Supreme Court Grants Leave to Amend Statement of Claim

The court granted the claimant leave to amend the statement of claim, dismissing motions by the defendants and directing the matter to be listed separately for the constitutional breach and defamation aspects.

OUTCOME: Allowed

Supreme Court New South Wales

Medium Neutral Citation: [NAME_1] v [COMPANY_2] of New South Wales Incorporated [2012] NSWSC 239 Hearing dates: 12 March 2012 Decision date: 16 March 2012 Jurisdiction: Common Law Before: Schmidt J Decision:

1. Leave to amend the amended statement of claim is granted.

2. The plaintiff is to pay the defendants' costs thrown away as the result of the grant of that leave, as agreed or assessed.

3. The defendants' motions are dismissed.

4. The defendants are to pay [NAME_1]'s costs, of those motions, as agreed or assessed.

5. Direct that the defendants file and serve their defence to the further amended statement of claim within 28 days of this judgment.

6. Direct that the matter be listed in the Equity Registrar's List on 13 April 2012 and in the Defamation List on 7 May 2012. Catchwords: PROCEDURE - notices of motions - dispute over acceptance of gift of three goats - two motions by defendants seeking orders to have proceedings dismissed for want of prosecution and orders seeking amended statement of claim to be dismissed against personal defendants - motion by plaintiff seeking leave to amend pleadings - leave is granted - defendants motions dismissed - costs Legislation Cited: Associations Incorporation Act 1984 Associations Incorporation Act 2009 Civil Procedure Act 2005 Cases Cited: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 [NAME_3] v [NAME_4] [2008] NSWSC 154; (2008) 72 NSWLR 224 Jameel v Dow Jones & Co Inc [2005] QB 946 Luen Fook Tong Inc v Lowe [2011] NSWSC 1004 Schellenberg v British Broadcasting Corporation [2000] EMLR 296 Wallis v Valentine [2003] EMLR 8 Category: Procedural and other rulings Parties: [NAME_1] (Plaintiff) [COMPANY_2] of New South Wales Incorporated (First Defendant) [NAME_5] (Second Defendant) [NAME_7] (Third Defendant) [NAME_8] (Fourth Defendant) [NAME_9] (Fifth Defendant) [NAME_10] (Sixth Defendant) [NAME_11] (Seventh Defendant) Representation: Counsel: [redacted] Solicitors: [redacted] [NAME_15], solicitor [NAME_15] (Defendants) File Number(s): 2011/56702 Publication restriction: None

