Sistrom v Rangott

[2004] ACTCA 14

SISTROM v RANGOTT & ORS  [2004] ACTCA 14 (4 August 2004)

PRACTICE AND PROCEDURE – pleading – amendment – leave to add statute-barred cause of action – requirement for new cause of action to be one “arising out of the same or substantially the same facts”.

Limitation Act 1985, s 51
Supreme Court Rules, O 32 r 1

McGee v Yeomans [1977] 1 NSWLR 273 distinguished
Nelson v Wyong Shire Council (1989) 68 LGRA 164 considered
Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 considered
Sistrom v Rangott [2004] ACTSC 4 reversed

ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

No. ACTCA 3-2004
No. SC 756 of 1993

Judges:  Gray, Whitlam and Moore JJ
Court of Appeal of the Australian Capital Territory
Date:            4 August  2004

IN THE SUPREME COURT OF THE  )   No. ACTCA 3-2004
  )  
AUSTRALIAN CAPITAL TERRITORY  )
  )

COURT OF APPEAL  )

ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN: ROSINA GAYLE SISTROM as Executor of the Will of the late

David William Sistrom

Appellant

AND:WILLIAM BALFOUR RANGOTT

First Respondent

MICHAEL GREGORY JONES

Second Respondent

REGINALD ROBERT EUSTACE

Third Respondent

DAVID SAXBY CAWTHORN

Fourth Respondent 

SCHON GREGORY CONDON

Fifth Respondent

DANIEL IVAN CVITANOVIC

Sixth Respondent

ORDER

Judges:  Gray, Whitlam and Moore JJ
Date:  4 August 2004
Place:  Canberra

THE COURT ORDERS THAT:

1. Leave is given to appeal from the judgment in the Court below.

1. The appeal is allowed in part.

1. Order 1 made on 27 February 2004 is set aside and in lieu thereof it is ordered that:

(a)Leave is given to amend the defences so as to rely on all the new matters sought save those relating to the Trade Practices Act 1974 (Cth).

(b)Leave is refused to amend the counterclaims.

1. The costs of the appeal (including the application for leave to appeal) are to be each party’s costs in the cause.

IN THE SUPREME COURT OF THE  )   No. ACTCA 3-2004
  )  
AUSTRALIAN CAPITAL TERRITORY  )
  )

COURT OF APPEAL  )

ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:ROSINA GAYLE SISTROM as Executor of the Will of the late

David William Sistrom

Appellant

AND:WILLIAM BALFOUR RANGOTT

First Respondent

MICHAEL GREGORY JONES

Second Respondent

REGINALD ROBERT EUSTACE

Third Respondent

DAVID SAXBY CAWTHORN

Fourth Respondent 

SCHON GREGORY CONDON

Fifth Respondent

DANIEL IVAN CVITANOVIC

Sixth Respondent

Judges:  Gray, Whitlam and Moore JJ
Date:  4 August 2004
Place:  Canberra

REASONS FOR JUDGMENT

1. This is an application for leave to appeal from orders made by Connolly J on 27 February 2004 giving leave to amend the defences and counterclaims in an action brought on a deed. 

2. When the motion for leave to appeal was called on for hearing, counsel for the applicant informed the Court that his client had died since the filing of the notice of motion.  He applied to have the widow of the deceased substituted as the applicant on the motion and as the plaintiff in the proceeding in the Court below.  The respondents did not oppose this course, and an order to that effect was made.  However, in these reasons we shall for convenience refer to the parties by the description used in the pleadings and to the deceased as the plaintiff.

ORIGINAL PLEADINGS

1. The action was commenced by a specially indorsed writ issued on 19 November 1993.  The amended statement of claim alleges that an amount of $175,000 was due and owing at that date to the plaintiff by six defendants named in the writ pursuant to a deed made on 28 October 1992 between the plaintiff of the one part and the defendants of the other part.  That amount is alleged to be the balance of a sum payable to the plaintiff as consideration for surrendering his capital in the firm of Jones Sistrom & Co, in which he and the defendants had been partners and from which he had agreed to resign with effect from 25 October 1992.

2. Two separate defences to the amended statement of claim were delivered, one dated 22 December 1993 on behalf of the first, third, fourth and sixth defendants and one dated 13 January 1994 on behalf of the second and fifth defendants.  Each defence set up a counterclaim.  The plaintiff delivered replies dated 14 February 1994, which included defences to the counterclaims.  These pleadings are not identical, but they follow the same general lines and counsel have not suggested that there is any material difference between them.  The oral argument before Connolly J addressed only the amendments proposed by the first and sixth defendants.  The same course was taken before us, and in what follows we refer only to their defence and those amendments. 

3. The defence did not admit that the terms or effect of the deed made on 28 October 1992 were fully or accurately set forth in the amended statement of claim.  The defendants admitted that they made certain payments to the plaintiff, but denied that they were liable to pay the balance of the sum claimed.

