The Duke Group Ltd (in Liquidation) v Angus Claymore Pilmer, Alan Robert Crawford, Domenic Vincent Martino, Peter John Messer, Peter Lawson Munachen, Geoffrey James Stokes and Robert John Gray (Defendants) and..

[1993] SASC 4244

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA MULLIGHAN J

CWDS
Practice - Practice and procedure - application for leave to amend to join third parties as defendants and to make consequential amendments to statement of claim - common questions of law and fact - proposed amendments not for an improper purpose - no grounds for stay as an abuse of process - delay in trial no reason to refuse application - amendments must be made so as to avoid inconsistency in pleading - leave granted. Supreme Court Rules 1988 RR 27 and 46.09(1) and (2) considered; Williams and Ors v Spauts (1992) 174 CLR 509 and Walton v Gardiner (1993) 112 ALR 289 referred to.

HRNG ADELAIDE, 17 September 1993 #DATE 3:11:1993
Counsel for plaintiff:             Mr T Gray QC with Mr S J
   Lipman and Mr D'arcy
Solicitors for plaintiff:         Fisher Jeffries
Counsel for defendants:            Mr S T Lane
Solicitors for defendants:         Phillips Fox
Counsel for first 3d parties:     Dr R J Baxter
Solicitors for first 3d parties: Johnston, Winter and Slattery
Counsel for first 3d parties:     Mr D M Quick QC for Abbott
   and Mr W F Taylor for Somes
   and Lee-Steere
Solicitors for first 3d parties: Ward and Partners
   and Hume Taylor and Co

ORDER
Leave granted to the plaintiff to amend the summons so as to join the proposed defendants as defendants in the action and to amend the statement of claim as proposed subject to compliance with the Rules of Court.

JUDGE1 MULLIGHAN J This is an application by the plaintiff for leave to amend the summons so as to join the first third parties, Quilty and Singleton and the second third parties, Abbott, Somes and Lee-Steere as defendants in this action. I shall refer to them collectively as "the proposed defendants". 2. Each of them is already a third party in the action in consequence of third party proceedings of the defendants. The plaintiff also seeks leave to amend the statement of claim in accordance with the draft amended statement of claim which incorporates the proposed pleading against each of the proposed defendants. 3. Thus far, the plaintiff has sued the defendants who were, at all material times practising accountants for damages for alleged breach of contract and negligence in the preparation of an alleged valuation of Western United Limited said to have been provided to the plaintiff and a report for the purposes of rule 3J(3) of the listing rules of the Australian Stock Exchange Limited in connection with the takeover of Western United Limited by the plaintiff. The defendants deny that they have been in breach of contract or guilty of negligence, but allege that if they are liable to the plaintiff in damages, they are entitled to indemnity or contribution from each of the proposed defendants. They issued third party proceedings against the proposed defendants on 31st March 1993. The third party claims against Quilty and Singleton are made on a different basis than the claims against Abbott, Somes and Lee-Steere. For present purposes, it is unnecessary to mention the detail of the claims against each of them. It is sufficient to say that all of them were directors of the plaintiff and Abbott, Somes and Lee-Steere were also directors of Western United and held shares in both companies or in other companies which were shareholders in both companies. In the third party proceedings the defendants alleged that Quilty and Singleton were in breach of duties owed by them to the plaintiff and that any losses suffered by the plaintiff were in consequence of those breaches of duty. In the third party proceedings against Abbott, Somes and Lee-Steere the defendants alleged that they were in breach of duties owed to the defendants as well as duties owed to the plaintiff. Those duties and the circumstances of the alleged breach are pleaded in considerable detail in the third party statements of claim. 4. By the proposed amendments the plaintiff seeks to make the same claims against the proposed defendants in the alternative to its claims against the defendants. If the amendments are allowed, the plaintiff proposes to prosecute its claims against the defendants and, if successful, it will not seek any relief against the proposed defendants. However, if for some reason it cannot at present anticipate, the plaintiff fails against the defendants, it wants to be able to proceed against the proposed defendants. It is of significance that the defendants assert in the third party proceedings that the proposed defendants were in breach of their duty to the plaintiff which breach of duty gives rise to the liability to pay or contribute to any damages for which the defendants are liable to the plaintiff. The plaintiff wants to close that issue between the plaintiff and the proposed defendants. 5. The proposed defendants oppose the application on three grounds: that the proposed joinder is an abuse of process, it will delay the fair trial of the action between the plaintiff and the defendants with adverse consequences to the proposed defendants and the proposed statement of claim is fundamentally flawed because of inconsistency in pleading. 6. Before considering the respective contentions of the plaintiffs and the proposed defendants, it is necessary to consider R.27 of the Supreme Court Rules 1988 which governs the joinder of parties. R.27.01 is as follows:-
