' IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY NG 520 of 1994 BETWEEN: COMPAQ COMPUTER AUSTRALIA PTY LTD Applicant AND: HOWARD MERRY DAVID PAYES COLIN BUNNETT MICHAEL SHARP ROBERT BASSATT ALAN JEFFREY KRAS IAN HORMAN and GREG THOMSON Respondents JUDGE: FINKELSTEIN J DATE: 28 JULY 1998 PLACE: MELBOURNE RULING NO 1 HIS HONOUR: The applicant seeks to tender an affidavit sworn this day by Mr Vaughan Richard Sharp who was the financial controller of the applicant. Much of Mr Sharp's affidavit deals with conversations said to have taken place before the agency agreement, that is the subject of this litigation, was executed on 5 June 1992. Objection is taken to those parts of the affidavit that refer to conversations which occurred before 5 June 1992 on the basis that their content is not relevant to any issue raised by the pleadings. The tender is supported on the ground that the conversations relate to that part of the applicant's case where it seeks relief under the Trade Practices Act 1974 (Cth). To summarise, the allegation in the proceeding is that Hisoft on and after 5 June 1992 made certain false representations to the applicant in connection with the supply of stock by the applicant to Hisoft Computers Pty Ltd ("Hisoft") under the agency agreement namely: (i) that Hisoft would sell the stock only to nominated customers; (ii) that Hisoft would hold the proceeds of the sale of stock on trust for the applicant; and (iii) immediately upon receipt of the proceeds of the sale of the stock Hisoft would pay the same into the applicant's bank account. It is contended that certain of the respondents, in particular, first, third, seventh and eighth -2- respondents, were knowingly involved in Hisoft making those false representations and accordingly are liable in damages to the applicant by reason of that involvement. It is said that the pre-agreement conversations will throw light on the conduct of the respondents thereafter. It is also possible, although the tender was not supported on this ground, that the applicant will seek to argue that the conversations that took place before 5 June will bear upon another question raised in this litigation, namely in what way was Hisoft obliged to deal with the money that it received from purchases of the applicant's computers that were sold by Hisoft under the agency agreement. That issue arises in connection with the cause of action wherein it is alleged that some of the respondents assisted Hisoft to breach its fiduciary obligations in respect of its misappropriation of that money. My present view is that none of the conversations that are referred to in Mr Sharp's affidavit, and some of them are also to be found in other affidavits which the applicant will seek to tender in due course, will have any bearing on what the agency agreement means or what the parties to that agreement intended it to mean. That is not to say, however, that the conversations might not have some bearing on several collateral questions that arise in this case, namely in what circumstances could it be said that Hisoft was acting in breach of the trust that is created by clause 6.1 of the agency agreement and in what circumstances might what would otherwise be a breach of that trust be an excusable breach or a breach that was acquiesced in. Whether or not the conversations will have any relevance to those issues remains to be seen. At the moment I do not want to foreclose the possibility of the conversations being relevant for those purposes. In addition the conversations do appear to be relevant to the Trade Practices Act claim. As I have said, the applicant alleges that certain false representations were made and also alleges that certain of the respondents were involved in the making of those false representations. It seems to me to be arguable that although the applicant puts its case in terms that false representations were made, what the applicant-is in substance complaining about is conduct that might be characterised as misleading or deceptive conduct. The conversations which are sought to be introduced through Mr Sharp, whilst not necessarily a part of that conduct are conduct from which it might be possible to determine to what extent the respondents were aware of and knowingly concerned in a breach of the representations made by Hisoft. It may also be said, and as yet I do not have any view about the matter, that no further IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY NG 520 of 1994 BETWEEN: COMPAQ COMPUTER AUSTRALIA PTY LTD Applicant AND: HOWARD MERRY DAVID PAYES COLIN BUNNETT MICHAEL SHARP ROBERT BASSATT ALAN JEFFREY KRAS IAN HORMAN and GREG THOMSON Respondents JUDGE: FINKELSTEIN J DATE: 29 JULY 1998 PLACE: MELBOURNE RULING NO 2 HIS HONOUR: The trial of this proceeding commenced on Monday. Before opening