Alphena Pty Ltd (in liquidation) v PS Securities Pty Ltd atf The Joseph Family Trust [2012] NSWSC 304

Supreme Court New South Wales

Medium Neutral Citation: Alphena Pty Ltd (in liquidation) v PS Securities Pty Ltd atf The Joseph Family Trust [2012] NSWSC 304 Hearing dates: 29 March 2012 Decision date: 29 March 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Defendant partly successful in application for leave to file Amended Defence. Defendant to pay costs thrown away by reason of the filing of Amended Defence. Detailed orders made as to the further conduct of the proceedings. Catchwords: PRACTICE AND PROCEDURE - Application for leave to file Amended Defence - Whether leave should be granted in circumstances where Amended Defence is partly based on unpleaded material facts. Legislation Cited: - Civil Procedure Act 2005 (NSW) ss 58-58, 56-59, 57, 58 - Uniform Civil Procedure Rules 2005 (NSW) r 16.6(2) Cases Cited: - Drabsch v Switzerland General Insurance Co Ltd (Unreported, Supreme Court of New South Wales, Santow J, 16 October 1996) Category: Interlocutory applications Parties: Alphena Pty Ltd (in liquidation) (Plaintiff) PS Securities Pty Ltd as Trustee of the Joseph Family Trust (Defendant) Representation: Counsel: M. Condon (Plaintiff) H. Stowe (Defendant) Solicitors: Sage Solicitors (Plaintiff) Mooney & Kennedy (Defendants) File Number(s): 11/72723