Judgment 1The plaintiff, [NAME_1], a founding member of the first defendant, the [COMPANY_2] of New South Wales Incorporated ('the Association'), understood that he was the patron of the Association, having been appointed to that position by the Executive of the Association in 2002. It was after these proceedings were brought, that it came to the attention of the parties, that amendments made in 2002 to the Association's constitution, which established the patron's position, were never registered with NSW Fair Trading, as they were required to be, given the Association's registration originally under the Associations Incorporation Act 1984 and now under the Associations Incorporation Act 2009 ('the Act'). That discovery has had an impact on the course which these proceedings have taken. 2The proceedings were commenced in 2011, after a decision by the then members of the executive committee of the Association, who are the second to seventh defendants in the proceedings, that [NAME_1] be removed from the position of patron. That decision was made in the aftermath of a dispute between [NAME_1] and the second defendant, [NAME_5], the then president of the Association, over the Association's acceptance of [NAME_1]'s gift of three goats, which were intended to be eaten by members of the Association, at its end of year festivities in 2010. 3While the goats were eventually received and eaten, the dispute led not only to [NAME_1]'s removal from the position he understood that he held, but also to the publication of certain information about the dispute. In the result [NAME_1] refused to attend a 'peace meeting'; or a disciplinary committee meeting. A special general meeting of the Association was called to deal with the dispute, which [NAME_1] addressed, but which concluded without any resolutions about the dispute being put, because of the announcement of the executive committee's decision to 'deconfer' [NAME_1] as patron. This escalated the disagreement. A 'peace committee' was established to try to resolve the matter. That failed and these proceedings were commenced. Terms of settlement were later allegedly agreed, but were not implemented, as the result of a dispute over the defendants' costs. It is claimed that reports were published on Facebook and elsewhere, with the result, [NAME_1] claims, that he has not only been defamed by these publications, but has suffered psychological and other injuries as a result of the defendants' alleged breaches of the Association's Constitution. 4The proceedings were commenced by summons filed in February 2011. A statement of claim was filed in July and later that month, an amended statement of claim, which first raised the claims brought in defamation. The matter came before Slattery J in August 2011. His Honour took the view that urgent steps should be taken to endeavour to resolve the dispute. He directed that the plaintiff file and serve certain evidence, as well as a reply to the defendants' request for particulars; that the defamation aspect of the claim go into the defamation list; and that the matter be referred to mediation. 5Mediation occurred in September 2011, but failed to resolve the dispute or [NAME_1]'s claims. Various directions were given as to the further preparation of the matter. The difficulty with the Association's Constitution emerged. By motions which they filed, the defendants complained about delay and the pursuit of [NAME_1]'s claims against the personal defendants. On their approach, he ought only to be pursuing the Association. 6This judgment deals with three motions, two filed by the defendants in October and December 2011, by which various orders were sought, including that the proceedings be dismissed for want of prosecution and that the amended statement of claim filed in July be dismissed against the personal defendants, together with an order for costs in their favour. By a motion filed in December 2011, [NAME_1] sought leave to file a further amended statement of claim, served in November 2011, which takes account of the fact that the 2002 amendments to the Association's Constitution were not registered. 7It is now common ground between the parties that [NAME_1]'s appointment to the position of patron was never effective, given the Association's failure to register the 2002 amendments to the Constitution. Nevertheless, [NAME_1] still seeks to pursue his claims that the defendants, both the Association and the individual members of the executive, damaged him by their failure to deal with the dispute over the goats in accordance with the provisions of the Constitution which governed the resolution of disputes between members of the Association. He also still seeks to pursue his claims in defamation. Given that both of his complaints arise out of the same facts, he now seeks to have both aspects of his case dealt with in the one proceedings. 8The defendants oppose the leave which [NAME_1] seeks. Their case is that given his delays in the prosecution of these proceedings, the leave sought ought to be refused. [NAME_1] now accepts that he was never validly appointed to the position of patron. It was submitted that it followed that there was no reasonable prospect that the relief which he seeks to pursue by the further amended statement of claim in respect of the alleged breaches of the Constitution will be granted: 'equity does not act in vain'. 9It was further argued that the members of the executive had 'immunity' under s 26 of the Act from personal liability for the relief which [NAME_1] seeks to pursue; that they have unreasonably incurred legal costs in the proceedings to date; that [NAME_1]'s late tactical change should not be permitted (see Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 ); that the alleged defamation occurred in February 2011; that the publications complained of were issued by the Association and not by the members of the executive; that [NAME_1] had himself published confidential matters to the community, with the result that the Association was obliged to report developments in the matter; that he had not only failed to mitigate his damages, he had contributed to the damages he claims to have suffered; that he had demonstrated 'commercial toughness' in relation to his dealings with the matter; that he had also persistently and wilfully acted in a manner prejudicial to the interests of the Association, contrary to the requirements of its Constitution; that even if there was an error in the application of the volunteer executive committee's powers, its members had a right and duty to act in relation to his conduct; that if [NAME_1] were successful, he would bankrupt the Association, which had no assets of any substance, rendering his claims futile; and that the comments in issue were truthful or legitimate comments, protected by common law privilege. 10Mr [NAME_1] was invited to discontinue his actions against the personal defendants and to consent to an order for costs in their favour, so that the Association could consider whether to obtain funding from the membership to defend itself, against the claims brought against it, or to consider voluntary winding up. That invitation was not accepted. 11It was also submitted that the relief which the defendants sought would be granted, because it was evident that even if he were successful, [NAME_1] could only achieve limited damages, out of all proportion to the costs of the litigation. He had not been excluded from membership of the Association, but had been removed from a position which the parties now accepted never existed. In the result there was no justiciable controversy between the parties and the Court had no jurisdiction to entertain the damages claimed for breach of the Constitution.

It is regrettable that the dispute was not resolved in mediation 12The overriding purpose of the Civil Procedure A ct is that specified in s 56, namely to ensure the just, quick and cheap resolution of the real issues in the proceedings. Section 60 obliges the Court to implement its practices and procedures, with: "... the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute" 13These obligations explain Slattery J's decision to refer the matter to mediation, even before the pleadings were concluded. The parties have their own obligations under the Civil Procedure Act . They include a duty under s 56(3) 'to assist the court to further the overriding purpose' and by s 56(3A) to 'take reasonable steps to resolve or narrow the issues in dispute'. 14For their part the defendants relied on an affidavit sworn by their solicitor, that to date, they had incurred legal costs of over $30,000. Given what has already been incurred by all of the parties to date and what they face by way of further costs of this litigation, let alone its potential claimed consequences for the future existence of the Association, they are well advised to revisit the question of the settlement of these proceedings. The difficulty which has emerged over the Constitution is a complicating matter which has already added to the costs of this litigation, but that is not what lies at its heart. 15Even if, in due course, the personal defendants are successful in resisting all of [NAME_1]'s claims, they will incur costs, which in the ordinary course will not all be recoverable from him, given the usual costs orders made in accordance with the provisions of the Uniform Civil Procedure Rules . Such orders provide that the losing party must pay the other sides' costs, as agreed or assessed. Such orders do not ordinarily result in the recovery of all costs incurred in the proceedings. Of course if [NAME_1] succeeds, they will have to bear his costs, as well as facing a damages order.

