New South Wales Supreme Court CITATION : AVRS NSW Pty Ltd v Club Marconi of Bossley Park Social Recreation & Sporting Centre Ltd [2008] NSWSC 53 HEARING DATE(S) : 01/02/08 JURISDICTION : Technology and Construction List JUDGMENT OF : Einstein J EX TEMPORE JUDGMENT DATE : 1 February 2008 DECISION : Leave to defendant to amend its pleadings save concerning its fraud claim. CATCHWORDS : Practice and Procedure - Leave to amend - Reference out - Powers of referee to grant leave to amend LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) CASES CITED : State of Qld v JL Holdings (1997) 189 CLR 146 PARTIES : AVRS NSW Pty Ltd (Plaintiff) Club Marconi of Bossley Park Social Recreation & Sporting Centre Ltd (Defendant) FILE NUMBER(S) : SC 55043/02 COUNSEL : Mr IG Roberts (Plaintiff) Mr D Feller SC, Mr A Kostopoulos (Defendant) SOLICITORS : Henry Davis York (Plaintiff) Kreisson Legal (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST Einstein J Friday 1 February 2008 ex tempore Revised 6 February 2008 55043/02 AVRS NSW Pty Ltd v Club Marconi of Bossley Park Social Recreation & Sporting Centre Ltd JUDGMENT 1 In proceedings number 55043 of 2002 there is before the Court a notice of motion under cover of which the plaintiff/cross-defendant seeks orders including the following: An order that the referee's decision to grant leave to the defendant/cross-claimant to amend the further amended defence and further amended cross-claim be rejected; An order that the defendant/cross-claimant be refused leave to amend the further amended defence and the further amended cross-claim; Alternatively, in the event that leave to amend the further amended defence and the further amended cross-claim is granted: (a) the order for reference dated 30 March 2007 and 8 June 2007 be vacated; (b) the matter be heard by the Court; (c) the matter be listed on 15 February 2008 for directions; (d) the defendant/cross-claimant pay the plaintiff/cross-defendant's costs thrown away by the amendment and the orders consequent on the amendment; (e) the costs referred to in (d) be assessed and payable forthwith. 2 It is trite to observe that it is inappropriate for the Court to repeat the record. However, it is clearly the case that these proceedings, having commenced in 2002 as I understand the position, represent a sorry picture indeed. There is an enormous file. There have been innumerable directions hearings. In essence, the proceedings constitute a building dispute. Ultimately, following the many occasions when the matter was before the Court in case management mode, an order referring the matter out for reference was made. Mr Easton was appointed as referee. The hearing of the reference proper commenced in late August 2007 and has occupied a total period of 19 hearing days, including two days of conclaves on the record, plus numerous off the record meetings between the referee and the experts. 3 The matter which brings the plaintiff to the court concerns an application made towards the end of the hearing days by the defendant for leave to amend its second further amended defence and cross-claim. That application was opposed before the referee. One of the issues which arose concerned, and now concerns, whether or not the referee was empowered to determine questions of amendment in the fashion in which the referee had been appointed. The referee proceeded to determine those questions. The plaintiff, having failed in its attempts to persuade the referee that the amendments should not be permitted, now comes to this court seeking firstly to establish that the referee had no power to order the amendments and, if the plaintiff be incorrect in that proposition, seeking to establish, through this Court's continued supervisory jurisdiction over a referee, that the amendments should never have been allowed and seeking for an order to be made by this Court, accordingly, setting aside the referee's orders. 4 The short minutes of order pursuant to which the referee was appointed appear to be dated 6 June 2007. It is apparent from those short minutes of order that one of the directions then given directed the defendant to file and serve a further amended defence and cross-claim by 8 June 2007 and further directed that the plaintiff file and serve its defence to the further amended cross-claim and any reply to the further amended defence by 15 June 2007. A number of other directions and orders were made, as is evidenced by those short minutes of order. Importantly, the short minutes of order went on to make the formal orders for reference. 5 Insofar as the short minutes of order dealt with the orders for reference of present relevance, paragraph 12 is of significance. Paragraph 12 read as follows: "Amendments to the scope of the reference, whether made by agreement or on a contested basis, are to be the subject of an order made by the Court." 