New South Wales Supreme Court CITATION : Wendt v Northwood [2003] NSWSC 546 HEARING DATE(S) : 02/06/03; 03/06/03; 04/06/03; 05/06/03; JUDGMENT DATE : 24 June 2003 JUDGMENT OF : Shaw J DECISION : (1) Confirm entry of judgment for second defendant; (2) Confirm plaintiff is to pay the costs of the second defendant; (3) Plaintiff granted leave to rely upon amended statement of claim; (4) Matter referred to list judge to set further trial date; (5) Costs of the proceedings thrown away by the amendment to be first defendant's costs in the cause. CATCHWORDS : Procedure - application to amend pleadings three days into trial - whether fresh proceedings arguable - whether prejudice to the defendant LEGISLATION CITED : Supreme Court Rules 1970 (NSW) Part 20 Briginshaw v Briginshaw (1938) 60 CLR 336; Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84; Cropper v Smith (1884) 26 Ch D 700; Londish v Gulf Pacific Pty Ltd (1993) 117 ALR 361; CASES CITED : McGee v Yeomans [1977] 1 NSWLR 273; Proctor v Jetway Aviation Pty Ltd (1984) 1 NSWLR 166; Queensland v JL Holdings Ltd (1997) 189 CLR 146; Tindesley v Harper (1978) 10 Ch D 393; Ting v Blanche (1993) 118 ALR 543; White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164; Roy Wendt - Plaintiff PARTIES : Kenneth Edward Northwood - First defendant Registrar General - Second defendant FILE NUMBER(S) : SC 20172/00 W Haffenden - Plaintiff COUNSEL : D Williams - First defendant T Barrett - Second defendant Kenneally & Co Solicitors - Plaintiff SOLICITORS : Acuiti Legal Solicitors - First defendant Kenneth Hall - Second defendant IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Shaw J 24 June 2003 20172 of 2000 Roy Wendt (Plaintiff) v Kenneth Edward Northwood (First defendant) and Registrar General (Second defendant) JUDGMENT 1 Shaw J: In this matter a verdict has been entered for the second defendant and an order has been made for the plaintiff to pay the second defendant's costs as assessed or agreed. Further, it has been noted that the plaintiff has the right to seek indemnity for those costs from the first defendant. 2 Some time in the past the plaintiff won a prize in a lottery. Prior to 5 June 1998, it is alleged that the plaintiff was the registered proprietor of property at 48 New South Head Road, Vaucluse. He apparently granted an option to the Australian Commercial and General Corporation Pty Limited (ACG) to purchase the land in March 1997, and it is alleged that a woman (Mrs Howard, a former bankrupt, who is not a party to these proceedings), on behalf of AGC, requested 'vendor finance' from the plaintiff for the purchase of the land to be secured by way of an unregistered mortgage benefiting the plaintiff. 3 Without going into the full details of the statement of claim, it is sufficient to state for present purposes that what is alleged is misrepresentation by, or on behalf of, ACG and that the first defendant, a solicitor, acted in breach of his fiduciary duties by falsely explaining the finance and mortgage documents to the plaintiff and in advising the plaintiff to execute such documents. There is also a claim against the solicitor based upon negligence and deceit. It is said that the plaintiff is an unsecured creditor of ACG (now in liquidation) and has lost the ability to recover the sum of $450,000 owed to him by that company. 4 Following cross examination of the plaintiff by counsel for the first defendant, counsel for the plaintiff conceded that his client could not succeed on the basis of the pleadings as presently framed. It was accepted that the plaintiff could not successfully prove its case on the required standard of proof: see Briginshaw v Briginshaw (1938) 60 CLR 336. 5 Accordingly, the plaintiff now seeks to restructure his claim in a fairly radical way. 6 The amendments maintain the proposition that the first defendant gave legal advice to the plaintiff and assert that on or about 11 November 1997 the first defendant signed a 'Solicitor's Certificate' in respect of the advice concerning the mortgage over the property. However, the amendments seek to add a claim of breach of fiduciary duty arising out of an act of non-disclosure on the part of the first defendant and an account of the benefit obtained by that act. 7 Alternatively, it is alleged that he had a duty to disclose other material matters to the plaintiff and that the conduct of the first defendant was misleading and deceptive within the meaning of s 42 of the Fair Trading Act 1987 (NSW) and that the plaintiff has, as a result, suffered loss and damage of $450,000. 8 It is common ground that the Court has power to grant the amendment. There is no suggestion of any difficulties arising from a limitation statute in relation to the new claim. 