Sturesteps v Khoury (No 3) [2017] NSWSC 1541

Supreme Court New South Wales

Medium Neutral Citation: Sturesteps v Khoury (No 3) [2017] NSWSC 1541 Hearing dates: 10 November 2017 Date of orders: 10 November 2017 Decision date: 10 November 2017 Jurisdiction: Equity - Applications List Before: Parker J Decision: Defendants' motion dismissed and plaintiffs' motion adjourned Catchwords: Civil Procedure – pleadings – application to amend defence – prejudice – where plaintiffs filed all evidence prior to filing of original defence – whether amendments are necessary to expose factual issues Limitation of Actions – extension of time – mistake – onus Legislation Cited: Civil Procedure Act 2005 (NSW), s 64 Limitation Act 1969 (NSW), ss 14(1)(a), 56 Cases Cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Sturesteps v Khoury [2015] NSWSC 1041 Category: Procedural and other rulings Parties: George Osvald Sturesteps (First Plaintiff) Beryl Donna Sturesteps (Second Plaintiff) Dieb Peter Khoury (First Defendant) Benjamin & Khoury Pty Ltd (Second Defendant) Representation: Counsel: P Menzies QC/CJ Bevan (Plaintiffs) R Gration (Defendants)

Solicitors: WM Lawyers Pty Ltd (Plaintiffs) Benjamin & Khoury Pty Ltd (Defendants) File Number(s): 2014/24406 Publication restriction: Nil

Judgment – ex tempore

(revised and issued 15 november 2017) 1. There were listed before me today for hearing two interlocutory applications in proceedings in the Court. 2. A week ago, on 3 November, an application was made that I recuse myself from hearing these applications. I refused that application: Sturesteps v Khoury (No 2) [2017] NSWSC 1525. In that judgment, I set out a brief description of the nature of the proceedings. As a result of being provided with further information today, it appears that that description was inaccurate in a number of respects, although not in a way which affected the outcome of the recusal application. A corrected, and somewhat expanded, summary appears below. 3. The first plaintiff in these proceedings, Mr Sturesteps, is a former executive of the HIH group of companies. That group collapsed in March 2001. Mr Sturesteps brought proceedings against the liquidators of the HIH group in which he claimed entitlements as a consequence of the termination of his employment which resulted from HIH going into liquidation. He retained the first defendant, Mr Khoury, who is a solicitor, to act for him in those proceedings. 4. Subsequently, Mr Khoury decided to take advantage of the amendments to the Legal Profession Act 1987 (NSW) which permitted his practice to be conducted as an incorporated one. In mid-2003 steps were taken by Mr Khoury to transfer the retainer which he had with Mr Sturesteps from himself to the second defendant, which is the company he established for the purposes of incorporating his practice. The effectiveness of those steps is in dispute in these proceedings. 5. Later, in June 2011, after the proceedings had been decided at first instance but before the appeals which ensued, two deeds were entered into which provided, among other things, for a payment by Mr Sturesteps by way of settlement of legal costs claimed to be outstanding. The second plaintiff, Mrs Sturesteps, is the wife of Mr Sturesteps. She was not a party to the proceedings or, it seems, to the retainer, but it appears that she was or may have been party to one or more of the deeds. 6. The amount paid by Mr Sturesteps to Mr Khoury or the second defendant for fees for the conduct of the proceedings was very considerable and the proceedings were very protracted and complicated. Mr Sturesteps now seeks to recoup a substantial proportion, said to be approximately $1 million, of the moneys which were paid. 7. Among other things, Mr Sturesteps contends that the costs agreement that he originally entered into with Mr Khoury is either void or is liable to be set aside on account of non-disclosure, breach of fiduciary duty or pursuant to the Contracts Review Act 1980 (NSW); he contends that the purported novation of the retainer from Mr Khoury to the second defendant was ineffective; and he and Mrs Sturesteps claim that the deeds are also either void or voidable and should be set aside. 8. The proceedings were commenced in 2014 and have a lengthy and unfortunate procedural history. Earlier versions of the Statement of Claim were struck out. 9. As long ago as August 2015, Slattery J, in dealing with the plaintiffs' Further Amended Statement of Claim which was its then form of pleading, and having struck out parts but not all of that document in response to a motion brought by the defendants, said (Sturesteps v Khoury [2015] NSWSC 1041 at [215]): It is highly desirable that the result of this motion should now provide a platform for the parties to bring on the final hearing of these proceedings. Far too much time has been spent in these proceedings on unproductive interlocutory pleading skirmishes in relation to a plaintiffs' pleading that is on the whole now reasonably informative and workable. Such skirmishes must now come to an end and the parties should focus on the final resolution of the real questions in dispute between them in accordance with the dictates of Civil Procedure Act s 56. 1. For reasons which I do not need to go into, there appears to have been not much progress since his Honour made these remarks. 