4. In answer to the whole of the claim, the defendants also pleaded certain express and implied terms of a partnership deed executed on or about 16 August 1991 under which they and the plaintiff conducted their partnership as insolvency practitioners and chartered accountants.  These terms were: that the partners would diligently attend to the business of the partnership, be just and faithful to each other and at all times give to each other full information and truthful explanations of all matters relating to the affairs of the partnership, and not do any act or thing whereby the firm or the partnership property would be prejudicially affected (paragraph 10); that the partners would act in perfect fairness and in utmost good faith towards each other during the life of the partnership (paragraph 11); that the partners were bound to render true accounts and full information on all things affecting the partnership to all of the partners and to make full disclosure of all matters relating to the business carried on by the partnership (paragraph 12); and that each partner would account to the other partners for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership or for any use made by him of the partnerships property or business (paragraph 13).  It was then alleged -

   14.Prior to 28 October 1992, and in breach of those express and implied terms the Plaintiff had:

   (a) secretly, and contrary to the requirements of sections 169 and 260 of the Bankruptcy Act 1966 and to section 531 of the Corporations Law and Regulation 5.6.01 of the Corporations Regulations maintained a private ‘trust account’ styled the ‘D.W. Sistrom Trust Account’ into which and from which the Plaintiff transferred monies belonging to the partnership and monies accountable by the Plaintiff pursuant to the Plaintiff’s administration of insolvent estates in respect of which he was the trustee or liquidator;

   (b)caused himself to be paid remuneration, purportedly for professional work carried out as liquidator or trustee of insolvent administrations in respect of which he had been appointed, when such work had not been done and/or where such payment had not been approved by creditors of such insolvent estates or by the Court;

   (c) failed to file reports and other statutory returns required by the Corporations Law and under the Bankruptcy Act 1966 in respect of insolvent estates in respect of which he was liquidator and/or administrator;

(d) failed to maintain any or any adequate records of transactions occurring in relation to administrations of insolvent estates in respect of which he was trustee or liquidator;

(e)failed to take any or any adequate steps to administer insolvent estates in respect of which he was appointed trustee or liquidator;

(f)otherwise grossly maladministered administrations in respect of which he had been appointed trustee or liquidator, wilfully neglected his responsibilities as trustee or liquidator in respect of such administrations, and wilfully defaulted in regard to his obligations as trustee or liquidator under such administrations and in regard to his obligations as partner.

The defence stated (paragraph 15) that, “as a result of such gross maladministration, such wilful neglect and such wilful default” the defendants had suffered and would continue to suffer loss and damage.  The defence continued -

16.As at the date upon which the Deed [previously defined as the deed of 28 October 1992] was executed by the Plaintiff and by the Defendants:

(a)the Plaintiff knew all of the matters set forth in paragraph 14 herein;

(b)knew, or alternatively believed, that the Defendants did not know such matters;

(c)knew, or alternatively believed, that the Defendants executed the Deed and submitted their assent to the agreement comprised in the Deed in ignorance of such matters;

(d)knew, or alternatively believed, that the Defendants would not have entered into the Deed, and would not have given their assent to the agreement comprised in the Deed, had they been aware of such matters,

and yet the Plaintiff made no disclosure of such matters and permitted the Defendants to enter into the Deed without such disclosure having been made and in ignorance of the Plaintiff’s gross maladministration, gross and wilful neglect and wilful default as set forth herein.

17.In the premises, the Deed is liable to be rescinded at the option of the Defendants and the Defendants:

(a) hereby rescind the Deed, or alternatively;

(b)claim the relief set forth in the Cross-Claim herein.

1. In further or alternative answer to the claim, the defendants pleaded (paragraphs    18 - 20) that they executed the deed of 28 October 1992 under duress and would not otherwise have done so.  Accordingly they purported by their defence to rescind the deed and to set up a counterclaim on that ground also.  The counterclaim in paragraphs 21 and 22 of the defence and counterclaim repeated paragraphs 8 to 20 of the defence and sought damages and rescission of the deed.

2. In his reply, the plaintiff admitted the partnership deed and the terms pleaded in paragraphs 10-13 of the defence.  As to the rest of the defence, he said that he -

   7.Admits that prior to 28 October 1992 he maintained a trust account styled as alleged, but otherwise denies each and every allegation of fact contained in paragraph 14 (a) to (f) inclusive.

   8. Denies paragraph 15.

3. Denies each and every allegation of fact contained in paragraph 16 (a) to (d) inclusive.

   10.Denies that the defendant is entitled to the relief pleaded in paragraph 17.

   11.As to paragraph 18 denies that the defendants entered the deed under duress.

   12.Denies paragraph 19.

   13.Denies the relief sought in paragraph 20.

   14.Further, the plaintiff says in relation to the allegations contained in paragraph 10 to 20 that the negotiations leading to the signing of the deed of 28 October 1992 arose out of disputes between the plaintiff on the one part and the defendants on the other consequent upon the incapacity for work of the plaintiff due to serious illness during 1992.