6 Argument has taken place today in relation to the proper construction to be given to direction 12. The direction certainly does not explicitly give the referee power to grant leave to amend pleadings. For the reasons which I will give shortly, in the way in which the application before the Court was ultimately dealt with by the defendant, it is likely arid territory for the Court to decide whether or not, by the orders made submitting the matter to the reference, the referee was given power to amend the pleadings. Lest it be said that the Court should have expressed a view on this topic, I am content to express the somewhat tentative view that properly construed, clause 12 did permit the referee to grant leave to amend the pleadings, providing only that those amendments not depart from the central scope of the reference. 7 Turning then to the manner in which the application was pursued by the plaintiff before the Court, the plaintiff's central proposition was that the application to amend ought to have been refused by the referee and, to the extent that the Court in exercise of its supervisory jurisdiction was now to deal with the same issue, ought be refused by the Court for a number of reasons. 8 Broadly, the reasons included the contention that the defendant had failed to formulate its position despite having had more than five years to prepare its case and had been guilty of numerous failures to comply with directions during the time that the proceedings had been on foot, including a suggested delay of 18 months to serve an earlier version of the amended pleading. 9 The more particular grounds relied upon by the plaintiff in its submissions included: that the amendment was very late; that the amendment was contrary to a position earlier stated by counsel for the defendant; that no adequate justification had been identified by the club for the amendment at such a late stage; that the amendments would be futile because the amended case would be bound to fail; and that the plaintiff would be prejudiced by the amendment in a fashion that could not be compensated by an appropriate costs order. 10 The plaintiff's submissions to the referee in relation to each of these areas of contention were the subject of written submissions dated 29 January 2008 which expanded upon each of the matters sought to be raised. 11 The plaintiff's written submissions which had been put to the referee, gave adjectival information as to the plaintiff's contentions: 4. The application represents the fourth formal attempt to plead the Club's case. The Club has been aware of the case it has had to meet and ought to have been aware of the case it wished to prosecute since about 2002 more than five years ago. 5. The Club has had the opportunity to inspect documents, interview witnesses and consider AVRS's evidence. The proceedings have been significantly delayed in the past by the Club's failure to meet timetables and its delay in serving evidence. The Club has sought to wait until the cross examination of AVRS's principal is nearly complete before determining to amend again to introduce entirely new claims. 6. The matter was referred to the Referee by her Honour on the basis of the case as disclosed in the pleadings. The case that is now sought to be made comes more than five years after the proceedings were commenced and more than seven years after the events out of the claim arises took place. The Club now seeks to make a case that it asserts is highly dependent on credit and on the recollections of the witnesses of conversations that took place in the period from 1999 to 2001. 7. The Club ought not be entitled to bring a case of this nature so late in the day and the application should be rejected. Contrary to the Club's initial position 8. At least in the case of the allegations sought to be made in paragraphs 28L to 28W, the issue of the absence of a case of misrepresentation was raised during argument on an objection during the cross examination of Mr DelDuca. Counsel for the Club acknowledged the Club's position that no such claim was made on the pleadings and gave no indication that one would be made. 9. Nothing subsequently occurred in the cross examination to change that position and yet the Club has waited until the evidence of Mr DelDuca has been virtually concluded to seek to reverse that position by its amendment. That is a matter that ought to weigh heavily in the exercise of the discretion to allow the amendment at such a late stage. No adequate explanation for the amendment at such a late stage 10. The Club does not seek to rely on any affidavit to support its application. The submissions simply rely on the cross examination as the supporting evidence. 11. The Club asserts that the facts supporting the new claims only emerged during cross-examination. The only particular matters referred to appear in paragraphs 24 to 26 of the Club's submissions, apart from the reproduction of the amendment after paragraph 46. 12. Assuming for the moment that those matters were in some way relevant to the case that is now sought to be made (which AVRS does not accept), the Club must have been aware of the relationship between the two companies from the outset. That would have been plain to anyone reading the documents that passed between the parties including the documents comprising exhibit D1 tendered by the Club. It was made abundantly clear in exhibit D1-7. 13. That Mr DelDuca had an interest in DelDuca & Associates Pty Limited and AVRS would have been obvious to the Club from an ASIC search of the companies. 