District Court New South Wales Medium Neutral Citation: Sydneyean Air Pty Ltd v Vortex Air Pty Ltd & Anor [2022] NSWDC 339 Hearing dates: 15 August 2022 Date of orders: 16 August 2022 Decision date: 16 August 2022 Jurisdiction: Civil Before: Abadee DCJ Decision: See paragraph 49 Catchwords: CIVIL PROCEDURE – application to amend Defence – discretionary considerations Legislation Cited: Civil Procedure Act 2005 (NSW) ss 57, 58, 59, 60 64 Cases Cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Category: Procedural rulings Parties: Vortex Air Pty Ltd (first applicant) C Tucker (second applicant) Sydneyean Air Pty Ltd (respondent) Representation: Counsel: Mr Bateman for the applicants Mr McEnaney for the respondent Solicitors: Eastern Bridge for the applicants Johnsons Law Group for the respondent File Number(s): 2021/00110956 Publication restriction: Nil REASONS FOR JUDGMENT BACKGROUND 1. The plaintiff, the respondent on the application (Sydneyean) operates registered aircraft and hires aircraft to third parties. The first defendant (Vortex) is an air charter operator. The second defendant (Mr Tucker) is the director of Vortex. He is sued as guarantor for Vortex' obligations. I will refer to the defendants collectively as the applicants, unless the context requires otherwise. The existing state of the pleadings 1. The respondent commenced this proceeding on 21 April 2021 against the applicants. It was partly in the nature of a money claim, constituted by unpaid invoices relating to the first applicant's use of aircraft in October and November 2019, respectively under a hire agreement entered in May 2019. It was also partly constituted by a claim for damages for breach of contract after the respondent alleged that Vortex purported to terminate the contract in November 2019. Insofar as the money claim is concerned, and making allowance for Vortex' payment of a small sum (nearly $13,000), the respondent claimed that the total sum of unpaid invoices, comprising the debt claim, is $115,494.88, incl of GST. 2. The applicants filed a Defence on 21 May 2012, in which they disputed liability. Aside from putting the respondent to proof, the applicants raised other matters as part of an affirmative defence. Relevantly, at paragraph 18 of the Defence, in traverse of the allegation in the statement of claim that the first applicant purported to terminate the contract, the applicants contended that the agreement with the respondent had nominated a third party (whose name was abbreviated to VAM, in argument) as a maintenance organisation to carry out servicing and maintenance of the aircraft. VAM is an entity related to Vortex. It was contended that the respondent was obliged to maintain an insurance policy with Vortex nominated as the operator. The applicants contended that it had obligations under the contract, to the respondent, to render the aircraft serviceable if the aircraft was not serviceable. It alleged that, as at November 2019, the respondent had failed to pay VAM maintenance costs amounting to $82,369.21. It was alleged further that the respondent took certain steps with a view to removing Vortex as the Air Operations Certificate (AOC) holder on the respondent's insurance policy with respect to the aircraft. The applicants alleged that by taking those steps, the respondent repudiated the contract, or purported to terminate the contract, since Vortex had been removed as the Air Operations Certificate (AOC) holder on the insurance policy. The aircraft could not be flown without maintenance. Vortex alleged that from November 2019 to June 2020, the respondent was able to return the aircraft to serviceability and collect the aircraft, but it did not so. 3. On 18 August 2021, nearly a year ago to the present day, the respondent filed a Reply. A material part of the Reply, for present purposes, is paragraph 5, which comprised multiple sub-paragraphs. In particular, at sub-paragraph 5(m)(i), the respondent alleged that it was Vortex that organised VAM to perform the maintenance (Vortex being the registered operator of the aircraft). The respondent alleged that in November 2019, Vortex made written representation that it would clear VAM's invoices, after the 100-hourly service was performed and would pay the balance owing to Sydneyean for the unpaid invoices. 4. This alleged representation was the starting point to an action Sydneyean brought against Vortex in its Reply, and against the second defendant (as someone involved in Vortex' contravention) under the Australian Consumer Law for misleading or deceptive conduct. It was said Sydneyean relied upon the representation to refrain from paying any monies to VAM and when VAM responded, by refusing to perform the maintenance up to release of the aircraft in March 2020, it was not safe to operate. This, it was said, forced Sydneyean to arrange for a different entity to complete the work so as to ensure that the aircraft was in a safe condition, by late August 2020. Sydneyean claims, as part of its loss, which was alleged to have been caused by Vortex' misleading conduct, the sum of $85,703.99, which VAM was claiming from the respondent. 5. The hearing of this proceeding was fixed to commence within the 3-week sitting of civil matters at Parramatta, which sittings commenced yesterday. 