Starmaker (No 51) P/L v John Irving as Liq of Mawson KLM Holdings P/L No. Scciv-00-883

STARMAKER (NO 51) PTY LTD v JOHN IRVING AS LIQUIDATOR OF MAWSON KLM HOLDINGS PTY LTD (IN LIQUIDATION)
[2002] SASC 396
Magistrates Appeal: Civil

MULLIGHAN J On 31^st August 2001 a learned Master made an order giving leave to the plaintiff, who is the respondent in this action, to file and serve an amended Statement of Claim in a specified form. The Statement of Claim was amended accordingly and served on the defendant, who is the appellant in this action. I shall refer to the parties as the plaintiff and the defendant. On 12^th June 2002 the appellant made an application for an order that the order made on 31^st August 2001 be revoked, set aside or varied or alternatively that certain paragraphs of the initiating application and of the Statement of Claim be struck out. That application came on for hearing before the learned Master on 22^nd July 2002 and was dismissed. The defendant appeals against that order.
Before addressing the issues on this appeal, it is necessary to say something about the proceedings brought by the plaintiff against the defendant.
On 17^th November 1995 a Mr Bowling entered into a contract with the Minister for Tourism for South Australia for the purchase by him and, or, his nominee of certain land. Mawson KLM Holdings Pty Ltd (“Mawson”) was nominated as the purchaser. Pursuant to a Deed between Mr Bowling and the Minister for Tourism, the purchase price was fixed at $1,722,820 and the date for settlement of the transaction was agreed as 2^nd May 1996.
Mawson borrowed $1,220,000 from the defendant and on 9^th July 1996 documentation of the terms and nature of that loan was executed by Mawson and the defendant. On that date settlement of the purchase of the land occurred and Mawson became the registered proprietor of the land and a mortgage securing the loan was duly registered. The terms of the loan were that it had to be repaid on or before 4^th November 1996, together with interest and fees which were fixed at $250,000. If the fees were no more than might be expected, this amount contains an interest rate equivalent to about 60 per cent per annum. By an option agreement (“the Option Agreement”), Mawson granted to the defendant the security of an option to purchase the land for $1,470,000, being the total amount of the loan and the interest and fees, which could be exercised at any time in the period commencing at midnight on 2^nd November 1996 and expiring at midnight on 3^rd November 1996. The Option Agreement included a term that Mawson authorised the defendant to apply the purchase price in payment of any amounts owing to the defendant under the loan and any balance to be paid to Mawson.
On 1^st November 1996 Mawson and the defendant entered into a joint venture agreement (“the Joint Venture Agreement”) whereby the time for the exercise of the option was varied so that the option could be exercised, in addition to the time set out in the Option Agreement, at any time on 1^st November 1996. They agreed to associate themselves as joint venturers in relation to the sale of the property in the terms and conditions set out in the Joint Venture Agreement. They agreed to divide the land into two portions which have respectively been referred to as “the divided land” and “the remaining land”. It was agreed that upon the option being exercised by the defendant, the land was to be sold. The net proceeds of the sale were to be applied to the payment of the $1,470,000 to the defendant and any balance of the proceeds of the sale of the divided land were to be paid to Mawson. Any balance of the proceeds of the remaining land, after payment to the defendant of any balance due to it under the loan, was to be divided equally between Mawson and the defendant. Mawson was at liberty to sell the remaining land at any time provided settlement of such sale took place before 4^th December 1996 or such other date to which the defendant agreed in writing. If not, the defendant was to sell the remaining land. There are other provisions in the Joint Venture Agreement which need not be mentioned for present purposes.
The defendant exercised the option on 1^st November 1996. An executed transfer of the land from Mawson to the defendant was delivered to the defendant when the Joint Venture Agreement was executed pursuant to the terms of that agreement and was later registered on 14^th March 1997. A contract to sell the remaining land was not entered into before 4^th December 1996. In about March 1999 Starmaker sold the land to Epic Feast Pty Ltd for $2,450,000 and the defendant retained the whole of the proceeds of the sale. No amount was paid to Mawson.
On 4^th November 1997 an order was made in this Court that Mawson be wound up upon the application of the defendant made on 18^th September 1997. The plaintiff was appointed as liquidator of Mawson.
