Scald Pty Ltd v Turner Developments Pty Ltd
[2016] ACTSC 279
•23 September 2016
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Scald Pty Ltd v Turner Developments Pty Ltd |
Citation: | [2016] ACTSC 279 |
Hearing Date: | 18 February 2016 |
DecisionDate: | 23 September 2016 |
Before: | Burns J |
Decision: | See [26] |
Catchwords: | PRACTICE AND PROCEDURE – pleadings – leave to amend defence – amendment not a defence to plaintiff’s claim – significant delay in seeking amendments – presumptive and possible actual prejudice – defendants’ defence doomed to fail – application to amend refused. |
Legislation Cited: | Court Procedure Rules 2006 (ACT) rr 501, 502, 2721 |
Cases Cited: | Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589 Scald Pty Ltd v Turner Developments Pty Ltd & Ors [2014] ACTSC 72 Scald Pty Ltd v Turner Developments Pty Ltd & Ors [2015] ACTSC 270 |
Parties: | Scald Pty Ltd (Plaintiff) Turner Developments Pty Ltd (First Defendant) Canberra Contractors Pty Ltd (Second Defendant) Rovera Constructions Pty Ltd (Third Defendant) Desi Nominees Pty Ltd (Fourth Defendant) Agi De Simone (Fifth Defendant) Mart Pty Ltd (Sixth Defendant) Space Developments Pty Ltd (Seventh Defendant) Multifield Civil Engineering Pty Ltd (Eighth Defendant) David John Dal Molin (Ninth Defendant) |
Representation: | Counsel Mr D Ash (Plaintiff) Mr R Arthur (First, Second, Third, Fourth, Fifth, Seventh, Eighth and Ninth Defendants) |
| Solicitors Joe Weller & Associates (Plaintiff) Bradley Allen Love Lawyers (First, Second, Third, Fourth, Fifth, Seventh, Eighth and Ninth Defendants) | |
File Number: | SC 823 of 2009 |
BURNS J:
The background to these proceedings is to be found in Scald Pty Ltd v Turner Developments Pty Ltd & Ors [2015] ACTSC 270. In that judgment I found that there was a preliminary question to be decided before any order for the taking of accounts could be made pursuant to r 2721 of the Court Procedure Rules 2006 (ACT) (the CPR). These proceedings concern the rights of the parties to a share in a sum of approximately $3.2 million currently held in the trust account of the firm of Meyer Vandenberg, a firm of solicitors.
The essential question raised is whether the taking of accounts should be conducted on the basis that the rights of the parties to distribution of funds currently held in the solicitors trust account, being funds from the sale of a property which was the subject of the 2006 Agreement and mortgage (as defined in my earlier decision), are set out comprehensively in the 2006 Agreement; the loans referred to in the 2006 Agreement were secured by the 2006 mortgage. This is the proposition adopted by the plaintiff. The defendants (except for the sixth defendant which has taken no part in the proceedings) submit that any accounting must take into account amounts that they paid to the first defendant prior to the 2006 Agreement and which were the subject of an earlier mortgage in 2004 (the 2004 mortgage). The 2004 mortgage was discharged without the sums secured by the mortgage being repaid.
In December 2009, the defendants filed a Defence and Counterclaim seeking rectification of the 2006 Agreement such that it would include all of the sums secured by the 2004 mortgage. The parties requested that Master Harper determine the Counterclaim first, on the basis that the decision whether the defendants were entitled to rectification may resolve the whole proceedings. On 30 April 2014, Master Harper ordered that the defendant’s Counterclaim be dismissed, rejecting the claim for rectification: Scald Pty Ltd v Turner Developments Pty Ltd & Ors [2014] ACTSC 72.
The plaintiff then pressed for an order for the taking of accounts. The defendants then sought to raise a different argument, that the parties to the 2006 Agreement were “bound in equity” to acknowledge the loans that had been secured by the 2004 mortgage. They submitted that this was a preliminary question which would affect the taking of accounts: see r 2721(2)(b) of the CPR. In my earlier decision I determined that this was a preliminary issue which needed to be resolved before the taking of accounts but that the issue was not raised, or sufficiently raised, in the existing pleadings. I left it to the defendants to determine how they would raise the issue.