   15.Insofar as there were any deficiencies in his administration of insolvent estates (which he denies) the plaintiff says that such arose from his said incapacity and were (or ought to have been) well known to the defendants.

   16.As a consequence of the disputes between the parties as to the circumstances under which the partnership should be dissolved clauses 4.5 and 11 were included in the deed and the plaintiff begs leave to refer to these as if the same had been fully set forth herein.

   17.The plaintiff relies upon the said clauses in answer to the whole of the claims of the defendants as pleaded in paragraph 10 to 20.

INTERIM DEVELOPMENTS

1. After the close of pleadings no step was taken to prosecute the action until 25 September 2002, when the plaintiff filed a notice of motion for directions. (In the meantime the third defendant became bankrupt on 1 August 1996 and the fourth defendant became bankrupt on 17 July 1998.) The plaintiff’s notice of motion was served on the remaining defendants on 31 October 2002. Those defendants applied to have the proceedings dismissed for want of prosecution by notice of motion filed on 12 November 2002. That motion was dismissed, by consent, on 13 March 2003. On that date the plaintiff filed in court notice of a motion for orders purportedly available under s 57 of the Supreme Court Act 1933 (“the Act”).  Those orders were also made that day, by consent, in the terms sought.  They included an order that the evidence in chief of the plaintiff be taken by affidavit.  The plaintiff made such an affidavit on 29 April 2003.

2. On 1 December 2003 the plaintiff filed notice of a motion for determination of a “preliminary question”.  That motion was amended by a notice dated 10 December 2003 so that the first order sought was the determination of six “preliminary questions”.  One of those questions asked whether the defendants were estopped from asserting the matters set out in paragraphs 14-22 of the defence and counterclaim by reason of “paragraphs 4, 7, 10, 11, 19, 20 and 24” of the deed dated 28 October 1992.  If those questions were answered in the affirmative, orders were also sought for summary judgment or, in the alternative, the striking out of matters in the defendants’ pleadings.  Further, in the alternative, the amended notice of motion sought orders striking out interrogatories delivered by the first and sixth defendants.

3. The plaintiff’s amended motion came on for hearing before Connolly J on 4 February 2004. The second and fifth defendants did not appear. His Honour made an order that the plaintiff’s application was properly before the Court pursuant to O 29 r 2 of the Supreme Court Rules (“the Rules”), but he adjourned the further hearing of the motion in order to give the defendants an opportunity to apply for leave to amend their pleadings. His Honour directed the first and sixth defendants to file and serve any such motion by 2.00 pm on 13 February 2004 and the plaintiff to file and serve any affidavit in reply by 4.00 pm on 16 February 2004. The matter was stood over until 2.15 pm on 17 February 2004.

PROPOSED AMENDMENTS

1. On 13 February 2004 a notice of motion for leave to amend their defence and counterclaim was filed by the first and sixth defendants and by the second and fifth defendants.  The proposed amendments to the defence picked up a quibble in the plaintiff’s reply about partnerships that antedated the partnership deed of 16 August 1991.  This led to the renumbering of the paragraphs.  Paragraph 14 (reproduced in [6] above] became paragraph 16 and a new subparagraph was added as follows -

(g) fraudulently misappropriated money from the ‘D.W. Sistrom Trust Account’ by transferring to himself or paying for his personal benefit monies belonging to the Partnership and/or the Earlier Partnerships and/or monies for which he was accountable in his capacity as the trustee, liquidator or administrator of insolvent estates:

1. money belonging to the Partnership and/or the Earlier Partnerships totalling $231,145.03;

   (ii)money in the sum of $11.031.25 received on trust for any [sic] payable for the benefit of the insolvent estate of Aladdin Travel Pty Ltd.

   Paragraph 15 became paragraph 17 and was altered to allege that the loss and damage were suffered as a result of the “fraudulent misappropriations” as well as the maladministration, neglect and default previously alleged.  A new paragraph 18 was added as follows -

18. As at the date upon which the Deed was executed by the Defendants and in entering into the Deed the Defendants were not aware of the matters set forth in paragraph 16 and entered into the deed in the mistaken belief that such gross maladministration, gross and wilful neglect, wilful default and fraudulent misappropriations had not occurred.

The old paragraph 16 was altered to read -

19. As at the date upon which the Deed was executed by the Plaintiff and by the Defendants:

(a) the Plaintiff knew all of the matters set forth in paragraph 16 herein;

(b)knew, or alternatively believed, that the Defendants did not know such matters;

(c) knew, or alternatively believed, that the Defendants executed the Deed and submitted their assent to the agreement comprised in the Deed in ignorance of such matters;

(d) knew, or alternatively believed, that the Defendants would not have entered into the Deed, and would not have given their assent to the agreement comprised in the Deed, had they been aware of such matters,

and yet the Plaintiff deliberately made no disclosure of such matters and permitted the Defendants to enter into the Deed without such disclosure having been made and in ignorance of the Plaintiff’s gross maladministration, gross and wilful neglect, wilful default and fraudulent misappropriations as set forth herein.  [The new words have been highlighted.]

