Court Allows Defendants to Amend Defences at Final Hearing

The court granted leave to the defendants to amend their defences shortly before the final hearing in a proceeding concerning a partnership dispute. The amendments were allowed as they did not prejudice the plaintiffs and had utility.

OUTCOME: Allowed

Supreme Court New South Wales

Medium Neutral Citation: [NAME] v [NAME] [2020] NSWSC 1264 Hearing dates: 14 September 2020 Date of orders: 16 September 2020 Decision date: 16 September 2020 Jurisdiction: Equity Before: Williams J Decision: Leave granted to the [NAME] to amend their defences to the Further Amended Statement of Claim filed on 17 May 2019. Catchwords: PRACTICE AND PROCEDURE – applications – leave to amend pleadings – application by [NAME] to amend defences – where proceeding commenced in 2016 – where application made on the first day of the final hearing in 2020 – where no explanation given by the [NAME] for the delay – where plaintiffs suffer no prejudice by reason of the late application – where proposed amendment does not give rise to application to vacate hearing date – leave granted to the [NAME] to amend defences Legislation Cited: Civil Procedure Act 2005 (NSW), ss 56, 57 and 58 Court Procedure Rules 2006 (ACT) Limitation Act 1969 (NSW), ss 14 and 15 Partnership Act 1892 (NSW), s 35 Uniform Civil Procedure Rules 2005 (NSW), r 14.14 Cases Cited: [COMPANY] v [COMPANY] (2009) 239 CLR 175; [2009] HCA 27 [NAME] v [COMPANY] (2014) 87 NSWLR 435; [2014] NSWCA 181 [NAME] v [COMPANY] (No 2) [2020] NSWSC 466 [COMPANY] v FS [COMPANY] [2008] NSWCA 39 Category: Procedural and other rulings Parties: [NAME] (First Plaintiff) [COMPANY] ([NAME]) [RESPONDENT] (First Defendant) [RESPONDENT] [NAME] ([NAME] Defendant) [RESPONDENT] ([NAME] Defendant) [RESPONDENT] ([NAME] Defendant) [RESPONDENT] ([NAME] Defendant) [RESPONDENT] (Sixth Defendant) [RESPONDENT] ([NAME] Defendant) [RESPONDENT] ([NAME] Defendant) [COUNSEL] ([NAME] Defendant) Representation: Counsel: [redacted] Mr [NAME] ([NAME])

Solicitors: [redacted] [NAME] ([NAME]) File Number(s): 2016/159226 Publication restriction: N/A

Judgment 1. This proceeding was commenced on 24 May 2016.

2. It is common ground that, during the period from about 1996 until about early 2003, the [NAME] and the [NAME] defendant conducted the business of mining, cutting, and shaping dimension stone at the [NAME] in New South Wales in partnership. On [NAME]' pleaded case, the business of the partnership also extended to the preparation for sale and selling of that dimension stone. The partnership is referred to in the pleadings as the [NAME] and I will use the same term in these reasons.

3. The first plaintiff is a director of the [NAME].

4. The first defendant is a director of the [NAME] defendant and the owner of part of the land comprising the [NAME] together with the [NAME]. The proceedings settled as between [NAME] and the [NAME] on the first day of the hearing. The [NAME] are the current owners of the balance of the land comprising the [NAME] and play a very limited role in this proceeding.

5. The [NAME] are parties alleged to have obtained an exploration licence and applied for a mining lease, and to have dealt with certain material stockpiled on the [NAME] land in the period after 2014.

6. In very broad terms, this proceeding concerns: 1. the [NAME]; 2. a stockpile of granite on the land comprising the [NAME] that is said to contain material extracted from the [NAME] during the course of the [NAME] (the [NAME]); 3. an agreement that [NAME] claim to have entered into with the first defendant in mid-2003 (the 2003 agreement) (it is not necessary for present purposes to address certain variations alleged to have been made subsequently to the 2003 agreement); 4. the circumstances in which the [NAME] ceased to be mined in about late 2014, and whether the first defendant acted in breach of the alleged 2003 agreement or unconscionably at that time or in the period thereafter; and 5. a stockpile of granite on the [NAME] land that is said to contain material extracted during the period 2003 to 2014 (the 2014 stockpile).

