Scald Pty Ltd v Turner Developments Pty Ltd (No 2)
[2014] ACTSC 264
•17 October 2014
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Scald Pty Ltd v Turner Developments Pty Ltd & Ors (No 2) |
Citation: | ACTSC 264 [2014] |
Hearing Date(s): | Hearing by written submissions completed 21 July 2014 |
DecisionDate: | 17 October 2014 |
Before: | Harper M |
Decision: | 1. The plaintiff’s costs of the counterclaim be paid by the defendants, not including the sixth defendant. 2. The application by the plaintiff for leave to amend the statement of claim be dismissed. 3. The costs of the defendants (other than the sixth defendant) of the plaintiff’s application for leave to amend the statement of claim be paid by the plaintiff. 4. The proceeding be referred to the Registrar for allocation to the docket of a judicial officer for further directions. |
Category: | Interlocutory Decision |
Catchwords: | COSTS – counterclaim heard and determined separately from and prior to claim by plaintiff – counterclaim unsuccessful – whether costs should follow event – whether costs order should be made immediately or await outcome of claim by plaintiff – retirement of judicial officer hearing and determining counterclaim – order that plaintiff’s costs of counterclaim be paid by defendants. AMENDMENT – application by plaintiff for leave to amend statement of claim under r 501 – r 501 applicable where amendment necessary for the purpose of deciding real issues in proceeding – court not satisfied that proposed amendment necessary for that purpose – application for leave to amend refused with costs. |
Legislation Cited: | Supreme Court Act 1933 |
Cases Cited: | Wilson v Francis [2007] WASC 141 |
Parties: | Scald Pty Ltd (Plaintiff) Turner Developments Pty Ltd (First Defendant) Canberra Contractors Pty Limited (Second Defendant) Rovera Constructions Pty Ltd (Third Defendant) Desi Nominees Pty Limited (Fourth Defendant) Agi De Simone (Fifth Defendant) Mart Pty Limited (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 P Ash (Plaintiff) Mr R J Arthur (Defendants) |
| Solicitors Mr J Weller by his agents Powrie & Co (Plaintiff) Bradley Allen Love Lawyers (Defendants) | |
File Number(s): | SC 823 of 2009 |
Harper M:
On 30 April 2014 I ordered that the counterclaim in these proceedings, brought by the participating defendants in the action against the plaintiff, be dismissed, for reasons which I published. I stood the action over for submissions as to the directions to be made for the further hearing of the action.
The action arises out of a dispute between companies and persons involved in a joint venture for the development of 74 residential units at Turner. The first defendant company, Turner Developments Pty Limited, was incorporated to serve as the vehicle for the joint venture. The plaintiff and the other defendants, were lenders to the first defendant for the purposes of the joint venture. Most of them were also participants in the joint venture. The driving force behind the project was Mr Michael De Simone, who controlled the second defendant, Canberra Contractors Pty Limited.
The participants in the joint venture were generally persons or companies working in the construction industry. In many cases they did work for the joint venture for which they were paid at commercial rates.
The plaintiff company, Scald Pty Ltd, was incorporated for the purpose of the joint venture by Mr Scott Kovacs, whose expertise was in electrical design.
During the course of the project a number of participants, and some non-participants in the joint venture, lent money at interest for the project. The expectation was that the venture would generate a profit, and that there would be enough to pay back the borrowed moneys and interest, and in addition a return to the participants. As it turned out the venture did not make a profit, and there was not enough to repay the borrowers and interest in full. Some money has been repaid. A substantial balance is held by solicitors in trust pending the outcome of this litigation. There is a dispute between the plaintiff and the participating defendants as to how much the plaintiff company is entitled to be paid out of the balance in trust. I use the expression “participating defendants” because the sixth defendant, Mart Pty Limited, has not appeared or participated in the litigation.
The plaintiff in its statement of claim sought an account, and payment of such amount as was found to be payable to it. The participating defendants made a counterclaim seeking rectification of the schedule to a loan agreement dated 13 December 2006 which set out details of lenders, amounts lent, interest rates and dates of loans. The defendants pleaded that by an administrative error, a number of loans had been omitted from the schedule. They said that the common intention of the parties had been to annex to the loan agreement a schedule which included the omitted loans.
In particulars, the solicitors for the defendants said that the administrative error had occurred when Mr De Simone in his capacity as a director of the first defendant (the joint venture company) had prepared a spreadsheet on his computer showing all loans made, including interest accrued up to 31 December 2006. He accidentally attached an incomplete schedule, in the course of sending the spreadsheet by email to the solicitors who were instructed to prepare the loan agreement. No one checked the schedule and the mistake was not picked up until well after the loan agreement had been executed by all its parties.