6. On 8 August 2022, the applicants filed a motion in which they sought leave to amend their Defence, pursuant to s 64 of the Civil Procedure Act 2005 (NSW) (the CP Act). Essentially, the applicants wish to run, as defences, the debt claims against the respondent, as set-offs, in statute and in equity, to extinguish or reduce any liability they have to the respondent for unpaid invoices. 7. The respondent opposes the application. Because of the urgency of an imminent hearing in these sittings, a prompt decision is required with concise reasons. 8. On the application, the applicants relied upon affidavits of Mr Tucker dated and 8 August 2022, as well as one dated 28 July 2022. The respondent initially objected to the admissibility of the latter affidavit to the amendment application – it was expected to be relied upon for the substantive hearing - but ultimately I did not understand the respondent to resist its use at least for the purposes of determining the present interlocutory application. 9. A Joint Court Book had been prepared by the plaintiff, apparently with the defendant's co-operation. This was for the purposes of the hearing. Nevertheless, Counsel for the applicants referred the Court to certain parts of the Court Book on the application. I indicated to Counsel that he could do so, but should not assume that the Court would take any notice of parts of the 460 pages of the Court book unless the parties had expressly referred to it in argument. 10. The respondent did not rely upon evidence in opposition to the application. 11. Neither party supplied the Court with written submissions ahead of the hearing. Instead, both parties' relied upon the oral arguments of their legal representatives. THE PROPOSED AMENDMENTS 1. In essence, the proposed amendments rely upon two debts which the applicants say were owed by the respondent to two other entities. One of those was an entity previously referred to. By paragraph 25C of the proposed amended defence, the applicants say that as at 27 July 2022, the respondent was indebted to VAM in the amount of $85,703.99 in relation to allegedly unpaid invoices issued by VAM to the respondent between 27 June 2019 and 1 July 2020. On that same day, the applicants wish to contend that pursuant to a Deed of Assignment, VAM assigned that debt to the first applicant, Vortex. Vortex seeks to rely upon that assignment to set off the debt, in that amount, against its own liability. 2. The other entity was called Tasfast Air Freight Pty Ltd (Tasfast). By proposed paragraph 25B of the proposed amended defence, the applicants say that as at 27 July 2022, the respondent owed a debt to Tasfast in the sum of $25,000. This, the applicants contend, arose from a mistaken payment by Tasfast to the respondent and, it says, the respondent unlawfully retained. On the same day, the applicants wish to contend that pursuant to a deed of assignment, Tasfast assigned that particular debt to the first applicant, Vortex. Vortex also seeks to rely upon the assignment of that debt as set off against its liability to the respondent. 3. Proposed paragraph 25CD summarises what the applicants would wish to contend following the allegations in paragraph 25B and 25C of the proposed amended defence. This is that the applicants wish to rely upon a total set-off, in the aggregated sum of $110,703.99, to meet the respondent's claim, represented by a balance of unpaid invoices in the sum of $102,596.38. The net result of these allegations, if they were allowed to be run, would be that the respondent's claim against the applicants would be extinguished. Indeed, the respondent would be indebted to the first applicant for an amount. 4. As will shortly become elaborated, the applicants argue in this application that these amendments owe their provenance to factual matters already raised in the existing state of the pleadings. The evidence to sustain the VAM debt 1. For the purpose of demonstrating that the 'VAM debt' did not really raise new factual matters, the applicants' Counsel referred the Court to the following evidentiary items which emerged from the exhibit to an affidavit from Mr Muhanad Al-Atabi, the respondent's CEO, dated 2 November 2021: 1. In an email from Mr Al-Atabi to Mr Tucker and to Mr Saige O'Brien, dated 4 November 2019, Mr Al-Atabi asked Mr O'Brien to "clear VAM invoices" that he had received over the weekend; even though they were not due; 2. In an email from Mr Al-Atabi to Mr Tucker on 11 November 2019, in response to Mr Tucker's inquiries made of him (in which Mr Tucker referred to Mr Al-Atabi's agreement "to clear all of the VAM debt first") Mr Al-Atabi answered that he had not forgotten anything, and that he did not mind if Vortex deduct VAM invoices: $60,000 before the due date; which would mean that Vortex had $40,000 to pay from September. Counsel for the applicants argued that this confirmed a deduction of the VAM debt. 3. In an email from the respondent's solicitor to various persons (including Mr Tucker) on 23 January 2020 at 5:42pm, the respondent protested the legality of actions by Vortex and VAM, which was said to be causing loss and damage to the respondent, and demanded that Vortex pay a sum of money ($40,625.02) representing the sum of $102,596.38 "owing to our client" (Sydneyean) "less the amount ($61,971.36) owing by our client to VAM" by a stipulated date. 1. The applicant's Counsel then referred to a letter contained in an exhibit to the affidavit of David Woodland, dated 1 April 2022, which was served on the applicants' behalf. Mr Woodland was the sole director of VAM. On 18 June 2021, the respondent's solicitors sent a letter to VAM's lawyers, in which it referred to VAM's alleged debt of $85,703.99. Counsel for the applicants' emphasised the part of the letter which read: "We note that Mr Tucker is the sole director/secretary and shareholder of a company (apparently Vortex) that has a 49% stake in your client (VAM) and he made representations to our client, whilst acting in his capacity as an agent for your client, that any amounts owing to your client (which our client deems legitimate, if any) would be set off against the outstanding debt to our client by Vortex .. and Mr Tucker". 1. This letter was sent after the respondent had commenced the proceeding and Vortex had filed its Defence, but before the respondent had filed its Reply. Counsel for the applicants argued that the letter evinced the respondent's own view that this proceeding was, or should be, the proper forum to determine the VAM debt. The evidence to sustain the Tasfast Debt 1. This part of the proposed amended defence is partly sourced in facts set out in Mr Tucker's affidavit of 26 July 2022. Mr Tucker deposed in that affidavit to Tasfast being a company controlled by his parents; that its bookkeeper is Thisarai DeSilva; and that Mr DeSilva had performed some bookkeeping generally for the Vortex group. Mr Tucker, apparently acting on information and belief, deposed that Mr DeSilva had paid the respondent the sum of $25,000 by mistake from Tasfast' bank account. Mr Tucker believed that Mr DeSilva had confused the respondent's trading name with the intended payee and thought that Tasfast had never had dealings with the respondent. 2. For the apparent purpose of demonstrating that the debt to Tasfast was not a new fact, the applicants' Counsel referred me to the affidavit of Mr Al-Atabi, sworn 2 November 2021. Mr Al-Atabi referred to a sum of $25,000 being received on 30 December 2020. This, the applicants argued, was a reference to a payment by Tasfast. The evidence to sustain the Deeds of Assignment 1. Mr Tucker annexed to his affidavit of 28 July 2022, the two Deeds of Assignment referred to in proposed paragraphs 25B and 25C to the proposed amended defence. Evidence to explain delay in bringing the amendment application 1. In Mr Tucker's affidavit of 8 August 2022, Mr Tucker noted that the proposed Amended Defence was notified on 4 August 2022, after his first affidavit. It was in that first affidavit that he had referred, for the first time, to the recent assignments of the two debts. 2. Mr Tucker deposed that the two assignments occurred on 27 July 2022, and could not therefore have been referred to in earlier affidavits that had been filed on 1 April 2022. He deposed to his inability to "unilaterally" assign the debts and required the directors of VAM and Tasfast to agree to the assignments. 3. Mr Tucker explained that he only took steps to procure assignments after an informal settlement conference of 1 April 2022 had not resolved the matter. 4. Mr Tucker identified, as prejudice to the applicants should their amendment application not succeed: 1. The exclusion of a set-off defence to the respondent's claim; 2. The need for the applicants to commence a fresh proceeding; 3. A concern about the likely completion and cost of a fresh proceeding which may overlap, at a factual level, with matters already in issue in this proceeding. 1. In answer to a question from me, Counsel for the applicants indicated that the applicants did not intend to serve any additional or new evidence should leave be granted. Submissions The applicants' submissions 1. Counsel for the applicants, Mr Bateman, verbally submitted that delay in bringing the present application was not a reason to reject the application to amend. It was evident from the evidence that both parties had amassed in preparation for the hearing that what was described as the VAM Debt and the Tasfast Debts had already been alleged (in the case of the VAM Debt) in existing pleading and/or indicated (in the case of both the VAM Debt and Tasfast Debt) by evidence served by the parties prior to the hearing. 2. Mr Bateman argued that it is desirable for the Court, on procedural applications of the present kind, to avoid a situation where a party or parties – here the applicants - will have to bring a new proceeding against its adversary to agitate, in effect new claims where, without undue inconvenience or prejudice to its adversary, the matters could be dealt with by an existing proceeding. There is a virtue, in short, of avoiding a multiplicity in proceeding. 