14. Nothing on which the Club now purports to rely was uncovered from any forensic exercise or cross-examination. To suggest that a complicated factual matrix was uncovered is incorrect. No such matrix has been identified it the submissions. 15. To submit that the proposed pleadings simply regularise the allegations is wrong and is circular. The ordinary course is for there to be, first, a cause of action pleaded. A party then seeks to prove the facts pleaded. By reversing the order of things the Clubs assumes the existence of the cause of action that has arisen from the evidence and then tries to justify the amendment by suggesting that the pleadings simply state what is already known. 16. However, the assumption is not able to be made from the matters in the Club's submissions. The Club has not identified any fact that was uncovered by the forensic cross-examination that was not already either known or capable of discovery from the documents. The amendments would be futile 17. The amendments include an allegation of misrepresentation inducing the Club to enter into the August Agreement. The misrepresentation is said to arise from a number of documents particularised under paragraph 28M. 18. The Club alleges in paragraph 28P that it relied on each of the representations yet there is no particularisation of how it relied and no evidence of that reliance. According to the submissions the proposed pleadings simply regularise what is already in evidence. 19. Without evidence of reliance the Club's cause of action could not possibly succeed. The proposed amendments are futile and ought not be allowed. Prejudice 20. AVRS has conducted the case on the basis of the causes of action pleaded. It brought its action in late 2002 and has been trying to prosecute it since that time. In response the Club has sought to change its defence and cross claim on numerous occasions. The delay in bringing the action to a conclusion is a prejudice that cannot be overcome. The current application to amend is simply the latest in a long line of delays on the part of the Club. 21. Mr DelDuca was cross-examined for many days about events that took place more than eight years ago. Counsel for the Club was critical of him during cross-examination for being unable to recall certain matters. It is said that Mr DelDuca's credibility will be the subject of powerful submissions. 22. It is not a novel proposition to say that memories sometimes fade with time. The Club's delay in formulating its case and settling on a pleading has arguably contributed to any reduction in Mr DelDuca's ability to recall certain matters, particularly those that he said did not appear important at the time they took place. Presumably, the Club will make the same submission in relation to AVRS's other witnesses with the same response. 23. Delays potentially affecting the quality of the evidence, as is the case here, represent prejudice that no costs order or adjournment could cure. In those circumstances the application should be refused. Additional comments about the new air-conditioning defects 24. The Club has sought, without any explanation to add the items in AC1 to the claim representing an additional $108,748.64 plus GST. As is obvious from the documents said to particularise this item, the Club has known about this claim for about three to four years yet has determined to wait until now to allege that they are AVRS's responsibility. 25. The work said to be rectification has apparently been carried out and there is no way of testing the allegations by, for example, having an expert view the works. There is no independent evidence of the defects, simply the contractor who rectified the work. There is no description of the defects, nor how it is alleged it was the responsibility of AVRS, particularly given that the rectification work appears to have been carried out three to four years after AVRS left the site. 26. Absent any explanation of why these types of late claims were not brought earlier, the Referee ought not allow them to be included now. Even if the delay in bringing the claims were to be explained, the manner in which it is particularised does not identify why it is something for which AVRS is responsible. Fraud 27. While it is correct that fraud must be properly pleaded, the allegations in the proposed pleading do not disclose any proper case in fraud. The allegation appears in paragraph 28N, which simply alleges that the representations were made in the knowledge that they were false or with reckless indifference as to their truth. 28. There is nothing in the documents relied on by the Club or in Mr DelDuca's cross-examination that would support such an allegation. If that is all the evidence that is to be called by the Club, the allegation is bound to fail. 29. Fraud is a serious allegation and one that should not be brought without specific instructions and without evidence capable of supporting it. If the Club relies entirely on the evidence of AVRS and in particular, that of Mr DelDuca, the allegation cannot be supported and should not be made. The discretion 30. The Club relies on the High Court's decision in State of Qld v JL Holdings (1997) 189 CLR 146, however, that case simply sets out the general principles in reconciling case management and the need for courts to dispense justice. For the reasons set out above, this case falls outside the normal application for an amendment, even a late amendment. There comes a point when the Court will no longer allow a party continued indulgences. This is one such case. 31. In the present case, AVRS is likely to be prejudiced in a way that will not be compensated by a costs order. The Club seeks to raise serious issues of fraud without calling any evidence to support the allegations. The application is brought very late, after AVRS's principal has been cross-examined. 