New South Wales Supreme Court CITATION : Fay v Moramba Services Pty Ltd (No 3) [2008] NSWSC 1037 HEARING DATE(S) : 17 September 2008 JURISDICTION : Equity Division Expedition List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 17 September 2008 DECISION : Leave granted to amend Further Amended Statement of Claim. CATCHWORDS : PROCEDURE – application to amend Further Amended Statement of Claim – where amendments sought at late stage of hearing – prejudice to defendants – where amendments will require adjournment and recall of defendants' witnesses – where adjournment and costs order can ameliorate prejudice occasioned to defendants – where adjournment more prejudicial to plaintiffs than to defendants. CATEGORY : Procedural and other rulings 3365/07 Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff) Lisa Fay (second cross defendant) Moramba Services Pty Ltd (defendant/cross claimant) 5032/06 PARTIES : Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff/second cross defendant) Justinthyme Pty Ltd (third plaintiff/third cross defendant) Henry Kai Tong Au (first defendant/first cross claimant) Hugh Edward Halliday (second defendant/second cross claimant) Allan Ni Kwan Kwok (third defendant/third cross claimant) Stephen Thomas Pollitt (fourth defendant/ fourth cross claimant) FILE NUMBER(S) : SC 3365/07; 5032/06 COUNSEL : Mr D E Grieve QC w Ms J F Merkel (plaintiffs) Mr R M Smith SC w Mr P W Flynn (defendants) SOLICITORS : Whittens Lawyers & Consultants (plaintiffs) Corrs Chambers Westgarth (defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST BRERETON J Wednesday, 17 September 2008 5032/06 Garrick E Fay & 2 Ors v Henry Kai Tong Au & 3 Ors 3365/07 Garrick E Fay & 1 Or v Moramba Services Pty Ltd JUDGMENT (ex tempore; on application to amend Statement of Claim, see p 461 of the transcript) 1 HIS HONOUR: The plaintiffs seek leave to amend their Further Amended Statement of Claim, inter alia by adding a new paragraph 27AA in the form contained in the document entitled "Second Further Amended Statement of Claim", initialled by me and placed with the papers. That paragraph asserts – for the first time, at least in the body of the pleading – a breach of duty by the trustees in giving due consideration to the exercise of their power as trustees of the testamentary trust constituted by clause 3 of the deceased's Will to determine whether that trust should vest, and the shares formally held by the deceased in Leerac Pty Ltd ("Leerac") transferred to such of the beneficiaries as they should determine. 2 It cannot be said that the argument that that possibility has not been given due consideration is untenable, and I would not refuse leave to amend on that ground. The issue is, to an extent, raised by the relief claimed in paragraph 1(a) of the pleading, which specifically claims a declaration that the defendants, in breach of their duty, failed to give real and genuine consideration to winding up the trusts of the Will of the deceased – which can only be a reference to the clause 3 of the trust. A duty to give such consideration in respect of the trusts of the Will, as well as the inter vivos trusts is asserted in paragraph 14J in the body of the pleading. 3 On the other hand, it is quite correct that no breach of that duty was alleged in the pleading until now. Admittedly, no such breach was put to any of the defendants who have so far given evidence, in cross-examination. Their affidavit evidence, unsurprisingly, did not address a breach which was not alleged. Although, in a sense, the pre-trial skeleton argument of the defendants indirectly addresses the issue, it is clear that those submissions were not focused on this particular issue, which would obviously raise additional considerations – including, for example, the taxation and commercial implications of vesting the testamentary trust and distributing the shares in Leerac amongst the beneficiaries. In those circumstances, Mr Smith SC's submission – that the trustees would reasonably wish an opportunity to call further evidence or at least to recall those trustees who have already given evidence on that topic – is more than reasonable, and that an adjournment might be necessary for that purpose is quite foreseeable. It is very disturbing that this should arise at this stage of a hearing set down to finish today and tomorrow after eight previous days did not see it out. I do not think that this is significantly – although it is somewhat – ameliorated by the circumstance that the Draft Amended Statement of Claim may have been served a month ago. 4 Nonetheless, the question I think I ultimately have to conclude is whether the prejudice that would be occasioned by allowing a not unarguable amendment at this stage is incurable. It seems to me that it is curable by an adjournment and a costs order, if an adjournment is required, and that those who will be prejudiced by any adjournment or costs order are likely to be the plaintiffs and not the defendants. 5 I do not mean by the foregoing to indicate that an adjournment will necessarily be required or would necessarily be granted, but that if there is prejudice it seems to me that it can be cured in that way, and that the prejudice occasioned thereby would weigh much more against the plaintiffs than the defendants. 6 Accordingly, I will give leave to make the amendment referred to in paragraph 27AA. Paragraphs 27AB and 27AC 7 The plaintiffs further seek leave to amend by adding paragraphs 27AB and 27AC in the form of the Second Further Amended Statement of Claim to which I have referred. 8 By those paragraphs they would allege a breach of duty by the trustees in failing to accede to a request by the plaintiffs, made on 18 June 2008, to give consideration to causing Leerac to implement a scheme for the partial vesting of the inter vivos trusts and the distribution of their assets. 9 At least as I presently recall it, this proposed scheme for partial vesting and distribution was first articulated in the cross-examination of one of the defendants during the hearing in May this year. In any event, what the pleading alleges is not an anterior breach of failure to consider such a proposal, but a failure to consider the specific request made in the letter of 18 June 2008 sent by the plaintiffs' solicitors to the defendants' solicitors, after the adjournment of the hearing part heard until today. 