Sydney Subdivision Pty Ltd (in liq) v Chow

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FEDERAL COURT OF AUSTRALIA

Sydney Subdivision Pty Ltd (in liq) v Chow [2023] FCA 8

File number: NSD 309 of 2020
Judgment of: COLVIN J
Date of judgment: 13 January 2023
Catchwords: PRACTICE AND PROCEDURE - application to amend statement of claim - where statement of claim alleges respondents breached fiduciary and directors duties by entering into a sham loan arrangement - where proposed amendment alleges a different and additional sham loan arrangement - consideration of the 'relation back' rule and Weldon v Neal (1887) 19 QBD 394 - consideration of McGraw-Hill Financial, Inc v Clurname Pty Ltd [2017] FCAFC 211 - whether proposed claim may be added by way of amendment to a pleading - whether proposed claim is a new claim - whether proposed claim arises from the same facts as existing claim - whether proposed claim is clearly out of time - whether proposed claim has merit - whether delay in seeking amendment is explained - application dismissed - leave given to the applicants to make a further application to amend statement of claim and originating process
Legislation:

Corporations Act 2001 (Cth) s 1317K

Federal Court of Australia Act 1976 (Cth) ss 37M, 52, 59

Law and Justice Legislation Amendment Act 1994 (Cth) s 44

Federal Court (Corporations) Rules 2000 (Cth) r 1.3

Federal Court Rules 2001 (Cth) rr 8.01, 8.03, 8.05, 8.21, 8.22, 8.23, 16.51, 16.53
Cases cited:

ABB Service Pty Ltd (formerly known as ABB Engineering Construction Pty Ltd) v Hetherington [2001] WASCA 235

Agtrack (NT) Pty Ltd t/as Spring Air v Hatfield [2003] VSCA 6; (2003) 7 VR 63

Agtrack (NT) Ptd Ltd t/as Spring Air v Hatfield [2005] HCA 38; (2005) 223 CLR 251

Australian Competition and Consumer Commission v Productivity Partners Pty Ltd (trading as Captain Cook College) (No 2) [2020] FCA 863

Baldry v Jackson [1976] 2 NSWLR 415

BCI Finances Pty Limited (in liq) v Binetter (No 4) [2016] FCA 1351

Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2017] WASCA 127; (2017) 51 WAR 341

Bryant (Liquidator) v L.V.  Dohnt & Co Pty Ltd, in the Matter of Gunns Limited (In Liq) (Receivers and Managers Appointed) [2018] FCA 238

Caason Investments Pty Ltd v Cao [2015] FCAFC 94; (2015) 236 FCR 322

Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1138

Captiv8 Pty Limited (in liq) v Bodger [2018] FCA 1801

Ethicon Sàrl v Gill [2018] FCAFC 137; (2018) 264 FCR 394

Gloucester Shire Council v Fitch Ratings, Inc (No 2) [2017] FCA 248

Hastie Group Limited (in liq) v Multiplex Constructions Pty Ltd (Formerly Brookfield Multiplex Constructions Pty Ltd) [2020] FCA 1824

Hewitt v Henderson [2006] WASCA 233

McGrath v HNSW Pty Ltd [2014] FCA 165; (2014) 219 FCR 489

McGraw-Hill Financial, Inc v Clurname Pty Ltd [2017] FCAFC 211

Morgan v Banning (1999) 20 WAR 474

Rodgers v Commissioner of Taxation (1998) 88 FCR 61

Street v Luna Park Sydney Pty Ltd [2006] NSWSC 230

Voxson Pty Ltd v Telstra…

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Details
Case
[2023] FCA 8
Decision Date

CaseChat Overview and Summary

The case of Sydney Subdivision Pty Ltd (in liq) v Chow involved an application by the liquidators of Sydney Subdivision to amend their statement of claim against the Chows. The original claim alleged breaches of fiduciary and directors' duties by the Chows in relation to a sham loan arrangement known as the HWBB loan. The proposed amendment sought to introduce a new claim concerning a different and additional sham loan arrangement, the Normandy loan. The court had to determine whether the amendment was permissible under the rules of court and if the new claim was sufficiently related to the original claim to warrant its inclusion.

The legal issues centered around whether the proposed amendment introducing the Normandy claim was a new claim, whether it arose from the same facts and circumstances as the existing claim, whether it was clearly out of time, whether it had merit, and whether the delay in seeking the amendment was adequately explained. The court considered the 'relation back' rule and relevant legal precedents, including Weldon v Neal and McGraw-Hill Financial, Inc v Clurname Pty Ltd. The court concluded that the Normandy claim was indeed a new claim, arising from distinct factual circumstances unrelated to the existing claim. It also found that the proposed amendment was not out of time due to the alleged fraudulent concealment by the respondents.