The plaintiff commenced this action on 15^th September 2000 by way of an application made under Division 2 of Part 5.7B of the Corporations Law. The application sought the following:
“(a)a declaration pursuant to Section 588FD of the Law that the loan is an unfair loan to Mawson; and
(b)a declaration pursuant to Section 588FE(6) of the Law that the loan is a voidable transaction of Mawson; and
(c)a declaration pursuant to Section 588FB(1) of the Law that the transaction comprised in the Option Agreement is an uncommercial transaction of Mawson; and
(d)a declaration pursuant to Section 588FC of the Law that the transaction comprised in the Option Agreement is an insolvent transaction of Mawson.”
The plaintiff also sought ancillary orders, interest and costs. He filed a Statement of Claim in which the bases of these claims were pleaded. Part 5.7B of the Law provides for the recovery of property or compensation for the benefit of creditors of an insolvent company. The plaintiff’s action is by application pursuant to this Part of the Law. Section 588FD provides, inter alia, that a loan to a company is unfair if the interest or charges on the loan were extortionate. Section 588FE(6) provides that a transaction is voidable if it is an unfair loan to the company made at any time on or before the day when the winding up of the company began. Section 588FB provides that a transaction is an uncommercial transaction of a company if it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction having regard to certain specified matters which need not be considered for present purposes. Pursuant to s 588FF the liquidator of a company may apply to a court for various forms of relief with respect to voidable transactions. Section 588FC provides that a transaction of a company is an insolvent transaction if, inter alia, it is an uncommercial transaction and is entered into when the company is insolvent or the company becomes insolvent because of the transaction. Section 588FE also provides that an uncommercial transaction and an insolvent transaction are voidable. Some such transactions are not voidable in certain circumstances which need not be considered for present purposes: s 588FG. Proceedings must be taken within three years of “the relation-back day” which is the day upon which the order is made for the winding up of the company: see s 9 and s 588FF(3). As has been mentioned, the order for the winding up of Mawson was made on 4^th November 1997.
The defendant filed a defence on 15^th November 2000. A settlement conference, as part of the caseflow management system of the Court, was held on 15^th February 2001 but settlement of the action was not achieved. There were various hearings before a Master where he was advised that the plaintiff was considering whether to amend the application and Statement of Claim. On 25^th July 2001 the Master made an order extending the time within which the plaintiff had to advise the defendant of any amendment to the Statement of Claim by 14 days from that date. The directions application was adjourned to 31^st August 2001. The plaintiff provided an amended Statement of Claim to the defendant on 15^th August 2001. On 31^st August 2001 the Master made the order which I have mentioned and also ordered that the defendant have leave to file and serve an amended defence within 21 days. The defendant was represented at this hearing by a solicitor who informed the learned Master that the defendant did not object to the proposed amendments. I am informed that the solicitor did not understand the significance of the amendments.
The amendments added claims for declarations that the Joint Venture Agreement is an uncommercial transaction of Mawson pursuant to s 588FB(1) of the Law and that the transaction comprised in the Joint Venture Agreement is a voidable transaction pursuant to s 588FE(3) and some further ancillary claims. I shall refer to these claims as “the New Claims”.
The amended application and Statement of Claim were filed on 3^rd September 2001 more than three years after the relation back day.
Subsequently there were various hearings by the Master of the applications for discovery. The solicitor for the defendant appeared at those hearings.
On 25^th February 2002 the defendant was given leave to file and serve a third amended defence in a form of which the plaintiff had been notified. There had been no objection to the pleading of the New Claims and a time limitation point was taken. It appears that this third amended defence was filed on 28^th February 2002.
The application made by the defendant on 12^th June 2002 was to revoke or set aside the order granting leave to the plaintiff to amend the Statement of Claim or alternatively to strike out the clauses of the Statement of Claim by which the New Claims are made.
It was submitted to the learned Master, on behalf of the defendant, that the New Claims were statute barred and the amendments to the Statement of Claim should not have been allowed. It was submitted on behalf of the plaintiff that the amendments should stand in view of R 53.03(c) of the Supreme Court Rules 1987 which embodies the rule of practice in Weldon v Neal (1887) 19 QBD 394. The rule is:
“R 53.03(c)
Where an application for leave to amend is made after any relevant period of limitation has expired, the court may, nevertheless, grant leave, on such terms as it thinks fit:
...........
