CATCHWORDS Lindgren J Sydney 16 January 1995 NOT FOR DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 99 OF 1993 GENERAL DIVISION ) BETWEEN: FRANK UNDERWOOD First Applicant SHIRLEY ELIZABETH UNDERWOOD Second Applicant HARRY NOEL CARROL Third Applicant ETHEL OLIVE CARROL Fourth Applicant SHELAGAN PTY LIMITED (ACN 006 068 024) Fifth Applicant ROTO PASTORAL COMPANY PTY LIMITED (ACN 000 018 244) Sixth Applicant AND: COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) First Respondent DALGETY RURAL FINANCE LIMITED (ACN 000 034 917) Second Respondent DALGETY FARMERS LIMITED (ACN 004 302 390) Third Respondent CORAM:Lindgren J PLACE:Sydney DATE:7 March 1995 MINUTE OF ORDERS THE COURT: 1.ORDERS that the application be dismissed. 2.ORDERS that the fifth applicant pay the second and third respondents' costs on the application. 3.ORDERS that there be judgment for the cross-claimants against the third named cross- respondent in the amount of $358,541.78 with interest from 31 March 1993 to the date of entry of judgment at the rates referred to in Schedule J to the Rules of the Supreme Court of New South Wales. 4.ORDERS that the third named cross-respondent pay the costs of the cross-claimants on the cross-claim. 5.ORDERS that the cross-claimants pay those costs of the first and second named cross- respondents on the cross-claim additionally incurred by reason of their having been Joined as cross-respondents. 6.GRANTS liberty to the parties to contact the Associate to Lindgren J with a view to the proceedings being listed for the making of orders incorporating a money amount for the interest (referred to in order 3 above) on the debt the subject of the cross-claim. NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 99 OF 1993 GENERAL DIVISION ) BETWEEN: FRANK UNDERWOOD First Applicant SHIRLEY ELIZABETH UNDERWOOD Second Applicant HARRY NOEL CARROL Third Applicant ETHEL OLIVE CARROL Fourth Applicant SHELAGAN PTY LIMITED (ACN 006 068 024) Fifth Applicant ROTO PASTORAL COMPANY PTY LIMITED (ACN 000 018 244) Sixth Applicant AND: COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) First Respondent DALGETY RURAL FINANCE LIMITED (ACN 000 034 917) Second Respondent DALGETY FARMERS LIMITED (ACN 004 302 390) Third Respondent CORAM:Lindgren J PLACE:Sydney DATE:7 March 1995 REASONS FOR JUDGMENT. The fifth applicant ("Shelagan"), a company of which the first and second applicants ("Mr and Mrs Underwood") are directors, seeks to recover damages from the second and third respondents ("Dalgetys"). Dalgetys cross-claim against Mr and Mrs Underwood and Shelagan. I am informed that the proceedings have been settled as between the other parties. At all material times Shelagan has carried on a farming operation on a property at Hillston near Griffith owned by the sixth applicant ("Roto"). The amended statement of claim, filed on 30 April 1993, pleads that Dalgetys, through their servant or agent Peter Vial (and to a less extent their servant or agent John Seale), "represented" to Shelagan that Dalgetys were confident that wool prices "would" continue to be good for a long time, that Shelagan "could not" go wrong in building up its sheep stock numbers, that Shelagan "should" continue to increase its sheep stock numbers, and that the wool market "would" stay firm and would improve. Shelagan's pleaded case was that in reliance on those statements it refrained from selling its flock of sheep and suffered from a dramatic collapse or reduction in the floor price of wool. Shelagan pleaded against Dalgetys various causes of action which asserted negligent misrepresentation, misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974, breach of an implied term of a certain stock mortgage dated 28 May 1987 from Shelagan to Dalgetys ("the Stock Mortgage") that Dalgetys would exercise certain rights against Shelagan in good faith, and breach of a general law duty to act with good faith. By their cross-claim Dalgetys seek to recover judgment for $365,895.38 and interest for moneys lent by them to Shelagan and Mr and Mrs Underwood, or in the alternative, to Shelagan alone. The proceedings have been fixed for hearing for two weeks commencing yesterday Monday, 6 March and for a further week to be determined (the proceedings had been fixed for three weeks commencing yesterday but for reasons connected with court timetabling on last Thursday 2 March I vacated the third week with a view to the assigning of another third week to the case). This is touched upon in my reasons for a judgment which I delivered on that date (referred to below) on an application by Shelagan to vacate the hearing dates. At the beginning of the hearing yesterday, Shelagan applied for leave to file a further amended statement of claim and further witness statements of Mr and Mrs Underwood. This was opposed by Dalgetys. Essentially, what Shelagan now wishes to allege is that Dalgetys, through their servant or agent Lindsay Martyn, represented to Shelagan (through Mr and Mrs Underwood) that Dalgetys would draw up plans of yards for a proposed on-farm sale of all of Shelagan's