By an Application lodged on 8 March 2016, the defendants (except for the sixth defendant) sought orders, that pursuant to r 501 or r 502 of the CPR they be given leave to amend their defences. The essential effect of the proposed amendments is found in proposed paragraph 7A, which reads:
7AIn answer to the whole of the plaintiff’s claim, and in the alternative, the defendants say:
(a) various of the lenders made loans to the first defendant which were secured by a mortgage over the real property referred to in paragraph 9 of the amended statement of claim in 2004 (“prior loans”);
(b) at the time it entered into the December 2006 agreement, the plaintiff knew or ought to have known, of the prior loans and that they were secured by mortgage;
(c) the prior loans have not been repaid; and
(d) because of these matters the plaintiff is bound in equity on the taking of the account sought to acknowledge any interests of lenders deriving from the prior loans.
The plaintiff opposed the Application to amend on the grounds:
(a)the matters which the defendants now to wish to raise by way of amendment do not constitute a defence;
(b)if the matters the defendants now wish to raise constitute a defence, they are estopped from raising that defence by the principles in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589;
(c)on the facts most favourable to the defendants, the proposed “defence” must fail; and
(d)in any event, the application should be refused on discretionary grounds.
The defendants’ submissions
The defendants conceded that the matters which they seek to raise through amendment do not constitute a defence to an action for an account. They nevertheless submitted that the proposed amendments were a “legitimate plea” in the context of this case because they pleaded an existing controversy that had to be resolved before accounts could be taken. The defendants submitted that the first defendant was in “an invidious position”, with an obligation to repay lenders some of whom were subject to the 2004 Agreement and mortgage and some of whom were entitled to claim under the 2006 Agreement. The defendants likened the proposed amendment to a plea for interpleader relief.
The defendants drew my attention to statements made by Master Harper after his Honour handed down his decision on 30 April 2014, where he commented that there was no doubt that the earlier loans were made to the first defendant, and consideration would have to be given “[n]otwithstanding that the first mortgage was discharged and replaced with the second one, whether [the loans] remained secured by the first deed of loan, the 2004 deed of loan”.
The defendants went on to submit:
That’s the issue that we seek to raise by the amendment to the defence. It was apparent to his Honour at that stage in the proceedings and we say it was also implicit in the fact that the counterclaim raised the issue of loans other than the loans that were the subject of the proceedings. That is to say, taking it back one step, the plaintiff had sought an account under a loan agreement and a mortgage dated in 2006.
What the defendants had sought – or the counterclaimants had sought was to rectify that document so as to bring in some other loans which they said it had been the common intention of all of the parties to have included in that agreement. His Honour found that there was no such common intention. It may have been the intention of some, but was not to his satisfaction proved to be the case with others. But what necessarily is involved in a claim about a common intention is the defendants were saying that everybody, including the plaintiff, knew about these prior loans and intended to bring them into the fold.
The defendants submitted that the proceeds of sale of the property had been received on trust by the first defendant for the lenders, with the first defendant having a fiduciary obligation to each of the lenders to pay out the proceeds “in the proper proportion”.
The defendants accepted that there was a delay in them seeking the proposed amendments, and that this delay had resulted in costs being incurred unnecessarily.
The plaintiff’s submissions
The plaintiff submitted that the focus of the counterclaim which was heard by Master Harper in 2011, with judgment being given in 2014, was whether the funds that were the subject of the 2004 Agreement, and which were ultimately not referred to in the 2006 Agreement, were in fact secured by the 2006 mortgage. The forensic approach chosen by the defendants was to seek rectification of the 2006 Agreement. This approach was very different to that now proposed to be adopted by the defendants, that the plaintiff was “bound in equity” to acknowledge the earlier loans on any taking of accounts. The plaintiff pointed to the fact that the proposed amendments were being sought 10 years after the meeting which resulted in the 2006 Agreement, 7 years after the Counterclaim was pleaded, 5 years after the hearing of the Counterclaim and 2 years after judgment was pronounced on the Counterclaim.