the applicant's case, senior counsel who appeared for the applicant, by leave, filed a motion returnable instanter seeking leave to amend the applicant's statement of claim. The motion is supported by an affidavit sworn by a member of the firm of solicitors acting for the applicant. Annexed to her affidavit is a draft further amended statement of claim that contains the proposed amendments. I should mention that informal notice of the proposed application had been given to the respondents late on Friday 24 July 1998. The respondents oppose the grant of leave and a good deal of the first day of the trial was occupied by submissions on the issue. Because the respondents were not in a position to file answering material given the short notice of the application I invited the respondents to provide me with such evidence as they thought appropriate before I ruled on the application. This they have now done informally, that is by handing me the documents upon which they -3- conduct other than the terms of the agency agreement will support the argument that Hisoft was under an obligation to inform the applicant that the agency agreement was not being complied with which is another allegation which is made by the applicant. I cannot deny the possibility that the conversations that occurred before the agreement was made might have a bearing on that question. For those reasons, I propose to admit Mr Sharp's affidavit except for paragraph 6 which does not seem to me to be relevant to any aspect of the case. I certify that this and the preceding two (2) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein Associate: mam ee Dated: 14 August 1998 Counsel for the Applicant: Mr B Rayment QC With Mr C Harris Solicitor for the Applicant: Ebsworth & Ebsworth Counsel for the First, Third, Mr S Wilson QC Seventh and Eighth With Mr L Glick Respondents: Solicitor for the First, Third Roth Warren Seventh and Eighth Respondents: Counsel for the Second, Fourth Mr R Redlich QC And Sixth Respondents: With Mr R Attiwill Solicitor for the Second, Fourth Abbott Stillman & Wilson And Sixth Respondents: Counsel for the Fifth Mr W Lally QC Respondent: With Mr M Dreyfus Solicitor for the Fifth Rockman & Rockman Respondent: Date of Hearing: 28 July 1998 Date of Judgment: 28 July 1998 -2- rely, without formal proof of those documents. Counsel for the applicant also provided certain documents for me to consider. Quite properly, no counsel took objection to this course. At a convenient time I will have prepared a list of those documents and they will be marked as exhibits. As presently constituted the proceeding is one in which the applicant seeks to recover from the respondents, each a former officer of Hisoft Computers Pty Ltd (Hisoft), amounts totalling $766,025.55 together with interest and costs. Two causes of action are relied upon: there was a third but it has now been abandoned. Each cause of action concerns an agency agreement dated 5 June 1992 made between the applicant and Hisoft. By that agreement the applicant appointed Hisoft as its agent to solicit orders for the sale of computer equipment from an agreed list of customers. The agreement contemplated that when orders were received they would be forwarded to the applicant for acceptance. If accepted the computer equipment would then be delivered to Hisoft together with an invoice "addressed to the relevant customer care of the agent (Hisoft)": see clause 5.2. On delivery of the goods to the customer Hisoft was required to provide a separate invoice for the goods to the customer: see clause 5.3. Although not abundantly clear from the agency agreement it is apparent that the invoice to the customer was not to disclose that Hisoft was acting on the sale as agent for the applicant. That is, so far as the customer was concerned, its contract was to be with Hisoft. Clause 6.1 and 6.2 of the agency agreement provide: "6.1 The agent is authorised to collect all monies due and owing to the principal and shall hold such monies upon trust for Compaq. 6.2 The agent agrees, upon receipt of any such monies, to immediately credit the Compaq bank account as nominated by Compaq." The applicant contends that Hisoft breached the agency agreement in two respects. The first alleged breach is that Hisoft solicited orders from customers who were not customers on the agreed list. It is not clear whether the applicant, or some officer of the applicant, was aware of this when orders were placed with the applicant for acceptance. Secondly, it is alleged that Hisoft breached its obligation to hold the money received from customers on trust for the applicant and that it failed to account to the applicant for that money. -3- Various claims are made against the respondents each of which arises out of or is connected with the breach by Hisoft of