flock to take place by September, 1989, that this proposed on-farm sale was in hand or under control, and that the proposed on-farm sale was being prepared by Dalgetys. A cause of action in negligent misrepresentation is proposed to be pleaded. As well, a contract count is proposed, as is a count under the Trade Practices Act 1974 for misleading and deceptive conduct. I should record that last week Shelagan applied for a vacation of the hearing dates. That application was based upon the Farm Debt Mediation Act 1994 (NSW) which commenced operation on 12 February 1995. I gave my decision declining that application last Thursday 2 March and said that I would publish my reasons. I published those reasons at the beginning of the hearing yesterday. On the occasion of the hearing of that application there was no mention of any proposal to re-cast Shelagan's case. In support of the application for leave to amend, Mr D J Higgs who, with Ms R Sofroniou, appeared for Shelagan and Mr and Mrs Underwood in the proceedings, frankly said that Shelagan accepted that it could not succeed on the pleading as found in the existing amended statement of claim. Mr Higgs explained that the reason why the matter was not reviewed at an earlier point of time was because of lack of a financial resources of Shelagan and Mr and Mrs Underwood. This was properly mentioned in order to nullify any impression which might otherwise be gained that there had been a deliberate and conscious decision taken in recent times to adhere to the existing pleading. One may have sympathy with the misfortune of Shelagan and Mr and Mrs Underwood but it was not put, and no doubt could not be put, that the delay in applying for leave to amend was attributable to fault on Dalgetys' part. It was also submitted for Shelagan that Dalgetys had always known the general nature of its complaints and that the re-casting of the case should not cause a problem for Dalgetys. As will appear, I do not accept this submission. Mr J Maconachie QC who, with Mr M T McCulloch appeared for Dalgetys, pointed to the long period during which the proceedings have been on foot, to the fact that his clients came to court yesterday ready to meet the causes of action as pleaded since 30 April 1993, to costs which would be thrown away if the hearing were to proceed on the basis of the proposed further amended pleading, and to the difficulty which Dalgetys would have in quickly preparing to meet the new case. This preparation would involve conferring with witnesses, preparing to cross- examine on the new witness statements of Mr and Mrs Underwood, tendering evidence in response to the new witness statements and preparing a defence to the proposed further amended statement of claim. Even expert reports filed and served on behalf of Dalgetys would need to be reviewed and, at least in some respects, re-cast. In the course of the debate yesterday morning on the application to amend I made certain directions including a direction that particulars be supplied of the new causes of action sought to be pleaded in the proposed further amended statement of claim, and that those particulars identify the evidence to be relied upon. In conformity with my direction, those particulars were supplied yesterday afternoon. They do make it abundantly clear that both the causes of action proposed and, apart from minor respects, the evidence to support them, are quite new. Previously, the human targets of Shelagan's complaint were Peter Vial and John Seale, and the gravamen of the complaint was their advice as to the likely future course of wool prices. Under the proposed further amended statement of claim, the human targets of Shelagan's complaint are Lindsay Martyn and Ron Mulcahy and the gravamen of Shelagan's complaint is that Dalgetys represented that, as a matter of fact, they had the on-farm sale of Shelagan's flock in hand and on course for September 1989. I turn to the history of the proceedings. At the first directions hearing a problem was raised on behalf of the respondents in connection with the statement of claim originally filed. That led to the filing on 30 April 1993 of the amended statement of claim which has formed the basis of the applicants! case ever since. On 7 February 1994, a little over a year ago, a direction was made that the matter be placed in the long matters call-over on 22 February 1994. Apparently through no fault of either party the matter was not fixed at that time for hearing. Ultimately at a call-over on 5 July 1994 the proceedings were fixed for hearing commencing yesterday 6 March 1995. Accordingly, Dalgetys have been waiting since the application was filed on 3 March 1993 (it was returnable on | April 1993) for the proceedings to be disposed of, and, so far as appeared until yesterday, the matter has been ready for hearing since February 1994. I do not find it necessary to refer to the authorities in connection with applications for leave to amend such as the present one. Obviously, the Court has a discretion which must be exercised judicially. Authorities which deal with