The plaintiff submitted that the gist of the proposed amendments is to be found in proposed paragraph 7A(d) [see [5] above] which pleads that the plaintiff is “bound in equity” on the taking of accounts to “acknowledge any interests” of lenders deriving from earlier loans. The plaintiff submitted that this was not a proper pleading in equity “any more than a pleading to the effect ‘the other party is bound in law’ is good at law”. The plaintiff further submitted that the only sensible way to approach the proposed pleading was that it was seeking to invoke the equitable doctrine of unconscionability. The plaintiff submitted that this is the only reasonable inference which can be inferred, as the pleadings in proposed paragraph 7A allege elements commonly found in unconscionability claims, and in particular the plaintiff’s knowledge of the earlier loans.
The plaintiff submitted that identifying the nature of the issue the defendants seek to raise in the amended pleading gives rise to a further problem. The present proceedings, the plaintiff says, comprise an accounting claim by a party to the 2006 mortgage in relation to the 2006 mortgage. A rectification claim by the defendants regarding the 2006 mortgage was unsuccessful. The plaintiff submitted that the proposed amendments are not by way of defence to the 2006 mortgage, rather it is an attempt at a fresh claim by the signatories to the 2004 mortgage. The plaintiff submitted that if such an issue is sought to be agitated by the signatories to the 2004 mortgage, it should have been the subject of a fresh claim or, perhaps, an application for leave to amend the Counterclaim.
In the alternative, the plaintiff submitted that the defendants should be estopped from pleading the amended defence, citing the principles expressed in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589 at 602-604 (per Gibbs CJ, Mason, and Aickin JJ):
...
Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding...
It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment...
By “conflicting” judgments we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction.
As a further alternative, the plaintiff submitted that what it did or did not do in 2006 concerning the 2006 Agreement could not give rise to any relevant disadvantage to the defendants. The 2004 mortgage was registered by 2006 and the protection that the 2004 mortgage gave to the signatories to that document was not dislodged by the execution and registration of the 2006 mortgage. Any disadvantage to the first defendant, or other defendants, occurred because of the decision of the first defendant to discharge the 2004 mortgage.
Finally, the plaintiff submitted as a further alternative that the application to amend should be refused on discretionary grounds for the following reasons:
(a)there is presumptive prejudice as the case which the defendants now wish to plead turns on what was said at a meeting in 2006. The relevant witnesses gave evidence in 2011 and should not now be required to give it afresh where the issue that the defendants now seek to raise could have been raised at that time;
(b)there is actual prejudice to the plaintiff because it cannot now sue the solicitor involved in the 2004 and 2006 transactions for their failure to make clear that they were not acting for the lenders and their failure to advise the lenders to obtain independent legal advice: see the decision of Master Harper at [124]; and
(c)the proposed amendment does not name or seek to join all the parties to the 2004 Agreement.
The defendants’ submissions in reply
The defendants denied that the proposed amended defence was effectively a fresh claim by the 2004 mortgagees. They submitted that the issue raised by the proposed amended defence is the “position of the first defendant as designated accounting party in respect of a fund of money to which the lenders, under both the 2006 documents and the lenders under the 2004 documents can lay claim”.
The first defendant further submitted that it is by no means clear that Master Harper would have dealt with the issue it now seeks to raise at the same time he addressed the claim for rectification.
