JUDGMENT No. KARZ ZEEE FEDERAL COURT OF AUSTRALIA PRACTICE AND PROCEDURE -— pleadings — leave to file a new statement of claim — leave to add new parties when no evidence filed of the need to do so or of the case to be advanced against them — when amended statement of claim dates from — whether true amendment or wholly or substantially new claim Federal Court Rules 1979 (Cth) O 13 r2 Wardley Australia & Anor v The State of Western Australia (1992) 175 CLR 514 Weldon v Neal [1887] 19 QBD 394 CADOROLL PTY LTD & ORS V ALLEGRA CORPORATION LTD & ORS AG 18 of 1992 AG 27 of 1992 AG 29 of 1992 EINFELD J SYDNEY (heard in Canberra) 2 SEPTEMBER 1998 GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA AG 18 of 1992 AUSTRALIAN CAPITAL TERRITORY AG 27 of 1992 DISTRICT REGISTRY AG 29 of 1992 BETWEEN: CADOROLL PTY LIMTED CADOSHARE PTY LIMITED HAMERLEEN PTY LIMITED ALFRED NATHAN LESTER LESTER FIRTH ASSOCIATES PTY LIMITED JOHN WILLIAM FIRTH Applicants AND: ALLEGRA CORPORATION LIMITED First Respondent ALLEGRA INVESTMENTS LIMITED Second Respondent MAUNTILL PTY LIMITED Third Respondent MICHAEL GEORGE SINCLAIR, MARUTA PEARSON AND MICHAEL MARKO ZIVKOVIC trading as FARNHAM SINCLAIR & ASSOCIATES Fourth Respondents JUDGE: EINFELD J DATE OF ORDER: 2 SEPTEMBER 1998 WHERE MADE: SYDNEY (heard in Canberra) THE COURT ORDERS THAT: 1. leave be given for the proposed new statement of claim to be filed within fourteen days of today, with the new defences to be filed by not later than Wednesday 30 September 1998. The questions whether the new statements of claim raise new causes of action which are statute barred, and if so, whether they should be permitted to be argued pursuant to Order 13 rule 2 of the Federal Court Rules have not been determined and all the respondents' rights in these respects and in regard to further amendments and particulars are reserved 2. the motion for leave to proceed against the bankrupts Pearson and Zivkovic be Note: -2- adjourned until evidence is available on the need under the insurance policy covering the firm Farnham Sinclair & Associates to join all parties in order to recover against one the motion to join the professional indemnity insurers/brokers be adjourned until it is clear that indemnity of Sinclair is being declined or put in issue the motion to join the Official Trustee in Bankruptcy as an applicant be adjourned until the resolution of the matter referred to in order 2 in the event that a relevant time limit might expire in relation to the claims involving the additional parties referred to in orders 2, 3 and 4, leave be given to join them until evidence is filed addressing the necessity of their joinder. If at that time it should appear that joinder is unnecessary, leave is given to apply for revocation of the order for joinder costs be reserved the notices to produce issued by the applicants on 25 and 27 March 1997 be stood over to a date to be arranged with a Registrar or the Associate Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA AG 18 of 1992 AUSTRALIAN CAPITAL TERRITORY AG 27 of 1992 DISTRICT REGISTRY AG 29 of 1992 BETWEEN: CADOROLL PTY LIMTED CADOSHARE PTY LIMITED HAMERLEEN PTY LIMITED ALFRED NATHAN LESTER LESTER FIRTH ASSOCIATES PTY LIMITED JOHN WILLIAM FIRTH Applicants AND: ALLEGRA CORPORATION LIMITED First Respondent ALLEGRA INVESTMENTS LIMITED Second Respondent MAUNTILL PTY LIMITED Third Respondent MICHAEL GEORGE SINCLAIR, MARUTA PEARSON AND MICHAEL MARKO ZIVKOVIC trading as FARNHAM SINCLAIR & ASSOCIATES Fourth Respondents JUDGE: EINFELD J DATE: 2 SEPTEMBER 1998 PLACE: SYDNEY (heard in Canberra) REASONS FOR JUDGMENT INTRODUCTION These three matters were initiated in 1992 and their progress during the intervening period has been less than distinguished. All three matters involve substantially the same parties and each matter arises out of substantially the same set of circumstances, namely the promotion and sale of interests in an investment scheme based on the breeding and sale of thoroughbred horses, Three partnerships were established as investment vehicles for these schemes and each of the three proceedings in this Court arises from a separate partnership: AG 18/92 -2- arises out of 'The Capricorn Park No 2 Breeding Partnership', AG 27/92 arises out of 'The Capricorn Park No 3 Breeding Partnership', and AG 29/92 arises out of 'The Capricorn Park No 4 Breeding Partnership'. The application was filed in AG 18/92 on 15 May 1992, in AG 27/92 on 26 June 1992, and in AG 29/92 on 2 July 1992. Once all three matters had been initiated, they were conducted contemporaneously and the principal events were replicated in each. Moreover, the substantive legal claims in the three matters were, and have at all times up to now been, to all intents and purposes identical, involving allegations of negligence, contraventions of the Trade Practices Act 1974 (Cth), and breaches of fiduciary duties. The differences in the claims arise from the fact that each partnership purchased different horses. Accordingly, although the schemes were structured identically and involved the same parties, the