32. In all the circumstances, the application should be refused with costs. 12 The defendant likewise had furnished very detailed submissions to the referee. Those submissions traversed the past history and importantly alerted the referee to the principles to be applied for grant of leave to amend a pleading. In particular, the referee was taken to the Uniform Civil Procedure Rules 2005, rule 14.17, to section 56 of the C P Act and to the dicta which fell from Justices Dawson, Gaudron and McHugh in State of Queensland v J L Holdings (1997) 186 CLR 146, treating with case management involving, as it does, the efficiency of procedures of the Court. Also to the observations by Kirby J in the same case at 167 to 172, where his Honour had observed that whilst he agreed with the closing comments of Whitlam and Sunberg JJ: "[T]hat respect for the advantages of the primary judge and for efficiency and justice to others must go beyond pious generalities, the resulting confirmation of the order excluding the applicants from raising an arguable defence was manifestly unreasonable in the circumstances." 13 I have carefully read the referee's reasons for his decision allowing the amendments and in all but one matter, I am satisfied that the referee's exercise of discretion to allow the amendments was justified. The matter in respect of which I take issue with the defendant's entitlement to have had this leave concerns its endeavours, through the draft amended pleadings, to inject into the proceedings a fraud claim. This claim is to be found in the proposed second amended defence and cross-claim at paragraph 28N and constitutes an allegation that the plaintiff made particular representations in the knowledge that they were false or with reckless indifference as to their truth. 14 During the exchanges with the Bar table, the propriety of allowing a fraud claim amendment in a circumstance in which a reference was part heard, and in the circumstances in which the plaintiff had had no prior warning at all at the time when determining whether or not the matter should go forward to a referee and if so to what referee, was examined. My own tentative view, expressed to both counsel during the course of addresses, pointed up my very special concern with the notion that a party should be obliged to continue a reference where such an important matter as fraud be brought up part way through the reference, without the opposing party having had an entitlement to refuse to have the matter sent to reference at the appropriate time. 15 Following the taking of instructions by the defendant's counsel, they, it seems to me extremely wisely in the circumstances, elected to withdraw the application to include in the pleading the fraud claim. In those circumstances the one area in respect of which, with the great respect, I would not have agreed with the acceptance of the proposed amendments has fallen away. That is why it becomes unnecessary as a matter of strictness for the Court to determine itself whether or not the mode of appointment of the referee indeed gave to the referee power to grant amendments. Had it been that the referee had not had those powers [as I have indicated my tentative view is that he had] I would, exercising this supervisory jurisdiction of the court, have disallowed that segment of the pleading. In the circumstances, as I have said, the matter becomes otiose because the defendant no longer presses that portion of the pleading. 16 It is appropriate to make clear that a full transcript of what occurred today on the motion has been taken and that the plaintiff's arguments going to the fraud question travelled through its contention that the mode of cross-examination by the defendant of Mr DelDuca was entirely inappropriate for the reason that on a number of occasions matters were put to him, plaintiff's allegation being that those issues did not go to any issue in the case. The defendants in contradictor fashion [supported by affidavit], contended that every question which was asked of this gentleman prior to the announcement by the defendants of their intention to add the fraud claim, was justifiable and fair in terms of the existing case and pleadings because the questions went to credit of the witness. Here again it is unnecessary for me to do more than observe that there certainly would be a particular awkwardness in the ongoing situation were the fraud claim to be permitted to go forward, whether before the court or a referee, it being so difficult to rewind the clock. 17 One of the plaintiff's submissions which I certainly accept as well-founded does not appear to be the subject of cross contention but is appropriate to be also mentioned. I refer here to the plaintiff's proposition that Mr DelDuca, in being asked in relation to questions said by the defendants to go to his credit about matters which had taken place very many years ago, was apparently unable to recall the detail of those matters. 