New South Wales Supreme Court CITATION : Pioneer Park Pty Limited (in liquidation), Clifford John Carpenter, Merlo Australia Pty Limited & Ors v Australia and New Zealand Banking Group Limited [2006] NSWSC 731 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 17/7/06, 18/7/06 JUDGMENT DATE : 19 July 2006 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J EX TEMPORE JUDGMENT DATE : 07/19/2006 DECISION : Application to amend defence dismissed insofar as opposed. CATCHWORDS : Practice and Procedure - Amendment of defence - Template set by part 6 of Uniform Civil Procedure Act analysed with respect to application to amend pleadings LEGISLATION CITED : Uniform Civil Procedure Act 2005 CASES CITED : Pioneer Park Pty Ltd v ANZ Banking Group Ltd and others: [2005] NSWSC 498; [2005] NSWSC 832 State of Queensland v JL Holdings (1996) 189 CLR 146 PARTIES : Pioneer Park Pty Limited ACN 002 706 881 (in Liquidation); Clifford John Carpenter; Merlo Australia Pty Limited; Merlo Wholesale Pty Limited and Domino Hire Pty Limited [Plaintiffs] Australia and New Zealand Banking Group Limited [Defendant] FILE NUMBER(S) : SC 50156/04; 50163/04; 50096/05; 50118/05 COUNSEL : Mr JJ Garnsey QC, Mr B Connell (Plaintiffs) Mr J Gleeson SC, Mr J Thomson (Defendant) SOLICITORS : PMF Legal (Plaintiffs) Minter Ellison (Defendant) THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EINSTEIN J Wednesday 19 July 2006 ex tempore Revised 20 July 2006 50156/04 Pioneer Park Pty Limited (in liquidation) v Australia and New Zealand Banking Group Limited 50163/04 Clifford John Carpenter v Australia and New Zealand Banking Group Limited 50096/05 Merlo Australia Pty Limited & Ors v Australia and New Zealand Banking Group Limited 50118/05 Australia and New Zealand Banking Group Limited v Clifford John Carpenter JUDGMENT Application for leave to amend 1 At the commencement of the final hearing the defendant sought leave to amend its defence to the consolidated summons. No issue was taken as to the amendment sought to be propounded in paragraph 30 (a1), subject to the defendant reducing to writing in the formalised pleading, its particulars of the 'factual matrix' referred to in the new paragraphs [transcript 97.10-20]. No issue was taken with respect to the amendment to the particulars given in paragraph 69. 2 The plaintiffs objected to the two other tranches of amendments. Following the taking of submissions in this regard [including evidence adduced by the plaintiffs in affidavit form] the Court dismissed the application to amend in these two tranches indicating that reasons would be given as soon as practicable. This judgment gives those reasons. The principles 3 The principles which are to be applied by the Court in dealing with an application for leave to amend are well established. 4 In State of Queensland v J L Holdings Pty Ltd (1996) 189 CLR 146 the High Court carefully analysed the development up to January 14 1997, of approaches taken to the exercise of the discretion to permit amendments to pleadings. Generally that judgment of the High Court, without purporting to be exhaustive, serves to set out the types of consideration which ought to direct the mind of the decision maker on such applications. However, the court accepted that the trial judge is afforded a large discretion in relation to the exercise and that it would be unwise and contrary to principle to seek to fetter that discretion with rigid rules. The special significance of the decision is to direct the mind of the decision maker to many of the considerations which may be taken into account in exercising the discretion and to emphasise, if it needed to be emphasised, that justice is the paramount consideration in determining such an application. 5 J L Holdings dealt, of course, with the particular circumstances before the court and whilst the general statements to be found in the joint judgment of Dawson, Gaudron and McHugh JJ and in the judgment of Kirby J assist a decision maker considerably, the obvious fact is that each and every case in which an application for leave to amend is pursued requires the court to deal with the special and peculiar matrix of circumstances which obtain at the material point in time in the litigation in respect of which such application is pursued. 6 It is fair to say that generally following the template set in Part 6 of the Uniform Civil Procedure Act 2005, the Court bends every effort to permit the respective parties to conduct the case which they seek to conduct, and in that regard, strains to permit leave to amend unless the counterbalancing considerations are such as to make it unjust to permit the amendment. The phrase used in s 58 of the Act is that the court must seek to act in accordance with the ' dictates of justice'. 7 Part 6 of the Act does now provide a statutory underpinning for the achievement of the just, quick and cheap resolution of the real issues in the proceedings [setting the overriding purpose of the Act and of the rules of Court in their application to civil proceedings]. As the learned author of Ritchie's Uniform Civil Procedure NSW 'LexisNexis Butterworth's' observes [at annotation s 56.10]: [A]s a matter of practical reality the combined effect of these provisions is to place considerable emphasis on the elimination of delay, and the reduction of cost, beyond those 'reasonably required… for the fair and just determination of the issues in dispute". 