(c)To add or substitute a new cause of action, if the new cause of action arises out of the same, or substantially the same, facts as the original cause of action.”
The learned Master concluded as follows without giving any reasons:
“Quite clearly, in my view, there were good grounds to grant the plaintiff’s application on 31 August 2001 under R 53.03(c) of the Supreme Court Rules.”
The issues on this appeal are the same as before the Master. They have been expressed by the defendant as follows:
“(1)Does the amendment to introduce the new cause of action with respect to the Joint Venture Agreement arise out of the same or substantially the same facts as the original cause of action within the meaning of that expression in Rule 53.03(c).
(2)If it does not, then either the appeal should be allowed and the order allowing the amendment revoked.
(3)Or, alternatively, the appeal should be allowed and the amendment permitted, but on the basis that the respondent must seek an extension of time under s.48 of the Limitation of Actions Act 1936 if the amendment is not to be struck out. Alternatively, that the amendment is to date only from the date when the appellant was first notified of the proposed amendments, namely 15 August 2001.”
It is submitted on behalf of the defendant that the New Claims do not arise out of the same or substantially the same facts as the original cause of action which are based upon the loan and the Option Agreement which occurred on 9^th July 1996. The New Claims arise out of the Joint Venture Agreement which occurred on 1^st November 1996. It is submitted that the Joint Venture Agreement is an entirely new agreement with terms specific to that agreement and quite different from the terms of the previous agreement relating to the loan and the Option Agreement. Furthermore, it is submitted that the New Claims do not arise out of substantially the same facts as the claims based upon the loan and the Option Agreement.
My understanding of the position taken by both parties is that the New Claims constitute a new cause of action but in case that understanding is incorrect, I have considered that matter. The defendant contends that the Joint Venture Agreement is a totally separate agreement from the loan or the Option Agreement and the claims which the plaintiff makes with respect to it are a new cause of action. In Do Carmo v Ford Excavations Pty Ltd (1983-1984) 154 CLR 234 Wilson J said at 245:
“The concept of a ‘cause of action’ would seem to be clear. It is simply the fact or combination of facts which gives rise to a right to sue.”
In Karasaridis v KastoriaFur Products (1984) 37 SASR 345 King CJ said at 351, in relation to the former rule in O 28, r 1(5) of the Supreme Court Rules 1947 which is in terms similar to R 53.03(3):
“That subrule appears to be designed to permit an amendment raising a new cause of action in the sense of a new legal categorization of the facts in respect of which relief has already been claimed.”
The Chief Justice held that the rule did not apply because the proposed amendment raised a new cause of action, not by way of legal categorization of the facts pleaded, but by adding a claim in respect of a different injury alleged to have been caused by different facts. It was a new cause of action because the new claim was not based upon the same, or substantially the same, facts.
In Vaccarella v McNicol 131 LSJS 128 von Doussa J cited the passage of the judgment of King CJ in Karasaridis to which I have referred and went on to say at 135:
“In other words, the term ‘new cause of action’ in the subrule is used in the strict sense of alleging a new head of legal liability. There is a practical difficulty in identifying a new head of legal liability in isolation from the facts of the case, but nevertheless subrule (5) by its terms draws a distinction between a cause of action and the facts which give rise to it.”
In Preston v Dowell (1987) 45 SASR 111 von Doussa J referred to those observations and said that they applied equally to R 53.03(c).
In my view, the applications for relief with respect to the loan and the Option Agreement constitute a cause of action separate from the claim based upon the Joint Venture Agreement.
I have mentioned in brief terms the effect of the Joint Venture Agreement. The relationship between Mawson and the defendant changed from borrower and lender to joint venturers in the sale of the property. The Joint Venture Agreement superseded the loan and the Option Agreement for all practical purposes and the rights and obligations of Mawson and the defendant were thereafter to be found in the Joint Venture Agreement.