1. In their Further Amended Statement of Claim filed on 17 May 2019, [NAME] claim the following relief against the [NAME]: 1. a declaration that the [NAME] is dissolved pursuant to s 35 of the Partnership Act 1892 (NSW); 2. an order appointing a receiver for the taking of accounts and inquiry into all of the dealings and transactions of the [NAME] and of the partners in relation to the partnership, the assets and liabilities of the partnership and the respective interests of the partners in the partnership assets; 3. restitution on a quantum meruit in relation to work allegedly performed by the [NAME] during the period from 2003 to 2014; 4. a declaration that the 2014 stockpile, or part thereof, is held on constructive trust for [NAME]; 5. equitable compensation; and 6. damages for alleged breach of the arrangement said to have been entered into between [NAME] and the first defendant in 2003.

1. The claims for a declaration of constructive trust and equitable compensation were introduced by the Further Amended Statement of Claim filed in May 2019. The other claims for relief have been pleaded since the proceeding was commenced in May 2016.

2. A separate defence to the Further Amended Statement of Claim was filed on behalf of each of the [NAME] on 5 April 2019.

3. In about August 2019, the [NAME] defendant's solicitors asked the solicitor then acting for [NAME] (Mr [COUNSEL] of [NAME]) to identify the basis on which an order was sought for the taking of accounts and inquiry into all of the dealings and transactions of the [NAME] and of the partners in relation to that partnership. Specifically, the solicitors for the [NAME] defendant inquired whether it was alleged that no final account had been taken in relation to the [NAME], or whether there was some other basis on which an order for the taking of accounts was sought.

4. On 12 August 2019, Mr [NAME] responded to that inquiry in the following terms: "[NAME] require that an account be taken of the [NAME] in the quarry. On our instructions, other issues arising from the dissolution of the [NAME] have been resolved between them. [NAME] seek such orders as will facilitate the sale of the [NAME] and the distribution of the net sale proceeds in accordance with the partnership agreement."

1. Mr [COUNSEL] recently ceased acting for [NAME] after becoming gravely ill.

2. On 6 September 2020, the solicitors for the [NAME] defendant wrote to the present solicitors for [NAME] referring to the "admissions" made by Mr [NAME] in his 12 August 2019 letter and stating that the [NAME] defendant was proceeding on the basis that the relief sought in relation to the [NAME] was now "limited only to the appointment of a receiver in respect of the interest of the [NAME] in the stockpile (whatever that might be) and that it is no longer proposed to seek a general accounting for the partnership".

3. On 7 September 2020, [NAME]' solicitors replied: "Mr [NAME] made no admissions. In any event, [NAME] intend to proceed to seek all of the relief stated in the Further Amended Statement of Claim with the possible exception of the appointment of a receiver. [NAME]' position is that the taking of accounts will value the [NAME], and it will be accounted for as an asset of the partnership. [NAME]' position will also be that the taking of accounts should also account for profit, as, on the undisputed evidence, [NAME] were paid a wage and not a share of the profits."

1. The final hearing of the proceeding commenced on 14 September 2020.

2. On that day, the [NAME] moved on a notice of motion filed at 4.30pm on 8 September 2020 (two business days prior to the commencement of the final hearing) seeking leave to amend their respective defences to the Further Amended Statement of Claim by filing defences in the form included in Annexure A to the affidavit of the solicitor for the [NAME], Mr [NAME], sworn on 8 September 2020. 3. [NAME] opposed leave being granted in relation to one of the amendments proposed by the first defendant and two amendments proposed by the [NAME] defendant, but did not oppose leave being granted in respect of the balance of the amendments by the [NAME].

4. The contentious proposed amendments are: 1. paragraph 27 of the proposed amended defence of the first defendant, which raises for the first time the contention that [NAME]' claims for damages for breach of contract, equitable compensation or restitution on a quantum meruit are barred by s 14 of the Limitation Act 1969 (NSW); 2. paragraph 14 of the proposed amended defence of the [NAME] defendant, which raises for the first time a defence of settled accounts to [NAME]' claim for an order for the taking of accounts of the [NAME] and of the dealings of the partners in relation to the partnership. The particulars of the settled accounts provided in paragraph 14 of the proposed amended defence refer to those parts of Mr [NAME] letter of 12 August 2019 which I have set out above; and 3. paragraph 27 of the proposed amended defence of the [NAME] defendant, which raises for the first time the contention that s 15 of the Limitation Act applies in its own terms and/or by analogy to [NAME]' claim for an order for the taking of accounts. Although the proposed amendment refers to the application of s 15 directly or by way of analogy, the [NAME] defendant's oral submissions in support of the application for leave to amend referred only to the application of s 15 in equity by analogy.