8 The objects of case management prescribed in s 57 include 'the just determination of the proceedings', 'the efficient disposal of the business of the Court' and 'the timely disposal of the proceedings and all other proceedings in the court, at a cost affordable by the respective parties'. 9 Section 58 obliges the Court in deciding whether to make any order for the amendment of a document, to act in accordance with the dictates of justice, which dictates permit the court to have regard to 'the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction' and 'the degree to which the respective parties have fulfilled their duties under s 56(3) [the duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the Court]. The amendments propounded 10 The proposed amendments were in general terms as follows: First Tranche- 'Default-Failure to pay other obligations' 11 This amendment sought to allege that: i. on at least particular identified occasions, Pioneer Park had been in breach of clause 10 (1) (d) of the defendant's 'General Conditions (Second Edition 1995)'; ii. this being the case, Pioneer Park had committed an event of default [the allegation being that it was an event of default under the General Conditions if Pioneer Park failed to pay before the end of any grace period, an amount that was due and payable to someone other than the defendant in respect of obligations relating to financial accommodation or financial arrangements]; iii. Pioneer Park had regularly failed to pay its creditors within the applicable grace periods (if any), amounts that were due and payable in the period from May 1997 to June 1999. 12 This application for leave to amend was refused for the reasons that: i. the defendant put forward no explanation as to the lateness of the application for the leave; ii. the proceedings had been on foot for a considerable period and have an extremely unusual background; iii. the plaintiffs had demonstrated irremediable prejudice were the amendment to be allowed; iv. these particular proceedings at this stage do not permit of the usual approach which may be taken in cases where an amendment to pleadings may be permitted on conditions that a bracket of hearing dates may be vacated [and that the applicant for the amendment pay the costs of and occasioned by the vacated hearing]; v. the principled exercise of the discretion was clearly to reject the application for leave at this very late stage. 13 The general background to the proceedings was usefully recited in two interlocutory judgments each bearing the reference: Pioneer Park Pty Ltd v ANZ Banking Group Ltd and others: [2005] NSWC 498 and [2005] NSWSC 832. 14 The resources available to the plaintiff's legal advisers, and many of the difficulties which the plaintiffs would face should these amendments be allowed, were carefully set out in the affidavit of Mr Fordyce solicitor sworn on 18 July 2006. In that affidavit Mr Fordyce deposes to the following: · At the time of receiving [the letter of 11 July 06 enclosing the amended defence] my office was fully engaged in the preparation of these proceedings for the hearing scheduled to commence in less than a week. · I was informed by Messrs Garnsey QC and Connell at that time that the Amended Defence was received that given the tasks to be attended to already, in the preparation of these proceedings for hearing, they were not in a position to give any consideration to this proposed Amended Defence, and that particularly the claim in the proposed paragraphs 79A-C would probably involve considerable factual enquiry. · The Defendant's witnesses statements had been served up to and including 20 June 2006. · At Tab 2 is an index of affidavits served on my office on behalf of the Defendant for these proceedings. · Additionally it was my view, and I was informed by Mr Connell of counsel that it was his view, that there would be considerable difficulties in obtaining documents relevant to the proposed amendments, and that obtaining documents would be a time consuming exercise. This was a view which I derived from my having attended at the offices of Mr Thomas (the liquidator of Pioneer) with Mr Connell to inspect the records of Pioneer in the possession of Mr Thomas. · I continue to be fully engaged in running this case and do not have the time or resources in my office at present to be distracted by the factual enquiry of the amendments envisaged by the draft amended pleadings in Pars.79A to 79C of the proposed Amended Defence… · I am instructed by Mr Carpenter that he had little knowledge of the day to day operations of the account section at Pioneer in the course of Pioneer's trading. · I am informed that the accountant in charge of paying the bills of Pioneer at that time was a Mrs Lorraine Head. When her employment was terminated in about February 1999, Mr Carpenter declined to give her a reference by reason of matters occurring during the course of her employment. Additionally her son had been employed by Coopers & Lybrand and worked under the direction of Mr Hall of that firm, when he was investigative accountant, administrator and subsequently liquidator of Pioneer. Accordingly I am informed by Mr Carpenter and verily believe that her co-operation would not be available. · Mrs Head worked under