the way in which an appellate court deals ex post facto with an exercise of the discretion by a trial judge on such an application, while helpful, do not necessarily make the task in a particular case easy for a trial judge. It is conceivable that whether I should grant or refuse the present application, the exercise might be one with which an appellate body would not interfere. It is of the greatest importance that I attend carefully to the application for leave to amend and to all relevant circumstances touching it. Mr Higgs has said everything that could be said in favour of the application. It is a weighty factor that Shelagan accepts that on the basis of the existing pleading, it cannot succeed. Thus, this is one of those cases in which the decision on this interlocutory application apparently will have a final effect. This however, is not a novel situation. On the basis of the measure of impecuniosity of Shelagan and Mr and Mrs Underwood which was referred to, I indicated that if I were minded to grant the application for leave to amend it would be on terms that Shelagan pay the costs of Dalgetys thrown away. I said that the order would be for payment of costs thrown away on an indemnity basis and that there would be a requirement that payment be secured. What I had in mind, and I made this clear, is that a term of the granting of the leave would be that security be provided within a short space of time and certainly before the hearing of evidence actually began, for the payment of those indemnity costs. An affidavit has been read this afternoon which gives an estimated figure of $138,095.46 as the amount of costs, disbursements and counsel's fees incurred to date by Dalgetys. I indicated that I could not see how, in fairness to Dalgetys, the order for security could reasonably be in an amount less than half of that figure. Instructions were taken by Mr Higgs and he has informed me that his clients would not be in a position to provide security in an amount of the order of half of the amount of costs incurred by Dalgetys to date. Quite apart from the general considerations of the time that has elapsed during which Dalgetys have been awaiting a hearing, the need to maintain the rigour and integrity of the Court's procedures, and the fact that Dalgetys ought not to have thrust upon them a sudden change of position on the first or second day of the hearing and be forced to take urgent measures, in circumstances of pressure and anxiety, to meet a totally new case, there are two particular factors which lead me to refuse the present application for leave to amend. The first is the inability of Shelagan to provide security in what I consider to be a reasonable amount to cover on an indemnity basis Dalgetys' costs thrown away by the amendment. The second is the difficulty in which Dalgetys are placed in terms of taking instructions from clients and witnesses to respond to the new witness statements. An affidavit has been read on behalf of Dalgetys as to the whereabouts and commitments of the various individuals with whom conferences would have to be held and fresh witness statements taken. I was told from the Bar table that Dalgetys had prepared on the basis that their witnesses would not be required until next week. This was a reasonable course for them to adopt. The affidavit shows that yesterday evening and this morning, Dalgetys' solicitors have been in contact with the various witnesses concerned and they are able to make themselves available in Sydney at various times, depending upon contingencies and the making of other arrangements by them, over a period beginning tomorrow evening and extending into next week. In consequence, it seems to me that Dalgetys would not be in a position adequately to commence the hearing for another day or two and perhaps not until next Monday. In any event, they are not, through no fault of their own, ready to Join battle with Shelagan now and would not be ready to do so until Thursday at the very earliest. In other words, at least the first three days set aside for the hearing would be lost and I think that probably substantially more time than that would be lost. It is also possible that although the hearing might begin on Thursday morning, there would be applications by Dalgetys for adjournments from time to time in order that witnesses might be conferred with as they become available. As well, there are some aspects of the proposed further amended statement of claim which have caused me some anxiety during the course of the debate yesterday and today. At one stage, Shelagan accepted that the cause of action under the Trade Practices Act was statute-barred, and later withdrew that concession. It suffices to say that in my opinion, Order 13, sub-rule 2 (7) of the Federal Court Rules does not aid Shelagan because facts are not pleaded in the existing amended statement of claim on the basis of which Shelagan now wishes to plead the causes of action in the proposed further amended statement of claim, and is difficult to see why Shelagan would be better off without the aid of