3. Mr Bateman argued that there was no relevant prejudice to the respondent. In its Reply, and in the affidavit evidence it had assembled ahead of the hearing, it had already referred to matters which would establish the VAM debt. 4. Mr Bateman referred the Court to the terms of s 64 of the CP Act, which recognised the desirability of amendments being granted where they might help the Court to resolve the real issues in dispute. Relevant to an earlier argument, for the Court to reject the amendments would put off resolution of issues simmering under the surface of the current proceeding. The respondent's submissions 1. Mr McEnaney of Counsel, who appeared for the plaintiff, referred to his instructing solicitor's letter to VAM solicitors, dated 18 June 2021. That letter did not amount to a concession by the respondent that the invoices rendered by VAM were in fact legitimate: there was a contest about that. He argued that if the amendments were allowed, it may lead to the situation of other witnesses being called. 2. Mr McEnaney submitted that there was no evidence as to the legitimacy of the two assignments, only very recently entered into, by deed. As I understood him, he argued that in relation to the Tasfast debt, there was no explanation why that had only recently been discovered. Had it been notified to the respondent earlier; it could have tailored its pleadings accordingly. Similarly, if VAM wanted to assign its action in debts to Vortex, it could have assigned its rights before April 2022. 3. Mr McEnaney observed that the matter was fixed for hearing back on 15 June 2022, which post-dated the assignment of either of the debts. The respondent should not be lumbered with a delay in its prosecution of what had been, until notice of the recent amendment application, a straightforward action in debt. 4. The applicants would not be prejudiced if, they commence a separate proceeding at a future point, in which they move the Court for a fresh action based upon the recent assignments. Consideration 1. As with all procedural applications, this application has to be determined by reference to the case management objectives in s 56 and in accordance with the dictates of justice (s 58(1)(a)(i) of the CP Act). The last aspect is in itself influenced by the same case management objectives. 2. No suggestion was made that the amendments were inarguable. It therefore cannot be said that there is no utility in acceding to the application to amend. 3. There was no denying, on the respondent's part, that acceptance of the proposed amendments now would serve the purposes of eliminating the delay and likely expense of any future proceeding brought by the applicants, which is the only viable alternative to acceding to amendment. Further, determining the merits of those amendments now, rather than in a separate proceeding, would more efficiently utilise judicial and administrative resources, and thereby free up judicial time for the determination of other proceedings. In these respects, the dictates of justice weigh in the applicants' favour. 4. But there are other considerations that are more finely balanced. I am not fully persuaded by the applicants' submission that all that the amendments do is to regularise factual matters already evident in the proceeding. My difficulty with that submission is that it overlooks the Court's sense that to some degree, the factual matters relied upon have been agitated only very recently. 5. For example, I do not accept the applicants' submission that the Tasfast Debt, and its assignment in particular, was plainly indicated by the existing state of the pleadings. It was referred to for the first time in an affidavit prepared by Mr Tucker late last month, with a hearing date then in sight. At least to that extent, I reject the applicants' submission that proposed paragraph 25B amounts to no more than an attempt to regularise evidence. Parties are not entitled, in close proximity to hearing dates, to serve evidence of new matters, and then claim that all the amendments seek to do is to regularise issues. That presents the amendment as a fait accompli. Procedurally, the usual course is that pleadings come first, then evidence. Not the other way around. Serving evidence in close proximity to a hearing date, in respect to matters outside the existing scope of a pleading, then applying for an amendment to a pleading and arguing that the only intention is to bring it into line with the evidence is potentially apt to unfairly generate prejudice to an opponent; ambushing it and daring the opponent to oppose a grant of leave. 6. The so-called VAM debt is in a different category. I accept that constituents of that action have been apparent for a period of time. 7. What is new, or recent, in both cases, is the applicants' wish to rely upon assignments of debts. That must be so as the assignments occurred well after the commencement of the proceeding and also the close of pleadings; with a hearing to commence in less than a month. I must confess to suspicion about the timing of these amendments. According to Mr Tucker, the assignments occurred after the lack of success in an informal settlement conference in April 2022 in the sense of yielding resolution. He deposed to not having "unilateral" control over VAM or Tasfast. But there may be a question, which is unnecessary to determine on the current application, as to what level of control he was able to exert over his parents, in relation to the assignment of the Tasfast debt, or VAM, an entity almost under the practical control of Vortex; and why that control was not exerted any earlier than it was. There is no explanation as to why, being aware of the assignments back in April, the applicants waited until