Supreme Court New South Wales Medium Neutral Citation: Yakiti Pty Ltd v MacDonald (No. 2) [2018] NSWSC 1970 Hearing dates: 14 December 2018 Date of orders: 18 December 2018 Decision date: 18 December 2018 Jurisdiction: Common Law Before: Davies J Decision: (1) Leave to the cross-claimant to amend paragraphs 10 and 45(c)(iii) of the third further amended cross-claim in the manner set out in paragraph [15] of this judgment. The amendments are to be made in writing on the third further amended cross-claim; (2) The cross-claimant is permitted to rely on the evidence in the affidavit of Jake Robert Henley sworn 5 December 2018 excluding paragraphs 11 to 19, and to rely on the evidence in the affidavit of Kate Marie McDonald sworn 5 December 2018 excluding paragraphs 29 to 32. (3) The cross-claimant is to pay the cross-defendants' costs of the applications determined in this judgment. Catchwords: CIVIL PROCEDURE – pleadings – amendment – late application for amendment to third further amended cross-claim – hearing date at commencement of new law term - where proposed amendments raise new factual matters that are not clearly articulated and include claim for relief under different statutory regime – where no adequate explanation for late application EVIDENCE – affidavit evidence in reply – whether evidence was responsive to evidence of cross-defendants – whether late admission of evidence would prejudice cross-defendants Legislation Cited: Competition and Consumer Act 2010 (Cth) sch 2 – Australian Consumer Law Australian Securities and Investment Commission Act 2001 (Cth) Civil Procedure Act 2005 (NSW) s 58 Cases Cited: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 In the matters of Seedz Investments Pty Limited, Snap Fitness Double Bay Pty Ltd, Yelneh Industries Pty Ltd and Fitness Management Pty Ltd [2017] NSWSC 650 Yakiti Pty Ltd v MacDonald [2018] NSWSC 1392 Yakiti Pty Ltd v MacDonald [2018] NSWSC 1505 Texts Cited: Nil Category: Procedural and other rulings Parties: Yakiti Pty Ltd (Plaintiff/Cross-Defendants) Katie Marie McDonald (Defendant/Cross-Claimant) Babak Moini (Second Cross-Defendant) Kon Prin (Third Cross-Defendant) Registrar General (Fourth Cross-Defendant) Representation: Counsel: V Bedrossian (Plaintiff/First and Second Cross-Defendants) D Kelly (Third Cross-Defendant) L Chan (Defendant-Cross-Claimant) Solicitors: Moisson Lawyers (Plaintiff/ First and Second Cross-Defendants) Self-represented (Defendant/Cross-Claimant) Mills Oakley (Third Cross-Defendant) File Number(s): 2017/163521 Publication restriction: Nil Judgment 1. The defendant/cross-claimant, by a notice of motion handed up in Court on 14 December 2018, seeks leave to file a fourth further amended cross-claim in the form annexed to the notice of motion. She makes an oral application for leave to rely on two affidavits, said to be evidence in reply to evidence served by the cross-defendants. Those affidavits are an affidavit of Kate McDonald sworn 5 December 2018 and an affidavit of Jacob Robert Henley sworn 5 December 2018. 2. I heard argument about both of these matters in conjunction with arguments concerning subpoenas and notices to produce on 14 December 2018. At the conclusion of the argument, I indicated that the cross-claimant would be entitled to rely on parts of each of the affidavits, more particularly indicated later in these reasons. I indicated also that the cross-claimant would be entitled to make two minor amendments to the third further amended cross-claim, but would not be entitled to file the proposed fourth further amended cross-claim as sought. These are my reasons for those decisions. Affidavits 1. On 7 September 2018 I made a number of directions including for the service of evidence by the cross-defendants to the cross-claim and by the cross-claimant in reply. Order 7 provided that the cross-claimant was to serve evidence in reply on the cross-claim by 16 November 2018. The proceedings were stood over for further directions on 30 November 2018. 2. When the proceedings were before me on 30 November 2018, the cross-claimant had not served any evidence in reply. When I asked the cross-claimant's counsel why such evidence had not been served, counsel said: There is no practical reason why we haven't put on the evidence, the lay evidence in reply. I have done my best to obtain instructions from my client in order to enable the preparation of that evidence, but that hasn't been forthcoming. 