I was referred to Kingston Earthworks Pty Ltd v Iles (1997) 6 TasR 433 where it was held by the Full Court of the Supreme Court of Tasmania in a claim for damages for personal injuries suffered by the plaintiff at work that each breach by the employer of a particular statutory duty constitutes a separate cause of action and that there is no cause of action constituted by a breach of statutory duty in general terms. In that case reference was made to the decision of the Full Court of the Supreme Court of Victoria in Cutrona v Harnischfeger of Australia Pty Ltd [1977] VR 306 where the plaintiff had claimed damages alleging common law negligence and breach of a particular statutory duty and sought to plead a breach of another statutory duty. The proposed amendment was disallowed because the new alleged breach had not been pleaded in the Statement of Claim. I have not found those cases to be of assistance. The relevant provisions of the Law upon which the plaintiff proceeds do not create statutory duties. They merely define the circumstances in which a loan is unfair, a transaction is an uncommercial or an insolvent transaction and such transactions and loans are voidable. These provisions do not create statutory duties, only definitions and remedies.
The next question is whether this new cause of action arises out of the same, or substantially the same, facts as the causes of action based upon the loan and the Option Agreement.
The position of the defendant is that it is a separate contractual arrangement based upon the financial arrangements and circumstances of the parties at the time. The plaintiff submits that although the factual bases are not entirely the same, they are substantially the same in the relevant sense.
The parties had entered into a financial transaction in the nature of a loan and part of the security for that loan was the option to purchase given to the defendant if the loan was not paid on time. When it became known that the loan may not be repaid on time, a new type of security was given in the form of the Joint Venture Agreement which provided for an additional time to exercise the option, for the loan to be repaid and for the sharing of the proceeds of sale if the property was not sold by 15^th January 1997.
The Joint Venture Agreement proceeded upon the basis of the financial arrangements between Mawson and the defendant as defined by the loan and the Option Agreement. These arrangements included the security for the loan and the means by which it could be implemented to achieve repayment of the loan, the interests and costs and other amounts due by Mawson. As has been mentioned, any surplus after payment of the amounts due to the defendant had to be paid to Mawson. The effect of the Joint Venture Agreement is essentially twofold. It confirmed the main aspect of the security arrangements by the use of the option but added that the defendant could become the registered proprietor of the land in order to implement the security arrangements by being able to sell the land promptly to achieve repayment of the loan. It also provided for what was to occur if the sale was not effected promptly. Rather than the loan continue, the land was divided into two parts and the defendant could share equally in the proceeds of the remaining land in certain circumstances.
In Brickfield Properties Ltd v Newton; Rosebell Holdings Ltd v Newton [1971] 1 WLR 862 Cross LJ, in considering the English Rule equivalent in effect to R 53.03 said at 880:
“It is no objection to amendment under Ord 20, r 5(5) that some of the facts out of which the new cause of action arises are peculiar to it and that some of the facts out of which the old cause of action arises are peculiar to it. It is enough if the overlap is so great that the new cause of action can fairly be said to arise out of substantially the same facts as the old cause of action.”
Von Doussa J in Preston v Dowell accepted that those observations apply equally to R 53.03. He said at 114:
“......... the degree of overlap in the present case is so great that the new cause of action can fairly be said to arise out of substantially the same facts. The parties are the same. The injuries for which the plaintiff seeks damages are precisely the same, in contrast with the facts in Karasaridis v Kastoria Fur Products, and the cause of action arises out of the same accident.”
In my view, much the same observations may be made about the present case. The parties are, in effect, the same. The loss allegedly suffered by Mawson arose out of the loan and the Option Agreement and the Joint Venture Agreement which varied the earlier financial arrangements in the sense I have mentioned. There is substantial overlap in the facts upon which the causes of action based upon the loan and the Option Agreement and the Joint Venture Agreement are based and so much that it may be said to have arisen out of substantially the same facts.
There is no suggestion that the defendant would suffer any relevant prejudice upon the amendments being made and there was no reason that the learned Magistrate should not have exercised his discretion to allow them.

Even though the learned Master did not give reasons, his decision to that effect was correct. Consequently, there is no need to consider whether R 84.12 permits the setting aside of the order made by the learned Master.
I dismiss the appeal.

[2002] SASC 396

13 December 2002