two and a half weeks before a hearing, to serve evidence referring to the deeds of assignment, and then notified the respondent of its intention to amend less than two weeks before these sittings. Further still, if, as I was informed, the hearing date was set back in June, it did not appear that the applicants raised the matter of the assignments two months before as something that might lead to future amendment of the defence. It needs to be emphasised that Mr Tucker was not required for cross-examination on this interlocutory application so I reiterate that no final view can be taken as to what his, or the applicants' motive was for bringing the application when it did. It suffices to say that the explanation for delay is not entirely satisfactory. This weighs against the application (s 58(2)(ii) and (iii)). 8. What looms large in this application is the question of whether the lateness in the applicants' bringing of the application is such as to deprive the respondent of a fair opportunity to meet the proposed amendments at a hearing which is imminent. A subsidiary question is the prejudice to the applicants that would flow from rejection of the application. Both questions bring to bear the matter raised by s 58(2)(vi) of the CP Act. 9. The assignments were notified to the respondent on or about 27 July 2022. I infer that the respondent has consistently objected to that affidavit. Although the basis for that was not articulated all that clearly, conceivably, it was on the basis that the notice of the assignments, and the existence of the Tasfast Debt was given late and a view that the respondent did not have sufficient time to deal with the factual matter raised in evidence in response. I think the position with respect to the VAM Debt was different: the correspondence that the applicants referred to in argument indicated that the respondent anticipated the possibility of that debt laying a platform for a defence of set-off. 10. But a week on, after service of the application to amend, the respondent did not serve evidence to articulate the nature of the prejudice that its Counsel sought to articulate in his oral argument. The respondent was prepared to conduct its opposition to this motion on the evidence that was before the Court yesterday. There was a vague reference to a new witness, without specifying who that may be. There was no indication as to what factual inquiries the respondent might wish to make if the application was acceded to, or how long they might take. It was telling that the respondent did not argue that if the amendments were permitted, it would be unable to fairly participate in the hearing scheduled to commence in these sittings. The absence of evidence significantly undercut the respondent's argument about prejudice. 11. Against that, if the application to amend was rejected, the applicants have foreshadowed a new proceeding to agitate an arguable claim. The respondent did not suggest that, in that course, it would refrain from enforcing any judgment in its favour, without the set-off defence until the result of the new proceeding was determined; whenever that might be. As indicated by its attitude on this application, it wishes to get this proceeding over with and enforce its judgment even as it knows that arguable claims, giving rise to an arguable set-off may exist; and where the underlying controversy between the parties remains unresolved. That is not an attractive position given the purpose of the exercise of judicial power to quell disputes. 12. In my opinion, comparison of the potential injustice, or prejudice, sustained by the parties depending upon the fate of this application tilts the scales in the applicants' favour. I accept that, as the High Court said in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, no party has a right to bring amendment applications at will, even for arguable claims and defences and what counts is whether the parties have had fair opportunity to agitate for the claims or defences that they make. Nevertheless, weighing the considerations in s 58, in conjunction with the case management objectives in ss 56, 57, 59 and 60 of the CP Act, the Court is persuaded to exercise its discretion to permit the amendments. 13. Subject to hearing from the parties, my inclination, reflecting the indulgence sought, somewhat belatedly, by the applicants and the usual price paid by parties moving the Court for amendment, the appropriate order for costs is that the applicants pay the costs of and occasioned by the amendments, including the costs of the application. To confirm the position raised with the applicants' Counsel in argument, I also propose to fetter the applicants' capacity to rely upon further evidence consequential to the amendments. Orders 1. For these reasons, I grant leave to the defendants to amend their Defence in the form proposed in the affidavit annexed to Mr Tucker's affidavit in support of the motion, on terms that: 1. the defendants are not permitted to rely upon additional evidence beyond that which they have already served in the proceeding without the Court's leave; and 2. the defendants' pay the plaintiff's costs of and occasioned by the amendment, including the costs of the motion. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 August 2022