2. In December 2016, Hallen J directed that the plaintiffs make further amendments and file a Second Further Amended Statement of Claim. That has happened and that is now the pleading on which the plaintiffs move. 3. Pursuant to directions made by the Court, a Defence to that pleading was filed on 6 June this year. Subsequently, the defendants retained new counsel. This occurred in mid-July. In August, a form of Amended Defence was put forward by the defendants but the plaintiffs refused to consent to the amendments. The defendants' application to amend is one of the interlocutory applications before me. 4. The plaintiffs had responded to the original Defence with an extensive request for particulars. The defendants dispute that the requests are proper requests for particulars. The other interlocutory application before me is an application by the plaintiffs to have the requests answered. The plaintiffs also seek orders for a timetable to bring the proceedings to a point where a date for trial can be allocated, hopefully in February next year. 5. I deal first with the Defence since if the application to amend is successful then the question of particulars of the earlier Defence will fall away. 6. The amendments to the Defence are very extensive. They involve the rewriting of practically the whole of the existing document. 7. In presenting the application to amend, counsel for the defendants did not seek to take me to each of the amendments and explain their significance. Rather, he presented his submissions in the form of a series of examples, and I proceed on the basis that the examples chosen were illustrative. Counsel for the plaintiffs responded at a similar level. The result is that I have not sought to analyse each amendment sought by comparing it with what appeared in the previous Defence and by relating it back to the relevant paragraph of the Statement of Claim. 8. On the material to which I have been taken, the amendments do not appear to introduce any substantive additional defences. Rather, they involve a rewriting and expansion on the existing paragraphs of the Defence. In many places, the existing Defence consists of a bald denial or non-admission of the relevant paragraph of the Statement of Claim. Frequently, the relevant paragraph of the Statement of Claim is itself an elaborate series of assertions involving matters of both fact and law. The proposed Amended Defence would seek to substitute the bald denial or non-admission with a more discursive response designed to expose matters of fact as well as legal contentions which the defendants seek to make. 9. When I pressed counsel for the defendants as to the reason why the amendments were necessary, he indicated that it was his desire, as the author of the new version of the Defence, that it should clearly expose the factual and legal contentions which the defendants would contend for at trial. He submitted that this was a desirable objective, not least from the point of view of the plaintiffs themselves. 10. The plaintiffs made general complaints about the filing of an Amended Defence at this stage of the proceedings. They pointed out that the proceedings have already been very severely delayed and they emphasised the desirability, particularly given the fact that Mr and Mrs Sturesteps are elderly, of bringing the matter to hearing as soon as possible. They suggested that the Amended Defence would require extensive further evidence. I say further evidence because it appears that the plaintiffs have already filed all, or virtually all, of the evidence upon which they rely in support of the claims made in the Second Further Amended Statement of Claim. The plaintiffs complained that if the Defence was permitted, further evidence would be required and there would be further delay while that happened. 11. For his part, counsel for the defendants disputed the suggestion of prejudice. He observed that only seven weeks or so had elapsed between the filing of the Defence and the notification of the proposed amendments to that document. In the context of this case, that is not a long period of time. 12. Furthermore, he observed that the plaintiffs' evidence had been filed before the Defence was filed so the need to put on further evidence could not reasonably be seen as a consequence of the amendments. He emphasised that the purpose of the amendments was not so much to introduce a new case as to better explain the existing one. There is force in these submissions. I think the submissions made by counsel for the plaintiffs tend to overstate the significance of the amendments. 13. Furthermore, I agree with the submissions from counsel for the defendants concerning the fact that the plaintiffs have completed the evidence upon which they say they wish to rely. There is, of course, nothing to stop the plaintiffs from filing their evidence as early as they like and it is a good procedural path to take in the interests of getting the case on for hearing, but pleadings come first. 14. Ideally, after a statement of claim is filed, the defendant's defence should admit at least some of the allegations made and thereby narrow the potential areas for dispute. That is why the general practice is that evidence only needs to be filed once all the pleadings have closed. A plaintiff who chooses to anticipate the defendant's response by filing the evidence needed to support the statement of claim can hardly complain if as a result of the defence it is then necessary to supplement that evidence so as to have a complete case, having regard to the pleaded joinder of issues. 