1. The proposed amendments to the defence then repeated the allegations about the partnership up to and including the new paragraph 16 in order to ground three further sets of allegations said to give rise to rights to rescind and to damages.  The first was -

23. Prior to entry into the deed the Plaintiff, by failing to disclose the matters referred to in paragraph 16 impliedly represented to the Defendants and each of them that such circumstances did not exist (‘the Representation’).

24. The Plaintiff made the Representation with the intention that the Defendants would rely upon it in entering into the Deed.

25. The Defendants relied upon the Representation when entering into the Deed and hence assuming the obligations and liabilities, and altering their relationship with the Plaintiff, as set out in the Deed.

26. The Representation was false.

27. As a consequence of their reliance upon the Representation the Defendants have incurred loss and damage.

The second was -

31. Prior to entry into the deed the Plaintiff, by deliberately failing to disclose the matters referred to in paragraph 16, impliedly represented to the Defendants and each of them that such circumstances did not exist (‘the Fraudulent Representation’).

32. At all material times up until the Defendants executed the Deed the Plaintiff

(a) knew that the Fraudulent Representation was false; or alternatively.

(b) made the Fraudulent Representation recklessly without caring whether it was true or false.

33. The Plaintiff made the Fraudulent Representation with the intention that the Defendants would rely upon it in entering into the Deed.

34. The Defendants relied upon the Fraudulent Representation in entering into the Deed and hence assuming the liabilities and obligations, and altering their relationship with the Plaintiff, as set out in the Deed.

35. As a consequence of their reliance upon the Fraudulent Representation the Defendants have suffered loss and damage.

And the third was -

39. The Partnership was formed in the Australian Capital Territory and the business of the Partnership was carried on in various locations including the Australian Capital Territory.

40. During the course of the discussions and negotiations in relation to the retirement or possible retirement of the Plaintiff as a partner in the Partnership and prior to the execution of the Deed the plaintiff concealed or failed to fully and adequately disclose to the Defendants the matters material to his retirement as a partner and in particular the matters referred to in paragraph 16 (‘the Conduct’).

41. The Conduct of the plaintiff was conduct in trade or commerce within the meaning of the Trade Practices Act 1974 and occurred in the Australian Capital Territory.

42. The conduct was conduct that was misleading or deceptive within the meaning of s 52 of the Trade Practices Act 1974.

43. As a result of the Conduct of the plaintiff the Defendants were not aware of the matters referred to in paragraph 16 or the true nature and extent of such matters prior to entry into the Deed.

44. The Defendants would not have entered into the Deed if they had been aware of, or alternatively aware of the full nature and extent of, the matters referred to in paragraph 16.

45. As a result of the misleading and deceptive conduct of the Plaintiff the Defendants have suffered loss and damage.

In each case the particulars of the loss and damage were alleged to be not just the matters particularised in what was now paragraph 17, but also “monies paid to the plaintiff pursuant to the Deed and any amount which the Defendants are held in these proceedings to be liable to the plaintiff.”  The duress claim was then stated in its original terms following the fresh allegations.

1. In addition, the defendants proposed amending their counterclaim to rely on all the new allegations. The proposed amendments claimed equitable compensation, an account, damages under ss 4 and 5 of the Law Reform (Misrepresentation) Act 1977 and s 82 of the Trade Practices Act 1974 (Cth), and orders under s 87 of the latter Act.

PROCEEDINGS AND JUDGMENT IN THE COURT BELOW

1. On 17 February 2004 the parties agreed that the defendants’ motions should be heard together and dealt with before the hearing of the plaintiff’s motion resumed.  In support of the motions counsel for the first and sixth defendants read an affidavit made by the first defendant on 13 February 2004 and counsel for the second and fifth defendants, in addition to relying on that affidavit, read affidavits made by his clients on 16 February 2004.  Counsel for the plaintiff did not object to the use of these affidavits or to their contents being received in evidence.  The first defendant was cross-examined, and counsel for the plaintiff tendered part of a prior statement signed by the first defendant.  That document was received in evidence without objection.  Otherwise no evidence was read or tendered on behalf of the plaintiff in opposition to the defendants’ motions.

2. The first defendant annexed to his affidavit journal entries from what, he said, was the plaintiff’s secret trust account and which, he said, he copied about six weeks before signing the deed of 28 October 1992.  The first defendant said that the source of receipts totalling $242,176.28 in that journal was not specified, although the plaintiff had subsequently accounted for $11,031.25 of that amount in respect of the liquidation of Aladdin Travel Pty Ltd.  (In cross-examination, the first defendant agreed that his affidavit gave the impression that the source of the receipts in question was a “big mystery” to him, but he denied that that was “a fiction designed to trick up this claim of fraud”.)  The first defendant then gave examples of the plaintiff’s use of the trust account to fund personal expenses. 