18 It will now have to be a term of the granting of leave to amend that the defendants pay the costs of the plaintiff of or occasioned by the need to meet the amended pleadings. In that regard steps which will be necessary to be permitted from the plaintiff's side of the Bar table will include, of course, the clear entitlement of the plaintiff to continue to obtain instructions from Mr DelDuca and the clear entitlement of the plaintiff to investigate those matters properly thrown up by the cross-claim and to put on such further or other, and if necessary inconsistent, evidence as they may require to bring forward in the altered state of affairs. 19 To my mind the grant of the leave to amend must carry with it an entitlement of Mr Delduca to re-ascend the witness box in chief or through affidavit evidence going to the new matters. 20 Each of the maters referred to in paragraphs 18 and 19 are to be included within the meaning of the order that the defendant pay the plaintiff's reasonable costs of and occasioned by the leave to amend, such costs to be agreed or taxed. 21 Hence as the grant of leave at such a late stage has been because of the defendant's application, they are to be subjected to the usual order that they pay the reasonable costs of and occasioned to the plaintiff by reason of the amendments and by reason of the need of the plaintiff to cope with those amendments, whether by the adducing of evidence or by the need to change their own pleadings. 22 Where one looks at complex litigation, prepared over many many years, and looks at the pros and cons of permitting or disallowing an application for leave to amend, it is always necessary to recall that case management is but a servant of the administration of justice. At the end of the day, the dictates of justice in the circumstances of the sensitivity of the present case, clearly require that the referee get to a finality of the reference. To my mind the circumstance that the defendants have withdrawn the fraud allegation makes reasonably simple the finding that the other amendments, although late, do not irreparably prejudice the plaintiff. Such prejudice as the plaintiff may suffer by reason of these amendments is, it seems to me, able to be treated with in terms of the usual costs regime. 23 There is then also an application by the plaintiff for a regime whereunder the defendants will, as and when appropriate, be required to pay the costs of the plaintiff occasioned by the amendments and the other matters to which I have referred tangential to the need to meet the amendments. As I understand the position, the parties are agreed that the principled form of order in that regard is for the plaintiff to furnish to the defendant, as and when it believes appropriate, detail of the expenditure and, provided that the expenditure is in each case reasonable, as and when the plaintiff has furnished details of that expenditure to the defendant, the defendant will be obliged to reimburse the plaintiff for that expenditure. Any arguments in that regard will be able to be placed before the Court on a Friday notice of motion. Costs 24 Each of the parties effectively seeks costs on some basis from the other in relation to the notice of motion. I am quite clear on one matter: But for the defendant's withdrawal during argument, of the fraud claim, my decision in relation to the notice of motion would have been entirely different. The decision would have vacated the hearing, in all likelihood, of the reference, required a new world to begin, required that either a new referee be appointed or, if the court was to hear the matter, the matter move back into that curial situation. Whilst questions concerning the sections of the amendment not dealing with fraud would have had to be considered, as I have said, the defendants would have been in an entirely different situation at the end of the day. To my mind the fulcrum of difficulty was that fraud issue and to my mind a great deal of what was argued about today went to that issue. 25 Having said that, it is also quite clearly the case that, as I see it, the other amendments which the defendants had sought and obtained from the referee would likely have remained unscathed at the end of the day. 26 For all of those reasons, the principled exercise of the discretion with respect to the notice of motion which the plaintiffs brought is for the defendants to pay 70 percent of the plaintiff's costs of the motion, and that is the order which I intend to make. 27 The Court orders are: 1. The defendants to pay 70 percent of the plaintiff's costs of the motion; 2. The defendant is to pay the plaintiff's reasonable costs of or occasioned by the leave to amend, such costs to be agreed or taxed. 3. Each of the matters referred to in paragraphs 18 and 19 are to be included within the meaning of the order that the defendant pay the plaintiff's reasonable costs of and occasioned by the leave to amend, such costs to be agreed or taxed. 4. Otherwise dismiss plaintiff's notice of motion. 5. These orders are to be entered forthwith. 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.