the supervision of Mrs Stewart at Pioneer. · Mrs Stewart has sworn an affidavit in these proceedings on behalf of Pioneer but her availability to assist has been extremely limited. · She has a young family and works part-time in her husband's accountancy practice. She lives on the central coast. · In my experience it is very difficult as a practical matter to obtain her assistance. · In matters such as those raised in this present proposed amendment (Par.79A to 79C) I would need to take identify and then make copies of the documents that are in the possession of the liquidator that I assessed that I needed to show to her. As she would not come to Sydney a day would have to be spent in travelling to meet with her (assuming she would have time available) to show her the documents after they had been identified and copied. · The Amended Defence in Par.79B does not restrict the allegation to the instances where it alleges that the payments were late as alleged in the particulars to Pars. 79B. · It is apparent in the particulars to that paragraph that the allegation is to the entirety of the practice of Pioneer paying its creditors between May 1997 and June 1999. · In order to obtain the information necessary to meet this claim we will first need to meet with Mrs Stewart with the Amended Defence and copies of all relevant documents which are immediately available and to accounts referred to and the practice of Pioneer over the years in question as to paying creditors. · At the same time I will need to issue subpoenas to the companies in question to see whether they still retain any records of these transactions and other transactions over the years in question not only to ascertain when payment was made but also to ascertain if there were any disputes or questioning of their invoices that occasioned any delay in the payment of their accounts. · I will then need to obtain further information of Mrs Stewart in connection with these documents. · It may also be necessary for me to approach former employees of the creditors to see if they have any recollections of the transactions in question or trading with Pioneer generally over the years in question. As the transactions are so long ago the documents may no longer be in existence and the employees may be difficult to locate. · At the same time I will need to search the records of Pioneer in order to locate records pertaining to the payment of creditors. That would require not only the search for creditors particularised in Par. b to Par .79B but also payment of other creditors. · I have had occasion previously to search through the records held by the liquidator of Pioneer. They consisted of 2 rooms full of documents. One room was about half the size of Court 9A. The second room was approximately the size of Court 9A (possibly a little larger). Both were full of boxes. I inspected the documents with Mr Connell over about half a day prior to their being listed for the purposes of this litigation by Minter Ellison. · It was my observation, and I was informed at the time by Mr Connell, that in many of the boxes were accumulations of material that were not logically connected. In order to obtain documents one could simply not in respect of all but about a quarter of the boxes, inspect one box or similar boxes to find such material. A complete inspection of the boxes for the purposes of meeting the matters raised by Pars 79A to 79C of the Amended Defence would take 3 days. · At Tab 3 is a printout from excel format of a list prepared by Minter Ellison…; I understand from Minter Ellison that it is not a list of all the documents of the liquidator, so it is of little assistance in locating documents relating to the Amended Defence; I had understood at the time when Minter Ellison were given access to the documents to prepare a list that they were listing all documents. · Moreover although I understood that Minter Ellison had undertaken to scan all of the records in the possession of Mr Thomas subsequent enquiry of Minter Ellison advised that they had only scanned and put onto the list and CD the documents that Minter Ellison had, at the time of creation of that list, identified as being of assistance to their case. · Effectively the documents would have to be thoroughly re-inspected to address the new issue raised by the proposed Amended Defence. · Some assistance might be obtained if the accounting records of Pioneer at the time could be resurrected. · When Mr Connell and I inspected the Pioneer documents we came across some computer tapes. Mr Connell has a recollection of speaking with Mr Beaton (or perhaps Mr Shannon) about the records in the data room. · Mr Connell informs me that Minters advised him that they would endeavour to resurrect the tapes and restore the accounting records of Pioneer. I have heard nothing further about this from Minters. If they have done so this would mean further records could be obtained which would assist in establishing the payment practices of Pioneer at the time. If they have not done so this would raise a further obstacle to being able to meet the matters raised in Pars.79A to C of the Amended Defence. I am informed by Mr Carpenter that it may be possible to resurrect the tapes, but it would require time and effort to see if the programme could be obtained and the assistance of a computer technician