3. Also annexed to the first defendant’s affidavit were copies of ten charges laid against the plaintiff on 11 October 1994 for offences against the Corporations Law together with a copy of a letter to the first defendant dated 27 October 1995 from the Commonwealth Director of Public Prosecutions informing him that these charges had been withdrawn following the plaintiff’s resignation as an official and registered liquidator and representations as to the plaintiff’s ill health.  The first defendant said that he had thought the existing defence and counterclaim were sufficiently widely drafted to cover all these matters, but that he had also thought the plaintiff would not pursue this action.

4. In his affidavit the first defendant referred to particular paragraphs in the plaintiff’s affidavit of 29 April 2003.  The first defendant said that, at no time in the negotiations between the plaintiff and the defendants, did the plaintiff mention that he had paid monies owed to the partnership to himself, or that he had applied for himself monies owed to clients of the partnership.  Had disclosures of this kind been made by the plaintiff, the first defendant said that he (and, he believed, the other defendants) would never have entered into the deed of 28 October 1992.  In their affidavits, the second and fifth defendants said that they had read the affidavit of the first defendant, that they were unaware of the problems mentioned by the first defendant when they executed the deed of 28 October 1992, and confirmed that, had they known of those matters, they would not have entered into that deed.

5. Both counsel for the defendants submitted that the proposed amendments essentially relied upon facts already pleaded, that the timing of the amendment application was explained, that s 51 of the Limitation Act 1985 had the effect of stopping the running of any limitation period, and that the amendments should be made pursuant to O 32 r 1 of the Rules. The amendments were strongly opposed by counsel for the plaintiff. His extensive and wide-ranging submissions may be summarized as follows: that there was no explanation for the defendants’ delay in making their application to amend after the plaintiff had filed his motion for directions in September 2002; that the amendments were not sought in good faith because the defendants knew of the plaintiff’s “secret” trust account before they signed the deed of 28 October 1992 and because their existing claims had been “tricked up” to allege fraud so as to defeat the plaintiff’s part-heard motion relying on estoppel by deed; that no particulars of the allegations of fraud were stated; that the limitation periods applicable to the new causes of action had expired and, citing Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, those causes of action did not arise out of the same or substantially the same facts as the causes of action already pleaded; that s 51 of the Limitation Act cannot be used to “skirt” the fact that the relevant periods of limitation had expired; and, that costs orders could not compensate the plaintiff for the prejudice that he would suffer as a result of the amendments because he was not well enough to make another affidavit supplementing his evidence-in-chief in order to deal with the fresh allegations.  In reply, counsel for the defendants pointed out that no evidence of any such prejudice had been adduced by the plaintiff.

6. Connolly J delivered a reserved judgment allowing the amendments on 27 February: Sistrom v Rangott [2004] ACTSC 4. His Honour said that granting the motions would “allow the defendants to amend their defences and counterclaims to expressly plead fraud” and that the “effect of the amendments is to allege that the previously pleaded and identified conduct amounts to fraud”. On “the question of late amendments to pleadings”, his Honour said that Queensland v J L Holdings Pty Ltd (1999) 189 CLR 146 was authority for the proposition that “a party should be permitted to raise an arguable defence by a late amendment provided any prejudice to the other party can be compensated by costs.” So far as the amendments raised “a limitations issue”, his Honour accepted the defendants’ submission that the power under O 32 r 1 of the Rules was the same as that available under the Supreme Court Rules (NSW), which was described in McGee v Yeomans [1977] 1 NSWLR 273 by Glass JA (at 280) as follows -

   … a general discretion to allow an amendment, notwithstanding that it raises a barred cause of action, whenever justice so requires.  The exercise of the discretion is unfettered by any rules of practice.

Connolly J then summarized the evidence explaining the defendants’ delay.  He accepted that evidence, saying that “these are persuasive reasons why the jurisdiction to allow the defendants to amend their defence should be exercised in their favour.”

1. At the end of his reasons for judgment Connolly J, referring to the plaintiff’s part-heard motion, said that the fact that the amendments would preclude the plaintiff obtaining summary judgment, thus resulting in the action going to trial, did not amount to “a prejudice to the plaintiff”.  His Honour further noted that under the Law Reform (Misrepresentation) Act the terms of a deed (such as those relied on by the plaintiff for the estoppel) could only exclude the defendants’ right to rescind to the extent that they are “fair and reasonable in the circumstances of the case”.  His Honour said that reliance “to prevent a trial on the merits in the circumstances of this case would not … be fair and reasonable to both parties.”

