of r 36.04(1)(b) leave to amend the statement of claim in the manner contemplated is not required. This is because the rule provides that a party may amend any pleading served by that party once before the close of pleadings, and in this proceeding defences have not yet been served and pleadings have not yet closed.
The submissions put on behalf of Mr Kreppold did not substantively grapple with this issue. In practical terms, however, having regard to the fact that the proceeding has been issued in a managed list, and consistent with the Court’s and the parties’ obligations under the CP Act, it was just and efficient to proceed with the matter as though leave was required. This is reinforced by the terms of r 36.04(2) which permits any party to apply within 21 days (after a pleading has been amended without leave) to disallow the amendment or to allow it either wholly or in part. Mr Kreppold had in substance foreshadowed such an application.[49] It was also necessary to address at the hearing the plaintiffs’ application for leave to further amend the writ and to join Cloud Holdings in any event.
[49]Albeit in a slightly different way.
In these circumstances I considered it to be desirable, just and efficient to proceed as though leave was required, which counsel for the moving parties responsibly acknowledged was the appropriate way to proceed so as to minimise additional cost, expense, delay and inefficiencies. The application proceeded on that basis.
As earlier indicated, I have concluded that, notwithstanding counsel for Mr Kreppold’s helpful submissions, to the extent required, leave should be granted to the plaintiffs to file and serve the Proposed Claim.[50]
[50]Subject to the deletion of paragraph 120(a) and slightly revising paragraph 153 so as to make it even clearer that the breach of duty claims relate only to the Kreppold Director Period. Because counsel for the plaintiffs indicated in the hearing that he proposes to make such changes it is not proposed that these matters become the subject of formal orders.
I accept that the amendments are desirable for the purposes of determining the real questions in controversy between the parties to the proceeding. This is apparent when regard is had to the claim as framed in the general indorsement, the terms of the statement of claim, and the terms of the Proposed Claim. Relevantly, those questions include: whether, during the Kreppold Director Period, Allmine Group was a company in the Allmine Group Circumstances; whether the statutory common law duty of care and diligence owed by Mr Kreppold required him to take any of the Kreppold Director Steps during the Kreppold Director Period; whether Mr Kreppold took one or more of the Kreppold Director Steps; and whether any failure of Mr Kreppold to take one or more of those steps caused loss and damage to Allmine Group as alleged. Whilst it appears that there may be considerable dispute about such issues, that is of little moment for present purposes.
Although I accept that the length and form of the Proposed Claim leaves it open to some level of criticism, it is not such that these matters would warrant refusing to grant leave to amend, remembering that, as others have observed, pleadings are a means to an end and not an end in themselves — which is not to ignore or diminish their importance or the principles relating to the same, including those referred to by counsel for Mr Kreppold.
The Proposed Claim as drafted does sufficiently articulate the claims sought to be made against Mr Kreppold and put him on notice of the claims that he is required to meet. I refer in this regard to my earlier observations regarding the Proposed Claim, its structure and the nature and extent of the allegations made. Although not perfect, it does sufficiently plead and disclose causes of action based upon alleged breaches of s 180 of the Act and the alleged common law duty of care, and I do not accept the submissions to the contrary. So much is apparent from a fair reading of the terms of the Proposed Claim, including paragraphs 6, 9, 10, 120, 121, 125, and 153 to 156.[51]
[51]Which also sit comfortably with the relevant relief sought against Mr Kreppold in the prayer for relief.
It was also apparent from the terms of the alleged Proposed Claim, the earlier statement of claim, and correspondence that has passed between the parties, that one of the concerns was that the statement of claim did not sufficiently articulate the circumstances Allmine Group was said to be in, and the particular steps it was alleged each director failed to take in breach of duty. It is this circumstance, combined with the terms of s 180 of the Act (which expressly refer to viewing the matter through the eyes of a director ‘in the corporation’s circumstances’), that explains at least in part why the detail of the Allmine Group Circumstances have been set out in paragraphs 1 to 101 of the Proposed Claim in the way that they have. Again, so much was confirmed by counsel for the plaintiffs during the hearing.
Although the circumstances articulated in the Proposed Claim might on one view be seen to be more detailed or in more narrative form than is strictly required or ideal for a pleading, that feature of the Proposed Claim does not in my view weigh materially against the grant of leave to amend in the present case, noting also that the circumstance allegations are relevant to the claims made against each of the other directors who do not oppose the grant of leave.
Having regard to the nature of the claims against Mr Kreppold and the terms of s 180 of the Act, I do not accept that there is force in the criticism that the pleading amounts to no more than an unnecessary long history of corporate conduct or a collection of unnecessary or irrelevant allegations. As pleaded against Mr Kreppold, these are alleged to be the circumstances that the corporation (Allmine Group) was in at the time it is alleged Mr Kreppold was a director. As I have said, that in my view is sufficiently clear in the Proposed Claim.