    "R 27.01 Two or more persons may be joined as plaintiffs or
    defendants in any proceedings:
     (a) where:
        (i) if separate proceedings were brought by or against each
    of them, a common question of law or of fact would arise in all
    the proceedings; or
        (ii) all rights to relief claimed in the proceedings, whether
    they are joint, several or alternative, are in respect of, or
    arise out of, the same transaction or series of transactions; or
(b) where the Court gives leave to do so." 7. In my view, it is beyond question that issues in the third party proceedings and in the proposed proceedings by the plaintiff against the proposed defendants raise common questions of law and fact. Furthermore, it is clear that the plaintiff's causes of action against the defendants and the proposed causes of action against the proposed defendants in the alternative arise out of the same transaction or series of transactions in the relevant sense. I have no hesitation in concluding that the application falls within the criteria of R.27.01. R.27.03 empowers the Court to vary an order for joinder, R.27.04 provides for disjoinder of parties and for separate trials of causes of action or issues and R.27.05 provides for circumstances in which the Court may join additional parties. It is unnecessary to consider these rules in detail. They provide a good deal of flexibility in the exercise of the discretion by the Court so that claims and issues between parties with the type of commonality set out in the Rules may be resolved effectively and efficiently. In a matter such as the instant litigation, it is obviously desirable that claims and issues involving all parties be resolved once and for all in the same litigation. That is not to say that the discretion to disjoin parties and to order separate trials may not be exercised at a later time, after the close of pleadings, in order to promote fair and efficient resolution of all of the causes of action in the proceedings. 8. I turn to the grounds of opposition. They were argued by Mr Quick QC, for Mr Abbott, but adopted by the other proposed defendants. 9. The basis of the contention that the proposed joinder is an abuse of the process of the Court is that the joining of the proposed defendants is for an improper purpose. Proceedings brought for an improper purpose may be stayed as an abuse of process: Williams and Ors. v. Spautz (1992) 174 CLR 509 and Walton v. Gardiner (1993) 112 ALR 289. In both of those cases there was discussion as to the reach of an abuse of process of this nature. It seems clear that the improper purpose need not be the sole purpose. It is sufficient if it is the predominant purpose. The purpose is improper in the relevant sense if it relates not only to the purpose of instituting the proceedings but to the object which the proceedings themselves are apt to achieve. The proceedings may be an abuse of process if instituted for an improper purpose whether or not they are well founded in fact and law: Walton v. Gardiner (supra) per Brennan J at p 312 where he went on to say:-
    "And equally, the institution of proceedings which will
    inevitably and manifestly fail or which unnecessarily duplicate
    proceedings already pending or determined are incapable of
    serving a legitimate purpose. They are simply vexatious or
    oppressive in the sense that they impose on the respondent party
    an unnecessary injustice, that is to say, a burden other than and
    additional to the burden necessarily imposed on a party to
    litigation instituted on reasonable grounds for the purpose of
    obtaining relief within the scope of the available remedy.
    Therefore, in the context of abuse of judicial process, the
    concept of alien purpose is relevant to two questions: whether
    the party instituting the proceeding has done so for an alien
    purpose and whether the proceedings themselves are serving an