9 Counsel for the plaintiff has pointed to Part 20 r 1 of the Supreme Court Rules 1970 which provides that: The Court may, at any stage of any proceedings, on application by any party or of its own motion, order that any document in the proceedings be amended, or that any party have leave to amend any document in the proceedings, in either case in such manner as the Court thinks fit. 10 It is further provided by sub-rule (2) of Part 20 r 1 that: All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, or of correcting any defect or error in any proceedings, or of avoiding duplicity of proceedings. 11 The applicable rule governing practice and procedure in this Court has been held to constitute a 'general discretion to allow an amendment…whenever justice so requires': McGee v Yeomans [1977] 1 NSWLR 273 at 280; Proctor v Jetway Aviation Pty Limited (1984) 1 NSWLR 166 at 183. The principle underlying the rules was designed to produce 'more meritorious results' compared to traditional practice: Proctor at 183 per Priestley JA. 12 The procedural question which faces the Court at this point of the litigation is, after three days of hearing an unsuccessful claim, whether the amendments should be granted, or whether the proceedings should be dismissed and the plaintiff left to commence, if he be so advised, fresh proceedings. Ancillary questions arise as to the costs of the proceedings to date. 13 The Court has not heard any evidence from the first defendant and is in some difficulty in forming an assessment of the likelihood of success of the plaintiff in his proposed new claim. However, my tentative conclusion is that those proceedings are not hopeless and indeed are fairly arguable. In this respect, the plaintiff relies for support upon the judgment of Hodgson JA in White v Illawarra Mutual Building Society Limited and Ors [2002] NSWCA 164 at [144] where his Honour said that there is authority to support a claim: …where the fiduciary obtains an undisclosed benefit from a transaction, and the question is whether, had the benefit been disclosed, the beneficiary would have given informed consent to the fiduciary having that benefit and, it is authority for the proposition that the fiduciary cannot maintain that the beneficiary would have given that consent. Whether the proposition applies in all such cases is a matter of some controversy, which need not be addressed here; however, I would venture to suggest that it does apply to all cases where the beneficiary is seeking, not damages, but recovery from the fiduciary of the benefit received. 14 Thus, while the claim is belated, it seems to be arguable. Counsel for the first defendant has, nevertheless, raised the legitimate criticism that the legal representatives of the plaintiff only examined the documents which gave an indication of the viability of this additional point shortly before the commencement of the trial. 15 Accordingly there arises a somewhat difficult issue of discretion as to whether the amendment should be allowed at this stage. 16 In Cropper v Smith (1884) 26 Ch D 700 Bowen LJ said (at 710) that: Now, I think it is a well established principle that the object of courts is to 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 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 of controversy, and I do not regard such amendment as a matter of favour or grace. 17 In Tildesley v Harper (1878) 10 Ch D 393 Branwell LJ expressed the opinion that the defendant ought to have been allowed to amend his defence and said: I have had much to do in chambers with applications for leave to amend, and I may perhaps be allowed to say that this humble branch of learning is very familiar to me. My practise has always been to give leave to amend unless I have been satisfied that the party applying was acting mala fide, or that, by his blunder, he had done some injury to his opponent which could not be compensated for by costs or otherwise. 18 Whether amendment should be allowed in the course of trial is very much a matter for the discretion of the trial judge: see Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 106, 107 per Waddell A-JA. Different considerations would arise after evidence had been closed and submissions received but that is not this case: cf Ting v Blanche (1993) 118 ALR 543. 19 The critical point seems to me to be what is in the interests of justice to the parties. A related factor is whether there is real prejudice accruing to the party opposing the amendment. 