1. As a result, I directed that any further evidence in reply was to be served on the cross-defendants by 7 December 2018, but that that direction did not give the cross-claimant leave to rely on such material. I said that it would be determined at the following directions hearing on 13 December 2018 whether the cross-claimant would be allowed to rely on that material. I adopted that approach for two reasons. First, the hearing had been fixed for 6 February 2019 for three days. Secondly, there had been a number of failures on the cross-claimant's part to comply with directions prior to that time. 2. The two affidavits were served on or before 7 December 2018 as directed. 3. The cross-defendants objected to paragraphs 11-27 of the affidavit of Mr Henley but not to the remaining paragraphs. The basis of the objection was that the evidence in those paragraphs constituted evidence in chief and was not reply evidence to the cross-defendants' affidavits. 4. In relation to the affidavit of Kate McDonald, the first and second cross-defendants objected only to paragraphs 29-32 on the basis that the evidence in those paragraphs was evidence in chief. The approach of the third cross-defendant was to agree that paragraphs 35-37 should be allowed but to object to the remainder of the affidavit. Paragraphs 1-28 and 33-34 were objected to by the third cross-defendant on the basis that they did not respond to any evidence of the third cross-defendant. Paragraphs 29-32 were also objected to by the third cross-defendant on the basis that they constituted evidence in chief. 5. In relation to Mr Henley's affidavit, counsel for the cross-claimant conceded that paragraphs 11-19 constituted evidence in chief. She submitted, however, that the reason this evidence had not earlier been served was that the cross-claimant was waiting to obtain documents on subpoenas issued by the cross-claimant, and that that evidence had not been forthcoming. The evidence expected as a result of the subpoenas was said to be other evidence or better evidence of the matters contained in paragraphs 11-19. The cross-claimant submitted that paragraphs 20-27, although not expressed as being so, were in response to paragraph 91 of the affidavit of Babak Moini sworn 25 October 2018. 6. I indicated that the cross-claimant would be entitled to rely on paragraphs 1-10 and 20-27 of Mr Henley's affidavit. Although paragraphs 20-27 did not say in so many words that they were in response to paragraph 91 of Mr Moini's affidavit, counsel for the cross-claimant assured me that they were. Whilst I have some doubt about that matter, particularly because paragraphs 9 and 10 were clearly in response to paragraph 91 and, immediately thereafter, evidence in chief was adduced in paragraphs 11-19, I am prepared to give the cross-claimant the benefit of the doubt in relation to paragraphs 20-27. The evidence in those paragraphs was constituted largely but not exclusively of emails with some additional short conversation. In that way, I considered that there was minimal prejudice to the cross-defendants if that evidence was allowed. 7. The cross-claimant made a forensic decision not to serve the evidence contained in paragraphs 11-19 because she hoped that other evidence would be forthcoming. It was apparent shortly after the subpoenas were served in July 2018 that any response was affected either by delay or resistance or both. Ultimately there was an application to set aside the subpoenas but that application was largely unsuccessful, with the subpoenas being somewhat narrowed: Yakiti Pty Ltd v MacDonald [2018] NSWSC 1505. Even after that judgment on 4 October 2018, no steps were taken by the cross-claimant to adduce this evidence when there was a continued failure on the part of the subpoenaed parties to produce the material. 8. I am satisfied that there would be prejudice to the cross-defendants if the evidence in paragraphs 11-19 was permitted to be relied upon by the cross-claimant. Bearing in mind Christmas and the Court vacation, I consider there is insufficient time allowed for the cross-defendants to investigate and answer the evidence in circumstances where the trial is fixed for hearing at the commencement of the second week of the new law term. 9. In relation to paragraphs 29-32 of the affidavit of the cross-claimant sworn 5 December 2018, it was faintly submitted on behalf of the cross-claimant that those paragraphs were responsive to paragraph 91 of Mr Moini's affidavit. However, they are not said to be responsive as paragraphs 20-28 might possibly be thought to be responsive because of their content. Moreover, the introductory paragraph, paragraph 29, refers to an entirely new and unrelated event. In my opinion, the evidence in these paragraphs is evidence in chief. It is doubtful in any event if the evidence is admissible but I do not need to determine that. The proposed fourth further amended cross-claim 1. The cross-claimant first seeks to insert a further claim for relief as follows: 2B. Further