conversations and events alleged to have brought the schemes into existence and constituting the basis for the claims are slightly different and are alleged to have occurred at slightly different times. These differences have, however, not precluded the three matters from progressing contemporaneously and it shall therefore suffice to briefly outline the history of the proceédings in AG 18/92. The original application and statement of claim in AG 18/92 were filed on 15 May 1992 and named 29 applicants, of which fourteen were corporations and fourteen were individuals, one of whom was named twice in different capacities. There were five named respondents. The first two were New Zealand companies, Allegra Corporation Limited and Allegra Investments Limited. The third respondent was Mauntill Pty Limited and the fourth was Pegasus Leasing Limited. The fifth respondents were Michael Sinclair, Maruta Pearson and Michael Zivkovic trading as Farnham Sinclair & Associates, an accountancy practice. Mauntill was apparently the service company owned by Sinclair, Pearson and Zivkovic. The application against Pearson was stayed by reason of her bankruptcy and shortly after the initial application was filed, Zivkovic also became bankrupt and, at that time, leave was not sought to proceed against him. On 7 July 1992, an amended application and amended statement of claim were filed pursuant to Order 13 rule 3(1) of the Federal Court Rules. On 12 February 1993, Mauntill, Sinclair and Zivkovic filed a joint motion to strike out the amended statement of claim and Pegasus filed a separate motion to the same effect. On 17 January 1994, Neaves J delivered judgment on these motions, which dealt in detail with the deficiencies in that part of the amended statement of claim which claimed contraventions of the Trade Practices Act. Among other faults, he found that there was a lack of material facts to support alleged conclusions, that the statement of claim included vague and obscure allegations that were embarrassing to plead to, and that where representations were alleged, there was a failure to detail material facts on which the applicants relied to establish that the representations had been made and a lack of specificity with regard to who had actually made any of the particular representations alleged. Neaves J also found that where particulars were provided, they failed to remedy the faults as found, principally because the particulars were not adequately related to the allegations they purported to particularise. The result was that this part of the statement of claim was wholly inadequate. Neaves J did not set out the detailed criticisms levelled at the balance of the statement of claim, and merely stated that he was satisfied that there were deficiencies in almost all of those paragraphs. He summarised the major criticisms: The comment must be made that many of the paragraphs state conclusions in the absence of the material facts on which those conclusions are alleged to be based. The further comment must be made that there is an absence of the material facts relied upon to establish the relevance of the statutory provisions on which the applicants purport to rely. Again, matters have been included as particulars which should have been the subject of substantive paragraphs in the document so that a proper defence may be pleaded to them. On the basis of this litany of deficiencies, the amended statement of claim was struck out and the applicants were granted leave to file a further amended statement of claim. On 3 March 1994 such a pleading was filed, and on 26 April 1994 Mauntill, Sinclair and Zivkovic filed a motion to strike out the further amended statement of claim. A motion in the same terms was also filed by Pegasus on 26 April 1994 and a third motion in the same terms was filed on 13 May 1994 by the two Allegra companies. On 5 October 1994, Neaves J granted leave to the applicants to file a second further amended statement of claim to address the deficiencies in the further amended statement of claim which he stated would otherwise be struck out. He stood over the motions to await the filing of the second further amended statement of claim. -4- The second further amended statement of claim was filed on 4 November 1994 and as surely as night follows day, motions were filed on 28 November 1994 to strike it out. On 23 December 1994, Neaves J delivered judgment on these motions, dismissing them in so far as they sought orders striking out the second further amended statement of claim and standing over those parts of them which sought orders as to the pleading's sufficiency or appropriateness. It should also be noted that proceedings based on these same events were instigated in the Supreme Court of South Australia. Both this Court and the Supreme Court refused applications to cross-vest the proceedings and on 23 December 1994, in addition to the orders outlined above, Neaves J ordered that the parties to the Federal Court proceedings be restrained from taking any further steps to prosecute the South Australian