Leave to amend must be granted 16The delay which the defendants have complained about, has been explained not only by reference to the discovery that the 2002 amendments to the Constitution were never registered by the Association, but also by reference to the result of the ill health of one of [NAME_1]'s legal representatives last year, a matter already known to the defendants; as well as delays in the hearing of the motions, not of [NAME_1]'s making. 17It was accepted for the defendants that particulars they had earlier sought of the defamation claims have been provided by the service of the proposed further amended statement of claim. That [NAME_1] has no foundation for his fundamental complaint, that the dispute about the goats was not dealt with as the Association's rules required, is not apparent, given the provisions made in the Constitution. Clause 15 provides that: "

15. RESOLUTION OF INTERNAL DISPUTES Disputes between members (in their capacity as members) of the association, and disputes between members and the association are to be referred to the Executive Committee for mediation" 18Clause 6(8) provides that in the event that such a dispute cannot be settled amicably, it 'shall be referred to the general meeting for determination'. 19Mr [NAME_1] complains that the Association and the members of the executive did not adhere to the requirements of clause 6(8), when the general meetings' consideration of the dispute over the gift of the goats was brought to an end by the announcement that the executive had deconferred him from the position of patron. The case he seeks to advance is that even if this position did not exist and his appointment to it was invalid, as is now apparent, given the consequences of the Association's failure to register the amendments to the Constitution, that did not alter the fact of the breach of the Association's Constitution, in relation to the dispute over the goats. That breach, he claims was not by the Association alone, but also that of the other defendants. In the result he has suffered damages, which he seeks to pursue. 20Section 26 of the Act does not provide the 'immunity' which the personal defendants claim. It provides: "26 Nature of association (1) Subject to this Act, an association's constitution binds the association and its members to the same extent as if it were a contract between them under which they each agree to observe its provisions. (2) Subject to this Act, a member of an association (including a committee member and the public officer) is not, merely because of being such a member, liable in relation to the association's liabilities or the costs, charges and expenses of the winding up of the association. (3) Subject to this Act, membership of an association does not confer on a member any right, title or interest, whether legal or equitable, in the association's assets." 21In Luen Fook Tong Inc v Lowe [2011] NSWSC 1004, Slattery J observed: "32 The rules of an incorporated association constitute contracts among its members and between the Association and its members, which contractual relationship makes the present dispute justiciable: 2009 Act , s 26(1); and see McClelland v Burning Palms Surf Life Saving Club (2002) 191 ALR 759 at 788; [2002] NSWSC 470 at [109], Campbell J (as his Honour then was); Rose v Boxing NSW Inc [2007] NSWSC 20 at [57] Brereton J; and, [NAME_3] v [NAME_4] (2008) 72 NSWLR 224, White J; [2008] NSWSC 154 at [30]-[38]." 22There his Honour was dealing with a claim as to the validity of certain elections. Here at issue is whether the elected committee members and the Association adhered to the requirements of the Constitution, in dealing with the dispute which had arisen over [NAME_1]'s gift of the goats, which the Rules required be dealt with in a particular way. There is nothing in the nature of what is here at issue, an alleged breach of the Association's Constitution, which required that disputes between members be dealt with in a particular way, which would lead to the conclusion that this dispute over the operation of the Association's Constitution is not justiciable. As White J observed in relation to the predecessor to s 26(1) in [NAME_3] v [NAME_4] (2008) 72 NSWLR 224; [2008] NSWSC 154 : "[36] ... Irrespective of the actual intentions of the members, or of the nature of the incorporated association, the subsection deems that a contract comes into existence between, inter alia, the members of the association." 23In that case contractual damages were awarded against the defendant. The dispute concerned exclusion from membership, contrary to the rules of the association. That is not this case, but there is no reason to conclude, in principle, that breach of other provisions of an association's rules may not also sound in damages. Whether such a case can be established by [NAME_1] against either the Association or the personal defendants, does not presently arise for determination. Nor does the question of the potential consequences of any such order, either for the Association or the individual defendants. 24The defendants also relied on the provisions of s 28(4) of the Act as providing an answer to the claims advanced against them personally. It provides: " 28 Committee to be established (1) An association must establish a committee to manage its affairs. Note. An association's registration is liable to be cancelled if it does not comply with this subsection. (2) The committee must include 3 or more members, each of whom is aged 18 years or more and at least 3 of whom are ordinarily resident in Australia. Note. An association's registration is liable to be cancelled if its committee does not comply with this subsection. (3) The committee may exercise such of the association's powers as are not required by this Act or its constitution to be exercised by the association in general meeting. (4) A committee member's acts are valid despite any defect in his or her appointment. (5) Within 14 days after vacating office, a former committee member of an association must ensure that all documents in his or her possession that belong to the association are delivered to the public officer for delivery to his or her successor. Maximum penalty: 1 penalty unit." 25Section 28(4) does not validate any failure by the members of the executive to comply with the Association's Constitution. It is concerned with the consequences of any defects in the appointment of a committee member, not with the consequences of any failure to adhere to the requirements of the Constitution. Given that the section does not operate in the way for which the defendants contend, that [NAME_1]'s case is hopeless, as was submitted to be patently clear, is not apparent. 26In the circumstances, it seems to me that leave to amend the pleadings must be granted. This is not a case of late amendment of pleadings of the kind dealt with in [NAME_16] . The delay has been explained. The amendments deal with the consequences of the Association's failure to register the 2002 amendments to the Constitution and to properly plead the defamation action. The position as to the Constitution is a complicating matter, which [NAME_1] has had to deal with, but it does not result in a position where his complaints about the alleged breaches of the Constitution are not justiciable. It was accepted that the amended pleadings provided necessary particulars of the defamation alleged. 27In the result a case for dismissal of the proceedings for want of prosecution has not been established by the defendants. Nor has a case for striking out the proceedings, in so far as the personal defendants are concerned, been established. 28Nevertheless, it must be accepted that the price of the further amendment of [NAME_1]'s pleadings, must be an order in favour of the defendants as to the costs thrown away as a result. As a matter of justice, the cost consequences of his decisions not to pursue the original summons, the statement of claim, the amended statement of claim, or the earlier provided, but not filed version of the further amended statement of claim, but now to pursue his case on the basis of the latest version of that pleading, must lie with him.