1. The first and [NAME] [NAME] acknowledge that the limitation periods now sought to be relied on were required by r 14.14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to be specifically pleaded.

2. Counsel for the first and [NAME] [NAME] candidly acknowledged that they offered no excuse for the lateness of the application for leave to amend, stating that the issues sought to be raised by the contentious amendments had only recently occurred to the legal representatives acting for the first and [NAME] [NAME].

3. The first and [NAME] [NAME] submitted that [NAME] could not point to any prejudice arising from the grant of leave to amend, and that it was therefore consistent with ss 56 to 58 of the Civil Procedure Act 2005 (NSW) to grant leave to amend. 4. [NAME] submitted that leave to amend should be refused because the first and [NAME] [NAME] had not offered any explanation for the delay in pleading the limitation statute and, in the case of the [NAME] defendant, the defence of settled accounts. [NAME] referred in general terms to [COMPANY] v [COMPANY] (2009) 239 CLR 175; [2009] HCA 27. 5. [NAME] submitted that they would be prejudiced if leave to amend were to be granted at this late stage because: 1. they have been preparing for four years for a trial in the proceeding in which no limitation point has been taken, and that prejudice could not be entirely cured by a costs order because the stresses and strains of litigation cannot be adequately compensated for by a costs order; 2. in relation to the proposed limitation defence to the claim for an order for the taking of accounts, the evidence shows that the partnership agreement governing the [NAME] entitled each partner to an equal share of profits, and that the [NAME] had only been paid "wages", and "so it's difficult to see what the dispute is about the fact that profits were not split equally" and "if we assume that the profits were not equally split, to allow this amendment at this late stage … would allow Mr [NAME] to keep an unequal share of profits" so there is "a great injustice" to the [NAME] "to be deprived of something it's entitled to under its partnership agreement"; and 3. in relation to the proposed defence of settled accounts, it was not open to [NAME] to speak with Mr [NAME] to ascertain whether there was other relevant correspondence that would shed light on the matter, due to Mr [NAME] illness. 1. [NAME] did not resile from the fact that Mr [NAME] 12 August 2019 letter had been sent on [NAME]' instructions and that the [NAME] defendant's solicitors had been entitled to rely on it until [NAME] notified them of their reversal of position on 7 September 2020. However, [NAME] submitted that the [NAME] defendant had not identified any prejudice arising from that reversal. 2. [NAME] acknowledged that, if leave were granted in respect of the contentious amendments, this would not cause [NAME] to alter their present approach to the conduct of the final hearing. The only change would be that [NAME] would need to deal with the additional limitation issues and defence of settled accounts sought to be pleaded.

3. There was no suggestion that the hearing would need to be vacated, or could not conclude within the two and a half weeks for which it has been set down, if leave to amend were granted.

4. Nor was there any suggestion that evidence relevant to the defence of settled accounts was no longer available. On the contrary, financial accounts for the [NAME] for the financial year ended 30 June 2003 are exhibited to an affidavit of Mr [NAME] that was read on the first day of the hearing. 5. [NAME] also submitted that the contenious proposed amendments lacked utility because: 1. in relation to the proposed defence of settled accounts, Mr [NAME] letter of 12 August 2019 particularised in the proposed amended defence was not an admission; and 2. in relation to the first defendant's proposed limitation defence, the breaches of contract were alleged to have occurred in 2013 and later, and the proceedings were commenced within less than three years of the first alleged breach.