In further particulars, the solicitors for the defendants added that the common understanding between the parties had been reached at a management committee meeting on 8 November 2006 attended by Mr De Simone, Mr Kovacs and four other directors of the joint venture company, some of whom were also directors of companies which were parties to the loan agreement. By arrangement between the parties, I was asked to hear and determine the counterclaim only, and to postpone the hearing of the claim by the plaintiff, on the basis that my decision would probably in practical terms determine the entirety of the claim, or at least make it clear what the outcome was likely to be.
I heard the evidence in the counterclaim over some four days. I reserved my decision, and ultimately ordered that the counterclaim be dismissed. I was not satisfied that the defendants had established a common intent between the parties to the loan agreement which all present understood and which was then capable of being recorded as a written contract.
After I had reserved by decision but before I had delivered it, the solicitors for the plaintiff filed an application for leave to amend the originating claim and the statement of claim, on the ground that the plaintiff had become aware of facts which identified an error in the loan agreement, in respect of which it sought rectification. Prior to the return date of the application for leave to amend, some changes were made to the proposed amendments. In summary, what was sought to be added to the factual assertions was as follows:
Prior to the execution of the loan agreement, the then solicitor for the joint venture informed Mr De Simone that the plaintiff was concerned that its loan was unsecured. The parties met on 8 November 2006 at the management committee meeting and resolved that a mortgage was to be put in place to secure the loans not secured by an existing mortgage. Mr De Simone had instructed the solicitors to draw up a document materially different in effect to the resolution at the meeting, providing security not only for the unsecured loans but also for the earlier loans, increasing their interest rate from 12.5% to 18%, and capitalising the interest up to 31 December 2006. Mr De Simone had not informed the plaintiff that the document he had instructed the solicitors to prepare was materially different from what had been agreed. He rather represented to the plaintiff that the document was materially to the effect agreed at the management committee meeting. In the circumstances Mr De Simone suspected or should have suspected that the plaintiff would execute the document in the belief that it reflected the resolution. Mr De Simone instructed the solicitors to advise the plaintiff that the document was consistent with what had been resolved at the meeting. His conduct had been unconscionable. Accordingly the schedule to the loan agreement should be rectified so as to limit its application to the five unsecured loans not already secured by the earlier mortgage.
The application was made pursuant to Rule 501 of the Court Procedures Rules 2006. Counsel for the plaintiff submits that the amendments are necessary for the purposes of deciding the real issues in the proceedings. The rule provides that all necessary amendments must be made for that purpose. The rule does not confer a discretion on the court, but requires the amendment to be made once the court is satisfied that the proposed amendment is necessary.
The proposed amendment is inconsistent with the present statement of claim to the extent that the present pleading asks for an account between the parties on the basis of the loan agreement as executed. The schedule to the agreement as executed listed 18 loans, including the five identified in the application for amendment. The counterclaim sought the addition of 12 earlier loans, making a total of 30 loans. I dealt with the application for amendment in my published reasons of 30 April 2014. I said that I was not persuaded that the proposed amendments were required by the way in which the case had been run, but I had decided not to determine the application until the parties had had an opportunity to consider my reasons, and their next steps in relation to the claim by the plaintiff. I said that I intended to refer the outstanding issues to mediation, but would hear the parties before doing so.
Costs
Counsel have provided written submissions on costs. Counsel for the plaintiff submits that there is no reason to depart from the general principle that costs should follow the event, and seeks an order that the participating defendants should be ordered to pay the plaintiff’s costs of the counterclaim on the usual party-and-party basis. The discretion as to costs is to be exercised judicially. The counterclaim having been finally determined, it is appropriate that the court make an order about the costs of the counterclaim now, rather than leaving it until the rest of the action has been heard and determined.
Counsel for the plaintiff referred to provisions in the loan agreement and the associated mortgage providing for the borrowers to pay the lender-mortgagee’s costs and expenses. Counsel submits that neither clause is directed to the present dispute, which is a dispute between the lenders, notwithstanding that the borrower-mortgagor (the first defendant) is a party to the action.
Counsel for the plaintiff also referred in his submissions to the fact that the dispute was as to distribution of a fund, but submitted that there was no principle in the circumstances of this case which would entitle any of the parties to be indemnified out of the fund.
It seems to me, in relation to the last point, that the first defendant might have had an argument that it should be indemnified out of the fund if it had stayed out of the fray, been separately represented, and entered a submitting appearance. However, the first defendant was represented by the same solicitors and counsel as the other participating defendants. No submission was made that it should be treated differently from any of the other defendants.