15. As I have said, I have not attempted to analyse all of the paragraphs of the new Amended Defence, but those which I have analysed do seem to me to bear out the submissions for counsel for the defendants that the changes are not ones of substance but rather of expression and, to the extent that new material appears, it represents contentions of arguments at law rather than additional or changed assertions of fact. 16. Amendment of pleadings is dealt with in the Civil Procedure Act 2005 (NSW), s 64. Sub-section (1) confers on the Court a general power of permitting amendments. Sub-section (2) makes specific provision that: …all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings. 1. The dichotomy between these two provisions reflects the dichotomy in the rules of the Australian Capital Territory Supreme Court which were under consideration by the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175. That decision draws a sharp distinction between an amendment to elucidate "the real issues in the proceeding" (which corresponds to s 64(2)) and an amendment under the general power of permitting amendments (the equivalent of s 64(1)). 2. A "real issue" for the purpose of s 64(2) is one which already exists at the time of the application: see Aon at [71]. Earlier statements of authority emphasising the right or the supposed right of parties to amend were explained by the High Court as depending on the circumstance that the issue in question was already before the Court, albeit imperfectly or informally raised. 3. Where that is not the case, Aon shows that although amendment may be permitted, it cannot be regarded as a matter of right and there is no predisposition in favour of allowing it. Rather, the onus lies on the party propounding the amendment to demonstrate affirmatively the need for the amendment (and, accordingly, the existence of prejudice if the amendment is not permitted) and to explain the delay in propounding it, as well as taking account of prejudice from the amendment to the opposing party. The mere absence of prejudice does not entitle a party to make an amendment under s 64(1). 4. In the present case, the delay, as I mentioned, is not significant in the scheme of things. But although I pressed counsel for the defendants on this question, I am not satisfied that the amendments are actually necessary in the relevant sense. 5. The essential purpose of pleadings is to define the factual issues between the parties. It is true that the rules permit a pleading to raise a question of law but there is no obligation on a party to do so. In some circumstances, it may be useful for pleadings to expose not only the factual issues but also the contentions of law which the party in question proposes to make. But I think care is required, lest that process should make pleadings lengthier and more complicated than they need to be and distract from their primary function which is to expose the factual issues between the parties. 6. In modern litigation, it is commonplace for lists of issues or summary contentions to be submitted at trial. While these must be consistent with the pleadings, the fact that such procedures are available makes it less necessary for pleadings to be cast in narrative form and to deal with contentions of law. 7. In the present case, as counsel for the defendants pointed out by reference to some examples, the pleading of the Statement of Claim is already elaborate and raises numerous contentions of law. While I can understand the wish of counsel for the defendants to respond at a similar level, I do not think that it is necessary to do so and, indeed, I think that it is likely only to make these proceedings more complicated, and the identification of the factual issues more difficult, than they already are. 8. In saying this, I do not wish to suggest that if there is a specific amendment which is necessary to expose a factual issue in the case that the defendants should be shut out from making such an amendment. But the existing form of Amended Defence has been so extensively amended and the level at which the argument has been conducted before me is such that it is unclear to me whether any of the amendments which have been propounded could be justified on this basis. 9. I do not think it is appropriate that I should conduct a minute review of the proposed Amended Defence to see whether any of the amendments can be saved. I propose, in making directions for the further conduct of the proceedings, to allow sufficient time for counsel for the defendants to review the existing Defence in the light of the remarks which I have made to see whether there is any specific amendment which should be pressed. I will return to this issue when I have dealt with the plaintiffs' motion concerning particulars. 10. There is one matter which although I was not addressed on by counsel for either party, I think I should raise as it is relevant to the completion of the pleadings in this case. The plaintiffs' case is framed, at least in part, as one based on mistake; the alleged mistake being a lack of understanding, so it is alleged, on Mr Sturesteps' part of his rights and entitlements under the costs agreement, and in particular, his entitlement to have the defendants' costs assessed. This brings into play the Limitation Act 1969 (NSW), s 56, which provides under the heading "Mistake" in sub-s (1): Subject to subsection (3), where there is a cause of action for relief from the consequences of a mistake, the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the mistake does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person. 