1. I accept that the absence of any explanation from the [NAME] for the delay in seeking leave to make these amendments is one matter that counts against the grant of leave to amend. In [COMPANY] (supra), French CJ said, in the context of relevantly similar provisions of the Court Procedure Rules 2006 (ACT) (at [24]): "The ACT Rules, like their precursors, confer the discretion to give leave to amend and impose the duty to make amendments for the purpose of deciding the real issues in, and avoiding multiplicity of, proceedings. The discretion is exercised in the context of the common law adversarial system as qualified by changing practice. But that is not a system which today permits disregard of undue delay. Undue delay can undermine confidence in the rule of law. To that extent its avoidance, based upon a proper regard for the interests of the parties, transcends those interests. Another factor which relates to the interests of the parties but transcends them is the waste of public resources and the inefficiency occasioned by the need to revisit interlocutory processes, vacate trial dates, or adjourn trials either because of non-compliance with court timetables or, as in this case, because of a late and deliberate tactical change by one party in the direction of its conduct of the litigation."

1. Similar observations were made in the joint judgment of [NAME] and Bell JJ where their Honours said (at [97]–[98]): "97. The purposes stated in r 21 [the ACT equivalent to s 56 of the Civil Procedure Rules 2005 (NSW)] cannot be ignored. The Court Procedures Rules make plain that the Rules are to be applied having regard to the stated objectives of the timely disposal of the proceedings at an affordable cost… 98. Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a 'just resolution' is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account…It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs."

1. Their Honours continued (at [102]–[103]): "102. 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… … 103. …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."

1. As [NAME] J pointed out recently in [NAME] v [COMPANY] (No 2) [2020] NSWSC 466, the significance of the delay in determining whether the grant of leave to amend is consistent with the overriding purpose and the dictates of justice in ss 56 to 58 of the Civil Procedure Act depends on all the circumstances of the case. As his Honour said in that case at [7]: "The primary question for the Court is whether the amendments will "facilitate the just, quick and cheap resolution of the real issues in the proceedings", to quote from s 56(1) of the Civil Procedure Act 2005 (NSW). Where the amendments necessitate a vacation of the hearing date, the absence of a good explanation for the delay will be a very important consideration. But where the case can proceed and the defendant suffers no real prejudice as a result of the amendments, the absence of a good explanation for the delay is of limited significance. The question is whether the amendments raise a real issue which in the interests of justice [NAME] should be permitted to pursue."

1. I accept that [NAME] have been preparing for four years for a trial in which no limitation issues have been pleaded to date. However, in so far as it was suggested or implied that the [NAME] would not have expended the time and cost in pursuing the proceeding and would not have suffered the stresses and strains of litigation for that four year period if the [NAME] had pleaded earlier the limitation issues and defence of settled accounts now sought to be raised, that suggestion does not withstand scrutiny for two reasons.

2. First, Mr [NAME] letter of 12 August 2019 reveals that, even at a time when [NAME] considered that they no longer wished to press the claim for the taking of an account, they were continuing to press their other claims for relief. 3. [NAME], I accept the force of [NAME]' submissions that claims in respect of breaches of contract alleged to have occurred in or after 2013 are not time barred. It follows that there is no apparent reason why [NAME] would not have continued to pursue their claims in respect of those alleged breaches, even if the [NAME] defendant had pleaded the limitation statute earlier and if [NAME] had taken the view that claims for restitution and/or equitable compensation were time barred. I hasten to add that [NAME] have made no concession that their claims for restitution and/or equitable compensation would be barred by s 14 of the Limitation Act.

4. Senior counsel for [NAME] did not take the Court in any detail through the evidence relied on in support of the submission that the grant of leave in respect of the [NAME] defendant's proposed limitation defence would be unjust to the [NAME] because it would deprive the [NAME] of profits to which it was entitled. The submission invites the Court to entertain and determine an allegation that has not been pleaded by [NAME] (that is, that the [NAME] defendant received a greater share of profits from the [NAME] than that to which it was entitled, and that the [NAME] was deprived of its share of the profits), and thereby prematurely determine the outcome of the taking of accounts of the partnership. It would be inappropriate to embark on that exercise for the purpose of determining the [NAME] defendant's application for leave to amend.

5. Of course, if leave to amend is granted, and if [NAME] subsequently seek leave to amend to plead an allegation of the kind referred to above, and/or seek to contend in reply to the [NAME] defendant's limitation defence that s 15 ought not be applied by equity by analogy because reliance on s 15 by the [NAME] defendant would be unconscionable in the circumstances (cf [NAME] v [COMPANY] (2014) 87 NSWLR 435; [2014] NSWCA 181 at [70]–[76]), then the lateness of the [NAME] defendant's amendment would be highly relevant to the outcome of such an application by [NAME].