The defendants' motions must be dismissed 29For the reasons already explained, the defendants' motions must be dismissed. While not all of the personal defendants are claimed to have responsibility for the alleged defamation, each of them are claimed to have acted in breach of the Association's Constitution, in so far as the resolution of the dispute over the goats is concerned. By operation of the Act, the Constitution constitutes a contract, both among the Association's members and between the Association and its members, with the result that their alleged breach of the Constitution is justiciable. 30That any damages which might be awarded in [NAME_1]'s favour are potentially small, was conceded. Of itself that is not a basis for dismissing the proceedings. The defendants urged that the question of proportionality should be considered, with the result that the proceedings should be dismissed. Reference was made to English authorities where such orders were made, albeit it was accepted that this was not a course yet taken by this Court under the Civil Procedure Act (see Schellenberg v British Broadcasting Corporation [2000] EMLR 296; Wallis v Valentine [2003] EMLR 8 and Jameel v Dow Jones & Co Inc [2005] QB 946). In Schellenberg the fact that even a single publication can result in real damage to reputation is discussed, as is the striking out power being exercised in only the clearest and most obvious cases. This is not such a case. 31Also to be considered is not only the need to ensure that costs are proportional, but also what is required by s 58, namely that in making any order or direction for the management of proceedings that 'the court must seek to act in accordance with the dictates of justice'. To dismiss [NAME_1]'s case against the personal defendants out of hand, would not accord with that obligation. 32That is good reason for concluding, however, that the defamation proceedings ought not to be heard together with the alleged breach of the Constitution. Before Slattery J, it was the parties' position that the argument about the Constitution could be put in about two hours. His Honour considered that the two aspects of the matter should be separated. That still seems sensible. The case in relation to the alleged breach of the Constitution may take a little longer now, given the need to explain the position about the Constitution, but it can still be dealt with more quickly and cheaply to the parties involved in that aspect of the case, than would be the position if the two aspects of the matter were dealt with together, in the defended proceedings. That may involve not only considerable delay, but possibly a jury trial. 33Consistently with the requirements of the Civil Procedure Act , this aspect of the claim will be referred to the Equity Registrar so that directions can be given as to what remains to be done to prepare it for hearing. The defamation claim must be returned to the defamation list. In my assessment, its hearing should probably await determination of the claim as to the alleged breach of the Constitution. It may well be that resolution of that aspect of the proceedings, will shed light on how the balance of the claims should be advanced. That will be a matter for the defamation list judge to determine. 34It follows that the defendants' motions must be dismissed with the usual order for costs in favour of [NAME_1].

Orders 35For the reasons given, I make the following orders:

3. The defendants' motions are dismissed.

6. Direct that the matter be listed in the Equity Registrar's List on 13 April 2012 and in the Defamation List on 7 May 2012.

********** 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: 16 March 2012