Whilst I do accept that it will be necessary for Mr Kreppold to address the allegations regarding the Allmine Group Circumstances and that this will involve some time, expense and effort, that does not weigh heavily in the balance on this application because the circumstances the company was in at the relevant time are material to the alleged breaches. Generally speaking, the various circumstances are pleaded as matters of objective fact. Although the plaintiffs frankly stated that they anticipated or at least hoped that a number of these factual allegations will be admitted, thereby narrowing that which needs to be established at trial, whether that will be so remains to be seen in the defences that are yet to be filed.
It was also apparent that the Proposed Claim does not in terms allege that all of the circumstances relied upon[52] were specifically known to Mr Kreppold during the Kreppold Director Period, which was again a matter acknowledged by counsel for the plaintiffs. Rather, and to employ the language of s 180 of the Act, the Allmine Group Circumstances are said to be ‘the corporation’s circumstances’ at the time of the alleged breaches of duty, all of which breaches are alleged to have occurred in the Kreppold Director Period. In these circumstances[53] it is not presently germane that Mr Kreppold was a director for a short time or that the Kreppold Director Period is said to have lasted no more than 51 days.
[52]In paragraphs 1 to 101 of the Proposed Claim.
[53]That is, in the context of the pleading amendment application under consideration.
Although it is alleged that Mr Kreppold had a senior general manager role connected with Allmine Group for about two years before he was appointed a director and this was referred to in the plaintiffs’ submissions, I do not consider this provides any material assistance to the plaintiffs in the context of this application for leave to amend, which counsel for the plaintiffs ultimately but properly acknowledged in any event.
To the extent that it was submitted that the allegations regarding the Allmine Group Circumstances make the pleading incoherent, inconsistent or embarrassing because Mr Kreppold was a director only through the Kreppold Director Period, I do not accept that submission. The allegations made are sufficiently clear and not contradictory and, subject to any further substantive issues that may arise regarding particulars, they put Mr Kreppold and the other defendants sufficiently on notice of the breach of duty case they are required to meet.
As the plaintiffs submitted, the circumstances of the company to be considered when analysing breach of duty claims are not in logic nor law confined to events or circumstances that occurred only during the period the relevant defendant was a director. It is a different question as to whether, and if so how, the earlier occurrence of events and circumstances impact upon the content of any duty, whether it was breached, and what might or might not flow from it, but these are all issues for another day. By the Proposed Claim the plaintiffs have sought to put each of the defendants on notice of the circumstances of Allmine Group that they rely upon. If in due course it transpires that there are matters not ultimately relied upon or which they fail to establish, then it will be open to the parties to make such submissions on costs as they wish at the appropriate time. But as things stand the plaintiffs wish to press a breach of duty case based on the circumstances of Allmine Group that they have identified and which are sufficiently articulated.
Further, it is in my view sufficiently clear on the face of the Proposed Claim that the alleged breaches of duty by Mr Kreppold are confined to the period during which he was a director, which was again confirmed by counsel for the plaintiffs, and so much is apparent from paragraphs 6 and 125 of the Proposed Claim. I do not accept the submission that this is not sufficiently clear, or that the allegation in paragraph 125 can be viewed as a matter of ‘semantics’. The pleading is to be read as a whole, fairly and pragmatically. Such a reading, including of paragraphs 6, 120, 121, 125, and 153, makes it sufficiently clear that the breach of duty claims are confined to the Kreppold Director Period, even though some tension is arguable when parts are read in isolation. Again this was confirmed by counsel for the plaintiffs, although being appropriately pragmatic counsel expressed a willingness to include some additional words in paragraph 153 to put the matter beyond any doubt.[54] I add that I accept that it is understandable in cases of this character that directors or former directors have a right to understand, and have it made sufficiently clear, what is being alleged against them. The pragmatic course of revising slightly paragraph 153 and omitting paragraph 120(a) from the amended statement of claim as is now proposed will assist Mr Kreppold even if it is not strictly necessary.
[54]Whilst maintaining the position that paragraphs 125 and 153 of the Proposed Claim make this clear in any event.
For completeness I add that I accept that the decision of Robson J in ASIC v Flugge[55] is of little assistance to the plaintiffs on this application and that it can be distinguished in various ways. Each case must be considered by reference to its own circumstances, as has occurred here, but given the outcome it is not necessary to address this topic further.
[55][2016] VSC 779.