6. It is difficult to accept that [NAME] would be prejudiced by the proposed amendment to plead a defence of settled accounts because they are unable to seek information from Mr [COUNSEL]. Senior counsel for [NAME] acknowledged that Mr [COUNSEL] letter of 12 August 2019 was sent on [NAME]' instructions. It is open to senior counsel and his instructing solicitor to seek instructions from the [NAME], without troubling Mr [NAME]. In any event, there is no apparent reason why [NAME] would not be able to obtain and inspect Mr [NAME] files (assuming, for present purposes, that those files have not already been handed over to [NAME]' current solicitors).

7. I also note that, although counsel for the [NAME] defendant stated that the defendant had no excuse for the lateness of the application for leave to amend, it seems to me that Mr [NAME] letter of 12 August 2019 does provide an explanation for the failure during the period from 12 August 2019 to 6 September 2020 to seek leave to amend to plead a defence of settled accounts.

8. For those reasons, and having regard to [NAME]' frank concession that a grant of leave to amend would not change the manner in which they conduct the final hearing, much less require the hearing to be vacated, I consider that the overriding purpose and the dictates of justice warrant the grant of leave to amend in all the circumstances of this case, notwithstanding the [NAME]' delay in seeking leave to amend and the lack of explanation for the delay in seeking leave in relation to the limitation amendments.

9. For completeness, I note that I am not satisfied that the contentious amendments lack utility. The question whether or not Mr [NAME] letter constituted an admission of settled accounts is a matter to be determined at final hearing having regard to the terms of the letter itself and any other evidence that may be submitted to provide relevant context. Whilst the alleged breaches of contract appear to have been pleaded well within the limitation period, s 14 of the Limitation Act may be relevant to [NAME]' claim for restitution for work allegedly done during part of the period from 2004 to 2014, the proposed amendment, on the face of it, cannot be said to lack utility at least insofar as it relates to part of [NAME]' claim for restitution. Of course, I express no view about the merits of the argument introduced by the amendment concerning the application of s 14 of the Limitation Act to [NAME]' claims for relief.

10. I note that many of the uncontentious amendments in the proposed amended defences of the [NAME] replace non-admissions with statements that the relevant defendant does not plead to the corresponding paragraph in the Further Amended Statement of Claim as that paragraph contains no allegation against that defendant. I doubt the utility of these amendments, as a failure to plead to an allegation constitutes an admission: [COMPANY] v FS [COMPANY] [2008] NSWCA 39 at [62]–[63]. [NAME] have expressly raised this in relation to different aspects of the pleadings in their written opening submissions. It is a matter for the [NAME] whether they wish to proceed with amendments of that nature.

11. For all of the above reasons, I make the following orders:

1. Grant leave to the first defendant to amend his defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the first defendant in Annexure "A" to the affidavit of Mr [RESPONDENT] sworn on 8 September 2020; 2. [RESPONDENT] leave to the [NAME] defendant to amend its defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the [NAME] defendant in Annexure "A" to the affidavit of Mr [RESPONDENT] sworn on 8 September 2020; 3. [RESPONDENT] leave to the [NAME] defendant to amend his defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the [NAME] defendant in Annexure "A" to the affidavit of Mr [RESPONDENT] sworn on 8 September 2020; 4. [RESPONDENT] leave to the sixth defendant to amend its defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the sixth defendant in Annexure "A" to the affidavit of Mr [RESPONDENT] sworn on 8 September 2020; 5. [RESPONDENT] leave to the [NAME] defendant to amend its defence to the Further Amended Statement of Claim by making the amendments shown in the proposed Amended Defence of the [NAME] defendant in Annexure "A" to the affidavit of Mr [RESPONDENT] sworn on 8 September 2020;

6. Order each of the [NAME] to pay [NAME]' costs thrown away by the amendments made by that defendant;

7. Order first defendant and [NAME] to [NAME] [NAME] jointly and severally to pay [NAME]' costs of the notice of motion filed on 8 September 2020.

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