10 It is certainly the case that at least one of the trustees was afforded an opportunity in cross-examination to answer questions concerning the proposed scheme for distribution. However, the failure to consider such a scheme was not then a matter pleaded against the trustees. 11 It seems that after the proceedings were adjourned part heard – albeit that all the affidavit evidence had been read, and the oral evidence of all but two of the witnesses, namely two of the defendants, had been taken – the plaintiffs have sought, probably partly by way of an attempt to negotiate, and partly by way of reinforcing their case, either to have the defendants specifically consider that proposal, or to lay the groundwork for an allegation that they have failed to do so. In any event, on 13 August 2008, the defendants' solicitors responded with a proposal for the partial vesting and distribution of the inter vivos trusts. Further correspondence has ensued about that. 12 It seems to me that granting leave to make this amendment would open up for examination positions adopted by the parties, partly from a perspective of negotiation and partly from a perspective of endeavouring to reinforce their positions since the conclusion of the previous hearing, in the light of a matter which arose for the first time during that hearing. This, of itself, would be an undesirable course, distracting the focus of the hearing from the matters pleaded and relied on at the outset to focus on an alleged breach said to have been set up and committed after most of the evidence was complete. I do not suggest for a moment that the Court cannot permit an amendment which pleads matters arising after the institution of proceedings. The rules now make clear that that can be done; but that is not to say that it is necessarily desirable to do so, let alone to plead matters arising after the greater part of the trial is complete. 13 Secondly, insofar as the amendments would allege that the defendants have failed and neglected to concede to the request that they give consideration to the proposal, the defendants' solicitors' letter of 13 August 2008 is prima facie a very powerful answer to that allegation. 14 By reason of the combination of the apparent unlikelihood of the particular breach pleaded being sustained, and the discretionary considerations pertaining to the undesirability of opening up for examination the conduct of the parties and their positioning after most of the evidence has been completed, I decline leave to make the amendments in paragraph 27AB and 27AC. Paragraph 28C 15 The plaintiffs further seek leave to amend by inserting a paragraph 28C in the form of the draft pleading to which I have referred, which would allege that in breach of their duties the defendant trustees have caused Leerac to pay or provide approximately $300,000 to the defendants' solicitors on account of costs of these proceedings. 16 So far as the evidence discloses, this matter first emerged on day seven of the hearing in the course of cross-examination of Mr Kwok, who appears to have conceded that the trustees had paid out of the estate's account about $50,000 to the trustees' solicitors and had authorised Leerac to pay moneys out of the inter vivos trusts to those solicitors amounting to about $300,000. While there are no doubt bases upon which that course might be justified – including that the pleadings, at least until the commencement of the trial, included allegations against the defendants of breaches of duty in their capacity as directors of Leerac – it cannot be said to be unarguable that that would amount to a breach of duty. If an amendment to raise it now is permitted, it is plain that those trustees who have already given evidence may have to be recalled and afforded an opportunity to adduce further evidence in chief to answer the allegation. I do not think it is an answer to this to say that they have had time since May, or service a month or so ago of the Draft Amended Statement of Claim, to do so; they really did not have to do so until it was plain that leave to amend would be granted. 17 Accordingly, a grant of leave to amend will involve potential disruption to the adjourned hearing, and as Mr Smith submits, its potential dislocation and further adjournment. It is possible that the issue might be able to be addressed in separate proceedings, but it is hardly desirable that in proceedings of this complexity an issue such as this – which all parties acknowledge involves a serious allegation against the trustees – should be left to be dealt with, as it were, by a sidewind or in separate proceedings. It is conceivably possible also that it could be dealt with in connection with costs applications in the current proceedings, but even then that would require an opportunity to be given to the trustees to adduce further evidence to explain their position. 18 Although I suggested in the course of argument that the ground could not afford a separate independent ground for removal of the trustees – on the basis that if they succeeded on all other grounds they would have been entitled to indemnity – it does not necessarily follow, on consideration, that they would have been entitled to indemnity from Leerac; and much may turn on the basis upon which the moneys were obtained from Leerac, and what, if any, advice the trustees had at the time. 19 The most telling consideration against granting the amendment is the potential dislocation to the trial. However, I have already accepted, in permitting the amendment introducing new paragraph 27AA, the risk of such dislocation. In those circumstances, I think the least unjust course is to permit the amendment to insert paragraph 28C. 20 I will allow the amendment proposed in paragraph 28C. Orders 21 I grant leave to the plaintiffs to amend their Statement of Claim in the form of the Draft Second Further Amended Statement of Claim to which I have referred, subject to the following: 1. The insertion in claim 1 of the relief claimed of the word "failed" after the word "duty", and the amendment of the word "the" before "duty" to "their"; 2. the deletion of paragraphs (b) and (c) of claim 1 and of claims 2 and 3 of the claims for relief; and 3. the omission of proposed paragraphs 27AB and 27AC. 22 I direct that the plaintiffs file and serve a Second Further Amended Statement of Claim reflecting those amendments by 10.15am on Thursday 18 September 2008. ********** 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.