to restore the data. · I am instructed by Mr Carpenter, and verily believe, that the contention in Par.79B is false insofar as asserting that Pioneer acted outside the normal course of the business in the industry in which Pioneer was engaged. · Mr Carpenter further informs me, and I verily believe, it to be true that when one looks at the available overdraft to Pioneer for the period coverpd'63~the listings in Paragraph 79B that Pioneer had available credit more than sufficient to repay its debts and further during this period Pioneer had reduced the debt to the Defendant by more than $1 m. · At Tab 4 is a sheet showing the list of creditors in Par 79B(b) compared to the creditors shown at Tab 11 in Mr Hall's affidavit dated 15 June 2006 filed in these proceedings. The creditors with an °A" next to them are not shown as being creditors of Pioneer as at 10 June 1999 on Mr Hall's list and had presumably been paid by that time. The creditors with a "B" marked against them are shown as being creditors of Pioneer in a different amount, possibly indicating that the debt shown in Par 79B(b) had been paid and that the debt shown in Mr Hall's listing was a new debt. · For the above reasons I am instructed by Mr Carpenter, and verily believe, that Pioneer has a good defence to the proposed amended paragraphs to the Amended Defence but do not believe that it would be possible for the Plaintiffs to marshal the resources and to give effect to the steps that would be necessary to take to meet this additional claim. · The firm of PMF Legal is a small legal practice with 2 solicitors on staff – myself and M/s Kirsti Makinen - both of whom are engaged full-time in the conduct and running of this case. My firm would not have the resources to meet these new issues raised so late in these proceedings while the case is being heard. 15 It is critical to recall that one of the parameters of the tranche one amendment being propounded, deals with what were any 'grace period[s]' granted by creditors. Hence in order to meet the amendment Pioneer Park would be required to obtain factual evidence as to the particular negotiations which may have occurred where creditors had been pressing for payment of amounts owing to them. There may also have been real questions as to the validity of the claimed indebtedness and questions/disputes concerning claims to set off or part payment. The simple position is that Pioneer Park should not be forced during the final hearing to endeavour to track into the complexities involved where the matter is really one of fact, and where the documentary and witness difficulties alluded to by Mr Fordyce represent the order of the day. 16 Notwithstanding the submissions by the defendant to the effect that: i. the solvency of the plaintiffs was already an issue; ii. the expert report relied upon by the defendant in the form of the affidavit of Mr Donnelly had included an identification of the very creditors listed in the amendment now propounded, and had then been answered by the affidavit made by Mr Carpenter on 10 July 2000, Pioneer Park was perfectly entitled to adopt a forensic approach grounded upon the basis that it was dealing with the pleaded case only. 17 The pleaded case relevantly relied upon an alleged event of default by way of 'insolvency' [clause 10 (1) (i) of the General Conditions]. The attempt to expand the pleaded events of default to include the event of default reading: "[You will be in default if] other obligations not paid : you fail to pay before the end of any grace period an amount that is due and payable to someone other than us in respect of obligations relating to financial accommodation or financial arrangements" [clause 10 (1) (d)] cannot be dismissed as simply something already covered or subsumed by the pleaded insolvency case. This is because there may very well be a material distinction in the appropriate test to be applied as between the two classes of alleged default. 18 The matter became the subject of the following exchange during the taking of submissions: His Honour: … My question is: Is it not the case that there is or could be a material distinction between that which might be appropriate to prove an event of default 10(1)(d) and that which may be appropriate to prove an event of default 10(1)(i), insolvency, i.e. may it not be arguable that it is a lower test or there is a higher bar to establishing insolvency than there may be for establishing the 10(1)(d) obligation? They are not synchronous or perfect mirror images of one another, are they? Mr Gleeson: Your Honour, they are not identical, but they can point in both directions. In some senses insolvency could be easier to prove. In other senses it may be easier to prove simply there is one debt which was not paid within a grace period…. Mr Gleeson: So the fact that a creditor may not insist on payment strictly in accordance with terms of the trade which might create a grace period doesn't mean that that becomes a cash resource of the company for a solvency purpose. So in this sense insolvency is easier to prove, but from the other side around, of course, if you can prove one debt not paid within a grace period, e.g. the tax authorities, State and Federal, not paid on time - and we all know they don't give grace - that is a breach of the other clause. [ Transcript 105.32-.50; 106.26-35] 19 Mr Garnsey QC appearing for the plaintiffs submitted that had the 'period of grace' event of default been pleaded at an appropriate earlier time, the forensic approach taken by the plaintiffs to the litigation, [for example through the answers given by Mr Carpenter to those portions of the report of Mr Donnelly], would have been different. 