actions. This decision was subsequently appealed and affirmed by the Full Court of the Federal Court on 20 February 1996. At several hearings during 1995 and 1996, the outstanding motions regarding the sufficiency and appropriateness of the second further amended statement of claim were stood over as other matters, including the injunction against the prosecution of the South Australian proceedings and on-going settlement negotiations, were dealt with. Throughout this period, a large number of applicants discontinued proceedings against all respondents, reducing the number of applicants to the present six. In addition, in early 1997, all proceedings were dropped against Pegasus which therefore ceased to be a participant. This history of AG 18/92 reflects the conduct of both AG 27/92 and AG 29/92. The same motions with respect to pleadings were filed in all matters and although argument proceeded principally on the motions in AG 18/92, any orders made in that matter were then consequently made in the other two, by reference to the substantive judgments of Neaves J in AG 18/92. THE CURRENT MOTIONS On 25 November 1996 the remaining applicants changed solicitors and on 24 March 1997 filed the motions currently before the Court, Each motion in the three separate proceedings is in substantively the same terms and seeks leave to file a 'new' statement of claim and leave -5- to join two insurance companies, or one insurer and one broker, as respondents to the proceedings in their capacity as professional indemnity insurers and brokers for Farnham Sinclair & Associates. Notice of a motion for leave to proceed against the two bankrupt respondents was given on | April 1997. The motions seek costs and, subject to an indemnity as to costs, to join the Official Trustee in Bankruptcy as a further applicant, apparently to allow their trustee in bankruptcy to proceed in their names if Zivkovic and Pearson were not joined, without any risk as to costs for the bankrupt estates or the trustee personally. The Allegra companies did not appear on the motions. (a) Pleadings Each motion annexed the 'new' statement of claim which the applicants seek to file. It should be noted that each 'new' statement of claim is named differently. It is variously termed a third further amended statement of claim (in AG 18/92), a third amended statement of claim (in AG 27/92) and a second amended statement of claim (in AG 29/92). The difference in terminology is due to the fact that there is an 'extra' pleading in AG 18/92 because an amended statement of claim was filed in that matter before any formal order of the Court was made directing that it be done and before the original statements of claim had been filed in the other two matters. Nevertheless, the substantive legal claims remain identical between the three matters even if the material facts on which the claims are based are slightly different to reflect the different partnership involved in each. Although these minor differences have resulted in non-uniform paragraph numbering of the three 'new' statements of claim, the substance of the respondents' objections to the 'new' statements of claim are common to all three matters (as they have been throughout the conduct of the proceedings). On this basis, it is appropriate to adopt the course previously utilised; that is, to deal with the motion in one of the matters and make the same orders in all three. Therefore, in dealing with objections raised by the respondents, I shall make reference to the proposed third further amended statement of claim in AG 18/92. This reference should be in turn taken to apply to the equivalent part of the new statements of claim which the applicants seek to file in the other two matters. It should also be noted that due to the discontinuance of proceedings against Pegasus, the parties previously named as the fifth respondents are now referred to in the motions as the -6- fourth respondents and the insurance parties the applicants seek to join are now referred to as the fifth and sixth respondents. The applicants' primary position is that the third further amended statement of claim does not raise new causes of action, no prejudice to the respondents has been demonstrated, any delay has been adequately explained, and therefore leave should be granted to file and rely on it. Their alternative position is that even if it does raise new causes of action, it should still be allowed to be filed and relied on pursuant to Order 13 rule 2 modifying the rule in Weldon v Neal. The respondents' primary position is that the amendment should be allowed but should be dated from the date of the order granting leave so that the respondents can plead defences relying on statutory limitation periods. This submission is based on the assertion that because Neaves J struck out the amended statement of claim in its entirety, the next statement of claim filed (the further amended statement of claim) was in fact a new statement of claim and not an amendment such that relevant time limitations may have arisen prior to the filing