the terms of the agency agreement. It is not necessary for me to do any more than summarise the claims that are made. The basis of the first claim is an allegation that on and after 5 June 1992 Hisoft represented to the applicant that if the applicant supplied stock to it under the agency agreement Hisoft would (i) sell the stock only to the agreed customers, (ii) hold the proceeds of the sale of the stock on trust for the applicant, and (iii) immediately upon receipt of the proceeds of the sale of the stock pay the same into the applicant's bank account. It is said that these representations were untrue and, accordingly, constituted misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth). As against each of the first, third, seventh and eighth respondents it is alleged that they aided, abetted, procured, induced or were knowingly concerned in the contravention by Hisoft of the Trade Practices Act and are therefore liable to make good any loss and damage suffered by the applicant as a consequence of it acting in reliance on the representations. The second claim is directed to the first to fourth and sixth respondents. Here it is alleged that Hisoft owed fiduciary duties to the applicant (i) to sell the stock procured under the agency agreement only to agreed customers, (ii) to hold the proceeds of the sale of that stock on trust for the applicant, (iii) immediately upon the receipt of the proceeds of the sale of that stock to pay those proceeds into the applicant's bank account, and (iv) to account to the applicant for the proceeds of the sale of any stock sold on behalf of the applicant. Then it is alleged that Hisoft breached each of those duties and that the first to fourth and the sixth respondents knowingly caused, procured, permitted or assisted Hisoft to breach those duties. Thus the applicant claims that those respondents are liable to make good any losses that the applicant has suffered as a consequence of the breaches of duty. Much the same allegations are made against the fifth respondent. By the proposed amendments the applicant seeks to bring a claim against the respondents under s 592 of the Corporations Law. The effect of that section is to render any person who was a director or who took part in the management of a company liable for the debts of that company if, when those debts were incurred, there were reasonable grounds to expect that the -4- company would not be able to pay all of its debts as and when they became due. The proposed amendments show that the applicant will seek to recover from the respondents debts that were incurred by Hisoft between May 1992 and 15 October 1992. The unpaid debts incurred during that period are said to total $2,745,807.44. It may be that some part of this proposed claim is already statute barred. That will be the case if a cause of action under s 592 accrues in respect of a particular debt when that debt is incurred. However, it is more likely that, in this case, the cause of action will accrue when s 592 first had application to Hisoft, namely 15 October 1992, when a receiver was appointed over its property: see s 592(1)(c) and s 589(1)(e) of the Corporations Law. All of the parties agree that if leave to amend is to be granted there should be a separate trial of the claim under s 592 and that the trial of the remaining claims should continue. An order to produce that result can be made under O 6 r 6 of the Federal Court Rules. In that circumstance it seems to me that there are only two issues that require consideration to determine whether leave to amend should be allowed. The first issue is whether it would be appropriate to require the applicant to institute a separate proceeding in order to prosecute its claim under s 592 or whether that claim should be joined in the current proceeding. In ordinary circumstances it might be thought that no useful purpose would be served and that unnecessary expense will be incurred if the current proceeding is amended to add a claim the trial of which would necessarily be deferred. Here however the applicant says that there is good reason why it should not be forced to institute a separate proceeding. It is concerned that if the amendments are refused and it is forced to institute a separate proceeding it might be met with what has become known as an Anshun estoppel: see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. The so called Anshun estoppel originates from Henderson v Henderson (1843) 67 ER 313 where it was held that where a matter becomes the subject of litigation the Court should require the parties to that litigation to bring forward their whole case and will not permit the same parties to open the same subject of litigation in respect of a matter which might have been brought forward as part of that case but which was not brought