Hardy Bros (Earthmoving) Pty Ltd (in liq) & anor v Hardy Bros Civil Constructions Pty Ltd & ors

HIS HONOUR : The plaintiff seeks leave to further amend its statement of claim by filing a second further amended statement of claim in the form of a draft which has been provided and circulated. The substantive amendment involves the substitution – for an allegation in the existing pleading to the effect that the directors caused the company to make contributions to the Hardy International Superannuation Fund and, for that purpose, to borrow $2.35 million from the directors – the replacement allegation to the effect that documents were executed purporting to evidence such contributions and borrowings, without any explicit allegation as to whether or not such contributions and borrowings were, or were not, in fact made, which matter the proposed pleading leaves open.

As the defendants have argued, the proposed amended pleading is pregnant with an allegation that the purported contributions and borrowings were shams, though it does not expressly assert it. On the other hand, as the plaintiff submits, the question whether or not the contribution and borrowings were made goes to the quantum of the plaintiff’s claim for damages or compensation, rather than to a material fact in the causes of action on liability, and whether the contributions and borrowings were made has been put in issue by the accountants.

Notwithstanding the plaintiff’s submissions, I am unable to see how an allegation that documents were executed purporting to evidence a contribution, or that borrowings were purportedly made, goes anywhere or advances the plaintiff’s case in any material way in the absence of an allegation that the contribution or borrowings were in fact made or, alternatively, that they were not. To allege that they were purportedly made is to allege a matter of irrelevance. In the form in which it is presently proposed to amend paragraphs 12, 13, 14, 15, 16, 31A and 32(a) I would regard those allegations as embarrassing.

However, from the plaintiff’s written submissions, it appears clear enough that the plaintiff eschews any case of sham, and advances as its primary case that the contributions and the borrowings were made; but, conscious of the circumstance that the accountants do not admit those allegations, wishes to guard against the possibility that it may fail to make those allegations good, and against that contingency wishes to allege, in the alternative, that – in the event that it fails to prove that the contributions and borrowings were made – then, while that would reduce its damages on the superannuation fund claim against the accountants, it may correspondingly may increase its damages on the restructure claim against the directors and the accessorial liability claim against the accountants.

In the interests of the just, quick and cheap resolution of the real issues in dispute in these proceedings, some middle ground – which avoids the embarrassing aspects of the present proposed amendment, but allows the plaintiff to plead a clearly structured alternative case – can be achieved by the following course.

I will refuse leave to amend paragraphs 12, 13, 14, 15, 16, 31A and 32(a) as proposed in the draft second further amended statement of claim.

I would grant leave to amend in accordance with proposed paragraph 37B as proposed in the draft, subject to omitting the word “purported” from the second and fifth lines of that paragraph.

I would grant leave to amend, by inserting a paragraph 37C, not in the form of the proposed draft but in the following form: Alternatively to paragraph 16, if Hardy Bros (Earthmoving) did not borrow $2.35 million from the directors as alleged in paragraph 16, then the assets were transferred to the partnership for an additional under value equivalent to that amount, namely, $2.35 million.

I would grant leave to amend paragraph 48(b), in the form proposed except substituting for the words “if the court finds that” to the end of the proposed new matter, the words: If Hardy Bros (Earthmoving) did not borrow the $2.35 million from the directors as alleged in paragraph 16…

I would grant leave to amend paragraph 50(c), as proposed except substituting for “If the court finds ... reorganisation agreement” instead the words: If Hardy Bros (Earthmoving) did not borrow $2.35 million from the directors as alleged in paragraph 16…

I would grant leave to amend paragraph 53B(d), as proposed except substituting for “If the court finds that ... reorganisation agreement”, instead the words: If Hardy Bros (Earthmoving) did not borrow $2.35 million from the directors as alleged in paragraph 16…

I would grant leave to amend paragraph 54 by inserting a new sub paragraph (a1), as proposed except substituting for “If the court finds ... reorganisation agreement” instead: If Hardy Bros (Earthmoving) did not borrow $2.35 million from the directors as alleged in paragraph 16…

In that respect, I have not overlooked Mr Dick’s submission that there is still implicit in this an allegation of sham or fraud. I do not agree. The allegation is simply that, if the loans were not made, then that is something that the accountants knew or, in the course of the performance of their duties as accountants, ought to have ascertained at the relevant time. No allegation of fraud is inherent in that assertion.

So far as concerns those proposed amendments in the draft second further amended statement of claim to which I have not specifically referred, I grant leave to amend in accordance with the draft.

I order that the plaintiff pay the costs thrown away by the amendment, and of the application for leave to amend.

I direct that an engrossed version of the second further amended statement of claim be filed and served by 4 July 2008.

I reserve liberty to the Hardy defendants to apply for leave to further amend the first cross claim. I direct that, in the event that the Hardy defendants are minded to seek such leave to amend, a draft of their proposed amended first cross claim be served on the other parties by 11 July 2008, and any application be made by arrangement with my Associate not later than 18 July 2008.