or in the alternative, an order that the first cross-defendant, the second cross-defendant and the third cross-defendant compensate the cross-claimant for her loss and damage pursuant to s 236 of the Australian Consumer Law. 1. The cross-claimant then seeks leave to make the following amendments: (a) Paragraph 10 particular (i) – the proposed amendment is as follows (amendments underlined): Loss of a chance to have a 33% share in New Company which had net assets valued at approximately $4.65 million in November 2016. (b) She seeks to insert the following new paragraph: 44A. From about 15 December 2016, while the cross claimant was under the Disability, the cross defendants took all necessary steps to seize the assets of the Henley Group of Companied, being the 9 Snap Fitness Gyms and to have the assets including but not limited to, the leases and the franchise agreements for each Snap Fitness Gym, vested in the New Company. (c) She then seeks to amend paragraph 45(c)(iii) as follows: (iii) the first cross-defendants acquired the assets of Jake Henley and the Henley Group of Companies, being the 9 Snap Fitness Gyms, for no further consideration beyond the loans that the first and second cross defendants had already made to Jake Henley and the Henley Group of Companies; and/or (d) The substantive amendments then sought to be made are to add the following two sub-paragraphs to paragraph 45(c): (iv) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross defendant has already received satisfaction of the loans, that it has made to the cross claimant: and/or (v) the actions of the cross defendants deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies. 1. Coupled with those amendments to paragraph 45(c) are the following amendments: 45AA. Further or in alternative, the conduct of the cross defendants pleaded in paragraphs 35 to 44A above and in particular, the conduct of the cross defendants in failing to award the cross claimant a 33% shareholding in the New Company was: (a) in trade and commerce: (b) in connection with the acquisition of goods from the Henley Group of Companies being the 9 Snap Fitness Gyms; and (c) unconscionable within the meaning of s 21 of the Australian Consumer Law in circumstances where: (i) the cross defendants had on 5 November 2016 represented to the cross-claimant that she did not need to comply with the term pleaded in paragraph 4(g) above until after she was discharged from hospital; and/or (ii) the purpose of the mortgages provided by the cross-claimant to the first cross-defendant was to secure the loans that the first cross-defendant had made to Jake Henley and the Henley Group of Companies; and/or (iii) the cross-defendants acquired the assets of Jake Henley and the Henley Group of Companies, being the 9 Snap Fitness Gyms, for no further consideration beyond the loans that the cross defendants had already made to Jake Henley and the Henley Group of Companies; and/or (iv) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross defendant has already received satisfaction of the loans that it has made to the cross-claimant; and/or (v) the actions of the cross defendants referred to in paragraph 44A above deprived the cross-claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies. 45A. Further or in the alternative, the conduct of the cross defendants pleaded in paragraphs 35 to 44A above and in particular, the conduct of the first cross defendant in enforcing the July Agreement and the August Agreement and the cross defendants in failing to award the cross claimant a 33% shareholding in the New Company was: (a) in trade and commerce; (b) in connection with the supply of financial services within the meaning of s 12BAA(7)(k) of the Australian Securities and Investment Commission Act 2001 and Regulation 2B(1)(a) and (f) of the Australian Securities and Investment Commission Regulations 2001, to the cross claimant; and (c) unconscionable within the meaning of the unwritten law from time to time and within the meaning of s 12CA of the Australian Securities and Investment Commission Act 2001 as: (i) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross-defendant has already received satisfaction of the loans that it has made to the cross claimant; and/or (ii) the actions of the cross defendants referred to in paragraph 44A above deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies. 45B. Further or in the alternative, the conduct of the cross defendants pleaded in paragraphs 35 to 44A above and in particular, the conduct of the cross defendants in failing to award the cross claimant a 33% shareholding in the New Company was: (a) in trade and commerce; (b) in connection with the acquisition, of goods, being the 9 Snap Fitness Gyms, from the Henley Group of Companies; and (c) unconscionable, within the meaning of the unwritten law from time to time and within the meaning s 20 of the Australian Consumer Law as the actions of the cross defendants referred to in subparagraph (b) above deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies. 1. No objection was taken to the proposed amendments referred to in (a) and (c) above. 