Counsel for the defendants submitted that the costs of the counterclaim should be reserved for determination at the conclusion of the hearing of the plaintiff’s claim. Counsel for the defendants submitted that the plaintiff had brought proceedings for an account in respect of the distribution of a fund. The plaintiff had sought to exclude the earlier loans, not listed in the schedule to the loan agreement, from participation in the distribution of the fund. This would become a central issue in the determination of the plaintiff’s claim. A critical issue would be whether or not the plaintiff had been aware of the earlier loans. Counsel for the defendants submitted that the plaintiff might be found to be acting unconscionable in seeking to exclude the earlier loans, if it was found that the plaintiff had been aware of the existence of those loans. Much of the evidence on the hearing of the counterclaim would be relevant to the hearing of the claim by the plaintiff. The extent of any additional evidence would not be known until the end of the hearing of the claim. If the plaintiff was unsuccessful, some appropriate of the costs on an issues basis might be appropriate, and this would only be possible after the determination of the plaintiffs claim.
It would have been preferable for the same judicial officer to hear and determine the plaintiff’s claim and the counterclaim. This has proved not to be achievable. I have ceased to hold office as master, my term of appointment having come to an end when I turned seventy: see Supreme Court Act 1933, s 41. Section 60A of that Act provides that I continue to hold office for the purposes of transitional proceedings, being proceedings which were being heard by me at the completion of my term of office but which had not been finally determined. Having regard to the arrangements made by the parties, the counterclaim was in that category. I have come to the view that the claim by the plaintiff against the defendants is not in the same category. That is to say, it is not a transitional proceeding for s 60A, and I do not continue to hold office for the purpose of hearing and determining it.
This, it seems to me, provides a powerful reason for me to deal with the costs of the hearing and determination of the counterclaim, rather than leave it to another judicial officer who was not involved in that hearing and determination.
The costs of the counterclaim should follow the event. There will be an order that the defendants (other than the sixth defendant), pay the plaintiff’s costs of the counterclaim.
Application by plaintiff for leave to amend
In further submissions following the publication of my reasons, counsel for the plaintiff submits that amendments to the statement of claim should be permitted because they are necessary for the purpose of deciding the real issues in the proceeding: r 501 (a). Counsel submits that on the present pleadings the issue is the plaintiff’s call for an account pursuant to the loan agreement, and ancillary relief. However, substantially as a result of cross-examination, the plaintiff now wishes to assert a further case which is more consistent with the evidence given on the hearing of the counterclaim.
Counsel for the plaintiff concedes that the new case is to some degree inconsistent with the original claim, but submits that it is acceptable for a plaintiff to add an alternative claim. The fresh claim is based on alleged sharp practice on the part of Mr De Simone, amounting to unconsionability. On that ground the plaintiff wishes to seek what counsel calls unilateral rectification, a form of relief recognised in Wilson v Francis [2007] WASC 141 as available notwithstanding a lack of common intention.
Counsel for the plaintiff has not sought leave to amend under r 502, which gives the court a general discretion about amendment and is not limited to amendments necessary for the purposes of deciding the real issues in a proceeding.
The plaintiff asserts an entitlement to amend so as to add a prayer for relief in the form of rectification of the 2006 loan agreement to reflect not a common intention but a manifest understanding which Mr De Simone intended the plaintiff to act on, knowing it was wrong.
I made a finding of fact at [122] of my reasons of 30 April 2014 that Mr De Simone had intended to include in the schedule of loans which he sent to the solicitors for the joint venture all 30 of the loans. I accepted that a mistake had been made in the process of instructing the solicitors. I did not make a finding as to whether the mistake had been made by Mr De Simone or by the solicitors, and did not need to make such a finding.
Although I did not record a finding about it in my reasons, I was satisfied at the time and remain satisfied that Mr De Simone was unaware of the mistake until about the time Mr Kovacs became aware of it, in about December 2008. It was not suggested to Mr De Simone that he had known of the mistake earlier and deliberately sought to take advantage of it. There was no evidence to support such a hypothesis. If such evidence had been available to the plaintiff it is inconceivable that it would not have been used as the basis for a portion of the cross-examination of Mr De Simone. There is no suggestion by counsel for the plaintiff that any such evidence exists. There is hence no basis for a finding that Mr De Simone was guilty of sharp practice or unconsionability.
The provisional conclusion I reached about the application to amend, at [161] of my earlier reasons, is confirmed now that I have heard submissions from counsel for both sides following publication of those reasons. The plaintiff’s application for amendment will be dismissed with costs.
The plaintiff’s claim against the participating defendants will be referred to the Registrar for allocation to the docket of another judicial officer.
| I certify that the preceding twenty eight [28] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Master Harper. Associate: Date: 17 October 2014 |
1
2