of the further amended statement of claim. I believe that this question would need to await evidence to determine when the various causes of action arose. The respondents said alternatively that the third further amended statement of claim should be allowed subject to their right to argue at trial that (i) it is not really an amendment to a pre- existing statement of claim and so some or all causes of action in it are statute barred (depending on the evidence as to when they arose and were first pleaded); or (ii) if it is an amendment, that any new causes of action should be rejected pursuant to the discretion in O 13 r2 modifying the rule in Weldon v Neal. As to the respondents' primary submission, it is my view that when the amended statement of claim was struck out, Neaves J clearly intended that the applicants be allowed to re-plead the matter, as he granted leave to file a further amended statement of claim. The intention was that the applicants' claim not be frustrated but that it be reconstituted in a manner which would allow ventilation and resolution of the real issues the applicants were seeking to litigate. Depending on the facts proved, one view would be that the further amended statement of claim filed pursuant to Neaves J's order of 17 January 1994 was validly before the Court as an amendment to the previous statement of claim. If so, the second further -7- amended statement of claim was, and the third further amended statement of claim would be, amendments of a previous validly filed pleading. On this basis, if leave is granted to rely on the third further amended statement of claim, it would date from the granting of leave, which would make the reference date for any defence based on a limitation period the date of the granting of leave, rather than the date of filing of the original statement of claim. On the other hand, the further amended statement of claim may have replaced the original statement of claim and date from its date. In this event, the later amendments may have been true amendments and date from the same date. The questions then to be determined are: 1. | whether new causes of action are raised by the third further amended statement of claim; 2. if not, whether it is a true amendment that should be permitted on the normal discretionary basis, weighing factors such as delay and prejudice to the respondents; 3. if new causes of action are raised which are prima facie statute barred, whether the applicants should nevertheless be granted leave to rely upon them under Order 13 rule 2 of the Federal Court Rules modifying the rule in Weldon v Neal. A number of matters that these questions raise are complex questions of fact. The precise time at which the various causes of action arose, for example, is notoriously difficult to determine. In Wardley Australia & Anor vy The State of Western Australia (1992) 175 CLR 514 at 533, Mason CJ, Dawson, Gaudron and McHugh JJ stated: We should however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question. Any determination of when the causes of action arose in this matter will have a profound effect on the expiration of limitation periods and whether it is necessary to grant leave under -8- Order 13 rule 2 to permit the amendment of pleadings to include statute barred claims not previously raised. I have carefully read the various pleadings and submissions, the evidence on the motions, and the judgments of Neaves J, but have been unable to resolve these matters definitively at this time because the evidence is too sparse and what there is has not been tested. There is even very little uncontested or proved evidence of any kind in the proceedings at this stage which could be used to objectively determine discretionary questions of delay and prejudice. That there have been delays is undoubted. Who was responsible for them is quite another matter. Prejudice is in a similar category. All these matters would more usefully await the trial, when the parties can address evidence on them in a structured and deliberate manner. Whatever view is taken of the issues of principle, it is clear that further amendments and some particulars of the new statement of claim are required. Most of these necessities were discussed at the hearing and it should not be necessary to formalise them now. Consequently I propose to formulate an order which will allow the matter to proceed on the proposed amended pleading, subject to the further amendments and particulars mentioned at the hearing, and subject also to the reservation of all the rights of the respondents to raise and have determined whether the third further amended statement of claim raises new causes of action which are statute barred and which the applicants should not be allowed to raise and rely on pursuant to the discretion in Order 13 rule 2. (b) Leave to proceed against Maruta Pearson, Michael Zivkovic and the professional indemnity insurers As earlier noted, Pearson and Zivkovic are bankrupt and the applicants seek leave, pursuant to section 58(3)(b) of the Bankruptcy Act 1966 (Cth), to