Order 13 sub-rule 2 (7) than with it. In the result, I refuse Shelagan's application for leave to amend. Shelagan concedes that in these circumstances it cannot succeed and consents to an order dismissing its application. There will, accordingly, be an order that Shelagan's application against Dalgetys be dismissed. In relation to the question of costs of Shelagan's application, Dalgetys seek an order that their costs be paid on an indemnity basis. The case put in favour of this is that Shelagan conceded at the beginning of the hearing yesterday that if it did not obtain leave to amend it would not be able to succeed on the amended statement of claim filed on 30 April 1993. Dalgetys' argument seems to be that in any case where an applicant, at the beginning of a hearing, concedes that the applicant cannot succeed on the existing pleadings, there ought to be an order for indemnity costs. I do not agree. As Mr Higgs points out, it would have been open to Shelagan to run the case, and although one certainly cannot say that by doing so it would automatically exclude the possibility of an indemnity costs order, in the ordinary course such an order would not be made. The fact that I would have ordered indemnity costs to be paid, and indeed secured, as a condition of the granting of leave to amend does not compel a conclusion that Dalgetys should have the order for indemnity costs which they now seek. It is not made out that from the very beginning the application by Shelagan was not made bona fide and was seen to have no prospects of success. It has apparently only been in recent times, in the light of an appraisal of all the evidence, that this has come to be clear to Shelagan. I think that the appropriate order is that Shelagan pay Dalgetys' costs on the application on the usual party and party basis. These costs include Dalgetys' costs on Shelagan's application for leave to amend. In relation to Dalgetys' cross-claim, there is no dispute apparently as to the amount for which Judgment is to be entered in favour of Dalgetys as cross-claimants against Shelagan as cross- respondent. That amount is $358,541.78 which includes interest to 31 March 1993. I order that there be judgment for Dalgetys against Shelagan for that amount plus interest under s 51A of the Federal Court of Australia Act 1976 from 31 March 1993 to the date when judgment is entered at the rates referred to in Schedule J to the Rules of the Supreme Court of New South Wales. The parties desire that the amount of the latter interest be quantified. They are to have liberty to bring in short minutes with a view to putting an amount of money on that further interest. In relation to the costs of the cross-claim, Dalgetys' counsel has said that Dalgetys are "content with" or "satisfied with" a judgment against Shelagan alone. This was to emphasise that they do not concede that the cross-claim was improperly brought against Mr and Mrs Underwood. Mr Maconachie QC for Dalgetys has indicated that there exist documents which lend support to the proposition that Mr and Mrs Underwood are liable. He has taken me to the Stock Mortgage as one document which records the names of Mr and Mrs Underwood as "principals" of Shelagan in connection with dealings with Dalgetys. He concedes, however, that on that evidence alone, it could not be said that Mr and Mrs Underwood were accepting personal liability. On the evidence before me, I cannot see why it was necessary or appropriate for Dalgetys to proceed against Mr and Mrs Underwood. Mr Maconachie says that there should be a Sanderson order (see Sanderson v Blyth Theatre Co [1903] 2 KB 533), that is to say, an order that Shelagan pay Mr and Mrs Underwood's costs, and that there should not be an order for costs against Dalgetys in favour of Mr and Mrs Underwood. Again, I do not agree on the evidence before me. But I think that the order to be made in favour of Mr and Mrs Underwood should be of a limited nature. The costs order on the cross-claim will be first an order that Shelagan pay the costs of Dalgetys and secondly an order that Dalgetys pay Mr and Mrs Underwood's costs limited to those additional costs which have been incurred by reason only of their having been joined as cross- respondents. In other words, Dalgetys are not ordered to pay costs which have been incurred in the defensive interests of both Shelagan and Mr and Mrs Underwood. The parties are to have liberty to contact my Associate with a view to the proceedings being - 10 - listed at a convenient time for the making of orders incorporating a money amount for interest on the debt the subject of the cross-claim. I certify that this and the preceding 12 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren. Associate: Dated:14 March 1995 Heard: 6, 7 March 1995 Place: Sydney Decision: 7 March 1995 Appearances:Mr D J Higgs with Ms R Sofroniou of counsel instructed by Walsh James, solicitors, appeared for the applicants. Mr J E Maconachie QC and Mr M T McCulloch of counsel instructed by Minter Ellison, solicitors, appeared for the second and third respondents.