    alien purpose." 10. Mr Quick contends that the application to join the second third party Abbott at this stage of the proceedings constitutes an abuse of process because the plaintiff has continually pressed for an early trial of its action against the defendants and there is reason to apprehend that the joinder is for an improper purpose, which has not been dispelled by the plaintiff, and the joinder would be oppressive to Mr Abbott in a way which is both unfair and unjust. The others of the proposed defendants adopted Mr Quick's argument. The following facts are relied upon in support of these contentions. The plaintiff is in liquidation and it is the liquidator who is, for all practical purposes, the mind directing the plaintiff. He has been under a statutory obligation to investigate the liability of directors, including Mr Abbott, in connection with losses sustained by the plaintiff. He did so and elected not to bring proceedings against the directors, but only to proceed against the defendants. The plaintiff, through its counsel, has, during the course of the hearing of pre-trial applications and at conferences, consistently maintained that the plaintiff is ready for trial. The application for joinder is inconsistent with a mere "tidying up" procedure before trial and is a major step in the action. The plaintiff maintains that the allegations against the proposed defendants in the proposed statement of claim merely "mirror" the allegations against them by the defendants in the third party proceedings, but there is no explanation for the delay, and change of mind, by the plaintiff in bringing the application for joinder. Furthermore, it is said that there are inconsistencies between the allegations against the proposed defendants in the proposed statement of claim and the allegations in proceedings by the plaintiff against the defendants and, further, that the reply filed by the plaintiff to the defence is inconsistent with allegations which the plaintiff proposes to make against the proposed defendants. In support of these contentions, the solicitors for Mr Abbott wrote to the plaintiff's solicitors on 6th September 1993 confirming the intimation of Mr Quick at a hearing earlier that day, that they would argue that the application for joinder was an abuse of process. They asserted that the liquidator should file an affidavit setting out why he had decided to join Mr Abbott as a defendant at that time and that if he did not do so, the Court would be asked to draw an inference that the application to join him is for an improper purpose. The matters which I have recounted as the basis for the contention that there is an improper purpose, or there may be, were then, in the main, set out in the letter. The plaintiff's solicitor's reply on 9th September 1993. They sought the basis of the allegation of improper purpose and expressed the view that the allegation reflected upon them, and counsel, personally. Mr Abbott's solicitors wrote again the next day. They made it clear that they made no allegations of impropriety against any of the legal representatives of the plaintiff. They gave the following particulars:-
    "An abuse of process is committed whenever the Court's
    processes are used in a way which is, though within the literal
    application of its procedural rules, nevertheless manifestly
    unfair to a party to litigation. That involves a balancing of
    interests. It is our contention that your application to join
    our client as a defendant has an improper or insubstantial
    purpose. The joinder of our client as a defendant would be to
    his considerable financial detriment and would involve risk of
    injury to his health. Having regard to those matters we contend
    that there is a disproportion in the balancing process which
    makes your client's application an abuse of process. It is our
    contention that the application to join our client as a defendant
    is brought for for (sic) a purpose or purposes other than an
    intention to obtain judgment against our client. Your client
    knows the purpose for which the application is brought and can
    depose to that purpose or purposes. It is our contention that he
    should do so given the matters set out in our letter to you of
    6th September 1993 and the reasonable inferences to be drawn from
    those matters." 11. The liquidator has not filed an affidavit or given any information to Mr Abbott's solicitors as to the plaintiff's purpose in applying for the joinder. The solicitors acting for Mr Somes and Sir Ernest Lee-Steere wrote to the plaintiff's solicitors on 7th September 1993 enquiring why the plaintiff had "changed his mind" and was applying for the joinder. The plaintiff's solicitors replied to the effect that the plaintiff's principal concern has always been establishing its cause of action against the defendants for negligence and breach of contract in the preparation of the relevant report and that it was considered, by the plaintiff's solicitors, that the primary responsibility to compensate the plaintiff for his loss rested with the defendants. That is why the action was instituted against them. They expected the trial of the action to commence during this year, including in August 1993. They had not believed that the commencement of the third party proceedings in late March 1993 would delay the trial. However upon learning that the trial would not commence in August 1993 and could not begin before the New Year, the decision was made to join the third parties as defendants. The letter contained the following information as to the purpose of the proposed joinder:-
    "Although we are of the view that the present defendants will
    be found liable to our client and that the defendants'
    allegations of contributory negligence based upon the directors
    conduct will fail that view may not be shared by the trial Judge.