proceed against them. It is their partner Sinclair who is alleged to be at the centre of this matter, as the driving force behind the investment scheme, and as the person alleged to have made the various representations giving rise to the action. Leave is sought to join his two partners for two reasons: firstly, because when suing an unincorporated association such as a partnership, it is the usual practice to name all partners in the association, despite the fact that in this case they had nothing to do with the scheme at all. The second reason is that the partners were insured and the applicants seek to ensure that they maximise their chances of being indemnified by the insurer. The respondents submitted that it would be unconscionable to join Pearson and Zivkovic because it was the applicants who forced them into bankruptcy by voting down a proposed Part X arrangement and who, having not proved any debt in their bankruptcy, now seek to have their position restored so that they may proceed against them. The only question of any substance is whether it is necessary to join Pearson and Zivkovic to ensure that the applicants have recourse to their insurance policy. I raised at the hearing that the parties could circumvent the need for argument on this matter by ascertaining whether or not each partner was individually covered by the policy. If so, there would be no need to join the two partners. The supplementary submissions of the applicants stated that the respondents had not provided them with the necessary insurance policy so they had not been able to ascertain whether or not Sinclair was covered alone. They also claimed that the partners should be joined as the insurers may disclaim liability for Sinclair for reasons peculiar to him and then seek to rely on the Limitation Act to prevent the applicants from joining the insurers. The applicants also made submissions on the joinder of the insurers, seeking to delay a final decision pending correspondence between the insurer and the applicants. In my view, it is premature to grant leave to proceed against Pearson or Zivkovic or to join the insurers without hearing further as to whether it is in fact necessary. I propose to delay any final decision on this matter until evidence is filed addressing the issue. If a relevant time limit is likely to expire before this can be done, leave is given to join the parties concerned pending a fuller examination of the merits of doing so. If it eventuates that joinder of any of these parties is unnecessary, I shall entertain any application to revoke the order of joinder. (c) Leave to join the Official Trustee in Bankruptcy as a further applicant This matter should await the determination of the previous question but the same standby or holding order will be made. (d) Costs I propose to reserve the costs of these matters. -10- Certain issues arising in respect of notices to produce issued by the applicants were deferred during the course of the hearing, to be dealt with as separate issues. ORDERS In each matter then, I will order that: 1. leave be given for the proposed new statement of claim to be filed within fourteen days of today, with the new defences to be filed by not later than Wednesday 30 September 1998. The questions whether the new statements of claim raise new causes of action which are statute barred, and if so, whether they should be permitted to be argued pursuant to Order 13 rule 2 of the Federal Court Rules have not been determined and all the respondents' rights in these respects and in regard to further amendments and particulars are reserved the motion for leave to proceed against the bankrupts Pearson and Zivkovic be adjourned until evidence is available on the need under the insurance policy covering the firm Farnham Sinclair & Associates to join all parties in order to recover against one the motion to join the professional indemnity insurers/brokers be adjourned until it is clear that indemnity of Sinclair is being declined or put in issue the motion to join the Official Trustee in Bankruptcy as an applicant be adjourned until the resolution of the matter referred to in order 2 in the event that a relevant time limit might expire in relation to the claims involving the additional parties referred to in orders 2, 3 and 4, leave be given to join them until evidence is filed addressing the necessity of their joinder. If at that time it should appear that joinder is unnecessary, leave is given to apply for revocation of the order for joinder costs be reserved -il- 7. the notices to produce issued by the applicants on 25 and 27 March 1997 be stood over to a date to be arranged with a Registrar or the Associate I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Einfeld Associate: Me. Dated: 2 September 1998 Counsel for the Applicants: Mr M. Adarns QC Solicitor for the Applicants: Hegarty & Elmgreen Counsel for the Third and Fourth Mr B. Meagher Respondents: Solicitor for the Third and Blake Dawson Waldron Fourth Respondents: Date of Hearing: 20 November 1997 Date of Judgment: 2 September 1998