1. In the existing Defence, the defendants refer to s 56 and plead affirmatively that Mr Sturesteps had independent legal advice, received tax invoices from time to time, and so on. Thus the pleading, in effect, proceeds on the basis that it is the defendants' obligation to raise s 56 and to plead the absence of an extension of time conferred by that section. 2. I am not sure that this is correct. There are few cases on s 56 but, as a matter of language, it seems to proceed on the basis that a cause of action "for relief from the consequences of a mistake" is not some separate cause of action (to which a limitation defence would need to be pleaded), but rather that the section operates by way of extension to the limitation periods which are fixed for causes of action by other provisions of the Limitation Act. An example of such a cause of action is a claim for money had and received. Such a claim can be made on a number of bases, not all of which may involve a mistake. As I understand the scheme of the legislation, the limitation period for such a claim is fixed at six years from the accrual of the cause of action: s 14(1)(a). The effect of s 56 is that where such a claim is based on an alleged mistake, the plaintiff may obtain an extension for the period up to the date on which he or she first discovers, or may with reasonable diligence discover, the mistake. In principle, the onus of demonstrating the entitlement to an extension would appear to fall on the plaintiff, not the defendant. This would be consistent with the approach that has been followed for s 55 of the Limitation Act. 3. If this is the correct analysis, then the current version of the pleaded limitation defence would appear to be misconceived. The defendants should have pleaded simply that the time for bringing the cause of action had expired as a result of s 14(1)(a) (or whichever other provision may be relevant), leaving it for the plaintiffs to plead by way of reply an entitlement to an extension under s 56. As I have said, neither counsel addressed me on this particular question, but I think it is important that the defendants should consider it and propound any amendments they may wish to make before the plaintiffs are required to plead their Reply to the defendants' Defence. 4. Before parting from the Defence, I should make one other observation. The form of Defence provided to the Court was marked up, but the marked up version appears to have been generated by use of the Microsoft Word "compare" function. As I understand the practice with respect to amendments in this Court, when amendments are made which insert a new paragraph in a pleading, the pleading is not renumbered, but rather additional paragraphs will be numbered with a letter; for example, 10A, 10B, etc. This is an essential requirement for understanding the pleading because it means that subsequent responsive pleadings do not need to be amended and it avoids the confusion which would otherwise result from renumbering the paragraphs in the pleading in question. Unfortunately, the Microsoft Word "compare" function, where automatic numbering has been used to draft the document, produces a renumbering and a comparison which is extremely confusing. Furthermore, cross-reference paragraphs, even if new, are not underlined. The result in this case was to make the proposed amendment to the Defence even more confusing and difficult to understand than it already was. In order to comply with the practice, I think members of the profession should understand that it is undesirable to use automatic numbering and the "compare" function. The better practice is to number the paragraphs of the pleading manually and to strike out manually as well. 5. It remains to deal with the plaintiffs' application for particulars of the existing Defence. When the matter came to be argued before me, counsel for the plaintiffs produced some proposed short minutes of order which would require the defendants to respond to (but, as clarified with counsel, not necessarily to answer) a subset of the requests originally made. Counsel for the defendants was content to proceed in this way. Accordingly, I do not need to deal with the application. What I will do is stand the plaintiffs' application over to a later date in the Applications List and set a timetable for answers to the identified requests for particulars, the notification of any further amendments which the defendants may wish to make to the Defence in light of the requests for particulars and in light of the remarks which I have made, and the filing of a Reply so that all pleading steps can be completed. 6. The orders of the Court are: 1. I make orders in accordance with the timetable set out in the Short Minutes of Order which I initial and date with today's date which I have amended. 2. I dismiss the defendants' Notice of Motion of 14 August 2017. 3. I order that the defendants pay the plaintiffs' costs of that Motion. 4. I adjourn the plaintiffs' notice of motion of 13 July 2017 to 12 December 2017 in the Call Over List for mention. 5. I reserve the costs of that Motion to date.