forward. In Anshun this -5- principle was affirmed: see especially 147 CLR at 602-603. My tentative view is that if the applicant did bring a separate proceeding to pursue its s 592 claim an Anshun estoppel would not be successful. It is by no means evident to me that the s 592 claim is so connected with the claims presently being made that it would be an abuse of process not to have brought the s 592 claim together with those other claims. However, each respondent said during the course of submissions that he would not waive the right to plead an Anshun estoppel if a separate proceeding was instituted. Although I have real doubt about the applicability of that defence I cannot deny the possibility that it may succeed. Thus, unless leave to amend is granted the applicant may be debarred from bringing a claim being a claim for a substantial sum of money. Such a result could cause it to suffer great injustice. That seems to me to be a powerful reason in favour of allowing the applicant to amend its statement of claim. The second issue is whether the s 592 claim has any prospect of success. All of the respondents submit that the claim is hopeless and for that reason alone leave to amend should not be allowed. In order to succeed in a claim under s 592 the applicant need not prove that Hisoft was insolvent at the relevant points in time. It need only prove that there were "reasonable grounds" to expect that Hisoft would not be able to pay its debts. The existence of reasonable grounds for the purposes of s 592 is an objective test: 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 at 376; Commonwealth Bank v Friedrich (1991) 5 ACSR 115 at 123. The enquiry whether there are reasonable grounds to expect that a company will not be able to pay its debts when due is a factual one to be decided in the light of all of the circumstances of the case: Re New World Alliance Pty Ltd (1994) 122 ALR 531 at 539-40. It is to be decided as a matter of commercial reality and thus requires a consideration of a company's financial position in its entirety, including its activities, assets, liabilities, cash, money that it could procure by the sale of assets or by way of loan and its ability to raise capital: Standard Chartered Bank v Antico (1995) 18 ACSR 1 at 74-5. Many of the documents which the respondents provided show that while Hisoft's trading -6- activities were unprofitable (and they appear to have been quite unprofitable for a long period) it had sufficient support from its banker, the National Australia Bank, and from IBM one of its main suppliers to enable it to meet its debts as and when they fell due for payment. Even if the documents did not disclose that to be the true position then, so the respondents say, the documents make it clear that there were reasonable grounds for the officers of Hisoft to expect that the company would be able to pay its debts as and when they became due. I agree that the documents do, to a substantial extent, support the position put by the respondents. However, the evidence is not all one way. One of the documents that I was provided is a report into the activities of Hisoft by Peter Whelan and Rodney Nelson that was prepared at the request, so its seems, of the applicant's credit loss insurer. It is not clear what documents Messrs Whelan and Nelson had available to them to prepare their report but it is possible that some of Hisoft's documents were examined. One of the points made in the report is as follows: "It has been subsequently discovered that Hisoft were in fact diverting the UAA [undisclosed under agency agreement] cheques into their main account due to their serious cash flow deficiency. We understand this matter will form part of the litigation proceedings instigated by creditors against the Hisoft directors." If it is true that Hisoft was diverting cheques into its bank account because of a serious cash flow deficiency it might fairly be said that whatever backing or support Hisoft received from the National Australia Bank or IBM, that support was not sufficient to enable the company to meet its debts as and when due. If that was the case then it might also turn out, after a full and complete investigation of all relevant facts, that the officers of Hisoft did not have reasonable grounds to expect that the company would be able to pay all of its debts when due at least at some time or times during the period between May 1992 and 15 October 1992. I do not wish to leave the impression that I have formed any view, one way or the other, about the prospects of success, in whole or in part, of a claim under s 592. On the contrary, on the material that I have been provided I would not describe the case as a strong one. But that is not the question. What I have to decide is whether the claim is so hopeless that it should