20 When one looks carefully at the responsive evidence of Mr Carpenter it is clear that on a number of occasions he does not commit to detail, as for example in paragraph 75 of his affidavit, observing that a particular matter "may have been oversight in the accounts office and 'I expect that it was', and from time to time, referring to his expectation that particular other officers of the company would be expected by him to have carried out particular tasks. 21 The spectre of the Court continuing the final hearing whilst, in the background, a firm of solicitors, with the limited resources of the plaintiff's solicitors, are expected to carry out a hunt for factual evidence by approaching creditors of many years ago to ascertain what records they may have, and what recollections they may have looms large and cannot be tolerated at this stage. This particularly so in the light of the problems in gaining access to the records. 22 Additionally, it is particularly important not to overlook the entitlement of the Court to take into account the strain which litigation places upon those involved, and what was described by Kirby J in State of Queensland v JL Holdings at 170 as: "the natural desire of most litigants to be freed, as quickly as possible, from the anxiety, distraction and disruption which litigation causes". If ever there was a case where this consideration required to be taken into account on an application for a significant amendment to a defendant's pleadings, this is that case. Second Tranche - 'Default-Ceasing business' 23 This propounded amendment seeks to raise an alleged breach by Pioneer Park of clause 10 (1) (h) of the General Conditions, that default being defined as follows: "[You will be in default if]: ceasing business: you stop, or threaten to stop, carrying one or a material part of your business" 24 The allegation is as follows: 79E. On or about 3 June 1999 a company of which Mr Carpenter was a director changed its name from Domino Properties Pty Limited ACN 070 086 841 to Domino Mining Parts & Service Pty Ltd ACN 070 086 841 ('DMPS'). 79F. DMPS was established by Mr Carpenter to carry on the mining equipment spare parts and service business which was conducted by Pioneer Park and did conduct that business to the exclusion of Pioneer Park from approximately 3 June 1999. 79G. Pioneer Park stopped carrying on a mining equipment spare parts and service business from approximately 3 June 1999. 79H. The mining equipment spare parts and service business was a material part of Pioneer Park's business 25 Mr Donnelly's report [at pages 44 - 45] identified these as suspicious transactions typically engaged in by insolvent companies. 26 Mr Carpenter's responsive affidavit sought to deal with the alleged suspicious transactions. His evidence in that affidavit had been: "As to the transfer of equipment, a sale to Domino Hire is not suspicious. It is surely beyond dispute that Pioneer was producing machines for Domino Hire…" 27 ANZ has indicated that it proposes to rely upon that evidence as an admission that the transfer of the business to a new entity amounted to Pioneer Park 'ceasing to carry on a material part of its business'. 28 Here again there is no explanation whatever put forward by ANZ for the lateness of this proposed amendment. The allegation is serious in the extreme. If made out, the allegation could amount to an offence under the Corporations Law by a director. Here again an entire factual investigation would be required. The evidence adduced by the plaintiffs in response to the affidavit of Mr Donnelly would have been addressed in far more detailed terms. Other evidence may have been adduced. All of this points to the essential unfairness in the ANZ Bank waiting until this extraordinarily late stage, to seek to propounded amendment. 29 The Court again takes into account the limited resources of the plaintiffs' solicitors and the stage of the final hearing. Again irremediable prejudice is demonstrated. 30 In relation to both tranches of claimed amendments the simple fact is that the plaintiffs after literally years of high disputation with the ANZ bank through many courts and arenas, have an entitlement to present their cases quietly and carefully, without the distraction of having to deal with these very late amendments. 31 The arguable potency of the amendments should not be downplayed. The case is complex. And it seems inexcusable that the defendant has not seen fit to produce any evidence at all as to the reasons why the amendments have been propounded at the late stage when they have been. 32 The principled exercise of the relevant discretion is clearly to reject the applications for leave to amend by propounding the above-described tranches of amendment. For those reasons the applications were rejected. 31/08/2006 - "Australian" in heading changed to "Australia" and New Zealand Banking Group - Paragraph(s) The header page and heading of page 1 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.