GROUNDS OF APPEAL

1. An order was made that this application for leave to appeal be heard with the hearing of the appeal.  For this purpose a notice of appeal dated 13 May 2004 was included in the appeal papers.  The written summary of counsel for the appellant’s argument was also filed on 18 June 2004.  Both documents adopt a scattergun approach in challenging Connolly J’s judgment.  This course was most likely taken because of the restraints imposed upon appellate intervention in disturbing interlocutory orders, particularly those involving matters of practice and procedure.  In the result, many grounds have been invoked indiscriminately and without regard to the evidence actually received on the hearing of the defendants’ motions in the Court below.

2. Nonetheless, in our opinion, one ground (which is somewhat tangentially stated in the summary of argument) identifies an error of legal principle in the primary judge’s reasons. It relates to the requirement of O 32 r 1(6) of the Rules that a new cause of action be one “arising out of the same or substantially the same facts”.

   Order 32 rule 1 of the Rules provides -

(1) Subject to subrules (2) to (7), the court may, at any stage of an action, on application by a party or on its own initiative-

(a)order that any document in the action be amended; or

(b)give leave to any party to amend any document of that party in the action;

in such manner and on such terms as the court considers just.

(2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the action, of correcting any defect or error in the action or of avoiding multiplicity of actions.

1. If there is a mistake in the name or identity of a party, an amendment may be made to correct the reference to the name of the party notwithstanding that the effect of the amendment is to substitute another person as a party.

   (4)If-

   (a) an amendment to correct a reference to the name of a party is made under an order under subrule (1); and

   (b) the effect of the amendment is to substitute another person as a party;

the action shall, unless the court otherwise orders, be deemed to have commenced with respect to that other person on the day on which the order was made.

1. An amendment to alter the capacity in which a party sues may be made only if the new capacity is one which the party had when the action was commenced.

   (6)If an originating application identifies a cause of action arising out of any facts, an amendment may be made having the effect of adding or substituting a new cause of action arising out of the same or substantially the same facts specifying the relief claimed in respect of that new cause of action.

   (7)Where-

   (a) any relevant period of limitation has expired after an action was commenced; and

   (b) after that expiration, an application for leave to amend a document in accordance with subrule (3), (5) or (6) is made;

   leave may be given notwithstanding that the period of limitation has expired if the court considers it just to do so.

2. This rule does not apply in relation to an amendment of a judgment or order.

   The rule was made in those terms by an amendment to the Rules in 1998. That amendment displaced the settled rule of practice laid down in Weldon v Neal (1887) 19 QBD 394 that, except in “very peculiar circumstances”, an amendment will not be allowed which sets up a cause of action which, at the time of the amendment, is barred by a statute of limitation. However, where a relevant limitation period has expired, the discretion under subrule (7) is only enlivened if an application of one of the kinds mentioned in par (b) of that subrule is made. In the present case that means an application for leave to amend in accordance with subrule (6).

3. It is not clear whether the primary judge’s statement that the “effect of the amendments is to allege that the previously pleaded and identified conduct amounts to fraud” represented his considered view or was merely a paraphrase of the submissions made by counsel for the defendants. However, his Honour did not analyse the elements of the new causes of action, and we can confidently conclude that no consideration was given by him to the threshold question posed by O 32 r 1(6). (It makes no difference in the present case that the defendants have not filed an “originating application” and that the amendments relate to claims raised by counterclaim, since O 23 r (3)(1) of the Rules provides that a counterclaim has the same effect as a cross-action.)

4. The primary judge’s reliance in this case on Glass JA’s statement reproduced in [20] above was, in our opinion, misplaced.  The NSW rules under consideration in McGee v Yeomans are set out in the report of that case: [1977] 1 NSWLR at 279. The terms of those rules are materially different to O 32 r 1, which expressly provides that the general power of amendment in subrule (1) is subject to the provisions of subrules (2)–(7). There is also no equivalent of the NSW rule which, Glass JA said (at 280), “provided that the abrogation of the settled rule of practice in certain defined situations shall not in any way abridge the width of the general power to amend”. Glass JA’s sweeping statement about the unfettered exercise of a general discretion would appear to have distracted the primary judge in the present case from giving attention to the initial requirement that the new causes of action arise out of the same or substantially the same facts.

5. Connolly J made no findings about relevant periods of limitation, nor did he refer to the defendants’ submissions regarding s 51 of the Limitation Act.  That section provides -

If, in an action (the principal action), a claim is made by way of set off, counterclaim or cross-action, the claim, for this Act-

(a)is a separate action;  and

(b)is, as against a person against whom the claim is made, brought on the only or earlier of such of the following dates as are applicable:

1. the date when he or she becomes a party to the principal action;

2. the date when he or she becomes a party to the claim.

   The way in which such a provision works was explained by Giles J in Nelson v Wyong Shire Council (1989) 68 LGRA 164. In the present case it operates to make the defendants’ claims against the plaintiff brought as of 19 November 1993. Section 51 thus provides for the relation back of claims made by way of counterclaim, but it can have no operation in respect of any new causes of action until leave is given to add them to a counterclaim. Any relevant period of limitation remains a matter that must be considered on an application for leave to amend. The defendants’ submissions to the primary judge were pointless or misconceived.