As to delay and the submissions based upon AON, and taking into account the factors referred to by the High Court and the court’s obligations under the CP Act, I do not consider that the present circumstances are such as would warrant the refusal of leave, whether considered alone or together with the other circumstances. Care also has to be taken regarding the particular period being focussed upon when addressing the question of delay, which in this case is the period between the filing of the statement of the claim and pursuing the application for leave to file and serve the Proposed Claim. It is not necessary to address this further because in oral submissions counsel for Mr Kreppold responsibly clarified that the reliance on delay and related matters related primarily to the contention that the plaintiffs should not be given an opportunity to re-plead if leave to amend was refused.
In any event, having regard to: the claims made; the claims in the general indorsement and statement of claim; the narrowing of the claims against Mr Kreppold; the course of the constructive communications between the parties and the revised Proposed Claim; the stage of the proceedings; the result reached through the constructive engagement; the impact of COVID-19 on aspects of the proceeding and hearing of the proposed application to amend; and the absence of material prejudice, I do not consider such delay as there has been should impact on the grant of leave. This remains the position whether the issue is considered in isolation or in conjunction with one or more of the other matters raised.
Finally, although it is the case that details of the alleged loss and damage remain to be provided, this does not weigh at all heavily in the balance in this case on this application. So much was at least implicitly recognised by counsel for Mr Kreppold. It will, of course, remain an issue to be addressed as part of the interlocutory management of the proceeding. I accept that causation issues will also likely be raised in the defences but they are matters for another day.
As I have said, the plaintiffs’ application to amend their statement of claim should succeed.
Joinder of Cloud Holdings and Leave to Further Amend the Writ
The joinder of Cloud Holdings was not opposed by any party and I am satisfied that its presence is necessary to ensure that all the questions in the proceedings are effectually and completely determined, and that there exist questions arising out of, related to, and connected with the claims in this proceeding which it is just and convenient to determine in this proceeding. Briefly stated, the questions include whether Cloud Holdings is a constructive trustee, liable to account, or liable to pay equitable compensation to Allmine Group for knowing receipt in respect of shares or proceeds of sale of shares in Allmine Group, the transfer of which is alleged to be the consequence of the allegedly known breach of fiduciary duty by Mr Wilde referred to in paragraphs 147 to 152 of the Proposed Claim. This conclusion regarding joinder does not impact the rights of Cloud Holdings to plead or otherwise raise such matters as they may be advised after the writ is further amended, filed and served upon it.
The application for leave to further amend the writ is to facilitate the joinder in the manner contemplated in r 9.11 of the Rules. Given the terms of the rule it appears that leave may not be required, but I need not dwell on this aspect because if and to the extent it is needed, it is appropriate to grant such leave — noting also that the application is not opposed and that by reason of r 9.11(3)(a) of the Rules the proceeding is to be taken to have commenced against Cloud Holdings upon the further amendment of the writ in the manner referred to in r 9.11.
Conclusion and Orders
The plaintiffs have succeeded on their applications and do not oppose orders being made against them in relation to costs thrown away by reason of the amendment. Subject to addressing the precise terms of the orders with the parties, I propose to make orders to the following effect:
(a) To the extent that leave is required, the plaintiffs have leave to file and serve an amended statement of claim substantially in the form of the Proposed Claim dated 20 October 2020 and exhibited to the affidavit of Mark Walter sworn 24 December 2020.
(b) Cloud Holdings Pty Ltd be joined as the fifth defendant to the proceeding.
(c) To the extent that leave is required, the plaintiffs have leave to file and serve a further amended writ recording Cloud Holdings as the fifth defendant and that is substantially in the form of the proposed further amended writ dated 18 September 2020.
(d) The plaintiffs pay the defendants’ costs thrown away (if any) by reason of the amendments to the statement of claim.
Subject to hearing any further submissions from the parties, I also propose to order that the costs of and associated with the plaintiffs’ application by its amended summons be each party’s costs in the proceeding.
Directions for the future conduct of the proceeding, including the filing and service of the amended statement of claim and defences to the same, will be addressed with the parties.
Schedule of Parties
BETWEEN: S ECI 2018 02986
| MICHAEL CHARLES HIRD IN HIS CAPACITY AS LIQUIDATOR OF ALLMINE GROUP LTD (IN LIQUIDATION) (ACN 128 806 271) | First Plaintiff |
| ALLMINE GROUP PTY LTD (IN LIQUIDATION) (ACN 128 806 271) | Second Plaintiff |
| -and- | |
| SCOTT ALEXANDER WALKEM | First Defendant |
| ANDREW DOWLING HOWARD | Second Defendant |
| ROBERT JOHN WILDE | Third Defendant |
| PAUL JOHN KREPPOLD | Fourth Defendant |
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