20 In Queensland v JL Holdings Pty Limited (1997) 189 CLR 146 the High Court held that case management principles were relevant, but could not be used to prevent a party from litigating an issue which was fairly arguable. The Court determined that a party should be permitted to raise an arguable defence (and I would assume by extrapolation, an arguable claim on the part of a plaintiff) provided any prejudice to the parties could be compensated by costs. In the joint judgment (at 155) it was said that: In this case, which is of a commercial nature the litigants are on the one side a developer and on the other a government, and there is nothing that would indicate any personal strain which would justify the conclusion that costs are not an adequate remedy for the prejudice caused by the amendment to the pleadings. 21 The position here is, perhaps, somewhat different. There is an elderly plaintiff, apparently in ill health suing a solicitor who I have not seen in the witness box. Nonetheless, the dispute is essentially one of a commercial nature and there is no persuasive evidence of any personal strain which would accrue if the amendment were granted, especially where it is common ground that fresh proceedings commenced within the relevant limitation periods if the plaintiff were advised to do so. In the same case Kirby J said (at 167) that: No rigid pronouncements can be made of the way in which a discretionary decision to permit an amendment of pleadings should be exercised. The Rules of court affording the power to permit (or refuse) are typically expressed in the widest language. This is to afford a large discretion to the judge to whom the amendment application is made. 22 The litmus test governing the Court's discretion to allow an amendment is justice –whether any prejudice arising from the change of course is incurable notwithstanding an adjournment and/or an order for costs: Londish v Gulf Pacific Pty Limited (1993) 117 ALR 361. 23 Mr Williams, counsel for the first defendant, has submitted that his client would suffer such prejudice as a result of the amendment. He submits that his cross examination of the plaintiff occurred in the context of the claims about a false and misleading representation regarding the mortgage. He submits that the evidence he has elicited from the plaintiff in cross examination would not have been sought if the claim for non-disclosure had been pleaded at the outset. He argues that this prejudice cannot be cured by further cross examination of the plaintiff. 24 There is substance in this submission. Counsel for the plaintiff has conceded that he would also need to recall the plaintiff to elicit further evidence if the amendment is allowed. Therefore, there is some basis to see the new claim, if allowed, as fresh proceedings rather than regarding this matter as part heard. 25 The defendant argues that different forensic judgments might have been made about cross examination if the plaintiff had pleaded its case in the way currently proposed. It is said that, if the pleadings were as proposed, the cross examination would have been different. Nevertheless, if what has been elicited in cross examination is true and relevant, then the court should be aware of it. Despite post-modernist criticism to the contrary, there is objective truth. If the defendant now wants to challenge what has been elicited in cross examination it should have leave to do so in light of the amendments but the prejudice, in my opinion is minor, and outweighed, on balance, by the right of the plaintiff to propound his case as he is advised, subject, of course, to considerations of adjournment and costs. 26 It seems to be common ground that the plaintiff could re-commence the proceedings in any event without any limitation bar. That would involve further costs that could be avoided by granting leave to the plaintiff to amend its pleadings. 27 The difference between the parties is relatively narrow. I favour the course of amendment as being more cost effective and convenient in the interests of justice. 28 Accordingly, the court orders: 1) The plaintiff is granted leave to file and serve and rely upon the amended statement of claim; 3) The proceedings are to be referred to the list judge to set a new hearing date. 29 I now turn to the question of costs. 30 It seems to me that it is fair, contrary to the submissions of the plaintiff, that the costs of the proceedings before me be the defendant's costs in the cause. I do not make any decision as to whether those costs should be awarded on an indemnity basis as there is some force in the suggestion that such a determination may be made in a more satisfactory way at a later stage of the proceedings. It is premature to make any such order until all of the facts have been ascertained. However, I think it fair that the defendant should have the costs of the proceedings thrown away by the need for an amendment to the pleadings. 31 Accordingly I order: 3) Costs of these proceedings be the defendant's costs in the cause. **************** Last Modified: 06/30/2003 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.