not be allowed to be brought. That is not a conclusion which I am able to reach on the material I have read. There is one final matter which I wish to mention that is of relevance to the application. It is -7- apparent that some time ago the applicant considered and decided against making a claim under s 592 against the respondents. In so doing it acted upon the advice of counsel. That advice was to the effect that, in the circumstances known to counsel, a claim under s 592 would not succeed. I do not regard the fact that at some stage in this litigation counsel considered and advised against making a claim under s 592 as a bar to making the order now sought. Of course it is a matter that must be taken into account. But if, as it appears to me, the applicant believes that it has a cause of action and it has not been demonstrated that such an action is bound to fail, I do not place much weight on the earlier decision not to bring the claim. In the result the applicant should be given leave to amend its statement of claim in the manner which it seeks. The form of the order should provide that leave to amend can be revoked in whole or in part if, at the trial, it turns out that there is a good limitations defence to any part of the claim. Unless the order is so qualified there will be a risk that any limitations defence will fail. It will of course be necessary for the applicant to pay the respondents' costs of the application for leave to amend together with any costs thrown away by reason of the amendment. I would include in those costs the costs of the hearing on Monday 27 July 1998. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein J Associate: Lé s) ~ on ead aw ed Dated: 14 August 1998 Counsel for the Applicant: Mr B Rayment QC With Mr C Harris Solicitor for the Applicant: Ebsworth & Ebsworth Counsel for the First, Third, Mr S Wilson QC Seventh and Eighth Respondents: Solicitor for the First, Third, Seventh and Eighth Respondents: Counsel for the Second, Fourth and Sixth Respondents: Solicitor for the Second, Fourth and Sixth Respondents: Counsel for the Fifth Respondent: Solicitor for the Fifth Respondent: Date of Hearing: Date of Judgment: -8- With Mr L Glick Roth Warren Mr R Redlich QC With Mr R Attiwill Abbott Stillman & Wilson Mr W Lally QC With Mr M Dreyfus Rockman & Rockman 27 July 1998 29 July 1998 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY NG 520 of 1994 BETWEEN: COMPAQ COMPUTER AUSTRALIA PTY LTD Applicant AND: HOWARD MERRY DAVID PAYES COLIN BUNNETT MICHAEL SHARP ROBERT BASSATT ALAN JEFFREY KRAS IAN HORMAN and GREG THOMSON Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 3 AUGUST 1998 WHERE MADE: MELBOURNE RULING NO 3 HIS HONOUR: For the second time in this trial the applicant seeks to amend its already further amended statement of claim. In my interlocutory ruling made on 29 July 1998 I briefly described the nature of the claims made by the applicant in this proceeding. I will not repeat that description. The nature of the amendments now sought is as follows. The applicant wishes to add an allegation that before the agency agreement of 5 June 1992 was made the third respondent, on behalf of Hisoft, represented that Hisoft would perform its obligations under clause 6.1 and 6.2 of the agency agreement by causing its bankers to collect the proceeds of cheques, including money not held on trust for the applicant, and pay directly to the applicant that portion of those cheques which related to payment of goods sold pursuant to the agency agreement. It also seeks to add a further allegation that on and after 5 June 1992 Hisoft represented to the applicant that if the applicant supplied stock to Hisoft under the agency agreement Hisoft would cause its banker to pay to the applicant the proceeds of the sale of that stock in the manner just described. The next proposed amendment is to add an allegation that one of the fiduciary duties Hisoft owed to the applicant was a duty to give effect to the representation and inform the applicant if it was not doing so. The effect of these amendments, if allowed, will be twofold. First, in so far as the first, third, seventh and eighth respondents are concerned there will be a further basis for contending that Hisoft contravened s 52 of the Trade Practices Act 1974 (Cth) and therefore a further basis for alleging that those respondents aided, abetted, counselled or procured or were knowingly concemed in a breach of that Act. Second, with regard to the first to sixth respondents there will be another basis for the claim that those respondents knowingly caused, procured, assisted or participated in the alleged breach by Hisoft of the fiduciary duties said to be owed to the applicant. The application for leave to amend is opposed. There are two grounds of opposition put forward. The