1. It may safely be assumed (as the parties must be taken to have tacitly acknowledged) that the general bar of six years provided by s 11 of the Limitation Act applied to all the new causes of action. The only relevant limitation period will have thus expired by the time that the defendants’ application for leave to amend was made. It is, therefore, necessary to consider whether the new causes of action are permissible under O 32 r 1(6).

2. The plaintiff placed particular emphasis on a number of statements in the Paragon Finance case, which was concerned with the requirements of a materially identical rule in England. In that case Millett LJ said ([1999] 1 All ER 400 at 406) -

In my judgment, it is incontrovertible that an amendment to make a new allegation of intentional wrongdoing by pleading fraud, conspiracy to defraud, fraudulent breach of trust or intentional breach of fiduciary duty where previously no intentional wrongdoing has been alleged constitutes the introduction of a new cause of action.

…

…  Breach of fiduciary duty was already pleaded, but in terms which did not involve any conscious impropriety.  The plaintiffs submit that the mere addition of an allegation of intent does not amount to a new cause of action.  In my judgment this is contrary to the authorities  already cited, which show that intentional and unintentional wrongdoing give rise to distinct causes of action.  ...

His Lordship relevantly concluded (at 418) -

Whether one cause of action arises out of the same or substantially the same facts as another was held by this court in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 4 All ER 10, [1994] 1 WLR 1409 to be essentially a matter of impression. In borderline cases this may be so. In others it must be a question of analysis. In the Thakerar case Chadwick J observed that it would be ‘contrary to common sense’ to hold that a claim based on allegations of negligence and incompetence on the part of a solicitor involved substantially the same facts as a claim based on allegations of fraud and dishonesty.  I respectfully agree.  In all our jurisprudence there is no sharper dividing line than that which separates cases of fraud and dishonesty from cases of negligence and incompetence.

Pill LJ agreed and, after referring to a situation where the power to allow a new claim could be exercised in favour of a plaintiff, said (at 420) -

Where it is sought to add allegations of wrongdoing which is intentional, the position is in my judgment different.  The change cannot be categorised as a technicality.  I accept the submission made on behalf of the plaintiffs that the critical question is the extent to which the facts on which the new cause of action is based depart from those already pleaded (and not the seriousness of the new allegation).  However, to allege that an injury is caused intentionally is to add a new allegation of fact which gives the allegations of fact as a whole a substantially different character.

1. The defendants submit that they have always pleaded “fraud” as a basis to set aside the deed of 28 October 1992 and that their original causes of action were based on “knowing non-disclosure by the plaintiff”.  In describing the additional causes of action, they do concede that the new paragraphs 31-35 involve a claim in deceit.  The defendants contend that the amendments amount, in substance, to putting some additional “legal labels” on the facts earlier pleaded.

2. We have not been assisted by the parties with any close analysis of the new allegations.  However, we think that the new causes of action based in common law and statute go well beyond the facts already pleaded. 

3. First, we shall look at the new allegations reproduced in [13] above. The new subparagraph (g) in paragraph 16 alleges a fraudulent misappropriation for the first time. Such an allegation is not implicit in subparagraphs (a) and (b) of that paragraph, which are reproduced in [6] above. The statutory references there set out do not assist the defendants. Section 169 of the Bankruptcy Act 1966 required a trustee of the estate of a bankrupt to pay all moneys received on behalf of the estate into an estate bank account and not to keep any money in his own hands. Section 531 of the Corporations Law obliged a liquidator to keep books in which he made entries of what reg 5.6.01 prescribed as those matters required to give a complete and correct record of his administration of a company’s affairs. (The reference to s 260 of the Bankruptcy Act, as in force in the early 1990s, makes no sense. Section 260 provided for certificates as to a person’s bankruptcy and the appointment of trustees.) Contraventions of s 169 or s 531 need not involve fraud, nor is such a serious allegation to be found in the assertion that the plaintiff’s trust account was maintained “secretly”. The original pleader characterized such breaches as involving gross maladministration, wilful neglect, and wilful default. The new allegation of fraudulent misappropriation is glaringly different. The failure to disclose is now alleged in the new paragraph 19 to have been deliberate. This allegation is frankly new, and the perceived need for that very language suggests that the allegation does not arise out of the same or substantially the same facts.