Consideration
In my opinion, the Application by the defendants to amend their defence should be refused. The judgment of Master Harper of 30 April 2014 is based upon his Honour’s finding that the defendants had not proven that the written documents forming the 2006 Agreement did not embody the intention of all parties. The appeal to equity in the proposed amendments is extremely vague, but I accept the plaintiff’s submission that the proposed amendments can only be sensibly understood as alleging unconscionable conduct by the plaintiff at the time it entered into the 2006 Agreement. The 2004 mortgage was not discharged, as I understand it, until 2008 when the 2006 mortgage was registered. The 2006 mortgage had previously not been registered because it was believed that revealing the mortgage may have affected the projects ability to raise money from the Commonwealth Bank. The important point is, however, that at the time the 2006 mortgage was executed, the 2004 mortgage was still extant and provided security for the lenders who were signatories to that document. Knowledge of these pre-existing loans as at the date of execution of the 2006 mortgage, secured by the 2004 mortgage could not of itself, establish unconscionable conduct by the plaintiff. For the conduct of the plaintiff to be characterised as unconscionable, either at the time it entered into the 2006 mortgage or subsequently, it would have to be shown that the plaintiff knew that the 2006 mortgage was intended to securitise not only the loans referred to in the 2006 Agreement, but also those secured by the 2004 mortgage. In other words, the defendants would have to show that it was the true intention of the parties that the 2006 Agreement would incorporate and provide security for the earlier loans such that that the plaintiff knew that the 2006 Agreement did not reflect the true intention of the parties. This is the precise proposition that was rejected by Master Harper.
I do not accept that there is an Anshun estoppel in this matter. In my opinion, the present Application is to be dealt with in the context of established principles concerning amendments. That is not to say that an unreasonable failure to plead a “defence” has no bearing on the Application; such a finding would be very relevant to the exercise of any discretion to refuse the proposed amendment.
The defendants have always asserted that the loans which were secured by the 2004 mortgage continued to be secured after the execution of the 2006 Agreement. As long as the 2004 mortgage remained undischarged this assertion was correct. The defendants have never called into question or sought to impugn the discharge of the 2004 mortgage. The forensic course adopted by the defendants was to assert a right to rectification of the 2006 Agreement, which proved unsuccessful. At the very heel of the hunt, the defendants now seek to assert an ill defined equitable right based, not on the 2006 Agreement as has been the case to this point, but on the 2004 Agreement.
Upon the discharge of the 2004 mortgage, the only relevant mortgage (for present purposes) which remained extant was the 2006 mortgage. The plaintiff seeks to be paid from the proceeds of sale of the property in accordance with its rights under the 2006 mortgage. Why should it be deprived of those rights? At its highest, the defendants’ submission is that the plaintiff should not be entitled to payment in accordance with the 2006 mortgage because of its knowledge of the pre-existing loans, some of which were secured by the 2004 mortgage. Such knowledge cannot, of itself, establish in the present circumstances any unconscionability on the part of the plaintiff. The issue that the defendants now wish to agitate is untenable in the light of the decision of Master Harper and is doomed to fail.
I accept that there is presumptive and possibly actual prejudice accruing to the plaintiff by the defendants’ failure to raise this issue at an earlier time. Ten years have now passed since the meeting at which the terms of the 2006 Agreement were formulated, and it may be expected that memories of the participants have faded. If the defendants are successful in this Application, the same witnesses who gave evidence before Master Harper in 2011 will be required to give evidence of the same events some five or six years later. It is unlikely, in my opinion, that Master Harper would have considered the application for rectification as a preliminary issue if the defendants had raised an allegation that they nevertheless had a right in equity to be treated as if they were effectively still secured creditors. The effect of allowing the present Application would be that the five days of hearing before Master Harper was effectively wasted.
The matters which the defendants now seek to raise by way of amendment to their defence do not constitute a defence to the plaintiff’s claim. In any event, the pleading that the plaintiff is “bound in equity” to acknowledge the earlier loans not covered by the 2006 Agreement is inadequate. I am also satisfied that any proceedings against the plaintiff based solely on its knowledge of the earlier loans (which is all that is pleaded in the proposed amendments) could not justify equitable relief. Finally, the delay of the defendants in seeking to raise this issue, the prejudice to the plaintiff if the defendants are now allowed to raise the issue, and the costs incurred by the plaintiff convince me that the Application should be dismissed on discretionary grounds.
Conclusion
The Application to amend will be refused, with costs. The taking of accounts should now proceed on the basis that the rights of the parties to the sum currently held in trust is to be determined by the terms of the 2006 Agreement.
| I certify that the preceding twenty-six [26] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Burns. Associate: Date: 22 September 2016 |
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