    Detailed allegations have been made against the directors which
    if proved, would mean that the directors breached their fiduciary
    duties to the plaintiff. In those circumstances the liquidator
    is duty bound to seek compensation for Kia Ora arising from this
    breach of duty. For the reasons indicated above those
    allegations will be considered at the trial of this matter even
    if the directors are not joined as defendants. It is therefore
    possible that the Court may decide that the plaintiff is only
    partly successful against the present defendants and yet conclude
    that the allegations made by the defendants against your clients
    are wholly correct. In conclusion the writer is most sympathetic
    to the position of your clients particularly that of Sir Ernest
    Lee-Steere. Sir Ernest's explanation of how he relied upon the
    Nelson Wheeler report is wholly credible. If the matter had
    proceeded expeditiously against those whom our client has a clear
    cut cause of action then it would not have been necessary to take
    this step. As the matter has unfolded however we believe that we
    would be derelict in our duty if we did not make the application
    which is currently before the Court." 12. In view of the suggestion that this action may not have proceeded as expeditiously as possible, it is necessary to say something about the course of the proceedings and the expectations of the plaintiff's legal advisers as to the likely commencement of the trial. It has consistently been made clear that the Court will not embark upon the trial until the proceedings are ready for trial. When the Court is satisfied that such stage has been reached, the date for trial will be fixed. Needless to say that stage will not have been reached until all pre-trial procedures have been completed. That stage has still not been reached even if this present application is disregarded. The expectations of the plaintiff's solicitors as disclosed in the letter were totally unrealistic, but it may be accepted that the plaintiff's solicitors, and counsel, were hoping that the trial would commence in August 1993 and that the matters set out in their letter are an accurate representation of their expectations, unjustified as they may be. 13. The proposed defendants contend that the failure of the liquidator to file an affidavit setting out his purpose, and submit himself to cross-examination, enable an inference of an improper purpose to be more readily drawn in accordance with the well known principle in Jones v. Dunkel
(1959) 101 CLR 298 and that in weighing the evidence for and against a finding of improper purpose, the fact that the issue in question is more particularly within the knowledge of one party and therefore within its power to adduce evidence, means that the onus of proof is more readily discharged by the proposed defendants in accordance with the equally well known principle in Blatch v. Archer (1774) 1 COWP 63 at p 65. It is submitted that as the joinder would amount to an abuse of process for these reasons, the application should be refused and leave to amend denied. 14. In my view there is no reason to even suspect an improper purpose on the part of the plaintiff. The explanation given by its solicitors to the solicitor for Mr Somes and Sir Ernest Lee-Steere is sufficient explanation if any explanation is necessary. Anyone with even a passing acquaintance with the issues between the plaintiffs and the defendants and between the defendants and the third parties which will have to be resolved in the proceedings will readily appreciate the desirability, from the point of view of the parties and the Court, of resolving all issues within the one action and in circumstances where they are closed between all relevant parties. Any delay in applying to join the proposed defendants is explained, sufficiently in my view, by the expectations of the plaintiff's legal advisers as to the commencement of the trial and the desire not to cause postponement of the trial. The purpose of the joinder is obvious and is proper. The liquidator would be failing in his duty if he accepted the possibility of failing against the defendants but ignored the prospects of success against the proposed defendants. In making that observation I am saying nothing about the merits of the respective claims of the parties. There is nothing to be gained by adopting a procedure which would compel the liquidator to file an affidavit setting out his purpose of the intended proceedings by the plaintiff against the proposed defendants or of his being cross-examined upon the contents of any affidavit and I draw no inference adverse to the plaintiff. 15. It is true that the proposed joinder may substantially delay the trial of this action in order to permit the completion of all pre-trial procedures between the plaintiff and the proposed defendants. Nevertheless, it is desirable that all issues be resolved in the same action and that the plaintiff be permitted to prosecute its claim against the proposed defendants, even though in the alternative, in the same action. I have not thought it necessary to set out in these reasons all of the reasons based in fact as to why the proposed defendants allege an improper purpose on the part of the plaintiff. None of them, taken in isolation or together, establishes even a suspicion of an improper purpose. 16. It is suggested that Mr Abbott is in poor health and that being joined as a defendant and having to participate in the proceedings in that capacity will necessarily be oppressive to him. It is said that even though he is a third party, it does not follow that he will participate at the trial. The other proposed defendants adopt this argument without claiming poor health as a factual basis. Without doubt any party participating in the trial will incur considerable expense and suffer inconvenience. However, that is no reason to deny the application even if combined with ill health. Problems confronting any party in participating in the trial may be addressed at a later time when all pre-trial procedures have been completed and the most effective way of resolving issues can be determined. 17. Mr Quick contended that there are inconsistencies in the proposed statement of claim and between that proposed pleading and existing pleadings. To some extent that may be so even though the inconsistencies are not conceded by the plaintiff. R.46.09(1) provides that a party shall not plead an allegation of fact or a new ground or claim inconsistent with his previous pleading. It is also contended that a consequence of the proposed amendment is that the plaintiff will, in effect, be pleading two different cases. Of course, any amendments must comply with R.46.09(1). The plaintiff may not plead in an inconsistent way. Mr Gray contends that the plaintiff will not be doing so by the proposed amendments. Whether or not that is the case may be resolved should the need arise. I propose to grant the leave sought upon the basis that the proposed amendments must be made in accordance with the Rules of Court, including R.46.09(1) and (2). The plaintiff is now aware of the contentions of Mr Abbott as to inconsistency and should consider them before the proposed amendments are made. Mr Abbott and the other proposed defendants will be at liberty to challenge proposed amendments should they not comply with the Rules. I shall give liberty to apply for that purpose. 18. Leave is granted to the plaintiff to amend the summons so as to join the proposed defendants as defendants in the action and to amend the statement of claim as proposed subject to compliance with the Rules of Court.