1. The defendants rely on the fresh allegations reproduced in [14] above to found new causes of action for innocent misrepresentation under ss 4 and 5 of the Law Reform (Misrepresentation) Act, for fraudulent misrepresentation at common law, and for misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act.  The allegations of intent, knowledge and fraud are quite new and different to the allegations which founded the original claims for breach of partnership obligations and breach of fiduciary duty.  The gist of each of the new causes of action is damage, and yet the loss and damage is alleged in significantly different terms.  Further, engaging in conduct for the purposes of the Trade Practices Act involves something more than an inadvertent failure to make a disclosure such as the original pleading supported.  The foundation for the defendants claiming that the allegations now made arise out of the same or substantially the same facts rests on the proposition of secrecy concerning the account and the transfer of monies “accountable” by the plaintiff pursuant to his administration of insolvent estates.  In other words, put at its highest, the gravamen of the allegation is the implication that the plaintiff failed to account to the defendants in respect of monies and, if “secretly” is given more force than a pleader’s flourish, that the plaintiff knew that the defendants did not know of this account.  Further, it is alleged that in doing so, he contravened statutory requirements concerning bank accounts and books.  There is no allegation of appropriation to himself, no allegation of intention to appropriate to himself and no allegation of dishonesty (fraudulent behaviour).  The introduction of these matters are distinct factual circumstances which ultimately are used to support the case of fraudulent misrepresentation for the claim in deceit.  Thus it seems to us that there are introduced new causes of action which do not arise out of the same or substantially the same facts.

2. The position with the defences is quite different.  No limitation periods apply to preclude the defendants relying on fraud, mistake and misrepresentation to rescind the deed of 28 October 1992.  The allegations relating to the Trade Practices Act are, however, superfluous to the defence.  They are made solely to found the statutory remedies sought by way of counterclaim.

3. J L Holdings provided authoritative guidance that justice must be the paramount consideration in determining an application to amend a defence.  The primary judge took into account the various considerations urged in opposition by counsel for the plaintiff.  The exercise of the discretion on this aspect of his decision was not affected by any error of principle.  However, in our view, it is hardly surprising that Connolly J accepted the defendants’ explanation for the delay in seeking to amend their defences.  The defendants had every reason in light of the serious charges brought against the plaintiff to believe that he would not prosecute this action.  The expanded defence was suggested, in large part, by the subject matter of those charges.

4. In Connolly J’s reasons for judgment his Honour referred to the fact that the plaintiff had been permitted to give his evidence-in-chief by affidavit because he was gravely ill. (The source of the power to make such an order is s 55, not s 57, of the Act.) However, the affidavit sworn by the plaintiff on 29 April 2003 was not employed by his counsel in any way at all in the Court below in order to demonstrate by reference to its contents any prejudice to his client if the amendments sought by the defendants were allowed. Nor was any evidence adduced to establish that the plaintiff was too ill to make a supplementary affidavit. In the circumstances the primary judge cannot be criticized for failing to deal with a hypothetical prejudice for which there was no evidentiary foundation.

5. Counsel for the plaintiff complained, in particular, that the primary judge did not deal with his submissions about the significance of his client’s pending part-heard motion on the question of defendants’ good faith.  There is no basis for such complaint.  The amendments buttressed defences that were plainly not futile and which sought to invoke the assistance of equity to set aside the deed.  There was no lack of candour on the part of the defendants.  Indeed, the first and sixth defendants procured the adjournment of the plaintiff’s part-heard motion for the purpose of seeking leave to make such amendments.  Connolly J was, of course, well aware of the history of the matter, to which he referred in his reasons.

6. The particular amendments in the present case appear to have been prompted by the successful application for summary judgment in Glover v Roche [2003] ACTSC 19. In that case Crispin J observed (at [44]) that estoppels by deed “may not apply in the face of actual fraud”. No doubt, that is so. However, it may be borne in mind the doctrine of estoppel by deed will also not prevent the defendants setting up pleas relying on fraud in an equitable sense and from availing themselves of any fact which would give rise to a right to rescind the deed in equity. For example, in Phillips v Hutchinson [1946] VLR 270, it was held that a deed which is set aside for undue influence cannot support such an estoppel.

CONCLUSION

1. Leave to appeal will be granted and the appeal allowed in part.  The order giving leave to make the amendments has been entered, but it does not appear from the appeal papers that the amendments so authorised have yet been made.  Accordingly the order giving leave will be set aside.  Leave will be given to amend the defences so as to rely on all the new matters sought save those relating to the Trade Practices Act. (If the plaintiff amends his replies to rely on a plea of estoppel by deed which corresponds with the first of the preliminary questions in his part-heard motion, it will be open to the defendants to file a rejoinder pleading s 6 of the Law Reform (Misrepresentation) Act.)  Leave to amend the counterclaims will be refused.

2. The costs order made by Connolly J should not be disturbed.  Each side has succeeded in part on the appeal, and the costs of the appeal will be each party’s costs in the cause.

   I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

   Associate:

   Date: 4 August 2004

Counsel for the appellant:  Mr S L Tatarka
Solicitors for the appellant:  Williams Love & Nicol

Counsel for the first and

sixth respondents:  Mr D J C Mossop

Solicitors for the first and

sixth respondents:  Gillespie-Jones & Co

Counsel for the second and

fifth respondents:  Mr C Whitelaw

Solicitors for the second and   

fifth respondents:  Capital Lawyers
Date of hearing:  25 June 2004

Date of judgment:  4 August 2004