first relates to the proposed claim for aiding and abetting etc. a breach of the Trade Practices Act. It is said that the amendments seek to raise a new cause of action that is statute barred and thus should not be allowed. This submission relies upon s 82(2) of the Trade Practices Act which provides that an action for loss and damage resulting from a breach of the Trade Practices Act whether against the person who contravened the Act, or against any person involved in the contravention must be commenced within three years after the date on which the cause of action accrued. The second ground relates both to the claim for aiding and abetting etc. a contravention of the Trade Practices Act and the claim for procuring etc. a breach of the fiduciary duties said to be owed to the applicant by Hisoft. Here it is said that the claims are bound to fail and thus there is no purpose served in allowing the amendments. -3- The rule governing amendments to pleadings is O 13 r 2 of the Federal Court Rules which relevantly provide: (D) Subject to the following provisions of this rule, the Court may, at any stage of any proceeding, on application by any party or of its own motion, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit. (2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings. (G3) Where an application to the Court for leave to make the amendment mentioned in subrules (4), (5), (6) or (7) is made after any relevant period of limitation current at the date of commencement of the proceeding has expired, the Court may, nevertheless, grant such leave in the circumstances mentioned in that subrule if it thinks it is just to do so. (7) An amendment may be made notwithstanding that the effect of the amendment will be to add or substitute a new claim for relief or another foundation in law for a claim for relief if the new claim for relief or foundation in law for that claim arises out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief by the party applying for leave to make the amendment." This rule was introduced in 1994 by statutory rule No 279. Before this amendment O13 r 2 read: "(1) The Court may, at any stage of the proceeding, on application by any party or of its own motion, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit. (2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any 'proceeding, or of avoiding multiplicity of proceedings. 3) Where there has been a mistake in the name of a party, sub- rule (1) applies to the person intended to be made a party as if he were a party." Under the former rule, which was substantially in the same terms as rules relating to amendments that were in force in Supreme Courts of the States and the Supreme Court Rules in the United Kingdom, the settled practice was not to allow an amendment to raise a new -4- cause of action that was statute barred: Weldon v Neil -(1887) 19 QBD 394; Christodoulopoulos v Rowntree & Co (Aust) Pty Ltd [1971] VR 378. The reason was that if the amendment was allowed then the writ as amended spoke from the date on which the writ was originally issued and not from the date of the amendment and, provided the writ had been issued within the limitations period, the limitations defence would not be available. Depriving a defendant of the protection of a limitations statute in this way was regarded as unjust. However, in many jurisdictions, for example in the United Kingdom by O 20r 5, in Victoria by O 36.01(6) and now by the Federal Court Rules, it is expressly provided that an amendment may be allowed even if a limitations defence is to be lost. Thus the old practice has gone. Now the Court will amend pleadings whenever the justice of the case requires. For the purpose of considering whether the new claim under the Trade Practices Act should be added it is necessary to assume that the right to damages created by s 82(1) of the Trade Practices Act continues to exist notwithstanding the passing of the three year period within which that right must be enforced. The decision of the Full Court of the Federal Court in Western Australia v Wardley Australia Ltd (1991) 30 FCR 245 requires that assumption to be made. There it was held that s 82(2) is a condition of the remedy rather than an element of the right conferred by s 82(1). It is not permissible for me to question this view. But whether the conclusion reached by the Full Court is a correct application of the principles established in cases such as Maxwell v Murphy (1956-1957) 96 CLR 261 and Australian Iron and Steel Ltd v Hoogland (1961-1962) 108 CLR 471 may be a matter of some controversy. If the correct position is that upon the expiry of the three year period mentioned in s 82(2) the right of action created by s 82(1) was terminated, it may be arguable that O 13 r 2 cannot operate to impose a liability that had ceased