2. As to the claim for relief under the Australian Consumer Law and the pleading in that regard, the cross-claimant submitted that such relief was sought for more abundant caution. The claim under the Australian Securities and Investment Commission Act 2001 (Cth) concerns unconscionable conduct that occurred in the provision of financial services whereas the proposed claim under the Australian Consumer Law concerns unconscionable conduct in the provision of goods and services. In that way proposed paragraph 45AA mirrors existing paragraph 45. 3. The cross-claimant submitted that paragraph 44A seeks to provide further specificity for what is already pleaded in paragraphs 8 and 41. Paragraph 8 pleads: The New Company without notification to the cross-claimant, has acquired the assets of the various companies within the Henley Group of Companies. Paragraph 41 pleads: From 13 November 2016, the cross-defendants continued to engage in conduct in breach of the October 2016 agreement. Particulars (i) cross-defendants took all necessary steps to acquire to acquire (sic) the assets of the Henley Group of Companies; and (ii) see paragraphs 5-8 above. 1. Mr Bedrossian of counsel for the first and second defendants submitted that, if an amendment was to be made at such a late stage, it would in the first instance need to be very specific, with no room for uncertainty about what was being pleaded. He submitted that the amendment must be arguable. 2. He submitted that what was contained in paragraph 44A had no specificity. He pointed to matters such as "took all necessary steps" and "including, but not limited to" and "to seize". He asked rhetorically what was meant by those matters. 3. In relation to whether the amendment was arguable, Mr Bedrossian pointed to a judgment of Gleeson JA in In the matters of Seedz Investments Pty Limited, Snap Fitness Double Bay Pty Ltd, Yelneh Industries Pty Ltd and Fitness Management Pty Ltd [2017] NSWSC 650 where his Honour said at [6]: The present position is that all of the companies within the Henley group have ceased trading. For those companies which conducted Snap Fitness Gyms pursuant to franchise agreements at premises that were leased, all franchise agreements were terminated prior to or on 24 January 2017 and the franchisor has elected to assume possession of the leased premises or the leases have been terminated by the lessor for failure to pay rent. Counsel submitted that that determination, although the cross-claimant was not a party, was inconsistent with what was now sought to be pleaded. In that way, it was submitted not to be arguable. 1. Counsel submitted that what was contained in paragraphs 45(c)(iv) and (v) raised new factual matters. Those sub-paragraphs were repeated in proposed paragraph 45AA. 2. Mr Bedrossian did not object to the addition of the identical pleading in paragraph 45 that was now pleaded in paragraph 45AA in relation to the Australian Consumer Law. However, Mr Kelly of counsel for the third cross-defendant, who adopted the objections to paragraphs 44A, to 45(c)(iv) and (v), also objected to the whole of paragraphs 45AA, to 45A and 45B. He submitted that the case in the previous iterations of the cross-claim was a particular case, and the evidence put on by the third cross-defendant was specifically confined to the case as pleaded. That case included the conduct being in the provision of financial services. It was now sought, he submitted, to expand that to the conduct being in the provision of goods and services and in relation to the unwritten law of unconscionability. 3. It is necessary to say something briefly about the history of the cross-claim. It was first filed on 7 July 2017. An amended cross-claim was filed on 9 March 2018 shortly after the cross-claimant's present counsel was briefed in the matter. The cross-claim was thereafter amended on 18 May 2018, 20 June 2018 and 3 October 2018. The only explanation put forward on behalf of the cross-claimant about why the present proposed pleading and relief sought was not claimed earlier was that the inclusion of the claim under the Australian Consumer Law was being done for more abundant caution, and that sub-paragraphs (iv) and (v) in paragraphs 45 and 45AA originated in some comments of Beech-Jones J at an interlocutory application. 