The court dismissed the application to amend the statement of claim but granted leave for the applicants to make a further application to amend the originating process and statement of claim. The court directed that any application for costs should be made within a specified timeframe, with written submissions limited to three pages. The final orders included dismissing the interlocutory application, granting leave for a further application to amend, and setting out procedures for any costs applications.

Orders

Orders of the court

1. The interlocutory application dated 7 October 2022 for leave to amend the statement of claim is dismissed.

2. There be leave to the applicants to make a further application to amend the originating process and statement of claim.

3. There be liberty to apply for any order as to costs of the interlocutory application.

4. Within 10 days, any party seeking an order as to costs shall file and serve an outline of submissions of no more than three pages setting out the costs order sought and the basis for the order together with any necessary affidavit confined to matters of fact.

5. Within 10 days of any party seeking an order as to costs, the opposing party shall file and serve an outline of submissions in reply of no more than three pages.

6. The question of any order as to costs of the interlocutory application be determined on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Having regard to the terms of the Claim, the claim to the sum of $2,602,191.05 and the alternative claim to damages are based upon facts and circumstances that are confined to the HWBB loan (which is described as part of the HWBB scheme). What is now sought to be introduced is an allegation about a separate scheme in relation to the Normandy loan. For reasons that have been given it is a new claim. Any amendment to introduce the claim must be justified on that basis.Does the Normandy Claim arise out of the same facts and circumstances as the existing claim? The factual circumstances giving rise to the Normandy Claim are distinct from those that concern the HWBB loan. Both the existing claim and the Normandy Claim are said to involve Mr Gould, but there is no alleged overlap in the events that comprised the HWBB scheme and the events that are now sought to be pleaded that comprise the Normandy scheme. As has been noted, the schemes are not alleged to have the same form because there is no back to back aspect that is said to form part of the Normandy scheme. The existing claim relies upon the two earlier audits and the consequent disallowance of deductions relating to the HWBB loan as part of the material facts that were said to give rise to the breach of duty because it exposed SSPL to a risk of audit. There is no reliance upon any aspect of the Normandy scheme as giving rise to that risk. The proposed amendments to introduce the Normandy Claim do not arise out of the same facts and circumstances as the existing claim. Therefore, this is not a case where r 8.21(1)(g)(i) provides a basis for relation back.Is the Normandy Claim clearly out of time? On the case as advanced for SSPL and the liquidator, the latest that any cause of action accrued was when loss was alleged to have been suffered by reason of the issuing of the 2015 Assessments in June 2015. Two matters were advanced as to why the proposed amendments should not be disallowed on the basis that they were out of time. Firstly, it was said that the amendments should be allowed on the basis that they would relate back to the date of commencement of the proceedings. For reasons that have been given, the basis upon which the amendment application was brought does not provide a proper basis for such an approach. Whether there is some other basis for the amendments to be allowed on the basis that they relate back will be a matter to be considered if and when there is an amended application brought on the basis that it proposes an amendment to the scope of the originating process. Secondly, although there was a limitation period of six years for the statutory claims by reason of s 1317K of the Corporations Act and it was accepted that the limitation period for the general law claims should be determined by analogy, the Court would not do so in the present case. It appears that the reason why that was said to be so was a claim that Mr and Ms Chow had been responsible for fraudulent concealment and applying the statutory time limit by analogy would be unconscionable. Reliance was placed upon the reasoning of Gleeson J in BCI Finances Pty Limited (in liq) v Binetter (No 4) [2016] FCA 1351 at [334]‑[335] where her Honour said:Equity applies the Corporations Act limitation periods by analogy unless it would be unconscionable to permit the respondents to rely upon the statute: cf. Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; (2014) 87 NSWLR 435.I accept the liquidators' submission that it would be unconscionable to permit the respondents to rely upon the s 1317K in this case, not least of which because the liquidators were only appointed to the companies in 2014 and 2015. Before the liquidators were appointed, the applicants were under the management of various of the respondents and therefore unable to prosecute the relevant claims. The fact that the respondent directors did not conceal any breach of fiduciary duty from the applicant companies does not assist the respondents.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

The question of any prejudice is best adjudged in the context of any further application to amend and introduce the Normandy Claim.Conclusion and costs As has been indicated and for the reasons that have been given, the application to amend should be refused. As Mr and Ms Chow have been successful, I would be inclined to order SSPL and the liquidator to pay the costs the application. However, I will afford an opportunity to the parties to make short written submissions as to costs. The question of any order as to costs of and incidental to the application to amend should be determined on the papers.

Ratio Decidendi

Legal Principle Established

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