to exist particularly when the facts giving rise to that liability occurred before the new O 13 r 2 came into force. However, for the reason that I have mentioned, it is not necessary to resolve this difficult question. Does the justice of the case require that the amendments should be allowed? There are many cases that discuss the principles upon which amendments are allowed. An often quoted case is Cropper v Smith (1884) 26 ChD 700 where Bowen LJ said at 710: "Now, I think it is a well established principle that the object of courts is to -5- decide the rights of the parties and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself and in conformity with what I have heard laid down by the other division of the Court of Appeal and by myself as a member of it I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or grace." This passage has been cited with approval by the High Court in cases decided many years ago including, for example Shannon v Lee Chun (1912) 15 CLR 257, and recently in Queensland v JL. Holdings Pty Ltd (1996-1997) 189 CLR 146. The applicant seeks the amendments to be able to put its case against the respondents in the way it regards as most effective. It seems to me that I should allow the amendments provided that to do so would cause no injustice to the respondents. In this connection the following matters are relevant. The trial of this action has been conducted on affidavit. The respondents have had the applicant's affidavits, which set out the conversation in which the alleged representation was made, for some time. The third respondent who is said to have made the representation has filed an affidavit setting out his recollection of the relevant conversation. Accordingly, none of the respondents requires time to consider his position if the amendments are allowed. Nor do they need to file additional evidence. In substance then the amendments will do no more than ensure that the pleadings reflect the evidence that has been led. Thus I do not think that if the amendments are allowed the respondents will suffer any prejudice. Should the amendments be refused because they introduce claims that are bound to fail? I should say that the respondents have made this submission not only in relation to the matters raised by the proposed amendments but also in relation to the whole of the applicant's case. On a number of occasions since the trial began counsel for each respondent has said that the applicant's case is hopeless; indeed so hopeless that the respondents are contemplating making a "no case" submission when the applicant closes its case. The respondents say that the evidence led by the applicant does not and will not establish the existence of the various causes of action alleged in its statement of claim. -6- It is my view that for the purposes of considering an application to amend the pleadings I should not, at this stage, undertake an inquiry into whether, on the present state of the evidence, the applicant's claims are hopeless. In the first place I have already heard evidence about the conversation during which it is said the alleged representation was made. To decide whether the applicant's case is hopeless would involve, to some extent at least, making findings of fact concerning precisely what was said by the third respondent during the course of that conversation and in the conversations that preceded the critical conversation. I am most reluctant to make any findings of this nature until I have heard all of the evidence that will throw light on the issue and there may be more evidence forthcoming. Next, to undertake the task asked of me is in substance an invitation to provide a preliminary view on the outcome of the threatened "no case" submission. I think that it is best if I decline that invitation. To do otherwise would be unfair to the applicant and potentially unfair to the respondents. Further, I do not think it is appropriate, in this case, to consider in detail the whole of the evidence that has been led by the applicant for the purpose of determining whether the amendments should be permitted on the basis that the new claims are hopeless. That would involve converting an interlocutory application into something in the nature of a final hearing and I regard that as a most undesirable course to take midway through a hearing. Finally, even if I was able to form the view on the evidence as it presently stands that the applicant's case is hopeless that position might change when all of the evidence is in. On an application to amend pleadings it could be wrong to form a view about the merits of the case unless it was clear that no matter what further evidence was led, the applicant could not succeed. I am not satisfied that this is such a case. Accordingly, I will grant the leave sought. The respondents will have leave to amend their respective defences and the applicant will be required to pay the costs thrown away. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein Associate: i } Pe Dated: 14 August 1998 Counsel for the Applicant: Solicitor for the Applicant: Counsel for the First, Third, Seventh and Eighth Respondents: Solicitor for the First, Third Seventh and Eighth Respondents: Counsel for the Second, Fourth And Sixth Respondents: Solicitor for the Second, Fourth And Sixth Respondents: Counsel for the Fifth Respondent: Solicitor for the Fifth Respondent: Date of Hearing: Date of Judgment: Mr B Rayment QC With Mr C Harris Ebsworth & Ebsworth Mr S Wilson QC With Mr L Glick Roth Warren Mr R Redlich QC With Mr R Attiwill Abbott Stillman & Wilson Mr W Lally QC With Mr M Dreyfus Rockman & Rockman 29 July 1998 29 July 1998 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY NG 520 of 1994 BETWEEN: COMPAQ COMPUTER AUSTRALIA PTY LTD Applicant AND: HOWARD MERRY DAVID PAYES COLIN BUNNETT MICHAEL SHARP ROBERT BASSATT ALAN JEFFREY KRAS IAN HORMAN and GREG THOMSON Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 3 AUGUST 1998 WHERE MADE: MELBOURNE RULING NO 4 HIS HONOUR: The applicant seeks to tender a number of documents most of which go to establish that during 1991 and 1992 Hisoft required the continued financial support of its banker, the National Australia Bank, and one of its major suppliers, IBM, to continue in business and that, but for that support, Hisoft was insolvent if it was not insolvent in any event. The documents also show the importance to Hisoft of its relationship with the applicant. The solvency of Hisoft is not a matter that is in issue in this proceeding. That is to say, no cause of action pleaded by the applicant depends upon proof of either the solvency or insolvency of Hisoft. So much is clear from the pleadings and from the nature of the causes of action alleged. The same is true of the relationship between the applicant and Hisoft and the importance of that relation to Hisoft. Accordingly, the respondents say that the documents should not be received into evidence. The applicant contends that the financial position of Hisoft and its relationship with the applicant are relevant in the sense that, together with other evidence, inferences may be drawn on matters which the applicant must prove in order to make out its case. So, for example, it is said that because of the parlous financial position of Hisoft and the importance of the agency agreement to the ability of the company to continue to trade, it might be inferred that the respondents would have been aware of the terms of the agency agreement (a matter put in issue by some of the respondents) and that it might also be inferred that the respondents knew that its terms were being breached (a matter which has been put into dispute by all of the respondents). The argument seems to be that because of the importance of the agency agreement it should be inferred that the respondents would have made enquiries about its terms and would also have made enquiries about the performance of Hisoft's obligations under that agreement as part of the discharge of their duties of office. Such inquiries would have disclosed that the agency agreement was being breached. I somehow doubt whether it will be proper to draw those inferences merely from the financia position of Hisoft or the importance of the agency agreement to Hisoft. But I think it would be wrong of me to reject the tender unless I was clearly satisfied that the financial position of Hisoft and the importance of the agency agreement will have no bearing on the outcome of the case. While I have expressed doubt about the ultimate value of this evidence I am not prepared at this stage to say that on a proper examination of all of the facts the financia' position of the company and the importance of the agency agreement may not play some part in the drawing of inferences adverse to the respondents. Accordingly, those documents will be received into evidence. I certify that this and the preceding one (1) page are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein Associate: Dated: 14 August 1998 Counsel for the Applicant: Solicitor for the Applicant: Counsel for the First, Third, Seventh and Eighth Respondents: Solicitor for the First, Third Seventh and Eighth Respondents: Counsel for the Second, Fourth And Sixth Respondents: Solicitor for the Second, Fourth And Sixth Respondents: Counsel for the Fifth Respondent: Solicitor for the Fifth Respondent: Date of Hearing: Date of Judgment: Mr B Rayment QC With Mr C Harris Ebsworth & Ebsworth Mr S Wilson QC With Mr L Glick Roth Warren Mr R Redlich QC With Mr R Attiwill, Abbott Stillman & Wilson Mr W Lally QC With Mr M Dreyfus Rockman & Rockman 3 August 1998 3 August 1998