4. In Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 the joint judgment of the High Court said at 102-103: [102] The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. [103] The fact that an explanation had been offered for the delay in raising the defence was regarded as a relevant consideration in J L Holdings. Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case. 1. The present application is being made at an extremely late stage in the proceedings. The cross-claimant has had a number of opportunities to have pleaded what she now seeks to plead. The explanations, such as they are, are completely inadequate. In that regard, it should not be overlooked that the cross-claimant is herself a solicitor. 2. I do not consider that paragraph 44A in its terms is just providing greater specificity for paragraphs 8 or 41 of the cross-claim. The explanation for the date of 15 December 2016 was that it was the date the New Company was incorporated. That must mean that the allegation in paragraph 41 is a different allegation because the New Company could not have acquired or seized the assets before the date of its incorporation. That appears to raise a new factual matter that is not clearly identified or articulated. Further, I accept the submissions of the cross-defendants that paragraph 44A is worded too generally and would at a minimum require a request for particulars. 3. I similarly consider that the matters raised in the new sub-paragraphs 45(c)(iv) and (v), 45A(c) and 45B(c) raise new factual issues. 4. Although the first and second cross-defendants were prepared to live with the mirrored changes to paragraph 45 as they applied to the Australian Consumer Law, the third cross-defendant has prepared his case in a more confined way. Difficulties would arise if the amendments were allowed against some but not all of the cross-defendants in the circumstances of this case. 5. Counsel for the cross-claimant submitted that the dictates of justice required that the cross-claimant be allowed to amend in this way so that the real issues between the parties could all be determined. Section 58 of the Civil Procedure Act 2005 (NSW) deals with the dictates of justice. Considerations in s 58(2) include, in general terms, the way a party has conducted the proceedings. The dilatory way that the cross-claimant has conducted these proceedings is partly considered in an earlier judgment of mine: Yakiti Pty Ltd v MacDonald [2018] NSWSC 1392. Despite that dilatoriness, the cross-claimant was granted some induIgence by being allowed to rely on evidence served outside time limitations, some of which she volunteered. 6. Her approach to the litigation, where she is effectively the moving party, is also apparent from her failure to serve the third further amended cross-claim until 3 October 2018 when it was directed to be served by 10 September 2018, by her failure to comply with the direction to serve her evidence in reply by a stipulated date, by the fact that she is seeking now to rely on evidence in chief in her reply evidence, and by the fact that no attempt has been made to amend the cross-claim in the way she now seeks despite there being five earlier iterations of that cross-claim. 7. The only amendments which should be permitted are those to paragraph 10 particular (i) and to 45(c)(iii) but not including the words "and/or" at the end of that sub-paragraph. 8. The cross-claimant has been almost completely unsuccessful in seeking to amend. Further, she was seeking an indulgence in relation to being allowed to rely on her evidence in reply because of her failure to comply with an earlier direction. In those circumstances, the cross-claimant should pay the cross-defendants' costs of the application to amend the cross-claim, and to rely on the evidence contained in the cross-claimant's affidavit and Mr Henley's affidavit both sworn 5 December 2018. Conclusion 1. I confirm that the following orders were made by me on 14 December 2018: 1. Leave to the cross-claimant to amend paragraphs 10 and 45(c)(iii) of the third further amended cross-claim in the manner set out in paragraph [15] of this judgment. The amendments are to be made in writing on the third further amended cross-claim; 2. The cross-claimant is permitted to rely on the evidence in the affidavit of Jake Robert Henley sworn 5 December 2018 excluding paragraphs 11 to 19, and to rely on the evidence in the affidavit of Kate Marie McDonald sworn 5 December 2018 excluding paragraphs 29 to 32. 1. I make the following additional order: 1. The cross-claimant is to pay the cross-defendants' costs of the applications determined in this judgment. ********** 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. Decision last updated: 18 December 2018