Judgment - EX TEMPORE 1This matter was listed before me today for the commencement of a two-day trial. The Plaintiff is the former trustee of The Joseph Family Trust and the Defendant is the current trustee of that trust. Proposed amendment of the Defence 2At the commencement of the proceedings the Defendant sought leave to file an Amended Defence in the proceedings. The Amended Defence seeks to introduce paragraph 5(b) by which the Defendant did not admit that a judgement given in proceedings in the District Court ('District Court judgment') gave rise to a debt incurred by the Plaintiff in its capacity as trustee of the Joseph Family Trust. It appears that amendment raised two issues, the first whether the District Court judgment gave rise to a debt and the second whether any such debt was incurred by the Plaintiff in its capacity as trustee. The Amended Defence also sought to introduce para 5A(c) by which the Defendant did not admit that the Plaintiff incurred pleaded debts to two persons and did not admit that, if it did so, those debts remain outstanding. That amendment did not appear to be directed to the capacity in which the debts were incurred but, rather, the fact of whether they were incurred and whether they remain outstanding. Those amendments are opposed by the Plaintiff. Mr Stowe, who appears for the Defendant, has foreshadowed the possibility that they might be further amended if an Amended Statement of Claim is to be filed by the Plaintiff, a matter to which I will return below. 3The Court's power to grant leave to amend the Defence is to be exercised having regard to ss 56-59 of the Civil Procedure Act 2005 (NSW). Section 56 of that Act requires the Court as well as the parties to have regard to the overriding purpose which is the just, quick and cheap resolution of the real issues in the proceedings. Section 57 deals with case management, and, in particular, requires the Court's practice and procedure to be regulated to ensure specified objects are met including the just determination of the proceedings, the efficient disposal of the Court's business, the efficient use of available judicial and administrative resources, and the timely disposal of the proceedings and overall proceedings in the court at a cost affordable by the respective parties. Section 58 requires the Court in the management of the proceedings, including in dealing with amendments, to seek to act in accordance with the dictates of justice. 4I do not consider that I should grant leave to amend the Defence to introduce paragraphs 5(b) and 5A(c) in their present form. It may be that leave will ultimately not be granted to introduce them in any amended form for reasons that I will note below. First, the proposed amendments involve withdrawing an admission that has been made by the Plaintiff in the proceedings since July 2011 and no basis for leave to withdraw that admission has been shown for the purposes of Uniform Civil Procedure Rules 2005 (NSW) r 12.6(2) or Civil Procedure Act ss 56-58. Leave to withdraw an admission will generally not be granted where that admission has been made with legal advice and was deliberate and clear: Drabsch v Switzerland General Insurance Co Ltd (Unreported, Supreme Court of New South Wales, Santow J, 16 October 1996). 5Second, it is plain from what has been said by Mr Stowe in support of the proposed amendment to paragraph 5(b) of the Defence that it seeks to raise a complex collateral attack on the District Court judgment against the Plaintiff in its capacity as a former trustee of the Joseph Family Trust. That attack depends on several unpleaded facts which need to be pleaded so that the Plaintiff has proper notice of them and is given the opportunity to respond to them. The absence of pleading of the material facts has the consequence that none of those facts are verified by any affidavit of Mr Lombardo, the director of the present trustee, so that the Defence in its present form would implicitly assert those facts without the Defendant or its director having verified their truth in the pleading. There is also a question, as to which I presently express no view, as to whether it is open to a successor trustee to impugn a judgement given against a former trustee of the trust in proceedings where the former trustee seeks indemnity in respect of that judgement. While Mr Stowe contended that the successor trustee was not itself party to the District Court proceedings, there is at least a possibility that there would be sufficient privity of interest to give rise to an issue estoppel where its predecessor as trustee was party to those proceedings. That issue also requires clear pleadings so that it may be addressed. 6Paragraph 5A(c) of the proposed Amended Defence does not admit certain matters alleged in the Statement of Claim in circumstances where there is no apparent reason why those matters would be known to the successor trustee through Mr Lombardo and seem to properly be a matter for a verified admission or denial rather than for a non-admission. 7For these reasons I would not grant leave to amend the Defence to introduce paragraphs 5(b) or 5A(c) in their present form. 8Further amendments pleaded in paragraphs 5(c) and 5A(b) of the proposed Amended Defence contends that specified debts for which the Plaintiff seeks indemnity are no longer owing by reason of events between 26 and 28 March 2012 by which, in broad terms, those debts were assigned to a third party and that third party has withdrawn the claims against the Plaintiff which had previously been asserted by way of proof of debt and which are the subject of the claim for indemnity. 9I had noted in the course of submissions that a significant matter in determining whether to grant leave to make those amendments would be the fact that, absent the grant of leave, the Court would be left to determine the proceedings on a potentially false factual basis by treating those debts as existing in circumstances where the pleading raised new events which had the potential consequence that they did not exist. Mr Condon, who appears for the Plaintiff, has very properly accepted that that is a significant factor and the Plaintiff has ultimately not sought to oppose the amendment in respect of these paragraphs for that reason. That concession was well made and, had it not been made, it is likely that I would have allowed the amendment having regard to the factors specified in ss 56-59 of the Civil Procedure Act. Costs 10A further question arises as to costs. It is desirable to distinguish between the costs of argument today and the costs thrown away by the amendments. 11Mr Condon submits that the Defendant should pay the Plaintiff's costs thrown away generally by reason of the amendment. Mr Condon points out that the jurisdiction to order costs is compensatory and not punitive. While I accept that submission, before I make an order for the costs of today against one party, there must be some basis for the Court to determine that there is a reason that that party should be ordered to pay those costs. Whether there is anything that might give rise to a cause to order that the Defendant pay the costs of today is presently unknown, because the circumstances giving rise to the new events to be raised by the amendments have not been fully explored. The Plaintiff has foreshadowed that it will amend its Statement of Claim to raise an additional claim of equitable fraud in respect of the recent events and a specific claim for the liquidator's remuneration. If the Plaintiff is ultimately successful in establishing equitable fraud, then there may be strong grounds for ordering that the Defendant pay the costs of the hearing today. I consider that having regard to the matters I noted above, I should reserve the costs of today on the basis that they are not treated for present purposes as costs thrown away by reason of the amendment. 12In respect of other costs thrown away by the amendment, the grant of an amendment is an indulgence which normally comes at the price that, even if a party is not ordered to pay costs by reason of any fault on its part, it may be ordered to pay costs thrown away by reason of an amendment to compensate the other party for the costs to which it will be put by reason of the amendment. Although I gave close consideration to the possibility that costs of the amendment generally should be reserved to allow a further exploration of the circumstances in which the new events have arisen, I have concluded that the proper order is that the Defendant pay the costs thrown away by reason of the amendment to the extent that it is allowed. Orders and directions 13I make the following orders in respect of the proposed amendments and in respect of costs: 1. The Defendant have leave to amend its Defence to insert paragraphs 5(a) and 5(c) omitting the words in the first three lines of paragraph (c) "further or in the alternative to (b)" and "if (which is denied)... Joseph Family Trust". 2. The Defendant pay the costs thrown away by reason of the filing of the Amended Defence, save that the costs of today be reserved. 3. The Plaintiff serve and send to my Associate by 4 PM on Thursday, 5 April 2012 any draft Amended Statement of Claim in response to the amendment to the Amended Defence. 4. The Defendant serve and send to my Associate by 4 PM on Friday, 20 April 2012 any proposed Further Amended Defence dealing with the matters which I have not presently allowed by way of amendment, any evidence in opposition to the proposed amendment to the Amended Statement of Claim and an outline of submissions. 5. The Plaintiff serve and send to my Associate by 4 PM on Monday, 30 April 2012 any evidence and an outline of submissions in response. 6. Grant leave to the Plaintiff to issue a notice to produce returnable on Tuesday, 3 April 2012. 7. The matter be listed before me at 9.30am on Monday 7 May 2012.